understanding organizational markets and buying behavior · 5-6. who is the customer? • companies...

Understanding Organizational Markets and

Buying Behavior

Chapter 5

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

5-2

Who Is the Customer?

• A comparison of organizational versus consumer markets

• The crucial differences from a marketing viewpoint are: – The motivations of the buyer: what the

organization will do with the product and the benefits it seeks to obtain.

– The demographics of the market.– The nature of the purchasing process and the

relationship between buyer and seller.

5-3


• Purchase motives—Derived demand– Demand for industrial goods and services is:

• Derived from the demand for consumer goods and services.

• Relatively inelastic.• More erratic because small increases or decreases

in consumer demand can, over time, strongly affect the demand for manufacturing plants and equipment.

• More cyclical.

5-4


• Market demographics: Organizational buyers, when compared with buyers of consumer goods, are:– Fewer in number.– Larger.– Geographically concentrated.

5-5


• Purchasing processes and relationships –Organizational markets are characterized by the following:– Use of professional buying specialists

following prescribed procedures.– Closer buyer–seller relationships.– Presence of multiple buying influences.– More apt to buy on specifications.

5-6


• Companies selling to organizational markets needs to keep one eye on:– Possible changes in

organizations’ buying behavior for its product.

– Trends in the underlying consumer markets.

• Organizational marketers tend to:– Use direct selling.– Be heavy users of “high-

involvement” media.

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• Participants in the organizational purchasing process:– Users– Influencers– Gatekeepers– Buyers– Deciders

5-8


• The organizational buying center– The individuals in this group share knowledge

and information relevant to the purchase of a particular product or service.

• Marketing implications– Which individuals to target.– How and when each should be contacted.– What kinds of information and appeals each is

likely to find most useful and persuasive.

5-9

How Organizational Members Make Purchase Decisions

• Types of buying situations– A straight rebuy involves purchasing a

common product or service the organization has bought many times before.

– A modified rebuy occurs when the organization’s needs remain unchanged, but buying center members are not satisfied with the current product or the supplier.

– New-task buying occurs when an organization faces a new and unique need or problem.

5-10

The Organizational Decision-Making Process for New-Task Purchases

5-11


• Marketing implications of different purchasing situations– Extensive purchasing process applies

primarily to new-task purchases. • Such situations are relatively favorable to potential

new suppliers who have never sold to the organization.

– At the other extreme is the straight rebuy.• “In,” suppliers have a major competitive

advantage.• “Out” suppliers must attempt to interest the buyer

in modifying the purchase criteria.

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• Developing long-term buyer–supplier relationships

• Trust between supplier and customer develops person-to-person

• Conditions favoring trust and commitment– A firm is more likely to trust and develop a

long-term commitment to a supplier when that supplier makes dedicated, customer-specific investments.

5-13


• Government markets– Government organizations tend to require

more documentation and paperwork.– Typically require bids, and contracts are

usually awarded to the lowest bidder.– Negotiated or “cost-plus” contract basis.– Standard marketing strategies and tools are

less relevant.

5-14

Selling Different Kinds of Goods and Services to Organizations

• Raw materials – Purchased primarily by

processors and manufacturers, they are inputs for making other products.

– The two types are natural products and farm products

• Implications for marketing decision makers– The limited supply of most

natural products gives producers the power to limit supplies and administer prices.

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• Component materials and parts– Purchased by manufacturers

as inputs for making other products.

– Component materials have been processed to some degree before they are sold.

– Component parts are manufactured items assembled as part of another product without further changes in form.

5-16


• Implications for marketing decision makers– Most components are bought in large

quantities – they are usually sold direct. – Sellers must ensure a steady, reliable supply,

especially when a just-in-time (JIT) management system is used by the buyer.

5-17


• Installations– Buildings and major capital

equipment that manufacturers and service producers use.

• Implications for marketing decision makers– Many installations are custom-

made.– Long period of negotiation. – Firms usually provide many

postsale services.– Promotional emphasis on

personal selling.– High-caliber, well-trained

salespeople.

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• Operating supplies– They do not become a part of the buyer’s

product or service, nor are they used directly in producing it.

– They facilitate the buying organization’s day-to-day operations.

• Implications for marketing decision makers– Wholesale middlemen are typically used to

distribute these supplies.– Price is usually the critical decision variable.

5-19


• Business services• Implications for marketing decision

makers– The supplier’s qualifications, past

performance, and reputation are critical determinants.

– Price is less important. – Price often serves as an indicator

of quality.– Personal selling and negotiation

are important.

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