Organizational Buying Process

1. Problem
Recognition

4. Supplier
Search

6. Supplier
Selection

2. General
Description
of Need
Organization
al Buying
Process

3. Product
Specifications

5. Acquisition
and Analysis
of Proposals

7. Selection
8. Performance
of
Review
Order Routine

Marketings Cross Functional Relationship

Business marketing planning must

be coordinated and synchronized
with corresponding planning efforts.
Developed by Cool Pictures and MultiMedia Presentations

Three Buying Situations A Review

1. New task
2. Straight rebuy
3. Modified rebuy

Forces Influencing Organizational Buying

Behavior

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

Total cost ownership

1. Acquisition
costs:
selling
price
and
transportation
costs & administrative costs of evaluating
suppliers,
expediting orders, and correcting errors in
shipments
or delivery.
2. Possession costs: include financing, storage,
inspection, taxes, insurance, and other internal
handling
costs.
3. Usage costs: are those associated with

Centralized vs. Decentralized

Purchasing
Purchasing is moving away from a
transaction-based support role to a
more strategic, executive level role
One result of this is to centralize
purchasing
Centralized purchasing operates
differently than decentralized
purchasing

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.

Buying Center Roles

Initiator

Initially perceives a problem and initiates the

buying process to solve it.

Influencer

Affects the purchasing decision by providing

technical information or other relevant
(internal or external) information.

Gatekeeper

Decider

Buyer

Controls the information to be reviewed by

members of the buying group. (For example,
buyer may screen advertising material and
even salespeople.)
Actually makes the buying decision, whether
or not they have formal authority to do so.
Could be the owner, an engineer or even the
buyer.
Has formal authority to select and purchase
products or services and the responsibility to
implement and follow all procurement
procedures.
Actually use the product in question. Can be

Types of Relationships
Continuum of buyer-seller relationships
Transactional, Value-added & Collaborative
exchanges
The Relationship Spectrum

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.

High- vs. Low-Cost-to-Serve Customers

High-Cost-to-Serve Customers

Low-Cost-to-Serve Customers

Order custom products

Order standard products

Order small quantities

Order large quantities

Unpredictable order arrivals

Predictable order arrivals

Customized delivery

Standard delivery

Frequent changes in delivery requirements

No changes in delivery requirements

Manual processing

Electronic processing (EDI)

(i.e., zero defects)

Large amounts of presales support

(i.e., marketing, technical, and sales resources)

Little to no presales support

(i.e., standard pricing and ordering)

Large amounts of post-sales support

(i.e., installation, training, warranty, field service)

No post-sales support

Require company to hold inventory

Replenish as produced

Pay slowly (i.e., high accounts receivable)

Pay on time

Source: Robert S. Kaplan and V.G. Narayanan, p. 8. Measuring and Managing Customer Profitability, Journal of Cost Management 15, No. 5
(September/October 2001):

Customer Profitability

Figure 3.4

High

Net Margin Realized

Passive
Product is crucial
Good supplier match

Price-sensitive but
few special
demands

Costly to service,
but pay top
dollar
fits
o
r
P
s
sse Aggressive
o
L
Leverage their buying power
Low price and lots of
customization
Most challenging

Low
Low

High
Cost-to-Serve

SOURCE: From Manage Customers for Profits (Not Just Sales) by B.P. Shapiro et al., September-October 1987, p. 104, Harvard Business Review.

Customer Relationship Management

Customer Relationship Management (CRM) is
a cross-functional process for achieving:
a.Continuing dialog with customers across all
contact and access points
b.Personalized service to the most valuable
customers
c.Increased customer retention
d.Continued marketing effectiveness

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.

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.

Hierarchy of Strategies 3 parts

Corporate Strategy
Business-Level Strategy
Functional Strategy

Fulfillment
& Support

Information
& Insight

1. Customer Interface

Pricing
Structure

Relationship
Dynamics

Fig. 5.2 Components of a

Business Model: Bridges to Profits
CUSTOMER BENEFITS
CONFIGURATION
COMPANY BOUNDARIES
CUSTOMER INTERFACE

Fulfillment & Support

Information & Insight
Relationship Dynamics
Pricing Structure

CORE STRATEGY

Business Mission
Product/Market Scope
Basis for Differentiation

STRATEGIC RESOURCES

Core Competencies
Strategic Assets
Core Processes

VALUE NETWORK

Suppliers
Partners
Coalitions

EFFICIENT / UNIQUE / FIT / PROFIT BOOSTERS

Major business concept components are tied

together by three important bridge elements:
customer benefits, configuration, and company
boundaries.

Michael Porter Asks: What is Strategic

Positioning?

The Management System

Involves 5 stages:

1.
2.
3.
4.
5.

Strategy development
Translate strategy into objectives
Design key processes
Monitor performance
Adapt the strategy

2 Key tools for successful strategy implementation are:

1. Balanced Scorecard
2. Strategy Map

The Balanced Scorecard - Translating Strategy Into Operational

Terms
1. Financial Perspective
Long-Term
Shareholder
Value

Productivity

Revenue
Growth

Cause-and-Effect Relationships
Defines the chain of logic by which
intangible assets will be
transformed to tangible value.

2. Customer Perspective
Product/Service Attributes
Price

Quality

Time

Relationship
Function

Partnership

3. Internal Process Perspective

Manage
Operations

Manage
Customers

Manage
Regulatory
and Social
Processes

Manage
Innovation

4. Learning and Growth Perspective

Human
Capital

Information
Capital

Organization
Capital

Image
Brand

Customer Value Proposition

Clarifies conditions that create
value for the customer.
Value-Creating Processes
Defines processes that transform
intangible assets into customer
and financial outcomes.
Clustering Assets and Activities
Defines intangible assets to be
aligned and integrated to create
value.

Risk Levels
Risk

Global
Strategy

Strategic
Alliances

Joint
Ventures

Multidomestic

Contracting

Export

Return

Framework for Global Strategy

Build on foundation of unique competitive
position
Emphasize consistent positioning strategy
across international markets

Global
Strateg
y

Establish clear home base for each

distinct business
Leverage product-line home bases at
different locations

Source: Adapted from

Michael E. Porter,
Competing Across
Locations: Enhancing
Competitive Advantage
through a Global
Strategy, in Michael E.
Porter (ed.), On
Competition (Boston:
Harvard Business
School Press, 1998), pp.
309-350.

Disperse activities to extend home base

advantages
Coordinate and integrate dispersed
activities

Customer-Based Brand Equity

(CBBE)
Kevin Lane Keller defines CBBE:

The differential effect that customer

brand knowledge has on their response to
market activities and programs for the
brand.
Brand Power relies on:

What customers have learned, felt, seen

and heard about the brand over time.
How customers link their thoughts to
feelings, perception, imagination and
experience of the brand.

CBBE Pyramid
CBBE model lays out 4 steps for
building a strong brand:
1. Develop deep brand identity
2. Establish unique brand identity by
highlighting differences
3. Employ marketing programs to elicit
positive brand responses
4. Build brand relationships with loyal
customers

CBBE Pyramid

What Value Means to Business Customers

Core
Benefits
Customer Value

Add-on
Price

Sacrifices

Acquisition
costs
Operations
costs

Source: Adapted from Ajay Menon, Christian Homburg, and Nikolas Beutin, Understanding Customer Value,
Journal of Business-to-Business Marketing, 12, no. 2 (2005), pp. 47.

1. Proprietary/
catalog
products

2. Custombuilt
products

Four Types of Industrial Product Lines

3. Customdesigned
products

4. Industrial
services

Industrial Product Line

Defined

Proprietary: Comes only in certain

configurations and are available in
anticipation of orders. The product
decision is to add, delete or reposition
it.
Custom-built: Product(s) offered to
meet one or a small group of customers
need. The product decision centers on
offering a proper mix of additional
options.
Custom-designed: Unique item is
created to meet one or more customers
need. Product is defined in terms of
companys capability, and consumer

Four Dimensions of a Market

Definition
1. Customer function dimension.
Customer function dimension

Technological dimension

Customer segment dimension

1. Customer function dimension.
Value-added system dimension

Customer
Function

What functional benefits does the

product/service provide for the buyer?

Technological
Function

Are there alternative ways a particular

function can be performed?
(Example: Communications: cell phone,
email, pager, notebook computer)

Customer
Segment

Various customer segments have

distinct functional needs. What are
they and how can they be served?

Value-Added
System

Many services are offered by

competing service chain of vendors.
Sometimes they are separate, but
other times they merge their services
to offer a more overall competitive
product.
(Example: Product provider (Motorola)
aligns with
service provider (AT&T)
to offer a more efficient

Innovation: Classes of Customers

Technology enthusiasts
Visionaries
Pragmatists
Conservatives
Skeptics
Laggards

Chasm
A Chasm is a period of time where sales
falter (and sometimes plummet) due to
differences between Visionaries and
Pragmatists.
Visionaries want change (revolution)
whereas Pragmatists want change
(evolution). But Pragmatists make most
buying decisions in organizations.
Pragmatists are the gateway to the
mainstream market. If that chasm gap cant
be bridged, often products become part of
ancient history.