Download Understanding Organizational Markets and Buying Behavior

Chapter 5
Understanding
Organizational
Markets and
Buying Behavior
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Who Is the Customer?
• A comparison of organizational versus
consumer markets
• The crucial differences from a marketing
viewpoint are:
– The motivations of the buyer: what the
organization will do with the product and the
benefits it seeks to obtain.
– The demographics of the market.
– The nature of the purchasing process and the
relationship between buyer and seller.
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Who Is the Customer?
• Purchase motives—Derived demand
– Demand for industrial goods and services is:
• Derived from the demand for consumer goods and
services.
• Relatively inelastic.
• More erratic because small increases or decreases
in consumer demand can, over time, strongly
affect the demand for manufacturing plants and
equipment.
• More cyclical.
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Who Is the Customer?
• Market demographics: Organizational
buyers, when compared with buyers of
consumer goods, are:
– Fewer in number.
– Larger.
– Geographically concentrated.
5-4
Who Is the Customer?
• Purchasing processes and relationships –
Organizational markets are characterized
by the following:
– Use of professional buying specialists
following prescribed procedures.
– Closer buyer–seller relationships.
– Presence of multiple buying influences.
– More apt to buy on specifications.
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Who Is the Customer?
• Companies selling to organizational
markets needs to keep one eye on:
– Possible changes in organizations’ buying
behavior for its product.
– Trends in the underlying consumer markets.
• Organizational marketers tend to:
– Use direct selling.
– Be heavy users of “high-involvement” media.
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Who Is the Customer?
• Participants in the organizational
purchasing process:
– Users
– Influencers
– Gatekeepers
– Buyers
– Deciders
5-7
Who Is the Customer?
• The organizational buying center
– The individuals in this group share knowledge
and information relevant to the purchase of a
particular product or service.
• Marketing implications
– Which individuals to target.
– How and when each should be contacted.
– What kinds of information and appeals each is
likely to find most useful and persuasive.
5-8
How Organizational Members Make
Purchase Decisions
• Types of buying situations
– A straight rebuy involves purchasing a
common product or service the organization
has bought many times before.
– A modified rebuy occurs when the
organization’s needs remain unchanged, but
buying center members are not satisfied with
the current product or the supplier.
– New-task buying occurs when an organization
faces a new and unique need or problem.
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The Organizational Decision-Making Process for New-Task
Purchases
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How Organizational Members Make
Purchase Decisions
• Marketing implications of different
purchasing situations
– Extensive purchasing process applies
primarily to new-task purchases.
• Such situations are relatively favorable to potential
new suppliers who have never sold to the
organization.
– At the other extreme is the straight rebuy.
• “In,” suppliers have a major competitive
advantage.
• “Out” suppliers must attempt to interest the buyer
in modifying the purchase criteria.
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How Organizational Members Make
Purchase Decisions
• Developing long-term buyer–supplier
relationships
• Trust between supplier and customer
develops person-to-person
• Conditions favoring trust and commitment
– A firm is more likely to trust and develop a
long-term commitment to a supplier when that
supplier makes dedicated, customer-specific
investments.
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How Organizational Members Make
Purchase Decisions
• Government markets
– Government organizations tend to require
more documentation and paperwork.
– Typically require bids, and contracts are
usually awarded to the lowest bidder.
– Negotiated or “cost-plus” contract basis.
– Standard marketing strategies and tools are
less relevant.
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Selling Different Kinds of Goods and
Services to Organizations
• Raw materials
– Purchased primarily by processors and
manufacturers, they are inputs for making
other products.
– The two types are natural products and farm
products
• Implications for marketing decision makers
– The limited supply of most natural products
gives producers the power to limit supplies
and administer prices.
5-14
Selling Different Kinds of Goods and
Services to Organizations
• Natural materials
– Generally bulky and low in unit value –
producers try to minimize handling and
transportation costs.
– Distribution channels for natural materials
tend to have few middlemen.
• Agricultural products
– Distribution is a key function.
– There is usually little promotional activity.
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Selling Different Kinds of Goods and
Services to Organizations
• Component materials and parts
– Purchased by manufacturers as inputs for
making other products.
– Component materials have been processed to
some degree before they are sold.
– Component parts are manufactured items
assembled as part of another product without
further changes in form.
5-16
Selling Different Kinds of Goods and
Services to Organizations
• Implications for marketing decision makers
– Most components are bought in large
quantities – they are usually sold direct.
– Sellers must ensure a steady, reliable supply,
especially when a just-in-time (JIT)
management system is used by the buyer.
– Competitive bidding by suppliers can provide
some of the cost saving benefits of JIT
systems without the time and effort necessary
to build close cooperation.
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Selling Different Kinds of Goods and
Services to Organizations
• Installations
– Buildings and major capital equipment that
manufacturers and service producers use.
• Implications for marketing decision makers
– Many installations are custom-made.
– Long period of negotiation.
– Firms usually provide many postsale services.
– Promotional emphasis on personal selling.
– High-caliber, well-trained salespeople.
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Selling Different Kinds of Goods and
Services to Organizations
• Accessory equipment
– Includes industrial machines and tools that
manufacturers, services producers, and
governments use to carry out their operations.
– Accessory consists of tools and machines
with relatively short lives and small price tags.
• Implications for marketing decision makers
– Emphasis on personal selling.
– Advertising, brand name promotions, and
company Web sites are also important.
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Selling Different Kinds of Goods and
Services to Organizations
• Operating supplies
– They do not become a part of the buyer’s
product or service, nor are they used directly
in producing it.
– They facilitate the buying organization’s dayto-day operations.
• Implications for marketing decision makers
– Wholesale middlemen are typically used to
distribute these supplies.
– Price is usually the critical decision variable.
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Selling Different Kinds of Goods and
Services to Organizations
• Business services
• Implications for marketing decision makers
– The supplier’s qualifications, past
performance, and reputation are critical
determinants.
– Price is less important.
– Price often serves as an indicator of quality.
– Personal selling and negotiation are
important.
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Take-Aways
• While organizational customers are
different in some ways from consumers,
marketers need to answer a similar set of
questions to develop a solid foundation for
their marketing plans.
– Who are our target customers?
– What are their needs, wants, and
preferences?
– How do those customers decide what to buy
and what suppliers to buy from?
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Take-Aways
• Organizations buy things for one of three
reasons:
– To facilitate the production of another product
or service,
– For use by the organization’s employees in
carrying out its operations, or
– For resale to other customers.
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Take-Aways
• Organizations are social constructions.
– Therefore, “organizations” do not buy things.
– Individual employees make purchase
decisions on the organization’s behalf.
– Understanding the personal motivations of
these individuals, and their influence on
different stages of the purchasing process, is
essential for marketing success.
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Take-Aways
• The Internet is simultaneously
encouraging two opposing trends in
organizational purchasing:
– The growing use of short-term spot market
contracts via Web-based auctions and
– The strengthening of long-term buyer–
supplier relationships via the sharing of sales
and inventory data and the development of
supply chain alliances.
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Take-Aways
• The mutual interdependence of
organizational buyers and their suppliers
makes long-term cooperative relationships
crucial for customer retention and
marketing success.
– Building trust and commitment at multiple
levels in both firms can be a key factor in
establishing and maintaining profitable longterm customer relationships.
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