L2-Understanding business customers

Understanding Business Customers

  • Organizational Buying Behavior

    • Organizational buying behavior is a process rather than an isolated event.

    • Crucial for identifying profitable market segments and locating buying influences within these segments.

    • Businesses need to understand how buying decisions are made to create effective marketing strategies.

    • Success depends on forming close relationships with customer firms.

Key Concepts

  • Organizational Buying Behavior (OBB)

    • Refers to the decision-making process organizations use to procure goods and services.

  • Total Cost of Ownership (TCO)

    • A financial estimate intended to help buyers and owners assess the direct and indirect costs of a product or system.

  • Buying Center

    • A group of individuals within an organization who participate in the purchasing decision process.

Organizational Buying Behavior

  • Overview

    • Understanding OBB aids in crafting marketing strategies that resonate with organizational buyers.

    • Example: Johnson Controls collaborates with auto manufacturers (Ford, GM, Honda) to enhance product offerings.

    • Focus on environmentally friendly materials and extensive market research to improve customer value.

    • Strong customer relationships can lead to preferred supplier status.

Organizational Buying Process

  • Process Model

    • There are eight steps in the organizational buying process.

    • Decision-making consists of many small, incremental choices that lead to the final supplier selection.

    • Marketing strategies can influence purchasing at the product specification stage.

  • Stages of the Process:

    1. Problem Recognition: Senior management identifies the need for high-speed packaging equipment for a new product.

    2. General Description of Need: Managers define general characteristics of needed equipment.

    3. Product Specifications: Detailed descriptions of technical requirements are developed.

    4. Supplier Search: Potential suppliers are identified to meet requirements.

    5. Acquisition and Analysis of Proposals: Proposals are evaluated and shortlisted.

    6. Supplier Selection: Final negotiations lead to a supplier choice.

    7. Delivery and Installation: Agreement on delivery dates and installations is established.

    8. Performance Review: Evaluation of the supplier’s equipment performance and support after installation.

In-Class Discussion

  • Points of Parity (POPs) and Points of Difference (PODs)

    • POPs: Essential characteristics that align with competitors.

    • PODs: Attributes that differentiate the supplier's offering, providing added value.

    • Importance of good value proposition incorporates both POPs and PODs.

Forces Influencing Organizational Buying Behavior

  • Environmental Forces: Economic outlook, technological changes, global trade relations.

  • Organizational Forces: Goals and strategies related to purchasing; influence of procurement officers.

  • Group Forces: Dynamics within teams influencing buying decisions.

  • Individual Forces: Personal experiences and motivations of buyers.

Organizational Forces

  • Understanding a buyer’s strategic priorities is vital.

  • The role of Chief Procurement Officer (CPO) has shifted to be more strategic, focusing on value beyond just cost savings.

Total Cost of Ownership (TCO)

  • TCO encompasses all costs associated with acquiring and using a product over its lifecycle.

  • Types of Costs in TCO:

    • Acquisition Costs: Purchase price, transportation, evaluation, administrative expenses.

    • Possession Costs: Financing, storage, taxes, handling.

    • Usage Costs: Ongoing operational costs including training and maintenance.

Group Forces & Buying Center

  • Decisions in the buying process involve multiple influences and roles:

    • Users: Personnel who will use the product, initiating requests.

    • Gatekeepers: Control information flow within the buying center.

    • Influencers: Provide information for evaluating alternatives.

    • Deciders: Individuals who make the final buying decision.

    • Buyers: Those with the authority to complete the purchase transaction.

Concluding Remarks

  • The buying process varies based on an organization’s experience and the specific procurement issue.

  • Incremental decisions shape the final supplier outcome, highlighting the need for strategic alignment in purchasing practices.

Topic in Next Meeting

  • Managing Buyer-Seller Relationships: Discussing CRM strategy in business markets.