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Organizational Buying

Value. May not be tangibleValue is PERCEIVED by the buyerCan enhance value:PackagingSupport servicesReliabilityWarrantiesTraining. Selling to Organizations I. Social as well as economic dimensionIndividual behavior contributes to the mission.Formal reward system for individualsBad purchasi

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Organizational Buying

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    1. Chapter 3 Organizational Buying

    2. Value May not be tangible Value is PERCEIVED by the buyer Can enhance value: Packaging Support services Reliability Warranties Training

    3. Selling to Organizations I Social as well as economic dimension Individual behavior contributes to the mission. Formal reward system for individuals Bad purchasing decisions Interruptions in production/operations Reduction in product quality Slowdown in distribution Dissatisfied customers Wasted resources Higher costs/lower sales and cash flow/lower profit

    4. Selling to Organizations II Usually formal contracts Extensive search for suppliers Negotiation Long buying process Multiple suppliers Long-term, loyal relationships

    5. Why? Reduce risk of mistakes Formal policies and informal culture

    6. Business Customers Fewer Concentrated Need long-term relationships because they are not easy to replace

    7. Technical Complexities Products and services, and their applications can be complex. New technology Interface with existing technology Custom High standards (e.g. clean rooms, surgical suites)

    8. Commercial Complexities So much is open to negotiation Product, price, terms, discounts, warranties, delivery, training, service, returns, etc. Liability, nonperformance POWER $ize of deal, characteristics of parties, the deal, # of parties involved, complexity of products

    9. Behavioral Complexities Negotiating not just with purchasing agent, but multiple parties from multiple functional areas in the organization The more people involved, the more complicated it gets Technical and commercial complexity can exacerbate the behavioral complexity

    10. Who’s on first? Key decision maker(s) Important Product/Vendor attributes Access to key decision makers Customer purchasing policies and procedures

    11. The Buying Center Roles Initiator Buyer User Influencer Decider Gatekeeper Not really a center at all. Group decision process.

    12. Rational Decision-Making? Purchasing for business, not self Purchaser being judged on performance Fiduciary responsibility Formal structure and procedures # bidders Evaluation criteria Multiple signatories

    13. Rational Decision-Making? Emotional and Social Factors Friendship Like/Dislike vendor/rep Personal/Professional Favors Influence of others in organization (+/-) Personal/Departmental Needs & Objectives may not match those of the organization. Conflict

    14. Rational Decision-Making? Manage process to control social & emotional influences. Need to have good decisions being made.

    15. Buystages Need recognition (May not be decider) Solution characteristics/quantity (Specs) Describe solution in detail (Make/Buy) Find qualified sources (product +) Receive/analyze proposals (price +) Evaluate proposals?Select supplier Establish order routine Feedback/Evaluate (FOLLOWUP)

    16. Buying Scenarios Newness and past experience with product Amount/Type of information needed by influencers/deciders Number of alternatives Common buying situations (buyclasses) Straight rebuy Modified rebuy New task purchase

    17. Structural Perspective Vertical Involvement: # levels Lateral Involvement: # functional areas Absolute Size: # people Connectedness: Direct communication among buying center members Centrality: Degree of communication regarding purchase flowing through purchasing department

    18. Power Perspective Ability to influence or make buying decisions; often situation specific Types Reward: $, social, political, ? Coercive: punish, penalty Referent: personality, charisma, persuasion Expert: specialized knowledge Legitimate: formal position/title

    19. Risk Perspective Purchase decision is risk reducing behavior Probability of Loss x Magnitude of Loss (What about consequences?) Risk mitigation strategies may help to make the sale PERCEIVED uncertainty

    20. Problem-Solving Perspective Routine orders: little risk Procedural: How to use product. Learning/training Performance: Can product meet need? Political: Internal politics, departmental squabbles (legitimate and petty)

    21. Reward Perspective Individual motivation Influenced by evaluation & reward Individual values and objectives; brought from department to buying center Agency Theory

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