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Describe the organisational buyer process
- Problem recognition
- General description of need
- determine characteristics needed (eg. new packaging system) - Product specification
- develop detailed and precise description of needed equipment - Supplier search
- identify a range of potential suppliers
- long time on this when product has strong bearing on organisational performance - Acquisition and analysis of proposals
- evaluate alternate proposals (4&5 simultaneous when ordering standardised/low info items) - Supplier selection
- negotiations and choose - Selection of order routine
- delivery date established - Performance review
- after installation, evaluate performance (equipment and service support)
- may continue, modify or cancel agreement
Explain the 3 kinds of organisational buying; their details, buying decisions approaches and strategy guidelines
NEW TASK
- *Details
- problem different to previous experience (extensive problem solving)
- lack of well-defined purchase criteria
- task is new to organisation so new info required
- uncertainty and risk
- current and favoured suppliers initiate purchase process
** Buying decision approaches
= Judgemental new task
- greatest level of uncertainty (technically complex or hard to evaluate alternatives)
- uncertain about model, brand, level of quality and price to pay
- moderate info search, moderate use of evaluation
= Strategy new task
- purchasing decisions of extreme importance financially and strategically
- if buyer perceives rapid pace of technological change surrounding decision, search effort increased over short time frame
- *Strategy guidelines
- Differential advantage by active participation in procurement process
- gather info on problems facing buying organisation, isolate requirements and offer solutions
- competitive advantage if can supply other items
STRAIGHT REBUY
- *Details
- most common (routine problem solving)
- high knowledge and experience of product/suppliers
- info needs and uncertainty lower
- current suppliers have advantage
- buyer-seller r’ship important
** Buying decision approaches
= Casual
- no info search, product of minor importance
= Routine low-priority
- somewhat more important, moderate analysis
- look at alternative manufacturing to check for technological advancements
- repurchased from supplier originally selected
**Strategy guidelines
- routinely select supplier from a list of approved vendors
- made simpler through e-procurement systems
(in supplier -> reinforce relationship, meet expectations and be responsive to changing needs
out supplier -> convince organisation it can derive significant benefits from breaking routine)
MODIFIED REBUY
- *Details
- some change in buying process (limited problem solving)
- some benefit in re-evaluating methods
- different stages of buying process
** Buying decision approaches
- strong emphasis strategic objectives and long-term needs
= Simple modified rebuy
- narrow set of alternatives and moderate amount of info search/analysis
- concentrate on long term relationship potential
= Complex modified rebuy
- large set of choice alternatives and pose little uncertainty
- importance of decision means active info search, needs sophisticated analysis and careful long-term need consideration
- *Strategy guidelines
- in supplier -> make every effort to understand/satisfy procurement need and move decision makers into straight rebuy (reexamine alternatives, ask why and act immediately to remedy problems)
- out supplier -> hold organisation in modified rebuy status long enough for buyer to evaluate alternate offering and offer performance guarantees
What are value-based selling strategies?
Value-based selling strategies
- provide customer with low total cost-in-use
- move selling proposition FROM focus on current price and individual transaction TO long term relationships built on value (low cost-in-use)
- emphasise personal selling rather than advertising to reach potential buyers
Identify the key roles adopted by the buying centre
= individuals who participate in the purchasing decision and share goals and risks arising from the decision (evolves due to information requirements)
**INITIATOR
B - perceives a problem, initiates buying process to solve it
S - aims to initiate, wants to close buyers, existing supplier has advantage
**INFLUENCER
B - affect purchasing decision (provide technical info or other relevant info)
S - needs to identify/communicate with these people
**GATEKEEPER
B - controls info to be reviewed by members of buying group
S - needs to ensure marketing communication gets to all members of buying centre
** DECIDER
B - actually makes buying decision (whether or not authority to do so)
S - marketing communications need to influence all decision markers
** PURCHASER
B - formal authority to purchase products, responsibility to implement/follow all procurement procedures
S - must ensure buying/selling protocols, liaise with buyer
Identify strategy decisions sellers can use to identify and influence the members of a buying centre
- isolate personal stakeholders
- more influence exerted by those with important personal stake
- follow info flow
- influential members of buying centre are central to info flow that surrounds the decision, direct info towards
- *identify experts
- expert power determines influence
** trace connections to the top
- understand purchasing department role
- purchasing is dominant in repetitive buying situations due to technical expertise, knowledge and relationships
How do organisations reduce risk
- increase size of buying centre and include people with high levels of organisational status and authority
- info search is active and wide variety of info sources consulted
- as process unfolds, personal info sources are more important (people who have made similar purchases)
- buying centre participants invest greater effort and more careful during purchase process
- sellers with proven track record are favoured
- product quality and after sales service rated highly
Explain why organisational buyers are reluctant to change suppliers
and what drives value in these relationships
Organisational buyers invest heavily in their relationship with suppliers
- money, people, training, equipment, processes
Changing suppliers means they face switching costs (have to start many of these aspects again), so payback has to be substantial enough to justify
Suppliers of routinely purchased products offer three sources of value creation:
- core offerings
- sourcing process (bring materials)
- customer level of operation
Who are high/low CtS customers? What are strategies for high and low cost to serve customers with high/low net margins and how can you manage unprofitable customers?
High Cost-to-Serve
- order custom products
- order small quantities
- unpredictable order arrivals
- customised delivery
- large companies shipping higher quantities
- require large amounts of presales support
- large amounts of post sales support
- require company to hold inventory
- pay slowly
- integrated collaborative, value adding relationship
- greater discussion about purchases & long term deals
- larger equipment and initial outlay costs required by buyer, greater discretion for supplier to offer packages and loyalty discounts
Low Cost-to-Serve
- order standard products
- order large quantities
- predictable order arrivals
- standard delivery
- smaller companies, less shipping
- transactional-exchange with low complexity
- info and operational assistance minimal
- less price bargaining/deals as lower commitment
- require electronic processing
- little to no pre or post sales support
- pay on time
High CtS & High Net Margin Realised
-> costly to serve but pay $$$
High CtS, Low NMR
->leverage buying power, low price but high customisation = challenging
Low CtS, High NMR
-> product is crucial
Low CtS, Low NMR
-> price sensitive but few special demands
= explore ways to reduce cost of serving customer eg. shift post-sales support online
- direct attention to customer actions contributing to higher selling costs eg. unpredictable buying behaviour, demands on personnel (encourage customer to work more efficiently with firm)
- new customer might initially be high CtS but may end up being highly profitable later
=> if customer resists attempts to convert profitability, may fire
What are the 5 priorities for customer relationship management strategies
- Acquire right customer
- identify most valuable customers
- calculate their share - Craft right value proposition
- determine products customers need now and in the future, compare against competitor offerings
- identify new products to offer - Institute best processes
- research best way to deliver product/service to customers
- determine service capabilities to be developed and technology investments required to implement the strategy - Motivate employees
- identify tools employees need to foster relationships
- earn employee loyalty through training, development and career paths - Learn to retain customers
- established customers buy more
- cost of serving loyal customers declines, less expensive than acquiring new customers
What is a channel of distribution?
links manufacturers and consumers
- completes all activities (incl info) that helps result in sale and delivery incl making contact with buyers, negotiating, servicing the product, financing, transportation and storage
Explain a direct marketing channel and when they would be appropriate
Manufacturer sells directly to consumer by performing all marketing functions and uses own sales force
Includes direct sales, online and telemarketing
Used when:
- type of selling requires expertise, negotiation, executive decision-making
- type of product is high-value, high knowledge or complexity
- demand for few customers
- customers concentrated geographically
- want control over product offering
- customers expect it
Explain an indirect marketing channel and when they would be appropriate
Manufacturer sells through distributor/wholesaler or other representatives.
Used when:
- type of selling required is generalist with little negotiation or lower-level decision-making
- type of product is low-value, basic and uncomplex
- customers want to buy a range of products so intermediaries can sell from many companies
- many customers demanding
- wide geographic dispersion
Describe the sales cycle.
Tasks performed throughout the sales process
=> Lead generation
- triggered by sales call, customers response to direct mail or request for information, initial contact with prospect made
=> Lead qualification
- potential customer is screened, need for product, buying interest, time frame for purchase
=> Bid and proposal
- preparation of bid and proposal to meet customer requirements
=> Negotiation and sales closure
- negotiation of price, terms and conditions and contract agreement
=> Fulfilment
- delivery, configuration, customisation, installation
=> Customer care and support
- post-sale problem resolution, guidance and ongoing contact to ensure customer retention, loyalty and growth
Briefly describe some of the roles of distributors
- inventory management, product assembly, design services
- contact (reach customers)
- provide inventory and supporting activities (credit, JiT delivery, order processing)
- assemble/manufacturing
Outline the FIVE key components of the price-setting decision process
- Set pricing objectives
- Pricing decision must be based on the marketing and overall corporate objectives
- Start with principal objectives and add collateral pricing goals:
- > Achieving target return on investment
- > Achieving market-share goal
- > Meeting competition - Demand determinants and assessing value
- Issues when considering demand:
- >Usage and importance of product/service by various segments
-> Price sensitivity (elasticity of demand)
-> Assessing value
-> Possible buyer preference for a supplier because a total offering provides more value
- Differentiating through value-creation
->Value? - relationships, emphasise unique add-on benefits:
…Benefits = core and add-on
…Sacrifices = acquisition, processing and usage costs - Determine costs and relationship to volume
- Target pricing and costing
- > Many companies calculate price using ‘cost’ and ‘mark up approach’ - adding an amount to the cost of a product to determine its sale price (internally not market driven)
- Target pricing
- >First examine and segment the market
- > Determine what type, quality and attributes each segment wants at a pre-determined target price
- > Understand the perception of value to the target selling price
- > Calculate costs considering margins
- Cost classification system goals
- >Target pricing forces marketers to understand what buyers want are are willing to pay
- >Target costing forces companies to understand their cost structure in terms of direct and indirect costs, fixed and vairable costs and their contribution margins
- >Combining target pricing and target costing means that instead of using cost-control techniques, a better approach is to compute the total costs that must not be exceeded, allowing for acceptable margins - Competition
- Competition establishes an upper limit on price
- Price is only one component of the cost-benefit equation
- There are many ways to have a differential advantage other than price: advanced features, technical expertise, timely delivery and product reliability (zero defects)
- Service and support also have a differentiating effect - Set price level
- Pricing and profit objectives
- Demand determinants
- Cost determinants
- Competition
