Analyzing Business Markets 7 Analyzing Business Markets

What is Organizational Buying? Organizational buying refers to the decision-making process by which formal organizations establish the need for purchased products and services, and identify, evaluate, and choose among alternative brands and suppliers.

Top Business Marketing Challenges Expand understanding of customer needs Compete globally other countries reshape markets Master analytical tools and improve quantitative skills Reinstate innovation as an engine of growth Create new organizational models and linkages

Characteristics of Business Markets Fewer, larger buyers Close supplier-customer relationships Professional purchasing Many buying influences Multiple sales calls Derived demand (from consumer demand) Inelastic demand (not effected by price) Fluctuating demand Geographically concentrated buyers Direct purchasing

Buying Situation Straight rebuy Modified rebuy New task

Buying Situations Straight re-buy Modified re-buy New task PD reorders on routine basis. Automatic reordering system to save time. buyers wants to modify product spec., prices, delivery req. or other terms. purchaser buys a product or service for the first time. chooses from suppliers on an approved list in-suppliers becomes nervous and out suppliers see an opportunity More number of participants and great information need Maintain product and service quality The greater the cost or risk, the larger the gathering of info and therefore long time to take a decision. ‘out-suppliers” attempt to get in. first small and then bigger for order

Systems Buying and Selling Turnkey solution desired; bids solicited System subcomponents assembled Prime contractors Second-tier contractors

Systems Buying and Selling System buying: buying a total solution to a problem from one seller. This practice originated with govt. purchases of major weapons and communication systems. The govt. would solicit bids from Prime contractors who assembled the package or system. The contractor who was awarded the contract would be responsible for bidding out and assembling the system’s subcomponents from second tier contractors. The prime contractor would thus provide a turnkey solution.

Participants in Business buying process - The Buying Center Initiators Users Influencers Deciders Approvers Buyers Gatekeepers

Participants in Business buying process - The Buying Center Initiators- Those who request that something be purchased. User or other in org. Users- Those who use the product or service Influencers- people who influence the buying decision Deciders- people who decide on product requirements or on suppliers Approvers- people who authorize the proposed actions of deciders or buyers Buyers- people who play a role in selecting vendors and negotiating. Gatekeepers- people who have to power to prevent sellers or information from reaching the members of the buying center

Of Concern to Business Marketers Who are the major decision participants? What decisions do they influence? What is their level of influence? What evaluation criteria do they use?

Sales Strategies Key Buying Influencers Small Sellers Multilevel In-depth Selling Large Sellers Business marketers should review periodically their assumptions about buying participants

Target segment- 4 types of business customers How to handle Limiting the quantity that can be purchased No refunds, No adjustments No services ------------------------------------------ Solutions to enhance customer revenues. (ex. ITC e-choupal.) Solutions to decrease customer risks. (ex. ICI explosives- safer to quarries) Solutions to reduce customer costs. (ex. Tatas) Price oriented customers (Transactional selling) – price is everything ----------------------------------------- 2. Solution oriented customers (consultative selling) want low prices but listen to lower total cost or more dependable supply or service

Target segment- 4 types of business customers best performance in terms of quality, assistance, reliable delivery etc ------------------------------ want a fairly permanent sole-supplier relationship 3. Gold standard customers (quality selling) ----------------------------- 4. Strategic value customers (enterprise selling)

Purchase orientation 1. Buying orientation 2. Procurement orientation 3. Supply Chain Management orientation focus is short term and tactical. Lowest Price for the gn quality and availability Commoditization and multi-sourcing Simultaneously Seek quality improvement and cost reduction. develop collaborative relationship for cost reduction Early supplier involvement Long time contracts More strategic and value added operations purchase executives work with marketing and other company executive to build a seamless supply chain management system. Upgrading the sales personnel to the caliber of the business buyers

Types of Purchasing process 1. Routine products 2. Leverage products 3. Strategic products 4. Bottleneck products low value and cost to the customer; involve little risk Ex: office supplies high value and cost to the customer; involve little risk of supply Ex: engine piston high value and cost to the customer; involve high risk Ex: Main frame computers. Strategic alliance- early supplier involvement, co-development programs and co-investment. low value and cost to the customer; involve some risk ex: Spare parts. Require guaranteed steady supply of reliable products

Stages in the Buying Process: Buyphases Problem recognition General need description Product specification Supplier search Proposal solicitation Supplier selection Order-routine specification Performance review

Buygrid Framework

Forms of Electronic Marketplaces Catalog sites Vertical markets Pure play auction sites Spot markets Private exchanges Barter markets Buying alliances

B2B cyber buying bazaar Catalog sites- order through electronic catalogs distributed by e-procurement software, such as Grainger’s. Vertical markets- These are specialized web sites for buying industrial products. Ex: plastics.com Pure play auction sites: freemarkets.com provides online auctions for buyers and sellers of industrial parts, raw materials, commodities and services in over 50 product categories. Spot (or exchange) markets: On spot electronic market, prices change by the minute. Ex: ChemConnect.com. Private exchanges: HP, IBM and Walmart operate private exchanges to link with specially invited groups of suppliers and partners over the Web. Barter markets: Trade goods or services Buying alliances: Several companies buying the same goods join together to form purchasing consortia and gain deeper discounts on volume purchases (Transora, Covisint)

Vendor Analysis

Methods for Researching Customer Value Internal engineering assessment- company engineers use lab testing to estimate the performance Field value-in-use assessment – customers are interviewed about cost elements associated with using the new-product offering compared to an incumbent product. Focus-group value assessment – focus group are asked what value they would put on potential market offering Direct survey questions – customers are asked to place direct rupee value on one or more changes in the market offering

Methods for Researching Customer Value Conjoint analysis- customers are asked to rank their preference for alternative market offerings or concepts. The utility value is calculated for each attribute. Benchmarks: Customers are shown a benchmark offering and a new market offering. They are asked how much more/less they would pay for the new offering if certain features are added/removed from the benchmark offering. Compositional approach: Customers are asked to attach a monetary value to each of three alternative levels of a given attribute. This is repeated for other attributes. The values are then added together for any offer configuration. Importance ratings: Customers are asked to rate the importance of different attributes and the suppliers firms’ performance on these attributes.

Order Routine Specification Many industrial buyers lease heavy equipment like machinery and trucks Advantage for lessee Conserving capital Getting latest products receiving better service tax advantage Advantage for lessor Larger net income

Order Routine Specification 1. Stockless purchase plans 2. Vendor-managed inventory 3. Continuous replenishment Blanket contracts or SPP – long term contracts, re supplies whenever needed at agreed upon prices over a specific period of time The customers enter order directly on the computer, and these orders are automatically transmitted to the suppliers system. Some companies shift the ordering responsibility to the supplier i.e. is managed by the vendors The vendors are privy the customers inventory level and takes responsibility to replenish it automatically through continuous replenishment

Order Routine Specification OTIFNE signifies three desirable outcome of a B-B transaction OT- deliver on time (80%) IF – in full (90%) NE –No error(70%) All 3 matters OT- deliver on time (80%)x (90%) x(70%)=50%

Trust Dimensions Transparent Cooperating Design Product/Service Quality Product Comparison Incentive Supply Chain Partnering Pervasive Advocacy

Managing B to B customer relationships Strong bonds and relationships between firms depend on their perceived credibility Corporate credibility refers to the extent to which customers believe that firm can design and deliver products and services that satisfy their needs and wants. CC relates to the reputation that a firm has achieved in the market place and is the foundation for a strong relationship. CC depends on 3 factors

Establishing Corporate Trust and Credibility Expertise The extent to which a company is seen as able to make and sell products or conduct services Trustworthiness Likeability The extent to which a company is seen as Motivated to be honest, dependable and sensitive Customer need The extent to which a company Is seen as likable, attractive, prestigious and so on

Factors Affecting Buyer-Supplier Relationships Availability of alternatives Importance of supply Complexity of supply Supply market dynamism

Based on the four factors Buyer-Seller Relationships are categorized Basic buying and selling – relatively simple, routine exchanges with moderately high level of cooperation and information exchange Bare bones – same as previous, but more adaptation by the seller and less cooperation and information exchange. Contractual transaction – generally low levels of trust, co-operation and interaction; exchange is defined by formal contract Customer supply – traditional custom supply situation where competition rather than cooperation is the dominant form of governance Cooperative systems – although coupled closely in operational ways, neither party demonstrates structural commitment through legal means or adaptation approaches Collaborative – much trust and commitment leading to true partnership Mutually adaptive – much relationship-specific adaptation for buyer and seller, but without necessarily strong trust or cooperation Customer is king- although bonded by a close, cooperative relationship, the seller adapts to meet the customer’s need without expecting much adaptation or change on the part of the customer in exchange

Based on the four factors Buyer-Seller Relationships are categorized Basic buying and selling – relatively simple, routine exchanges with moderately high level of cooperation and information exchange Bare bones – same as previous, but more adaptation by the seller and less cooperation and information exchange. Contractual transaction – generally low levels of trust, co-operation and interaction; exchange is defined by formal contract Customer supply – traditional custom supply situation where competition rather than cooperation is the dominant form of governance

Based on the four factors Buyer-Seller Relationships are categorized 5. Cooperative systems – although coupled closely in operational ways, neither party demonstrates structural commitment through legal means or adaptation approaches 6. Collaborative – much trust and commitment leading to true partnership 8. Mutually adaptive – much relationship-specific adaptation for buyer and seller, but without necessarily strong trust or cooperation 9. Customer is king- although bonded by a close, cooperative relationship, the seller adapts to meet the customer’s need without expecting much adaptation or change on the part of the customer in exchange

What is Opportunism? Opportunism is some form of cheating or undersupply relative to an implicit or explicit contract. That is, when a buyer cannot monitor the supplier performance the supplier might shirk or cheat and not deliver the expected value

Institution and Government Markets Institution Markets consists of schools, hospital, nursing homes, hotels, prisons etc that provide good goods and services to people in their care. Organization are characteristic by low budgets and captive clientele Government Markets Buyers for govt. organization tend to require a great deal of paperwork from their vendors and to favor open bidding and domestic companies Suppliers must be prepared to adapt their offers to the special needs and procedures found in IM and GM.