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LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 6, YOU SHOULD BE ABLE TO: Distinguish among industrial, reseller, and government organizational markets. LO1 Describe the key characteristics of organizational buying that make it different from consumer buying. LO2 6-2

LO3 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 6, YOU SHOULD BE ABLE TO: Explain how buying centers and buying situations influence organizational purchasing. Recognize the importance and nature of online buying in industrial, reseller, and government organizational markets. LO4 6-3

BUYING PAPER IS A GLOBAL BUSINESS DECISION AT JCPENNEY 6-4

 Business Marketing Business Marketing THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS LO1  Organizational Buyers Organizational Buyers Industrial Markets (Industrial Firms) Reseller Markets (Resellers) Government Markets (Government Units)  Global Organizational Markets  Retailers  Wholesalers 6-5

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS Slide 6-6 Business Marketing –Marketing of goods and services to companies, governments, and not-for-profit organizations for use in the creation of goods and services that they can produce and market to others.Marketing of goods and services to companies, governments, and not-for-profit organizations for use in the creation of goods and services that they can produce and market to others.

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS Slide 6-6 Organizational Buyers –Manufacturers, wholesalers, retailers, and government agencies that buy goods and services for their own use or for resale.Manufacturers, wholesalers, retailers, and government agencies that buy goods and services for their own use or for resale. –Include all buyers in a nation except ultimate consumersInclude all buyers in a nation except ultimate consumers –Total annual purchases of organizational buyers are far greater than those of ultimate consumersTotal annual purchases of organizational buyers are far greater than those of ultimate consumers –Divided into three different markets:Divided into three different markets: 1)Industrial MarketsIndustrial Markets 2)Reseller MarketsReseller Markets 3)Government MarketsGovernment Markets

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS Slide Industrial Markets (Industrial Firms)Industrial Markets (Industrial Firms) –In some way reprocess a product or service before selling it again to the next buyerIn some way reprocess a product or service before selling it again to the next buyer –Approximately 12M firmsApproximately 12M firms –Predominately Service firms (approx 74%)Predominately Service firms (approx 74%)

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS Slide Reseller Markets (Resellers)Reseller Markets (Resellers) –Buy physical products and resell them without any reprocessingBuy physical products and resell them without any reprocessing Wholesalers (approx 860,000) Retailers (approx 3M)

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS Slide Government Markets (Government Units)Government Markets (Government Units) –Federal, state, and local agencies that buy goods and services for the constituents they serve (approx 88,000 )Federal, state, and local agencies that buy goods and services for the constituents they serve (approx 88,000 )

FIGURE 6-A FIGURE 6-A Type and number of organization establishments in the U.S. 6-11

THE NATURE AND SIZE OF ORGANIZATIONAL MARKETS Slide 6-6 Global Organizational Markets –Industrial, Reseller, and Government marketsIndustrial, Reseller, and Government markets –Largest exporting industries in U.S. focus on organizational customers, not ultimate consumersLargest exporting industries in U.S. focus on organizational customers, not ultimate consumers

MEASURING DOMESTIC AND GLOBAL INDUSTRIAL, RESELLER, AND GOVERNMENT MARKETS LO1 North American Industry Classification System (NAICS) 6-13

North American Industry Classification System (NAICS) Slide 6-9 Common industry classifications for Canada, Mexico, and the United StatesCommon industry classifications for Canada, Mexico, and the United States Easier measurement of economic activity in member countries of NAFTAEasier measurement of economic activity in member countries of NAFTA Replaced Standard Industrial Classification (SIC)Replaced Standard Industrial Classification (SIC)

FIGURE 6-1 FIGURE 6-1 NAICS breakdown for the information industries sector: NAICS code 51 (abbreviated) 6-15

MEASURING DOMESTIC AND GLOBAL INDUSTRIAL, RESELLER, AND GOVERNMENT MARKETS LO1 North American Product Classification System (NAPCS) 6-16

Slide 6-11 Concept Check 1. What are the three main types of organizational buyers? A: Industrial Firms; Resellers; Government Units

Slide 6-12 Concept Check A: The NAICS provides common industry definitions for Canada, Mexico, and the United States, which makes easier the measurement of economic activity in the three member countries of NAFTA. 2. What is the North American Industry Classification System (NAICS)?

 Derived Demand Derived Demand  Size of Order or Purchase Size of Order or Purchase  Number of Potential Buyers Number of Potential Buyers  Organizational Buying Objectives Organizational Buying Objectives CHARACTERISTICS OF ORGANIZATIONAL BUYING LO2 6-19

CHARACTERISTICS OF ORGANIZATIONAL BUYING Slide 6-13  Derived Demand  Refers to the linkage between consumer demand for a company’s output and its purchases of business products.  Demand for industrial products and services is driven by, or derived from, demand for consumer products and services  Derived demand ultimately affects capital items and expense items.

CHARACTERISTICS OF ORGANIZATIONAL BUYING Slide 6-13 Size of the Order or Purchase –Typically much larger than consumer Number of Potential Buyers –Far fewer than consumer Organizational Buying Objectives –Help them achieve their objectives

FIGURE 6-2 FIGURE 6-2 Key characteristics and dimensions of organizational buying behavior 6-22

 Organizational Buying Criteria Organizational Buying Criteria CHARACTERISTICS OF ORGANIZATIONAL BUYING LO2  ISO 9000 ISO 9000  Supplier Development Supplier Development 6-23

CHARACTERISTICS OF ORGANIZATIONAL BUYING Slide 6-16 Organizational Buying Criteria

CHARACTERISTICS OF ORGANIZATIONAL BUYING Slide 6-16 Organizational Buying Criteria –The objective attributes of the supplier’s products and services and the capabilities of the supplier itselfThe objective attributes of the supplier’s products and services and the capabilities of the supplier itself 1.PricePrice 2.Ability to meet quality specificationsAbility to meet quality specifications 3.Ability to meet required delivery schedulesAbility to meet required delivery schedules 4.Technical capabilityTechnical capability 5.Warranties and claim policiesWarranties and claim policies 6.Past performance on previous contractsPast performance on previous contracts 7.Production facilities and capacityProduction facilities and capacity

FIGURE 6-B FIGURE 6-B Key organizational buying criteria 6-26

MARKETING MATTERS Harley-Davidson’s Supplier Collaboration Creates Customer Value…and a Great Ride 6-27

CHARACTERISTICS OF ORGANIZATIONAL BUYING LO2 ISO

CHARACTERISTICS OF ORGANIZATIONAL BUYING LO2 Supplier Development 6-29

 Buyer-Seller Relationships and Supply Partnerships Buyer-Seller Relationships and Supply Partnerships CHARACTERISTICS OF ORGANIZATIONAL BUYING LO2 1.ReciprocityReciprocity 2.Supply PartnershipSupply Partnership 6-30

CHARACTERISTICS OF ORGANIZATIONAL BUYING Slide Reciprocity  Practice of buying from suppliers who are also customers  Controversial practice in number of organizational situations  Suggest close links among participants and can add to complexity of B2B buying behavior  Can be viewed by Government as attempts to reduce competition

ETHICS AND SOCIAL RESPONSIBILITY ALERT Slide 6-20 Scratching Each Other’s Back: The Ethics of Reciprocity in Organizational Buying

CHARACTERISTICS OF ORGANIZATIONAL BUYING Slide Supply Partnerships Buyers and sellers adopt mutually beneficial objectives, policies, and procedures for the purpose of lowering the cost or increasing the value of products and services delivered to the ultimate consumer.  Just-In-Time Inventory (JIT) Just-In-Time Inventory (JIT)

CHARACTERISTICS OF ORGANIZATIONAL BUYING THE BUYING CENTER—A CROSS-FUNCTIONAL GROUP LO3  Buying Center Buying Center  Buying Committee Buying Committee  People in the Buying Center People in the Buying Center  Roles in the Buying Center Roles in the Buying Center 6-34

CHARACTERISTICS OF ORGANIZATIONAL BUYING Slide 6-22 The Buying Center: A Cross- Functional Group –Several people in the organization that participate in the buying process. –Share common goals, risks, and knowledge important to a purchase decision.

BUYING CENTER CONCEPT Slide 6-22 Provides a vital model for understanding organizational buying behavior. Encompasses everyone who is involved in any aspect of its buying action. Not part of a firm’s formal organization structure – informal and variable in size and composition However, may be formalized – Buying Committee

Slide 6-23 Buying Center Who is in the buying center and what roles do they play?

Buying Center Roles  Users are people who actually use the product.  Influencers affect the buying decision by supplying information to guide evaluation of alternatives or by setting buying specifications.  The Decider actually chooses a good or service, although another person may have the formal authority to do so.  The Buyer actually has the formal authority to select a supplier and to implement the procedures for securing the good or service. Always included in Buying Center.  Gatekeepers control the information that all buying center members will review.

Slide 6-25  Buying Situations (Buy Classes) and the Buying Center  Straight Rebuy  Modified Rebuy  New Buy CHARACTERISTICS OF ORGANIZATIONAL BUYING THE BUYING CENTER—A CROSS-FUNCTIONAL GROUP

Three General Categories of Business Buying Situations 1.Straight Rebuy The simplest buying situation is a straight rebuy, a recurring purchase decision in which an existing customer places a new order. 2.Modified Rebuy A purchaser is willing to reevaluate available options. The decision makers see some advantage in looking at alternative offerings. Perceived quality and cost differences can also provoke modified rebuys. 3.New Buy The most complex category of business buying—first time or unique purchase situations that require considerable effort. Often requires a purchaser to carefully consider alternative offerings and vendors. Buying center enlarged to include all who have stake in the new buy.

Slide 6-27 Concept Check 1. What one department is almost always represented by a person in the buying center? A: P urchasing Department

Slide 6-28 Concept Check 2. What are the three types of buying situations or buy classes? A : straight rebuy; modified rebuy; new buy

FIGURE 6-3 FIGURE 6-3 The buying situation affects buying center behavior in different ways 6-43

CHARTING THE ORGANIZATIONAL BUYING PROCESS Slide 6-29 Organizational Buying Behavior –The decision-making process that organizations use to establish the need for products and services and identify, evaluate, and choose among alternative brands and suppliersThe decision-making process that organizations use to establish the need for products and services and identify, evaluate, and choose among alternative brands and suppliers

CHARTING THE ORGANIZATIONAL BUYING PROCESS Slide 6-29 Stages in the Organizational Buying Process

Slide 6-33 Machine Vision System What is its organizational buying process?

 Organizational Buying Behavior for a Machine Vision System Organizational Buying Behavior for a Machine Vision System CHARTING THE ORGANIZATIONAL BUYING PROCESS STAGES IN BUYING A MACHINE VISION SYSTEM LO3  Stage 1: Problem Recognition Stage 1: Problem Recognition Make-Buy Decision - evaluation of whether components Make-Buy Decision - evaluation of whether components and assemblies will be purchased from outside or built within 6-47

 Organizational Buying Behavior for a Machine Vision System Organizational Buying Behavior for a Machine Vision System CHARTING THE ORGANIZATIONAL BUYING PROCESS STAGES IN BUYING A MACHINE VISION SYSTEM LO3  Stage 2: Information Search Purchasing Databank Purchasing Databank Value Analysis – systematic appraisal of the design, quality, and performance of a product to reduce costs 6-48

CHARTING THE ORGANIZATIONAL BUYING PROCESS STAGES IN BUYING A MACHINE VISION SYSTEM LO3  Stage 3: Alternative Evaluation Stage 3: Alternative Evaluation Price, quality, delivery, service, assurance that the supplier will not go out of business Bidder’s List - list of firms believed to be qualified Bidder’s List - list of firms believed to be qualified to supply a given item 6-49

FIGURE 6-5 FIGURE 6-5 Product and supplier selection criteria for buying machine vision equipment emphasize factors other than price 6-50 Percentage of machine vision buyers citing individual selection criteria

CHARTING THE ORGANIZATIONAL BUYING PROCESS STAGES IN BUYING A MACHINE VISION SYSTEM LO3  Stage 4: Purchase Decision  Stage 5: Postpurchase Behavior  Formal product acceptance process 6-51

CHARTING THE ORGANIZATIONAL BUYING PROCESS Slide 6-25  Four lessons for marketers who want to increase chances of selling products and services to organizations. Firms must: 1.Understand organization’s needs 2.Get on the right bidder’s list 3.Find the right people in the buying center 4.Provide value to organizational buyers

FIGURE 6-4 FIGURE 6-4 Comparing the stages in a consumer and organizational purchase decision process 6-53

Slide 6-34 Concept Check 1. What is a make-buy decision? A: An evaluation of whether components and assemblies will be purchased from outside suppliers or built by the company itself.

Slide 6-35 Concept Check 2. What is a bidder’s list? A: A list of firms believed to be qualified to supply a given item.

 Prominence of Online Buying in Organizational Markets Prominence of Online Buying in Organizational Markets ONLINE BUYING IN ORGANIZATIONAL MARKETS LO4  E-marketplaces E-marketplaces  Reverse Auction Reverse Auction  Online Auctions in Organizational Markets Online Auctions in Organizational Markets  Traditional Auction Traditional Auction 6-56

ONLINE BUYING IN ORGANIZATIONAL MARKETS Slide 6-36 E-marketplaces are online trading communities that bring together buyers and supplier organizations to make possible the real time exchange of information, money, products, and services.

ONLINE BUYING IN ORGANIZATIONAL MARKETS Slide 6-36 A traditional auction is an online auction in which a seller puts an item up for sale and would-be buyers are invited to bid in competition with each other.

ONLINE BUYING IN ORGANIZATIONAL MARKETS Slide 6-36 A reverse auction is an online auction in which a buyer communicates a need for a product or service and would-be suppliers are invited to bid in competition with each other.

FIGURE 6-6 FIGURE 6-6 How buyer and seller participants and price behavior differ by type of online auction 6-60

Business Marketing Business marketing involves the marketing of goods and services to companies, governments, or not-for-profit organizations for use in the creation of goods and services that they can produce and market to others. 6-61

Organizational Buyers Organizational buyers are those manufacturers, wholesalers, retailers, and government agencies that buy goods and services for their own use or for resale. 6-62

North American Industry Classification System (NAICS) The North American Industry Classification System (NAICS) provides common industry definitions for Canada, Mexico, and the United States, which makes easier the measurement of economic activity in the three member countries of the North American Free Trade Agreement (NAFTA). 6-63

Derived Demand Derived demand is the demand for industrial products and services is driven by, or derived from, demand for consumer products and services. 6-64

Organizational Buying Criteria Organizational buying criteria are the objective attributes of the supplier’s products and services and the capabilities of the supplier itself. 6-65

ISO 9000 ISO 9000 consists of standards for registration and certification of a manufacturer’s quality management and assurance system based on an on-site audit of practices and procedures developed by the International Standards Organization (ISO). 6-66

Supplier Development Supplier development is the deliberate effort by organizational buyers to build relationships that shape suppliers’ products, services, and capabilities to fit a buyer’s needs and those of its customers. 6-67

Reciprocity Reciprocity is an industrial buying practice in which two organizations agree to purchase each other’s products and services. 6-68

Supply Partnership Supply partnership is a relationship that exists when a buyer and its supplier adopt mutually beneficial objectives, policies, and procedures for the purpose of lowering the cost or increasing the value of products and services delivered to the ultimate consumer. 6-69

Buying Center A buying center consists of a group of people in an organization who participate in the buying process and share common goals, risks, and knowledge important to a purchase decision. 6-70

Buy Classes Buy classes consists of three types of organizational buying situations: straight rebuy, new buy, and modified rebuy. 6-71

Organizational Buying Behavior Organizational buying behavior is the decision-making process that organizations use to establish the need for products and services and identify, evaluate, and choose among alternative brands and suppliers. 6-72

Make-Buy Decision A make-buy decision involves an evaluation of whether components and assemblies will be purchased from outside suppliers or built by the company itself. 6-73

Value Analysis Value analysis involves a systematic appraisal of the design, quality, and performance of a product to reduce purchasing costs. 6-74

Bidder’s List A bidder’s list is a list of firms believed to be qualified to supply a given item. 6-75

E-marketplaces E-marketplaces are online trading communities that bring together buyers and supplier organizations to make possible the real time exchange of information, money, products, and services. Also called B2B exchanges or e-hubs. 6-76

Traditional Auction A traditional auction is, within an e-marketplace, an online auction in which a seller puts an item up for sale and would-be buyers are invited to bid in competition with each other. 6-77

Reverse Auction A reverse auction is, within an e-marketplace, an online auction in which a buyer communicates a need for a product or service and would-be suppliers are invited to bid in competition with each other. 6-78