Analyzing Business Markets

7

What is Organizational Buying?

Organizational buying refers to the decision-making process

by which formal organizations establish the need for purchased

products and services,

and identify, evaluate, and choose among alternative brands and

suppliers.

Top Business Marketing Challenges

• Expand understanding of customer needs• Compete globally other countries reshape

markets• Master analytical tools and improve

quantitative skills• Reinstate innovation as an engine of growth• Create new organizational models and

linkages

Characteristics of Business Markets

• Fewer, larger buyers

• Close supplier-customer relationships

• Professional purchasing

• Many buying influences

• Multiple sales calls

• Derived demand (from consumer demand)

• Inelastic demand (not effected by price)

• Fluctuating demand• Geographically

concentrated buyers• Direct purchasing

Buying Situation

Straight rebuyStraight rebuy

Modified rebuyModified rebuy

New taskNew task

Buying SituationsStraight re-buy Modified re-buy New task

PD reorders on routine basis. Automatic reordering system to save time.

buyers wants to modify product spec., prices, delivery req. or other terms.

purchaser buys a product or service for the first time.

chooses from suppliers on an approved list

in-suppliers becomes nervous and out suppliers see an opportunity

More number of participants and great information need

Maintain product and service quality

The greater the cost or risk, the larger the gathering of info and therefore long time to take a decision.

‘out-suppliers” attempt to get in. first small and then bigger for order

Systems Buying and Selling

Turnkey solution desired;

bids solicited

Primecontractors

Second-tiercontractors

System subcomponents

assembled

Systems Buying and Selling

• System buying: buying a total solution to a problem from one seller.

• This practice originated with govt. purchases of major weapons and communication systems.

• The govt. would solicit bids from Prime contractors who assembled the package or system.

• The contractor who was awarded the contract would be responsible for bidding out and assembling the system’s subcomponents from second tier contractors.

• The prime contractor would thus provide a turnkey solution.

Participants in Business buying process - The Buying Center

InitiatorsInitiators

UsersUsers

InfluencersInfluencers

DecidersDeciders

ApproversApprovers

BuyersBuyers

GatekeepersGatekeepers

Participants in Business buying process - The Buying Center

• Initiators- Those who request that something be purchased. User or other in org.

• Users- Those who use the product or service

• Influencers- people who influence the buying decision • Deciders- people who decide on product requirements or on suppliers

• Approvers- people who authorize the proposed actions of deciders or buyers

• Buyers- people who play a role in selecting vendors and negotiating.

• Gatekeepers- people who have to power to prevent sellers or information from reaching the members of the buying center

Of Concern to Business Marketers

• Who are the major decision participants?

• What decisions do they influence?

• What is their level of influence?

• What evaluation criteria do they use?

Sales Strategies

Small Sellers

Large Sellers

Key Buying Influencers

MultilevelIn-depthSelling

Business marketers should review periodically their assumptions about buying participants

Target segment- 4 types of business customers

1. Price oriented customers (Transactional selling) – price is everything

-----------------------------------------2. Solution oriented customers

(consultative selling) want low prices but listen to lower total cost or more dependable supply or service

How to handle• Limiting the quantity that can

be purchased• No refunds, No adjustments• No services

------------------------------------------• Solutions to enhance

customer revenues. (ex. ITC e-choupal.)

• Solutions to decrease customer risks. (ex. ICI explosives- safer to quarries)

• Solutions to reduce customer costs. (ex. Tatas)

Target segment- 4 types of business customers

3. Gold standard customers (quality selling)

-----------------------------

4. Strategic value customers (enterprise selling)

• best performance in terms of quality, assistance, reliable delivery etc

------------------------------• want a fairly

permanent sole-supplier relationship

Purchase orientation1. Buying orientation 2. Procurement

orientation3. Supply Chain Management orientation

focus is short term and tactical.

Lowest Price for the gn quality and availability

Commoditization and multi-sourcing

• Simultaneously Seek quality improvement and cost reduction.

• develop collaborative relationship for cost reduction

• Early supplier involvement

• Long time contracts

• More strategic and value added operations

• purchase executives work with marketing and other company executive to build a seamless supply chain management system.

Upgrading the sales personnel to the caliber of the business buyers

Types of Purchasing process

1. Routine products 2. Leverage products

3. Strategic products 4. Bottleneck products

low value and cost to the customer; involve little risk

Ex: office supplies

high value and cost to the customer; involve little risk of supply

Ex: engine piston

high value and cost to the customer; involve high risk

Ex: Main frame computers. Strategic alliance- early supplier involvement, co-development programs and co-

investment.

low value and cost to the customer; involve some risk

ex: Spare parts. Require guaranteed steady supply of reliable products

Stages in the Buying Process: Buyphases

• Problem recognition• General need description• Product specification• Supplier search• Proposal solicitation• Supplier selection• Order-routine specification• Performance review

Buygrid Framework

Forms of Electronic Marketplaces

• Catalog sites• Vertical markets

• Pure play auction sites• Spot markets

• Private exchanges• Barter markets

• Buying alliances

B2B cyber buying bazaar• Catalog sites- order through electronic catalogs distributed by e-procurement

software, such as Grainger’s.

• Vertical markets- These are specialized web sites for buying industrial products. Ex: plastics.com

• Pure play auction sites: freemarkets.com provides online auctions for buyers and sellers of industrial parts, raw materials, commodities and services in over 50 product categories.

• Spot (or exchange) markets: On spot electronic market, prices change by the minute. Ex: ChemConnect.com.

• Private exchanges: HP, IBM and Walmart operate private exchanges to link with specially invited groups of suppliers and partners over the Web.

• Barter markets: Trade goods or services

• Buying alliances: Several companies buying the same goods join together to form purchasing consortia and gain deeper discounts on volume purchases (Transora, Covisint)

Vendor Analysis

Methods for Researching Customer Value

• Internal engineering assessment- company engineers use lab testing to estimate the performance

• Field value-in-use assessment – customers are interviewed about cost elements associated with using the new-product offering compared to an incumbent product.

• Focus-group value assessment – focus group are asked what value they would put on potential market offering

• Direct survey questions – customers are asked to place direct rupee value on one or more changes in the market offering

Methods for Researching Customer Value

• Conjoint analysis- customers are asked to rank their preference for alternative market offerings or concepts. The utility value is calculated for each attribute.

• Benchmarks: Customers are shown a benchmark offering and a new market offering. They are asked how much more/less they would pay for the new offering if certain features are added/removed from the benchmark offering.

• Compositional approach: Customers are asked to attach a monetary

value to each of three alternative levels of a given attribute. This is repeated for other attributes. The values are then added together for any offer configuration.

• Importance ratings: Customers are asked to rate the importance of different attributes and the suppliers firms’ performance on these attributes.

Order Routine Specification

Advantage for lessee

1. Conserving capital

2. Getting latest products

3. receiving better service

4. tax advantage

Advantage for lessor

1. Larger net income

Many industrial buyers lease heavy equipment like machinery and trucks

Order Routine Specification

1. Stockless

purchase plans

2. Vendor-managed

inventory

3. Continuous

replenishment

•Blanket contracts or SPP – long term contracts, re supplies whenever needed at agreed upon prices over a specific period of time

The customers enter order directly on the computer, and these orders are automatically transmitted to the suppliers system.

Some companies shift the ordering responsibility to the supplier i.e. is managed by the vendors

The vendors are privy the customers inventory level and takes responsibility to replenish it automatically through continuous replenishment

Order Routine Specification

• OTIFNE signifies three desirable outcome of a B-B transaction

• OT- deliver on time (80%)

• IF – in full (90%)

• NE –No error(70%)

• All 3 matters OT- deliver on time

• (80%)x (90%) x(70%)=50%

Trust Dimensions

Transparent

Product/ServiceQuality

Incentive

Partnering

Cooperating Design

Product Comparison

Supply Chain

Pervasive Advocacy

Managing B to B customer relationships

• Strong bonds and relationships between firms depend on their perceived credibility

• Corporate credibility refers to the extent to which customers believe that firm can design and deliver products and services that satisfy their needs and wants.

• CC relates to the reputation that a firm has achieved in the market place and is the foundation for a strong relationship.

• CC depends on 3 factors

Establishing Corporate Trust and Credibility

Expertise

LikeabilityTrustworthiness

The extent to which a company is seen as able to make and sell products or conduct services

The extent to which a company is seen as Motivated to be honest, dependable and sensitive Customer need

The extent to which a companyIs seen as likable, attractive, prestigious and so on

Factors Affecting Buyer-Supplier Relationships

Availability of alternatives

Supply marketdynamism

Complexity ofsupply

Importance ofsupply

Based on the four factors Buyer-Seller Relationships are categorized

1. Basic buying and selling – relatively simple, routine exchanges with moderately high level of cooperation and information exchange

2. Bare bones – same as previous, but more adaptation by the seller and less cooperation and information exchange.

3. Contractual transaction – generally low levels of trust, co-operation and interaction; exchange is defined by formal contract

4. Customer supply – traditional custom supply situation where competition rather than cooperation is the dominant form of governance

5. Cooperative systems – although coupled closely in operational ways, neither party demonstrates structural commitment through legal means or adaptation approaches

6. Collaborative – much trust and commitment leading to true partnership

7. Mutually adaptive – much relationship-specific adaptation for buyer and seller, but without necessarily strong trust or cooperation

8. Customer is king- although bonded by a close, cooperative relationship, the seller adapts to meet the customer’s need without expecting much adaptation or change on the part of the customer in exchange

Based on the four factors Buyer-Seller Relationships are categorized

1. Basic buying and selling – relatively simple, routine exchanges with moderately high level of cooperation and information exchange

2. Bare bones – same as previous, but more adaptation by the seller and less cooperation and information exchange.

3. Contractual transaction – generally low levels of trust, co-operation and interaction; exchange is defined by formal contract

4. Customer supply – traditional custom supply situation where competition rather than cooperation is the dominant form of governance

Based on the four factors Buyer-Seller Relationships are categorized

5. Cooperative systems – although coupled closely in operational ways, neither party demonstrates structural commitment through legal means or adaptation approaches

6. Collaborative – much trust and commitment leading to true partnership

8. Mutually adaptive – much relationship-specific adaptation for buyer and seller, but without necessarily strong trust or cooperation

9. Customer is king- although bonded by a close, cooperative relationship, the seller adapts to meet the customer’s need without expecting much adaptation or change on the part of the customer in exchange

What is Opportunism?

Opportunism is some form of cheating or undersupply relative to

an implicit or explicit contract.

That is, when a buyer cannot monitor the supplier performance

the supplier might shirk or cheat and not deliver the expected value

Institution and Government Markets

Institution Markets • consists of schools, hospital, nursing homes, hotels, prisons

etc that provide good goods and services to people in their care.

• Organization are characteristic by low budgets and captive clientele

Government Markets• Buyers for govt. organization tend to require a great deal of

paperwork from their vendors and to favor open bidding and domestic companies

• Suppliers must be prepared to adapt their offers to the special needs and procedures found in IM and GM.