Marketing Ch. 6

business marketing
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
– over half of all US business school grads take jobs in firms that engage in
organizational buyers
those manufacturers, wholesalers, retailers, and government agencies that buy goods and services for their own use or for resale
– all buyers in an nation except ultimate consumers
-purchase and lease large volumes of capital equipment, raw materials and manufactured parties, supplies and business services.
– total annual purchases of OB are far greater than those of climate consumers. 48 Mil.
– divided into three markets: industrial, reseller, and government (also exist at global scale)
– engage in a decision process when selecting P & S
– 80% of the global dollar value of all online transactions
industrial firms
7.7 Million firms
– reprocess a product or service they buy before selling it again to the next buyer
– importance of services in the US today is emphasized by the composition of industrial markets.
– 25% are companies that primarily sell physical goods
– 75% are mix of service companies and others
resellers
wholesalers and retailer’s that buy physical products and resell them again without any reprocessing.
– In united states, 1.5 million retailers and 435,000 wholesalers.
government units
are the federal, state, and local agencies that buy goods and services for the constituents they serve
-89,000 in US
North American Industry Classification System (NAICS)
-provides common industry definitions for Canada, Mexico, and the united states, which makes it easier to measure economic activity in the three member countries of the NAFTA ( North American Free Trade Agreement)
– replaced the Standard Industrial Classification ( SIC) system, which had been in place for more than 50 years.
– consistent with the International Standard Industrial Classification of All economic activities , to facilitate measurement of global economic activity
– groups economic activity to permit studies of market share, demand for good and services, import competition in domestic markets etc.
– designates industries with a numerical code in a defined structure
– permits a firm to find the NAICS codes of its present customers and then obtain NAICS-coded lists for similar firms
– important limitation: five digit national industry codes are not available for all three countries because the respective governments will not reveal data when too few organizations exist in a category
derived demand
the demand for industrial products and services is driven by, or derived from, demand for consumer products and services
– based on the expectations of future consumer demand.
derived: how it was created
size of the order or purchase
the size of the purchase involved in organizational buying is typically much larger than that in consumer buying.
-dollar value of a single purchase runs into thousands or millions of dollars
– most organizations place constraints on buyers in form of purchasing policies or procedures
– buyers get at least three bids if oder is amount specific amount and may require review or approval of a VP or prez of company
– knowing how order size affects buying practices is important in determining who participates in the purchase decision and makes final decision and the length of time required to arrive at pu. agreement
number of potential buyers
firms selling consumer products or services often try to reach thousands or millions of individuals or households.
– firms selling to organizations have a lot less buyers
organizational buying objectives
organizations buy products and services for one main reason: to help them achieve their objectives
-business buying objective: to increase profits through reducing costs or increasing revenues- buying from minorities
– nonprofit/government agencies: meet the needs of the groups they serve
– improve executive decision making: buy advanced computer systems to process data
– companies broadened to include an emphasis on buying form minority and women owned supporters and vendors
-successful business marketers recognize hat understanding buying objectives is a necessary first step in marketing to organizations
organizational buying criteria
the objective attributes of the suppliers products and services and the capabilities of the supplier itself
– most commonly used criteria that create customer value:
1) price
2) ability to meet the quality specifications required for the item
3)ability to meet required delivery schedules
4) technical capability
5) warranties and claim policies in the event of poor performance
6) past performance on previous contracts
7) production facilities and capacity
– buyers who purchase in global marketplace supplement their criteria with supplier ISO 9000 certifications
ISO 9000
– developped by the International Standards Organization (ISO)
– the standards for registration and certification of a manufactures quality management and assurance system based on an on site audit of practices and procedures
– gives 3M confidence in the consistent quality of its suppliers manufacturing.
**3M buys and markets products globally, 80% + facilities ISO 9000 certified**
supplier development
involves the deliberate effort by organizational buyers to build relationships that shape suppliers products, services, and capabilities to fit a buyers needs and those of its customers
– The practice of organizational buyers transforming buying criteria into requirements that are communicated to suppliers
reciprocity
an industrial buying practice in which two organizations agree to purchase each others products and services
– Us justice department disapproves because it restricts the normal operation of free market
– can limit the flexibility of OB in choosing alternative suppliers
supply partnership
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
– often include provisions: sustainable procurement
– involve the physical distribution of goods
buying center
-individuals in a group that participate in the buying process
– share common goals, risks, and knowledge important to a purchase decision
– for most large multi-store chains, a highly formalized and called buying committee.
– most companies use informal groups of people or meetings to make decision
– requires a firm marketing to many firms and gov. units understand the structure, the technical and business functions represent and the behavior of groups
– composition depends on item being bought
– major questions in penetrating is finding and reaching the people who will initiate, influence and make decision
– number of people depends on situation
buying committee
for most multi-store chain resellers, the buying center is highly formalized
roles in the buying center
users:
– people who use the product

influencers:
– affect the buying decision

buyers:
– formal authority and responsibility to select the supplier
-cuts the check

deciders:
– the formal/informal power to select or approve the supplier that receives the contract
– the hardest to find

gatekeepers:
– control the flow of the information in the buying center

the world is like a stage and we are actors and we play different roles. Student, daughter, consumer, friend etc.

buy classes
researchers who have studied organizational buying identify 3 types of buying situations
straight rebuy or routine reorder
new buy or new purchase
modified rebuy: in-between Straight and new buy
new buy
first time buyer of the product or service
– greater potential risks in the purchase
– be prepared to act as a consultant to the buyer, work with technical personnel and expect a long time for decision to be reached
straight rebuy
buyer or purchasing manager reorders an existing product or service from the list of acceptable suppliers
– emphasize a competitive price and a reliable supply in meetings with purchasing agent
modified rebuy
the users, influencers, or deciders in the buying center want to change the product specifications, price, delivery schedule, or supplier
– changes usually necessitate enlarging the BC to include people outside the purchasing department
organizational buying behavior
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
online buying
in organizational markets is prominent for 3 reasons
1) organizational buyers depend heavily on timely supplier information that describes product availability, technical specifications, application uses, price, and delivery schedule
2)this technology has been shown to substantially reduce buyer order processing costs
3) business marketers have found that internet technology can reduce marketing costs, particularly sales and advertising expense, and broaden their potential customer base for many types of products and services
NAIC numerical code
6 digit coding system is used.
1-2: sector
3: subsector.
4: industry group,
5: specific industry
6: individual country level national industries)
Consumer demand affected by..
their prices and availability and by consumers personal tastes and discretionary income
Just in Time (JIT)
Many US manufacturers using.
– inventory system that reduces the inventory of production parts to those to be used within hours or days
– result: on time deliver becoming a requirement
Distinction between Organizational and consumer buying behavior
– nature of the relationship between organizational buyers and suppliers.
-^^ OB more likely to involve complex negotiations concerning delivery schedules, prices, technical specifications warranties and claim policies.
Organizaitonal buying
– reciprocal arrangements exist
– continues to evolve with the application of Internet technology
-significant development: creation of online trading communities, called e-marketplace
Sustainable procurement
– often included in supply partnership
– aims to integrate environmental considerations into all stages of an organizations buying process
– goal of reducing the negative impact on human health and the physical environment
Four questions that provide guidance in understanding buying center in organizations
1. Which individuals are in the buying center for the product or service
2. wha tis relative influence of each member
3.what are the criteria of members
4. how does each member perceive our firm, products, salespeople
Five roles in a Buying Center
Users – acutally use product
Influencers- help define the specificaitons for what is bought
Buyers- r in routine orders.
Deciders
Gatekeepers
Users- buying center role
actually use product
Influencers- buying center role
Help define the specifications for what is bought.
– info systems manager key influencer
Buyers- buying center role
-formal authority and responsibility to select supplier and negotiate terms of contract.
Deciders- buying center role
formal or informal power to select or approve supplier that receives contract.
– routine orders: Usually buyer or purchasing manager
– Important technical purchases: someone from R&D, engineering, quality control
– Key component being incorporated in final product: any of above three
Gatekeepers- buying center role
– control flow of info in BC.
– purchasing personnel, technical experts, secretaries
Comparison: Organizational buying behavior and consumer purchase
Machine Vision system
– one of the keys to the 21st century factory
– chief elements are optics, light source, camera, video processors and computer software.
– mainly used for product inspection
– becoming important in info feedback loop of systems that control manufacturing processes
– mostly sold to original equipment manufactures (OEM) who incorporate them in still larger industrial automation systems.
– frequently a new buy
– product performance, a suppliers technical support and ease of use are the three most frequently mentioned BC.
Make-buy decision
– an evaluation of whether components and assemblies will be purchased from outside suppliers or built by the company itself
Value Analysis
a systematic appraisal of the design, quality, and performance of a product to reduce purchasing costs
Bidders list
a list of firms believed to be qualified to supply a given item.
– generated from the company’s purchasing databank as well as from engineering inputs
– firms selected from list are sent a quotation request from the purchasing agent describing desired quantity, delivery dates, specifications of components or assembly
Four lessons for markers to increase chances of selling P & S to organizations
1. understand the organizations needs
2. get on the right bidders list
3. find the right people in BC
4. provide value to organizational buyers
Online buying in organizational markets
prominent because..
1. OB depend heavily on timely supplier info that describes product availability, technical specifications, application uses, price and delivery schedule
2. technology shown to substantially reduce buyer order processing costs
3. business marketers found internet technology can reduce marketing costs, particularly sales and advertising expense and broaden their potential customer base
E-marketplace
– online trading communities
– brings together buyers and suppliers
– B2B exchanges and e-hub other names
– make possible: real time exchange of info, money, P&S
– independent trading communities or private exchanges
– many offer online auctions
Independent e markeplace
act as a neutral third part and provide an internet technology trading platform and a centralized market that enable exchanges between buyers and sellers
– charge a fee for service
– esist in settings that have one or more of the following:
1. thousands of geographically dispersed buyers and sellers
2. volatile prices caused by supply and demand fluctuations
3. time sensitivity due to perishable offerings and changing technologies
4. easily comparable offerings between a variety of sellers
– small business buyers and sellers, benefit the most from.
private exchanges
– large companies favor over independent e marketplace
– focus on streamlining a companies purchase transactions with its supplier and customer
– provide tech trading platform and central market for buyer seller interactions
– represent the interests of their owners (not neutral third party)
Online auctions
– two general types: a traditional auction and a reverse auction
– bidding is sequential
Traditional auction
a seller puts an item up for sale and would be buyers are invited to bind in competition
– often used to dispose of excess merchandise
– upward pressure on bid prices ( more buyers involved
Reverse auction
– a buyer communicates a need for a product or service and would be suppliers are invited to bid in competition with each other.
– downward pressure on bid prices for the buyers business (more suppliers involved )
-benefit organizational buyers by reducing the costs of their purchases
-suppliers often favor because they give them a chance to capture business that they might not had because of long-standing purchase relationship
-suppliers also say puts too much emphasis on price, discourage consideration of other BC, may threaten supply partnership opportunities
Organizational markets
Industrial-
Reseller-
Government-
Organizational demand
Derived-
Inelastic-
fluctuating –
Organizational Market Characterisitics
Number of customers

Size of purchase

Geographic concentration
– estimated 7 states almost 50% of all manufacturing is done here/concentrated: rust belt.
– California, Michigan , New York, Pennsylvania, Illinois, new jersey, Ohio

Direct buying

Purchasing expertise

supplier buyer relationship

Professional buyers

Buying objectives

Direct buyer
-buying from creator of the item.

Nature of Business buying
Straight and Modified buy
New task rebuy
Organizational buying process
– problem recognition
-info search
– alternative evaluation
– purchase decision
– post purchase behavior
Organizational purchase or Consumer purchase category?
Ask questions:

-Who bought it?
– Why did they buy it?

Extra Latex example
– he said no because derived demand
– his answer depends on consumer demand
Dennis/manager example
– Fancy restaurant
-person complained about amountn of tip so he scratched it out
Inelastic demand
– usually if product is necessary, if you raise the price it is not going to affect how much is taken.
– price/industry typically does not affect how much is taken.
– will not buy any less as price increases
– passes the difference on to the consumer
flucuating demand
demand goes up a ton because of a big order and then goes back down
Basketball player example
-wanted more butter, person said no, he gave a big explanation of who he was and guy replies “thats nice, im the guy who gives out butter”

-everyone has skills, expertise, and worth.