B2B Marketing The Organization Buying Process XIME–RS–03 Amarnath Krishnaswamy

Plan for this Session Building relationships Buying behaviour

Building Relationships

It’s importance … Knowledge of the ways and means adopted by an organization for the procurement of its needs is the first step in developing a strategy to cater to these needs

Buying Process The buying process is: An ‘exchange ‘ process between buyers & sellers Involves a decision That comes through an ‘evaluation’ Establishes a ‘relationship’ between the buyer and the seller The seller’s objective is to make it to the last ‘A’ on “AIDA”!!

Exchange process - Centres The exchange process brings 2 centres into play Selling centre Gets all the information &executes selling strategy Buying centre Group that ‘share’ goals & risks of purchasing action Composition of group decided by need, usually functional

Buying – Selling process Marketing Purchasing Manufacturing Selling Buying R & D Engineering Distribution Marketing

Stages in a ‘buying process’ 8 stages in the buying process: Recognition of need & a solution Establish specifications & quantity of the item needed Describe them to the prospective vendor Search for prospective vendors Obtain proposals Evaluate proposals Select a vendor Evaluate performance and feedback

Stages in a ‘buying process’ 8 stages in the buying process: Recognition of need & a solution Establish specs & quantity of the item needed Describe them to the prospective vendor Search for prospective vendors Obtain proposals Evaluate proposals Select a vendor Evaluate performance and feedback

Buying situations There are 3 types of buying situations: New task Straight rebuy Modified rebuy Each of these types must be looked at in terms of the 8 stages

1. New Task The “New task” can fall into 2 categories Judgmental New activity – with no prior data or experiences to fall back on Unpredictable. Requires ‘judgment’. Strategic Of great importance – strategically and financially - to the organization, even for the routine items of purchase

1. New Task - Guidelines Gain an advantage by: Being involved from the beginning in the ‘New task” Those already ‘in’ have distinct advantage in getting first access to the information

2. Straight rebuy Characterized by: Recurring requirement Buyers know the ‘business’ – especially the selection criteria Suppliers have already been evaluate Conditioned, ‘Pavlovian’ response to new suppliers

2. Straight rebuy - Guidelines As the ‘purchase’ is routine, and the approach is likely to be casual: “In” supplier: Reinforce position – that you’re the best. “Out” supplier: Develop a relationship. Wait for an opportunity.

3. Modified rebuy ‘Purchase’ needs constant analysis and evaluation as changes could yield significant benefits Examples Import substitution Direct relationship with manufacturer – cutting out middlemen

3. Modified rebuy - Guidelines Again, would depend on current status: “In” supplier: Work towards moving the item into “straight rebuy” category Nip moves to source afresh in the bud – be proactive “Out” supplier: Hold buyer in “uncertainty” Determine factors that made buyer want to take a fresh look Offer benefits not given by others

The “Influentials” Every buying process would have some “influentials” They could change – depending on the stage the purchasing process is in Important to identify them

Evaluating potential suppliers Seller cannot afford to be ‘filtered’ out at any stage, especially at the start Would apply to ‘product’ and ‘capability’ Need to understand, and account for, factors that could influence the buyer Rational factors: e.g. economic Emotional factors: Both can vary – person, functional area etc Seller must identify these factors quickly Both get translated into “value”

Measuring value “Value analysis” – used to measure the value Commonly used: Value-in-use Calculates value based on total cost of usage over a period

Measuring capability Many areas: Technical / production capability Managerial capability Financial Service Quality Supplier would be evaluated on each, and an index developed for supplier / product

Relationship management - Transaction Relationship between supplier and buyer can be classified on the character of the transaction: Pure Transaction: One time Repeated Transaction: Frequent, but essentially ‘one-time’ type transactions Long term: Relationship is still adversarial in nature Partnership: Working together Alliance: Working together towards a shared goal

Relationship management – Duration & Cost Relationships can also be looked at from the duration of the relationship, and the cost involved in switching suppliers. Lost-for-Good Customers: Unlikely to change suppliers High cost involved to change Benefits of switch not commensurate with the risk

Relationship management – Duration & Cost Always-a-Share Customer: Ever willing to switch! Low switching cost Perspective – transaction to transaction Intermediate Customer: In between Flaring-out by Unbundling Flaring-out with Augmentation

Relationship management - Strategy A) Flaring-out by Unbundling From total package to core Price lowered at each step Price of consolidated bundle less than aggregate of each Useful for transaction type customers B) Flaring-out with Augmentation Collaborative Product enriched by features valued by customer Price premium on package

Buying Behaviour

It’s importance Buyer is influenced by forces within and without his organization Necessary to understand these forces, and how they have changed, for the seller to respond effectively to them

Forces impacting behaviour Organizational behaviour impacted by primarily four forces: Environmental forces Organizational forces Group forces Individual forces

Environmental forces 6 types: Economic Political & Legal Cultural Physical Technological Environmental Uncertainty

Environmental Forces 1. Economic Very rational Demand is derived (industrial products); hence final consumer market has to be watched very carefully The same economic force could have a differential impact, and not impact demand equally for all products. Could complicate issues. (Example: Impact of interest rates on various sectors)

Environmental Forces 2. Political & Legal Rational – generally! Examples: 1. EEC rules governing imports 2. Preferred status – for many countries 3. State incentives (Setting up automobile units) 4. “Sons of the soil” policy 5. Reservations

Environmental Forces 3. Cultural 4. Physical Examples: 1. Women – in the Gulf countries 4. Physical 1. Proximity to users 2. Landed cost concept

Environmental Forces 5. Technological 6. Environmental uncertainty Technological change influences what an organization can buy / use, and in turn what it can give As pace increases, impacts necessity to take decisions quickly 6. Environmental uncertainty More uncertain, more people involved

Organizational Forces Buying process influenced by the valence the organization attaches to: Achievement Rules Innovation Industriousness Selling must consider all this – the ‘personality’ of the organization – and the way it is organized

Positioning of purchasing Purchasing can be organized – centralized or decentralized Centralized: Originates from a commonality of requirements Originates from requirement of control Leads to specialization Point for discussion: Said that the need to involve other functions like R&D and Engineering is an important factor for centralization. Is this true?

Group Forces The answers to these questions have to be sought: Who are the members of the buying centre Relative influence of each member Criteria used for evaluation All can change from stage to stage.

Individual Forces The ‘buying’ individual also brings his personal ‘slant’ (selective interpretation) into the picture Exposure: Accept those consistent with own beliefs Attention: Paying attention to those consistent with own beliefs Perception: Interpret inputs in a way consistent with own beliefs Retention: Retain those consistent with own beliefs Composition of all can change from stage to stage - it is task dependent.

Individual Forces Buyers, as individuals, would also like to lower risk: External Visit plant, audit supplier Check with other organizations using the supplier Internal Consult with others in the company

Group vs. Individual decision making Product specific Risk: Higher – rely on group Purchase type: New task – rely on group Time (Urgency): Individual Company specific Size: Large – Group Centralized: Individual

Exercise! Pick a ‘purchase’ situation Analyze the situation in terms of the parameters discussed

Exercise – what would you look at? Define Buying situation New task / Straight rebuy / Modified rebuy Status of supplier In / Out Evaluation Value Supplier capability (let’s drop this for this exercise!) Relationship sought Transaction / Long term

Moving Forward Read: Next Class PGDM-RS-04: Thursday, Jan 14, 2010 Business Marketing Management: Hunt & Speh Chapter 5: Business Marketing Intelligence Chapter 7: Demand Analysis

We can’t forget this! Dead Cat Bounce A short-term increase in the value of a stock following a precipitous drop in value. Jack Speak Totally confusing!

Thank you !