Understanding Organizations as Customers PDF

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These notes are from the marketing textbook titled "Marketing: The Core." It's the 7th edition by Roger A. Kerin and Steven W. Hartley....

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Understanding Organizations as Customers Business to Business Marketing and Organizational Buyers - Business to business marketing: the marketing of products and services to companies, governments, and not for profit organizations for use in the creation of products and services that they can produce and market to others - Organizational Buyers - Organizational buyers: manufacturers, wholesalers, retailers, service companies, not for profit organizations, and government agencies that buy products and services for their own use for resale - Include all buyers in a nation except ultimate consumers - Purchase and lease large volumes of capital equipment, raw materials, manufactured parts, supplies, and business services - The total annual purchases of organizational buyers are far greater than those of ultimate consumers - Organizational Markets - Industrial Markets - Industrial firms in some way reprocess a product or service they buy before selling it again to the next buyer - Companies that primarily sell physical goods (manufacturing; mining; construction; and farms, timber and fisheries) represent 25% of all the industrial firms - Service companies - finance, insurance, and real estate businesses; transportation, communication, and public utility firms; and not for profit organizations - represent 75% of all industrial firms - Reseller Markets - Resellers: wholesalers and retailers that buy physical products and resell them again without any reprocessing - Government Markets - Government units: federal, state, and local agencies that buy goods and services for the constituents they serve - Measuring Organizational Markets - The measurement of industrial, reseller, and government markets is an important first step for a firm interested in gauging the size of one, two, or all three of these markets in the United States and around the world - this task has been made easier with the 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 North American Free Trade Agreement (NAFTA)

The NAICS groups economic activity to permit studies of market share, demand for products and services, import competition and domestic markets and similar studies - it designates Industries with a numerical code in a defined structure - a six-digit coding system is used - the first two digits designate a sector of the economy - the third digit designates a sub sector - and the fourth digit represents an industry group - the fifth digit designates a specific industry and is the most detailed level - the sixth digit designates individual country level National Industries Characteristics of Organizational Buying - Demand Characteristics - Consumer demand for products and services is affected by their price and availability and by consumers personal tastes and discretionary income - industrial demand is derived - derived demand: the demand for industrial products and services is driven by, or derived from, demand for Consumer products and services - based on expectations of future consumer demand - Size of the Order or Purchase - The size of the purchase involved in organizational buying is typically much larger than that in consumer buying - the dollar value of a single purchase made by an organization can amount to millions or billions of dollars - With so much money at stake, most organizations place constraints on their buyers in the form of purchasing policies or procedures - buyers must often get competitive bids from at least three perspective suppliers when the order is above a specific amount - knowing how order size effects of buying practices is important in determining who will participate in the purchase decision, who will make the final decision, and the length of time that will be required to arrive at a purchase agreement - Number of Potential Buyers - Firm's marketing consumer products or Services often try to reach thousands or millions of individuals or households - firm's marketing to organizations are often restricted to far fewer buyers - Organizational Buying Objectives - For business firms, the buying objective is usually to increase profits through reducing costs or increasing revenues - to improve executive decision-making, many firms by Advanced Computer Systems to process data -

the objectives of non-profit firms and government agencies are usually to meet the needs of the groups they serve - other companies include environmental sustainability initiatives - successful business marketers recognize that understanding a company's buying objectives is a necessary first step in marketing to organizations Organizational Buying Criteria - When making a purchase, the buying organization must wakey buying criteria that apply to potential supplier and what it wants to sell - organizational buying criteria: the objective attributes of the supplier's products and services and the capabilities of the supplier itself - Serve the same purpose as evaluative criteria used by consumers - the most commonly used criteria are: - Price - ability to meet the quality specifications required for the item - ability to meet required delivery schedules - technical capability - warranties and claim policies in the event of poor performance - past performance on previous contracts - production facilities in capacity - suppliers that meet or exceed these criteria create customer value - many organizational buyers today are transforming their buying criteria into specific requirements that are communicated to prospective suppliers - this practice, called supplier development, involves 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 Buyer - Seller Relationships and Supply Partnerships - Another distinction between organizational and consumer buying Behavior lies in the nature of the relationship between organizational buyers and suppliers - organizational buying is more likely to involve complex negotiations concerning delivery schedules, price, technical specifications, warranties, and claim policy - these negotiations can last for an extended period - Reciprocal Arrangements also exists in organizational buying - Reciprocity: an industrial buying practice in which two organizations agree to purchase each other's products and services - Can limit the flexibility of organizational buyers in choosing alternative suppliers - In some cases, buyer-seller relationships evolve into Supply Partnerships - 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 -

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ultimate consumer - Retailers have forge partnerships with their suppliers - Supply partnerships often include provisions for what is called sustainable procurement The Organizational Buying Functions and Process and the Buying Center - Organizational buyers, like consumers, engage in a decision process When selecting products and services - 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 - The Buying Functions in Organizations - The buying function in an organization is primarily responsible for facilitating the selection and purchase of products and services for the organization own use or resale to customers - the buying function involves Gathering and screening information about products and services, prices, and suppliers, called vendors - The buying function is often responsible for the formal solicitation of bids from suppliers (vendors) and the awarding of purchasing contracts - individuals responsible for the selection and purchase of goods and services are typically called purchasing managers or agents, procurement manager is, or sourcing managers - Stages in the Organizational Buying Process - problem recognition - information search - alternative evaluation - purchase decision - post-purchase Behavior - The Buying Center: A Cross-Functional Group - Several people in the organization participate in the buying process - The individuals in this group, called a buying Center, share common goals, risks, and knowledge important to a purchase decision - foremost large multi store chain resellers the buying Center is highly formalized and is called a buying committee - most industrial firms or government units use informal groups of people or call meetings to arrive at buying decisions - the importance of the buying Center requires that a firm marketing to many industrial firms and government units understand the structure, the technical and business functions represented, and the behavior of these groups - 4 questions provide guidance and understanding the buying Center in these organizations: - Which individuals are in the buying center for the product or service?

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What is the relative influence of each member of the group? What are the buying criteria of each member? How does which member of the group receive our firm, our products and services, and our salespeople? People in the Buying Center - The composition of the buying Center in a given organization depends on the specific item being bought - a buyer or purchasing manager is almost always a member of the buying Center - individuals from other functional areas are included, depending on what is to be purchased - a major question in penetrating the buying Center is finding and reaching the people who will initiate, influence, and actually make the buying decision Roles in the Buying Center - Users are the people in the organization to actually use the product or service - Influencers affect the buying decision, usually by helping to find the specifications for what is bought - Buyers have formal authority and responsibility to select the supplier and negotiate the terms of the contract deciders have the formal or informal power to select or approve the supplier that receives the contract - usually the buyer or purchasing manager; an important technical purchases it is more likely to be someone from R&D, engineering, or quality control - Gatekeepers control the flow of information in the buying Center - purchasing Personnel, technical experts, and secretaries can all keep salespeople or information from reaching people performing the other four roles - In some purchases the same person may perform two or more of these roles Buying Situations and the Buying Center - The number of people in the buying center largely depends on the specific buying situation - buy classes: the three types of buying situations - New Buy: the organization is a first time buyer of the product or service - involves greater potential risks in the purchase, so the buying Center is enlarged to include all those who have a stake in the new Buy - straight rebuy: the buyer or purchasing manager reorder is an existing product or service from the list of acceptable suppliers, probably without even checking with users or influencers from the engineering, production, or quality control departments - modified rebuy: the users, influencers, or deciders in the buying Center

want to change the product specifications, price, delivery schedule, or supplier - the changes usually necessitate enlarging the buying Center to include people outside the purchasing department Online Buying in Business to Business Marketing - Prominence of Online Buying in Organizational Markets - Online buying in organizational markets is prominent for three major reasons - organizational buyers depend heavily on timely supplier information that describes product availability, technical specifications, application uses, price, and delivery schedules - this information can be conveyed quickly via internet technology - this technology has been shown to substantially reduce buyer order processing costs - business marketers have found the internet technology can reduce marketing costs, particularly sales and advertising expense, and broaden their potential customer base for many types of products and services - online buying is popular and all three kinds of organizational markets - E-Marketplaces: Virtual Organizational Markets - A significant development in organizational buying has been the creation of online trading communities, called e-market places, that brings together buyers and supplier organizations - e-marketplaces can be independent trading communities or private exchanges - independent e-marketplaces act as a neutral third-party and provide an internet technology trading platform and a centralized Market that enable exchanges between buyers and sellers - exist in settings that have one or more of the following features: - thousands of geographically dispersed buyers and sellers - volatile prices caused by demand and Supply fluctuations - time sensitivity due to perishable offerings and changing Technologies - easily comparable offerings between a variety of sellers - small business buyers and sellers benefit from independent e-marketplaces - offer them and economical way to expand their customer base and reduce the cost of products and services - large companies tend to favor private exchanges that link them with their network of qualified suppliers and customers - private exchanges focus on streamlining and companies purchase transactions with its suppliers and customers - they provide a technology trading platform and Central Market for buyer seller interactions - represent the interests of their owners

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Online Auctions in Organizational Markets - Two general types of options are common: - a traditional auction - a seller puts up an item for sale and would-be buyers are invited to bid in competition with each other - as more would-be buyers become involved, there is an upward pressure on bid prices - often used to dispose of excess merchandise - a reverse auction - a buyer communicates a need for a product or service and wouldbe suppliers are invited to bid in competition with each other - as more would-be suppliers become involved, there is a downward pressure on bid prices for the buyer's business - benefit organizational buyers by reducing the cost of their purchases - Buyers welcome the lower prices generated by reverse auctions - suppliers often favor reverse auctions because they give them a chance to capture business that they might not have otherwise had - maybe because of a long-standing purchased relationship between the buyer and another supplier - on the other hand, suppliers say reverse auctions put too much emphasis on prices, discourage consideration of other important buying criteria, and may threaten supply partnership opportunities...