Principles of Marketing - Business & Organisational Customers wk 5

Principles of Marketing

Business & Organisational Customers

Objectives

• Know who the business and organisational buyers are;
• See why business and organisational purchase decisions often involve multiple influences;
• Understand the problem-solving behaviour of organisational buyers;
• Understand the different types of buyer-seller relationships and their benefits and limitations;
• Know the basic e-commerce methods used in organisational buying;
• Know about the number and distribution manufacturers and why they are an important customer group;
• Know how buying by service firms, retailers, wholesalers, and governments is similar to - and different from - buying by manufacturers;
• Understand important new terms.

Business and organisational customers - a big opportunities

Most people think about an individual final consumer when they hear the term customer. But many marketing managers aim at customers who are not final consumers. In fact, more purchases are made by businesses and other organisations than by final consumers.

Business and organisational customers are any buyers who buy for resale or to produce other goods and services.

• Producers or goods and services - including manufactures, farmers, real estate developers, hotel operators, bankers and even doctors and lawyers.
• Middlemen - wholesalers and retailers
• Government units - federal agencies in the US and other countries, sstate and local governments
• Nonprofit organisations - national organisations like the Red Cross, Girl Scouts, local organisations, associations.

Key differences between organisational customers and final consumer

• Purchase criteria and specifications

1. Organisations buy for a basic purpose. Buy goods & services to meet demand for their clients.
2. Direct approach helps to finetune marketing mix, as even small differences are important.
3. Good opportunities for international markets as pattern of buying almost the same.
4. Purchasing specifications are standardised and often well described for more sophisticated requirements.
5. Customers may require certification (ISO 9000 is a way for suppliers to document its quality procedures according to internationally recognized quality standards.

• Multiple buying influence

1. Purchasing managers are specialists (procurement officer, supply manager, purchasing agent, or buyer). In large organisations they usually specialise by product area and are real experts. Although purchasing managers usually coordinate relationships with suppliers, other people may also play important roles in influencing the purchase decision.
2. Multiple buying influence in a buying center: users - influencers - buyers - deciders - gatekeepers (receptionists, secretaries, research assistants, others)
3. Vendor analysis - formal rating of suppliers on all relevant areas of performance - considers all of the influences to rate the total costs associates with purchases.
4. Behavioral needs are relevant too: beside economic factors, the human factor must be taken into consideration.
5. Ethical conflicts may arise between personal self-interest and company outcomes.
6. Purchasing may be centralised - purchases are handled through standardises requisition (Purchase order).
7. Spend management systems control purchasing: Some firm use 'spend management' systems to track every single purchase.
8. The buying firm's values affect purchasing practices - ex. environmental considerations.

• Problem-solving process

1. Three kinds of buying process are useful: New-task buying involve setting product specifications, evaluating sources of supply and establishing an order routine. Straight rebuy is routine purchase that may have been made many times before. Modified rebuy is the in-between process where some review of the buying situation is done.
2. New-task buying requires information: Much time required, much multiple influence involved, much more effort to review suppliers, much more information needed.
3. What buying procedure becomes routine is critical: once a buying firm ges beyong the early stages of a new-task buying decision, it needs to make important decision to choose what supplier.

• Buyer-seller relationships

1. Close relationships between buyer-seller may produce mutual benefits.
2. Relationships may not make sense: however long-term commitment to a partner may reduce flexibility. Many small suppliers make the mistake of relying to heavily on relationships with too few customers - a dependency which could cost the business in case of bankcruptcy.
3. Relationships have many dimensions: 5 key dimensions are to be considered: cooperation, information sharing, operational linkages, legal bonds and relationship adaptation. see Exhibit 6-5 p 151.
4. Cooperation treats problems as joint responsibilities - in cooperative relationships, the buyer and seller work together to achieve both mutual and individual objectives.
5. Shared information is useful but may be risky. Exchange of information involve proprietory cost data, discussion of demand forecasts, and joind work on new product design. With e-commerce, intranet allows better decisions for future planning. However, problem of ethics may arise concerning misuse of confidential economic and technological information.
6. Operational linkages share functions between firms.
7. Contracts spell out obligations - in complexed relationships, it is better to have detailed legal contracts as compared to straight rebuy deals.
8. Specific adaptations invest in the relationship: specific adaptations are usually made when the buying organisation chooses to outsource (to cut costs).
9. Powerful customer may control the relationship.
10. Buyers stilll may use several sources to spread their risk. Hedging.

• B2B e-commerce - Technology is reshaping many business markets

1. Buyers rely heavily on search engines
2. Online marketplaces connect buyers and sellers in particular industries
3. Catalog sites automate search and delivery
4. Procurement sites operate for the benefit of the buyes
5. Reverse auction sites foster competition among sellers
6. Auction sites focus on unique items
7. Collaboration hubs support cooperation
8. More progress is needed - marketing mix
9. e-commerce order system are common
10. Its pays to have an ongoing relationship
11. variations in buying by customer type

Key characteristics of specific types of organisational customers

• Manufacturers are important customers

1. Customers cluster in geographic areas
2. Business data often classifies industries (North Amercian Industry Classification codes - NAICS -)

• Producers of services - smaller and more spread out

1. Buying may not be as formal
2. Small service customers like Internet buying

• Retailers and wholesalers buy for their customers

1. Committee buying is impersonal
2. Buyers wactch computer output closely
3. Reorders are straight rebuys
4. Some are not 'open to buy'
5. Residents buyers - independent buying agents - may help a firm's buyers

• Government units

1. Government agencies are important customers for a wide variety of products.
2. Competitive bids may be required.
3. Rigged specs are an ethical concern.
4. The approved suppliers list.
5. Negotiated contracts are common too.
6. Learning what government wants.
7. Dealing with foreign governments.
8. Is it unethical to 'buy help'? Problem of Corruption - Foreign Corruption Practices Act

Conclusion

Buying behaviour and marketing opportunities - may change when there's a close relationship between a supplier and a customer. However, close relationships are not all or nothing. There are different ways that a supplier can build close relationships with its customers. We identified key dimensions of relationships and their benefits and limitations.

Advances in technology and e-commerce play a key role in changes in organisational buying and B2B marketing. Buying behaviors are very similar between organisational buyer, but some can be different.

Understanding how organisations buy can help marketing managers identify logical dimensions for segmenting markets and developing marketing mixes. The nature of products, their classes, variations, may provide additional segmenting dimensions to help a marketing manager fine tune a marketing strategy.

Key terms

Business and organisational customers

Purchasing specifications

Purchasing managers

multiple buying influence

buying center

vendor analysis

requisition

new-task buying

straight rebuy

modified rebuy

just-in-time delivery

negotiated contract buying

outsource

competitive bids

NAICS North American Industry Classification System

Open to buy

resident buyers

Foreign Corrupt Practices Act
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End of lesson