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Organizational Buying Process1. Problem Recognition2. General Description of Need3. ProductSpecifications4. Supplier Search5. Acquisitionand Analysisof Proposals6. Supplier Selection7. SelectionofOrder Routine8. PerformanceReviewOrganizational Buying Process0
Marketings Cross Functional RelationshipBusiness marketing planning must be coordinated and synchronized with corresponding planning efforts.Developed by Cool Pictures and MultiMedia Presentations0Three Buying Situations A Review
New taskStraight rebuyModified rebuy0Forces Influencing Organizational Buying BehaviorEnvironmentalForcesOrganizationalForcesGroupForcesIndividualForcesOrganizationalBuyingBehaviorEconomic outlook: domestic & globalPace of technological changeGlobal trade relationsGoals, objectives and strategiesOrganizational position of purchasingRoles, relative influence and patterns of interaction of buyingdecision participantsJob function, pastexperience, and buyingmotives of individualdecision participantsA projected change in business conditions can alter buying plans drastically.04Acquisition costs: selling price and transportation costs & administrative costs of evaluating suppliers, expediting orders, and correcting errors in shipments or delivery.2. Possession costs: include financing, storage, inspection, taxes, insurance, and other internal handlingcosts.3. Usage costs: are those associated with ongoing use of the purchased product such as installation, employee training, user labor, and field repair, as well asproduct replacement and disposal costs.Total cost ownership5Centralized vs. Decentralized PurchasingPurchasing is moving away from a transaction-based support role to a more strategic, executive level role
One result of this is to centralize purchasing
Centralized purchasing operates differently than decentralized purchasing
0Decentralized PurchasingDecentralized purchasing allows local branches to purchase what they need. This results in local control, and for many kinds of services this makes sense.
Example: Stop and Shop buys products from local farmers.
0Buying Center RolesInitiatorInitially perceives a problem and initiates the buying process to solve it.InfluencerAffects the purchasing decision by providing technical information or other relevant (internal or external) information. GatekeeperControls the information to be reviewed by members of the buying group. (For example, buyer may screen advertising material and even salespeople.)DeciderActually makes the buying decision, whether or not they have formal authority to do so. Could be the owner, an engineer or even the buyer.BuyerHas formal authority to select and purchase products or services and the responsibility to implement and follow all procurement procedures.User
Actually use the product in question. Can be inconsequential or major players in the process.0Types of RelationshipsContinuum of buyer-seller relationshipsTransactional, Value-added & Collaborative exchanges
The Relationship Spectrum0Differentiation StrategyFor a differentiation strategy to work:
The value created, measured by higher margins and higher sales volumes, has to exceed the cost of creating and delivering the customized features and services.
To determine this, the marketer needs to understand the drivers of profitability.0High-Cost-to-Serve Customers
Order custom products
Order small quantities
Unpredictable order arrivals
Customized delivery
Frequent changes in delivery requirements
Manual processing
Large amounts of presales support(i.e., marketing, technical, and sales resources)
Large amounts of post-sales support(i.e., installation, training, warranty, field service)
Require company to hold inventory
Pay slowly (i.e., high accounts receivable)Low-Cost-to-Serve Customers
Order standard products
Order large quantities
Predictable order arrivals
Standard delivery
No changes in delivery requirementsElectronic processing (EDI)(i.e., zero defects)
Little to no presales support(i.e., standard pricing and ordering)
No post-sales support
Replenish as produced
Pay on timeSource: Robert S. Kaplan and V.G. Narayanan, p. 8. Measuring and Managing Customer Profitability, Journal of Cost Management 15, No. 5 (September/October 2001): High- vs. Low-Cost-to-Serve Customers0 HighLowNet Margin RealizedCost-to-ServePassiveProduct is crucialGood supplier matchCostly to service,but pay topdollarPrice-sensitive butfew specialdemandsAggressiveLeverage their buying powerLow price and lots of customization Most challenging ProfitsLossesLowHighSOURCE: From Manage Customers for Profits (Not Just Sales) by B.P. Shapiro et al., September-October 1987, p. 104, Harvard Business Review. Figure 3.4 Customer Profitability
0Customer Relationship ManagementCustomer Relationship Management (CRM) is a cross-functional process for achieving:
Continuing dialog with customers across all contact and access pointsPersonalized service to the most valuable customersIncreased customer retentionContinued marketing effectiveness0CRM Technology CRM programs are software systems that capture information and integrate sales, marketing and customer service information.
CRM programs can gather information from many sources including email, call centers, service and sales reps.
The information is available to the right people in the organization in real time.0CRM Strategy - PrioritiesAcquire the right customer.
Craft the right value proposition.
Institute the best processes.
Motivate employees.
Learn to retain customers.015Hierarchy of Strategies 3 parts Corporate Strategy
Business-Level Strategy
Functional Strategy
0Fulfillment & SupportInformation & InsightRelationship DynamicsPricing Structure1. Customer Interface0COMPANY BOUNDARIESCONFIGURATIONFig. 5.2 Components of a Business Model: Bridges to ProfitsMajor business concept components are tied together by three important bridge elements: customer benefits, configuration, and company boundaries.CUSTOMER INTERFACEFulfillment & SupportInformation & InsightRelationship DynamicsPricing StructureCORE STRATEGYBusiness MissionProduct/Market ScopeBasis for Differentiation
STRATEGIC RESOURCESCore CompetenciesStrategic AssetsCore Processes
VALUE NETWORKSuppliersPartnersCoalitions
EFFICIENT / UNIQUE / FIT / PROFIT BOOSTERSCUSTOMER BENEFITS0
Michael Porter Asks: What is Strategic Positioning?0The Management SystemInvolves 5 stages:Strategy developmentTranslate strategy into objectivesDesign key processesMonitor performanceAdapt the strategy
2 Key tools for successful strategy implementation are:Balanced ScorecardStrategy Map 0The Balanced Scorecard - Translating Strategy Into Operational Terms4. Learning and Growth Perspective3. Internal Process Perspective1. Financial PerspectiveProductivityLong-TermShareholderValueRevenueGrowth2. Customer PerspectiveProduct/Service AttributesRelationshipImagePriceQualityTime Function PartnershipBrandManageOperationsManageCustomersManageInnovationManageRegulatoryand SocialProcessesHumanCapitalInformationCapitalOrganizationCapital++Cause-and-Effect RelationshipsDefines the chain of logic by which intangible assets will be transformed to tangible value.Customer Value PropositionClarifies conditions that create value for the customer.Value-Creating ProcessesDefines processes that transform intangible assets into customer and financial outcomes.Clustering Assets and ActivitiesDefines intangible assets to be aligned and integrated to create value.0Risk LevelsExportStrategicAlliancesJointVenturesContractingMulti-domesticGlobal StrategyRiskReturn0Framework for Global StrategyBuild on foundation of unique competitive positionEmphasize consistent positioning strategy across international marketsEstablish clear home base for each distinct businessLeverage product-line home bases at different locationsDisperse activities to extend home base advantagesCoordinate and integrate dispersed activitiesGlobal StrategySource: Adapted from Michael E. Porter, Competing Across Locations: Enhancing Competitive Advantage through a Global Strategy, in Michael E. Porter (ed.), On Competition (Boston: Harvard Business School Press, 1998), pp. 309-350.0Customer-Based Brand Equity (CBBE)Kevin Lane Keller defines CBBE:The differential effect that customer brand knowledge has on their response to market activities and programs for the brand.
Brand Power relies on:What customers have learned, felt, seen and heard about the brand over time.How customers link their thoughts to feelings, perception, imagination and experience of the brand.0CBBE model lays out 4 steps for building a strong brand:
Develop deep brand identityEstablish unique brand identity by highlighting differencesEmploy marketing programs to elicit positive brand responsesBuild brand relationships with loyal customersCBBE Pyramid0CBBE Pyramid
0What Value Means to Business CustomersCustomer ValueBenefits
SacrificesCore
Add-on
Price
Acquisitioncosts
OperationscostsSource: Adapted from Ajay Menon, Christian Homburg, and Nikolas Beutin, Understanding Customer Value,Journal of Business-to-Business Marketing, 12, no. 2 (2005), pp. 47.0Four Types of Industrial Product LinesProprietary/ catalog productsCustom-built productsCustom-designed productsIndustrial services0Industrial Product Line DefinedProprietary: Comes only in certain configurations and are available in anticipation of orders. The product decision is to add, delete or reposition it.Custom-built: Product(s) offered to meet one or a small group of customers need. The product decision centers on offering a proper mix of additional options.Custom-designed: Unique item is created to meet one or more customers need. Product is defined in terms of companys capability, and consumer buys that capability.Industrial service: Buyer buys companys capability to do certain task (i.e., maintenance, technical service or management consulting).0Four Dimensions of a Market Definition1. Customer function dimension.Technological dimensionCustomer segment dimensionCustomer function dimension1. Customer function dimension.Value-added system dimension0Customer Function What functional benefits does the product/service provide for the buyer?Technological FunctionAre there alternative ways a particular function can be performed?(Example: Communications: cell phone, email, pager, notebook computer)
Customer SegmentVarious customer segments have distinct functional needs. What are they and how can they be served?
Value-Added SystemMany services are offered by competing service chain of vendors. Sometimes they are separate, but other times they merge their services to offer a more overall competitive product.(Example: Product provider (Motorola) aligns with service provider (AT&T) to offer a more efficient product/service)0Innovation: Classes of CustomersTechnology enthusiastsVisionariesPragmatistsConservativesSkepticsLaggards0ChasmA Chasm is a period of time where sales falter (and sometimes plummet) due to differences between Visionaries and Pragmatists.
Visionaries want change (revolution) whereas Pragmatists want change (evolution). But Pragmatists make most buying decisions in organizations.
Pragmatists are the gateway to the mainstream market. If that chasm gap cant be bridged, often products become part of ancient history.0
