IM 9e pp CH02

Chapter Two The Business Market: Perspectives on the Organizational Buyer

Developed by Cool Pictures and MultiMedia Presentations

Copyright 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Commercial Enterprises

Includes Manufacturers Construction Service firms Transportation Professional Resellers



Industry & Size Agriculture Agriculture and allied sectors like forestry, logging and fishing accounts for 25% of the GDP. It employs almost 58% of the total work force. It is the largest economic sector and plays a significant role in the overall socio-economic development of India. Industry Index of industrial production which measures the overall industrial growth rate was 10.1% in October 2004 as compared to 6.2% in October 2003. The largest sector here holds the textile industry. Automobile sector has also demonstrated the inherent strength of Indian labor and capital. The three main sub sectors of industry viz Mining & quarrying, manufacturing, and electricity, gas & water supply recorded growths of 5%, 8.8% and 7.1% respectively. Services It has the largest share in the GDP accounting for about 56% in 2005. Business services, communication services, financial services, community services, hotels and restaurants and trade services are among the fastest growing sectors. Distribution by size Small manufacturing firms with different needs Ex: FedEx strategy for small shipper market

Large firms with large volume



Manufacturers & Geography

Important implications: First, can concentrate marketing efforts Second, with distribution centers in large volume areas rapid delivery is possible



Purchasing Function Goals Address the needs of business customers of all types. May have to juggle different, clashing objectives.

Purchasing Goals



The supply chain of McNuggets McDonalds reduced the cost of chicken? How various feed mix affect weight gain in response to changing food price? Coordinated its Supply chain from hatchery to processors and to restaurants. McDonalds orders to hatchery to place eggs in anticipation of sales forecast for chicken products that a supplier can confidently places the eggs in the hatcheries 75 days before McDonalds expects to sell the chicken as McNuggets.



Total Cost Considerations of aProduct or ServiceFactors that drive total cost. Acquiring and managing costs. Quality, reliability over the life cycle. Value of product to firm/customers. The total cost of ownership



Firms operate at different levels of development and emphasize different pathways to cost reduction and revenue enhancement.

Levels of Procurement Development and Pathways to Savings/Revenue Enhancement





Value ( consume better)? Process improvement Ex: a tool takes 10 hours to paint a device but a new tool takes only 3 hours. Complexity mgt. Motorola used 140 different batteries for its cell phones. The co. realized the cost saving by reducing the number to 30. Sell better Ex: infrastructure investment by a firm and purchasing involved.Developed by Cool Pictures and MultiMedia Presentations Copyright 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Segmenting Purchase Categories1st Point, each firm has a unique portfolio. 2nd Point, more attention on purchases having the greatest impact on revenue generation or the greatest risk to performance.

Segmenting the Buy



A reverse auction is an online bidding process which allows vendors to bid as often as they wish during the auctioning period. Three or more vendors should be available to participate in a reverse auction.



Reverse auctions are secure, web-based, downward price auctions during which pre/post-qualified suppliers lower their prices real-time for Government products. Reverse auctions are relatively new to the Federal government. This procurement, bidding, and e-Gov tool appears to be best suited to buying a large volume of simple, welldefined, or standardized commodities. However, reverse auctions are consistent and compatible in making best value awards. During an auction, bidders are aware of when the prices change; however, they do not know the names of their competitors. The dynamic competition inherent in reverse auctions has resulted in pricing that is closer to that of the true market. On average, reverse auctions result in a 10% to 24% price reduction over that of traditional pricing methods.



Reverse auction One buyer who invites bids from several prequalified suppliers. Used in automobiles, electronics, aerospace, and pharmaceutical industries. Best suited for the commodity type items like purchasing materials Not appropriate for strategic relationships where suppliers have specialized capabilities and are a few in number to provide the quality and performance standards.Developed by Cool Pictures and MultiMedia Presentations Copyright 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

How Harley- Davidson does cost saving? A company recognized as world class purchasing organization Implemented a 5 years cost improvement program with suppliers that reduced the cost of purchase from $86 million to $57 million annually JIT inventory Supplier relationship and reduced the new product development time Supplier involvement ( on site supplier representative) Quality targets for suppliers ( 48 parts per million)



Two Types of Contracts1. Fixed-price contracts A price is agreed to before contract is awarded and payment is made at conclusion of work. Provides for the greatest profit potential. Poses greater risks. 2. Cost-reimbursement contracts Reimbursement for allowable costs may be allowed; sometimes cost-plus contracts allow costs and certain percentage of profit.



Two Procurement Strategies1. Formal Advertisingthe government solicits bids from suppliers, and usually the lowest bidder is awarded the contract. 2. Negotiated Contractused to purchase products or services that are not differentiated on price alone, competition is common.



The Institutional Market

Schools, health care organizations, non-profit agencies prefer to local vendors. Similar to commercial buyers--often managed like corporations--broad range of purchase requirements. Group purchasing quite common.



Discussion A small manufacturer developed a new high speed packaging system that could be appealing to food processing firms. This new system is far more efficient but must be priced 15% higher than the competitors products. Because purchasing manager evaluate the total cost of ownership of major purchases, what selling points should the business marketers emphasize to demonstrate the superiority of this product?Developed by Cool Pictures and MultiMedia Presentations Copyright 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Discussion -2 Consumer products are frequently classified as convenience, shopping and specialty goods. This classification is based on how consumers shop for a particular products. Would this classification apply equally well in the business marketing?



Q-1 Market-driven firms spot market changes and react well in advance of their competitors. This illustrates: a.the customer-linking capability of market-driven firms. b.the value proposition of market-driven firms. c.the market-sensing capability of market-driven firms. d.the value of using direct channels of distribution in the business market. e.both (b) and (c).



Q-2 The particular skills, abilities, and processes that an organization has developed to manage close customer relationships are referred to as: a.the customer-linking capability. b.channel management. c.derived demand. d.the market-sensing capability. e.the extended enterprise.



Q-3 Dayco increased the price of the drive belts that it sells to General Motors by 5 percent and sales of the item grew by 9 percent. Price elasticity of demand for drive belts appears to be: a.elastic. b.inelastic. c.neither elastic nor inelastic. d.sensitive to price changes. e.none of the above.Developed by Cool Pictures and MultiMedia Presentations Copyright 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Q-4 When purchasing a high speed packaging machine, General Foods would be classified as: a.an original equipment manufacturer. b.a user. c.a distributor. d.a dealer. e.an institutional buyer.



Q-5 Concerning the chain of suppliers involved in the creation of a Honda automobile, which of the following fall within the business marketing domain? a.Honda purchasing power steering components from direct suppliers. b.Direct suppliers of power steering systems purchasing sheet metal from upstream suppliers. c.Organizations purchasing Honda automobiles for their fleets. d.all of the above. e.(a) and (b) only.Developed by Cool Pictures and MultiMedia Presentations Copyright 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Q-6 Mead Paper Company recently purchased a new highspeed paper machine for one of their plants. The new machine is used in manufacturing a special grade of paper at a rate of over 1500 feet per minute. This product would be classified as: a. a facilitating good. b. an entering good. c.accessory equipment. d. an installation. e. none of the above.



Q-7 The use of law firms or advertising agencies by business marketers constitutes what type of industrial good? a. Facilitating goods. b. Entering goods. c. Foundation goods. d. Installations.



Q-8 The business market consists of the following three components: a.commercial enterprises, resellers, and government. b.manufacturers, institutions, and defense. c.manufacturers, service organizations, and government. d.commercial enterprises, service organizations, and government. e.commercial enterprises, institutions, and government.



Q-9 Ferro Corporation developed a new coating process that allows Maytag to paint a refrigerator cabinet in ten minutes, compared to the old process that took three hours. This provides an illustration of the benefits that can be derived by: a.value analysis. b.marginal analysis. c.volume analysis. d.program analysis. e.vendor analysis.Developed by Cool Pictures and MultiMedia Presentations Copyright 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Q-10 Which of the following statements about the institutional market is most accurate? a.Institutional buyers fall somewhere between commercial enterprises and government buyers in terms of their characteristics, orientation, and purchasing process. b.Institutional buyers seldom follow established and rigid purchasing procedures like their counterparts in commercial enterprises or government. c.Institutional buyers are free from the political and legal constraints that encircle government procurement. d.Institutional buyers emphasize price considerations more than government buyers. e.Institutional buyers seldom have a specialized purchasing function in their organizations.



Documents

IM 9e pp CH02