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C H A P T E R S E V E N

ORGANIZATIONAL MARKETSAND BUYER BEHAVIOR

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AFTER READING THIS CHAPTER YOU SHOULD AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:BE ABLE TO:

• Distinguish among industrial, reseller, and government markets.

• Recognize key characteristics of organizational buying that make it different from consumer buying.

• Understand how types of buying situations influence organizational purchasing.

• Recognize similarities and differences in industrial and reseller purchase behavior.

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PP7-AA Laser Technology is Bright at HoneywellPP7-AA Laser Technology is Bright at Honeywell

• Gary Null believes Honeywell, MICRO SWITCH division, is poised to capture a significant share of the multi-billion dollar global market for laser technology and products.

• However, successful commercialization of their innovative laser technology depends on a coordinated worldwide team of engineers and marketing and sales professionals.

• The key is to show the advantages of VCSEL over existing technology to a diverse worldwide market.

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PP7-BB Business MarketingPP7-BB Business Marketing

Business marketing is the marketing of goods and

services to:

1. commercial enterprises,

2. Governments, and

3. other profit and not for profit organizations,

for use in the creation of goods and services that they

then produce and market to other business customers,

as well as individuals and ultimate consumers.

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PP7-CC Organizational BuyersPP7-CC Organizational Buyers

Organizational buyers are those manufacturers,

wholesalers and retailers, and government agencies

that buy goods and services for their own use or for

resale.

EXAMPLE: Buying computers and telephones for the

firm’s own use.

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PP7-1 Type and Number of Organizational CustomersPP7-1 Type and Number of Organizational Customers Type of Organization Number Kind of Market

Manufacturers 387,000

Mining 28,000

Construction 672,000

Farms, forestry, and fisheries 955,000 Industrial (business)

Service 8,594,000 markets --(11,552,000)

Finance, insurance, and real estate 617,000

Transportation and public utilities 276,000

Not-for-profit associations 23,000

Wholesalers 512,000 Reseller markets --

Retailers 1,564,000 2,076,000

Government units 85,000 Government markets --

85,000

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PP7-DD North American Industry Classification System (NAICS)PP7-DD North American Industry Classification System (NAICS)

• NAICS provides common industry definitions for Canada, Mexico, and the U.S., which facilitate the measurement of economic activity in the three member countries of NAFTA.

• NAICS replaced the Standard Industrial Classification system, a system which had been in place more than 50 years.

• NAICS is consistent with the International Standard Industrial Classification of All Economic Activities, published by the United Nations, to facilitate measurement of global economic activity.

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PP7-2 NAICS breakdown for broadcasting and PP7-2 NAICS breakdown for broadcasting and telecommunications industriestelecommunications industries

Broadcasting andtelecommunicationsBroadcasting andtelecommunications

Radio and televisionbroadcastingRadio and televisionbroadcasting

Wiretelecommunicationcarriers

Wiretelecommunicationcarriers

PagingPaging

Cable networks andprogram distributionCable networks andprogram distribution

TelecommunicationsTelecommunications

Wirelesstelecommunicationcarriers, exceptsatellite paging

Wirelesstelecommunicationcarriers, exceptsatellite paging

TelecommunicationsresellersTelecommunicationsresellers

SatellitetelecommunicationsSatellitetelecommunications

OthertelecommunicationsOthertelecommunications

Cellular and otherwirelesstelecommunications

Cellular and otherwirelesstelecommunications

2 DigitIndustry Subsector

3 DigitIndustry Group

4 DigitIndustry

5 DigitU.S. National Industry

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PP7-EE Concept CheckPP7-EE Concept Check

1. What are the three main types of organizational buyers?

2. What is the North American

Industry Classification System

(NAICS)?

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PP7–3 Key characteristics of organizational buying behaviorPP7–3 Key characteristics of organizational buying behavior

Market Characteristics– Demand for industrial products and services

is derived.

– Few customers typically exist, and their purchaseorders are large.

Product or Service Characteristics– Products or services are technical in nature and

purchased on the basis of specifications.

– There is a predominance of raw and semi-finishedgoods purchased.

– Heavy emphasis is placed on delivery time, technical assistance, postal service, and financing assistance.

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PP7–3 Key characteristics of organizational buying behavior -- PP7–3 Key characteristics of organizational buying behavior -- continued continued

Buying Process Characteristics

– Technically qualified and professional buyers exist and follow established purchasing policies and procedures

– Buying objectives and criteria are typically spelled out, as are procedures for evaluating sellers and products (services).

– Multiple buying influences exist, and multiple parties participate in purchase decisions.

– Reciprocal arrangements exist, and negotiation between buyers and sellers is commonplace.

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PP7–3 Key characteristics of organizational buying behavior -- PP7–3 Key characteristics of organizational buying behavior -- continued continued

Other Marketing Mix Characteristics– Direct selling to organizational buyers is the rule,

and physical distribution is very important

– Advertising and other forms of promotion are technical in nature.

– Price is often negotiated, evaluated as part of broader seller and product (service) qualities, typically inelastic owing to deriveddemand, and frequently affected by trade and quality discounts.

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PP7-FF Other Organizational Buyer TerminologyPP7-FF Other Organizational Buyer Terminology

• Reverse Marketing 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.

• Reciprocity is an industrial buying practice in which two organizations agree to purchase each other’s products and services.

• A supply partnership exists when a buyer and its supplier adopt mutually beneficial objectives, policies, and procedures for the purpose of lowering the cost and/or increasing the value of products and services delivered to the ultimate consumer.

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PP7–A Key Organizational Buying CriteriaPP7–A Key Organizational Buying Criteria

QualitySpecifications

TechnicalCapability

PastPerformance

OrganizationalOrganizationalBuying CriteriaBuying Criteria

DeliverySchedulesPrice

Warranty/Claim Policies

ProductionFacilities/Capacity

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PP7-GG Four Questions to Provide Guidance in Understanding PP7-GG Four Questions to Provide Guidance in Understanding the Buying Center the Buying Center

1. Which individuals are in the buying center for the product or service?

2. What is the relative influence of each member of

of the group.

3. What are the buying criteria of each member?

4. How does each member of the group perceive

our firm, our products and services, and our

salespeople?

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PP7–B Five roles in the buying centerPP7–B Five roles in the buying center

DecisionDecisionMakerMaker

InitiatorInitiator UserUser

InfluencerInfluencer GatekeeperGatekeeper

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PP7-4a Comparing the stages in consumer and organizational PP7-4a Comparing the stages in consumer and organizational purchases purchases

Stage in the Buying Consumer Purchase: Portable Organizational Purchase:

Decision Process CD Player for a student Headphones for CD player

Problem recognition Student doesn’t like the sound Marketing research and sales

of the stereo system now owned departments observe that

and desires a portable CD competitors are including

player. headphones on their models.

The firm decides to include

headphones on their own

new

models, which will be

purchased from an outside

supplier.

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Stage in the Buying Consumer Purchase: Portable Organizational Purchase:

Decision Process CD Player for a student Headphones for CD player

Information search Student uses past experience, Design and production

that of friends, ads, and engineers draft specifications

Consumer Reports to collect for headphones. The

information and uncover purchasing department

alternatives. Identifies suppliers of CD

player headphones.

Alternative evaluation Alternative portable CD Purchasing and engineering

players are evaluated on the personnel visit with suppliers

basis of important attributes and assess (1) facilities, (2)

desired in a CD player and capacity, (3) quality control,

several stores are visited. (4) financial status. They drop

any suppliers not satisfactory

on these factors.

PP7-4b Comparing the stages in consumer and organizational PP7-4b Comparing the stages in consumer and organizational purchases -- continued purchases -- continued

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PP7-4c Comparing the stages in consumer and organizational PP7-4c Comparing the stages in consumer and organizational purchases -- continuedpurchases -- continued

Stage in the Buying Consumer Purchase: Portable Organizational Purchase:

Decision Process CD Player for a student Headphones for CD player

Purchase decision A specific brand of portable CD They use (1) quality, (2) price, player is selected, the price is (3) delivery, and (4) technical

paid, and the student leaves capability as key buying

the store. criteria to select a supplier.

Then they negotiate terms

and award a contract.

Postpurchase behavior Student reevaluates the They evaluate suppliers

purchase decision, may return using a formal vendor rating

the portable CD player to the system and notify supplier if

store if it is unsatisfactory, and headphones do not meet its

looks for supportive quality standard. If the

information to justify the problem is not corrected,

purchase. they drop the firm as a

future supplier.

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PP7-5 How the buying situation affects buying center behaviorPP7-5 How the buying situation affects buying center behavior

Buying-Class Situation

Buying Center Dimension New Buy Straight/Modified Rebuy

People involved Many Few

Decision Time Long Short

Problem definition Uncertain Well-defined

Buying objective Good solution Low-price supplier

Suppliers considered New/present Present

Buying influence Technical/operating Purchasing Agent

personnel

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PP7-C Three Types of Buying SituationsPP7-C Three Types of Buying SituationsD

ecis

ion

tim

e an

d p

rob

lem

def

init

ion

Short/well defined

Few ManyNumber of people in buying centerand number of suppliers considered

Straightrebuy

Straightrebuy

Modifiedbuy

Modifiedbuy

Newbuy

Newbuy

Long/uncertain

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PP7-HH Concept CheckPP7-HH Concept Check

1. What one department is almost

always represented by a person in

the buying center?

2. What are the three types of

buying situations or buy classes?

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PP7-IIa Stages in the Industrial Buying ProcessPP7-IIa Stages in the Industrial Buying Process

• Problem Recognition often involves a make-buy decision -- an evaluation of whether components and assemblies will be purchased from outside suppliers or built by the company itself.

• Information Search often involves value analysis -- a systematic appraisal of the design, quality, and performance of a product to reduce purchasing costs.

• Alternative Evaluation often involves the generation of a bidders list -- a list of firms believed to be qualified to supply a given item.

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PP7-IIb Stages in the Industrial Buying ProcessPP7-IIb Stages in the Industrial Buying Process

• Purchase Decision -- The period from supplier selection to order placement to product delivery can take several weeks or even months, as negotiations regarding price, performance and delivery terms will continue. Additional negotiations may involve warranties, indemnities, and payment schedules.

• Postpurchase Behavior -- Evaluation occurs in the industrial purchase decision process, but is formal and often sophisticated. The performance of the supplier is monitored and recorded.

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1. What is a make-buy

decision?

2. What is a bidders list?

PP7-JJ Concept CheckPP7-JJ Concept Check