a process, not an isolated event; tracing the history of a procurement decision uncovers CRITICAL decision points and EVOLVING information requirements; involves several stages, each of which yields a decision
Purchasing process begins when
someone in the organization recognizes a problem that can be solved or an opportunity that can be captured by acquiring a specific product
8 Stages of the Organizational Buying Process
1. Problem Recognition 2. General Description of Need 3. Product Specifications 4. Supplier Search 5. Acquisition and Analysis of Proposals 6. Supplier Search 7. Selection of Order Routine 8. Performance Review
Problem Recognition (1)
can be triggered by internal or external forces; Ex: Managers at P&G need new high-speed packaging equipment to support a new product launch.
Business marketers also use ___________ to alert customers to problems and demonstrate how a particular product may solve them (problem recognition phase)
General Description of Need (2)
Production managers work with a purchasing manager to determine the characteristics needed in the new packaging system
Product Specifications (3)
An experienced production manager assists a purchasing manager in developing a detailed and precise description of the needed equipment
The Search Process
Once the org has defined the product that meets its requirements, attention turns to this question, "Which of the many possible suppliers are promising candidates?"
More time and energy
the organization invests __________________ in the supplier search when the proposed product has a strong bearing on organizational performance
Supplier search (4) and Acquisition and Analysis of Proposals (5)
When the information needs of the buying organization are low, _______________ occur simultaneously, especially for standardized items.
Supplier Search (4)
After conferring with production managers, a purchasing manager identifies a set of alternative suppliers that could satisfy P&Gs requirements
Acquisition and Analysis of Proposals (5)
Alternative proposals are evaluated by a purchasing manager and a number of members of the production department (only emerges as a distinct category when the info needs of the org. are high)
Supplier Selection (6)
Negotiations with the two finalists are conducted, and a supplier is chosen
Selection of Order Routine (7)
A delivery date is established for the production equipment
The Performance Review (8)
After equipment is installed, purch and prod managers evaluate the performance of the equip and the service support provided by the supplier. (The final stage in the purchasing process; may lead the purchasing manager to continue, modify or cancel the agreement)
the stages in the model of the procurement process may not progress sequentially and may ________ with the complexity of the purchasing situation; depends on buying situation
Currently is selling to company
not currently selling to company
The three buying situations
1. New task 2. Modified Rebuy 3. Straight Rebuy
New Task buying situation
organization decision makers perceive the problem or need as totally different from previous experiences; therefore, they need a significant amount of information to explore alternative ways of solving the problem and searching for alternative suppliers.
Extensive problem solving
when confronting a NEW TASK buying situation, organizational buyers operate in a stage of decision making referred to as ________________. The buying influentials and decision makers lack well-defined criteria for comparing alternative products and suppliers, but they also lack strong predispositions toward a particular solution.
Marketer's New Task Strategy
In-supplier of other products has edge. However, new task represents out-supplier's best chance. Marketer should gather info on the problems facing the buying organization, isolate specific requirements, and offer proposals to meet the requirements; try for early involvement in process, carefully analyze problems and specs and continually monitor changes in firm
When there is a continuing or recurring requirement, buyers have substantial experience in dealing with the need and require little or no new information. Evaluation of new alternative solutions is unnecessary and unlikely to yield appreciable improvements.
Routine Problem Solving
decision process org buyers employ in the straight rebuy. Org. buyers apply well-developed choice criteria to the purchase decision. The criteria have been refined over time as buyers have developed predispositions toward the offerings of one of a few carefully screened suppliers.
Marketer's Straight Rebuy Strategy
Many decisions made by purchasing alone; if E-procurement is used, focus is on other employees too
Marketers Straight Rebuy Strategy for In-Suppliers
Reinforce relationship with all affected by purchase, meet buying orgs expectations and be alert and responsive to the changing needs of the organization. They could make re-ordering conveniant, thank them for their business first, show your appreciation, ask for satisfaction levels,
Marketers Straight Rebuy Strategy for Out-Suppliers
challenging; must convince the organization that it can derive significant benefits from breaking the routine; try to probe for any dissatisfaction with in-supplier; objective is to persuade decision makers to reexamine alternative solutions and revise the preferred list to include the new supplier
Buyer sees benefits to re-evaluating alternatives; for improved quality, cost reduction (internal or external cause) ; often occurs when unhappy w/current vendor;
Limited Problem Solving Mode
best describes the decision-making process for the modified rebuy. Decision makers have well-defined criteria but are uncertain about which suppliers can best fit their needs.
Modified Rebuy Strategy for In-Suppliers
should make every effort to understand and satisfy the procurement need and to move decision makers into a straight rebuy. Should ask "Why" buyer is looking and act immediately to remedy any customer problems
Modified Rebuy Strategy for Out-Suppliers
hold the organization in modified rebuy status long enough for the buyer to evaluate an alternative offering; offer study, trial or performance guarantees as part of the proposal.
Environmental Influence on B2B Buying
Economic, political, legal and tech influences. -Marketer must be sensitive to the strength of demand in the ultimate consumer market bc of its derived nature (derived demand) -Firms that operate on a global scale must be sensitive to the economic conditions that prevail across regions -Developed countries- slower growth (opportunities in SE Asia, Brazil, Russia, India & China); Future sourcing from China possibly reduced (loss of intellectual property) -Need for "flexible" supply chains in the face of unpredictable shocks (japan's earthquake); -Faster technological changes giving more power to techies and engineers as buying influentials.
As the pace of tech. change increases...
the importance of the purchasing manager in the buying process declines and technical and engineering personnel tend to be more important
Organizational Influences on Buyer Behavior
1. Influence of procurement and supply chain management functions is growing. 2. Past objectives - cost savings, quality and supply dependability 3. Now more strategic - better asset utilization, monitoring suppliers' carbon footprints and suppliers' labor practices 4. Suppliers seen as partners not adversaries 5. Not just "buy for less" but "best supply chain wins"
Why the influence of procurement and supply chain mgmt functions are growing (extension of org influences)
Globalization is upsetting traditional patterns of competition, and companies are feeling the squeeze from rising material costs and stiff customer resistance to price increases. Meanwhile, to enhance efficiency and effectiveness, many firms are outsourcing some functions that were traditionally performed within the organization. As a result, at companies around the world, CEOs are counting on procurement function to keep their business strongly positioned in today's intensively competitive marketplace.
Marketing Strategic Considerations (Strategic Priorities in Procurement)
Attention centers on corporate goals and how procurement can help their internal customers achieve these goals; Purchasers taking strategic perspective select FEWER carefully chosen suppliers for close relationships...procurement managers are also giving increased emphasis to suppliers' capabilities, exploring new areas where strategic supplier can add value to the firm's product or service offering. Marketers need to develop strategic alliances - becoming part of customer's business AND supply chain
Procurement Manager's Toolkit (3)
1. Calculating the Total Cost of Ownership of an acquired g or s 2. Segmenting purchase categories to isolate those that have the greatest impact on firm performance 3. Deploying E-Procurement processes
Total Cost of Ownership (TCO)
considers the FULL range of costs associated with the purchase and use of a product or service over its complete life cycle.
Justification example of TCO
a firm can justify buying a higher-quality product and paying a premium price because the initial purchase cost will be offset by fewer manufacturing defects, lower inventory requirements, and low administrative costs.
TCO determines better __________
Three different types of costs are considered by the org customer in a total cost-in-use calculation
include not only the selling price and transportation costs but also the admin costs of evaluating suppliers, expediting orders, and correcting errors in shipments or delivery.
include financing, storage, inspection, taxes, insurance, and other INTERNAL handling costs
those associated with ONGOING use of the purchased product such as installation, employee training, user labor, field repair as well as product replacement and disposal costs
Marketer's Response to TCO Value-based selling tools
Shift the discussion from prices and single purchase to a longer-term relationship built on value and lower total cost-in-use. Develop strategies that offer customer a lower TCO. Document (prove) these savings with current customers. Develop case histories (success stories) to use to attract new customers
Buyers Segment their Buy (Segmenting purchase categories)
trend for customers to segment their buy and particularly scrutinize purchases in certain categories; procurement complexity; effect on corporate performance and revenue (perception of quality among their customers, impact on brand)
Marketers' Response Strategy (Segmenting)
varies by industry and product; determine how your product is viewed by customers regarding value and revenue impact
Marketers' Response Strategy to high impact (strategic) products
attempt to create synergy with customer's corporate strategy; If business marketer can become a central component of the customer's supply chain, the effect is even more significant: a valuable, long-term relationship in which the customer views the supplier as an extension of its organization.
Marketers' Response to low impact (less strategic) products
centers on providing a complete product assortment, competitive pricing, timely service support and simplified ordering.
purchasing managers use the internet to find new supplies, communicate with current suppliers or place an order.
Benefits to buyer from E-Procurement
cut purchasing cycle time in half; reduce material cost by 14%; reduce purchasing administrative costs by 60%; help identify new supplies on a global scale
involves one buyer who invites bids from several prequalified suppliers who face off in a dynamic, real-time, competitive bidding process; price goes down until no seller will lower the price more
Benefits to Buyer in Reverse Auction
cost savings, efficient way to buy
Potential Disadvantages in Reverse Auctions
Can inflict damage on supplier relationships and that the realized savings are often overstated; lower price might mean lower quality
Best use for Reverse Auctions
Commodity-type items such as purchasing materials, diesel fuel, metal parts, chemicals and many raw materials (can't differentiate between supplies, only focus is low price)
Strategic Approach to Reverse Auctions (3)
1. Attempt to preempt the auction- convince the buyer not to use the auction because you have a unique value proposition and are not likely to join the auction. 2. Manage the Process - influence bid specifications and vendor qualification criteria in ways favorable to you 3. Walk Away - simply refuse to participate
A strategic approach to reverse auctions, then, defines success as ...
winning only those bids that are profitable and that do not undermine pricing for other products or for other customers
Organizational Forces and Growing influence of purchasing
As more companies do more outsourcing, procurement has become more important; purchasing may be centralized or decentralized; each requires different marketing strategies
When purchasing is Centralized...
a separate organizational unit has authority for purchases at a regional, divisional, or headquarters level; made easier by internet and real-time tracking software; buyers SPECIALIZE and become expert in certain purchases; better coordination of materials purchases; allows volume (quantity) savings; coordinates purchase and corporate strategies
When purchasing is decentralized...
each location can make their own decision; gives local control and allows local branches to purchase what they need; makes sense for many kinds of products and services; e.g. Stop and Shop buys products from local farmers.
A marketer who is sensitive to organizational influences can...
more accurately map the decision-making process, isolate buying influentials, identify salient buying criteria, and target marketing strategy for centralized buyers.
many companies ___________ centralized and decentralized purchasing depending on what is being purchased
Decentralized most likely used for...
smaller, one-time, budget items that are under budget thresholds
Centralized most likely used for...
larger capital items, repeat items
Marketer's Response to Centralized Purchasing - Key Account Management
enterprise-wide initiative to develop strategic relationships with a limited number of customers in order to achieve long-term, sustained, significant, and measurable business value for both the customer and the provider.
Marketer's Response to Centralized Purchasing - Global Account Management
treats a customer's worldwide operations as one integrated account, with coherent terms for pricing, service, and product specifications (similar to key account mgmt but for large, multinational organizations)
members from different functions of buying organization form work team for a specific purpose
individuals who participate in the purchasing decision and share the goals and risks arising from the decision. Most common participant is purchasing dept. Usually cross-functional group with individuals playing different roles; size 1-20 individuals, typically 4 or more.
the personnel who use the product in question; may have anywhere from inconsequential to extremely important influence on the purchase decision; in some cases, this person initiates the purchase action by requesting the product; they may even develop the product specifications; they decide how the purchase will affect job performance
Focus when dealing with the User
Focus on the performance of the product and its impact that it could make on their job performance
control information to be reviewed by other members of the buying center; they may do so by disseminating printed information, such as advertisements, or by controlling which salesperson speaks to which individuals in the buying center; easy access to all members Ex: the purchasing agent might open the gate to the buying center for some sales personnel and closing it to others.
Focus when dealing with Gatekeeper
express the value of your information to the entire organization; express your respect for the time of the buying center
to evaluate and eliminate poor alternatives; they check quantifiable aspects of product and service; supply information for the evaluation of alternatives or by setting by setting specifications; technical depts, like engineering, quality control, R&D have signif. influence on the purchase decision.
Focus when dealing with Influencer
Focus on product specifications
actually make the buying decision; gives FINAL approval; has power to release money and power to veto; whether or not they have the formal authority to do so, they make the decision. Could be a design engineer who develops a set of specifications that only one vendor can meet.
Focus when dealing with Decider
Focus on the BOTTOM LINE of TOTAL organization and how it will benefit them overall
Administers decision often made by others; has the formal authority to select a supplier and implement all procedures connected with securing the product (depends on price threshold); more powerful members of the org. often have this position; their role is often assumed by the purchasing agent, who executes the admin functions associated with a purchase order; this person can sign the contract and negotiate price
Focus when dealing with the Buyer
Focus on price, contract details and making their admin. tasks easier for them
Questions Industrial Salesperson Needs to Have Answered
1. Who are the members of the buying center? 2. What is each member's relative influence in the decision (who has the power and when?) 3. What criteria are most important to individual members in the evaluation process?
Each member of the buying center has...
a unique personality, a particular set of learned experiences, a specified organizational function, and a perception of how best to achieve both personal and organizational goals; professional marketers learn to adapt behavior and message depending on the individual buyer
B2B purchasing is a rational process, but ...
don't forget about emotional motives of buyer...respect, approval, power, recognition
specifications that organizational buyers use to compare alternative industrial products are services; however, these criteria may conflict.
Eval criteria of industrial product USERS...
prompt delivery and efficient serving, improved job performance
Eval criteria of engineering
product quality, standardization and testing
Eval criteria of purchasing
maximum price advantage and economy in shipping and forwarding
individuals tend to accept communication messages consistent with their existing attitudes and beliefs. For this reason, a purchasing agent chooses to talk to some salespersons and not to others
individuals filter or screen incoming stimuli to admit only certain ones to cognition. Thus, an organizational buyer is more likely to notice a trade advertisement that is consistent with his or her needs and values
Individuals tend to interpret stimuli in terms of their existing attitudes and beliefs. This explains why organizational buyers may modify or distort a salesperson's message in order to make it more consistent with their predispositions toward the company
individuals tend to recall only information pertinent to their own needs and dispositions. An organizational buyer may retain information concerning a particular brand because it matches his or her criteria.
Perceived Risk includes 2 components
1. Uncertainty about the outcome of a decision and 2. the magnitude of consequences from making the wrong choice.
Individual decision making is likely to occur when...
organizational buying for straight rebuys and for modified rebuys when the perceived risk is low*
If there is uncertainty about the outcomes of a decision (when confronting "risky" purchase decisions) then the buying strategy is...
buying center becomes LARGER and comprises members with high levels of organizational status and authority; the info search is active and a wide variety of info sources are consulted; sellers who have a proven track record with the firm are favored--choice of familiar supplier helps reduce perceived risk.