Chapter 8 MKT 300

Reciprocity

- An arrangement in which two organizations agree to buy from each other - Reciprocal agreements that threaten competition are illegal but a certain amount still occurs

Methods of Business Buying

- Description - Inspection - Sampling - Negotiation

Influences of the Business Buying Decision Process

- Environmental - Organizational Influences - Interpersonal - Individual

The Buying Center

The group of people within the organization who make business purchase decisions - roles include initiator/users, influencers, buyers, deciders, and gatekeeper

Description

When products are highly standardized, a buyer can oder by describing quantity, grade, and other attributes ex: an Alaskan cruise for a company retreat, booked through a travel agency

The purchase manager of a cake and pastries store wanted to purchase supplies of milk. He told the seller that he wanted cow's milk that contained at least 10% fat. Which of the following methods of business buying did the purchase manager use?

Description

Individual Influences

Personal characteristics (age, education level, personality and tenure and position) of participants in the buying center

Negotiation

Some purchases are based on negotiated contracts wherein buyers describe what they need and sellers submit bids ex: a building for the home office of a light bulb manufacturer

Government Markets

- Federal, state, county, or local governments that buy goods and services to support their internal operations and provide products to their constituencies - spend hundreds of billions annually on a wide range of goods and services - Government contracts are awarded to a wide variety of large and small firms in many industries

Characteristics of Transactions with Business Customers

- Large orders - Expensive items - Extended negotiations - Reciprocity

Institutional Markets

- Organizations with charitable, educational, community, or other non-business goals - Members can include churches, hospitals, charitable organizations and private colleges - Marketers may use special techniques to target them example: Pipe organ in Memorial Hall at UK

Attributes of Business Customers

- Well informed about the products they purchase - Demand detailed info and technical specifications - Help the firm achieve organizational objectives - Engage in rational buying behavior - Often form partnerships with suppliers

Demand for Business Products

- derived demand - inelastic demand - joint demand - fluctuating demand

North American Industrial Classification System (NAICS)

- is used by the US, Canada and Mexico to help generate comparable statistics - useful for segmentation, most appropriate when used with other types of data - marketers must locate potential purchasers and estimate their purchase potential by finding a relationship between the potential purchases and a variable from the industrial classification data

Factors Resellers Consider

- level of demand - resale price - Space required: sales per square foot - Supplier's ability to provide adequate quantities when and where needed - Availability of technical assistance

Primary Concerns of Business Customers

- price (amount of investment) - product quality (specifications must be met) - services (influences costs, sales, and profits) - supplier relationships

Standard Industrial Classification (SIC) System

- was developed by the federal government but replaced (not available any more) - International Standard Industrial Classification (ISIC) is used mainly in Europe

Joint demand

-When two or more items are used in combination to produce a product - Demand for the product drives demand for both items ex: Hamburger buns

Types of Business Purchases

1. New task purchase 2. Straight rebuy 3. Modified rebuy

The four categories of business markets are:

1. Producer markets 2. Reseller markets 3. Government markets 4. Institutional markets

Stages of the Business Buying Decision Process (used primarily for new-task purchases)

1. Recognize problem 2. Develop product specifications to solve problem 3. Search for and evaluate possible products and suppliers - Value analysis; vendor analysis 4. Select product and supplier and order product - Multiple sourcing vs sole sourcing 5. Evaluate product and supplier performance

Vendor analysis

A formal, systematic evaluation of current and potential vendors

Sole Sourcing

An organization's decision to use only now supplier

Multiple Sourcing

An organizations's decision to use several suppliers

Derived demand

Demand for business products that is the result of demand for consumer products ex: computer sales and chips

Inelastic demand

Demand that is not significantly altered by a price increase or decrease ex: windshield wipers

Sampling

Entails taking a specimen of the product and evaluating it for suitability before purchase ex: one-inch nails for a building contractor

Organizational influences

Include company objectives, purchasing policies and resources and size and composition of buying center

Environmental Influences

Include competitive and economic factors, political forces, legal and regulatory forces, technological changes and sociocultural issues

Many suppliers and their customers invest time and resources to build and maintain mutually beneficial relationships which are often called:

Partnerships

Producer Markets

Individuals or business organizations that purchase products in order to make a profit by using them in producing other products or in their operations

Business Markets

Individuals, organizations, or groups that purchase a specific kind of product for resale, direct use in producing other products, or use in general daily operations - also called business to business or B2B markets - Similar to marketing to consumer markets, but with some essential differences

George, the purchase manager for a car manufacturing company, was asked to collect the specifications of a new engine past from the production manager and the vendor specifications from the other departments before placing an order with a supplier. He was also asked to create the procedures for future purchases of the particular engine part that would help increase the car's mileage. Which of the following types of business purchase is the company going to make?

New-Task Purchase

Dell obtains most of its computer parts and chips from other producers and assembles them together into a desktop or a laptop, which is then sold to consumers. It can be said that Dell is a part of a(n) ____________ market.

Producer

In business markets, individuals or groups purchase products for one of three purposes. The purposes are:

Resale, direct use in producing other products, and use in general daily operations

Reseller Markets

Resellers: Intermediaries (wholesalers) who buy finished goods and resell them to final consumers for a profit

Business (Organizational) Buying Behavior

The purchase behavior of producers, government units, institutions and resellers

Interpersonal influences

The relationships between people in the business; trust and collaboration are important

Inspection

Used with some products that have unique characteristics and vary in regard to condition ex: wool for a clothing manufacturer

Modified Rebuy

a new-task purchase that is changed on subsequent orders or when straight-rebuy requirements are modified

Straight Rebuy

a routine purchase of same products under approximately the same terms

Value analysis

an evaluation of each component of a potential purchase

New Task Purchase

an item is purchased to be used to perform a new job or solve a new problem

Fluctuating demand

because demand for business products is derived from consumer demand, it may *fluctuate* enormously ex: snow tires

Information about business customers is based on ________.

industrial classification systems

Gatekeeper

prevents flow of info among people; blocks time ex: "I can never see the bank president.."