Chapter 7

Chapter 7 - Organizational Buyer Behavior of Group Market

The Organizational Buying Process - Market Structure and Demand

• The American Marketing Association holds more than twenty conferences annually.

– the value of this account approaches $1 million

– a delegate also spends about $850 on transportation and $425 on entertainment, plus spending in local restaurants

• Hyatt and Marriott share the majority of the AMA’s conference business, with Marriott’s share close to three thousand room-nights a year.

– each organizational customer can deliver tens of thousands of dollars’ worth of business to the hotel, airlines, and the destination’s economy

• Organizational demand is derived demand, or a function of the businesses that supply the hospitality & travel industry with meetings, special events, and other functions.

• AMA plans & hosts conferences because members, marketing managers, suppliers, and educators, have attended past conferences on these topics.

– if a particular conference receives poor attendance, the AMA drops it from future schedules

• Ultimately, demand for association member products determines the demand for association meetings.

• Through good environmental scanning, marketers can identify emerging industries, companies, and associations, screening for good business partners.

• Hotel managers need to understand the financial health of the corporations & associations they serve.

– if clients fall on hard times, managers need to look for healthy industries to replace the lost business, before it affects the revenue per available room (REVPAR)

• Compared with consumer purchases, a business purchase usually involves more buyers and a more professional purchasing effort.

• Corporations that frequently use hotels for meetings may hire their own meeting planners.

• Professional meeting planners receive training in negotiating skills and belong to associations such as Meeting Planners International, which educates its members in the latest negotiating techniques.

• A corporate travel agent’s job is to find the best airfares, rental car rates, and hotel rates.

– hotels must have well-trained salespeople to deal with well-trained buyers, creating thousands of sales jobs

• Once the meeting is sold, the account is turned over to a convention service manager who works with the meeting planner to make sure the event is produced according to the meeting planner’s expectations.

• Outside the hotel, jobs relating to meetings include corporate meeting planners, association meeting planners, independent meeting planners, and convention and visitor bureau salespersons.

The Organizational Buying Process - Types of Decisions and the Decision Process

• Organizational buyers face more complex buying decisions than consumer buyers.

• Their purchases often involve large sums of money, complex technical features, economic considerations, and interactions among many people at all levels.

• The organizational buying process tends to be more formalized & professional purchasing effort.

– the more complex the purchase, the more likely it is that several people will participate in the decision-making

• In the organizational buying process, buyer and seller are often very dependent on each other.

Participants in the Organizational Buying Process - The Buying Center

• The decision-making unit of a buying organization is sometimes called the buying center:

• Users - those who use the product or service

• Influencers - directly influence the buying decision butdo not themselves make the final decision

• Deciders - select product requirements and suppliers

• Approvers - authorize proposed actions of deciders or buyers

• Buyers - have formal authority for selecting suppliers and arranging the terms of purchase

• Gatekeepers - have the power to prevent sellers or information from reaching members of the buying center

• Buying centers vary by number & type of participant, so salespersons calling on organizational customers must determine:

• who are the major decision participants?

• what decisions do they influence?

• what is their level of influence?

• what evaluation criteria does each participant use?

• When a buying center has multiple participants, the seller may not have time/resources to reach them all.

• smaller sellers concentrate on reaching key buying influencers and deciders

• Most deciders like to feel in control of the purchasing decision, so going over a decider’s head & working with the boss will be resented.

• In most cases the boss will leave the decision up to the decider, and the ill will created by not dealing with the decider directly will result in him or her choosing another company.

• Larger sellers use multilevel, in-depth selling to reach as many buying participants as possible.

• their salespeople virtually “live” with their high-volume customers

Major Influences on Organizational Buyers

• Organizational buyers are subject to many influences as they make buying decisions, and some vendors assume the most important influences are economic.

• A study of buyers in ten large companies concluded that emotions & feelings play a part in the decision.

• In reality, organizational buyers commonly respond to both economic and personal factors.

– where there is substantial similarity in supplier offers, price becomes an important determinant

– when competing products differ substantially, buyers are faced with many decision variables other than price

• The various influences on organizational buyers may be classified into four main groups:

– environmental, organizational, interpersonal, individual

Major Influences on Organizational Buyers - Environmental Factors

• Organizational buyers are heavily influenced bythe current and expected economic environment.

• Factors such as the level of primary demand, the economic outlook, and the cost are important.

• In a recession, companies cut their travel budgets, whereas in good times, travel budgets are usually increased.

Major Influences on Organizational Buyers - Organizational Factors

• Each organization has specific objectives, policies, procedures, organizational structures, and systems related to buying.

• The hospitality marketer has to be as familiar with them and wants to know…

• how many people are involved in the buying decision?

• who are they?

• what are the evaluation criteria?

• what are the company’s policies & constraints on the buyers?

Major Influences on Organizational Buyers - Interpersonal Factors

• The buying center usually includes several participants, with differing levels of interest, authority, and persuasiveness.

– hospitality marketers are unlikely to know the group dynamics taking place during the buying decision process

• Salespeople commonly learn the personalities and interpersonal factors that shape the organizational environment and provide useful insight into group dynamics.

Major Influences on Organizational Buyers - Individual Factors

• Each participant in the buying decision process has personal motivations, perceptions, and preferences.

• Age, income, education, professional identification, personality, and attitudes toward risk all influencethe participant in the buying process.

– buyers definitely exhibit different buying styles

• Hospitality marketers must know their customersand adapt their tactics to known environmental, organizational, interpersonal, and individual influences.

Organizational Buying Decisions

• Organizational buyers do not buy goods and services for personal consumption.

– they buy hospitality products to provide training, reward employees and distributors, and to provide lodging for their employees

• Eight stages of the organizational buying process have been identified and are called buyphases.

– this model is called the buygrid framework

The Buygrid Framework

Stage 1 - Problem Recognition

• The buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a good or a service.

– problem recognition can occur because of internalor external stimuli

• Internally, a new product may create the need for a series of meetings to explain the product to the sales force.

• Externally, the buyer sees an ad or receives a call from a hotel sales representative who offers a favorable corporate program.

Stage 2 - General Need Description

• Having recognized a need, the buyer goes on to determine the requirements of the product and to formulate a general need description.

• The corporate meeting planner works with others to gain insight into the requirements of the meeting.

– they determine the importance of the price, meeting space, sleeping rooms, food and beverage, and other factors

• Alert marketers can help buyers define their companies’ needs and show how their hotelcan satisfy them.

Stage 3 - Product Specification

• Once the general requirements are determined, the specific requirements for the meeting can be developed.

• Information often requested includes availabilityof water, ceiling heights, door widths, security, and procedures for receiving and storing materials prior to the event.

• A salesperson must be prepared to answer their prospective client’s questions about their hotel’s capabilities to fulfill the product specification.

Stage 4 - Supplier Search

• The buyer now conducts a supplier search to identify the most appropriate hotels.

– the buyer can examine trade directories, do a computer search, or phone familiar hotels

• Hotels that qualify may receive a site visit from the meeting planner, who eventually develops a shortlist of qualified suppliers.

Stage 5 - Proposal Solicitations

• Once the meeting planner has drawn up a short list of suppliers, qualified hotels are invited to submit proposals.

– hotel marketers must be skilled in researching, writing & presenting proposals

• Proposals should be marketing oriented, not simply technical documents.

– they should position their company’s capabilities and resources so that they stand out from the competition

– many hotels have developed videos for this purpose

Stage 6 - Supplier Selection

• In this stage, members of the buying center review the proposals and move toward supplier selection.

– they conduct an analysis of the hotel, consideringphysical facilities, ability to deliver service, andthe professionalism of its employees

• In general, meeting planners consider the following attributes in making their selection of a location:

– sleeping rooms & meeting rooms

– food & beverage

– check-in/checkout & billing procedures

– staff

• The buying center may attempt to negotiate with preferred suppliers for better prices & terms before making the final selection.

• There are several ways the hotel marketer can counter the request for a lower price.

– dates can be moved from a high demand period toa need period for the hotel

– menus can be changed.

• The marketer can cite the value of the services the buyer now receives, especially where services are superior to competitors

Stage 7 - Order-Routine Specification

• The buyer writes the final order with the chosen hotels, listing technical order-routine specifications of the meeting.

– the hotel responds by offering the buyer a formal contract

• The contract specifies cutoff dates for room blocks, date when hotel will release the room block for sale to other guests, and minimum guarantees for food and beverage functions.

• Many hotels & restaurants have turned what should have been a profitable banquet into a loss by not having or enforcing minimum guarantees.

Stage 8 - Performance Review

• The buyer does a postpurchase performance review of the product to determine if the product meets the buyer’s specifications and if the buyer will purchase from the company again.

• It is important for hotels to have at least daily meetings with a meeting planner to make sure everything is going well and correct things thatdid not go well.

• This manages the buyer’s perceived service & helps avoid a negative postpurchase evaluation by the buyer.

Group Business Markets

• One of the most important types of organizational business is group business

– it is important for marketing managers to understand differences between a group and a consumer market

– group business is often more sophisticated and requires more technical information than the consumer market

• Many group markets book more than a year in advance, and during this time, cognitive dissonance can develop.

– marketers must keep in contact with the buyer to assure them that they made the right decision in choosing the seller’s hotel

Categories

• The four main categories of group business are conventions, association meetings, corporate meetings, and SMERF.

– Social, Military, Educational, Religious, and Fraternal organizations

• Conventions attract large numbers, but meetings occur much more frequently than conventions.

– there are about ninety-five meetings for each convention

– fifteen hundred people attend the average convention

– 165 people attend the average association meeting

– 78 people attend the average corporate meeting

Considerations

• When choosing a hotel, an important consideration for a is whether the hotel can house the participants.

– most hotels have the potential of attracting hundreds of small meetings, where larger hotels can attract conventions

• Successful hotels know which groups to attract, how to use group business to fill need dates & how to sell groups on the hotel’s benefits rather than just price.

CIC - APEX

• The Convention Industry Council (CIC) is made up of thirty-four member organizations that represent both buyers and suppliers to the meetings industry.

– they recently developed the Accepted Practices Exchange (APEX), a set of standards and best practices to all parties involved in the creation and implementation of a meeting

• APEX’s event specifications provide a checklist for planning an event, and its glossary brings a common meaning to terms used in the meetings industry.

– APEX is a great tool for those involved in selling or planning meetings

Conventions

• Conventions are a specialty market requiring extensive meeting facilities.

– usually the annual meeting of an association, & include general sessions, committee & special-interest meetings

• Hotels with convention facilities, such as the Chicago Hyatt can house small and midsized conventions.

• Conventions that use a major facility, such as the Jacob Javitts Convention Center in New York, often have tens of thousands of delegates.

– called citywide conventions because hotels throughout the city house their delegates

• There are almost 14,000 conventions held each year in the US, with delegates staying an average of 3.6 days & spending an average $1,500 per event.

– of this amount about $350 is spent on lodging

• Associations usually select convention sites two to five years in advance, with some large conventions planned ten to fifteen years before the event.

• Some associations prefer to have their conventions in the same city year after year.

– others move to a different area of the country each year

• A convention can be a major source of income for the sponsoring organization.

– registration fees from attendees and sales of exhibition space in the trade show are major sources of revenue

• The price that can be charged for exhibition space is related to the number of attendees.

– an association looks for locations that will be both accessible and attractive to members

• Convention planners listed the following as the most important factors in choosing a destination:

– availability of hotels &facilities

– distance from attendees; ease & costs of transportation

– climate; recreation, sights & cultural activities

• The most important attributes of the hotel:

– meeting rooms & sleeping rooms

– food & beverage quality

– exhibit space & support services

– negotiable rates; billing procedures

– check-in/checkout; staff assignment; previous experience

• Food quality is very important to convention planners.

– attendees will talk about exceptional banquets, out-of-the-ordinary receptions & unique coffee breaks

– poor food and service can generate negative feelings about the convention among the participants

• Support services must be available when needed.

– a nonfunctioning DVD player must be repaired/replaced quickly to ensure the presenter’s flow is not interrupted

• Billing procedures are important to planners.

– meeting planners want a bill that is understandable, accurate, and delivered in a timely manner

Convention Bureaus

• Convention bureaus are nonprofit marketing organizations that help hotels sign conventions & meetings.

– often supported by a hotel or sales tax & run by chambers of commerce, visitor bureaus, or city/county governments

• A hotel relying on meeting business for a significant portion of its occupancy should have a good working relationship with the convention bureau.

– which includes active membership in the organization

Association Meetings

• Associations sponsor many types of meetings.

– regional, special-interest, educational, and board meetings

• 71,000 associations, 92% of which hold meetings, creating 227,000 association meetings annually.

– generating meeting business valued at $70 billion

• Important destination attributes for an association meeting planner are availability of hotel & facilities, ease of transportation, distance from attendees, and transportation costs.

– unlike conventions, climate, recreation & cultural activities are not as important as the meeting itself is the major draw

• In selecting a hotel, the association meeting planner looks attributes similar to the convention planner.

– except for exhibition space

• For the association meeting planner, food and beverage are the most important attributes.

• Membership in the American Society of Association Executives (ASAE) is beneficial for hotels actively pursuing association business.

• Members attend association meetings voluntarily,so the hotel should work with meeting planners to make the destination seem as attractive as possible.

Corporate Meetings

• A corporate meeting is a command performance.

– employees are directed to attend without choice

• Because corporations do not have to develop and implement a marketing plan to gain attendees, they often plan meetings with a few weeks’ lead time.

• About 800,000 corporate meetings are held with an average expenditure exceeding $36,000 per meeting.

– corporate meetings are smaller than association meetings

• When seeking business from corporations, a hotel manager must understand who has the responsibility for booking meetings.

• The corporation’s major concern is for a productive meeting that accomplishes the company’s objectives.

– types of corporate meetings include training, management, planning and the incentive meeting

• To a corporate meeting planner, the most important attributes in the choice of a destination are the availability of hotels, ease of transportation, transportation costs, and distance from the attendees.

• Hotels interested in capturing and retaining corporate meeting business must make sure that meeting rooms are adequate and set up properly.

• Hotel salespeople must develop an understanding of the client’s corporate culture to gain insight into benefits the hotel can offer.

– some companies feel meetings should be austere, rather than lavish

– others view meetings as a time for employees to relax& enjoy themselves, a well-deserved break

• Companies that believe meetings should educate & rejuvenate employees, and build enthusiasm toward the company are willing to spend more money on food & beverage, entertainment, and hotel facilities.

Small Groups

• Although small in terms of number of participants, thousands of small meetings are held every month.

• Hotels & chains have developed special packagesfor small meetings, often overlooked by large hotels.

– upscale hotels such as the L’Ermitage in Beverly Hills go after executive meetings where expense is not a problem

– Sheraton has also developed executive conference centers for board meetings, strategic planning sessions & training

• Simplifying small meeting arrangements is critical because those who plan small meetings are oftennot meeting planners.

Incentive Travel

• Incentive travel, a unique subset of corporate group business, is a reward participants receive for achieving or exceeding a goal.

– for both individual and team performance

• A hotel salesperson selling incentives must be ableto help their client justify the expenditure.

– percentage of sales of the attendees is an excellent way

• Because travel serves as the reward, participants must perceive the destination & hotel as special.

– climate, recreational facilities, and sightseeing opportunities are high on an incentive planners’ list

SMERFs

• SMERF stands for Social, Military, Educational, Religious, and Fraternal organizations.

– median 485 nights at a budget of $180,000

– in the US, over 50,000 religious organizations have group travel programs

• The individual pays for the majority of the functions sponsored by these organizations, and sometimes the fees are not tax deductible.

• Participants usually want a low room rate & often find food & beverage within the hotel too expensive.

– SMERFs can be flexible to ensure a lower room rate

• Because attendees are price sensitive, a challenge is to get them to book within the room block.

– due to Internet searching for lower rates at the same hotel

• Hotels often provide concessions like free rooms ora free or reduced food & beverage function based on the number of room nights in the group’s block.

– if the block does not materialize, the meeting planner is responsible for extra charges

• SMERFs provide good off-peak filler business.

– those new to hotel sales often start with SMERF markets

Segmentation of Group Markets by Purpose

• Group markets also can be broken into the purposeof the meeting, and Table 7–1 on page 188 showsa matrix describing some of the critical salesdecision variables for these types of gatherings.

• This matrix reflects the general nature of sales decision variables within the group market.

– exceptions can and do exist

Restaurants as a Meeting Venue

• Restaurants are designing their space to take advantage of meetings and meetings of 50 peopleor fewer can be a great source of business.

• A room off of the main room that can be closed off for meetings gives the restaurant the option of using it as part of the public dining space on Saturday night or a meeting room during a weekday.

– meetings held in space of 700 square feet or less (20 x 35 feet) increased by over 25 percent in the past two years

• Many times they are held at off-peak times, such as during a weekday.