ORGANIZATIONAL MARKETS AND BUYER · PDF fileORGANIZATIONAL MARKETS AND BUYER BEHAVIOUR. 7-2 ' 2000 McGraw-Hill Ryerson Limited AFTER READING THIS CHAPTER YOU SHOULD ... Other Marketing

7-1© 2000 McGraw-Hill Ryerson Limited

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

ORGANIZATIONAL MARKETSAND BUYER BEHAVIOUR


AFTER READING THIS CHAPTER YOU SHOULDAFTER READING THIS CHAPTER YOU SHOULDBE ABLE TO:BE ABLE TO:

� Distinguish among industrial, reseller, andgovernment markets.

� Recognize key characteristics oforganizational buying that make it differentfrom consumer buying.

� Understand how types of buying situationsinfluence organizational purchasing.

� Recognize similarities and differences inindustrial and reseller purchase behaviour.


Laser Technology is Bright at HoneywellLaser Technology is Bright at Honeywell

� Gary Null believes Honeywell, MICRO SWITCHdivision, is poised to capture a significant share ofthe multi-billion dollar global market for lasertechnology and products.

� However, successful commercialization of theirinnovative laser technology depends on acoordinated worldwide team of engineers andmarketing and sales professionals.

� The key is to show the advantages of VCSEL overexisting technology to a diverse worldwide market.


Business MarketingBusiness 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.


Organizational BuyersOrganizational 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.


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

� NAICS provides common industry definitions forCanada, Mexico, and the U.S., which facilitate themeasurement of economic activity in the threemember countries of NAFTA.

� NAICS replaced the Standard IndustrialClassification system, a system which had been inplace more than 50 years.

� NAICS is consistent with the International StandardIndustrial Classification of All Economic Activities,published by the United Nations, to facilitatemeasurement of global economic activity.


PP7-1a NAICS breakdown for broadcasting and PP7-1a 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


Concept CheckConcept Check

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

2. What is the North American

Industry Classification System

(NAICS)?


PP7�2 Key Characteristics of Organizational Buying PP7�2 Key Characteristics of Organizational Buying BehaviourBehaviour

Market Characteristics

� Demand for industrial products and servicesis derived.

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

Product or Service Characteristics

� Products or services are technical in nature andpurchased on the basis of specifications.

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

� Heavy emphasis is placed on delivery time, technicalassistance, postal service, and financing assistance.

(continued)(continued)


PP7�2 Key characteristics of Organizational Buying PP7�2 Key characteristics of Organizational Buying BehaviourBehaviour

Buying Process Characteristics

� Technically qualified and professional buyers exist andfollow 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 partiesparticipate in purchase decisions.

� Reciprocal arrangements exist, and negotiation betweenbuyers and sellers is commonplace.

� Online buying over the Internet is widespread.

(continued)(continued)


PP7�2 Key Characteristics of Organizational Buying PP7�2 Key Characteristics of Organizational Buying BehaviourBehaviour

Other Marketing Mix Characteristics

� Direct selling to organizational buyers is the rule, andphysical distribution is very important

� Advertising and other forms of promotion are technical innature.

� Price is often negotiated, evaluated as part of broaderseller and product (service) qualities, typically inelasticowing to deriveddemand, and frequently affected by trade and qualitydiscounts.


Other Organizational Buyer TerminologyOther Organizational Buyer Terminology

� Reverse Marketing involves the deliberate effort by

organizational buyers to build relationships that shapesuppliers� products, services, and capabilities to fit abuyer�s needs and those of its customers.

� Reciprocity is an industrial buying practice in which twoorganizations agree to purchase each other�s productsand services.

� A supply partnership exists when a buyer and itssupplier adopt mutually beneficial objectives, policies,and procedures for the purpose of lowering the costand/or increasing the value of products and servicesdelivered to the ultimate consumer.


Key Organizational Buying CriteriaKey Organizational Buying Criteria

QualitySpecifications

TechnicalCapability

PastPerformance

OrganizationalOrganizationalBuying CriteriaBuying Criteria

DeliverySchedulesPrice

Warranty/Claim Policies

ProductionFacilities/Capacity


Four Questions to Provide Guidance inFour Questions to Provide Guidance inUnderstanding the Buying Understanding the Buying CentreCentre

1. Which individuals are in the buying centre 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?


Five Roles in the Buying Five Roles in the Buying CentreCentre

DecisionDecisionMakerMaker

InitiatorInitiator UserUser

InfluencerInfluencer GatekeeperGatekeeper


PP7-3b Comparing the stages in consumer and organizational PP7-3b 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.




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.

PP7-3b Comparing the stages in consumer and organizational PP7-3b Comparing the stages in consumer and organizational purchases purchases


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



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 behaviour 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.


PP7-4 How the Buying Situation Affects Buying PP7-4 How the Buying Situation Affects Buying Centre Centre Behaviour Behaviour

Buy-Class Situation Buying Centre 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


Three Types of Buying SituationsThree Types of Buying SituationsD

ecis

ion

tim

e an

d pr

oble

m d

efin

itio

n

Short/well defined

Few ManyNumber of people in buying centreand number of suppliers considered

Straightrebuy

Straightrebuy

Modifiedbuy

Modifiedbuy

Newbuy

Newbuy

Long/uncertain



1. What one department is almost

always represented by a person in

the buying centre?

2. What are the three types of

buying situations or buy classes?


Stages in the Industrial Buying Process

� Problem Recognition often involves a make-buydecision -- an evaluation of whether components andassemblies will be purchased from outside suppliersor built by the company itself.

� Information Search often involves value analysis -- asystematic appraisal of the design, quality, andperformance of a product to reduce purchasingcosts.

� Alternative Evaluation often involves the generationof a bidders list -- a list of firms believed to bequalified to supply a given item.


Stages in the Industrial Buying Process

� Purchase Decision -- The period from supplierselection to order placement to product delivery cantake several weeks or even months, as negotiationsregarding price, performance and delivery terms willcontinue. Additional negotiations may involvewarranties, indemnities, and payment schedules.

� Postpurchase Behaviour -- Postpurchase evaluationoccurs in the industrial purchase decision process,but it is formalized and often more sophisticated.The performance of the supplier is monitored andrecorded.


1. What is a make-buy

decision?

2. What is a bidders list?


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ORGANIZATIONAL MARKETS AND BUYER · PDF fileORGANIZATIONAL MARKETS AND BUYER BEHAVIOUR. 7-2 ' 2000 McGraw-Hill Ryerson Limited AFTER READING THIS CHAPTER YOU SHOULD ... Other Marketing