XIME –RS–0312-January-2010 B2B Marketing The Organization Buying Process XIME–RS–03 Amarnath Krishnaswamy.

XIME –RS–0312-January-2010

B2B Marketing

The Organization Buying Process

XIME–RS–03

Amarnath Krishnaswamy


Plan for this Session

• Building relationships

• Buying behaviour


Building Relationships


It’s importance …

Knowledge of the ways and means adopted by an organization for the procurement of its needs is the first step in developing a strategy to cater to these needs


Buying Process

• The buying process is:

– An ‘exchange ‘ process between buyers & sellers

– Involves a decision

– That comes through an ‘evaluation’

– Establishes a ‘relationship’ between the buyer and the seller

• The seller’s objective is to make it to the last ‘A’ on “AIDA”!!


Exchange process - Centres

• The exchange process brings 2 centres into play

– Selling centre• Gets all the information &executes selling

strategy

– Buying centre• Group that ‘share’ goals & risks of purchasing

action• Composition of group decided by need, usually

functional


Buying – Selling process

Selling BuyingR & D R & D

Distribution Marketing

Marketing Purchasing

Engineering Engineering

Manufacturing Manufacturing


Stages in a ‘buying process’

8 stages in the buying process:

1. Recognition of need & a solution

2. Establish specifications & quantity of the item needed

3. Describe them to the prospective vendor

4. Search for prospective vendors

5. Obtain proposals

6. Evaluate proposals

7. Select a vendor

8. Evaluate performance and feedback


Stages in a ‘buying process’

8 stages in the buying process:

1. Recognition of need & a solution

2. Establish specs & quantity of the item needed

3. Describe them to the prospective vendor

4. Search for prospective vendors

5. Obtain proposals

6. Evaluate proposals

7. Select a vendor

8. Evaluate performance and feedback


Buying situations

There are 3 types of buying situations:

1. New task

2. Straight rebuy

3. Modified rebuy

Each of these types must be looked at in terms of the 8 stages


1. New Task

The “New task” can fall into 2 categories

1. JudgmentalNew activity – with no prior data or experiences to fall back on

Unpredictable. Requires ‘judgment’.

2. Strategic

Of great importance – strategically and financially - to the organization, even for the routine items of purchase


1. New Task - Guidelines

Gain an advantage by:

– Being involved from the beginning in the ‘New task”

– Those already ‘in’ have distinct advantage in getting first access to the information


2. Straight rebuy

Characterized by:

• Recurring requirement

• Buyers know the ‘business’ – especially the selection criteria

• Suppliers have already been evaluate

• Conditioned, ‘Pavlovian’ response to new suppliers


2. Straight rebuy - Guidelines

As the ‘purchase’ is routine, and the approach is likely to be casual:

“In” supplier: Reinforce position – that you’re the best.

“Out” supplier: Develop a relationship. Wait for an opportunity.


3. Modified rebuy

‘Purchase’ needs constant analysis and evaluation as changes could yield significant benefits

Examples

1. Import substitution

2. Direct relationship with manufacturer – cutting out middlemen


3. Modified rebuy - Guidelines

Again, would depend on current status:

“In” supplier: • Work towards moving the item into “straight rebuy”

category• Nip moves to source afresh in the bud – be proactive

“Out” supplier:• Hold buyer in “uncertainty”• Determine factors that made buyer want to take

a fresh look• Offer benefits not given by others


The “Influentials”

• Every buying process would have some “influentials”

• They could change – depending on the stage the purchasing process is in

• Important to identify them


Evaluating potential suppliers

• Seller cannot afford to be ‘filtered’ out at any stage, especially at the start

• Would apply to ‘product’ and ‘capability’ • Need to understand, and account for, factors

that could influence the buyer– Rational factors: e.g. economic – Emotional factors:

• Both can vary – person, functional area etc • Seller must identify these factors quickly• Both get translated into “value”


Measuring value

• “Value analysis” – used to measure the value

• Commonly used:– Value-in-use

• Calculates value based on total cost of usage over a period


Measuring capability

Many areas:

• Technical / production capability• Managerial capability• Financial • Service • Quality

Supplier would be evaluated on each, and an index developed for supplier / product


Relationship management - Transaction

Relationship between supplier and buyer can be classified on the character of the transaction:

– Pure Transaction: One time

– Repeated Transaction: Frequent, but essentially ‘one-time’ type transactions

– Long term: Relationship is still adversarial in nature

– Partnership: Working together

– Alliance: Working together towards a shared goal


Relationship management – Duration & Cost

Relationships can also be looked at from the duration of the relationship, and the cost involved in switching suppliers.

Lost-for-Good Customers: •Unlikely to change suppliers•High cost involved to change•Benefits of switch not commensurate with the risk


Relationship management – Duration & Cost

Always-a-Share Customer:•Ever willing to switch!•Low switching cost•Perspective – transaction to transaction

Intermediate Customer:•In between•Flaring-out by Unbundling•Flaring-out with Augmentation


Relationship management - Strategy

A) Flaring-out by Unbundling• From total package to core• Price lowered at each step• Price of consolidated bundle less than aggregate of

each• Useful for transaction type customers

B) Flaring-out with Augmentation• Collaborative• Product enriched by features valued by customer• Price premium on package


Buying Behaviour


It’s importance

• Buyer is influenced by forces within and without his organization

• Necessary to understand these forces, and how they have changed, for the seller to respond effectively to them


Forces impacting behaviour

Organizational behaviour impacted by primarily four forces:

1. Environmental forces

2. Organizational forces

3. Group forces

4. Individual forces


Environmental forces

6 types:

1. Economic

2. Political & Legal

3. Cultural

4. Physical

5. Technological

6. Environmental Uncertainty


Environmental Forces

1. Economic• Very rational• Demand is derived (industrial products); hence

final consumer market has to be watched very carefully

• The same economic force could have a differential impact, and not impact demand equally for all products. Could complicate issues.

(Example: Impact of interest rates on various sectors)



2. Political & Legal

• Rational – generally!

Examples:

1. EEC rules governing imports

2. Preferred status – for many countries

3. State incentives (Setting up automobile units)

4. “Sons of the soil” policy

5. Reservations



3. Cultural

Examples:

1. Women – in the Gulf countries

4. Physical

Examples:

1. Proximity to users

2. Landed cost concept



5. Technological

• Technological change influences what an organization can buy / use, and in turn what it can give

• As pace increases, impacts necessity to take decisions quickly

6. Environmental uncertainty

• More uncertain, more people involved


Organizational Forces

Buying process influenced by the valence the organization attaches to:

1. Achievement

2. Rules

3. Innovation

4. Industriousness

Selling must consider all this – the ‘personality’ of the organization – and the way it is organized


Positioning of purchasing

Purchasing can be organized – centralized or decentralized

Centralized:• Originates from a commonality of requirements• Originates from requirement of control• Leads to specialization

Point for discussion:Said that the need to involve other functions likeR&D and Engineering is an important factor for centralization.

Is this true?


Group Forces

The answers to these questions have to be sought:

1. Who are the members of the buying centre

2. Relative influence of each member

3. Criteria used for evaluation

All can change from stage to stage.


Individual Forces

The ‘buying’ individual also brings his personal ‘slant’ (selective interpretation) into the picture

• Exposure: Accept those consistent with own beliefs

• Attention: Paying attention to those consistent with own beliefs

• Perception: Interpret inputs in a way consistent with own beliefs

• Retention: Retain those consistent with own beliefs


Individual Forces

Buyers, as individuals, would also like to lower risk:

• External

– Visit plant, audit supplier

– Check with other organizations using the supplier

• Internal

– Consult with others in the company


Group vs. Individual decision making

• Product specific– Risk: Higher – rely on group– Purchase type: New task – rely on group– Time (Urgency): Individual

• Company specific– Size: Large – Group– Centralized: Individual


Exercise!

• Pick a ‘purchase’ situation

• Analyze the situation in terms of the parameters discussed


Exercise – what would you look at?

Define

1. Buying situationNew task / Straight rebuy / Modified rebuy

2. Status of supplierIn / Out

3. Evaluation

Value

4. Supplier capability (let’s drop this for this exercise!)

5. Relationship soughtTransaction / Long term


Moving Forward

Next Class PGDM-RS-04: Thursday, Jan 14, 2010

Read: – Business Marketing Management: Hunt &

Speh• Chapter 5: Business Marketing Intelligence• Chapter 7: Demand Analysis


We can’t forget this!

Dead Cat Bounce

A short-term increase in the value of a stock following a precipitous drop in value.

Jack Speak

Totally confusing!


XIME –RS–0312-January-2010 B2B Marketing The Organization Buying Process XIME–RS–03 Amarnath Krishnaswamy.

Documents

xime rs0312

value slide

buying process

needs slide

information slide

feedback slide

functional slide

period slide