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Chapter 05 - Understanding Organizations as Customers
5-1
CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES ........................................... 5-2
LEARNING OBJECTIVES (LO) ......................................................................................... 5-3
KEY TERMS ........................................................................................................................... 5-3
LECTURE NOTES
• Chapter Opener: Organizational Buying is Marketing Too! ........................................ 5-4
APPLYING MARKETING KNOWLEDGE ...................................................................... 5-16
BUILDING YOUR MARKETING PLAN .......................................................................... 5-19
VIDEO CASE (VC)
• VC-5: Trek: Building Better Bikes through Organizational Buying ........................... 5-20
IN-CLASS ACTIVITY (ICA)
• ICA 5-1: Daktronics: Reaching an Organization’s Buying Center ............................. 5-23
CONNECT EXERCISES ……………………………………………….………………… 5-27
• Characteristics of Organizations Click and Drag*
• Types of Organizational Markets Click and Drag*
Chapter 05 - Understanding Organizations as Customers
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 5-1 Key characteristics and dimensions of organizational buying behavior ......................... 5-6
Figure 5-2 Product and supplier selection criteria for buying machine vision equipment
Marketing Matters, Making Responsible Decisions, or Marketing Insights About Me
Marketing Matters—Customer Value: At Milsco Manufacturing, “Our Marketing Philosophy
is Designed to Develop Partnerships” and Deliver a Great Ride for Customers’ Seats .................. 5-11
Web Links
5-1: NASA Video .............................................................................................................................. 5-4
5-3: Trek Video Case ........................................................................................................................ 5-21
In-Class Activity (ICA)
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 5-1: Distinguish among industrial, reseller, and government organizational markets.
LO 5-3: Explain how buying centers and buying situations influence organizational purchasing.
KEY TERMS
Business-to-business marketing
organizational buyers
buy classes
organizational buying behavior
buying center
reverse auction
derived demand
traditional auction
e-marketplaces
North American Industry Classification
System (NAICS)
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LECTURE NOTES
ORGANIZATINOL BUYING IS MARKETING TOO!
PURCHASING PUBLICATION PAPER FOR JCPENNEY
• JCPMedia buys over 100,000 tons of publication paper for JCPenney, which uses it
for catalogs, newspaper inserts, and direct-mail pieces.
• Choice of paper and suppliers is a significant marketing decision given the sizable
revenue and expense consequence.
I. BUSINESS-TO-BUSINESS MARKETING AND ORGANIZATIONAL
BUYERS [LO 5-1]
• Business marketing.
a. Is the marketing of goods and services to companies, governments, or not-for-
profit organizations?
b. For use in the creation of goods and services that they can produce and market to
others.
• Organizational buyers are those manufacturers, wholesalers, retailers, and
government agencies that buy goods and services for their own use or for resale.
a. Manufacturers buy raw materials and parts and reprocess them into finished
goods.
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A. Industrial Markets
• Industrial markets include about 7.5 million business firms.
• Industrial firms in some way reprocess a product or service they buy before
selling it again to the next buyer.
• The composition of industrial markets is that:
B. Reseller Markets
• Resellers are wholesalers and retailers that buy physical products and resell them
again without any reprocessing.
C. Government Markets
• Government units are the federal, state, and local agencies that buy goods and
services for the constituents they serve.
[Video 5-1: NASA Video]
II. MEASURING ORGANIZATIONAL MARKETS
• The North American Industry Classification System (NAICS):
a. Provides common industry definitions for Canada, Mexico, and the United States.
b. Makes it easier to measure economic activity in the three member countries of the
c. Is consistent with the International Standard Industrial Classification of All
Economic Activities published by the United Nations to facilitate measurement of
global economic activity?
d. Groups economic activity to permit studies of market share, demand for goods
• The NAICS designates industries with a six-digit numerical code:
a. The first two digits designate a sector of the economy.
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c. The fourth digit represents an industry group.
• The benefits of the NAICS are that it:
a. Permits a firm to find the NAICS codes of its present customers and then obtain
NAICS-coded lists for similar firms.
LEARNING REVIEW
5-1. Organizational buyers are ____________.
5-2. What are the three main types of organizational buyers?
Answer: (1) industrial firms, which in some way reprocess a product or service they
III. CHARACTERISTICS OF ORGANIZATIONAL BUYING [LO 5-2]
[Figure 5-1] Unique objectives and policies of an organization put special constraints on
how it makes buying decisions. Key characteristics and dimensions include:
A. Demand Characteristics
• Derived demand.
a. Means that the demand for industrial products and services is driven by, or
derived from, demand for consumer products and services.
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B. Size of the Order or Purchase
• The size of the purchase in organizational buying is much larger than in consumer
buying, with a single purchase running into the thousands or millions of dollars.
• Most organizations place purchasing constraints on their buyers, who must get
C. Number of Potential Buyers
• Firms selling consumer products and services often try to reach thousands or
D. Organizational Buying Objectives
• For business firms, the buying objective is usually to increase profits through
reducing costs or increasing revenues.
E. Organizational Buying Criteria
• Organizational buying criteria are the objective attributes of the supplier’s
products and services and the capabilities of the supplier itself.
• These criteria serve the same purpose as the evaluative criteria used by ultimate
consumers.
• Seven commonly used buying criteria are:
a. Price.
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d. Technical capability.
• [Figure 5-2] The actual buying criteria used by organizational buyers when
choosing machine vision system products and suppliers.
• Supplier development:
a. Involves the deliberate effort by organizational buyers to…
F. Buyer-Seller Relationships and Supply Partnerships
• Organizational buying involves complex and lengthy negotiations concerning
delivery schedules, price, technical specifications, warranties, and claim policies.
• Reciprocity is an industrial buying practice in which two organizations agree to
purchase each other’s products and services.
a. The U.S. Justice Department disapproves of reciprocal buying because it
• Long-term contracts are also prevalent.
• A supply partnership:
a. Is a relationship that exists when a buyer and its supplier:
• Adopt mutually beneficial objectives, policies, and procedures…
b. Includes provisions for sustainable procurement.
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MARKETING MATTERS
Customer Value: At Milsco Manufacturing, “Our Marketing Philosophy is Designed
to Develop Partnerships” and Deliver a Great Ride for Customers’ Seats
• Milsco is a Wisconsin-based designer and producer of seating solutions.
• Its customers include:
a. Harley-Davidson, John Deere, Yamaha, Caterpillar, and others.
• Milsco’s marketing philosophy is to develop partnerships with its customers.
• Example: Harley-Davidson.
a. Since 1934, Milsco has been a supplier of original equipment motorcycle seats
[Video 5-2: Starbucks Sustainability Video]
MAKING RESPONSIBLE DECISIONS
Sustainability: Sustainable Procurement for Sustainable Growth
• The concept of sustainable procurement has arisen due to the concerns organizations
have regarding how their buying decisions affect the environment.
• Sustainable procurement:
a. Aims to integrate environmental considerations into all stages of an organization’s
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IV. BUYING CENTER: A CROSS-FUNCTIONAL GROUP [LO 5-3]
• Organizational buying behavior is the decision-making process that oranizations
use to establish the need for products and services…
• And to identify, evaluate, and choose among alternative brands and suppliers.
A. Stages in the Organizational Buying Process [Figure 5-3]
• Compare the stages a student might use in buying a smartphone to organizational
B. The Buying Center: A Cross-Functional Group [LO 5-3]
• A buying center:
a. Is a group of people in an organization who…
• In large multi-store chain resellers, the buying center is highly formalized and is
called a buying committee.
• Four questions that provide guidance in understanding the buying center in
organizations include:
1. Which individuals are in the buying center for a particular product or service?
1. People in the Buying Center.
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a. The composition of the buying center in a given organization depends on the
specific item being bought.
2. Roles in the Buying Center. There are five specific roles that an individual in a
buying center can play:
a. Users are the people in the organization who actually use the offering.
d. Deciders have the formal or informal power to select or approve the supplier
that receives the contract.
• In routine orders the decider is usually the buyer or purchasing manager.
e. Gatekeepers:
[ICA 5-1: Daktronics: Reaching an Organization’s Buying Center]
3. Buying Situations and the Buying Center.
a. The number of people in the buying center largely depends on the specific
buying situation.
b. [Figure 5-4] Three types of organizational buying situations, called buy
classes, vary from the routine reorder to the completely new purchase:
• New buy.
– The organization is a first-time buyer of the product or service.
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• Straight rebuy, where the buyer reorders an existing product or service
from the list of acceptable suppliers.
• Modified rebuy, where:
– Users, influencers, or deciders in the buying center want to change the
c. The buy class marketing strategies of sellers can vary greatly because the
participation of personnel from functional areas in the buying center is based
on the:
• Type of buying situation.
• Stage of the purchasing process.
LEARNING REVIEW
5-3. What one department is almost always represented by a person in the buying
center?
5-4. What are the three types of buying situations or buy classes?
Answer: (1) new buy—the organization is a first-time buyer of the product or service;
V. ONLINE BUYING IN BUSINESS-TO-BUSINESS MARKETING
[LO 5-4]
• Organizations dwarf consumers in terms of online transactions made, average
A. Prominence of Online Buying in Organizational Markets
• Online buying in organizational markets occurs for three reasons:
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a. Organizational buyers depend heavily on timely supplier information that
b. Internet technology has been shown to substantially reduce buyer order
processing costs.
c. Business marketers have found that Internet technology can:
• Organizational buyers can purchase directly from suppliers, through a reseller, or
via e-marketplaces and online auctions.
B. E-Marketplaces: Virtual Organizational Markets
• E-marketplaces are:
a. Online trading communities that bring together buyers and supplier
organizations.
• E-marketplaces can be independent trading communities or private exchanges.
a. Independent e-marketplaces:
• Act as a neutral third-party.
• Charge a fee for their service.
• Exist in settings that have one or more of the following features:
– Thousands of geographically dispersed buyers and sellers.
• Offer small business buyers and sellers an economical way to expand their
customer bases and reduce costs
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MARKETING MATTERS
Entrepreneurship: eBay Means Business For Entrepreneurs
• eBay, Inc.:
a. Is the predominant person-to-person trading community in the world.
• According to an eBay-commissioned survey conducted by ACNielsen among small
businesses:
a. 82 percent report that it has helped their business grow and expand.
• eBay promotes entrepreneurship.
b. Private exchanges:
• Streamline purchase transactions of large companies by linking them with
C. Online Auctions in Organizational Markets
[Figure 5-5] Many e-marketplaces offer online auctions. There are two types:
• In a traditional auction:
a. A seller puts an item up for sale.
b. Would-be buyers are invited to bid in competition with each other.
c. As more would-be buyers become involved, there is an upward pressure on
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• In a reverse auction:
a. A buyer communicates a need for a product or service.
b. Would-be suppliers are invited to bid in competition with each other.
• Buyers welcome the lower prices generated by reverse auctions.
• Some suppliers favor reverse auctions.
LEARNING REVIEW
5-5. What are e-marketplaces?
5-6. In general, which type of online auction creates upward pressure on bid prices and
which type creates downward pressure on bid prices?
