ORGANIZATIONAL MARKETS AND BUYER BEHAVIOR

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS

Business Marketing	Marketing of goods and services to commercial enterprises, governments, and other profit and not-for-profit organizations for use in the creation of goods and services that they market to other businesses, individuals and ultimate consumers. More than half of all U.S. business school graduates take jobs in firms that engage in business marketing.
Organizational Buyers	Manufacturers Wholesalers Retailers Government agencies	Buy goods and services for their own use or for resale.
Organizational Market Divisions
Industrial Markets	Reprocess a product or service they buy before selling it again to the next buyer. The industrial markets include over 11 million firms, 26% selling physical products and 73% selling diverse services.
Reseller Markets	Wholesalers and retailers who buy physical products and resell them again without any reprocessing. 1.6 million retailers in the U.S. 521,000 wholesalers in the U.S.
Government Markets	Federal, state, and local agencies that buy goods and services for the constituents they serve. 88,000 government units in the U.S.
Global Organizational Markets	The largest U.S. exporting industries focus on organizational customers, not ultimate consumers. The majority of world trade involves manufacturers, resellers, and government agencies

MEASURING DOMESTIC AND GLOBAL INDUSTRIAL, RESELLER, AND GOVERNMENT MARKETS

The North American Industry Classification System (NAICS)

Provides a common industry classification system for the NAFTA partners.
A valuable tool for business marketers in analyzing, segmenting, and targeting markets.
A detailed, U.S. government numbering system to classify business and government organizations by economic activity.
Industries and sub-industries are identified by numeric codes.
Information about businesses is gathered by the federal government and categorized by NAISC code.
Link To NAICS DATA

Facilitates the measurement of economic activity in NAFTA.
Consistent with the International Standard Industrial Classification of All Economic Activity, published by the United Nations to facilitate measurements of global activity.
NAICS groups economic activity to permit studies of market share, demand for goods and services, import competition in domestic markets, and similar data.

CHARACTERISTICS OF ORGANIZATIONAL BUYING

Derived demand

Demand for industrial products and services is driven by, or derived from, demand for consumer products and services.

Size of the Order or Purchase

much larger than that in consumer buying.

purchasing policies or procedures
constraints on buyers.

Competitive bids
Participants in the purchase decision
Time required for a purchase agreement.

Number of Potential Buyers Firms

far fewer buyers.

Organizational Buying Objectives

For business firms, the buying objective is usually to increase profits by reducing costs or increasing revenues.
For nonprofit firms and government agencies the objectives are usually to meet the needs of the groups they serve.

Organizational Buying Criteria

Price.
Ability to meet the quality specifications required for the item.
Ability to meet required delivery schedules.
Technical capability.
Warranties and claim policies in the event of poor performance.
Past performance on previous contracts.
Production facilities and capacity.

ISO 9000 standards

Developed by the International Standards Organization (ISO) in Geneva, Switzerland,
Standards for registration and certification of a manufacturer’s quality management and assurance system
based on an on-site audit of practices and procedures

Reverse marketing,

Transforming and communicating buying criteria into specific requirements
Building relationships that shape suppliers to fit a buyer's needs and those of its customers.

Buyer-Seller Relationships and Supply Partnerships

Relationships

Usually long-term relationships between industrial buyers and sellers.
Sometimes these relationships lead to reciprocal arrangements

Reciprocity

Two organizations agree to purchase each other's products and services.
The U.S. Justice Department frowns on reciprocal buying because it restricts the normal operation of the free market

supply partnership

Buyer and its supplier adopt mutually beneficial
- objectives,
- policies, and
- procedures
for the purpose of
- lowering the cost and/or
- increasing the value
of products and services delivered to the ultimate consumer.

The Buying Center

Cross-Functional Group

individuals sharing common goals, risks, and knowledge important to a purchase decision.
In large multistore chains, the buying center is highly formalized and is called a buying committee.
A firm marketing to many industrial firms and government units needs to understand the structure, technical and business functions represented, and behavior of these groups

People in the Buying Center

Composition depends on the item being bought.
A buyer or purchasing manager is almost always a member;
individuals from other functional areas are included depending on the purchase.

Users	people in the organization who actually use the product or service.
Influencers	affect the buying decision, usually by helping define the specifications for what is bought.
Buyers	have the formal authority and responsibility to select the supplier and negotiate the terms of the contract.
Deciders	have the formal or informal power to select or approve the supplier that receives the contract.
Gatekeepers	control the flow of information to other members of the buying center.

Straight Rebuy	Buyer reorders an existing product or service from the list of acceptable suppliers.	Buying Situations
Modified Rebuy	Users, influencers, or deciders in the buying center want to change the product specifications, price, delivery schedule, or supplier.
New Buy	Organization is a first-time buyer of the product or service. This involves greater risks, so the buying center is enlarged to include all who have a stake in the new buy.

CHARTING THE ORGANIZATIONAL BUYING PROCESS

Organizational buying behavior

Decision-making process that organizations use
- to establish the need for products and services
- to and identify, evaluate, and choose among alternative brands and suppliers.

Stages in the Organizational Buying Process

Same five stages as the consumer buying decision process
Key differences, illustrated by the decision-making process for a complex product, machine vision systems.

Example: Buying a Machine Vision System

The purchase of components and assemblies for machine vision systems produced by the Industrial Automation Division of a firm such as Siemans

Problem Recognition	Sales engineers canvass industrial automation equipment users to identify potential applications of machine vision technology. After a contract is identified, project personnel must often make a make-buy decision, an evaluation of whether components and assemblies will be purchased from outside suppliers or built by Siemans.
Information Search	Companies such as Siemans employ a sophisticated process for identifying outside suppliers of components and assemblies Prenegotiating price, quality, delivery time. Value Analysis – a systematic appraisal of the design, quality, and performance of a product to reduce purchasing costs.
Alternative Evaluation	Three main buying criteria are used to select suppliers: price, performance delivery. Typically, two or three suppliers for each component and assembly are identified These suppliers are sent a quotation or bid request.
Purchase Decision	After bids for components and assemblies are submitted, further negotiation concerning price, performance, and delivery terms is likely. Sometimes two or more suppliers might be awarded contracts when large orders are requested. Suppliers who are not chosen are informed why their bids were not selected.
Postpurchase	Behavior Companies such as Siemans employ a formalized and sophisticated process for evaluating suppliers and products. A supplier may be dropped from the bidder’s list if its performance does not meet expectations.
Four lessons for organizational marketers	Understand the organization’s needs. Get on the right bidder’s list. Find the right people in the buying center. Provide value to organizational buyers.

ONLINE BUYING IN ORGANIZATIONAL MARKETS
Organizational buyers account for 80% of the total worldwide value of all online transactions. Projected that online organizational buyers around the world will spend $6 to $7.5 trillion by 2005. U.S. organizational buyers will account for about 60% of these purchases.
Prominence of Online Buying in Organizational Markets
Prominent for three major reasons	Technology provides timely supplier information product availability technical specifications application uses price delivery schedules. Technology substantially reduces buyer order processing costs. Technology can reduce marketing costs, particularly sales and advertising expense, and broaden their potential customer base for many types of products and services.
E-Marketplaces: Virtual Organizational Markets
e-marketplaces	bring together buyers and supplier organizations. make possible the real-time exchange of information, money, products, and services Variety of names B2B exchanges e-hubs
Independent e-marketplaces	charge a fee for service Small business use to expand customer base Exist in settings that have one or more of the following features Thousands of geographically dispersed buyers and sellers. Volatile prices caused by demand and supply fluctuations. Time sensitivity due to perishable offerings and changing technologies. Easily comparable offerings from a variety of suppliers.
private exchanges	Link large companies them with their network of qualified suppliers and customers. They are not a neutral third party, but represent the interests of their owners
Online Auctions
Traditional auction	Seller puts an item up for sale Buyers bid in competition. As bidders increase, there is upward pressure on price. Auction ends when a single bidder remains

Reverse auction	Buyer communicates a need for a product or service Suppliers bid in competition As suppliers increase there is downward pressure on price Auction ends when a single bidder.