a “turnkey solution” that allowed the buyer to, in effect, turn one key and get the job done.
Sellers have increasingly recognized that buyers like to purchase in this way, and many have adopted systems selling as a marketing tool. Systems selling can take differ- ent forms. For example, many auto parts manufacturers now sell whole systems, such as the seating system, the braking system, or the door system. A variant on systems sell- ing is systems contracting,in which a single supply source provides the buyer with all requiredMRO supplies(maintenance, repair, and operating supplies). This lowers the buyer’s costs because the seller maintains the inventory, less time is spent on supplier selection, and the buyer enjoys price protection during the life of the contract. The seller benefits from lower operating costs because of steady demand and reduced paperwork.
Systems selling is a key industrial marketing strategy in bidding to build large- scale industrial projects such as dams, steel factories, and pipelines. Project engineer- ing firms must compete on price, quality, reliability, and other attributes to win these contracts. For example, when the Indonesian government requested bids to build a cement factory near Jakarta, a U.S. firm made a proposal that included choosing the site, designing the cement factory, hiring the construction crews, assembling the mate- rials and equipment, and turning over the finished factory to the Indonesian govern- ment. The proposal of a Japanese bidder included all of these services, plus hiring and training the factory workers, exporting the cement, and using the cement to build roads and office buildings around Jakarta. Although the Japanese proposal was more costly, it won. This is true system selling: The firm took the broadest view of its cus- tomer’s needs and positioned itself as an economic development agency.
PARTICIPANTS IN THE BUSINESS BUYING PROCESS
Who does the buying of the trillions of dollars’ worth of goods and services needed by business organizations? Purchasing agents are influential in straight-rebuy and modified- rebuy situations, whereas other department personnel are more influential in new-buy situations. Engineering personnel carry the most influence in selecting product compo- nents, and purchasing agents dominate in selecting suppliers.8These are just some of the people who may be part of the buying center.
The Buying Center
Webster and Wind call the decision-making unit of a buying organization the buying center.The buying center is composed of “all those individuals and groups who partici- pate in the purchasing decision-making process, who share some common goals and the risks arising from the decisions.”9The buying center includes organizational mem- bers who play any of seven roles in the purchase decision process:10
➤ Initiators:People who request that something be purchased, including users or others.
➤ Users:Those who will use the product or service; often, users initiate the buying proposal and help define product requirements.
➤ Influencers:People who influence the buying decision, including technical personnel. They often help define specifications and also provide information for evaluating alternatives.
➤ Deciders:Those who decide on product requirements or on suppliers.
➤ Approvers:People who authorize the proposed actions of deciders or buyers.
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➤ Buyers:People who have formal authority to select the supplier and arrange the purchase terms, including high-level managers. Buyers may help shape product specifications, but their major role is selecting vendors and negotiating.
➤ Gatekeepers:People who have the power to prevent sellers or information from reaching members of the buying center; examples are purchasing agents, receptionists, and telephone operators.
There is also a trend toward team-based buying. In one survey, 87 percent of the purchasing executives at Fortune 1000 companies see more use of teams drawn from different departments and functions to make buying decisions.11This trend is leading to more team selling, as shown in the earlier Cutler-Hammer example.
To target their efforts properly, business marketers have to figure out: Who are the major decision participants? What decisions do they influence? What is their level of influence? What evaluation criteria do they use? When a buying center includes many participants, the business marketer will not have the time or resources to reach all of them. Small sellers concentrate on reaching the key buying influencers.Larger sell- ers go for multilevel in-depth sellingto reach as many buying-center participants as possi- ble. Their salespeople virtually “live” with their high-volume customers. In general, the most successful companies rely more heavily on communications to reach hidden buy- ing influences and keep their current customers sold.12
Furthermore, the buying center can be highly dynamic, so business marketers need to periodically review their assumptions about who is participating. For years, Kodak sold X-ray film to hospital lab technicians, not noticing that buying decisions were increasingly being made by professional administrators. As sales declined, Kodak was finally forced to revise its market targeting strategy.
Major Influences on Business Buying
Business buyers respond to many influences when they make their decisions. When supplier offerings are similar, buyers can satisfy the purchasing requirements with any supplier, and they place more weight on the personal treatment they receive. When supplier offerings differ substantially, buyers are more accountable for their choices and pay more attention to economic factors. Business buyers respond to four main influences: environmental, organizational, interpersonal, and individual13(Figure 3-5); culture is also a factor.
Environmental Factors
Within the macroenvironment, business buyers pay close attention to numerous eco- nomic factors, including interest rates and levels of production, investment, and con- sumer spending. In a recession, business buyers reduce their investment in plant, equipment, and inventories. Business marketers can do little to stimulate total demand in recessionary periods; they can only fight harder to increase or maintain their share of demand.
Companies that fear materials shortages often buy and hold large inventories and sign long-term contracts with suppliers to ensure steady availability. In fact, DuPont, Ford, and other major companies regard long-term supply planningas a major responsibility of their purchasing managers.
Business buyers also actively monitor technological, political-regulatory, and competitive developments. For example, environmental concerns can cause changes in business buyer behavior. A printing firm might favor suppliers that carry recycled papers or use environmentally safe ink. One buyer claimed, “We push suppliers with technical expertise to be more socially conscious.”
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Organizational Factors
Every organization has specific purchasing objectives, policies, procedures, organiza- tional structures, and systems. Business marketers need to be aware of the following organizational trends in purchasing:
➤ Purchasing department upgrading.Spurred by competitive pressures, companies are staffing their purchasing departments with MBAs who aspire to be CEOs—like Thomas Stallkamp, DaimlerChrysler’s recently retired president. In his earlier role as executive vice president of procurement and supply, Stallkamp was highly successful in cost-cutting and in streamlining manufacturing processes.14These new, more strategically positioned “procurement departments” seek out the best value from fewer and better suppliers. At Caterpillar and other multinationals, purchasing departments have been elevated into “strategic supply departments” with
responsibility for global sourcing and partnering. In response to this trend, business marketers must correspondingly upgrade their sales personnel to match the higher caliber of the business buyers.
➤ Cross-functional roles.In a recent survey, most purchasing professionals described their job as more strategic, technical, team-oriented, and involving more responsibility than ever before. “Purchasing is doing more cross-functional work than it did in the past,” says David Duprey, a buyer for Anaren Microwave Inc., which makes microwave-signal processing devices for communication and defense.
Sixty-one percent of buyers surveyed said the buying group was more involved in new-product design and development than it was 5 years ago. More than half of the buyers now participate in cross-functional teams, with suppliers well represented.15
➤ Centralized purchasing.In multidivisional companies, most purchasing is carried out by separate divisions because of their differing needs. Some companies, however, have recentralized their purchasing, identifying materials purchased by several
Figure 3-5 Major Influences on Business Buying Behavior
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divisions and buying them centrally to gain more purchasing clout. Individual divisions can buy from other sources if they can get a better deal, but centralized purchasing usually produces substantial savings. For the business marketer, this means dealing with fewer and higher-level buyers, and using a national account sales group to deal with large corporate buyers.
➤ Decentralized purchasing of small-ticket items. More companies are decentralizing selected purchasing operations by empowering employees to purchase small-ticket items such as special binders and coffee makers. This has come about through the availability of corporate purchasing cards issued by credit-card firms. Companies distribute the cards to supervisors, clerks, and secretaries; the cards incorporate codes that set credit limits and restrict usage. National Semiconductor’s purchasing chief says these cards have cut processing costs from $30 an order to a few cents.
“Now buyers and suppliers can spend less time on paperwork, so purchasing departments have more time for building partnerships.”16
➤ Internet purchasing.By 2003, business-to-business buying on the Internet is projected to reach $1 trillion per year (compared with a projected $108 billion for consumer buying).17The move to Internet purchasing has dramatic and far-reaching implications. Companies are not only posting their own Web pages to sell to business buyers, they are establishing Intranets for internal communication and extranets to link with regular suppliers and distributors. So far, most businesses are using extranets to buy MRO supplies. However, a growing number, such as General Electric, are preparing to buy nearly all supplies on-line to shave transaction and personnel costs, reduce time between order and delivery, and consolidate purchasing. In fact, GE Information Services is a leader in helping GE internal business units and outside companies use the Internet to buy from and sell to other businesses; its Trading Process Network lets companies buy raw materials,
components, and just about anything else with a few clicks of the mouse. Internet purchasing can help forge closer relations between partners and buyers, and it levels the playing field between large and small suppliers. At the same time, it can potentially erode supplier-buyer loyalty and open the door to possible security disasters.18
➤ Long-term contracts.Business buyers are increasingly initiating or accepting long-term contracts with reliable suppliers. For example, General Motors wants to buy from fewer suppliers who are willing to locate close to its plants and produce high-quality components. In addition, business marketers are setting up electronic data
interchange (EDI) systems so their customers such as hospitals and bookstores can enter and transmit purchase orders electronically.
➤ Purchasing-performance evaluation and buyers’ professional development.Many companies have set up incentive systems to reward purchasing managers for good buying performance, in much the same way that sales personnel receive bonuses for good selling performance. These systems are leading purchasing managers to increase their pressure on sellers for the best terms.
➤ Lean production.Many manufacturers have moved toward lean production, which enables them to produce a more high-quality product at lower cost, in less time, using less labor. Lean production incorporates just-in-time (JIT) production, stricter quality control, frequent and reliable supply delivery, suppliers locating closer to customers, computerized purchasing, stable production schedules made available to suppliers, and single sourcing with early supplier involvement. JIT II, the next level of customer-supplier partnerships, focuses on reducing the costs and time involved in day-to-day purchasing transactions by locating one or more supplier employees at