Business-to-business marketing

Most people think of marketing in terms of consumer brands: soft drinks, phones and fashion. Yet the dollar volume of business markets is far larger than that of consumer markets. Before a single loaf of bread reaches a supermarket shelf, farmers have bought seed and equipment, millers have bought grain, bakeries have bought flour, ovens, packaging and software, and trucking firms have bought fuel and trailers. Each step is a business purchase. Business buyer behavior refers to the buying behavior of organizations that buy goods and services for use in producing other products and services or to resell or rent them to others at a profit, as well as of governments and institutions. This lesson explains how business markets differ, who takes part in business buying, how the buying process works and how marketers reach organizational buyers.

How business markets differ

Business markets resemble consumer markets in some ways: both involve people who assume buying roles and make decisions to satisfy needs. But they differ in market structure and demand, in the nature of the buying unit, and in the types of decisions and processes involved.

Business marketers usually deal with far fewer but far larger buyers. A tire maker selling to car manufacturers in North America faces a handful of customers, each buying millions of tires. Losing one account can be devastating, so relationships matter enormously. Business demand is also derived demand: it ultimately derives from the demand for consumer goods. Demand for steel depends on demand for cars, appliances and buildings. Smart business marketers therefore watch final consumer demand and sometimes market directly to end users, as when a chip maker advertises that its processors are inside a laptop or a fiber maker promotes its waterproof fabric in outdoor clothing.

Many business markets have inelastic demand in the short run: total demand for many business products is not much affected by price changes. A shoe maker will not buy much more leather if leather prices fall, unless lower costs lead to lower shoe prices and higher shoe sales. Business demand also tends to fluctuate more, and more quickly, than consumer demand. A small percentage change in consumer demand can cause a much larger change in demand for the equipment and materials needed to produce more, an effect economists call the accelerator principle.

Business purchases involve more buyers and more professional purchasing effort. Purchasing agents, procurement specialists and supply chain managers are trained to buy well, and large purchases often require detailed specifications, formal bids, written contracts and approval from several managers. The buyer and seller are often highly interdependent and work together over long periods, sometimes designing products jointly. Many firms practice supplier development, systematically building networks of partners to ensure a dependable supply.

Buying situations

Business buyers face three major types of buying situation. In a straight rebuy, the buyer reorders something without any modification, often routinely through the purchasing department; the incumbent supplier tries to maintain quality and service, while out-suppliers look for a way in. In a modified rebuy, the buyer wants to change product specifications, prices, terms or suppliers, which usually involves more people and gives out-suppliers an opportunity. In a new task situation, the buyer purchases something for the first time; the greater the cost or risk, the larger the number of decision participants and the more effort spent collecting information. New tasks are the marketer's greatest opportunity and challenge.

Many buyers prefer to buy a packaged solution from a single seller rather than buy separate products and services from several suppliers and assemble them. This is called systems selling or solutions selling. A hospital may prefer to buy an imaging system with installation, training, maintenance and software updates included rather than coordinate several vendors.

The buying center

The decision-making unit of a buying organization is called its buying center: all the individuals and units that play a role in the purchase decision-making process. It is not a fixed, formally identified unit; it changes with the purchase. Frederick Webster and Yoram Wind identified five roles.

The buying center concept presents a major marketing challenge. The business marketer must learn who participates in the decision, each participant's relative influence and what evaluation criteria each uses. Nurses care about comfort and ease of use, infection-control staff about cleanability, engineers about maintenance and the chief financial officer about lifetime cost. A sales presentation that speaks only to the buyer in procurement may miss the people whose views actually decide the outcome.

Influences on business buyers

Business buyers are subject to environmental, organizational, interpersonal and individual influences. Environmental factors include the economic outlook, supply conditions, technology, regulation and competition. Organizational factors include the firm's objectives, strategies, structure, systems and procurement policies; many organizations now require suppliers to meet sustainability, diversity or cybersecurity standards. Interpersonal factors involve the different interests, authority and persuasiveness of buying center members. Individual factors include each participant's age, education, job position, personality and attitude toward risk.

Although business buying is often described as rational, emotions play a real part. Buyers fear blame if a supplier fails. The old saying that 'nobody ever got fired for buying IBM' captures the appeal of a safe, well-known supplier. Strong business brands reduce perceived risk, which is why business-to-business firms invest in reputation, case studies, certifications and references from respected customers.

The business buying process

Patrick Robinson and colleagues described eight stages of the business buying process. A new task purchase usually goes through all of them; straight rebuys may skip several.

In supplier selection, buying centers often use a weighted scoring model similar to the consumer multi-attribute model in lesson 4. Typical criteria include product quality, price, delivery reliability, technical support, financial stability, reputation and sustainability performance. Because business purchases often involve years of use, sophisticated buyers look beyond purchase price to total cost of ownership (TCO): the purchase price plus installation, training, energy, maintenance, downtime and disposal, minus any resale value.

Reaching business buyers

Personal selling is the most important promotional tool in many business markets, because purchases are complex, large and negotiated. Lesson 11 discusses the sales process. Increasingly, though, business buyers do much of their research online before speaking to a salesperson, so business marketers invest heavily in websites, content marketing (white papers, webinars, case studies and calculators), search and professional social networks such as LinkedIn. Industry trade shows remain important for meeting many buyers and demonstrating equipment.

Account-based marketing (ABM) treats a small number of high-value target accounts as markets of one, coordinating marketing and sales efforts around each account's buying center with personalized content and outreach. ABM suits firms that sell large, complex solutions to a defined set of potential customers, such as enterprise software vendors or specialist engineering firms.

Business marketers often manage a sales pipeline, also called a funnel, in which prospects move from lead to qualified lead, opportunity, proposal and closed sale. Tracking conversion rates between stages lets managers forecast sales and see where deals stall. Software-as-a-service firms also watch customer acquisition cost (CAC) and how many months of gross margin it takes to recover it, the CAC payback period.

Institutional and government markets

The institutional market consists of schools, hospitals, nursing homes, prisons and other institutions that provide goods and services to people in their care. Institutions often have low budgets and captive patrons, so they may emphasize cost while still requiring quality and safety. Many buy through group purchasing organizations that pool the buying power of many members.

Government markets are large and follow strict rules designed to ensure fairness and value for public money. In the United States, federal opportunities are posted on SAM.gov, where vendors must also register, and purchases follow the Federal Acquisition Regulation. States, counties, cities and school districts have their own procurement rules and portals. Federal agencies have goals for contracting with small businesses and specific groups, and certain contracts are set aside for them. Government buyers typically require detailed documentation, may apply domestic-content rules such as the Buy American Act and award contracts on published evaluation criteria rather than relationships.

Selling to government requires patience and attention to detail. Bids that miss a mandatory requirement are usually rejected without evaluation, however good the product. Many firms start with smaller contracts, partner with established prime contractors or join standing offers and supply arrangements to build a record.