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Business Marketing Management

Eleventh Edition
Hutt and Speh

Organizational Buying
Behavior
Chapter 2

Chapter Topics
Inside and outside forces influence organizational
buying. In this chapter you will learn:
1. The organizational buying process
2. The four main factors that impact organizational
buying decisions
3. A model of organizational buying behavior
4. How knowledge of organizational buying enables
marketers to make more informed decisions on
product design, pricing and promotion
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Understanding the Dynamics of


Organizational Buying
Market-driven firms sense market trends and work
closely with their customers and vendors.
This is crucial to:
Identify profitable market segments
Locate buying influences within segments
Reach organizational buyers efficiently and effectively
with an offer
Each decision goes through various steps. Skipping a
step can be essential to the decision-making process.
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Buying as a Process
Buying is a process, not an event
There are various points in the process that
are referred to as Critical Decision Points
and Evolving Information Requirements
It starts with Problem Recognition

Organizational Buying Process


1. Problem
Recognition

4. Supplier
Search

6. Supplier
Selection

2. General
Description
of Need

3. Product
Specifications

Organizational
Buying
Process

5. Acquisition
and Analysis
of Proposals

7. Selection
of
Order Routine

8. Performance
Review
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Buying Process
There other events that influence the buying
process, most notably:
1.
2.
3.
4.

Economic conditions
Competition
Basic shifts in the organizational objectives
The buying situation

Business Strategy Considerations


Marketers needs to understand:
1.
2.
3.
4.
5.

Who are the decision makers?


What are their problem(s)?
What are their purchasing patterns?
What is the importance of their purchase?
What is the timing of the purchase?
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A projected
change in
business
conditions can
alter buying
plans drastically.
Organizational
Buying
Behavior

Environmental
Forces

Economic outlook:
domestic & global
Pace of technological
change
Global trade relations

Organizational
Forces

Goals, objectives and


strategies
Organizational position
of purchasing

Group
Forces

Roles, relative
influence and patterns
of interaction of buying
decision participants

Individual
Forces

Job function, past


experience, and buying
motives of individual
decision participants

Marketing Strategic Considerations


As Purchasers develop their strategic roles,
Marketers respond by developing strategic alliances
to become a part of their business.
Buyers and Sellers know that the best value supply
chain wins the customerand the profits.
The result is closer relationships with carefully
chosen suppliers who can align their activities with
customer needs.
Example: At this time in history, Walmart is one of
the best at accomplishing this activity!
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Total Cost of Ownership


TCO considers the full range of costs
associated with the purchase and use of a
product or service over its complete life cycle

10

Value-based Selling Tools


Astute business marketers can pursue valuebased strategies that provide customers with a
lower cost-in-use solution
Value-based strategies seek to move the selling
proposition from one that centers on current
prices and individual transactions to a longerterm relationship built on value and lower total
cost-in-use

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E-Procurement
Purchasing managers use the Internet to find
new suppliers, communicate with current
suppliers, or place an order
E-procurement cut purchasing cycle time in half,
reduced material costs by 14 percent and
purchasing administrative costs by 60 percent,
and enhanced the ability of procurement units to
identify new suppliers on a global scale

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Centralized vs. Decentralized Purchasing

Purchasing is moving away from a transactionbased support role to a more strategic,


executive level role

One result of this is to centralize purchasing

Centralized purchasing operates differently than


decentralized purchasing

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Decentralized Purchasing
Decentralized purchasing allows local branches to
purchase what they need. This results in local control,
and for many kinds of services this makes sense
Example: Stop and Shop buys products from local
farmers

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Marketing Strategy Response


The organization of the marketers selling strategy
should parallel the organization of the purchasing
function of key accounts
To avoid disjointed selling activities and internal
conflict in the sales organization, and to serve the
special needs of important customers, many business
marketers have developed key account management
programs
Develop strategic relationships with a limited number
of customers in order to achieve long-term,
sustained, significant, and measurable business
value for both the customer and the provider
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Industrial Sales: How to Assess Group Forces


There are three questions that need to be addressed:
1. Who takes part in the buying process?
2. What is each members relative influence in
decision?
3. What criteria is important to each member in
evaluating the supplier?
Answering these questions puts the salesperson in a
better position to become the chosen supplier

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Who Makes the Decision?


Individuals make the decision, not organizations!
Each member has a unique personality,
experience and motive, and are subject to risk
and rewards
Professional marketers understand this and
make sure that they learn to recognize and match
to it

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Evaluative Criteria
Industrial product users value:
1. Prompt delivery
2. Efficient and effective service
Engineering values:
3. Product quality
4. Standardization
5. Testing
Purchasing values:
6. Price advantage and economy
7. Shipping and forwarding
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Evaluative Differences
Education: Engineers have a different
educational background than purchasing agents
Also, various occupations have different
dispositions. For example:
1. Engineers are usually cold, analytical and
suspecting.
2. Salespeople are usually warm, open and
optimistic.

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Business Marketing Management


Eleventh Edition
Hutt and Speh

Customer Relationship
Management Strategies for
Business Markets
Chapter 3

Chapter Topics
Well developed relationships give business marketers a
significant competitive advantage. Topics include:
1. Patterns of buyer-seller relationships
2. Factors that influence customer profitability
3. Strategies for designing effective customer
relationships
4. How successful firms excel at customer relationship
management
5. Critical determinants for managing strategic
alliances
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Types of Relationships
Continuum of buyer-seller relationships
Transactional, Value-added and Collaborative exchanges
The Relationship Spectrum

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The Element of Competition


Competition forces a war-like environment
whereby competitors are always trying to lure
customers from competitors
Since customer situations (i.e., requirements,
expectations, people, preferences) change,
there is always opportunity for customers to
change from relationship to transactional to
relationship with new suppliers
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Switching Costs

A major consideration before changing from


one supplier to another is the switching costs
Organizational buyers invest heavily in their
relationships with suppliers
Investments include:
1. Money
2. People
3. Training Costs
4. Equipment
5. Procedures and processes

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Value Drivers in Collaborative Relationships


Suppliers of routinely purchased products
offer three sources of value:
1. Value creation through core offerings
2. Value creation within the sourcing process
3. Value creation at the customers level of
operations

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Differentiation Strategy
For a differentiation strategy to work:
The value created, measured by higher margins
and higher sales volumes, has to exceed the cost
of creating and delivering the customized features
and services.
To determine this, the marketer needs to
understand the drivers of profitability.

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Measuring Customer Profitability


Activity-based costing (ABC) is a technique
that allocates the cost of performing
various services to each customer
(customer-specific costing
Through Customer Relations Management
(CRM) programs, one can relate revenues
and costs to each and every activity

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Figure 3.3 The Whale Curve of


Cumulative Profitability

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Whale Curve and Profitability


20/80 Rule says 20% of customer provide 80% of sales
Whale Curve reveals:
20% of customers generate 150300% of total profits
70% of customers break even
10% of customers lose from 50-200% of total profits
Leaving company with 100% of total profits

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Customer Profitably
As mentioned previously, some customers are
profitable and some arent
To determine this, we look at the cost/profitability
structure with the plan to:
1.

Keep profitable customers

2.

Convert unprofitable ones to profitability

3.

Fire those who are not profitable

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Customer Relationship Management


Customer Relationship Management (CRM) is
a cross-functional process for achieving:
1. Continuing dialog with customers across
all contact and access points
2. Personalized service to the most valuable
customers
3. Increased customer retention
4. Continued marketing effectiveness
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CRM Technology
CRM programs are software systems that capture
information and integrate sales, marketing and
customer service information
CRM programs can gather information from many
sources including email, call centers, service and
sales reps
The information is available to the right people in
the organization in real time

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CRM Strategy - Priorities


1. Acquire the right customer
2. Craft the right value proposition
3. Institute the best processes
4. Motivate employees
5. Learn to retain customers

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Evaluating Relationships
Some relationship-building efforts fail because
expectations of the parties dont mesh
Example: Seller wants a business relationship
whereas the customer responds in a transactional
mode
By understanding and isolating customer needs,
the marketer is better equipped to match their
product offerings to a particular customers needs

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Targeting RM Programs
Some companies are Relationship Oriented (RO), and
some are not
RO companies seek to develop relationships with current
or potential supplier

RO buyers look for companies that:


Offer expertise
Are able to be flexible (i.e., payment terms, R&D, etc.)
Help reduce risk for both parties benefit
Help both parties benefit from the relationship
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Strategy for Dealing with


High and Low RO
HIGH RO: Target those with high RO goals since they
are looking for and are open to developing
relationships
LOW RO: For these companies, the strategy is to
create high switching cost:
Tie them into electronic ordering interfaces
Stay in constant contact to keep what exists
Align RM resources as closely as possible to the
customers needs
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