Organizational BuyingBehavior

Chapter 2

Business Marketing ManagementEleventh EditionHutt and Speh

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Chapter TopicsInside and outside forces influence organizational buying. In this chapter you will learn:

1. The organizational buying process2. The four main factors that impact organizational

buying decisions3. A model of organizational buying behavior4. How knowledge of organizational buying enables

marketers to make more informed decisions on product design, pricing and promotion

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Understanding the Dynamics of Organizational Buying

Market-driven firms sense market trends and work closely with their customers and vendors. This is crucial to:• Identify profitable market segments• Locate buying influences within segments• Reach organizational buyers efficiently and effectively

with an offer

Each decision goes through various steps. Skipping a step can be essential to the decision-making process.

Buying as a Process

• Buying is a process, not an event

• There are various points in the process that are referred to as “Critical Decision Points” and “Evolving Information Requirements”

• It starts with “Problem Recognition”

Organizational Buying Process

1. Problem Recognition

2. General Description

of Need

3. ProductSpecifications

4. Supplier Search

5. Acquisitionand Analysisof Proposals

6. Supplier Selection

7. Selectionof

Order Routine

8. PerformanceReview

Organizational Buying Process

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Buying Process

There other events that influence the buying process, most notably:

1. Economic conditions2. Competition 3. Basic shifts in the organizational objectives4. The buying situation

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Business Strategy Considerations

Marketers needs to understand:

1. Who are the decision makers?2. What are their problem(s)?3. What are their purchasing patterns?4. What is the importance of their purchase?5. What is the timing of the purchase?

EnvironmentalForces

OrganizationalForces

GroupForces

IndividualForces

OrganizationalBuying

Behavior

•Economic outlook: domestic & global

•Pace of technological change

•Global trade relations

•Goals, objectives and strategies

•Organizational position of purchasing

•Roles, relative influence and patterns of interaction of buyingdecision participants

•Job function, pastexperience, and buyingmotives of individualdecision participants

A projected change in business conditions can alter buying plans drastically.

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Marketing Strategic Considerations• As Purchasers develop their strategic roles,

Marketers respond by developing strategic alliances to become a part of their business.

• Buyers and Sellers know that “the best value supply chain wins” the customer…and the profits.

• The result is closer relationships with carefully chosen suppliers who can align their activities with customer needs.

• Example: At this time in history, Walmart is one of the best at accomplishing this activity!

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Total Cost of OwnershipTCO considers the full range of costs associated with the purchase and use of a product or service over its complete life cycle

Value-based Selling Tools• Astute business marketers can pursue value-

based strategies that provide customers with a lower cost-in-use solution

• Value-based strategies seek to move the selling proposition from one that centers on current prices and individual transactions to a longer-term relationship built on value and lower total cost-in-use

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E-Procurement• Purchasing managers use the Internet to find

new suppliers, communicate with current suppliers, or place an order

• E-procurement cut purchasing cycle time in half, reduced material costs by 14 percent and purchasing administrative costs by 60 percent, and enhanced the ability of procurement units to identify new suppliers on a global scale

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Centralized vs. Decentralized Purchasing• Purchasing is moving away from a transaction-

based support role to a more strategic, executive level role

• One result of this is to centralize purchasing• Centralized purchasing operates differently than

decentralized purchasing

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Decentralized Purchasing

Decentralized purchasing allows local branches to purchase what they need. This results in local control, and for many kinds of services this makes sense

Example: Stop and Shop buys products from local farmers

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Marketing Strategy Response • The organization of the marketer’s selling strategy

should parallel the organization of the purchasing function of key accounts

• To avoid disjointed selling activities and internal conflict in the sales organization, and to serve the special needs of important customers, many business marketers have developed key account management programs

• Develop strategic relationships with a limited number of customers in order to achieve long-term, sustained, significant, and measurable business value for both the customer and the provider

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Industrial Sales: How to Assess Group ForcesThere are three questions that need to be addressed:1. Who takes part in the buying process?2. What is each member’s relative influence in

decision?3. What criteria is important to each member in

evaluating the supplier?Answering these questions puts the salesperson in a better position to become the chosen supplier

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Who Makes the Decision?

• Individuals make the decision, not organizations!• Each member has a unique personality,

experience and motive, and are subject to risk and rewards

• Professional marketers understand this and make sure that they learn to recognize and match to it

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Evaluative Criteria

Industrial product users value:1. Prompt delivery 2. Efficient and effective serviceEngineering values:3. Product quality4. Standardization5. TestingPurchasing values:6. Price advantage and economy7. Shipping and forwarding

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Evaluative Differences

Education: Engineers have a different educational background than purchasing agentsAlso, various occupations have different dispositions. For example:

1. Engineers are usually cold, analytical and suspecting.

2. Salespeople are usually warm, open and optimistic.

Customer Relationship Management Strategies for Business Markets

Chapter 3

Business Marketing ManagementEleventh EditionHutt and Speh

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Chapter Topics

Well developed relationships give business marketers a significant competitive advantage. Topics include:

1. Patterns of buyer-seller relationships2. Factors that influence customer profitability3. Strategies for designing effective customer

relationships4. How successful firms excel at customer relationship

management5. Critical determinants for managing strategic

alliances

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Types of RelationshipsContinuum of buyer-seller relationshipsTransactional, Value-added and Collaborative exchanges

The Relationship Spectrum

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The Element of Competition• Competition forces a war-like environment

whereby competitors are always trying to lure customers from competitors

• Since customer situations (i.e., requirements, expectations, people, preferences) change, there is always opportunity for customers to change from relationship to transactional to relationship with new suppliers

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Switching Costs• A major consideration before changing from

one supplier to another is the switching costs• Organizational buyers invest heavily in their

relationships with suppliers

Investments include:1. Money2. People3. Training Costs4. Equipment5. Procedures and processes

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Value Drivers in Collaborative RelationshipsSuppliers of routinely purchased products offer three sources of value:1. Value creation through core offerings2. Value creation within the sourcing process3. Value creation at the customers level of

operations

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Differentiation Strategy

For a differentiation strategy to work: “The value created, measured by higher margins and higher sales volumes, has to exceed the cost of creating and delivering the customized features and services.”To determine this, the marketer needs to understand the drivers of profitability.

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Measuring Customer Profitability• Activity-based costing (ABC) is a technique

that allocates the cost of performing various services to each customer (customer-specific costing

• Through Customer Relations Management (CRM) programs, one can relate revenues and costs to each and every activity

Figure 3.3 The Whale Curve of Cumulative Profitability

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Whale Curve and Profitability• 20/80 Rule says “20% of customer provide 80% of sales• Whale Curve reveals:– 20% of customers generate 150–300% of total profits– 70% of customers break even– 10% of customers lose from 50-200% of total profits– Leaving company with 100% of total profits

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Customer Profitably• As mentioned previously, some customers are

profitable and some aren’t • To determine this, we look at the cost/profitability

structure with the plan to:1. Keep profitable customers2. Convert unprofitable ones to profitability3. Fire those who are not profitable

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Customer Relationship ManagementCustomer Relationship Management (CRM) is a cross-functional process for achieving:1. Continuing dialog with customers across

all contact and access points2. Personalized service to the most valuable

customers3. Increased customer retention4. Continued marketing effectiveness

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CRM Technology • CRM programs are software systems that capture

information and integrate sales, marketing and customer service information

• CRM programs can gather information from many sources including email, call centers, service and sales reps

• The information is available to the right people in the organization in real time

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CRM Strategy - Priorities

1. Acquire the right customer

2. Craft the right value proposition

3. Institute the best processes

4. Motivate employees

5. Learn to retain customers

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Evaluating Relationships• Some relationship-building efforts fail because

expectations of the parties don’t mesh• Example: Seller wants a business relationship

whereas the customer responds in a transactional mode

• By understanding and isolating customer needs, the marketer is better equipped to match their product offerings to a particular customer’s needs

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Targeting RM ProgramsSome companies are Relationship Oriented (RO), and some are not

RO companies seek to develop relationships with current or potential supplier

RO buyers look for companies that:Offer expertiseAre able to be flexible (i.e., payment terms, R&D, etc.)Help reduce risk for both parties benefitHelp both parties benefit from the relationship

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Strategy for Dealing with High and Low RO

• HIGH RO: Target those with high RO goals since they are looking for and are open to developing relationships

• LOW RO: For these companies, the strategy is to create high switching cost:– Tie them into electronic ordering interfaces– Stay in constant contact to keep what exists– Align RM resources as closely as possible to the

customer’s needs