1. ORGANIZATIONAL MARKETS AND BUYER BEHAVIOR
C H A P T E R S E V E N
ORGANIZATIONAL MARKETS
AND BUYER BEHAVIOR
Irwin/McGraw-Hill

2. AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:
Distinguish among industrial, reseller, and government markets.
Recognize key characteristics of organizational buying that make it different from consumer buying.
Understand how types of buying situations influence organizational purchasing.
Recognize similarities and differences in industrial and reseller purchase behavior.

3. PP7-AA Laser Technology is Bright at Honeywell
Gary Null believes Honeywell, MICRO SWITCH division, is poised to capture a significant share of the multi-billion dollar global market for laser technology and products.
However, successful commercialization of their innovative laser technology depends on a coordinated worldwide team of engineers and marketing and sales professionals.
The key is to show the advantages of VCSEL over existing technology to a diverse worldwide market.

4. PP7-BB Business Marketing
Business marketing is the marketing of goods and
services to:
1. commercial enterprises,
2. Governments, and
3. other profit and not for profit organizations,
for use in the creation of goods and services that they
then produce and market to other business customers,
as well as individuals and ultimate consumers.

5. PP7-CC Organizational Buyers
Organizational buyers are those manufacturers,
wholesalers and retailers, and government agencies
that buy goods and services for their own use or for
resale.
EXAMPLE: Buying computers and telephones for the
firm’s own use.

6. PP7-1 Type and Number of Organizational Customers
Type of Organization Number Kind of Market
Manufacturers ,000
Mining ,000
Construction ,000
Farms, forestry, and fisheries 955,000 Industrial (business)
Service ,594,000 markets --(11,552,000)
Finance, insurance, and real estate 617,000
Transportation and public utilities 276,000
Not-for-profit associations 23,000
Wholesalers ,000 Reseller markets --
Retailers ,564,000 2,076,000
Government units ,000 Government markets --
85,000

7. PP7-DD North American Industry Classification System (NAICS)
NAICS provides common industry definitions for Canada, Mexico, and the U.S., which facilitate the measurement of economic activity in the three member countries of NAFTA.
NAICS replaced the Standard Industrial Classification system, a system which had been in place more than 50 years.
NAICS is consistent with the International Standard Industrial Classification of All Economic Activities, published by the United Nations, to facilitate measurement of global economic activity.

8. 2 Digit Industry Subsector 5 Digit U.S. National Industry
PP7-2 NAICS breakdown for broadcasting and telecommunications industries
2 Digit Industry Subsector
3 Digit Industry Group
4 Digit Industry
5 Digit U.S. National Industry
Broadcasting and telecommunications
Radio and television broadcasting
Wire telecommunication carriers
Paging
Cable networks and program distribution
Wireless telecommunication carriers, except satellite paging
Cellular and other wireless telecommunications
Telecommunications
Telecommunications resellers
Satellite telecommunications
Other telecommunications

9. 1. What are the three main types of organizational buyers?
PP7-EE Concept Check
1. What are the three main types of organizational buyers?
2. What is the North American
Industry Classification System
(NAICS)?

10. PP7–3 Key characteristics of organizational buying behavior
Market Characteristics
Demand for industrial products and services is derived.
Few customers typically exist, and their purchase orders are large.
Product or Service Characteristics
Products or services are technical in nature and purchased on the basis of specifications.
There is a predominance of raw and semi-finished goods purchased.
Heavy emphasis is placed on delivery time, technical assistance, postal service, and financing assistance.

11. PP7–3 Key characteristics of organizational buying behavior --
PP7–3 Key characteristics of organizational buying behavior continued
Buying Process Characteristics
Technically qualified and professional buyers exist and follow established purchasing policies and procedures
Buying objectives and criteria are typically spelled out, as are procedures for evaluating sellers and products (services).
Multiple buying influences exist, and multiple parties participate in purchase decisions.
Reciprocal arrangements exist, and negotiation between buyers and sellers is commonplace.

12. Other Marketing Mix Characteristics
PP7–3 Key characteristics of organizational buying behavior continued
Other Marketing Mix Characteristics
Direct selling to organizational buyers is the rule, and physical distribution is very important
Advertising and other forms of promotion are technical in nature.
Price is often negotiated, evaluated as part of broader seller and product (service) qualities, typically inelastic owing to derived demand, and frequently affected by trade and quality discounts.

13. PP7-FF Other Organizational Buyer Terminology
Reverse Marketing involves the deliberate effort by
organizational buyers to build relationships that shape suppliers’ products, services, and capabilities to fit a buyer’s needs and those of its customers.
Reciprocity is an industrial buying practice in which two organizations agree to purchase each other’s products and services.
A supply partnership exists when a buyer and its supplier adopt mutually beneficial objectives, policies, and procedures for the purpose of lowering the cost and/or increasing the value of products and services delivered to the ultimate consumer.

14. PP7–A Key Organizational Buying Criteria
Quality Specifications
Technical Capability
Past Performance
Organizational Buying Criteria
Delivery Schedules
Price
Warranty/ Claim Policies
Production Facilities/Capacity

15. 2. What is the relative influence of each member of of the group.
PP7-GG Four Questions to Provide Guidance in Understanding the Buying Center
1. Which individuals are in the buying center for the product or service?
2. What is the relative influence of each member of
of the group.
3. What are the buying criteria of each member?
4. How does each member of the group perceive
our firm, our products and services, and our
salespeople?

16. PP7–B Five roles in the buying center
Initiator
User
Decision Maker
Influencer
Gatekeeper

17. PP7-4a Comparing the stages in consumer and organizational purchases
Stage in the Buying Consumer Purchase: Portable Organizational Purchase:
Decision Process CD Player for a student Headphones for CD player
Problem recognition Student doesn’t like the sound Marketing research and sales
of the stereo system now owned departments observe that
and desires a portable CD competitors are including
player headphones on their models.
The firm decides to include
headphones on their own new
models, which will be
purchased from an outside
supplier.
(continued)

18. PP7-4b Comparing the stages in consumer and organizational
PP7-4b Comparing the stages in consumer and organizational purchases -- continued
Stage in the Buying Consumer Purchase: Portable Organizational Purchase:
Decision Process CD Player for a student Headphones for CD player
Information search Student uses past experience, Design and production
that of friends, ads, and engineers draft specifications
Consumer Reports to collect for headphones. The
information and uncover purchasing department
alternatives Identifies suppliers of CD
player headphones.
Alternative evaluation Alternative portable CD Purchasing and engineering
players are evaluated on the personnel visit with suppliers
basis of important attributes and assess (1) facilities, (2)
desired in a CD player and capacity, (3) quality control,
several stores are visited (4) financial status. They drop
any suppliers not satisfactory
on these factors.
(continued)

19. PP7-4c Comparing the stages in consumer and organizational
PP7-4c Comparing the stages in consumer and organizational purchases -- continued
Stage in the Buying Consumer Purchase: Portable Organizational Purchase:
Decision Process CD Player for a student Headphones for CD player
Purchase decision A specific brand of portable CD They use (1) quality, (2) price, player is selected, the price is (3) delivery, and (4) technical
paid, and the student leaves capability as key buying
the store criteria to select a supplier.
Then they negotiate terms
and award a contract.
Postpurchase behavior Student reevaluates the They evaluate suppliers
purchase decision, may return using a formal vendor rating
the portable CD player to the system and notify supplier if
store if it is unsatisfactory, and headphones do not meet its
looks for supportive quality standard. If the
information to justify the problem is not corrected,
purchase they drop the firm as a
future supplier.

20. PP7-5 How the buying situation affects buying center behavior
Buying-Class Situation
Buying Center Dimension New Buy Straight/Modified Rebuy
People involved Many Few
Decision Time Long Short
Problem definition Uncertain Well-defined
Buying objective Good solution Low-price supplier
Suppliers considered New/present Present
Buying influence Technical/operating Purchasing Agent
personnel

21. PP7-C Three Types of Buying Situations
Decision time and problem definition
Short/
well defined
Few
Many
Number of people in buying center and number of suppliers considered
Straight rebuy
Modified buy
New buy
Long/
uncertain

22. 1. What one department is almost always represented by a person in
PP7-HH Concept Check
1. What one department is almost
always represented by a person in
the buying center?
2. What are the three types of
buying situations or buy classes?

23. PP7-IIa Stages in the Industrial Buying Process
Problem Recognition often involves a make-buy decision -- an evaluation of whether components and assemblies will be purchased from outside suppliers or built by the company itself.
Information Search often involves value analysis -- a systematic appraisal of the design, quality, and performance of a product to reduce purchasing costs.
Alternative Evaluation often involves the generation of a bidders list -- a list of firms believed to be qualified to supply a given item.
(continued)

24. PP7-IIb Stages in the Industrial Buying Process
Purchase Decision -- The period from supplier selection to order placement to product delivery can take several weeks or even months, as negotiations regarding price, performance and delivery terms will continue. Additional negotiations may involve warranties, indemnities, and payment schedules.
Postpurchase Behavior -- Evaluation occurs in the industrial purchase decision process, but is formal and often sophisticated. The performance of the supplier is monitored and recorded.

25. decision? 2. What is a bidders list? 1. What is a make-buy
PP7-JJ Concept Check
1. What is a make-buy
decision?
2. What is a bidders list?