Gilbert A. Churchill, Jr. J. Paul Peter Chapter 7 Organizational Buying Behavior Marketing “A transaction in which a product is sold for any use other than personal consumption”

A Comparison of Organizational Buyers and Consumers Figure 7.1 Slide 7-1 Characteristic Number of buyers in market Few Size of Purchases Organizational Buyers Consumers Interdependence between buyer and seller Number of people involved in purchase decisions Source: Based in part on information in Philip R. Cateora, International Marketing, 9th ed. (Burr Ridge, Ill: Irwin, 1996) chapter 10. Decision Criteria Large Primarily Rational Strong Many Rational and emotional Few Weak Small Many LocationConcentratedDispersed DistributionMore DirectMore Indirect

Categories of Organizational Buyers Slide 7-2 IntermediariesProducers Government Agencies Institution Air Force Park Service New York City Harvard University St Mary’s Hospital United Way Crown Books Campus Store Amazon.com General Motors Boeing Buy goods & services to produce other goods & services Buy finished goods & sell them to other businesses or customers for a profit P urchase goods & services for carrying out the main functions of the government National & local organizations providing goods & services to people in their care

Business Classification Systems Slide 7-3 StandardIndustrialClassificationCode Thomas Register US Government System Private System

Demand Principles Slide 7-4 Derived Demand Accelerated Principle Demand for organizational goods that is dependent on the demand for consumer goods. A small change in consumer demand for a product can result in a large change in the demand for organizational goods and services to produce the product. Joint DemandDemand for one organizational good is dependent on the demand for another organization good.

The Organizational Buying Process Slide 7-5 Figure 7.5 Assign Responsibility for Making a Purchase Decision Recognize a Need or Problem Search for Alternatives Evaluate and Select an Alternative Evaluate Performance of Product and Supplier Make a Purchase

Types of Business Products Major Equipment (machinery, generators) Major Equipment (machinery, generators) Accessory Equipment (drills, fax machines) Accessory Equipment (drills, fax machines) Raw Materials (lumber, wheat, vegetables Raw Materials (lumber, wheat, vegetables Component Parts (tires spark plugs) Component Parts (tires spark plugs) Processed Materials (corn syrup, sheet metal) Processed Materials (corn syrup, sheet metal) Supplies (pencils, paper towels) Supplies (pencils, paper towels) Business Services (janitorial & legal services) Business Services (janitorial & legal services) Major Categories of Business-to- Business Products Major Categories of Business-to- Business Products Slide 7-6

Types of Organizational Purchases Slide 7-7 Table 7.2 Purchase Type Straight rebuy Complexity Modified buy New task purchase Short Time Frame Number of Suppliers Applications Medium Long Simple Moderate Complex One Few Many Frequently purchased routine products, such as printer cartridges Routine purchase that has changed in some way, such as air travel (new fares, flights, destinations) Expensive, seldom- purchased products, such as new production equipment High Involvement Low Involvement

Rating scale Vendor Analysis - Compare Suppliers Example of Vendor Analysis in a Microcomputer Buying Situation Poor (1) Fair (2) Good (3) Excellent (4) Unacceptable (0) Attributes Compatibility Affordability Reliability Service/support Flexibility Product line depth X X X X X X Total score: = 19 Average score: 19 ÷ 6 = 3.17 Slide 7-8

Functional Areas and Their Key Purchasing Concerns Slide 7-9 Table 7.3 Functional Area Design and development engineering Production Quality Control Key Concerns in Purchasing Decision Making Name reputation of vendor; ability of vendors to meet design specifications Delivery and reliability of purchases Sales/Marketing Maintenance Finance/accounting Purchasing Impact of purchased items on marketability of the company’s products Compatibility with existing facilities, maintenance service and installation arrangements Effects of purchases on cash flow, financial statements and existing budgets Obtaining lowest possible price at acceptable quality levels; maintaining good relations with vendors Assurance that purchased items meet prescribed specifications

Approaches to Organizational Buying Slide 7-10 Inspection Buying Buyer Sampling Buying Description Buying Contract Buying Competitive Bidding Fruits & Vegetables Bolts New Building Government Contracts Office Space

Ethical Issues Slide 7-11 Ethics Source LoyaltyReciprocity

The Buying Center Slide 7-12 Figure 7.8 Initiator Identifies Need User Uses Product Influencer Affects Buying Decision Buyer Has Responsibility to Select Vendor and Negotiate Terms Gatekeeper Controls Information Flow Decider Has Expertise or Power to Make or Approve Selection