Chapter 8 Analyzing Business Markets and Business Buying

Kotler on Marketing Many businesses are wisely turning their suppliers and distributors into valued

Chapter Objectives § In this chapter, we focus on six questions: § What is the business market, and how does it differ from the consumer market? § What buying situations do organizational buyers face? § Who participates in the business buying process? § What are the major influences on organizational buyers? § How do business buyers make their decisions? § How do institutions and government agencies do their buying? 3 Copyright © 2003 Prentice-Hall, Inc.

What is Organizational Buying? § Organizational buying § The business market versus the consumer market § Business market § Fewer buyers § Larger buyers § Close supplier-customer relationship § Geographically concentrated buyers 4 Copyright © 2003 Prentice-Hall, Inc.

What is Organizational Buying? § Derived demand § Inelastic demand § Fluctuating demand §

Blue Shield of California’s mylifepath 6 Copyright © 2003 Prentice-Hall, Inc.

What is Organizational Buying? § Several buying influences § Multiple sales calls § Directed

If you were tasked with marketing a product or service to an organization, would you attempt to initially contact the purchasing department, or potential users of your company’s offerings? Why? Would the product you were selling make a difference? Why? 8 Copyright © 2003 Prentice-Hall, Inc.

What is Organizational Buying? § Buying Situations § Straight rebuy § Modified rebuy § New Task § Systems Buying and Selling § Systems buying § Turnkey solution § Systems selling 9 Copyright © 2003 Prentice-Hall, Inc.

What are some of the benefits to an organization that can be derived from a single source solution, or a systems buying arrangement with a prime contractor? What are some of the potential pitfalls? What can the company do to protect itself from these hazards? 10 Copyright © 2003 Prentice-Hall, Inc.

Participants in the Business Buying Process § The Buying Center § Initiators § Users § Influencers § Deciders § Approvers § Buyers § Gatekeepers § Key buying influencers § Multilevel in-depth selling 11 Copyright © 2003 Prentice-Hall, Inc.

Figure 8 -1: Major Influences on Industrial Buying Behavior 12 Copyright © 2003 Prentice-Hall,

Major Influences on Buying Decisions § Environmental Factors § Organizational Factors § Purchasing-Department Upgrading § Cross-Functional Roles § Centralized Purchasing § Decentralized Purchasing of Small-Ticket Items § Internet Purchasing 13 Copyright © 2003 Prentice-Hall, Inc.

The e-hub Plastics. com home page offers buyers and sellers of plastics a marketplace

Covisint’s Web site offers both services and information 15 Copyright © 2003 Prentice-Hall, Inc.

Major Influences on Buying Decisions § Other Organizational Factors § Long-Term Contracts § Vendor-managed inventory § Continuous replenishment programs § Purchasing-Performance Evaluation and Buyers’ Professional Development § Improved Supply Chain Management § Lean Production § Just-in-time 16 Copyright © 2003 Prentice-Hall, Inc.

Major Influences on Buying Decisions § Interpersonal and Individual Factors § Cultural Factors §

The Purchasing/ Procurement Process § Incentive to purchase § Three Company Purchasing Orientations § Buying Orientation § Commoditization § Multisourcing § Procurement Orientation § Materials requirement planning (MRP) § Supply Chain Management Orientation 18 Copyright © 2003 Prentice-Hall, Inc.

The Purchasing/ Procurement Process § Types of Purchasing Processes § Routine products § Leverage

The Purchasing/ Procurement Process § Stages in the Buying Process § Problem Recognition § General Need Description and Product Specification § Product value analysis § Supplier Search § § Vertical hubs Functional hubs Direct external links to major suppliers Buying alliances § Company buying sites § Request for proposals (RFPs) Copyright © 2003 Prentice-Hall, Inc. 20

Table 8. 1: Buygrid Framework: Major Stages (Buyphases) of the Industrial Buying Process in Relation to Major Buying Situations (Buyclasses) Buyclasses Buyphases New Modified Straight Task Rebuy 1. Problem recognition Yes Maybe No 2. General need description Yes Maybe No 3. Product specification Yes Yes 4. Supplier search Yes Maybe No 5. Proposal solicitation Yes Maybe No 6. Supplier selection Yes Maybe No 7. Order-routine specification Yes Maybe No 8. Performance review Yes Yes 21 Copyright © 2003 Prentice-Hall, Inc.

The Purchasing/ Procurement Process § General Need Description and Product Specification § Product value analysis § Supplier Search § Vertical hubs § Functional hubs § Direct extranet links to major suppliers § Buying alliances § Company buying sites § Request for proposals (RFPs) 22 Copyright © 2003 Prentice-Hall, Inc.

The Purchasing/ Procurement Process § Proposal Solicitation § Supplier Selection 23 Copyright © 2003

Table 8 -2: An Example of Vendor Analysis Attributes Rating Scale Importance Weights Price . 30 Supplier reputation . 20 Product reliability . 30 Service reliability . 10 Supplier Flexibility . 10 Poor (1) Fair (2) Good (3) Excellent (4) x x x Total score: . 30(4) +. 20(3) +. 30(4) +. 10(2) +. 10(3) = 3. 5 24 Copyright © 2003 Prentice-Hall, Inc.

The Purchasing/ Procurement Process § Customer value assessment § Routine-order products § Procedural-problem products § Political-problem products § Order-Routine Specification § Blanket contract § Stockless purchase plans § Performance Review § Buyflow map 25 Copyright © 2003 Prentice-Hall, Inc.