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Chapter 6, Business and organizational customers and their buying behavior

Business and Organizational Customers
are a big opportunity!

organizational market is actually bigger than the final consumer market in terms of number of purchases made

Presents significant opportunities for marketers

Organizational consumer market is often referred to as….
the industrial market or the business-to-business market
(B2B Market)
What type of consumers are involved?
Business and organizational customers buy for resale or to produce other goods and services
Four main categories of these customers:
producers
intermediaries
government units
nonprofits
Producers of goods and services…
manufacturers
farms, mines
real-estate developers
financial institutions
other providers
Intermediareies
wholesalers
retailers
Government units
federal
state
local
foreign governments
nonprofits
national
local
Organizational customers
Behavioral of business & organizational customers
Differences between organizational customers & final consumers
-Purchase criteria & specifications
-multiple buying influences
-problem-solving process
-B2B e-commerce
-buyer-seller relationships
Key characteristics of four specific types of organizational customers
-manufacturers
-producers of services
-retailers & wholesalers
-government units
Business Products
-used to manufacture other products
-become part of another product
-business products aid the normal operations of an organization or business
-are acquired for resale without any change in form
-key is intended use
Product purchased for personal use is…
considered a consumer good
Product purchased for use in a business…
is a business product

the key in classification as a business product is intended use

size of the business market in the U.S. and most other countries substantially exceeds that of the consumer market

Stickiness
measure of a web site’s effectiveness is calculated by…
Three of the most important measurements of web site hits are…
recency
frequency
monetary value
analytical measure of site’s stickiness factor
combining frequency of time a visitor spends on the web site with number of pages viewed during each visit can provide
Main difference between business and consumer markets are…
-demand
-purchase volume
-number of customers
-location of buyers
-distribution structure
-nature of buying
-nature of buying influence
-type of negotiations
-use of reciprocity
-use of leasing
-primary promotion method
Demands in business markets
-derived demand: organizations buy products to be used in producing customer products

-inelastic demand: demand without regard to price

-joint demand: multiple items are used together in a final product

-fluctuating: The demand for business products tends to be more unstable than the demand for consumer products due to the multiplier effect

Multiplier effect
A small increase or decrease in consumer demand can produce a much larger change in demand for the facilities and manufacturing equipment needed to make the consumer product.
Types of major business products
major equipment
accessory equipment
raw materials
component parts
processed materials
supplies
business services
Major equipment
capital goods such as large or expensive machines, mainframe computers, airplanes, and buildings

Depreciated over time, often custom-designed

Personal selling is an important marketing strategy

Accessory equipment
Less expensive and shorter-lived than major equipment, includes fax machines, personal computers, power tools

Usually not depreciated
Often standardized and purchased by more customers

Advertising is an important promotional tool

Raw Materials
Unprocessed products, such as minerals, timber, wheat, corn, fish

Become part of finished products

Personal selling is the marketing mix component used, distribution channels usually direct from producer to business user

Component parts
Finished items ready for assembly or that need very little processing

markets for component parts:
-original equipment manufacturer (OEM)
-replacement market

Processed Materials
Used directly in manufacturing other products
Sheet metals, chemicals, and lumber
Do not retain their identity in final products
Price and service are important factors in choosing a supplier
Supplies
Consumable items that do not become part of the final product
short lived and inexpensive
generally fall into categories:
-maintenance
-repair
-operating supplies (MRO)
Business services
Expense items that do not become part of the final product
This includes janitorial, advertising, legal, management consulting, marketing research, and maintenance services
Serving small business customers
“At BB&T we don’t think there’s anything small about your business”

During the current economic downturn: Watching marginal costs has become more important

Organizational buyers tend to focus on…
Purchase specifications & Quality
Purchasing specifications
written or electronic descriptions of what the firm wants to buy

specifications describe the needs that organizational buyers have

specifications may be fairly simple or they may be very detailed

Organizational buyers often concentrate on…
quality certification in making purchases

ISO 90000 is a way for a supplier to document its quality procedures according to internationally recognized standards

Lands’end video

Multiple Influence and Roles in the Buying Center
Buyers (formal authority)
Influencers
Deciders
Gatekeepers
Users
Purchasing managers are specialists in…
buying activities for their employers
Multiple buying influence…
several people play a part in making a purchase decision
Buyers
the purchasing managers who are responsible for working with suppliers and arranging for the terms of the sale
Users
the people who will actually use the product. They may be production workers or support staff
Influencers
people whose expertise is used to help determine which products are needed. Influencers are often technical people who help write specifications
Gatekeepers
people in key positions in the organization who control the flow of information
Gatekeepers can include receptionists, secretaries, researchers, and other servers
Deciders
people in the organization who have the power to select or approve the supplier
Marketers must identify and market to…
every buying center member
Members of the buying center may…
change from purchase to purchase
Evaluating Organizational Buying Influences
-vendor analysis considers all influences

-behavioral needs are important too

-ethical conflicts may arise in buyer-supplier relationships

-purchasing may also be centralized in many organizations by concentrating the purchasing for all branches at one location

Requistition
request to buy something, eventually becomes a purchase order, electronic requisitions are becoming more poular
A comprehensive vendor analysis considers…
-all influences on purchase decisions
-formal rating of suppliers on all relevant areas of performance
Buying situations
-new buy
-modified rebuy
-straight rebuy
New buy
A situation requiring the purchase of a product for the first time
Modified rebuy
A situation where the purchaser wants some change in the original good or service
Straight Rebuy
A situation in which the purchaser reorders the same goods or services without looking for new information or investigating other suppliers
If a firm does decide to buy a product instead of making it…
the purchase will be a new buy, a modified rebuy, or a straight rebuy
Three kinds of buying processes are useful:
-New-task buying
-Modified rebuy
-Straight rebuy
New-task buying
occurs when a customer organization has a new need and wants a great deal of information. New-task buying often involves:
-setting product specifications
-evaluating sources of supply
-establishing an order routine to follow in the future
-requires information
Straight rebuy
is a routine repurchase that uses existing suppliers to fill a standard order
often use e-commerce order systems
modified rebuy
the in-between process. Some review of the buying process is done but not as much as in a new-task buy
A new-task buy starts with a user who becomes….
aware of a need and begins researching solutions
Even though a wide variety of information sources are available ….
business buyers will use the sources they trust
Buyer-seller relationships in business markets
Close relationships may produce mutual benefits

BUT

Relationships may not make sense

Close relationships may produce mutual benefits
mutual trust

long-term outlook

Share tasks at lower total cost

Close relationships may not make sense
Reduce flexibility

Some purchases are simply too small or too infrequent

Some purchases require so much special attention that the relationship would never be profitable for the seller

Relationships may have many dimensions
Several key dimensions that characterize a close working relationship between organizational buyers and sellers
Relationships
Cooperation treats problems as joint responsibilities

Both the supplier and the buyer benefit when they can share information

Shared information
useful
risky if there is a possibility that one of the partners will misuse it
Dynamics of buyer-seller relationships
powerful customer may control the relationship

Buyers may still use several sources to reduce their risk

Variations in buying by customer type

The government market
size and diversity

competitive bids may be required

approved supplier list (for routine purchases)

learn what government wants to buy

dealing with foreign governments

FCPA (foreign corrupt practices act)

Is it unethical to buy help in dealing with foreign governments?
Not in some countries
FCPA
Prohibits U.S. firms from paying bribes to foreign officials

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