Some questions answered in Chapter 4 What are the different types of customers? How do organizations make purchase decisions? What factors do organizations consider when evaluating products and services? Who is involved in the buying decision? What should salespeople do in the different types of buying situations? What changes are occurring in organizational buying, and how will these changes affect salespeople?

How are these customers different How are these customers different? What would be different in selling to them? Consumers Resellers OEMs End users Government agencies and institutions Think about: their needs. the importance of price versus product performance. the role of the purchasing agent. the number of people involved in making a decision. the tendency to want long-term relationships.

Is buying complex? Describe how you went about purchasing a car.

Is buying complex? Describe how you went about purchasing a car. Describe what you did the last time you bought a soft drink. What were the differences?

How does this illustrate derived demand? Aluminum mine Corn syrup supplier Other raw materials Aluminum manufacturer Soft drink manufacturer Insurance, trucking, other services Can manufacturer Soft drink bottler Distributors and retailers Consumer

Three types of buying decisions Straight rebuy New task Modified rebuy

Straight rebuy purchase process What research did you do before buying your last tube of toothpaste? Financial risk: Low Information search: Minimal Number of people involved in decision: 1 or 2 Financial risk: Information search: Number of people involved in decision:

New task purchase process How did you go about shopping for your first apartment? Financial risk: High Information search: Extensive Number of people involved in decision: Multiple

Modified rebuy purchase process What did you differently when shopping for your second apartment? Financial risk: Moderate Information search: Limited Number of people involved in decision: Few

Selling strategy New task Modified rebuy Straight rebuy From Exhibit 4.2 New task Modified rebuy Straight rebuy For an in-supplier: Monitor changes in customer needs; respond quickly when problems and new needs arise; provide technical information. Act immediately when problems arise. Reinforce relationship with customers; make sure all of the customer’s needs are satisfied. For an out-supplier: Suggest new approach for solving problems; provide technical advice. Respond more quickly than present supplier when problems arise; encourage customer to consider an alternative; present information on how new alternative will increase efficiency. Convince customer of potential benefits from reexamining choice of supplier; secure recognition and approval as alternative supplier.

Buying process Which of the following stages is most critical to establishing successful long-term buying relationships between buyer and seller? The acquisition and analysis of proposals. The definition of the type of product needed. The evaluation of product performance. The receipt of an order. The recognition of a problem or need.

Steps in the buying process 1: Recognition of a need. 2: Definition of the product-type needed. 3: Development of detailed specifications. 8: Evaluation of product performance. 4: Search for qualified suppliers. 7: Place and receive the orders. 6: Evaluation of proposals, selection of a supplier. 5: Acquisition and analysis of proposals. Starts when someone realizes that a problem exists. Employees in the customer’s firm or outside salespeople can trigger this recognition.

Steps in the buying process 1: Recognition of a need. 2: Definition of the product-type needed. 3: Development of detailed specifications. 8: Evaluation of product performance. 4: Search for qualified suppliers. 7: Place and receive the orders. 6: Evaluation of proposals, selection of a supplier. 5: Acquisition and analysis of proposals. After identifying a problem, organization members develop a general approach to solving it. Firms often look to a salesperson to help in analyzing the situation and considering solutions.

Steps in the buying process 1: Recognition of a need. 2: Definition of the product-type needed. 3: Development of detailed specifications. 8: Evaluation of product performance. 4: Search for qualified suppliers. 7: Place and receive the orders. 6: Evaluation of proposals, selection of a supplier. 5: Acquisition and analysis of proposals. The specifications for the product needed to solve the problem are prepared. Potential suppliers use these specifications to develop proposals.

Steps in the buying process 1: Recognition of a need. 2: Definition of the product-type needed. 3: Development of detailed specifications. 8: Evaluation of product performance. 4: Search for qualified suppliers. 7: Place and receive the orders. 6: Evaluation of proposals, selection of a supplier. 5: Acquisition and analysis of proposals. The customer now looks for potential suppliers. The customer may contact previous suppliers or go through an extensive search process.

Steps in the buying process 1: Recognition of a need. 2: Definition of the product-type needed. 3: Development of detailed specifications. 8: Evaluation of product performance. 4: Search for qualified suppliers. 7: Place and receive the orders. 6: Evaluation of proposals, selection of a supplier. 5: Acquisition and analysis of proposals. Qualified suppliers are asked to submit proposals. Salespeople work with people in their own company to develop the proposal.

Steps in the buying process 1: Recognition of a need. 2: Definition of the product-type needed. 3: Development of detailed specifications. 8: Evaluation of product performance. 4: Search for qualified suppliers. 7: Place and receive the orders. 6: Evaluation of proposals, selection of a supplier. 5: Acquisition and analysis of proposals. The customer evaluates the proposals. After selecting a preferred supplier, further negotiations may take place concerning price, delivery, or specific performance features.

Steps in the buying process 1: Recognition of a need. 2: Definition of the product-type needed. 3: Development of detailed specifications. 8: Evaluation of product performance. 4: Search for qualified suppliers. 7: Place and receive the orders. 6: Evaluation of proposals, selection of a supplier. 5: Acquisition and analysis of proposals. An order is placed with the selected supplier. Eventually, the product is shipped to the buying firm, which inspects the goods and then pays the supplier for the product.

Steps in the buying process 1: Recognition of a need. 2: Definition of the product-type needed. 3: Development of detailed specifications. 8: Evaluation of product performance. 4: Search for qualified suppliers. 7: Place and receive the orders. 6: Evaluation of proposals, selection of a supplier. 5: Acquisition and analysis of proposals. The product’s performance is evaluated. Salespeople need to work with the users to make sure the product performs well, and also need to make sure the purchasing agents are satisfied.

Think of a major purchase you made, such as a car or a computer. Creeping commitment Think of a major purchase you made, such as a car or a computer. What were the first decisions you made? How did these early decisions affect your choices later in the process? Creeping commitment means that as choices are made during the buying process, the range of possible alternatives is reduced.

Creeping commitment takes place in a straight rebuy situation. True False

The buying center The Chief Executive Officer for a manufacturer of leather handbags would be most likely to become a member of the buying center when the company: orders a replacement housing for one of its assembly line machines. instructs the printer to print 1,000 additional copies of the company newsletter. buys a new health insurance plan for all its employees. renews its membership in trade associations. buys paper supplies for its laser printers.

The buying center: users Often have considerable influence in the early and late steps of buying process. Salespeople trying to convert a straight rebuy into a modified rebuy demonstrate superior performance or new benefits to the users.

The buying center: influencers People who directly or indirectly provide information during the buying process. May provide details on product specifications, criteria for evaluating proposals, and information about potential suppliers.

The buying center: gatekeepers Control the flow of information and may limit the alternatives considered. Purchasing agents often determine which potential suppliers are to be considered. Bypassing the purchasing agent is called back-door selling.

The buying center: deciders Make the final choice. In straight rebuys it is usually the purchasing agent. For new tasks, many people may be required to approve the decision and sign the purchase order.

People involved in a “buying center” Donald McBane President Kathy Traub V.P. Manufacturing Gatekeeper Donald Gallagher V.P., Marketing Thomas Greene V.P., Purchasing Betty MacMillan V.P., Finance Mike Miloszar Quality Control Mgr Decider Stephen Leightman Product Mgr. Initiator Barbara Allen Purchasing Agent Decider Bonnie Bradbury Controller Infleuncer David Kelso Plant Manager Ellen Rogers Asst. Plant Mgr. Decider Robert Meiss Quality Inspector Influencer James Guest Quality Inspector Influencer Donald McFadden Assembly Line User

The multi-attribute model Exhibit A.3 Importance weights Brand performance ratings Characteristic Sales Manager MIS Director Apex Bell Deltos Reliability 4 5 8 Weight 6 2 Size 7 3 Speed 1 Memory Display Service Sales manager’s evaluation 167 152 143 MIS director’s evaluation 130 169 177

The multi-attribute model Exhibit A.4 Overall evaluation (benefits points) Computer cost Assigned value (benefit/cost) Sales manager Apex 167 $1,600 $0.104 Bell 152 1,800 0.084 Deltos 143 0.079 MIS director 130 $0.081 169 0.094 177 0.098

Strategies to influence purchase decisions Increase the performance rating for your product. Decrease the performance rating for the competitor’s product. Increase or decrease an importance weight. Add new characteristics to the decision process. Decrease the price of your product.

What are customer needs?

All needs of business-to-business buyers are rational needs. Buyer’s needs All needs of business-to-business buyers are rational needs. True False.

Factors in organizational buying Exhibit 4.4 Friendships Economic criteria Risk Reduction Quality criteria Job Security Service criteria Organizational Needs Personal Needs Overlap in needs Survival Self-esteem Profit Financial Security Growth Innovation Career Growth

Life cycle costing Product A Product B Initial cost $35,000 $30,000 Life of machine 10 years Power consumption per year 150 MWh 180 MWh Power cost at $30/MWh $45,000 $54,000 Estimated operating and maintenance cost over 10 years $25,000 Life-cycle cost $105,000 $114,000 Note: A more thorough analysis would calculate the net present value of the cash flow associated with each product’s purchase and cost.

Trends in organizational buying Increasing importance of purchasing agents. Centralized purchasing Global sourcing Outsourcing Supply chain management The Internet and business-to-business selling Long-term customer-supplier relationships

How the selling process relates to the buying process Identification of buyer needs Need recognition Relate features to benefits Demonstrate benefits Information search Overcome resistance Alternative evaluation Gain commitment Purchase Provide after-sale support Post-purchase evaluation

Any questions about the terminology? Automatic replenishment (AR) Buying center Capital equipment Creeping commitment Deciders Derived demand Efficient consumer response (ECR) system Electronic data interchange (EDI) Emotional needs End users Extranet Gatekeepers Influencers Initiators Just-in-time (JIT) inventory control Life-cycle costing Materials requirements planning (MRP) Modified rebuy MRO supplies National account manager (NAM) New task Original equipment manufacturer (OEM) Outsourcing Producer Quick-response system Rational needs Resellers Services Straight rebuy Supply chain management Users Value analysis Vendor analysis Vendor loyalty