FALSE
More purchases are made by businesses and other organizations than by final consumers.
TRUE
Marketing managers often refer to organizational customers collectively as the “business-to-business” market, or simply, the B2B market.
Organizational customers are sometimes loosely referred to as business buyers, intermediate buyers, or industrial buyers.
Organizational buying is not entirely different from consumer buying. It tends to be different from buying by final consumers only in a few specific ways.
Most organizations make purchases with the basic intent to satisfy their own customers and clients.
Business and organizational customers make purchases to satisfy their own customers and clients. Wholesalers or retailers buy products so they can profitably resell to their customers.
Organizations typically focus on economic factors when they make purchase decisions and are usually less emotional in their buying than final consumers.
An organization may not be able to function if purchases don’t arrive when they’re expected so dependability is often the most important thing.
The basic approaches marketers use to deal with business customers in international markets are much less varied than those required to reach individual consumers.
Organizational buyers often buy on the basis of a set of purchasing specifications—a written (or electronic) description of what the firm wants to buy.
Organizational buyers often buy on the basis of a set of purchasing specifications—a written or electronic description of what the firm wants to buy.
When purchase requirements are complicated and when services are involved, purchase specifications are even more necessary.
Purchase specifications for services tend to be detailed because services are less standardized and usually are not performed until after they’re purchased.
Purchasing managers often buy on the basis of a set of purchasing specifications whether written or electronic.
When quality is highly standardized the specification may simply consist of a brand name or part number. However, the purchase requirements are more complicated; then the specifications may set out detailed information about the performance standards the product must meet.
ISO 9000 is a way for a supplier to document its quality procedures according to internationally recognized standards.
Organizational customers considering a new supplier or one from overseas may be concerned about product quality. However, this is becoming less of an obstacle because of ISO 9000.
ISO 9000 is relevant to both domestic and international suppliers.
ISO 9000 is a way for a supplier to document its quality procedures according to internationally recognized standards and is relevant to both domestic and international suppliers.
To get ISO 9000 certified a company must prove to outside auditors that it documents how the company operates and who is responsible for quality every step of the way.
ISO 9000 assures a customer that the supplier has effective quality checks in place, without the customer having to conduct its own costly and time-consuming audit.
Many organizations rely on specialists or purchasing managers to ensure that purchases are handled sensibly.
Multiple buying influence means that several people—perhaps even top management—play a part in making a purchase decision.
Multiple-buying influence means that the buyer shares the purchasing decision with users, influencers, deciders, gatekeepers.
Multiple-buying influence means that the buyer shares the purchasing decision with several people including users, influencers, deciders, gatekeepers. In many cases, top management plays a part in making a purchase decision.
Different people may make up a buying center from one decision to the next. Hence, a buying center includes all the people who participate in or influence a purchase.
A buying center is made up of all the people who participate in or influence a purchase—users, buyers, influencers, deciders, gatekeepers.
Sellers need to find an overlapping area where both the needs of the customer company as well as the needs of individuals who influence the purchase are satisfied.
A person who needs to purchase something usually completes a requisition—a request to buy something.
A straight rebuy is a routine repurchase that may have been made many times before. Buyers probably don’t bother looking for new information or new sources of supply.
New-task buying occurs when a customer organization has a new need and wants a great deal of information. It is not an in-between process.
Most of a company’s small or recurring purchases are straight rebuys and take only a small part of an organized buyer’s time.
Generally, buyers program decision rules that tell the computer how to order and leave the details of following through to the computer. If conditions change, buyers modify the computer instructions.
E-commerce computer systems automatically handle a large portion of straight rebuys. Electronically sending purchase orders to the regular supplier, setting the delivery dates and scheduling production have made straight rebuys more competitive.
Even though a wide variety of information sources are available, business buyers will use the sources they trust.
Most purchasing managers start with an Internet search when they need to identify new suppliers, better ways to meet needs, or information to improve decisions.
Buyers often rely on highly specialized search engines for technically specific information.
Buyers often rely on highly specialized search engines for comparing technical specifications and prices. In contract, inspection must be done first-hand.
A search across the whole web can often locate off-the-shelf products that eliminate the need to buy expensive, custom-made items.
White papers often advocate a seller’s solution; case studies help in learning about how other companies have addressed similar needs. Video content and blogs also make a seller’s website more useful.
Buyers especially value recommendations from others that have already dealt with a similar need. Online social networks are making it easier to connect with other buyers.
As buyers rely more on social networks, communications from marketers may have less influence on buyers’ attitudes and choices.
When buyers in B2B markets have identified potential suppliers, they sometimes ask them to submit a competitive bid—the terms of sale offered by the supplier in response to the purchase specifications posted by a buyer.
Rather than search for suppliers, buyers sometimes post their requirements and invite qualified suppliers to submit a bid. Some firms set up or participate in a procurement website that directs suppliers to companies (or divisions of a company) that need to make purchases.
Some firms set up or participate in a procurement website that directs suppliers to companies (or divisions of a company) that need to make purchases.
Procurement websites increase the number of suppliers competing for the business, which in turn drives down prices or provides more beneficial terms of sale.
B2B e-commerce has had tremendous effect on the way organizations make purchase decisions and deal with suppliers. Search engines help in gathering information; websites with useful content, procurement websites, and online communities help buyers make purchase decisions.
Internet tools used in the B2B market helps increase the number of suppliers competing for the business which can in turn drive down prices or provide more beneficial terms of sale. But sometimes dealing with one supplier with which a firm already has a good relationship is more important and lowers total cost.
There are often significant benefits of a close working relationship between a supplier and a customer firm. And such relationships are becoming common.
Although close relationships can produce benefits, they are not always best. A long-term commitment to a partner may reduce flexibility.
It may at first appear that a seller would always prefer to have a closer relationship with a customer, but that is not so. Some customers place orders that are too small or require too much attention to be profitable.
Buyer-seller relationships are not “all or nothing” arrangements. Many firms may have a close relationship in some ways and not in others.
Purchasing managers for the buying firm and salespeople for the supplier usually coordinate the different dimensions of a relationship. However, close relationships often involve direct contacts between a number of people from different areas in both firms—R&D, Quality, Accounting, Marketing, Production, Engineering, Finance.
In cooperative relationships, the buyer and seller work together to achieve both mutual and individual objectives. The buyer and seller firms treat problems that arise as a joint responsibility.
Just-in-time delivery involves reliably getting products there, just before the customer needs them.
Closer relationships between buyers and sellers involve operational linkages and information sharing that lower costs and increase efficiency.
Sometimes the buyer and seller know roughly what is needed but can’t fix all the details in advance. Then the relationship may involve negotiated contract buying, which means agreeing to contracts that allow for changes in the purchase arrangements.
Relationship-specific adaptations involve changes in a firm’s product or procedures that are unique to the needs or capabilities of a relationship partner. Industrial suppliers often custom design a new product for just one customer; this may require investments in R&D or new manufacturing technologies.
Specific adaptations are usually made when the buying organization chooses to outsource.
Buyers often look for several dependable sources of supply to protect themselves from unpredictable events such as strikes, fires, or floods in one of their suppliers’ plants.
One of the most striking facts about manufacturers is that they are few in number when compared to number of final consumers. Statistics presented in Exhibit 6-6 show that only about 3 percent of all plants have 250 or more employees.
Manufacturing industries are concentrated in certain geographic areas.
In the United States, many factories are concentrated in big metropolitan areas—especially in New York, Pennsylvania, Ohio, Illinois, Texas, and California.
Industrial markets are concentrated in certain geographic areas. There is also concentration by industry. In Germany, for example, the steel industry is concentrated in the Ruhr Valley. Similarly, U.S. manufacturers of high-tech electronics are concentrated in California’s famous Silicon Valley near San Francisco and also along Boston’s Route 128.
The U.S. government collects and publishes data by the North American Industry Classification System (NAICS) codes—groups of firms in similar lines of business.
NAICS stands for North American Industry Classification System.
The U.S. government publishes data about number of establishments, sales volumes, and number of employees—broken down by geographic areas as per the NAICS code.
The NAICS code breakdowns start with broad industry categories such as construction (23) that have 2 digits. These further break down to 3 digits and then 4, 5, and 6 digitis. The more digits, the more detailed the data so that NAICS codes with 4 digits list firms that are more similar than codes with just 2 digits.
Given the fact that there are a large number of service firms in the United States, most of them are small in size. They’re also more spread out around the country than manufacturing concerns.
The United States has almost 6 million service firms—more than 17 times as many as it has manufacturers.
Purchases by small service firms are often handled by whoever is in charge or their administrative assistant. This may be a doctor, lawyer, owner of a local insurance agency, hotel manager, or their secretary or office manager.
Most retail and wholesale buyers see themselves as purchasing agents for their target customers. Typically, retailers do not see themselves as sales agents for particular manufacturers. They buy what they think they can profitably sell.
Decisions to add or drop product lines or change buying policies may be handled by a buying committee of retail chains. The seller still calls on and gives a pitch to a buyer—but the buyer does not have final responsibility.
Retailers and wholesalers usually carry a large number of products. A drug wholesaler, for example, may carry up to 125,000 products. Because they deal with so many products, most intermediaries buy their products on a routine, automatic reorder basis—straight rebuys. They don’t have time to pay attention to each item.
Government is the largest customer group in many countries—including the United States. About 30 percent of the U.S. gross domestic product is spent by various government units.
Government is the largest customer group in the United States. They account for about 30 percent of the U.S. gross domestic product.
Government buyers in the United States are expected to spend money wisely—in the public interest. Most government customers buy by specification using a mandatory bidding procedure.
To share in the government market, a supplier must be on the list of approved suppliers and agree on a price that will stay the same for a specific period—perhaps a year.
Potential suppliers should focus on the government units or prime contractors they want to cater to and learn the bidding methods of those units. Target marketing can make a big contribution here—making sure the marketing mixes are well matched with the different bid procedures.
To promote competition for their business, the government agencies provide a lot of information to the marketers both in print form and online. The online resources include USA.gov, FedBizOpps.gov (www.fbo.gov), www.gsa.gov, osdbu.gov/offices.html that carry information for vendors, prime contractors and other marketers.
Outright influence peddling—where government officials or their friends request bribe money to sway a purchase decision—is common in some markets. However, the Foreign Corrupt Practices Act, passed by the U.S. Congress in 1977, prohibits U.S. firms from paying bribes to foreign officials.
Multiple Choice Questions
Most people think about an individual final consumer when they hear the term customer. But many marketing managers aim at customers who are not final consumers. In fact, more purchases are made by businesses and other organizations than by final consumers.
Final consumers are individual shoppers. In contrast, business and organizational buyers are made up of government units, intermediaries, manufacturing and service companies, and nonprofit organizations. Business and organizational customers are any buyers who buy for resale or to produce other goods and services.
Marketing managers refer to any and all organizational customers collectively as the “business-to-business” market, or simply, the B2B market. This includes businesses, governments, and nonprofit organizations.
Organizational buyers are concerned with meeting a range of economic needs, from the cost and quality of products to the seller’s ability to provide maintenance and repair. In business markets, organizational buyers do not bid for suppliers; instead, suppliers offer bids to provide goods and services to organizational buyers.
There are many different types of organizational customers, including: Producers of goods and services, Intermediaries; Government units; Nonprofit organizations.
A sales rep buying a new necktie to make a good impression is an example of an individual final consumer, not an organizational buyer.
A wholesaler purchasing merchandise for resale represents a business or organizational customer while the rest are final consumers.
Producers of goods and services are organizational customers. A college/university is a producer.
Producers of goods and services are organizational customers. John Deere is a manufacturer of agricultural, construction, and grounds-care equipment.
Producers of goods and services are organizational customers. Bank of Omaha is an example of a service-oriented organization.
Intermediaries (wholesalers and retailers) are organizational customers. Macy’s, a department store chain, is an intermediary.
Intermediaries (wholesalers and retailers) are organizational customers. Radio Shack is a retail store for electronics.
The St. Louis Symphony is an American symphony orchestra, a nonprofit organization.
Like final consumers, organizations make purchases to satisfy needs. But it’s often easier to understand an organization’s needs because most organizations make purchases for the same basic reason.
It is often easier to understand an organization’s needs because most organizations make purchases for the same basic reason. They buy goods and services that will help them meet the demand for the goods and services that they in turn supply to their markets.
Buyers or organizational customers try to consider the total cost of selecting a supplier and its particular marketing mix, not just the initial price of one product.
Small differences in buying behavior may be important because success often hinges on fine-tuning the marketing mix. Hence, each customer may need to be treated as a different segment.
When quality is highly standardized, as is often the case with manufactured items, the specification may simply consist of a brand name or part number.
The supermarket buyer is specific about purchasing grade A large eggs. So, he is most likely to buy through purchasing specifications.
All of these are highly standardized products and can be bought using simple purchase specifications.
A purchasing manager is most likely to use purchasing specifications to buy on the Internet.
ISO 9000 is a way for all suppliers, domestic and international, to document their quality procedures according to internationally recognized standards. ISO 9000 assures a customer that the supplier has effective quality checks in place, without the customer having to conduct its own costly and time-consuming audit.
Many organizations rely on specialists to ensure that purchases are handled sensibly. They are commonly called purchasing managers—buying specialists for their employers.
In large organizations, purchasing managers are the buying specialists that marketers must contact in order to present products and services. Purchasing managers typically work within a firm’s procurement department and have a lot of clout.
Deciders are the people in the organization who have the power to select or approve the supplier—often a purchasing manager but perhaps top management for larger purchases.
The purpose of a vendor analysis isn’t just to get a low price from the supplier on a given part or service. Rather, the goal is to lower the total costs associated with purchases as may be achieved through greater efficiencies. For example, analysis might show that the best vendor is the one that helps the customer reduce costs of excess inventory, retooling of equipment, or defective parts.
Marketers must be very careful to abide by strict ethics, especially as it relates to gifts. Purchasing managers seek to avoid a conflict between their own self‐interest and company outcomes, and many firms have policies against employees accepting any gift from a supplier.
Many organizations rely on specialists to ensure that purchases are handled sensibly. These specialists have different titles in different firms, such as procurement officer, supply manager, purchasing agent, or buyer.
Purchasing managers or buying specialists in large organizations usually specialize by product area and are real experts.
Purchasing managers in business markets are fewer in number compared to buyers in consumer markets; they usually specialize by product area; are less emotional in their buying motives and are more insistent on dependability and quality.
Buyers are responsible for working with suppliers and arranging the terms of sale.
Buyers are responsible for working with suppliers and arranging the terms of sale. In this role, Teresa appears to be acting as a buyer.
Influencers are, perhaps, engineering or R&D people who help write specifications or supply information for evaluating alternatives.
Users are the people who will use the product being purchased.
Gatekeepers are people who control the flow of information within the organization. Andre, a research assistant who gathers and distributes information about alternatives is an example of a gatekeeper.
Deciders are the people in the organization who have the power to select or approve the supplier—often a purchasing manager but perhaps top management for larger purchases. In this case, the president would be the decider.
Deciders are the people in the organization who have the power to select or approve the supplier and gatekeepers are people who control the flow of information within the organization. Natalie and Anthony are acting as decider and gatekeeper, respectively.
The purchasing manager is playing the role of an influencer (looking through books with samples and preparing specifications), the role of a buyer (making the final selections and negotiating the terms), the role of a decider (selecting the supplier), and the role of a gatekeeper (calling the salespeople to make presentations to the production manager).
New-task buying can involve setting product specifications, evaluating sources of supply, and establishing an order routine that can be followed in the future if results are satisfactory. Multiple buying influence (involving users, influencers, buyers, deciders, gatekeepers) is most often found in new-task buying.
Multiple buying influence involves users, influencers, buyers, deciders, gatekeepers in a buying decision.
Purchasing of a voice-mail phone system involves a multiple buying influence. Note pads, a chair, gasoline, and paper clips, are standard products and can be bought by directly placing an order with simple specifications.
A buying center includes all the people who participate in or influence a purchase. Different people may make up a buying center from one decision to the next.
A “buying center” may vary from purchase to purchase as different people make up a buying center from one decision to the next.
When a salesperson calls on a new business prospect, he has to move through a proper channel, normally meeting each member of the buying center at different stages.
With centralized buying in large organizations, a sales rep may be able to sell to facilities all over a country; many large organizations rely on purchasing managers; a geographically bound salesperson can be at a real disadvantage as specific business customs vary from one country to another.
Vendor analysis is a formal rating of suppliers on all relevant areas of performance.
In trying to deal with complexities arising while making purchase decisions many firms use vendor analysis—a formal rating of suppliers on all relevant areas of performance. The purpose isn’t just to get a low price from the supplier but also to lower the total costs associated with purchases.
In trying to deal with complexities arising while making purchase decisions many firms use vendor analysis—a formal rating of suppliers on all relevant areas of performance.
A formal rating of suppliers on all relevant areas of performance like on-time delivery, product quality, service advice, and so forth is called vendor analysis.
The purpose of vendor analysis isn’t just to get a low price from the supplier on a given part or service. Rather, the goal is to lower the total costs associated with purchases.
The goal of vendor analysis is to lower the total costs associated with purchases.
Purchasing managers and others involved in buying decisions look forward to friendly relationships with suppliers. Hence, it becomes imperative for a sales person to balance a purchasing manager’s emotional needs and economic needs.
A typical purchasing manager tries to satisfy both individual needs and company needs. A seller’s marketing mix should therefore satisfy both the needs of the customer company as well as the needs of individuals who influence the purchase.
For many purchases, buyers know that choosing a supplier that delivers poor quality or late deliveries can be very costly. Buyers always look towards avoiding personal risk.
Most purchasing managers make purchases from suppliers who deliver on time and with high-quality and keep the total costs associated with purchases low.
Organizational buyers rely on many sources of information, perform vendor analysis, and focus on economic factors in order to make sensible buying decisions.
Organizational buyers are problem solvers.
A requisition is a request to buy something.
A person who needs to purchase something usually completes a requisition, a request to buy something.
The process of turning an authorization into a purchase order may take a few hours for a simple purchase but, for a complex purchase, it may take months.
Multiple task buying is not discussed in the text.
E-commerce computer systems automatically handle a large portion of straight rebuys. Buyers program decision rules that tell the computer how to order and leave the details of following through to the computer.
Marketers sometimes get lazy enjoying an automated straight rebuy situation. As a result, straight rebuy relationships open the door for savvy competitors move in with a better marketing mix.
Most purchasing managers start with an Internet search when they need to identify new suppliers, better ways to meet needs, or information to improve decisions. Buyers often rely on highly specialized search engines, which is also why many marketing managers will pay search engines for a sponsored link (an ad) that appears when certain keywords are included in a search.
New-task buying situations provide a good opportunity for a new supplier to make inroads with a customer.
Important task buying is not discussed in the text.
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