how to print notes

ORGANIZATIONAL MARKETS AND BUYER BEHAVIOR

  1. THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS
    compare.gif (23763 bytes)
    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.
    types.gif (7742 bytes)
    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
    chap_06_01.gif (614890 bytes)

  2. 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.
    nasic.gif (457984 bytes)

  3. CHARACTERISTICS OF ORGANIZATIONAL BUYING
    characteristics.gif (915587 bytes)
    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.
    center.gif (11530 bytes)
    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
    situation.gif (24805 bytes)
    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.

  4. 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
    stages.gif (1046723 bytes)
    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
    1. Understand the organization’s needs.
    2. Get on the right bidder’s list.
    3. Find the right people in the buying center.
    4. Provide value to organizational buyers.

  5. 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
    1. Technology provides timely supplier information
      • product availability
      • technical specifications
      • application uses
      • price
      • delivery schedules.
    2. Technology substantially reduces buyer order processing costs.
    3. 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
      auctions.gif (537770 bytes)
    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.