Chapter 06 – Understanding Organizations as Customers
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CHAPTER CONTENTS
PAGE
POWERPOINT RESOURCES TO USE WITH LECTURES ……………………………………. 6-2
LEARNING OBJECTIVES (LO) …………………………………………………………………………….. 6-3
KEY TERMS …………………………………………………………………………………………………………… 6-3
LECTURE NOTES
• Chapter Opener: Organizational Buying Is Marketing Too! …………………………………. 6-4
• Business-to-Business Marketing and Organizational Buyers (LO 6-1) ………………….. 6-4
• Characteristics or Organizational Buying (LO 6-2) …………………………………………….. 6-6
• The Buying Center: A Cross-Functional Group (LO 6-3) …………………………………… 6-10
• Online Buying in Business-to-Business Marketing (LO 6-4) ………………………………. 6-13
APPLYING MARKETING KNOWLEDGE ……………………………………………………………. 6-16
BUILDING YOUR MARKETING PLAN ……………………………………………………………….. 6-19
VIDEO CASE (VC)
• VC-6: Trek: Building Better Bikes through Organizational Buying ……………………… 6-20
APPENDIX D CASE (D)
• D-6: Motetronix Technology: Marketing Smart Dust …………………………………………. 6-23
IN-CLASS ACTIVITY (ICA)
• ICA 6-1: Daktronics: Reaching an Organization’s Buying Center ……………………….. 6-25
CONNECT APPLICATION EXERCISES ……………………………………………… 6-29
• Characteristics of Organizations Click and Drag*
• Types of Organizational Markets Click and Drag*
• Buy-Class Situations Click and Drag*
• Trek: Building Better Bikes through Organizational Buying Video Case
• iSeeit! Video Case: B2B Buying Process Video Case
*Note: An alternate version of each Click and Drag exercise is available in Connect for students with
accessibility needs.
Chapter 06 – Understanding Organizations as Customers
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POWERPOINT RESOURCES TO USE WITH LECTURES
PowerPoint
Textbook Figures Slide
Figure 6-1 Key characteristics and dimensions of organizational buying behavior ……………………. 6-6
Figure 6-2 Product and supplier selection criteria for buying machine vision equipment
emphasize factors other than price …………………………………………………………………….. 6-10
Figure 6-3 Comparing the stages in a consumer and organizational purchase decision
process ……………………………………………………….………………………………………………….. 6-15
Figure 6-4 The buying situation affects buying center behavior in different ways…………………….. 6-18
Figure 6-5 Buyer and seller participants and price differ by type of online auction. …………………. 6-21
Marketing Matters, Making Responsible Decisions, or Marketing Insights About Me
Marketing Insights About Me – Do I Buy from Organizations that Promote Diversity among Their
Suppliers and in Their Workplaces? ……………………………………………………………………………………… 6-8
Marketing Matters—Customer Value: At Milsco Manufacturing, “Our Marketing Philosophy
Is Designed to Develop Partnerships” and Deliver a Great Ride for Customers’ Seats ……………… 6-12
Making Responsible Decisions—Sustainability: Sustainable Procurement for Sustainable
Growth at Starbucks …………………………………………………………………………………………………………. 6-13
Marketing Matters—Entrepreneurship: eBay Means Business for Business-to–Business Marketing
Entrepreneurs, Too! …………………………………………………………………………………………………………… 6-20
Web Links
6-1: NASA Video ……………………………………………………………………………………………………………… 6-4
6-2: Starbucks Sustainability Video …………………………………………………………………………………….. 6-13
6-3: Trek Video Case ………………………………………………………………………………………………………… 6-22
In-Class Activity (ICA)
ICA 6-1: Daktronics: Reaching an Organization’s Buying Center . ………………………………………….. 6-27
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LEARNING OBJECTIVES (LO)
After reading this chapter students should be able to:
LO 6-1: Distinguish among industrial, reseller, and government organizational markets.
LO 6-2: Describe the key characteristics of organizational buying that make it different from
consumer buying.
LO 6-3: Explain how buying centers and buying situations influence organizational purchasing.
LO 6-4: Recognize the importance and nature of online buying in industrial, reseller, and
government organizational markets.
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
ORGANIZATIONAL 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.
• JCPMedia paper buyers work closely with marketing personnel to ensure that the
right quality and quantity of paper are bought at the right price.
• JCPMedia also consider supplier capabilities:
a. Capacity to deliver selected grades of paper on time.
b. Meeting printing deadlines.
c. Environmental programs, such as forestry management and sustainability
practices.
I. BUSINESS-TO-BUSINESS MARKETING AND ORGANIZATIONAL
BUYERS [LO 6-1]
• 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.
b. Wholesalers and retailers resell the goods they buy without reprocessing them.
c. Organizational buyers include all buyers in a nation except ultimate consumers.
d. The total annual purchases of organizational buyers are far greater than those of
ultimate consumers.
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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:
a. Physical goods represent 25 percent.
b. Services represent 75 percent.
B. Reseller Markets
• Resellers are wholesalers and retailers that buy physical products and resell them
again without any reprocessing.
• In the U.S., there are about 1.1 million retailers and 435,000 wholesalers.
C. Government Markets
• Government units are the federal, state, and local agencies that buy goods and
services for the constituents they serve.
• There are about 89,500 of these government units in the U.S.
[Video 6-1: 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
North American Free Trade Agreement (NAFTA).
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
and services, and import competition in domestic markets.
• The NAICS designates industries with a six-digit numerical code:
a. The first two digits designate a sector of the economy.
b. The third digit designates a subsector.
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c. The fourth digit represents an industry group.
d. The fifth digit designates a specific industry and is the level at which comparable
data are available for Canada, Mexico, and the U.S.
e. The sixth digit designates individual country-level national industries.
• 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.
b. Is possible to monitor NAICS categories to determine the growth in various
sectors and industries to identify promising marketing opportunities.
LEARNING REVIEW
6-1. Organizational buyers are ____________.
6-2. What are the three main types of organizational buyers?
III. CHARACTERISTICS OF ORGANIZATIONAL BUYING [LO 6–2]
[Figure 6-1] Unique objectives and policies of an organization put special constraints on
how it makes buying decisions. Key characteristics and dimensions include:
A. Demand Characteristics
• Consumer demand for products and services is affected by their price,
availability, as well as consumers’ tastes and discretionary income.
• Derived demand.
a. Means that the demand for industrial products and services is driven by, or
derived from, demand for consumer products and services.
b. Is based on expectations of future consumer demand, such as initial and repeat
purchases, which are both influenced by consumer income.
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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
competitive bids from at least three prospective suppliers if the order is above a
specific amount.
• The size of the order determines who participates in the purchase decision and the
time required to negotiate a purchase agreement.
C. Number of Potential Buyers
• Firms selling consumer products and services often try to reach thousands or
millions of individuals or households.
• Firms selling to organizations usually have far fewer buyers.
D. Organizational Buying Objectives
• For business firms, the buying objective is usually to increase profits through
reducing costs or increasing revenues.
• The objectives of nonprofit firms and government agencies are usually to meet the
needs of the groups they serve.
• Firms have broadened their objectives to emphasize buying from minority- and
women-owned suppliers and vendors.
• Other companies include sustainable initiatives in their buying objectives.
MARKETING INSIGHTS ABOUT ME
Do I Buy from Organizations that Promote Diversity Among Their Suppliers and in Their
Workplacse?
Supplier diversity is a strategic initiative in many organizations. Supply diversity goes
hand-in-hand with workplace diversity.
• DiversityInc is a source of information about companies’ diversity practices.
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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.
b. Ability to meet the quality specifications required for the item.
c. Ability to meet required delivery schedules.
• [Figure 6-2] 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
restricts the normal operation of the free market.
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• 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.
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
and after-market parts and accessories, such as saddlebags.
[Video 6-2: Starbucks Sustainability Video]
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MAKING RESPONSIBLE DECISIONS
Sustainability: Sustainable Procurement for Sustainable Growth at Starbucks
• 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
buying process.
IV. BUYING CENTER: A CROSS-FUNCTIONAL GROUP [LO 6-3]
• 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
• Compare the stages a student might use in buying a smartphone to organizational
purchases.
B. The Buying Center: A Cross-Functional Group [LO 6-3]
• A buying center:
a. Is a group of people in an organization who…
b. Participate in the buying process and…
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• Most industrial firms or government units use informal groups of people or call
meetings to arrive at buying decisions.
• 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?
2. What is the relative influence of each member of the group?
3. What are the buying criteria of each member?
4. How does each member perceive the firm, its products, and its salespeople?
1. People in the Buying Center.
a. The composition of the buying center in a given organization depends on the
specific item being bought.
b. The purchasing manager is almost always a member.
c. Individuals from top management and other functional areas are included
depending on the purchase.
d. A key issue is finding and reaching the people in the buying center who will
initiate, influence, and actually make the buying decision.
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.
b. Influencers affect the buying decision, usually by helping define the
specifications for what is bought.
c. Buyers have formal authority and responsibility to select the supplier and
negotiate the terms of the contract.
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:
• Control the flow of information in the buying center.
• Can keep information from reaching people performing the other four
roles.
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[ICA 6-1: 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 6-3] 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.
– Involves greater risks, so the buying center is enlarged to include all
who have a stake in the new buy.
• 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
product specifications, price, delivery schedule, or supplier.
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
6-3. What one department is almost always represented by a person in the buying
center?
6-4. What are the three types of buying situations or buy classes?
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V. ONLINE BUYING IN BUSINESS-TO-BUSINESS MARKETING
[LO 6-4]
• Organizations dwarf consumers in terms of online transactions made, average
transaction size, and overall purchase volume.
• Online organizational buyers account for about 70 percent of the global dollar value
of all online transactions.
A. Prominence of Online Buying in Organizational Markets
• Online buying in organizational markets occurs for three reasons:
a. Organizational buyers depend heavily on timely supplier information that
describes product availability, technical specifications, application uses, price,
and delivery schedules.
b. Internet technology has been shown to substantially reduce buyer order
processing costs.
c. Business marketers have found that Internet technology can:
• Reduce marketing costs, particularly sales and advertising expense.
B. E-Marketplaces: Virtual Organizational Markets
• E-marketplaces are:
a. Online trading communities that bring together buyers and supplier
organizations.
b. Make possible the real-time exchange of information, money, and offerings.
c. Also called B2B exchanges or e-hubs.
• E-marketplaces can be independent trading communities or private exchanges.
a. Independent e-marketplaces:
• Act as a neutral third party.
• Provide an Internet technology trading platform and a centralized market
that enable exchanges between buyers and sellers.
• Charge a fee for their service.
• Exist in settings that have one or more of the following features:
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– Thousands of geographically dispersed buyers and sellers.
• Offer small business buyers and sellers an economical way to expand their
customer bases and reduce costs
MARKETING MATTERS
Entrepreneurship: eBay Means Business for Business-to-Business Marketing
Entrepreneurs, Too!
• eBay, Inc.:
a. Is the predominant person-to-person trading community in the world.
b. Is a trading platform for millions of small businesses in the U.S. and even greater
numbers around the world. Ex: 82% of small businesses on eBay sell to five or
more foreign countries.
• 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.
b. 78 percent say it has helped to reduce their costs.
c. 79 percent say it has helped their business become more profitable.
• eBay promotes entrepreneurship.
b. Private exchanges:
• Streamline purchase transactions of large companies by linking them with
their network of qualified suppliers and customers.
• Provide a technology trading platform and central market for buyer-seller
interactions.
• Are not a neutral third party, but represent the interests of their owners.
C. Online Auctions in Organizational Markets
[Figure 6-5] Many e-marketplaces offer online auctions. There are two types:
• In a traditional auction:
a. A seller puts an item up for sale.
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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
bid prices because bidding is sequential.
• 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.
c. As more would-be suppliers become involved, there is a downward pressure
on bid prices for the buyer’s business.
d. Like traditional auctions, bidding is sequential.
• Buyers welcome the lower prices generated by reverse auctions.
• Some suppliers favor reverse auctions.
• Other suppliers say that reverse auctions put too much emphasis on prices,
discourage consideration of other important buying criteria, and threaten supply
partnerships.
LEARNING REVIEW
6-5. What are e-marketplaces?
6-6. In general, which type of online auction creates upward pressure on bid prices and
which type creates downward pressure on bid prices?
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APPLYING MARKETING KNOWLEDGE
1. Describe the major differences among industrial firms, resellers, and government
units in the United States.
Answers:
2. List and discuss the key characteristics of organizational buying that make it different
from consumer buying.
Answer: Although the buying processes organizations go through when making a purchase
also apply to consumer buying, there are some key differences:
3. (a) What is a buying center? (b) Describe the roles assumed by people in a buying
center and (c) what useful questions should be raised to guide any analysis of the
structure and behavior of a buying center.
Answers: