Business markets

Marketing in businesses is different to marketing to consumers, although many of the techniques, such as branding,

can be transferred successfully.

In particular, business-to-business markets (B2B) are more focused oncustomer relationships than is normally true for

consumer markets.Business vs consumer markets

To help explain the differences between business and consumer markets, It is worth drawing some comparisons

between the two.

Consumer Business

Every customer has equal value and represents a small % of revenue

There are a small number of big customers that account for a large % of revenue

Sales are made remotely, the manufacturer doesn't meet the customer

Sales are made personally, the manufacturer gets to know the customer

Products are the same for all customers. The service element is low

Products are customised for different customers. Service is highly valued

Purchases are made for personal use - image is important for its own sake

Purchases are made for others to use - image is important where it adds value to customers

The purchaser is normally the user The purchaser is normally an integrator, someone down the supply chain is the user.

Costs are restricted to purchase costs Purchase costs may be a small part of the total costs of use

The purchase event is not subject to tender and negotiation

The purchase event is conducted professionally and includes tender and negotiation.

The exchange is one off transaction. There is no long-time view (financial services differ)

The exchange is often one of strategic intent. There is the potential for long term value

For both consumer and B2B markets, the foundation of marketing is based on knowing your customers. However, in

consumer markets, the customer is remote, at arms length from you, and consequently you use mass communication

and distribution tools.

In B2B the customer is much closer. You have far more knowledge of the customer through personal contacts,

although this knowledge is typically ad hoc in nature and may be partial.For a consumer market, the product and its

packaging are of greatest importance to the customer in the marketing mix.

For B2B markets, although product quality is important, this has to be matched by quality of supply - delivering the

product when it is needed, account service and support, and strategic flexibility within the relationship context.

These supply chain elements may have more say in winning order than having a perfect product. This is not

surprising as any supply chain problems create costs for the customer (eg stock, machine downtime, lost orders)

Because supply chain is often seen as logistical function in B2B markets, the role of marketing is limited to a role of

creating promotional materials, attending exhibitions and running seminars. In these circumstances marketing may

have no strategic role in the business and be operating purely as a printing and publishing outfit.

Ideally marketing needs to be heavily involved with the customer and in fact marketing in a B2B context is often

referred to as delivering not just for your customer, but for your customer's customer. By taking a whole chain

view, it can be possible to identify downstream opportunities for additional revenue and opportunities to

use branding to stake out your position in the value chain.

Consumer behaviourConsumer behaviour is the study of when, why, how, and where people do or do not buy a product. It blends elements from psychology,sociology, social anthropology and economics. It attempts to understand the buyer decision making process, both individually and in groups. It studies characteristics of individual consumers such as demographics and behavioural variables in an attempt to understand people's wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general.

Black box model

ENVIRONMENTAL FACTORS BUYER'S BLACK BOX

BUYER'S

RESPONSEMarketing

Stimuli

Environmental

Stimuli

Buyer

CharacteristicsDecision Process

Product

Price

Place

Promotion

Economic

Technological

Political

Cultural

Demographic

Natural

Attitudes

Motivation

Perceptions

Personality

Lifestyle

Knowledge

Problem recognition

Information search

Alternative

evaluation

Purchase decision

Post-purchase

behaviour

Product choice

Brand choice

Dealer choice

Purchase timing

Purchase amount

The black box model shows the interaction of stimuli, consumer characteristics, decision process and

consumer responses.[1] It can be distinguished between interpersonal stimuli(between people) or

intrapersonal stimuli (within people).[2] The black box model is related to the black box

theory of behaviourism, where the focus is not set on the processes inside a consumer, but

the relation between the stimuli and the response of the consumer. The marketing stimuli are planned and

processed by the companies, whereas the environmental stimulus are given by social factors, based on

the economical, political and cultural circumstances of a society. The buyers black box contains the buyer

characteristics and the decision process, which determines the buyers response.

The black box model considers the buyers response as a result of a conscious, rational decision process,

in which it is assumed that the buyer has recognized the problem. However, in reality many decisions are

not made in awareness of a determined problem by the consumer.

Information search

Once the consumer has recognised a problem, they search for information on products and services that

can solve that problem. Belch and Belch (2007) explain that consumers undertake both an internal

(memory) and an external search.

Sources of information include:

Personal sources

Commercial sources

Public sources

Personal experience

The relevant internal psychological process that is associated with information search is perception.

Perception is defined as "the process by which an individual receives, selects, organises, and interprets

information to create a meaningful picture of the world".

The selective perception process

Stage Description

Selective exposure consumers select which promotional messages they will expose themselves to.

Selective attention consumers select which promotional messages they will pay attention to.

Selective comprehension consumer interpret messages in line with their beliefs, attitudes, motives

and experiences.

Selective retention consumers remember messages that are more meaningful or important to them.

The implications of this process help develop an effective promotional strategy, and select which sources

of information are more effective for the brand.

Information evaluation

At this time the consumer compares the brands and products that are in their evoked set. How can the

marketing organization increase the likelihood that their brand is part of the consumer's evoked

(consideration) set? Consumers evaluate alternatives in terms of the functional and psychological benefits

that they offer. The marketing organization needs to understand what benefits consumers are seeking

and therefore which attributes are most important in terms of making a decision. It also needs to check

other brands of the customer’s consideration set to prepare the right plan for its own brand.

Purchase decision

Once the alternatives have been evaluated, the consumer is ready to make a purchase decision.

Sometimes purchase intention does not result in an actual purchase. The marketing organization must

facilitate the consumer to act on their purchase intention. The organization can use a variety of

techniques to achieve this. The provision of credit or payment terms may encourage purchase, or a sales

promotion such as the opportunity to receive a premium or enter a competition may provide an incentive

to buy now. The relevant internal psychological process that is associated with purchase decision is

integration. Once the integration is achieved, the organization can influence the purchase decisions much

more easily.

Postpurchase evaluation

The EKB model was further developed by Rice (1993) which suggested there should be a feedback loop,

Foxall (2005) further suggests the importance of the post purchase evaluation and that the post purchase

evaluation is key due to its influences on future purchase patterns.

Internal influences

Consumer behaviour is influenced by: demographics, psychographics (lifestyle), personality, motivation,

knowledge, attitudes, beliefs, and feelings.

External influences

Consumer behaviour is influenced by: culture, sub-culture, locality, royalty, ethnicity, family, social class,

past experience reference groups, lifestyle, market mix factors

Defining Consumer BehaviorWhat is Consumer Behavior?

How many times throughout the day do people make product decisions? If you stop to think about it, many product decisions are made every day, some without much thought. What should I wear? What should I eat? What am I going to do today? Many product decisions are answered routinely every day and they help move the economy of cities, countries and ultimately the world.

Product decisions also shape life for the consumer. How can simple decisions be so important? Why do marketers spend millions of dollars to uncover the reasons behind these decisions?

To define consumer behavior: it is the study of consumers and the processes they use to choose, use (consume), and dispose of products and services. A more in depth definition will also include how that process impacts the world. Consumer behavior incorporates ideas from several sciences including psychology, biology, chemistry and economics.

"All marketing decisions are based on assumptions and knowledge of consumer behavior," (Hawkins and Mothersbaugh, 2007). Researching consumer behavior is a complex process, but understanding consumer behavior is critical to marketers-they can use it to:

Provide value and customer satisfaction.

Effectively target customers.

Enhance the value of the company.

Improve products and services.

Create a competitive advantage

Understand how customers view their products versus their competitors' products.

Expand the knowledge base in the field of marketing,

Apply marketing strategies toward a positive affect on society (encourage people to support charities, promote healthy habits, reduce drug use etc.)

Consumers As Problem Solvers

Traditionally, consumer researchers have approached decision making process from a rational perspective. This dominant school of thought views consumers as being cognitive (i.e., problem-solving) and, to some but a lesser degree, emotional.i Such a view is reflected in the stage model of a typical buying process (often called the consumer information processing model) depicted in Figure 1.

Problem Recognition

Information Search

Evaluation and Selection of Alternatives

Decision Implementation

Post-purchase Evaluation

Figure 1 The Consumer Information Processing ModelSource: Adopted from Kotler (1997), Schiffman and Kanuk (1997), and Solomon (1996)

In this model, the consumer passes through five stages: problem recognition, information search, evaluation and selection of alternatives, decision implementation, and post-purchase evaluation.

Problem Recognition

In this information processing model, the consumer buying process begins when the buyer recognizes a problem or need. For example, Doug may realize that his best suit doesn’t look contemporary any more. Or, Kathleen may recognize that her personal computer is not performing as well as she thought it should. These are the kinds of problem that we as consumers encounter all the time. When we found out a difference between the actual state and a desired state, a problem is recognized. When we find a problem, we usually try to solve the problem. We, in other words, recognize the need to solve the problem. But how?

Information SearchWhen a consumer discovers a problem, he/she is likely to search for more information. Kathleen may simply pay more attention to product information of a personal computer. She becomes more attentive to computer ads, computers purchased by her friends, and peer conversations about computers. Or, she may more actively seek information by visiting stores, talking to friends, or reading computer magazines, among others. Through gathering information, the consumer learns more about some brands that compete in the market and their features and characteristics. Theoretically, there is a total set of brands available to Kathleen, but she will become aware of only a subset of the brands (awareness set) in the market. Some of these brands may satisfy her initial buying criteria, such as price and processing speed (consideration set). As Kathleen proceeds to more information search, only a few will remain as strong candidates (choice set).Evaluation and Selection of AlternativesHow does the consumer process competitive brand information and evaluate the value of the brands? Unfortunately there is no single, simple evaluation process applied by all consumers or by one consumer in all buying situations.Decision ImplementationTo actually implement the purchase decision, however, a consumer needs to select both specific items (brands) and specific outlets (where to buy) to resolve the problems. There are, in fact, three ways these decisions can be made: 1) simultaneously; 2) item first, outlet second; or 3) outlet first, item second.ii In many situations, consumers engage in a simultaneous selection process of storesiii and brands. For example, in our Kathleen’s personal computer case, she may select a set of brands based on both the product’s technical features (attributes) and availability of brands in the computer stores and mail-order catalogs she knows well. It is also possible, that she decides where to buy (e.g., CompUSA in her neighborhood) and then chooses one or two brands the store carries. Once the brand and outlet have been decided, the consumer moves on to the transaction (“buying”).Post-purchase EvaluationPost-purchase evaluation processes are directly influenced by the type of preceding decision-making process. Directly relevant here is the level of purchase involvement of the consumer. Purchase involvement is often referred to as “the level of concern for or interest in the purchase” iv situation, and it determines how extensively the consumer searches information in making a purchase decision.v Although purchase involvement is viewed as a continuum (from low to high), it is useful to consider two extreme cases here. Suppose one buys a certain brand of product (e.g., Diet Pepsi) as a matter of habit (habitual purchase). For him/her, buying a cola drink is a very low purchase involvement situation, and he/she is not likely to search and evaluate product information extensively. In such a case, the consumer would simply purchase,

consume and/or dispose of the product with very limited post-purchase evaluation, and generally maintain a high level of repeat purchase motivation (Figure 3).

Purchase Product UseSimple

EvaluationDisposition

Repeat PurchaseMotivation

Low Involvement PurchaseHowever, if the purchase involvement is high and the consumer is involved in extensive purchase decision making (e.g., personal computer), he/she is more likely to be involved in more elaborate post-purchase evaluation – often by questioning the rightness of the decision: “Did I make the right choice? Should I have gone with other brand?” This is a common reaction after making a difficult, complex, relatively permanent decision. This type of doubt and anxiety is referred to as post-purchase cognitive dissonance (Figure 4).

Purchase Product UseElaborate

EvaluationDisposition

Dissatisfaction

Repeat PurchaseMotivation

Post-purchaseDissonance

Figure 4 Elaborate Post-purchase EvaluationSource: Adopted from Hawkins, Best, and Coney (1983)

According to the research, the likelihood of experiencing this kind of dissonance and the magnitude of it is a function of:vi

The degree of commitment or irrevocability of the decision, The importance of the decision to the consumer, The difficulty of choosing among the alternatives, and The individual’s tendency to experience anxiety.

Because dissonance is uncomfortable, the consumer may use one or more of the following approaches to reduce it:vii

Increase the desirability of the brand purchased. Decrease the desirability of rejected alternatives. Decrease the importance of the purchase decision. Reject the negative data on the brand purchased.

If the dissonance about the purchase is not reduced, the anxiety may transform into a dissatisfaction (general or specific). Certainly, this negative experience leads to a new problem recognition (Figure 1), and the consumer will engage in another problem solving process. The difference, however, is that in the next round of process, memory of the previous negative experience and dissatisfaction will be used as part of information. Therefore, the probability for the unsatisfactory brand to be re-selected and repurchased will be significantly lower than before.

The Hierarchy of Effects

Another widely-used model in marketing that attempts to explain consumer decision making process is called the hierarchy of effects model. Although different researchers developed slightly different models, the basic idea is the same: people experience a sequence of psychological stages before purchasing a product. Such a model is provided in Figure 5. viii

Purchase

Conviction

Preference

Liking

Knowledge

Awareness

Unawareness

Figure 5 A General Model of the Hierarchy of EffectsOriginally conceived to explain how advertising affects consumer’s purchase decisions, the hierarchy of effects (HOE) model focuses on consumer learning that takes place as he/she processes information from the external world. The HOE model begins with the state where a consumer has no awareness about the brand (unaware) then develops awareness triggered by external stimuli, such as advertising message or “word of mouth.” As he/she obtains and processes more information, the consumer develops more specific knowledge about the brand. The knowledge, then, is used as basis to form a liking (or disliking), leading to a preference of brand(s) relative to the others. However, people need to be pushed beyond the preference stage to actually buy the brand of preference. The preference stage, after all, simply means that the consumer has formed a preference psychologically. Now it takes conviction for him/her before actually buying the brand.

The HOE model is quite similar to the consumer information processing model because it also assumes that people are cognitively driven, thinking information processors. Controversy exists,ix of course, as to whether that is necessarily true. Some may claim that they often form liking and preference (emotional response or feeling) toward brands before developing cognitive judgment (knowledge or thinking) on them. Others argue that people form preference and knowledge simultaneously. Although each argument has its own support, the general model (cognition first, preference second) seems to be valid especially in relatively complex – or high-involvement – decision making situations (e.g., cars, computers), providing a conceptual framework for thinking about the sequence of events which begins from the initial awareness to the final action (i.e., purchasing).

B u y e r b e h a v i o u r - T h e d e c i s i o n - m a k i n g p r o c e s s

This model is important for anyone making marketing decisions. It forces the marketer to consider the whole buying process rather than just the purchase decision (when it may be too late for a business to influence the choice!)

The model implies that customers pass through all stages in every purchase. However, in more routine purchases, customers often skip or reverse some of the stages.

For example, a student buying a favourite hamburger would recognise the need (hunger) and go right to the purchase decision, skipping information search and evaluation. However, the model is very useful when it comes to understanding any purchase that requires some thought and deliberation.

The buying process starts with need recognition. At this stage, the buyer recognises a problem or need (e.g. I am hungry, we need a new sofa, I have a headache) or responds to a marketing stimulus (e.g. you pass Starbucks and are attracted by the aroma of coffee and chocolate muffins).

An “aroused” customer then needs to decide how much information (if any) is required. If the need is strong and there is a product or service that meets the need close to hand, then a purchase decision is likely to be made there and then. If not, then the process of information search begins.

A customer can obtain information from several sources:

• Personal sources: family, friends, neighbours etc• Commercial sources: advertising; salespeople; retailers; dealers; packaging; point-of-sale displays• Public sources: newspapers, radio, television, consumer organisations; specialist magazines• Experiential sources: handling, examining, using the product

The usefulness and influence of these sources of information will vary by product and by customer. Research suggests that customers value and respect personal sources more than commercial sources (the influence of “word of mouth”). The challenge for the marketing team is to identify which information sources are most influential in their target markets.

In the evaluation stage, the customer must choose between the alternative brands, products and services.

How does the customer use the information obtained?

An important determinant of the extent of evaluation is whether the customer feels “involved” in the product. By involvement, we mean the degree of perceived relevance and personal importance that accompanies the choice.

Where a purchase is “highly involving”, the customer is likely to carry out extensive evaluation.

High-involvement purchases include those involving high expenditure or personal risk – for example buying a house, a car or making investments.

Low involvement purchases (e.g. buying a soft drink, choosing some breakfast cereals in the supermarket) have very simple evaluation processes.

Why should a marketer need to understand the customer evaluation process?

The answer lies in the kind of information that the marketing team needs to provide customers in different buying situations.

In high-involvement decisions, the marketer needs to provide a good deal of information about the positive consequences of buying. The sales force may need to stress the important attributes of the product, the advantages compared with the competition; and maybe even encourage “trial” or “sampling” of the product in the hope of securing the sale.

Post-purchase evaluation - Cognitive Dissonance

The final stage is the post-purchase evaluation of the decision. It is common for customers to experience concerns after making a purchase decision. This arises from a concept that is known as “cognitive dissonance”. The customer, having bought a product, may feel that an alternative would have been preferable. In these circumstances that customer will not repurchase immediately, but is likely to switch brands next time.

To manage the post-purchase stage, it is the job of the marketing team to persuade the potential customer that the product will satisfy his or her needs. Then after having made a purchase, the customer should be encouraged that he or she has made the right decision.

The main factors that influence buying behaviour are as follows

1.Economic factors:

Price

Income

Distribution of income

Competition with substitutes

Utility

Consumer preferences

2.Social factors:

Culture

Attitude of society

Social values

Life style

Personality

Size of family

Education

Health standards

3.Psychology

It decides the personality, taste, attitudes of individuals or groups, lifestyle, preferences especially on occasions like marriage. The demonstration influence is also dependent upon psychology of an individual.

4.Anthropology and Geography

Climate, region, history all affect consumer behaviour. In hot countries like India, certain products, which keep us cool like squashes, sarbats, are demanded, but they certainly have no demand in cold regions. The dress is also influenced by climate along with other factors. Culture is also influenced by climate.

5.Technology

In case of equipments, whether for consumer use or industrial use, is affected by technological innovations and features. But it is not confined to durable goods only.

Even in case of perishable goods the shelf life etc are determined by technological developments. Innovations and introduction of new products also depend upon technological change.6.Situational influences

Purchase task - who are you buying for?

Social surroundings - who are you shopping with?

Physical surroundings - where are you shopping?

Temporal factors - how much time do you have to shop?

Antecedent states -

What kind of mood are you in?

Have you just been paid?

Do you shop for status or self-gratification?

7.Others

This includes knowledge – technical or otherwise and information.Government decisions, laws, distribution policies have also big effect on consumer behaviour.

All these factors are studied by consumer behaviour scientists and then they decide what production and marketing strategy should be adopted to develop a particular product, change the existing product and what pricing and marketing mix should be used to attract more customers towards the product or service to optimize sales and profits.

MNC’s and few big companies have ignored except the consumer behaviour study in India. It is because till recently say upto the beginning of 90’s there was sellers market and anything could be sold. Therefore hardly any attention was paid to the consumer.

Major Types of Buying Situations1. New Task

A business buying situation in which the buyer purchases a product or service for the first time.

2. Modified Rebuy

A business buying situation in which the buyer wants to modify product specifications, prices, terms, or suppliers.

3. Straight Rebuy

A business buying situation in which the buyer routinely reorders something without any modifications.

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