Summary Overview Business and organizational customers are any buyers who buy for resale or to produce other goods and services. As a category, there are important differences between how businesses and organizations make purchase decisions versus how individual consumers make those decisions. These differences are important to marketers. Characteristics of Business and Organizational Buying Different Types of Customers . As Exhibit 7-1 illustrates, businesses and organizations are in turn different from each other. Marketers need to keep these differences in mind when developing their own marketing mix. Buying for a Basic Purpose . Most organizations make purchases for the same basic reason: they buy goods and services that will help them meet the demand for the goods and services that they in turn supply to their markets. Purchasing Needs are Economic . Organizational buyers are usually less emotional in their buying behavior than are final consumers. Small Differences are Important . Every organization has a unique identity and the differences between organizations are important. Marketers must never assume that a marketing mix that is successful for one company will automatically fit the needs of other companies in the same industry Note: Salespeople in companies that are successful at marketing to organizations are often trained to detect and authorized to act on subtle company differences when making on-site visits. International Issues . Excellent opportunities exist in international markets for organizations and national/cultural differences must also be understood. Quality Concerns . Differences between standards across national boundaries may be an issue. ISO 9000 is a way for a supplier to document its quality procedures according to internationally recognized standards. This slide relates to the material on pp. 182-185. Instructor’s Note: This slide corresponds to Exhibit 7-1 on p. 182 and Transparency 53. See also Overhead 66.
Summary Overview Organizations differ from individual consumers in relation to buying behavior in some important ways. One of them is the fact that organizations use professional buyers or purchasing managers who specialize in buying activities for their employers. Further, organizations are characterized by multiple buying influences -- which means that several people share in making a purchase decision. When marketing to organizations, it is useful to think of these influences as buying centers . Buying Centers Users . These are the people who will actually use the product. They may be production workers or support staff. Influencers . These are people whose expertise is used to help determine which products are needed. Influencers are often technical people who help write specifications for suppliers to meet. Buyers . These are the purchasing managers who are responsible for working with suppliers and arranging for the terms of the sale. Deciders . These are the people in the organization who have the power to select or approve the supplier. Gatekeepers . These are people in key positions in the organization who control the flow of information. Gatekeepers can include receptionists, secretaries, researchers, and others who the marketer must “go through” to reach other members of the buying center. Teaching Tip: Point out to students the importance of establishing a good rapport with gatekeepers when selling or marketing to organizations. It is crucial that students understand that marketing is concerned with every contact, not just with the purchasing manager. This slide relates to the material on pp. 185-187. Instructor’s Note: This slide corresponds to Exhibit 7-2 on p. 187 and Transparency 54. See also Overhead 67.
Summary Overview Different people involved in purchase decisions are also human with respect to protecting their own interests. As Exhibit 7-3 illustrates, it is possible to distinguish where individual’s needs and the company’s needs are separate and where they overlap. Although most buyers in organizational markets are professionals, a comprehensive vendor analysis will consider how individual differences on a needs level may affect decision making. This slide relates to the material on pp. 187-188. Instructor’s Note: This slide corresponds to Exhibit 7-3 on p. 188 and Transparency 55. See also Overhead 68.
Summary Overview Like individual consumers, organizational buyers are problem-solvers. Problem-solving in organizational markets uses three kinds of buying processes: new-task, modified rebuy, or straight rebuy. Organizational Buying Processes New-Task Buying . New-task buying occurs when an organization has a new need and the customer wants a great deal of information. New-task buying often involves setting product specifications, evaluating sources of supply, and establishing an order routine to follow in the future if the initial purchase is successful at solving the problem. Discussion Note: New-task buying may take a lot of organizational resources and is typically reserved for situations where there is some need and some risk involved in making the right decision. If successful, new-task buying can lead to strong relationships because the supplier is helping the customer solve problems. Straight Rebuy . A straight rebuy is a routine repurchase that uses existing suppliers to fill a standard order. For many organizations, the straight rebuy is virtually automatic and may have been made many times before. Today, many straight rebuys are made by computers linking the buyer and the supplier directly. Modified Rebuy . A modified rebuy is the in-between process. Some review of the buying process is done but not as much as in a new-task buy. With this buying process, it is essential for the supplier to identify what criteria are being used for the buying review and to make sure that the right people in the organization know about the supplier's performance on those dimensions. This slide relates to the material on pp. 188-190. Instructor’s Note: This slide corresponds to Exhibit 7-4 on p. 189 and Transparency 56. See also Overheads 69-70.
Summary Overview Organizational buyers use four basic approaches to evaluating and buying products: Inspection, Sampling, Description, and Negotiated Contracts. Basic Methods in Organizational Buying Inspection . Inspection buying means looking at every item. This method is used for products that are not standardized and require examination. Buyers inspecting goods may be able to haggle over prices with sellers on the basis of differences or bid against competing buyers. Sampling . Sampling buying means looking at only part of the potential purchase. Sampling is an appropriate method when the product is well standardized and is bought in large quantities. Description . Description or specification buying means buying from a written (or verbal) description of the product. Services are usually purchased by description. In some industries it is common to select suppliers on the basis of competitive bids -- terms of sale offered by different suppliers in response to the buyer’s purchase specifications. Negotiated Contracts . Negotiated contract buying means agreeing to a contract that allows for changes in the purchase arrangements. This is a preferred method when it is difficult or impossible to specify all that is needed on a particular project in advance. For some projects, part of what is done early on will determine or influence the rest of the specifications for the whole project. Under such conditions, negotiated contracts help build in a commitment from suppliers to work with the buyer and provide some needed flexibility. This slide relates to the material on pp. 190-192. See also Overhead 71.
Summary Overview In business markets, both buyers and sellers may be motivated to develop a close working relationship for the benefit of both. Such relationships may help both firms improve profits, decrease costs, and reduce relative risk. Buyer-Seller Relationships in Business Markets: Key Dimensions Information Sharing . Both supplier and buyer benefit when they can share information. Information about customer needs helps motivate suppliers to improve their end of the bargain. Other areas may include cost data, demand forecasts, and new-product design. Operational Linkages . Operational linkages are direct ties between the internal operations of the buyer and seller firms. These formal arrangements require extensive coordination. One goal of such linkages can be just-in-time delivery by suppliers of materials as they are needed in the buyer’s production processes. This arrangement reduces inventory and carrying costs. Discussion Note: Operational linkages can also be computer connections between buyers and suppliers. For example, Wal-Mart has a direct computer connection to Procter and Gamble to speed up order and delivery of their products. Cooperation . Cooperation between buyer and supplier may be critical to making the relationship a success. Here both sides need to be aware of the effect of different company cultures and different individual personalities. Legal Bonds . Contracts spell out the obligations of each party in the relationship and provide protection to both. Clear contracts can help build a relationship because they reduce the chance of misunderstandings. Relationship-Specific Adaptations . These involve changes in a firm’s product or procedures that are unique to the needs or capabilities of a relationship partner. Discussion Note: For example, Campbell’s Soup requires growers to meet precise standards for farming, harvesting, and shipping vegetables but then guarantees a minimum level of business to growers who meet those standards. This slide relates to the material on pp. 193-198. Instructor’s Note: This slide corresponds to Exhibit 7-6 on p. 194 and Transparency 57.
Summary Overview There are several types of organizations including manufacturers, producers of services, retailers and wholesalers, and government. Types of Organizational Buyers Manufacturers . Manufacturers are important organizational buyers because a relatively small number account for a large proportion of organizational buying. Some key features of manufacturers are geographic concentration and the availability of census. information on them (in the U.S., this takes the form of North American Industry Classification System [NAICS] codes). Producers of Services . Service producers are more geographically dispersed than are manufacturers. In the U.S. this segment of the economy is large and growing fast. Retailers and Wholesalers . These organizations see themselves as purchasing agents for their target customers. Retailers buy what they think they can profitably sell to final consumers. Wholesalers buy what they think their retailer customers will want. Both approach buying in ways that are important to understand: Committee Buying. This assigns the buying decision to a committee that reviews reports submitted by the buyer. The seller may never meet the committee. Computer Tracking. Retailers and wholesalers seldom “guess” what is selling well. Computers track inventory, sales, and prices, even when an item is likely to sell well. Open to Buy. This refers to the availability of funds within an organization’s separate divisions. Once a budget has been spent, the department or division cannot buy more. Resident Buyers. These are independent buying agents who work in central markets for several retailer or wholesaler customers. The Government Market . In the U.S., about 20% of the GNP is spent by various levels of government units. Government buyers typically use competitive bidding and approved supplier lists, and put legal constraints on the latitude of individual buyers. This slide relates to the material on pp. 198-206. See also Transparencies 58-59 and Overheads 72-74. Instructor’s Note: The information on the lecture script provides an overview of organizational buyer types.
Buying behavior of custmer@ bec doms
Business and Organizational Customers and Their Buying Behavior
Chapter 7 Objectives <ul><li>1. Know who the business and organizational customers are. </li></ul><ul><li>2. See why multiple influence is common in business and organizational purchase decisions. </li></ul><ul><li>3. Understand the problem-solving behavior of organizational buyers. </li></ul><ul><li>4. Know the basic methods used in organizational buying. </li></ul><ul><li>5. Understand the different types of buyer-seller relationships and their benefits and limitations. </li></ul><ul><li>6. Know about the number and distribution of manufacturers and why they are an important customer group. </li></ul><ul><li>7. Know how buying by service firms, retailers, wholesalers, and governments is similar to —and different from— buying by manufacturers. </li></ul><ul><li>8. Understand the important new terms. </li></ul>When you finish this chapter, you should 7-2
Different Types of Customers 7-3 Exhibit 7-1 All business and organizational customers Producers Middlemen Governments Nonprofits Manufacturers Farms, mines, etc. Financial Institutions Other providers National Local Federal State and Local Wholesalers Retailers
Overlapping Needs 7-5 Exhibit 7-3 Innovation Survival Customer satisfaction Growth Profit Other needs Company’s Needs Overlap in Needs Individual’s Needs Risk Job security Comfort Career advancement Money-rewards Other needs
Organizational Buying Processes 7-6 Exhibit 7-4 Little Some Much None Some Much Little Some Much Little Medium Much Information Needed Review of Suppliers Multiple Influences Time Required Characteristics New-Task Buying Modified Rebuy Straight Rebuy Type of Process
Buyer-Seller Relationships 7-8 Exhibit 7-6 Information sharing Linkages Cooperation Legal bonds Adaptations Relationship Supplier Customer Salesperson Quality R&D Accounting Marketing Production Purchasing manager Quality Finance R&D Production Accounting Engineering
Types of Organizational Buyers 7-9 Manufacturers Service Producers Retailers & Wholesalers Governments Grouped by Industry Close to Customers Buying for Targets Bids & Regulations Focus: Focus: Focus: Focus:
Key Terms Inspection Buying Sampling Buying Description Buying Competitive Bids Negotiated Contract Buying Just-in-Time Delivery Reciprocity NAICS Codes Open to Buy Resident Buyers Foreign Corrupt Practices Act Business and Organizational Customers ISO 9000 Purchasing Managers Multiple Buying Influence Buying Center Vendor Analysis New-Task Buying Straight Rebuy Modified Rebuy Requisition 7-10