BU 682 Session Two

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BU 682 Session Two

• Understanding Buyer Behaviour

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Last Day - Distinguishing Characteristics of B2B

• Derived Demand
• Fluctuating inelastic demand
• Fewer, larger buyers
• Geographic concentration of buyers suppliers
• Professional buyers
• Higher transaction value
• Multiple buying influences
• Longer decision making process
• More direct relationships with suppliers
• Others?

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Some Trends/Issues in B2B

• Purchasing sophistication
• Value Based
• Customer relationships
• Networks of relationships
• Technology embodied, enabler
• Globalization sourcing opportunities
• Industry transformation consolidation
• Others

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This Session Understanding Buyer Behaviour

• Buyer Centre players, roles, influences
  implications
• Relationship Marketing B2B
• E Commerce Impact
• Examples

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1. Problem Recognition
2. General Description of Need
3. ProductSpecifications
4. Supplier Search
5. Acquisitionand Analysisof Proposals
Organizational Buying Process
6. Supplier Selection
7. SelectionofOrder Routine
8. PerformanceReview
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Forces Influencing Organizational Buying Behavior

• Economic Outlook Domestic Global
• Pace of Technological Change
• Global Trade Relations

EnvironmentalForces

• Goals, Objectives, and Strategies
• Organizational Position of Purchasing

OrganizationalForces
OrganizationalBuyingBehavior

• Roles, relative influence, and patterns of
  interaction of buyingdecision participants

GroupForces
IndividualForces

• Job function, pastexperience, and buyingmotives
  of individualdecision participants

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Major Elements of Organizational Buying Behavior
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Purchasing Function Goals
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Three Buying Situations

• New task
• Modified rebuy
• Straight rebuy

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The Buygrid Framework for Organizational Buying
Situations
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Segmenting Purchase Categories
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Buying Centre Concept Who, When, How, Why, What
..

• The buying center -
• All organizational members that influence the
  purchase decision
• Composition changes from one purchase to the
  next
• Isolating the buying situation
• Rebuy fewer members
• New task large and complex
• Composition can be predicted by analyzing the
  impact of the purchase decision on different
  functional areas
• Buying center influence
• a. Users are the personnel who will be using
  the product
• b. Gatekeepers control information
• c. Influencers supply information during the
  product specification and evaluation
  stages
• d. Deciders actually make the buying decision
• Influence appears to increase with
  environmental uncertainty
• Individuals can change roles depending on the
  purchase one individual may play multiple roles
  many individuals could assume one role

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Questions for the Industrial Marketer

• Which member takes part in the buying process?
• What is each members relative influence in the
  decision?
• What criteria is important to members in the
  evaluation process?

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Members of the buying center assume different
roles throughout the procurement process.
Clues for Identifying Powerful Buying Center
Members
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Example Bombardiers Corporate Jet

• What would the buying centre look like?
• Different players their concerns?
• Implications?
• Your Examples?

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Types of Relationships
The Relationship Spectrum
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Transactional Exchange

• Centers on timely exchange of basic products for
  highly competitive market prices.

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Levels of Procurement Development and Pathways
to Savings/Revenue Enhancement
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Relationship MarketingCenters On

• Establishing,
• Developing and
• Maintaining
• Successful exchanges with customers.

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Stages of Relationship Marketing

• 1. Selecting customer accounts.
• 2. Developing account specific offerings.
• 3. Implementing relationships strategies.
• 4. Evaluating relationship strategy outcomes.

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Collaborative Exchange Involves

• Features close information, social, and
  operational linkages as well as mutual
  commitments.

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Schematic Overview of Key Constructs Relevant to
the Practice of Buyer-Seller Relationships
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Relationship-Specific AdaptationsInvolve
Investments in processes.
Investments in products.
Investments in procedures.
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The Spectrum of Buyer-Seller Relationships
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Building Brands With Customers
Presence
Personality
Performance
Functional
Process
Relationship
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Customer Value Creation Your Opportunity to
Differentiate
ADD
REDUCE

• Confusion
• Frustration
• Disappointment
• Neglect

• Respect
• Appreciation
• Recognition
• Valued

Emotional Elements

• Friendliness
• Helpfulness
• Courtesy

Organization Interaction

• Rudeness
• Lack of caring
• Mistreatment

• Delays
• Stockouts
• Waiting
• System Failures

• On time
• Accuracy
• Service guarantees

Technical Performance

• Inflexibility
• Complexity
• Red tape
• Stupid rules

Process Support

• Warranties
• Payment options

Core Product or Service

• Features
• Quality
• Options

• Price

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Customer Relationship Management

• Customer Selection
• CRP Conversion, Retention, Penetration
• Risks right markets, right sales, right
  service, right costs
• Commitment integrated
• Easy to promise, hard to deliver
• Customer intelligence costing data

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Networks Relationships
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Creating Value in a Networked WorldThe
Industrial Model Versus the Networked Model
Capital-based
Network-based

• Mass production logic
• Customer opaque/outside
• Asset/sales oriented
• Economies of scale
• Concentrated capital
• High fixed costs component
• Computing-centric
• Do-it-all-yourself
• Control by ownership

• Networked mass customization
• Customer transparent/inside
• Brand oriented
• Economies of network
• Dispersed capital across network
• Largely variable cost
• Connectivity-centric
• Networked key capabilities
• Control by shared interest

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Some Thoughts on Networks/Alliances

• Unbundling the Corporation - scope drives
  customer relationship, speed drives innovation,
  scale drives infrastructure businesses
• Can the associated processes coexist in a single
  organization? - pressures of deregulation,
  globalization, technology are causing
  fracturing of industries companies
• Lower Interaction Costs - enabler for focusing
  networking
• Implications - focus, divestiture, rebundling,
  networking

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The Future of The Networked Company - the
McKinsey Quarterley 2001 Number 3 -
http//www.mckinseyquarterley.com

• Orchestrated networks - players are invited to
  contribute their capabilities with a focus on
  delivering value to customers
• Examples- Cisco (value chain focus), eBay
  (community), Charles Scwab (knowledge services)
• Characteristics -orchestrators - customer
  relationship access, market intelligence,
  financial clout network - uniform standards for
  information exchange, rigorous performance
  standards linked to customer evaluations and
  partner incentives, sharing of benefits, on-line
  presence for all key business processes,
  experimentation, commitment
• Performance - outperformed industry peers even in
  a downturn

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Revolution in Scope Costs of Interaction ..

• A Revolution in Interaction - driven by an
  increased capacity and reduction in costs -
  associated with searching, coordinating, and
  monitoring that people and firms do when they
  exchange goods, services or ideas
• Enhanced interactive capacity creates new ways to
  configure businesses, organize companies, and
  serve customers - profound effects on structure,
  strategy, competitive dynamics

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Thoughts on Interactions contd...

• Impact on economic activity - firms trade-off
  specialization versus interaction costs,
  companies trade-off effectiveness of organization
  forms versus interaction costs, customers
  trade-off interaction costs of additional search
  versus marginal value expected from it
• Business Configuration - lt vertical integration,
  gt disaggregation, outsourcing, use of external
  markets horizontal integration cooperation
  more attractive shift toward more networked
  configuration, more efficient market mechanisms,
  new market making or synthesizing roles for
  intermediaries Syndicators
• Serving Customers - expanded reach easier,
  faster, cheaper tailoring direct access
  narrowcast communications
• Organizational Structure - gt experimentation
  variety, smaller networked pockets of expertise
  across organizational geographic boundaries -
  Patching concept

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Some Questions to Think About

• Business Configuration
• Minimum maximum level of scale in your
  business? How would this change if interaction
  capacity doubled? Impact on strategy,
  configuration?
• Non-core services functions performed in-house?
  Difference if these could be effectively
  outsourced?
• Location of specific business activities if
  incremental management costs were small?
• Bottlenecks in your business? Impact if capacity
  could be significantly increased?
• Which business functions is your company world
  class? Potential for standardizing and serving
  other businesses?
• Disintermediation opportunities? Market
  mechanisms for same functions?

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Questions contd .

• Serving Customers
• Ideal customer base? Geographic market expansion?
• Which customers most profitable why? New
  opportunities to capture surplus from you?
  Imperfections in current experience with you? Can
  these be eliminated?
• Impact of customization on your business?
• Opportunities to expand product and/or service
  scope with these customers?

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Questions contd ...

• Organizational Design
• Time spent on interactions? Biggest bottlenecks?
  Impact if these were reduced?
• Rationale for current structure? Radical
  alternatives? Impediments to experimenting?
• Organizational productivity variances? Transfer
  of knowledge and expertise across organizational
  geographic boundaries?
• Capital tied up in physical assets? If you owned
  no assets what skills and competencies could you
  trade with those who owned assets? What stops you
  from doing this?

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E-Commerce Impact
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E-Business Scope

• Processes conducted over a computer-mediated
  network
• B2C, B2B, C2C, G2B, G2C, P2P, .
• Internal Business Processes
• Stakeholder Management
• Competitive Intelligence Knowledge Management

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A Simple Strategic Framework
Business Model
Change Internet Properties
Business Performance
Environment Macro Competitive
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Questions to Consider?

• How will leveraging the properties of the
  internet affect
• Strategy Business models
• Competitive environment dynamics
• Industry structure
• Organizational structure processes
• Performance

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B2B eCommerce Introduces Powerful Benefits to
Both Buyers and Sellers
Lower Cost of Doing Business
Network Scale
Improved Service Levels

• Compete globally
• Target lucrative markets
• More buyers create larger market for suppliers
• More suppliers mean more choices for buyers

• Provide better information faster
• Offer more products and services
• Shorten delivery time
• Improve ability to compare options
• Improve supplier management

• Lower product and procurement costs
• Speed time-to-market
• Streamline transactions
• Lower inventory carry
• Shorten sales cycle
• Increase pricing flexibility

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Different Types of Exchanges
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Different Ways to Participate
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E-Marketing Opportunities - Sloan Mgt Review
Winter 2001

• A. Enhanced Selling Process
• Customer Input - e.g., Fords online design
  studio
• Customer Targeting - e.g., Amazons use of
  profiles
• Customer Aggregation - e.g., eHobbies - model
  train
• Benefit Selling - e.g., Timexs i-control
  simulation
• Achievement Selling - e.g., WW Grainger tracks
  savings

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E-Marketing Opportunities contd

• B. Enhanced Customer Buying Experience
• Solutions Specification - e.g., Home Depot
• One-Stop Shopping - e.g., link to complementary
  products - meta market
• System Design - e.g., Steelcases office space
  mgt
• Fastest Source - e.g., Amazon, most sites
• Product Specifier - e.g., Lands End personal
  model
• Tailored Product - e.g., Chipshot.com - configure
  clubs

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E-Marketing Opportunities - contd

• C. Enhanced Customer Usage Experience
• Added Service Proposition - e.g., Lonely Planet
  provides an online travel vault for travelers
  critical information
• Tailored Support Proposition - e.g., Dells
  Premier Page for corporate customers

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E-Operations

• Automation of Administrative Processes
• Supply-Chain Reconfiguration Integration
• Re-engineering of Infrastructure
• Procurement
• Governance Learning
• Stakeholder Management

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Some Other Examples

• Adessa electronic car auction
• Fundserv electronic handling of mutual fund
  paperwork
• Virtual prospectus
• IMO
• Others???

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Impact of the internet on Buying Behaviour
Relationships?
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Summary

• Understanding buyer behaviour is key different
  situations
• Buying Centre Concept in-depth of assessment of
  each key customer account
• Relationships Networks
• E-Commerce impact
• Using this knowledge next sessions