Organizational Buying Behavior Chapter Five

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-2 Key Learning Points The key differences between consumer and industrial marketing Market segmentation for marketing to organizations Understanding why organizational buyers make decisions Understanding how organizations make purchasing decisions The importance of knowing where and when such purchases are made

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-3 “ When a firm markets a product or service to another organization, it is called organizational marketing, industrial marketing, and since the Internet boom of the late 1990s, B-to-B (business-to- business) marketing. ” - Russell S. Winer

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-4 Organizational Buying Buying centers: A group of individuals who are collectively involved in an organizational buying decision Group decision-making differs from individual decision-making.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-5 Industrial vs. Consumer Marketing Key differences between industrial and consumer purchasing behavior: Derived demand Derived demand Product complexity Product complexity Buyer–seller interdependence Buyer–seller interdependence Buying process complexity Buying process complexity

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-6 Table 5.1 Market Segmentation Variables for Business Markets

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-7 Table 5.1 Market Segmentation Variables for Business Markets

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-8 Table 5.1 Market Segmentation Variables for Business Markets

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-9 Illustration UPS segments their market by how quickly the customer needs a package to arrive, with higher prices charged for faster delivery. UPS also caters to consumers who wish to visit their retail stores.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-10 Table 5.2 Market Segmentation Scheme for a Medical Equipment Manufacturer

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-11 Table 5.3 Kevlar Segmentation Scheme

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-12 Who Are the Customers? Vertical segmenting schemes: Occurs when firms focus on an industry, often creating a separate set of distribution channels for industry. Horizontal segmenting schemes: Occurs across industries, where needs and uses are similar. Organizations make different types of purchases, which can be classified into different buy classes.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-13 Table 5.4 Different Types of Organizational Purchases

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-14 Discussion Question Universities must buy equipment, furniture, and other items from many businesses. Think about your university. Can you identify products which represent straight rebuys, modified rebuys, new-task purchases, or a solutions buy?

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-15 Who Are the Customers? Segmenting in technology-based markets: The Chasm Model Some firms adopt new technologies earlier than others. Lead users engage in beta testing, and can help new technologies be adopted. However, the standard diffusion model must be modified for high-tech markets.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-16 Figure 5.1 The Chasm Model

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-17 Table 5.5 Visionaries Vs. Pragmatists

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-18 Who Are the Customers? Marketing research implications – data collection: Primary research is used less. Secondary data are used most often. Trade associations and consulting firms often provide useful data. Satisfaction data may also be available. American Customer Satisfaction Index American Customer Satisfaction Index

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-19 Table 5.6 Secondary Source Segmentation Data

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-20 Who Are the Customers? Marketing research implications – developing target markets: Parsimony is important when selecting target markets. Understand horizontal and vertical segment considerations and the benefits of each. Target market selection criteria is the same as that used in consumer markets.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-21 Table 5.7 Organizational Buying Stages

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-22 Why Do Customers Buy? Identifying the need: Recognition can be stimulated by low inventory or marketing communications. Need recognition phase varies according to buy class. Purchasing decisions are feature/ benefit driven.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-23 How Do Customers Make Purchase Decisions? Members of the buying center: InitiatorInfluencerDeciderPurchaserUser

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-24 Business-to-business marketers must understand patterns of influence within organizations. Salespeople must tailor their messages. A single salesperson or channel may be insufficient to reach the customer. Testing and design engineers help specify many products. How Do Customers Make Purchase Decisions?

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-25 Figure 5.2 LVDS Drivers & Receivers

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-26 How Do Customers Make Purchase Decisions? Characteristics of the product or service are determined after need recognition. Typically stated in terms of benefits Specifications must be established. Needs are translated into specific product features.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-27 How Do Customers Make Purchase Decisions? Potential suppliers are searched for and qualified. Selling organization’s must be in evoked set. Potential suppliers must also be qualified. Many factors are used for qualification purposes.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-28 How Do Customers Make Purchase Decisions? Request for proposals (RFP) are sent to suppliers. Returned RFPs include bid and project specifications. This is unnecessary for straight repurchase situations. The Internet has accelerated distribution and receipt of RFPs.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-29 How Do Customers Make Purchase Decisions? Proposals are evaluated and a supplier is selected. Each buying center member has input. A multiattribute model can be applied to the decision-making process to formalize the evaluation process.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-30 Table 5.8 Buyer Center Decision Making

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-31 Table 5.9 Buyer Center Decision Making Online Customers Service Illustration

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-32 Discussion Question Suppose that an organization was going to equip its sales force with laptop computers for the first time. 1.What positions within the firm would most likely be part of the buying center? 2.What roles could people in each position fulfill? 3.Which attributes would you suggest using for the supplier evaluation? 4.How would you weight the importance of each selected attribute?

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-33 How Do Customers Make Purchase Decisions? Perform postpurchase evaluation: Information normally flows readily between suppliers and customers. Supplier’s sales force are key providers of feedback as to how product is performing. If no information is forthcoming, suppliers must solicit information.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-34 How Do Customers Make Purchase Decisions? Several external and internal factors influence the purchase process: Environmental factors Organizational characteristics Buying center member characteristics Group characteristics

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-35 How Do Customers Make Purchase Decisions? Effects of culture on organizational buying behavior: Organizational culture Corporate cultures are unique. Global cultural diversity

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-36 How Do Customers Make Purchase Decisions? Effects of culture on organizational buying behavior: Several classification systems for global organizational culture exist.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-37 Figure 5.3 Position of 40 Countries on the Power Distance and Individualism Scales

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-38 Where Do Customers Buy? Where do customers buy? Watch for changes in buying patterns. Sales force, industrial distributor channels Mail and Internet channels 90% of Internet commerce is B2B. Trend towards disintermediation

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-39 When Do Customers Buy? When do customers buy? Time of day or week has little relevance. Beginning of fiscal year is key. General economic cycles are important.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-40 Executive Summary Analyzing industrial buying behavior requires answering of questions. Differences exist between consumer and industrial buying behavior. Segmentation involves application of descriptor and behavioral variables. Nature of customer-oriented organizations. Industrial buyers recognize needs internally or externally.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-41 Executive Summary Buying centers make industrial purchasing decisions. The buying process contains eight steps. Greater use of the internet and direct marketing has influenced where purchases are made. Budgeting and business cycles influence when purchases are made.

Copyright ©2011 Pearson Education, Inc., Publishing as Prentice Hall 5-42 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.