7-1 ' 2000 McGraw-Hill Ryerson Limited C H A P T E R S E V E N ORGANIZATIONAL MARKETS AND BUYER BEHAVIOUR
7-1© 2000 McGraw-Hill Ryerson Limited
C H A P T E R S E V E N
ORGANIZATIONAL MARKETSAND BUYER BEHAVIOUR
7-2© 2000 McGraw-Hill Ryerson Limited
AFTER READING THIS CHAPTER YOU SHOULDAFTER READING THIS CHAPTER YOU SHOULDBE ABLE TO:BE ABLE TO:
� Distinguish among industrial, reseller, andgovernment markets.
� Recognize key characteristics oforganizational buying that make it differentfrom consumer buying.
� Understand how types of buying situationsinfluence organizational purchasing.
� Recognize similarities and differences inindustrial and reseller purchase behaviour.
7-3© 2000 McGraw-Hill Ryerson Limited
Laser Technology is Bright at HoneywellLaser Technology is Bright at Honeywell
� Gary Null believes Honeywell, MICRO SWITCHdivision, is poised to capture a significant share ofthe multi-billion dollar global market for lasertechnology and products.
� However, successful commercialization of theirinnovative laser technology depends on acoordinated worldwide team of engineers andmarketing and sales professionals.
� The key is to show the advantages of VCSEL overexisting technology to a diverse worldwide market.
7-4© 2000 McGraw-Hill Ryerson Limited
Business MarketingBusiness Marketing
Business marketing is the marketing of goods and
services to:
1. commercial enterprises,
2. Governments, and
3. other profit and not for profit organizations,
for use in the creation of goods and services that they
then produce and market to other business customers,
as well as individuals and ultimate consumers.
7-5© 2000 McGraw-Hill Ryerson Limited
Organizational BuyersOrganizational Buyers
Organizational buyers are those manufacturers,
wholesalers and retailers, and government agencies
that buy goods and services for their own use or for
resale.
EXAMPLE: Buying computers and telephones for the
firm�s own use.
7-6© 2000 McGraw-Hill Ryerson Limited
North American Industry Classification System (NAICS)North American Industry Classification System (NAICS)
� NAICS provides common industry definitions forCanada, Mexico, and the U.S., which facilitate themeasurement of economic activity in the threemember countries of NAFTA.
� NAICS replaced the Standard IndustrialClassification system, a system which had been inplace more than 50 years.
� NAICS is consistent with the International StandardIndustrial Classification of All Economic Activities,published by the United Nations, to facilitatemeasurement of global economic activity.
7-7© 2000 McGraw-Hill Ryerson Limited
PP7-1a NAICS breakdown for broadcasting and PP7-1a NAICS breakdown for broadcasting and telecommunications industriestelecommunications industries
Broadcasting andtelecommunicationsBroadcasting andtelecommunications
Radio and televisionbroadcastingRadio and televisionbroadcasting
Wiretelecommunicationcarriers
Wiretelecommunicationcarriers
PagingPaging
Cable networks andprogram distributionCable networks andprogram distribution
TelecommunicationsTelecommunications
Wirelesstelecommunicationcarriers, exceptsatellite paging
Wirelesstelecommunicationcarriers, exceptsatellite paging
TelecommunicationsresellersTelecommunicationsresellers
SatellitetelecommunicationsSatellitetelecommunications
OthertelecommunicationsOthertelecommunications
Cellular and otherwirelesstelecommunications
Cellular and otherwirelesstelecommunications
2 DigitIndustry Subsector
3 DigitIndustry Group
4 DigitIndustry
5 DigitU.S. National Industry
7-8© 2000 McGraw-Hill Ryerson Limited
Concept CheckConcept Check
1. What are the three main types of organizational buyers?
2. What is the North American
Industry Classification System
(NAICS)?
7-9© 2000 McGraw-Hill Ryerson Limited
PP7�2 Key Characteristics of Organizational Buying PP7�2 Key Characteristics of Organizational Buying BehaviourBehaviour
Market Characteristics
� Demand for industrial products and servicesis derived.
� Few customers typically exist, and their purchaseorders are large.
Product or Service Characteristics
� Products or services are technical in nature andpurchased on the basis of specifications.
� There is a predominance of raw and semi-finishedgoods purchased.
� Heavy emphasis is placed on delivery time, technicalassistance, postal service, and financing assistance.
(continued)(continued)
7-10© 2000 McGraw-Hill Ryerson Limited
PP7�2 Key characteristics of Organizational Buying PP7�2 Key characteristics of Organizational Buying BehaviourBehaviour
Buying Process Characteristics
� Technically qualified and professional buyers exist andfollow established purchasing policies and procedures
� Buying objectives and criteria are typically spelled out,as are procedures for evaluating sellers and products(services).
� Multiple buying influences exist, and multiple partiesparticipate in purchase decisions.
� Reciprocal arrangements exist, and negotiation betweenbuyers and sellers is commonplace.
� Online buying over the Internet is widespread.
(continued)(continued)
7-11© 2000 McGraw-Hill Ryerson Limited
PP7�2 Key Characteristics of Organizational Buying PP7�2 Key Characteristics of Organizational Buying BehaviourBehaviour
Other Marketing Mix Characteristics
� Direct selling to organizational buyers is the rule, andphysical distribution is very important
� Advertising and other forms of promotion are technical innature.
� Price is often negotiated, evaluated as part of broaderseller and product (service) qualities, typically inelasticowing to deriveddemand, and frequently affected by trade and qualitydiscounts.
7-12© 2000 McGraw-Hill Ryerson Limited
Other Organizational Buyer TerminologyOther Organizational Buyer Terminology
� Reverse Marketing involves the deliberate effort by
organizational buyers to build relationships that shapesuppliers� products, services, and capabilities to fit abuyer�s needs and those of its customers.
� Reciprocity is an industrial buying practice in which twoorganizations agree to purchase each other�s productsand services.
� A supply partnership exists when a buyer and itssupplier adopt mutually beneficial objectives, policies,and procedures for the purpose of lowering the costand/or increasing the value of products and servicesdelivered to the ultimate consumer.
7-13© 2000 McGraw-Hill Ryerson Limited
Key Organizational Buying CriteriaKey Organizational Buying Criteria
QualitySpecifications
TechnicalCapability
PastPerformance
OrganizationalOrganizationalBuying CriteriaBuying Criteria
DeliverySchedulesPrice
Warranty/Claim Policies
ProductionFacilities/Capacity
7-14© 2000 McGraw-Hill Ryerson Limited
Four Questions to Provide Guidance inFour Questions to Provide Guidance inUnderstanding the Buying Understanding the Buying CentreCentre
1. Which individuals are in the buying centre for the product or service?
2. What is the relative influence of each member of
of the group.
3. What are the buying criteria of each member?
4. How does each member of the group perceive
our firm, our products and services, and our
salespeople?
7-15© 2000 McGraw-Hill Ryerson Limited
Five Roles in the Buying Five Roles in the Buying CentreCentre
DecisionDecisionMakerMaker
InitiatorInitiator UserUser
InfluencerInfluencer GatekeeperGatekeeper
7-16© 2000 McGraw-Hill Ryerson Limited
PP7-3b Comparing the stages in consumer and organizational PP7-3b Comparing the stages in consumer and organizational purchases purchases
Stage in the Buying Consumer Purchase: Portable Organizational Purchase:
Decision Process CD Player for a student Headphones for CD player
Problem recognition Student doesn�t like the sound Marketing research and sales
of the stereo system now owned departments observe that
and desires a portable CD competitors are including
player. headphones on their models.
The firm decides to include
headphones on their own new
models, which will be
purchased from an outside
supplier.
7-17© 2000 McGraw-Hill Ryerson Limited
Stage in the Buying Consumer Purchase: Portable Organizational Purchase:
Decision Process CD Player for a student Headphones for CD player
Information search Student uses past experience, Design and production
that of friends, ads, and engineers draft specifications
Consumer Reports to collect for headphones. The
information and uncover purchasing department
alternatives. Identifies suppliers of CD
player headphones.
Alternative evaluation Alternative portable CD Purchasing and engineering
players are evaluated on the personnel visit with suppliers
basis of important attributes and assess (1) facilities, (2)
desired in a CD player and capacity, (3) quality control,
several stores are visited. (4) financial status. They drop
any suppliers not satisfactory
on these factors.
PP7-3b Comparing the stages in consumer and organizational PP7-3b Comparing the stages in consumer and organizational purchases purchases
7-18© 2000 McGraw-Hill Ryerson Limited
PP7-4c Comparing the stages in consumer and organizational PP7-4c Comparing the stages in consumer and organizational purchases purchases
Stage in the Buying Consumer Purchase: Portable Organizational Purchase:
Decision Process CD Player for a student Headphones for CD player
Purchase decision A specific brand of portable CD They use (1) quality, (2) price, player is selected, the price is (3) delivery, and (4) technical
paid, and the student leaves capability as key buying
the store. criteria to select a supplier.
Then they negotiate terms
and award a contract.
Postpurchase behaviour Student reevaluates the They evaluate suppliers
purchase decision, may return using a formal vendor rating
the portable CD player to the system and notify supplier if
store if it is unsatisfactory, and headphones do not meet its
looks for supportive quality standard. If the
information to justify the problem is not corrected,
purchase. they drop the firm as a
future supplier.
7-19© 2000 McGraw-Hill Ryerson Limited
PP7-4 How the Buying Situation Affects Buying PP7-4 How the Buying Situation Affects Buying Centre Centre Behaviour Behaviour
Buy-Class Situation Buying Centre Dimension New Buy Straight/Modified Rebuy
People involved Many Few
Decision Time Long Short
Problem definition Uncertain Well-defined
Buying objective Good solution Low-price supplier
Suppliers considered New/present Present
Buying influence Technical/operating Purchasing Agent
personnel
7-20© 2000 McGraw-Hill Ryerson Limited
Three Types of Buying SituationsThree Types of Buying SituationsD
ecis
ion
tim
e an
d pr
oble
m d
efin
itio
n
Short/well defined
Few ManyNumber of people in buying centreand number of suppliers considered
Straightrebuy
Straightrebuy
Modifiedbuy
Modifiedbuy
Newbuy
Newbuy
Long/uncertain
7-21© 2000 McGraw-Hill Ryerson Limited
Concept CheckConcept Check
1. What one department is almost
always represented by a person in
the buying centre?
2. What are the three types of
buying situations or buy classes?
7-22© 2000 McGraw-Hill Ryerson Limited
Stages in the Industrial Buying Process
� Problem Recognition often involves a make-buydecision -- an evaluation of whether components andassemblies will be purchased from outside suppliersor built by the company itself.
� Information Search often involves value analysis -- asystematic appraisal of the design, quality, andperformance of a product to reduce purchasingcosts.
� Alternative Evaluation often involves the generationof a bidders list -- a list of firms believed to bequalified to supply a given item.
7-23© 2000 McGraw-Hill Ryerson Limited
Stages in the Industrial Buying Process
� Purchase Decision -- The period from supplierselection to order placement to product delivery cantake several weeks or even months, as negotiationsregarding price, performance and delivery terms willcontinue. Additional negotiations may involvewarranties, indemnities, and payment schedules.
� Postpurchase Behaviour -- Postpurchase evaluationoccurs in the industrial purchase decision process,but it is formalized and often more sophisticated.The performance of the supplier is monitored andrecorded.
7-24© 2000 McGraw-Hill Ryerson Limited
1. What is a make-buy
decision?
2. What is a bidders list?
Concept CheckConcept Check