Summary of Marketing Management, 11Ed. Chapter 7


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Philip Kotler, Kevin Lane Keller and Abraham Koshy

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Summary of Marketing Management, 11Ed. Chapter 7

  1. 1. logo copy.tif Organizatio- nal buying is the decision- making process by which organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. Analyzing Business Markets and Buyer Behavior Chapter 7 Marketing Management By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha SUMMARY by Business buyers purchase goods and services to achieve specific goals, such as making money, reducing operating costs, and satisfying social or legal obligations. Therefore to provide superior customer value to the business buyers this chapter familiarizes you with the underlying dynamics and process of business buying. Blanket contract establishes a long-term relationship in which the supplier promises to resupply the buyer as needed at agreed-upon prices over a specified period. Because the seller holds the stock, blanket contracts are sometimes called stockless purchase plans. Product value analysis is an approach to cost reduction in which components are carefully studied to determine if they can be redesigned or standardized or made by cheaper methods of production. The Business Market versus the Consumer Market • Fewer buyers: Business marketers normally deal with far fewer buyers than do consumer marketers. • Larger buyers: Buyers for a few large firms do most of the purchasing in many industries. • Close supplier customer relationship: Smaller customer base and importance of larger customers, suppliers have to customize offerings to meet the needs of individual customers. • Geographically concentrated buyers • Derived demand: Demand for business goods is derived from demand for consumer goods, so business marketers must monitor the buying patterns of ultimate consumers. • Inelastic demand: Not much affected by price changes as producers cannot make quick production changes. •
  2. 2. Three types of Business Buying Situations: Straight rebuy: situation in which the purchasing department reorders on a routine basis (e.g., office supplies, bulk chemicals). Modified rebuy: situation in which the buyer wants to modify product specifications, prices, delivery requirements, or other terms. New task: situation in which a purchaser buys a product or service for the first time (e.g., office building, new security system). Chapter 7 - Analyzing Business Markets and Buyer Behavior • Fluctuating demand: Demand for business products is more volatile than consumer products. • Professional purchasing: Organizational purchasing policies and constraints are followed • Multiple buying influences: More people typically influence buying decisions • Multiple sales calls: Multiple sales calls to win most business orders, and the sales cycle can take years. • Direct purchasing: Business buyers often buy directly from manufacturers rather than intermediaries • Reciprocity: Business buyers often select suppliers who also buy from them. • Leasing: Many industrial buyers lease rather than buy heavy equipment to conserve capital, get the latest products, receive better service, and gain tax advantages. The Buying Center (Decision-making unit of a buying organization) Seven roles in the purchase decision process: • Initiators: People who request that something be purchased • Users: 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. • Deciders: Those who decide on product requirements or on suppliers. • Approvers: People who authorize the proposed actions of deciders or buyers. • Buyers: People who have formal authority to select the supplier and arrange the purchase • Gatekeepers: People who have the power to prevent sellers or information from reaching members of the buying center Major Influences on Business Buying Environmental Factors Attention to numerous economic factors, including interest rates and levels of production, investment, and consumer spending. Business buyers also monitor technological, political- regulatory, and competitive developments. Organizational Factors Business marketers need to be aware of the following organizational trends in purchasing: • Purchasing department upgrading: Strategically positioned and highly • Cross-functional roles: strategic, technical, team-oriented, and involving more responsibility • Centralized purchasing: recentralized their purchasing, to gain more purchasing clout and savings. • Decentralized purchasing of small-ticket items • Long-term contracts: Buyers are increasingly initiating long-term contracts • Internet purchasing: Low transaction and personnel costs reduce time between order and delivery, purchasing companies moving towards internet purchasing. • Purchasing-performance evaluation & incentive systems and buyers’ professional
  3. 3. • Lean production: incorporates just-in-time (JIT) production, stricter quality control, development frequent and reliable supply delivery, suppliers locating closer to customers, computerized purchasing, and stable production schedules. 8 stages of PURCHASING PROCESS Stage 1: Problem Recognition Someone in the company recognizes a problem or need that can be met by acquiring a good or service. Internally, developing a new product, need for new equipment and materials or to obtain lower prices or better quality. Externally, occur when a buyer gets new ideas at a trade show, sees a supplier’s ad, or is contacted by a sales representative offering a better product. Business marketers can stimulate problem recognition by direct mail, telemarketing, effective Internet communications, and calling on prospects. Stage 2: General Need Description The buyer has to determine the needed item’s general characteristics and the required quantity. In this stage, business marketers can assist buyers by describing how their products would meet such needs. Stage 3: Product Specification Company assigns a product value analysis (PVA) to engineering team. By getting in early and influencing buyer specifications, a supplier can significantly increase its chances of being chosen. Stage 4: Supplier Search The supplier should get listed in online catalogs or services develop communications to reach buyers, and build a good reputation in the marketplace. After evaluating each company, the buyer will end up with a short list of qualified suppliers Stage 5: Proposal Solicitation The buyer invites qualified suppliers to submit proposals. When the item is complex or expensive, the buyer will require a detailed written proposal from each qualified supplier. After evaluating the proposals, the buyer will invite a few suppliers to make formal presentations. Stage 6: Supplier Selection The buying center specifies desired supplier attributes (such as product reliability and service reliability) and indicate their relative. A blanket contract may be established. The buyer’s computer automatically sends an order to the seller when stock is needed, and the supplier arranges delivery and billing according to the blanket contract. Stage 7: Order-Routine Specification The buyer negotiates the final order, listing the technical specifications, the quantity needed, the delivery schedule, and so on. In the case of MRO items, buyers are moving toward blanket contracts rather than periodic purchase orders. Stage 8: Performance Review The buyer periodically reviews the performance of the chosen supplier(s). Three methods are used. The buyer may contact the end users and ask for their evaluations. Or the buyer may rate the supplier on several criteria using a weighted score method. Or the buyer might aggregate the cost of poor supplier performance to come up with adjusted costs of purchase, including price. Chapter 7 - Analyzing Business Markets and Buyer Behavior Major Influences on Business Buying: Interpersonal Factors Buying centers usually include several participants with differing interests, authority, status, empathy, and persuasiveness. Individual Factors Each buyer carries personal motivations, perceptions, and preferences, as influenced by the buyer’s age, income, education, job position, personality, attitudes toward risk, and culture. Cultural Factors Marketers carefully study the culture and customs of each region to better understand the cultural factors that can affect buyers and the buying organization.