Business, Government, and Institutional Buying Chapter Four Business, Government, and Institutional Buying Key Words / Outline Intermediaries, Business-to-Business, Straight rebuys, Modified re buys, New task purchases, Structural influences, Purchasing roles, Organization-specific factors, Purchasing policies and procedures, Initiators, users, influencers, deciders, buyers, gatekeepers, Sole sourcing, Lethargic organization © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Marketing Management, 8e

Buyer Categories Producers: Businesses that buy goods and services in order to produce other goods and services Intermediaries: Purchase products to resell at a profit Government agencies: 86,000 Government agencies spend trillions of dollars on machinery, equipment, facilities, supplies and services Other institutions: Such as hospitals, museums, universities, nursing homes, and churches

Organization Buying Process Purchase-type influences Structural influences Behavioral influences Organizational buying process Organizational need Vendor analysis Purchase activities Postpurchase evaluation

Purchase Types Straight rebuy: Routine reordering from a supplier used in the past Modified rebuy: Purchase involves considering a limited number of alternatives before making a selection New task purchase: Involves an extensive search for information and a formal decision process

Purchase Types Purchase Type Complexity Time Frame Number Of Suppliers Straight Rebuy Simple Short One Modified Rebuy Moderate Medium Few New Task Purchase Complex Long Many

Organizational Buying Distinctions How marketing to organizational buyers differs from marketing to consumers More variation in buyer-seller relationships Shorter distribution channels Greater emphasis on personal selling Greater web integration Unique promotional strategies

Purchasing Roles Initiators – Recognizing need starts process Users – People who use the product Influencers – People who affect the buying process

Purchasing Roles Buyers – Those with formal authority and responsibility Deciders – Those with formal or informal power to select or approve suppliers Gatekeepers – Those who control information flow to the buying center

Organization-Specific Factors Orientation: Dominant function in an organization controlling decisions Size of organization: Larger the organization higher degree of joint decision, smaller the organization autonomous decision making Degree of centralization: This influences whether the decisions are made individually or jointly with others

Purchasing Policies Sole sourcing – all of a particular product is purchased from a single supplier Direct buying – list of approved vendors for particular products Competitive bidding – for large, one-time purchases

Behavioral Influences Personal motivations: Factors such as friendship, professional pride, fear and uncertainty, trust and personal ambition Role perceptions: Their commitment lies in what they believe is their perceived or expected role Organizations can be divided into three groups based on commitment Innovative Adaptive Lethargic

Understanding Buyers’ Code of Ethics Avoid the intent or appearance of unethical activity Demonstrate loyalty to employee by being lawful and using reason Refrain from private or personal activity that could create conflicts of interest Refrain from soliciting or accepting gifts, loans, or services from potential suppliers

Understanding Buyers’ Code of Ethics Handle confidential information with proper consideration Promote positive relationships with suppliers through impartiality Refrain from reciprocal agreements that restrain competition Know and obey both the letter and spirit of laws governing the purchasing function

Understanding Buyers’ Code of Ethics Encourage all segments of society to participate by supporting disadvantaged interests Discourage involvement in personal purchases that are not business related Enhance the stature of the purchasing profession by keeping up with current knowledge and standards Conduct international purchasing with regards to U.S. laws and ethical guidelines

Purchasing Agent Influences Design of the product Cost of the product Performance life Naming a specific supplier Assessing engineering support from the supplier Reduction of rejects

Organizational Buying Process ORGANIZATIONAL NEED VENDOR ANALYSIS PURCHASE ACTIVITIES POSTPURCHASE EVALUATION

Organizational Buying Process Organizational Need Needs based on survivability and stated objectives of the organization Vendor analysis Search for, locate and evaluate potential providers of goods and services Rate them based on quality, on-time delivery, price, payment terms, and use of technology

Organizational Buying Process Purchase activities Purchases can involve extensive negotiations on price, term of contract – increases with complex goods and services Postpurchase evaluation Does the purchase perform as expected? Should the supplier be used again?

Functional Areas in Organizational Buying Design and development Production Sales / marketing Maintenance Finance / accounting Purchasing Quality control