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©2003 Prentice Hall, Inc. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved.Developed by Cool Pictures and MultiMedia Presentations
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 2 in Chapter 7
ObjectivesObjectives
Understand the nature of the business market and how it differs from the consumer market.
Learn how institutions and government agencies buy.
Identify the different buying situations faced by organizational buyers.
Identify the participants in the business buying process and the various influences impacting business buying decisions.
Understand how business buyers make their decisions.
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 3 in Chapter 7
Organizational BuyingOrganizational Buying
Organizational buying is:
“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.”
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 4 in Chapter 7
Organizational BuyingOrganizational Buying
Compared to Consumer Markets, Business Markets have . . .
– Fewer buyers
– Larger buyers
– Geographically concentrated buyers
– Close relationships with their supplier-customers
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 5 in Chapter 7
Organizational BuyingOrganizational Buying
Fluctuating demand
Derived demand
Inelastic demand
Professional purchasing
Multiple sales calls
Direct purchasing
Geographical Concentrated Buyer
Other Business Market Characteristics
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 6 in Chapter 7
Organizational BuyingOrganizational Buying
The Business Market Includes For-Profit Companies and Four Specialized Groups:
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 7 in Chapter 7
Organizational BuyingOrganizational Buying
Buying Situations
Straight rebuy
Modified rebuy
New task
Routine reorders from approved vendor list
Low involvement, minimal time commitment
Example: copier paper
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 8 in Chapter 7
Organizational BuyingOrganizational Buying
Buying Situations
Straight rebuy
Modified rebuy
New task
Specifications, prices, delivery terms or other aspects require modification
Moderate level of involvement and time commitment
Example: desktop computers
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 9 in Chapter 7
Organizational BuyingOrganizational Buying
Buying Situations
Straight rebuy
Modified rebuy
New task
Purchasing a product or service for the first time
High level of involvement and time commitment; multiple influences
Example: selecting a web site design firm or consultant
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 10 in Chapter 7
Participants in Business BuyingParticipants in Business Buying
Initiators
Users
Influencers
Deciders
Approvers
Buyers
Buying center members fill one or more roles in the purchase decision process:
Gatekeepers
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 11 in Chapter 7
Inf luences on Business Influences on Business BuyersBuyers
Major Influences
Environmental
Organizational
Interpersonal
Individual
Demand level
Economic outlook
Technological change
Politics/regulations
Competition
Concerns for social responsibility
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 12 in Chapter 7
Inf luences on Business Influences on Business BuyersBuyers
Major Influences
Environmental
Organizational
Interpersonal
Individual
Objectives
Policies
Procedures
Organizational structures
Systems
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 13 in Chapter 7
Inf luences on Business Influences on Business BuyersBuyers
Major Influences
Environmental
Organizational
Interpersonal
Individual
Interests
Authority
Status
Empathy
Persuasiveness
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 14 in Chapter 7
Inf luences on Business Influences on Business BuyersBuyers
Major Influences
Environmental
Organizational
Interpersonal
Individual
Age
Income
Education
Job position
Personality
Risk attitudes
Culture
©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 15 in Chapter 7
Purchasing/Procurement ProcessPurchasing/Procurement Process
Problem recognition
General need description
Product specification
Supplier search
Proposal solicitation
Supplier selection
Order-routine specification
Performance review
Eight Buyphases of Industrial Buying
Problem recognition
Marketer stimulates problem recognition byDirect mail, telemarketing, calling on prospects
Internal stimuli – new product developmentfor which parts are needed, breakdown ofequipment, existing suppliers unsatisfactory
Buyer attends a trade showPurchase Manager senses an opportunity toget lower prices or better quality
General need descriptionand product specification
Standard items – go as per internal records oras per specs laid out in ISI documents
Complex items – collaborate with engineers,users; else sit with marketer’s applicationengineers who do consultative selling and work out specs and likely price
Certain buying organizations attach a PVA orproduct value analysis team to the projectwho will conduct extensive analysis to arriveat specs that will lead to minimum cost
Supplier Search
Identify suppliers- trade directories, hunt online catalogs for suppliers- trade shows- trade advertisements- Internet search – Websites have two types of e-hubs
Vertical hubs centered on industries-plastics, steel, paper
Functional hubs centered on logisticsmedia buying, advertising
-Direct extranet links to major suppliers (WalMart – P&G)
-Buying alliances to get best price.Coca-Cola, Sara Lee, Kraft, PepsiCo, GilletteP&G, have joined to form alliance – Transora
-Company buying sites – Firms like GE have theirown site where it places Requests for Proposal,negotiate terms, place orders
Proposal Solicitation
Invite suppliers to make detailed proposals
Set up quality standards if any e.g ISO 9000 orISI etc.
Large technology systems need a detailedTechno-Commercial proposal. The technicalquote will be cleared first and after that onlyqualified technical bidders will be called forcommercial negotiation
Buyers can invite suppliers to make presentations.
Supplier Selection
A supplier rating list is made by some companiesbased on relative importance given to a select setof attributes.
For routine order products the factors are : price,supplier reputation, delivery .
For procedural problem products such as copiers theimportant attributes are : technical service, supplierflexibility, reliability and price
For political problem products such as choice of a set of computers the factors are price, reputation, reliability and flexibility
One way to encounter price factor from supplier sideis to talk of total cost of product or life cycle cost.
Order routinespecification
Buyers negotiate the final order with the selected suppliers, and details the tech. specs., the quantitythe delivery time, return policies, warranties etc.
For maintenance and repair items , firms are moving towards a blanket contract that establishes a long runrelation. Such contracts are called stockless purchase plans as the stock is held by the supplier
Long run contracts are also agreed upon in case of shortage raw materials / inputs so that there is a steady flow of material. In many cases the supplierlocates his factory near the buyer for bringing downinventory and transport costs.
Vendor managed inventory is when the responsibility rests with the vendor for maintaining inventory
Important parameters to see are OT – deliver on timeIF – in full, NE – No error
Performance Review
Three methods of review
1 Ask for evaluation from buyers2 Buyer rates supplier on weighted score
method3. Based on drawbacks of performance the
buyer may come up with adjusted cost of purchase including price
4. Managers are rewarded for good buyingperformance
Institutional and Government Markets
1. Institutional Markets are – schools, colleges, universities, hospitals, nursing homes.
2. Institutions normally ask for lowest price given a minimum quality3. In government organizations the normal process is bidding with the
order going to the lowest bidder(s)4. Negotiated contracts are applicable where the project is complex and
risky.5. Governments tend to favor domestic suppliers6. Government decisions are subject to review, so there is lot of paperwork
in contracting7. Director General of Supplies and Disposals is the central purchasing unit of
Indian Government.