Chapter 7

1. Chapter 7 Business and Organizational Customers and Their Buying Behavior www.mhhe.com/fourps

2. At the end of this presentation, you should be able to: • Describe who the business and organizational buyers are. • See why business and organizational purchase decisions often involve multiple influences. • Understand the problem-solving behavior of organizational buyers, and how they get market information. • Understand the different types of buyer-seller relationships and their benefits and limitations

3. At the end of this presentation, you should be able to: • Know about the number and distribution of manufacturers and why they are an important customer group. • Know how buying by service firms, retailers, wholesalers, and governments is similar to—and different from—buying by manufacturers.

4. Understand Business & Organizational Customers for Marketing Strategy (Exhibit 7-1)

5. Understanding Business & Organizational Customers for Marketing Strategy (Exhibit 7-1) Organizational Customers CH 7: Buying Behavior of Business & Organizational Customers • Differences between • organizational customers • & final consumers • Purchase criteria & specifications • Multiple buying influence • Problem-solving process • B2B e-commerce • Buyer-seller relationships • Key characteristics of specific • types of organizational • customers • Manufacturers • Producers of services • Retailers & wholesalers • Government units

6. Manufacturers • Farms, mines, etc. • Financial Institutions • Other providers Producers • Wholesalers • Retailers Intermediaries • Federal • State and Local Governments • National • Local Nonprofits Business and Organizational Customers – A Big Opportunity –buy for resale or to produce other good and services. All Business & Organizational Customers

7. Business and Organizational Customers © 2009 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

8. Serving Small Business Customers

9. Organizational Customers Are Different

10. Serving International Markets © 2009 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

11. Specifications and Quality Specifications Describe the Need Quality Certification - ISO 9000

12. Many Different People May Influence a Decision (Exhibit 7-2) Buyers—arranging terms of sale Influencers— specifications BuyingCenter Users Deciders—select Suppliers Gatekeepers— Information

13. Checking Your Knowledge • Mary is a receptionist for a group of seven physicians. As • she controls the calendars for the physicians, any sales • representatives from pharmaceutical companies wanting • to call on the physicians have to go through Mary. As a • result, it is very important for sales reps to cultivate a good • relationship with her. In the buying center, Mary would • be best described as a: • buyer. • user. • influencer. • gatekeeper. • decider.

14. Checking Your Knowledge • Carl is a purchasing specialist for a large company. He has • the authority to execute purchase orders or amounts up to • $100,000. On a purchase order for a higher amount, Carl • arranges the terms of sale, but the transaction has to be • approved by the company president. In the buying center • for a purchase in excess of $100,000, Carl is a • _________ and the president is a _________: • buyer; influencer. • influencer; buyer. • buyer; decider. • gatekeeper; decider. • user; influencer.

15. Evaluating Organizational Buying Influences Vendor Analysis Considers All Influences (lower the total costs of a purchase) Behavioral Needs Are Important Too (sales representative who is uncooperative) Ethical Conflicts May Arise (buyer-supplier relationships code of conduct) Purchasing May Be Centralized (manage spending /achieve economies of scale)

16. New-Task Buying New-Task Buying Modified Rebuy Straight Rebuy Straight Rebuy Much Much Medium Little Little Much Much Some Little Little Much Much Some None None Much Much Some Little Little Organizational Buyers Are Problem Solvers (Exhibit 7-4) Characteristics Type of Process Time required Multiple influences Review of suppliers Information needed

17. New Task Buying Requires Information Search Engines – a first step to gather information Online marketplaces connect buyers & sellers New-Task BuyingRequiresInformation Competitive Bids from buyers Reverse Auctions foster price competition among suppliers

18. Checking Your Knowledge • Jane, a sales representative for an industrial supply house, calls on a • prospective business customer. The customer has an established • relationship with another supplier, but says that there have been some • reliability problems with deliveries. Jane seizes the opportunity to • describe her company’s state-of-the-art logistics and transportation • system that provides outstanding delivery reliability at low shipping • costs. Jane is encouraged because her customer seems to be in a • ___________ situation. • straight rebuy • modified rebuy • new-task • extensive problem-solving • limited problem-solving

19. Checking Your Knowledge • Auto parts wholesaler Fixem, Inc. decides to invest in a new data • management system to increase the efficiency of its warehouse • operations. Previously, all record-keeping was done via printed • documents, but now all transactions will be electronic. This change will • require Fixem to expend a significant amount of money for hardware, • software, and training. However, in the long run, the cost savings • should exceed the up-front investment. Fixem has arranged for • presentations to be made by three different vendors. Fixem seems to • be facing a ______________ buying situation. • straight rebuy • modified rebuy • new-task • extensive problem-solving • limited problem-solving

20. Interactive Exercise: Organizational Buying

21. Close Relationships May Produce Mutual Benefits Relationships May Not Make Sense • Reduced flexibility • Some purchases are too small or infrequent • Higher risk from greater purchase concentration • Reliable source of supply • Cost reductions • Price stability or concessions • Reduced uncertainty • Joint problem solving • Improved quality Buyer-Seller Relationships in Business Markets BUT

22. Relationships Have Many Dimensions: cooperation—problem resolution; information—customer needs, cost data, demand forecasts, new-product design details

23. Relationships Have Many Dimensions: operational— just–in-time delivery; Legal—contracts; Relationships—outsourcing

24. Relationship Dimensions—working closely with customers © 2009 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

25. Relationship Dimensions—working closely with customers © 2009 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

26. Checking Your Knowledge • Gotcha! is a chain of trendy stores catering to the urban • contemporary market. As part of its close relationship with • suppliers, Gotcha! has an Internet site that is accessible • only by suppliers, and it provides up-to-the minute point-of- • sale information from all of the Gotcha! stores. Suppliers • can see how their products are doing at retail during any • time of the day or night. In the relationship between • Gotcha! and its suppliers, the Gotcha! supplier site is an • example of: • information sharing. • legal bonds. • reciprocity. • operational linkages. • negotiated contracts.

27. Dynamics of Buyer-Seller Relationships Powerful Customer May Control the Relationship by compelling supplier to provide information, lower prices, modify service standards Buyers May Still Use Several Suppliers to reduce their risk Buying Varies by Customer Type

28. Manufacturers Are Important Customers Not Many Big Ones Clustered in Geographic Areas Business Data Classifies Industries NAICS Codes

29. Manufacturing (31) Apparel (315) Food (311) Leather (316) others… Apparel (315) Knitting MIlls (3151) Apparel accessories (3159) others… Cut & Sew Apparel (3152) Cut & sew apparel (3152) Women’s & girls’ (31523) Women’s & girls’ (31523) Mens & boys’ (31522) Other cut & sew (31529) others… Blouses (315232) Lingerie (315231) Dresses (315233) others… An NAICS Code Example(Exhibit 7-8) Construction (23) Manufacturing (31) Retail (44) others…

30. Producers of Services – Smaller and More Spread Out—4.6 million service firm in the U.S. Legal Services Car Repair Medical Services Housekeeping Services LibraryService Small ServiceBuyers Buying May Not Be Formal

31. Retailers & Wholesalers Buy for Their Customers Buyers Watch Computer Output Closely Reorders Are Straight Rebuys(decisions made automatically via computer links to suppliers) Committee Buying Is Impersonal (computers track inventory, sales, prices) Resident Buyers May Help (independent buying agents who work in central markets) Some Are Not “Open to Buy” (availability of funds within Frim’sDepart’s)

32. The Government Market Size + Diversity Competitive Bids FCPA (prohibits U.S. firms from paying bribes) Rigged Specs? (favors a particular brand) Foreign Governments (unethical to buy help for some countries) “Approved” Supplier List Negotiated Contracts (research & development: no competition) Learning Wants (government publications)

33. Study Question 1 Which of the following is NOT an example of an organizational buyer?  A. a government buyer purchasing a new desk for the mayor's office. B. a woman buying cookware to sell to her friends and neighbors. C. a sales rep buying a new necktie to make a good impression. D. a wholesaler buying a delivery truck. E. None of the above is a good example.

34. Study Question 2 Which of the following is a business or organizational customer, as opposed to an individual final consumer?  A. A wholesaler purchasing merchandise for resale. B. A business executive who purchases a new suit. C. A teacher who fills her car with gasoline. D. A homeowner who buys flowers at a garden center. E. None of the above example.

35. Study Question 3 John Deere is considered which type of organizational customer?  A. Producer. B. Intermediary. C. Government. D. Nonprofit.

36. Study Question 4 In the purchase of a new computer monitor, which of the following is an example of a user?  A. A purchasing manager who arranges the terms of the sale. B. An IT manager who supplies information for evaluating alternatives. C. A secretary whose computer monitor is being replaced. D. A receptionist who controls the flow of information. E. A supply manager who helps write specifications.

37. Study Question 5 A straight rebuy is MOST likely to occur for:  A. a new computer network. B. a pension plan which meets the new government regulations. C. paper supplies for the copy equipment. D. electronic components for a new product. E. executive chairs for a new office building.