powerpoint presentation prepared by dr. rajiv mehta chapter ten understanding and negotiating with...

PowerPoint presentation prepared byDr. Rajiv Mehta

Chapter TenChapter Ten

Understanding and Understanding and Negotiating with Negotiating with Organizational Organizational

BuyersBuyers

Copyright © Houghton Mifflin Company. All rights reserved. Chapter 10 | Slide 2

Chapter OutlineChapter Outline

• Types of organizational markets

• What organizational buyers want from salespeople

• Industrial markets

• Resellers

• Government markets

• Not-for-profit markets

• Negotiating styles of organizational buyers

• Business orientation of organizational buyers

• International negotiations


Learning ObjectivesLearning Objectives

After reading this chapter, you should understand:

• Four kinds of organizational buyers.• Roles of the members of the buying center.• Major steps in the buying process and the

three types of buying situations.• Why, what, and how organizational markets

buy products and services.• Six negotiation styles of organizational

buyers.• Buyers’ preferred relationships with

salespeople.• Decision-making styles of buyers.• How to do business in international

markets.Royalty-Free, Digital Vision/Getty Images


Types of Organizational MarketsTypes of Organizational Markets

• From a salesperson's perspective, there are four types of organizational markets

• Also called producer or manufacturer markets, these are organizations that buy goods and services or the production of other products and services that are sold, rented, or supplied to other organizations and final consumers

1. Industrial markets

• Individuals and organizations (retailers, wholesalers, and industrial distributors) that buy goods to resell or rent to other organizations and final consumers

2. Reseller markets

Royalty-Free, Photodisc/Getty Images



Types of Organizational Markets Types of Organizational Markets cont’dcont’d

• Federal, state, and local governmental units that buy goods and services for conducting the functions of government

3. Government markets

• Organizations such as public and private universities, colleges, hospitals, nursing homes, prisons, museums, libraries, and charitable institutions that buy goods and services for carrying out their functions

4. Nonprofit markets

Chapter Review Question:What four major characteristics distinguish nonprofit markets from the three other organizational markets?

Royalty-Free, Stockdisc Premium/Getty Images



What Organizational Buyers What Organizational Buyers Want from SalespeopleWant from Salespeople

• To buy from salespeople they trust to deliver on their promises, provide reliable service, and supply them with precise, accurate, and complete information

• To do business with salespeople who are looking out for their organization’s best interests and who help them look good personally



Creating and Maintaining Creating and Maintaining Long-Term RelationshipsLong-Term Relationships

• Relationships in organizational markets are critical for customer satisfaction and loyalty

• Salespeople who successfully sell to organizations understand that it is more profitable to create and nurture long-term relationships with customers (instead of taking a short-term view that emphasizes profit)

Royalty-Free, Digital Vision/Getty Images


Selling the RelationshipSelling the Relationship

• Relationship selling includes all activities aimed at creating, developing, and maintaining successful exchange relationships with prospects and customers

• Relationships between buyers and sellers are more effective and long-lasting when both parties cooperate with one another, have mutual trust in one another, and realize that each of them needs the other Royalty-Free, Digital Vision/Getty Images


Industrial MarketsIndustrial Markets

• Largest and most diverse of all the organizational markets; dollar volume far exceeds that for consumer markets.

• There are more careers in industrial selling than in other kind of selling because almost all industries buy from and sell to one another in creating products for the final consumer Royalty-Free, Photodisc/Getty Images


North American Industry North American Industry Classification System (NAICS)Classification System (NAICS)

• One of the best basic sources for identifying new business prospects and their general requirements is the North American Industry Classification System (NAICS) published by the U.S. Office of Management and Budget (OMB)

• NAICS replaces the old Standard Industrial Classification (SIC) System and provides for standardization in reporting economic data between Mexico, Canada, and the United StatesRoyalty-Free, Photodisc/Getty Images


North American Industry North American Industry Classification System (NAICS) Classification System (NAICS) cont’dcont’d

• NAICS is more detailed than SIC and provides better coverage of services such as health care, entertainment, and financial institutions

• The NAICS code starts with the broad industry category identified by two digits then focuses more specifically on products and services with each additional digit


Figure 10.1: North American Industrial Figure 10.1: North American Industrial Classification System forClassification System for

Identifying Business ProspectsIdentifying Business Prospects


Industrial Market Characteristics Industrial Market Characteristics cont’dcont’d

• Industrial markets differ from consumer markets in:

• Industrial demand tends to be derived demand as the demand for the industrial good comes from demand for a consumer good

1. Demand

• Industrial buyers tend to be geographically concentrated

2. Buyers

• Industrial purchases are less frequent and normally require a longer negotiation period than do consumer purchases

• Organizations often tend to buy from one another and engage in a mutual exchange of benefits

3. Purchasing Process

• The many differences between industrial and consumer markets in terms of demand, buyers, and purchasing process require that companies selling to industrial organizations develop marketing mixes tailored to specific customer groups and their unique needs

4. Marketing Mix

Chapter Review Question:Compare and contrast industrial markets and consumer markets.


Table 10.1 Industrial Versus Table 10.1 Industrial Versus Consumer Market CharacteristicsConsumer Market Characteristics


Table 10.1 Industrial Versus Table 10.1 Industrial Versus Consumer Market Characteristics Consumer Market Characteristics cont’dcont’d


The Role of the Industrial BuyerThe Role of the Industrial Buyer

• Industrial buyers are frequently called “purchasing agents” because they are the buying experts for their organizations

• The success of industrial buyers depends largely on their ability to:

1. Negotiate favorable prices and purchase terms

2. Develop alternative solutions to buying problems

3. Protect the organization's cost structure

4. Assure reliable, long-run sources of supply

5. Maintain good relationships with suppliers

6. Manage the procurement process



What Do Industrial Markets Buy? What Do Industrial Markets Buy? cont’dcont’d

• Goods used in the production process that do not become part of the finished product, such as fixed major equipment and office equipment

1. Foundation Goods

• Ingredients or components that become part of the finished product, such as raw materials and semi-manufactured goods

2. Entering Goods

• Consumed while assisting in the ongoing production process, such as maintenance and repair items

3. Facilitating Goods

• Industrial buyers are interested in three basic categories of goods and service:


Table 10.2 Classification Table 10.2 Classification of Industrial Goodsof Industrial Goods


Table 10.2 Classification Table 10.2 Classification of Industrial Goods of Industrial Goods cont’dcont’d


How Do Industrial Markets Buy?How Do Industrial Markets Buy?

• In larger organizations, it’s realistic to refer to industrial purchasing operations as buying centers because several people participate in purchasing decisions



Buying Centers Buying Centers cont’dcont’d

• A buying center consists of all people in the organization who participate in or influence the purchase decision process and may include anyone playing any of the following six roles in the buying process 1. Initiators

• People who first recognize a problem which may require the purchase of a product or service

2. Gatekeepers • People who control information or access

to decision makers

3. Influencers • People who influence the purchase

decision by setting specifications or by providing information about evaluating alternatives



Buying Centers Buying Centers cont’dcont’d

4. Deciders • Higher level managers who have power to

approve suppliers and final purchase decisions

5. Buyers • People with formal responsibility and

authority to order products and negotiate purchase terms

6. Users • People who will actually use the product or

service and can help initiate the purchase and set specifications

Chapter Review Question:What are the six roles that different members of a

buying center can play in the industrial buying process?Royalty-Free, Digital Vision/Getty Images


Types of Buying Situations Types of Buying Situations cont’dcont’d

There are three basic types of buying situations

1. Straight rebuy• Routine reorder such as office supplies and

utilities

2. Modified rebuy • Change in product specifications, prices, or

supplier performance, such as consulting services, company vehicles, and heavy equipment

3. New task buy• Complex product purchase such as a new

heating plant or the construction of a building

Chapter Review Question:

List, discuss, and give examples of the three types of industrial buying situations.



Figure 10.2: Figure 10.2: Three Types of Industrial BuyingThree Types of Industrial Buying


Stages in the Buying Process Stages in the Buying Process cont’dcont’d

There are eight major steps in the buying process:

1. Recognizing the problem

2. Describing the basic need

3. Developing product specifications

4. Searching for suppliers

5. Soliciting proposals

• Basic decision criteria: (i) performance, (ii) economic, (iii) integrative, (iv) adaptive, and (v) legalistic

6. Evaluating proposals and selecting suppliers

7. Setting up the ordering procedure

8. Reviewing performanceChapter Review Question:

Name and describe the sequential stages in the industrial buying process.


ResellersResellers

• Resellers serve as purchasing agents for their customers

• Includes all those intermediary organizations that buy goods for reselling or renting to others at a profit or for conducting their own operations



Types of Resellers Types of Resellers cont’dcont’d

1. Industrial distributors • Sell to manufacturers and producers.

• There are three types of industrial distributors:

a) General-line distributors (mill supply houses)

b) Specialist firms

c) Combination houses



ResellersResellers

2. Wholesalers• Dell to retailers

• More than 370,000 wholesalers in the U.S. who handle half of all manufacturer consumer goods

3. Retailers• Sell to consumers

• Most retail store salespeople, usually called salesclerks, are little more than order takers; only recently have a few large chains begun offering incentives or commissions on sales to their retail salespeople



Reseller Buying Situations Reseller Buying Situations cont’dcont’d

• Resellers usually find themselves concerned with one or more of three types of buying situations

• New-product

• Selection of the best supplier

• Better set of terms from current supplier

• Six criteria most often used for new product buying situations are

a. Pricing and profit margins

b. Product's uniqueness and strength of the product category

c. Seller's intended positioning and marketing plan

d. Test market evidence of consumer acceptance

e. Advertising and sales promotion support

f. Selling company's reputationRoyalty-Free, Photodisc/Getty Images


Reseller Information SystemsReseller Information Systems

• Electronic point-of-sale (POS) systems and in-store computers began appearing in retail outlets in the early 1970s

• Today, resellers often have more information than the salesperson about inventory turnover, product performance, cash flow, customer complaints, and accounts payable



Computer-Assisted BuyingComputer-Assisted Buying

• Some salespeople have already edged out competitors by providing their reseller customers with individualized merchandising service

• As reseller information systems based on computerized purchasing operations increase in sophistication, the professional salesperson's job will rapidly shift toward providing buyers with detailed and comprehensive data



Incentives and Sales Tools Incentives and Sales Tools Offered to Resellers Offered to Resellers

• Reseller Contests and Sweepstakes

• Point-of-Purchase Displays

• Reseller Training Programs

• In-Store Demonstrations

• Slotting Allowances

• Just-in-Time Purchasing

• Radio Frequency Identification (RFID)

• Point-of-Sale Inventory-Tracking Systems

• Product Tags

• Cooperative Advertising Allowances

• Promotional Pricing

• Trade Margins and Allowances

• Several incentives and sales tools can be used to make help salespeople make their offerings more attractive to resellers


Table 10.3 Incentives Table 10.3 Incentives Offered to ResellersOffered to Resellers


Government MarketsGovernment Markets

• The federal government accounts for more than 40 percent of the total spent by all government levels

• The U.S. government, 50 state governments, more than 3,000 county governments, and 86,000 local government units purchase over $1 trillion worth of goods and services annually



Sales Opportunities in Government MarketsSales Opportunities in Government Markets

• Government markets offer opportunities for both producers and “middlemen” to sell everything from spacecraft to toothpaste—everything needed to provide citizens with such services as national defense, fire and police protection, education, health care, water, postal service, waste disposal, and public transportation

• Government purchasing patterns sometimes change abruptly in response to budget constraints and the service demands of citizens


How Do Governments Buy?How Do Governments Buy?

• Federal buying is done for two sectors:

1. The General Services Administration (GSA) purchases goods and services for civilian government agencies.

2. The Defense Logistics Agency (DLA) purchases for the military services.

• Both the GSA and the DLA function like wholesalers and resellers for other government units.

• Nearly 20 percent of all government contracts are awarded on the basis of only one bid.

• Most purchases are made by either negotiated contracts or open bids (where the award usually goes to the lower-cost qualified bidder).

Chapter Review Question:Briefly discuss government markets. What are the two sectors for which the federal

government buys? How are most government purchases made? What sources of help in dealing with the government are available?


Not-for-Profit MarketsNot-for-Profit Markets

• Also called noncommercial or not-for-profit organizations, nonprofits include colleges, hospitals, libraries, charities, churches, museums, and various associations such as the National Organization for Women (NOW) and the American Association of Retired People (AARP)

• Nonprofit organizations have distinct characteristics:

1. providing services and creating social change

2. close public scrutiny from multiple publics

3. multiple objectives such as the social impact of their efforts, the number of people served, and the amount of donation attracted

4. dual management (professional managers and specialists with managerial responsibilities)


Negotiating Styles of Negotiating Styles of Organizational Buyers Organizational Buyers cont’dcont’d

• Keep several suppliers competing aggressively against one another to win the business

1. Hard Bargainers

• Try to work efficiently and cooperatively with salespeople to reach mutually acceptable agreement

2. Facilitators

• Exhibit honesty and integrity throughout negotiations and refrain from pressuring the salesperson into concessions

3. Straight-Shooters


Negotiating Styles of Negotiating Styles of Organizational Buyers Organizational Buyers cont’dcont’d

• Keep several suppliers competing aggressively against one another to win the business

4. Socializers

• Try to make salespeople show respect to them and their organizations and express appreciation for their business

5. Persuaders

• Empathize with salespeople and try to work with them to reach mutually acceptable agreements

6. Considerate buyers


Business Orientation of Business Orientation of Organizational BuyersOrganizational Buyers

• Organizational buyers differ with respect to the preferred kind of relationship they have with salespeople

• Salespeople must determine the kind of relationship their prospects and customers desire and adapt their behavior accordingly



Business Orientation of Business Orientation of Organizational Buyers Organizational Buyers cont’dcont’d

• Three types of customers have been identified with respect to their preferred relationship:

• Interact with salespeople like personal friends, as they share intimacy and casual conversation and engage in joint leisure activities beyond the usual sales call (e.g., attending sporting events). Such relationships tend to be long term.

1. Commercial Friends



Business Orientation of Business Orientation of Organizational Buyers Organizational Buyers cont’dcont’d

• Maintain a formal relationship with salespeople and are reliant on them for economic gain; although the association is cordial—and may even incorporate discussions of personal life—it lacks intimacy and does not entail interaction beyond the business context.

3. Business Acquaintances

• Treat salespeople almost like a fellow employee and meld both personal and business aspects of the relationship, but are less intimate than commercial friends are with salespeople. As with commercial friends, relationships between the salespeople and a customer coworker are long term.

2. Customer Coworkers



Buyers and Decision-MakingBuyers and Decision-MakingStyles Styles cont’dcont’d

• There are three kinds of decision-making styles:

(1) Planning-oriented,

(2) Entrepreneurially Oriented, and

(3) Bureaucratically Oriented

• A buyer’s style influences his or her preferences for the seller’s selling strategy.

• The selling strategy a salesperson uses with a given customer should reflect that customer’s decision-making style.


Buyers and Decision-MakingBuyers and Decision-MakingStyles Styles cont’dcont’d

• Entails making decisions on the basis of long-run considerations, as the needs of the firm are carefully evaluated and planned. It requires detailed information and consultations with multiple departments

1. Planning-Oriented Style

• Try to work efficiently and cooperatively with salespeople to reach mutually acceptable agreement

2. Entrepreneurially Oriented Style

• Characterized by utilization of formal rules and policies that determine information flows, activities, and interactions among company members

3. Bureaucratically Oriented Style

Chapter Review Question:Compare and contrast the three different types of decision-making styles used by

professional buyers: the planning-oriented, entrepreneurially oriented, and bureaucratically oriented styles. How would you negotiate with buyers who exhibit

each of the three styles?


Table 10.4 Type of Table 10.4 Type of Decision-Making StyleDecision-Making Style


International NegotiationsInternational Negotiations

• As domestic markets become saturated, nearly every company is interested in increasing international sales

• This is little more than wishful thinking until the company's sales representatives find global customers, build trustful relationships, and bring the global sales concept to reality

• Therefore, professional sales personnel must be especially aware of cultural differences that they will encounter when doing business with international organizational buyers and how those differences will influence the buyer-seller relationshipRoyalty-Free, Photodisc/Getty Images


Guidelines for Guidelines for Doing Business in International MarketsDoing Business in International Markets

• Several guidelines are important to consider in international selling:

• Don't Be in a Hurry

• Understand Time

• Continue Gathering Information

• Be Comfortable with Silence

• Never Be Confrontational or Argumentative

• Thoroughly Prepare Before Any Negotiations

• Stay Open to Different Negotiating Styles

• Try Negotiating by the Other Side's Rule Book

• Be Knowledgeable About Etiquette in Other Cultures


Table 10.5 Considerations in Table 10.5 Considerations in Doing International BusinessDoing International Business


Table 10.5 Considerations in Table 10.5 Considerations in Doing International Business Doing International Business cont’dcont’d


International Views of NegotiationInternational Views of Negotiation

• Many other cultures, by contrast, prefer to develop buyer-seller relationships up front that encourage win-win negotiations based on trust

• International negotiators generally believe that trust and shared interests characterize a healthy relationship, not some complex legal contract

• Buyers from other countries often see U.S salespeople as negotiating with a "winner-take-all" attitude



Know Your Negotiating PartnerKnow Your Negotiating Partner

• This will help avoid misunderstandings, enhance mutual respect, and increase the chances for success in the negotiations

• When salespeople engage in international negotiations, they must understand local customers—traditions, customs, habits, and sensitivities



Business Etiquette in Business Etiquette in Other CulturesOther Cultures

• Salespeople must learn as much as they can about local business etiquette when negotiating in different countries

• Avoiding a mistake in business etiquette can often make the difference between successful and unsuccessful negotiations



Business Etiquette in Business Etiquette in Other Cultures Other Cultures cont’dcont’d

• Use of business cards

• Use of first names

• Eye contact

• Understanding what “yes” means

• Acceptance of gifts

• Interpretation of smiling handshakes

• Use of one’s voice

• Posture and body language

• Distance between buyer and seller

• Awareness of host country holidays

• Use of the term “foreigners“

• Importance of face-to-face contact

• Importance of humility and modesty

Some major issues to be aware of and sensitive to

Chapter Review Question:Provide some basic guidelines and rules of business etiquette for salespeople selling in

international markets.


Key TermsKey Terms

• North American Industry Classification System (NAICS)• Focuses on all activities aimed at creating, developing, and maintaining

successful exchange relationships with prospects and customers. • Derived Demand

• Demand created as a result of consumer demand; typical of industrial markets.

• Reciprocity• In industrial buyer-seller relationships, an informal agreement between two

or more organizations to exchange goods and services on a systematic and more or less exclusive basis. In other words, “you buy from me, and I’ll buy from you.”

• Industrial Buyer• The buying expert for an organization. Sometimes called the purchasing

agent. • Foundation Goods

• Goods used in the production process that do not become part of the finished product, such as fixed major machine tools and office equipment.


Key Terms Key Terms cont’dcont’d

• Entering Goods• Ingredients or components that become part of the finished product, such as

raw materials and semi-manufactured goods.

• Facilitating Goods• Goods consumed in the ongoing production process, such as maintenance

and repair items.

• Gatekeeper• Person who controls information or access to decision makers. Examples

include technical advisers, secretaries, security guards, and even telephone switchboard operators.

• Influencers• People who can influence the purchase decision by helping set product

specifications, negotiating purchasing procedures and prices, or providing information about evaluating alternatives.


Key Terms Key Terms cont’dcont’d

• Buying Center

• In a buying organization, a group of organization members responsible for making purchases.

• FedBizOpps.gov

• Website that contains all federal contracting community solicitations for purchases exceeding $25,000

• Dual Management

• A management system in which both professional managers and specialists without managerial training run an organization, sometimes resulting in conflict. Typical of many nonprofit organizations.


Chapter Review QuestionsChapter Review Questions

1. Explain why industrial demand is derived demand. Why are industrial markets more price inelastic and volatile than consumer markets?

2. Name the different criteria on which the success of a purchasing agent is determined by his or her company.


Topics for Thought and Topics for Thought and Class DiscussionClass Discussion

1. How would you go about becoming acquainted with members of an organization’s “buying center”? How would you determine which specific role each person played?

2. What do you think about the practice of reciprocity in business?

3. If you were a small business owner who wanted to obtain some federal government contracts, how would you find out how to sell to the government? Outline the steps that you would take.


Topics for Thought and Topics for Thought and Class Discussion Class Discussion cont’dcont’d

4. What do you think are some of the reasons why U.S. salespeople sometimes fail when trying to negotiate contracts with prospects from other countries? What might they do to increase their success?

5. Of the four different types of organizations (manufacturers, resellers, governments, and nonprofits), which do you think you would most like to call on as a salesperson? Which would you least like to call on? Why?


Internet ExercisesInternet Exercises

1. Use the Internet to access the North American Industry Classification System (NAICS) website at www.naics.com. What are the different industrial sectors on which you can find information? Describe the type of information that is available about manufacturing and service firms in North America. As a salesperson, how would you be able to use this information?


Internet Exercises Internet Exercises cont’dcont’d

2. Using Google or any other search engine, find guidelines (in addition to those discussed in this chapter) for doing business in international markets.

3. Use the Internet to find articles on business etiquette that salespeople should be aware of when doing business in countries whose cultural systems are very different from those in the United States.

4. Using an Internet search engine, find articles on different international negotiation approaches. Which countries do you think differ the most in their negotiation approaches?


Projects For Personal Growth Projects For Personal Growth

1. Your company’s R&D department has developed a chemical compound made from corn by-products that provides airtight sealing properties when coated over various substances. R&D scientists believe that this product, tentatively named Sealatron, will have many uses in the heavy construction industry. They say it may be appropriate for a final coating on top of the outer insulation wrappings for large oil and gas pipes, power lines, and perhaps sewer and water mains. It might also be used for waterproofing the exteriors of commercial buildings. Go to your school library and use the North American Industry Classification System (NAICS) to research the potential markets for this new chemical sealant. How specifically can you define the potential markets with NAICS digits? Once you’ve found the level of specificity that you want, how will you use the NAICS information?


Projects For Personal Growth Projects For Personal Growth cont’dcont’d

2. Assume that you sell for a small clothing manufacturer that wants to supply your company’s undershirts, undershorts, and trousers to one or more of the military branches. Go to FedBizOpps.gov and see what information you can find about federal government solicitations for clothing contracts. What other websites did you visit to find more information? Keep at it until you find at least two solicitations that you believe your company could bid on. Find out how, when, and where to submit your bid.

3. Select a country (other than the United States) in which you would like to sell products and services for a U.S.-based company. What are some basic considerations and rules of etiquette that you need to know and follow in order to sell successfully in this country?


1. In terms of buying-center roles (initiators, gatekeepers, influencers, deciders, buyers, and users), how should Linda classify each of the seven people she met at Gamble & Simpson (Marie Doyle, Bill Constantin, Esther Hughes, Dr. Stuart Forbes, Dr. Li Chu, Fred Burnett, and Dr. Leland Birsner)

2. Which of these people do you think has the greatest influence on purchase decisions? Why?

Case 10.1: Do I Really Have To Case 10.1: Do I Really Have To Worry About All These People?Worry About All These People?


3. What advice would you give Linda in her efforts to think up a strategy and tactics to develop and maintain good relationships with all of these buying center members?

4. Now that her first sales call is over, what should Linda do to follow up with some or all of the Gamble & Simpson people?

Case 10.1: Do I Really Have To Case 10.1: Do I Really Have To Worry About All These People? Worry About All These People? cont’dcont’d


Case 10.2:Case 10.2:Now What Am I Going To DoNow What Am I Going To Do??

1. Do you think Keith has been doing a good job serving the Eaton account? Why or why not?

2. In what stage of the buying process is Eaton’s new purchasing organization? What is the buying situation from their perspective?

3. What specific actions would you advise Keith to take now?

4. If Keith manages to retain the Eaton account, what advice would you give him for long-run maintenance of the account?

Case 10.2 is found online at http://college.hmco.com/pic/andersonps2e.

http://college.hmco.com/pic/andersonps2e





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