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7.0 Introductory Case Study
7.1 Who is the Customer ?
7.2 How Organisations Make Purchase Decisions
7.2.3 Marketing Implications of Different Organisational Purchasing Situations



Content



  1. ^ six categories of industrial goods and services can be identified
  2. ^ The supply of most natural products is limited
  3. ^ those producers have been nationalised
  4. ^ the power to limit supplies and administer prices
  5. ^ Distribution channels for natural materials tend to have few middlemen
  6. ^ the distribution channels for most agricultural materials involve many middlemen
  7. ^ little promotional activity for agricultural products
  8. ^ branding of the products is less important
  9. ^ components are usually sold directly without a middleman
  10. ^ just in time management of stocks
  11. ^ objectives of the just in time inventory management system
  12. ^
    • JIT system is costly to set up and cannot be effectively implemented without
    a continuing and close working relationship between buyer and seller.
  13. ^ sellers must provide some engineering and design services before making a sale.
  14. ^ presale and postal service requirements are substantial
  15. ^ a)there are many different types of potential customers scattered around the country,
    b) the average order size is small, and
    c)the product does not require much technical service, for instance, Black and Decker hand tools)
  16. ^ advertising
    promotions
    company web sites
  17. ^ purchased before they can be evaluated by the su customer
  18. ^ price is less important
  19. ^ personal selling and negotiations are important in business services area
  20. ^ for once a relationship is established between a service supplier and a customer, it tends to be maintained over a long time,





Organisational buying processes tend to vary dramatically depending on whatis being bought.

Different types of goods and services require sellers to employvarying marketing strategies and actions to be successful in organisational markets.
Marketers commonly classify industrial goods according to the uses made of the product by organisational purchasers.

With this in mind, [1] six categories of industrial goods and services can be identified: raw materials, component materials and parts, installations, accessory equipment, operating supplies, and businessservices.

Exhibit 7.7 describes these categories and their major characteristics and marketing implications.----
7.3.1 Raw MaterialsRawmaterials are goods receiving little or no processing before they are sold, exceptwhat is necessary for handling and shipping. Purchased primarily by processorsand manufacturers, they are inputs for making other products. The two types ofraw materials are natural products (fish, lumber, iron ore, and crude petroleum)and farm products (fruits, vegetables, grains, beef, cotton, and wool). Processorsand manufacturers purchase nearly all natural products and about 80 per cent ofall farm products. Retailers or consumers buy the remaining 20 per cent directlywithout any processing.Implications for Marketing Decision MakersThe supply of most natural products is limited; in recent decades, there have beensome shortages. Often only a few large firms produce particular natural products,and in some countries those producers have been nationalised. These supply conditionsgive producers the power to limit supplies and administer prices, as with theOrganisation of Petroleum Exporting Countries (OPEC). Such supply conditionsencourage processors and manufacturers to seek ways to ensure adequate suppliesfor the future by negotiating long-term purchase contracts (often at premiumprices) or by purchasing the raw materials sources. For example, many large steelmanufacturers own iron ore mining and processing operations.Natural materials are generally bulky and lowin unit value; therefore, producerstry to minimise their handling and transportation costs. Distribution channels

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7.3.1 Raw MaterialsRaw materials are goods receiving little or no processing before they are sold, exceptwhat is necessary for handling and shipping. Purchased primarily by processorsand manufacturers, they are inputs for making other products. The two types ofraw materials are natural products (fish, lumber, iron ore, and crude petroleum)and farm products (fruits, vegetables, grains, beef, cotton, and wool). Processorsand manufacturers purchase nearly all natural products and about 80 per cent ofall farm products. Retailers or consumers buy the remaining 20 per cent directlywithout any processing.Implications for Marketing Decision Makers[2] ; in recent decades, there have beensome shortages. Often only a few large firms produce particular natural products,and in some countries [3] those producers have been nationalised.

These supply conditions give producers[4] the power to limit supplies and administer prices, as with theOrganisation of Petroleum Exporting Countries (OPEC).

Such supply conditions encourage processors and manufacturers to seek ways to ensure adequate supplies for the future by negotiating long-term purchase contracts (often at premiumprices) or by purchasing the raw materials sources. For example, many large steel manufacturers own iron ore mining and processing operations.Natural materials are generally bulky and lowin unit value; therefore, producerstry to minimise their handling and transportation costs.

[5] Distribution channels for natural materials tend to have few middlemen; most materials are marketed directly to processors and manufacturers.

The marketing problems associated with natural products are quite different fromthose of agricultural products, which are produced by many relatively small farmslocated far from consumer markets.
Also, many of these products are produced seasonally.
Thus, [6] the distribution channels for most agricultural materials involve many middlemen who buy products froma large number of farmers, collect them in a central location (such as a grain elevator), and store them for shipment throughout the year to processors and exporters.

Since there is little difference among the products grown by different farmers, branding is relatively unimportant.

There is[7] usually little promotional actitvity year to processors and exporters. Since there is little difference among theproducts grown by different farmers, [8] branding is relatively unimportant.

There is usually little promotional activity, except for cooperative advertising campaigns funded by trade groups to stimulate primary demand for a product.

An example is a promotional campaign to persuade health-conscious adults to drink more milk.vity, except for cooperative advertising campaigns funded by trade groups to stimulate primary demand for a product.
An example is a promotional campaign to persuade health-conscious adults to drink more milk.



7.3.2 Component Materials and Parts
As with raw materials, component materials and parts are purchased by manufacturersas inputs for making other products.

Component materials differ, though, in that they have been processed to some degree before they are sold (for instance,flour bought by a baker).

Component parts are manufactured items assembled as part of another product without further changes in form (electric motors for washing machines, batteries for new cars).
Implications for Marketing Decision Makers
  • Manufacturers buy most component materials and parts in large quantities;
  • therefore, [9] they are usually sold direct, without the use of middlemen.
  • However, wholesale distributors sell to smaller manufacturers in some lines of trade.
  • To avoid disrupting production runs, sellers must ensure a steady, reliable supply
of materials and parts, especially when a [10] JIT management system is being usedby the buyer.
  • [11] This system’s objective is to eliminate inventories at the customer’s
manufacturing site, which requires the delivery of 100 per cent quality (zero-defect)products.
  • This relieves the customer of any incoming inspection.
  • A vendor’s failure on quality or delivery can close a customer’s operation so the resulting penalties
are usually severe.
A [12] JIT system is costly to set up and cannot be effectively implemented without
a continuing and close working relationship between buyer and seller.

  • This may explain why a growing proportion of the purchases of component materials and
parts, particularly in situations where the components are standardised and thebuyer is able to specify all requirements in detail, are being made through electronicbuyer auctions such as FreeMarkets, Inc.22 (www.freemarkets.com).
  • Competitive bidding by suppliers can provide some of the cost saving benefits of JIT systems
without the time and effort necessary to build close cooperation.----


7.3.3 Installations
Installations are the buildings and major capital equipment that manufacturersand service producers use to carry out their operations. They are expensive andlong-lived; examples are factory buildings constructed for a manufacturer, officebuildings built for government agencies, computers and presses used by an automobilemanufacturer, and airplanes purchased by Ryan Air.

The marketing of installations presents a real challenge because there are fewpotential customers at any one time, and the average sale is very large.
Many installations are custom-made to fit a particular customer’s needs; therefore,[13] sellers must provide some engineering and design services before making a sale.
Often along period of negotiation precedes the final transaction.
Firms selling installationsmust usually provide many postsale services, such as installing the equipment,training the customer’s personnel in its use, providing maintenance and repairservices, and sometimes financing.Because of the small number of buyers, the large dollar volume of each sale, andthe custom engineering involved, distribution is usually direct from producer tocustomer. Sometimes wholesale distributors provide replacement parts and repairservices for equipment already in operation. For similar reasons, promotionalemphasis is usually on personal selling versus advertising. High-caliber, welltrainedsalespeople are critically important in the marketing of installations.


As with installations, accessory equipment includes industrial machines and toolsthat manufacturers, services producers, and governments use to carry out theiroperations. The difference is that although installations determine the scale ofoperations of the firms that buy and use them, accessory equipment has no suchimpact since it consists of tools and machines with relatively short lives and smallprice tags. They consist of such goods as personal computers, desks, file cabinets,and hand tools.


Implications for Marketing Decision Makers
Because this product category includes a wide range of specific items, it is hard togeneralise about the most common or appropriate marketing strategies for accessoryequipment.
In some cases, as with Hyster forklifts and Xerox office equipment,the producers sell accessory equipment directly.
Their [14] presale and postsale service requirements are substantial, but the dollar value of the average sale is highenough to justify direct distribution.
[15] When there are many different types of potential customers scattered around the country, the average order size is small, andthe product does not require much technical service, (for instance, Black and Decker hand tools).

Web-based catalogue sites, such as Commerce One (www.CommerceOne.com), are also becoming increasinglyimportant in this category.
Personal selling, either by the producer’s or a distributor’s salesforce, remains the most important promotional method for accessory equipment, but because most products in this category are standardised and not technically complex,[16] advertising,brand name promotions, and company websites are also important

Operating supplies
do not become a part of the buyer’s product or service, nor are they used directly in producing it.
Instead, these supplies facilitate the buying organisation’s day-to-day operations.
They are usually low-priced items purchased frequently with a minimum of decision-making effort. Examples include heating fuel, floor wax, typing paper, order forms, paper clips, and pencils.

Implications for Marketing Decision MakersThese supplies are purchased in small quantities by many different organisations,so wholesale middlemen, including those with extensive websites such as OfficeDepot, are typically used to distribute them.
Price is usually the critical decision variable, and there tends to be little brand loyalty.
----
Business Services

Many business services producers, or facilitating agencies, have special areas ofexpertise used and paid for by other organisations. These include security andguard services, janitorial services, equipment repair services, public warehouses,transportation agencies, consulting and marketing research services, advertisingagencies, and legal and accounting services.


Implications for Marketing Decision Makers
Services are intangible and [17] are purchased before they can be evaluated by the buyer.Thus, the supplier’s qualifications, past performance, and reputation become criticaldeterminants of the success of the marketing effort.
[18] Price is less important in selling business services because a lawyer or consultant with an outstandingreputation can often charge much more for a given service than one who is less well known.

Also, price often serves as an indicator of quality, especially when there are no other quality cues.

Because services are often tailored to the specific needs of a given customer[19] , personalselling and negotiation are important elements in most services producers’ marketing programs.

This selling is often done by high-level executives in the service producer’s organisation.

The negotiation process can be lengthy; for instance, an ad agency team spends months developing proposals and making presentations to a prospective client before finding out whether it has landed the new account.
This selling task is often worth the effort, though,[20] for once a relationship is established between a service supplier and a customer, it tends to be maintained over a long time, as in the case of Exel and Océ. Many companies employ the same law firm, advertising agency or logistics services firm for years or even decades

Tags
  1. client contact systems
  2. collector bias
  3. competitive advantage
  4. competitive intelligence
  5. computerised reorder system
  6. consumer behaviour
  7. data sources
  8. evidence based forecast
  9. experienced user
  10. internal records
  11. just in time
  12. logistical alliance
  13. market potential
  14. market segmentation
  15. market segments
  16. marketing program
  17. marketing research
  18. mass market
  19. mass market strategy
  20. michelin; us west;
  21. micro segmentation
  22. middleman
  23. modified rebuy
  24. multi-functional sales teams
  25. multilevel selling
  26. multiple buying
  27. multiple level relationships
  28. mutual trust
  29. narrow market segment
  30. narrow niche
  31. nationalisation of producers
  32. nerve center
  33. new task buy
  34. nine west group
  35. observation;direct observation' tanzania mobile;
  36. on-time delivery
  37. opportunity; research
  38. order handling
  39. organisation market
  40. organization marketing behaviour
  41. organizational behaviour
  42. organizational customers
  43. organizational demand
  44. organizational market
  45. organizational purchasing behaviour
  46. organizational purchasing process
  47. paperless exchange
  48. parity pricing
  49. personal selling
  50. personal use
  51. political risk
  52. potential market; penetrated market
  53. pre-delivery inspection
  54. pre-sale service
  55. prestige buyer
  56. pretender
  57. primary data
  58. procurement costs
  59. purchasing criteria
  60. qualitative data
  61. qualitative research
  62. quality assurance
  63. quality standards
  64. quantitative data
  65. quantitative research
  66. research objectives
  67. retention programme
  68. routine purchase
  69. sales forecast
  70. semantic differentiation scale
  71. sequence of information
  72. shared costs
  73. short term contracts
  74. social construction
  75. status oriented consumers
  76. stock availability
  77. straight rebuy
  78. supplier bargaining power
  79. supplier performance
  80. supplier reputation
  81. survey
  82. tabulation errors
  83. tanzania mobile
  84. target customers
  85. target market
  86. target marketing
  87. technical experts;
  88. test markets
  89. transaction cost
  90. trend forecasting
  91. trusting patron
  92. underlying consumer demand
  93. unethical demands
  94. unstated but implicit assumptions
  95. users
  96. value analysis
  97. value shopper
  98. vertical integration
  99. visceral thing that cannot be trained
  100. wild guess