Organizational Marketing

Industry
It is a group of firms that offer a product or class of products that

are close substitutes for each other.

Kotler

The commercial production and sale of goods and services. A specific branch of manufacture and trade.

The Heritage Illustrated Dictionary of English Language

Industrial Marketing
The marketing of products and services to commercial enterprises, government bodies, and other organs, either for resale to other industrial consumers or for use in the production of their own product or service.

Business to Business Marketing

Marketing activities of any kind of organisation, public or private, which has exchange relationships with other organisations.
Peter W. Turnbull

Type of Organizational Markets

Reseller Institutional Producer Government Raw material and Semi-processed Manufactured materials and parts Capital goods Services

Classification of Industrial Goods

Major Segmentation Variables for Business Markets

1. DEMOGRAPHICS
Industry Company size Location

User/Nonuser status Technology Customer capabilities

2. OPERATING VARIABLES

3. SITUATIONAL FACTORS

Specific application Urgency

Size of order

Major Segmentation Variables for Business Markets

4. PURCHASING APPROACHES
Purchasing function organization

Power structure
Nature of existing relationships General purchase policies Purchasing criteria

5. PERSONAL CHARACTERISTICS

Buyer-seller similarity

Attitudes towards risk

Loyalty

20 Features of Marketing in Organizational Markets

1 2 3 4 5 6 7

Derived nature of demand Means and timing of payment Expertise and bargaining power of customers Fewer customers Larger orders Direct selling Negotiability of terms of purchase and supply

Negotiations
Recognizes the fact that the parties are in a bargaining situation of strategic interaction and that cooperation can increase the total value of the interaction rather than maximizing individual shares

Negotiations
I win, you win
Competition - value to individuals vs Cooperation - total value to themselves

Competing

Collaborating

Compromising

Avoiding

Accommodating

Partys Attempt to Satisfy others Concern

Day, Michaels & Purdue Industrial Marketing Management 17 (1988).

 Competing: Desire to win ones own concern at

the other partys expense.

ones own.

Accommodating: Desire to satisfy others concerns without attending to

Collaborating: Desire to fully satisfy the concerns of both parties.

Avoiding: Exerting an attitude of indifference to the concerns of either party. Compromising: Desire to reach an expedient, mutually acceptable agreement,

satisfaction for either.

short of total

20 Features of Marketing in Organizational Markets

8 9 10 11 12 13 Regulation of the purchasing process Professionalism of purchasing Complexity of the purchasing decision process Significance of technical specifications Importance of organizational and personal relationships Reputation of suppliers and customers

20 Features of Marketing in Organizational Markets

14 15 16 17 18 19 20 Importance of suppliers financial and competitive strength Importance of repeat purchase flow to all parties Importance of delivery arrangements Perception of risk to organizations and careers Flexibility of suppliers in dealing with customers Collaboration between suppliers and customers Reliability and quality of goods or services
Dominic Wilson

Ten Stages in the Procurement Process

1. Perception of Need - proactive or reaction to internal / external stimuli 2. Analysis of Need - internal technical & operational assessment (including
linkages)

3. Specification Setting - (technical, delivery quantity, frequency, quality,

packaging, design, etc.)

4. Identification of sources (word of mouth, research, consultancy, call for

tenders, long/short lists) checks

5. Evaluation of Offerings prototypes, trials, site visits, references, rupee

Ten Stages in the Procurement Process

6. Negotiation over Terms - bargaining with short-listed finalists

7. Selection of Supplier decision, feedback and fallback arrangements 8. Delivery & Payment - receipt, inspection, storage, form and timing of

payment, variance causes, etc. 9. Performance Evaluation of need resolution, performance of product and supplier and relationship 10. Review - periodic review of arrangements due to changed circumstances and strategies

The Buy-Grid Model

Buy phases
1 2 3 4 5 6

Buy classes
Straight rebuy
Yes No No No No No

Modified rebuy
Yes Maybe Maybe Maybe Maybe Maybe

New task
Yes Yes Yes Yes Yes Yes

Perception of Need Analysis of Need Specification Setting Identification of sources Evaluation of Offerings Negotiation over Terms

7 8
9 10

Selection of supplier Delivery & Payment

Performance Evaluation Review

No No
Yes Yes

Maybe Maybe
Yes Yes

Yes Yes
Yes Yes

(adapted from Robinson et al)

The Buying Center or Decision Making Unit

The Buying Center or Decision Making Unit

A buying center (or DMU), in marketing, procurement, and organizational studies, is a group of employees, family members, or members of any type of organization responsible for finalizing major decisions, usually involving a purchase.

Roles in a DMU
1. Initiator who suggests purchasing a product or service.

2. Influencers who try to affect the outcome decision with their

3. 4. 5.

6.

opinions. Deciders who have the final decision. Buyers who are responsible for the contract. End users of the item being purchased. Gatekeepers who control the flow of information.

Vendor Analysis & Value Analysis

Value Analysis
An analytical procedure to study the costs versus the benefits of a

currently purchased material, component, or design in order to reduce the cost/benefit ratio as much as possible. It is also called value engineering.

"Can the cost of this part, this subassembly, or this step be reduced in any way, or even eliminated?"

Vendor Analysis
The rating by a buying organisation of all possible suppliers

of a product on a scale to select the most appropriate; also referred to as Vendor Rating.

Vendor Analysis 7 Cs
Competencymanagerial, technical, administrative, and professional competence of the

supplying firm. Capacitysupplier's ability to meet physical, intellectual and financial requirements. Commitmentsupplier's willingness to commit physical, intellectual and financial resources. Controleffective management control and information systems. Cash resourcesfinancial resources and stability of the supplier. Profit, ROI, ROE, assetturnover ratio. Costtotal acquisition cost, not just price. Consistencysupplier's ability to exhibit quality and reliability over time.

Make-or-Buy Decision (Outsourcing)

Make-or-Buy Decision
The make-or-buy decision is the act of making a strategic choice

between producing an item internally (in-house) or buying it externally (from an outside supplier).

The buy side of the decision also is referred to as outsourcing. Make-or-

buy decisions usually arise when a firm that has developed a product or part is having trouble with current suppliers, or has diminishing capacity or changing demand.

Original Equipment Manufacturer

Original Equipment Manufacturer

An OEM (original equipment manufacturer) is a company that uses product components

from one or more other companies to build a product that it sells under its own company name and brand. sector that your competitor already owns (perhaps because they have an existing customer base) and that you can be a more efficient producer because you sell and manufacture more of your product. adding features or using different selling concepts.

Arguments for selling to an OEM are that you may be able to make money from a market

Frequently, an OEM company differentiates itself from the company it buys parts from by

Reciprocity

Reciprocity
Each party is both a buyer from and a seller to the other party

The Marketing Mix in Organizational Markets

and service emphasis Price: negotiation over terms, make/buy decisions, discounting for scale or prestige of order, reciprocity and role of leading customers Promotion: direct sales force, key decision influencers, trade advertising, direct marketing, supplier reputation, contract process, source approval process and trade shows Place: delivery procedures, inventory implications, just-in-time implications and special handing People: key decision influencers, long-term relationship, sales staff and management problems

Product: quality, reliability specifications, design, product development, customization,

Selected Differences Between Markets Consumer

Segmentation
Dispersed mass markets Few buyers

Industrial

Stress on demographics & psychographics Emporographic grouping & reciprocity

Decision making

Unobservable mental stages

Few decision makers - informal buying

Distinct observable stages

More DMUs - formal and complex process. Technology-push Customization Personal selling, rational and verifiable message for different functional DMUS

New Products Promotion

Demand-pull Incremental Innovation Mass media, simple standard message highly exaggerated and abstract images

Selected Differences Between Markets

Consumer Channels Service Pricing
Indirect and multiple Limited service Discrimination on customer selfselection List prices

Industrial
Fewer and direct. Elaborate pre, during and after sales service Discrimination on buyers price sensitivity & value Competitive bidding and negotiations Constant evaluation on customer acquisition cost & life time value

Monitoring & Bottomline

Sales, share & profit over period.