kerinmarketing6

AFTER READING THIS CHAPTER

YOU SHOULD BE ABLE TO:

•Distinguish among industrial, reseller, and government markets.

•

•Recognize key characteristics of organizational buying that make it different from consumer buying.

•Understand how buying centers and buying situations influence organizational purchasing

•

•Recognize the growing important of online buying in industrial, reseller, and government markets.

ORGANIZATIONAL MARKETS AND BUYER BEHAVIOR

BUYING PAPER IS SERIOUS
BUSINESS AT JCPENNEY.

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS

Business Marketing

Business marketing is the marketing of goods and services to commercial enterprises, governments, and other profit and not-for-profit organizations for use in the creations of goods and services that they then produce and market to other business consumers, as well as individuals and ultimate consumers.

Organizational Buyers

Organizational buyers are those manufacturers, wholesalers and retailers, and government agencies that buy goods and services for their own use or for resale.

FIGURE 6-1 Type and number of organizational customers

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS

•Industrial Markets

§Industrial firms

•Reseller Market

§Resellers

•Government Markets

§Government Units

•Global Organizational Markets

Industrial Firms

Industrial firms reprocess a product or service they buy before selling it again to the next buyer.

Wholesalers and retailers who buy physical products and resell them again without an reprocessing are resellers.

Government Units

Government units are the federal, state, and local agencies that buy goods and services for the constituents they serve.

MEASURING DOMESTIC AND GLOBAL INDUSTRIAL, RESELLER, AND GOVERNMENT MARKETS

North American Industry Classification Systems

The North American Industry Classification System (NAICS) provides common industry definitions for Canada, Mexico, and the United States.

FIGURE 6-2 NAICS breakdown for information industries sector: NAICS code 51 (abbreviated)

1. What are the three main types of organizational buyer?

A: Industrial firms, resellers, and government units.

2. What is the North American industry Classification System (NAICS)?

A: NAICS provides common industry definitions for Canada, Mexico, and the United States, which facilitate the measurement of economic activity in the three member countries of the North American Free Trade Agreement.

CHARACTERISTICS OF ORGANIZATIONAL BUYING

FIGURE 6-3 Key characteristics of organizational buying behavior

CHARACTERISTICS OF ORGANIZATIONAL BUYING

•Demand Characteristics
§Derived demand
•Size of the Order or Purchase
•Number of Potential Buyers
•Organizational Buying Objectives

Derived demand means that the demand for industrial products and services is driven by, or derived from, demand for consumer products and services.

CHARACTERISTICS OF ORGANIZATIONAL BUYING

•Organizational Buying Criteria

§ISO 9000
§Reverse marketing

•Buyer-Seller Relationships and Supply Partnerships

§Reciprocity
§Supply partnership

Organizational Buying Criteria

Organizational buying criteria are the objective attributes of the supplier’s products and services and the capabilities of the supplier itself.

ISO 9000 standards are standards for registration and certification of a manufacturer’s quality management and assurance system based on an on-site audit of practices and procedures.

Reverse Marketing

Reverse marketing involves the deliberate effort by organizational buyers to build relationships that shape suppliers’ products services, and capabilities to fit a buyer’s needs and those of its customers.

Reciprocity is an industrial buying practice in which two organization agree to purchase each other’s products and services.

Supply Partnership

A supply partnership exists when a buyer and its supplier adopt mutually beneficial objectives, policies, and procedures for the purpose of lowering the cost and/or increasing the value of products and services delivered to the ultimate consumer.

CHARACTERISTICS OF ORGANIZATIONAL BUYING

•The Buying Center: A Cross-
Functional Group

•People in the Buying Center
•Roles in the Buying Center
•Buying Situations and the
Buying Center
§Buy classes

A buying center is made up of several people in an organization who participate in the buying process.

Buy classes are straight rebuy, modified rebuy, and new buy.

FIGURE 6-4 How they buying situation affects buying center behavior

1. What one department is almost always represented by a person in the buying center?

A: Purchasing Department

2. What are the three types of buying situations or buying classes?

A: Straight rebuy, modified rebuy, and new buy

CHARTING THE ORGANZATIONAL BUYING PROCESS

•Stages in the Organizational Buying
Process

§Organizational buying behavior

Organizational Buying Behavior

Organizational buying behavior is the decision-making process that organizations use to establish the need for products and services and identify, evaluate, and chose among alternative brands and suppliers.

FIGURE 6-5 Comparing the stages in consumer
and organizational purchases

CHARTING THE ORGANZATIONAL BUYING PROCESS

•Buying a Machine Vision System

•Problem Recognition
§Make-buy decision
•Information Search
§Value analysis

•Alternative Evaluation
§Bidder’s list
•Purchase Decision
•Postpurchase Behavior

Make-Buy Decision

A make-buy decision is an evaluation of whether components and assemblies will be purchased form outside suppliers or built by the company itself.

Value analysis is the systematic appraisal of the design, quality, and performance of a product to reduce purchasing costs.

A bidder’s list is a list of firms believed to be qualified to supply a given item.

1. What is a make-buy decision?

A: An evaluation of whether components and assemblies will be purchased from outside suppliers or built by the company itself.

2. What is a bidder’s list?

A: A list of firms believed to be qualified to supply a given item.

ONLINE BUYING IN ORGANIZATIONAL MARKETS

•Prominence of Online Buying in Organizational Markets
•E-Marketplaces: Virtual
Organizational Markets
•Online Auctions in
Organizational Markets

E-marketplaces are online trading communities that bring together buyer and seller organizations.

FIGURE 6-6 How buyer and seller participants and price behavior differ by type of online auction.

ONLINE BUYING IN ORGANIZATIONAL MARKETS

•Online Auctions in Organizational Markets (cont)

§Traditional auction
§Reverse auction

Traditional Auction

In a traditional auction a seller puts an item up for sale and would-be buyers are invited to bid in competition with each other.

In a reverse auction, a buyer communicates a need for a product of service and would-be suppliers are invited to bid in competition with each other.

1. What are e-marketplaces?

A: E-marketplaces are online trading communities that bring together buyers and supplier organizations.

2. In general, which type of online auction creates upward pressure on bid prices and which type creates downward pressure on bid prices?

A: traditional auction, reverse auction.

Chapter 6 - Summary

Organizational buyers are divided into three different markets: industrial, reseller, and government. There are about 11.2 million industrial firms, 2 million resellers, and 88,000 government units.
Measuring industrial, reseller, and government markets is an important first step for firms interested in gauging the size of one, two, or all three markets. The North American Industry Classification System (NAICS) is a convenient starting point to begin this process.
Many aspects of organizational buying behavior are different from consumer buying behavior. Some key differences between the two include demand characteristics, number of potential buyers, buying objectives, buying criteria, size of the order or purchase, buyer-seller relationships and partnerships, and multiple buying influences within companies.
The buying center concept is central to understanding organizational buying behavior. Knowing who composes the buying center and the roles they play in making purchase decisions is important in marketing to organizations. The buying center usually includes a person from the purchasing department and possibly representatives from R&D, engineering, and production, depending on what is being purchased. These people can play one or more of five roles in a purchase decision: user, influencer, buyer, decider, or gatekeeper.
The three types of buying situations, or buy classes, are the straight rebuy, the modified rebuy, and the new buy. These form a scale ranging from a routine reorder to a totally new purchase.
The stages in an organizational buying decision are the same as those for consumer buying decisions: problem recognition, information search, alternative evaluation, purchase decision, and postpurchase behavior. Examples of organizational purchases described are the purchase of earphones by a portable CD player manufacturer and machine vision technology components by an electronics manufacturer.
Online buying is prevalent in industrial, reseller, and government markets. E-marketplaces will account for almost one-half of all online organizational purchases in 2005. Online auctions are commonly used by organizational buyers and business marketers.

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Chapter 6

Marketing: Organizational Markets and Buyer Behavior