Marketing chapter 6a understanding organizations as customers

Recognize the importance and nature of online buying in industrial, reseller, and government organizational markets... THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS• Organizational Buyer

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LEARNING OBJECTIVES (LO)

AFTER READING CHAPTER 6, YOU SHOULD BE ABLE TO:

Distinguish among industrial, reseller, and government organizational markets.

LO1

Describe the key characteristics of organizational buying that make

it different from consumer buying.

LO2

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LEARNING OBJECTIVES (LO)

AFTER READING CHAPTER 6, YOU SHOULD BE ABLE TO:

Explain how buying centers and buying situations influence organizational purchasing.

Recognize the importance and nature of online buying in industrial, reseller, and government organizational markets.

LO4

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BUYING PAPER IS A GLOBAL

BUSINESS DECISION AT JCPENNEY

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THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS

• Business Marketing

– Marketing of goods and services to companies, governments, and

not-for-profit organizations for use in the creation of goods and services that they

can produce and market to others

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• Organizational Buyers

– Manufacturers, wholesalers, retailers, and government agencies that buy goods

and services for their own use or for resale

– Include all buyers in a nation except ultimate consumers

– Total annual purchases of organizational buyers are far greater than those of

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1 Industrial Markets (Industrial Firms)

– In some way reprocess a product or service before selling it again to the

next buyer– Approximately 12M firms

– Predominately Service firms (approx 74%)

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2 Reseller Markets (Resellers)

– Buy physical products and resell them without any reprocessing

• Wholesalers (approx 860,000)

• Retailers (approx 3M)

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3 Government Markets (Government Units)

– Federal, state, and local agencies that buy goods and services for the

constituents they serve (approx 88,000 )

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FIGURE 6-A Type and number of organization establishments in the U.S.

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• Global Organizational Markets

– Industrial, Reseller, and Government markets

– Largest exporting industries in U.S focus on organizational customers, not

ultimate consumers

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MEASURING DOMESTIC AND GLOBAL INDUSTRIAL, RESELLER, AND

GOVERNMENT MARKETS

LO1

North American Industry Classification System (NAICS)

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• Common industry classifications for Canada, Mexico, and the United States

• Easier measurement of economic activity in member countries of NAFTA

• Replaced Standard Industrial Classification (SIC)

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FIGURE 6-1 NAICS breakdown for the information industries sector:

NAICS code 51 (abbreviated)

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MEASURING DOMESTIC AND GLOBAL INDUSTRIAL, RESELLER, AND

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Concept Check

1 What are the three main types of organizational buyers?

A: Industrial Firms; Resellers; Government Units

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Concept Check

A: The NAICS provides common industry definitions for Canada,

Mexico, and the United States, which makes easier the

measurement of economic activity in the three member

countries of NAFTA.

2 What is the North American Industry Classification System

(NAICS)?

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 Derived Demand

CHARACTERISTICS OF ORGANIZATIONAL BUYING

LO2

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 Derived Demand

 Refers to the linkage between consumer demand for a company’s output

and its purchases of business products

 Demand for industrial products and services is driven by, or derived from,

demand for consumer products and services

 Derived demand ultimately affects capital items and expense items

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• Size of the Order or Purchase

– Typically much larger than consumer

• Number of Potential Buyers

– Far fewer than consumer

• Organizational Buying Objectives

– Help them achieve their objectives

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FIGURE 6-2 Key characteristics and dimensions of organizational buying

behavior

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 Organizational Buying Criteria

LO2

 ISO 9000

 Supplier Development

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Organizational Buying Criteria

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• Organizational Buying Criteria

– The objective attributes of the supplier’s products and services and the

capabilities of the supplier itself

1. Price

2. Ability to meet quality specifications

3. Ability to meet required delivery schedules

4. Technical capability

5. Warranties and claim policies

6. Past performance on previous contracts

7. Production facilities and capacity

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FIGURE 6-B Key organizational buying criteria

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MARKETING MATTERS

Harley-Davidson’s Supplier Collaboration Creates Customer Value…and a Great Ride

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LO2

ISO 9000

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LO2

Supplier Development

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 Buyer-Seller Relationships and Supply

Partnerships

LO2

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1 Reciprocity

 Practice of buying from suppliers who are also customers

 Controversial practice in number of organizational situations

 Suggest close links among participants and can add to complexity of B2B

buying behavior

 Can be viewed by Government as attempts to reduce competition

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ETHICS AND SOCIAL RESPONSIBILITY ALERT

Scratching Each Other’s Back:

The Ethics of Reciprocity in Organizational Buying

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2 Supply Partnerships

Buyers and sellers adopt mutually beneficial objectives, policies, and

procedures for the purpose of lowering the cost or increasing the value of

products and services delivered to the ultimate consumer

 Just-In-Time Inventory (JIT)

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THE BUYING CENTER—A CROSS-FUNCTIONAL GROUP

LO3

 Buying Center

 Buying Committee

 People in the Buying Center

 Roles in the Buying Center

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• The Buying Center: A Cross-Functional Group

– Several people in the organization that participate in the buying process

– Share common goals, risks, and knowledge important to a purchase

decision

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BUYING CENTER CONCEPT

• Provides a vital model for understanding organizational buying behavior

• Encompasses everyone who is involved in any aspect of its buying action

• Not part of a firm’s formal organization structure – informal and variable in size

and composition

• However, may be formalized – Buying Committee

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Buying Center Who is in the buying center and

what roles do they play?

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Buying Center Roles

 Users are people who actually use the product.

 Influencers affect the buying decision by supplying information to guide evaluation of

alternatives or by setting buying specifications.

 The Decider actually chooses a good or service, although another person may have the

formal authority to do so.

 The Buyer actually has the formal authority to select a supplier and to implement the

procedures for securing the good or service Always included in Buying Center.

 Gatekeepers control the information that all buying center members will review.

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 Buying Situations (Buy Classes) and the Buying Center

 Straight Rebuy

 Modified Rebuy

 New Buy

THE BUYING CENTER—A CROSS-FUNCTIONAL GROUP

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Three General Categories of Business Buying Situations

• Often requires a purchaser to carefully consider alternative offerings and vendors.

• Buying center enlarged to include all who have stake in the new buy.

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Concept Check

1 What one department is almost always represented by a

person in the buying center?

A: Purchasing Department

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FIGURE 6-3 The buying situation affects buying center behavior in different

ways

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CHARTING THE ORGANIZATIONAL BUYING PROCESS

– The decision-making process that organizations use to establish the need

for products and services and identify, evaluate, and choose among

alternative brands and suppliers

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Machine Vision System What is its organizational buying process?

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 Organizational Buying Behavior

for a Machine

Vision System

STAGES IN BUYING A MACHINE VISION SYSTEM LO3

 Stage 1: Problem Recognition

• Make-Buy Decision - evaluation of whether components

and assemblies will be purchased from outside or built within

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 Organizational Buying Behavior

for a Machine Vision System

 Stage 2: Information Search

• Purchasing Databank

• Value Analysis – systematic appraisal of the design, quality,

and performance of a product to reduce costs

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 Stage 3: Alternative Evaluation

• Price, quality, delivery, service, assurance

that the supplier will not go out of business

• Bidder’s List - list of firms believed to be qualified

to supply a given item

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FIGURE 6-5 Product and supplier selection criteria for buying machine

vision equipment emphasize factors other than price

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Percentage of machine vision buyers citing individual selection criteria

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 Stage 4: Purchase Decision

 Stage 5: Postpurchase Behavior

 Formal product acceptance process

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selling products and services to organizations

Firms must:

1. Understand 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

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FIGURE 6-4 Comparing the stages in a consumer and organizational

purchase decision process

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Concept Check

1 What is a make-buy decision?

A: An evaluation of whether components and assemblies will be purchased

from outside suppliers or built by the company itself.

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Concept Check

2 What is a bidder’s list?

A: A list of firms believed to be qualified to supply a given item.

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 Prominence of Online Buying

in Organizational Markets

ONLINE BUYING IN ORGANIZATIONAL MARKETS

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E-marketplaces are online trading communities that bring together

buyers and supplier organizations to make possible the real time

exchange of information, money, products, and services.

buyers and supplier organizations to make possible the real time

exchange of information, money, products, and services.

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A traditional auction is an online auction in which a seller puts an

item up for sale and would-be buyers are invited to bid in

competition with each other.

item up for sale and would-be buyers are invited to bid in

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A reverse auction is an online auction in which a buyer

communicates a need for a product or service and would-be

suppliers are invited to bid in competition with each other.

communicates a need for a product or service and would-be

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FIGURE 6-6 How buyer and seller participants and price behavior differ by

type of online auction

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Business Marketing

Business marketing involves the marketing of goods and

services to companies, governments, or not-for-profit

organizations for use in the creation of goods and services

that they can produce and market to others.

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Organizational Buyers

Organizational buyers are those manufacturers,

wholesalers, retailers, and government agencies that buy

goods and services for their own use or for resale.

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The North American Industry Classification System (NAICS) provides

common industry definitions for Canada, Mexico, and the United States,

which makes easier the measurement of economic activity in the three

member countries of the North American Free Trade Agreement (NAFTA).

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Derived Demand

Derived demand is the demand for industrial products and

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

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Organizational Buying Criteria

Organizational buying criteria are the objective attributes

of the supplier’s products and services and the capabilities

of the supplier itself.

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ISO 9000

ISO 9000 consists of standards

for registration and certification of a manufacturer’s quality

management and assurance system based on an on-site audit of

practices and procedures developed by the International

Standards Organization (ISO).

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Supplier Development

Supplier development is the deliberate effort by

organizational buyers to build relationships that shape

suppliers’ products, services, and capabilities to fit a buyer’s needs and those of its customers.

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Reciprocity is an industrial

buying practice in which two organizations agree to

purchase each other’s products and services.

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Supply Partnership

Supply partnership is a relationship that exists when a buyer and

its supplier adopt mutually beneficial objectives, policies, and

procedures for the purpose of lowering the cost

or increasing the value of products and services delivered to the

ultimate consumer.

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Buying Center

A buying center consists of a group of people in an

organization who participate in the buying process and

share common goals, risks, and knowledge important

to a purchase decision.

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Buy Classes

Buy classes consists of three types of organizational

buying situations: straight rebuy, new buy, and modified

rebuy.

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Organizational Buying Behavior

Organizational buying behavior is the decision-making

process that organizations use to establish the need for

products and services and identify, evaluate, and choose

among alternative brands and suppliers.

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Make-Buy Decision

A make-buy decision involves an evaluation of whether

components and assemblies will be purchased from outside suppliers or built by the company itself.

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Value Analysis

Value analysis involves a systematic appraisal of the

design, quality, and performance of a product to reduce

purchasing costs.

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E-marketplaces are online trading communities that bring

together buyers and supplier organizations to make possible the

real time exchange of information, money, products, and services

Also called B2B exchanges or e-hubs.

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Traditional Auction

A traditional auction is, within

an e-marketplace, an online auction in which a seller puts

an item up for sale and would-be buyers are invited to bid in competition with each other.

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Reverse Auction

A reverse auction is, within an

e-marketplace, an online auction in which a buyer

communicates a need for a product or service and would-be suppliers are invited to bid in competition with each other.

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