The Power of Context in B2B Buying, and What That Means for Marketers

The context in which people consider buying something has a significant impact on how the buying decision is made and on what is (or isn't) ultimately bought.

Hundreds of research studies conducted by cognitive scientists over the past four-plus decades have shown that contextual factors can affect everything from how we react to marketing messages and offers, to how we perceive specific products or services, to how we make buying decisions.

More recently, neuroscientists have used functional MRI technologies to identify the specific areas of the brain that are activated under various decision-making conditions. This research has confirmed that contextual factors can impact what areas of our brain are involved in making decisions.

Understanding the "buying context" is therefore vital for effective marketing. Context obviously affects how individuals make buying decisions, and I plan to address that topic in a future post.

In this post, I'll discuss how the buying context shapes the attributes of the B2B buying process, and I'll argue that most B2B companies need marketing strategies and programs for more than one type of buying process.

The Many "Flavors" of B2B Buying

Most of the research and published literature about B2B marketing has focused on "high-consideration" purchases that typically involve multiple decision-makers, complex decision-making processes, and lengthy buying cycles.

For example, in the 2022 B2B Buyer Behavior Survey by Demand Gen Report, 59% of the survey respondents said their average buying group included four or more individuals, and 23% said their average buying group contained seven people or more.

But, high-consideration purchases with large buying groups and long buying cycles have never represented all (or even most) B2B buying. In fact, many B2B purchases are routine, with buying decisions being made fairly quickly, often by one person.

The importance of buying scenarios that don't fit the high-consideration stereotype can be seen in the expanding role of B2B e-commerce and, more specifically, in the rapid growth of online B2B marketplaces.

Online B2B marketplaces have become the fastest-growing segment of a rapidly growing B2B e-commerce market. Digital Commerce 360 has estimated that online B2B marketplaces will produce $112 billion in sales in 2023, up 100% from sales of $56 billion in 2022.

Research has also shown that marketplaces and other B2B e-commerce channels are no longer just for low-ticket purchases. In a 2021 survey by McKinsey, 85% of business buyers said they are willing to spend $50,000 or more on a single purchase made via an e-commerce channel or other remote interactions, and 35% said they are willing to spend $500,000 or more.

The reality is, many B2B companies derive significant revenue from more than one type of buying situation, and these different buying scenarios require different marketing strategies and programs to produce maximum results. Therefore, identifying the buying scenarios that are relevant for your company should be an integral part of your go-to-market planning.

The Buying Context Shapes the Buying Process

The characteristics of a B2B buying process are largely dictated by the context in which a potential purchase is considered, as the following diagram illustrates.

The box on the left side of the diagram contains several factors that describe the context in which potential purchases are considered. One common denominator across most of these factors is that they capture the level of risk associated with a prospective purchase. In this case, "risk" includes both risk for the buying organization and professional risk for the individuals participating in the purchase decision.

For example, buyers will likely perceive a high level of risk if they aren't familiar with a product or service, or if the product or service has a high level of strategic importance for their company.

The box on the right side of the diagram describes the major attributes of the buying process. These include the size and composition of the buying group, the length of the buying cycle, the volume and nature of the activities performed in the buying process, and the use of formal procurement processes.

As the perceived risk associated with a proposed purchase increases, buyers will take steps to mitigate that risk, and these steps will largely dictate the attributes of the buying process that's used.

As a result, the buying process used for a high-risk purchase will usually involve more people, include more research activities, and require more time to finish than the process used for a low-risk purchase.

Not all contextual factors are directly linked to perceived risk. For example, the explicit functional goals and the implicit psychological and emotional goals of the individuals involved in making the purchase decision will also affect the attributes of the buying process. I'll have more to say about this topic in my next post on context effects.

The bottom line is that marketers need to understand the "buying contexts" that are relevant for their company and develop marketing programs that will fit each of these buying scenarios.

Top image courtesy of Lukas Koster via Flickr (CC).

[Book Review] A Must-Read Explanation of the Science Behind Why People Buy

Source:  John Wiley & Sons

The most basic goal of marketing is to influence customer buying behaviors, so understanding why customers buy is essential for successful marketing. A new edition of Decoded:  The Science Behind Why We Buy, 2nd Edition (John Wiley & Sons, 2022) by Phil Barden provides a wealth of science-based insights on this critical aspect of human behavior.

Phil Barden is the Managing Director UK of DECODE Marketing, a consultancy that combines hands-on brand management experience with cutting-edge capabilities in cognitive and social psychology, neuroscience, and behavioral economics. Barden has over 25 years of marketing experience, having held senior positions at companies such as Unilever, Diageo, and T-Mobile.

In January of this year, I wrote that marketing success in 2023 and beyond would depend on marketers' ability to leverage the capabilities of technology and data science and effectively apply behavioral science principles that describe how people make decisions. Decoded is one of several books that address the vital psychological aspects of marketing.

What's In the Book

The main theme of Decoded is that advances over the past several years in the decision sciences have significantly increased our understanding of human decision-making and behavior, and thus enabled a more science-based approach to marketing.

Phil Barden clearly states his objective for the book in the preface, where he writes:

"The goal of this book is to share what I have learned on my journey about bringing decision science to life for marketing . . . We now have a framework, a language, and a growing body of knowledge to enable marketers to address the real drivers of brand choice . . . I want to empower the reader to harness this valuable knowledge and apply it to everyday marketing work."

Barden uses the first two chapters of Decoded to introduce the core cognitive mechanisms that drive customer buying behaviors and discuss some of the implications of those mechanisms for marketing.

In Chapter 1, Barden describes Daniel Kahneman's model of human decision-making, which holds that people use two types of cognitive processes to make decisions.

• System 1 is fast, intuitive thinking that operates automatically, quickly, and with little or no conscious effort.

• System 2 is slow thinking that consists of processes that are reflective, controlled, deliberative, and analytical.

Barden embraces the Kahneman framework and uses it throughout Decoded. He refers to System 1 as an autopilot and calls System 2 a pilot. Barden describes several attributes of the autopilot that are particularly relevant for marketers, including how it processes information and the role it plays in framing our buying decisions.

In Chapter 2, Barden focuses on the "neuro-logic" of individual purchase decisions. Neuroscientists have shown that when we encounter a product or service we perceive to be valuable, an area of our brain known as the "reward center" is activated, which causes us to "want" the product or service. When we see or hear the price of a product or service, a different part of our brain is activated, the area that "fires" when we experience pain.

Therefore, whenever we face a potential purchase decision, our brain performs a type of cost-benefit analysis that weighs the potential reward (value) and the price. Barden writes, "Our brain calculates a kind of 'net value' and if this is high enough, if the difference between reward and pain is great enough, then we buy."

In the remaining chapters of Decoded, Barden covers several other attributes of customer buying behaviors that have important implications for marketers. He also explains how marketers can adapt their approach to marketing to take advantage of these buying behavior attributes. For example:

• How human perception works, and how marketers can use established rules of human perception to optimize marketing activities. (Chapter 3)

• How the architecture of the "decision interface" influences purchase decisions. (Chapter 4)

• The critical role of goals in customer buying decisions. (Chapter 5)

• How to effectively implement a marketing strategy based on decision science principles. (Chapter 6)

My Take

Back in February, I published a post that included brief descriptions of four books that I called "required reading for marketers who want to leverage behavioral science principles in their marketing efforts."

When I published that post, I hadn't yet read Decoded. If  I had, I would have included it in my required reading list.

Decoded is packed with valuable insights from beginning to end, which makes it a must-read for marketers. The book is particularly compelling because Phil Barden does an excellent job of connecting the sometimes arcane world of behavior science to pragmatic marketing issues and practices. Many of the examples he provides in the book involve real-world marketing situations.

Barden's writing is clear and engaging, but Decoded isn't a light read. The reality is, human decision-making is a complex, multifaceted phenomenon, and as Albert Einstein once said, "Things should be as simple as possible, but not simpler."

By now, most marketers are at least somewhat familiar with psychological concepts like "loss aversion" and "social proof," and many have heard or read about the power of defaults and other "nudges" to influence customer decisions.

The most important message of Decoded is that marketers have many opportunities to influence customer decision-making and buying behaviors, but success will require marketers to advance their understanding of human psychology and keep up-to-date on developments in neuroscience.

[Research Round-Up] Where AI In Marketing Stands In Mid-2023

(This month's Research Round-Up discusses two recent surveys that examine how marketers are using artificial intelligence in mid-2023. These surveys explore the extent of AI adoption in the marketing industry, the use cases and expected benefits of AI, and marketers' concerns and uncertainties about AI.)

Source:  Marketing AI Institute/Drift

2023 State of Marketing AI Report by the Marketing AI Institute and Drift 

• 918 survey respondents, 61% of whom were director-level or above
• 53% of the respondents were affiliated with B2B companies - another 35% said their company is both B2B and B2C
• Respondents represented over 20 industries - 41% worked in professional services or software
• 57% of respondents worked in companies with $10 million or less in revenue
• Survey conducted between April 26 and July 12, 2023

As expected, this survey found that the adoption of AI in marketing is still in its early stages. When asked what "stage of AI transformation" best described their marketing team, most respondents (58%) selected understanding - learning how AI works and exploring its applications and potential value.

Almost two-thirds of the respondents (64%) said that AI will be very important or critically important to the success of their marketing over the next 12 months. That was up from 51% of respondents in the 2022 edition of the survey.

Nearly all of the respondents (98%) said they personally use AI tools in some way.

When asked what their organization is interested in achieving with AI, the top four outcomes selected by respondents were:

• Reduce time spent on repetitive, data-driven tasks - 77%
• Unlock greater value from marketing technologies - 62%
• Generate greater ROI on campaigns - 61%
• Accelerate revenue growth - 60%

When asked about the barriers they faced when it came to the adoption of AI in marketing, the four most frequently selected barriers were:

• Lack of education and training - 64%
• Lack of awareness or understanding - 56%
• Lack of strategy - 44%
• Lack of talent with the right skill sets - 38%

It's important to note that this survey does not claim to be based on a representative sample of marketers. The author(s) of the report included the following statement in the description of the survey methodology.

"The survey was primarily promoted via the Marketing AI Institute website, newsletter, podcast, and webinars, so it is possible that respondents, who have shown a predisposition to AI content and information, may have higher awareness and adoption levels of AI than the broader industry."

Source:  The Conference Board

AI in Marketing & Communications:  Boosting Productivity - and Creativity, Too? by The Conference Board in collaboration with Ragan Communications 

• An online survey of marketing and communications professionals
• 287 respondents
• 36% of the respondents were vice president-level or above
• Survey conducted from June 1 to June 23, 2023

As noted above, this survey included both marketers and communications professionals, and the survey report provides separate response data for those two cohorts in some instances. The survey report also provides separate response data for "senior" respondents (VP-level and above) and "mid-level/junior" respondents (all others).

The survey found that most marketers (68%) are using AI in their daily work. Forty-eight percent of the marketer respondents reported using AI in their daily work sometimes, while another 20% said often or all the time.

As might be expected, mid-level and junior marketers were more likely to be using AI than senior marketers. Seventy-two percent of mid-level and junior marketers reported using AI in their daily work, while the percentage for senior marketers was 64%.

Most of the current uses of AI by marketers related to improving productivity, although content personalization was also popular. The five uses of AI most frequently selected by marketer respondents were:

• Summarize content - 44%
• Do the legwork/inspire thinking - 41%
• Personalize customer/user content - 33%
• Produce content faster - 30%
• Content research - 30%

When asked about their biggest challenges and/or concerns related to the use of AI, the four challenges/concerns most frequently selected by marketer respondents were:

• Lack of accuracy/misinformation - 68%
• Legal uncertainties - 62%
• Data security and privacy - 57%
• Reputational risk/erosion of trust - 49%

Lastly, the survey found that informal self-education is the dominant way that marketers learn about AI. Marketer respondents said they have learned about how to use AI by:

• Reading articles and/or watching videos - 81%
• Exploring it on their own time - 76%
• Talking with colleagues, friends, or others with AI knowledge - 73%
• Exploring it during work time - 65%

Where to Find Revenue Growth Opportunities

For the past several years, I've written a few posts each fall that address some aspect of marketing planning. With the fourth quarter of 2023 beginning today, many marketers will have started (or soon will be starting) their planning for 2024.

Last week's post discussed how marketers can use the jobs-to-be-done framework to define their market and determine how their products or services create value for customers. This framework helps marketers pinpoint what will motivate their customers to buy.

The following post describes a framework marketers can use to identify what sources of revenue growth are (or can be) available to them. Identifying sources of potential revenue growth is an essential part of a sound planning process.

I published this post in 2019, but the content of the post is as relevant today as it was four years ago. What follows is a lightly edited version of the original post.

The Original Post

Driving consistent, profitable revenue growth is one of the greatest challenges that business and marketing leaders face. The key word in that sentence is "consistent." Many companies can produce substantial revenue growth sporadically or over a short period of time, but it's exceptionally difficult to consistently generate above-average growth over the long term.

Business and marketing leaders must perform two distinct but related tasks to maximize revenue growth:

1. They must identify what growth opportunities are (or can be) available to them and determine which of those growth opportunities are most attractive.
2. They must find the right balance between short-term and long-term growth opportunities.

In this post, I'll focus on how business and marketing leaders can identify growth opportunities.

Structural Sources of Growth

The first step in identifying potential growth opportunities is to understand the dynamics of revenue growth - how it happens or, more accurately, where it originates. There are, in fact, several distinct sources of growth. These structural sources of growth are not dependent on how a company is organized or on the types of products or services it sells. Instead, they are based on the business and marketing strategies that a company uses to tap into each source.

This topic has been discussed in management and marketing literature for a long time. In a 1957 article for the Harvard Business Review, Igor Ansoff identified four structural sources of growth and four related types of growth strategies:

1. Sales of existing products in existing markets (market penetration strategy)
2. Sales of existing products in new markets (market development strategy)
3. Sales of new products in existing markets (product development strategy)
4. Sales of new products in new markets (diversification strategy)

In a 2004 article in the Harvard Business Review, Michael Treacy and Jim Sims identified five structural sources of growth:

1. Continuing sales to existing customers (base retention)
2. Sales won from the competition (market share gain)
3. New sales in an expanding market (market positioning)
4. Sales from expanding into related markets (adjacent market expansion)
5. Sales from expanding into new, unrelated lines of business (diversification)

I've used both of these models when working with clients to frame our discussions about how to grow. But over the years, I've expanded on these models to create a more detailed framework of the alternative ways to generate growth. The current version of my framework is shown in the following diagram.

This framework is a good tool for stimulating your thinking about how to grow your business and for identifying the growth opportunities that are (or can be) available to your business. When using this framework, it's important to keep several things in mind.

First, the good news is that these structural sources of growth are always present, at least to some degree. Their existence isn't dependent on the market conditions a company is facing at a particular moment in time. However, the volume of revenue that a company can obtain from each source is greatly influenced by the market and competitive environment. 

So the framework identifies potential sources of revenue growth, but it doesn't tell you about the relative attractiveness of those sources. You'll need to use traditional market and competitive analysis tools and techniques to perform that evaluation.

Second, no single source of growth is likely to provide all the revenue you need to reach your growth objective.

And third, each source of growth has distinctive attributes and dynamics. So you'll need a specific strategy and game plan for each source of growth you choose to pursue.

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Top image courtesy of ccPixs.com (CC).