business to business basics to understand

B2B

1. CHAPTER 2 Organizational Buying: Organizational buying, also known as business-to-business (B2B) buying, refers to the process by which organizations and businesses purchase goods, services, or raw materials to support their operations . It involves purchasing decisions made on behalf of the organization rather than for personal use.

2. Understanding the Dynamics of Organizational Buying Market-driven firms sense market trends and work closely with their customers and vendors. This is crucial to: Identify profitable market segments Locate buying influences within segments Reach organizational buyers efficiently and effectively with an offer Each decision goes through various steps. Skipping a step can be essential to the decision-making process .

3. Buying as a Process Buying is a process, not an event There are various points in the process that are referred to as “Critical Decision Points” and “Evolving Information Requirements” It starts with “Problem Recognition”

4. Organizational Buying Process 1. Problem Recognition 2. General Description of Need 3. Product Specifications 4. Supplier Search 5. Acquisition and Analysis of Proposals 6. Supplier Selection 7. Selection of Order Routine 8. Performance Review Organizational Buying Process

5. 1. Problem Recognition Before anything is bought, most buyers need to be made aware of a problem.

6. 1. Problem Recognition Internally: A machine breaks down Someone needs to order an MRO product Someone recognizes an opportunity that can be captured by acquiring the product

7. 1. Problem Recognition Externally: More often than not, it is the salesperson who precipitates the need for a new product Advertising also can influence purchasing Many organizations use the Push/Pull Strategy

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10. 2. General Description of Need Once a need is recognized, the purchasing department works with the buying group to define what is needed by asking: What is the extent of the problem? What alternatives can solve the problem? Where can the solution be purchased? Each small decision ultimately helps define the product specifications. Sometimes the supplier is involved if the supplier influences the sale (i.e., the supplier makes the buyer aware of the need).

11. 3. Product Specifications Many times the question boils down to: Is it a new task buy? Is it a straight rebuy? Is it a modified rebuy? Buyers try to be objective and consider many ideas. Professional sellers try to influence this decision as early as possible in the buying process—if they can!

12. 3. Product Specifications This is an important because it often determines how the contract is structured and the specific wording that it uses.

13. 4. Supplier Search Who will be the supplier? The creating influencer has a lot of say about the choice of supplier. If a salesperson creates the need, often the specs are written so that only the salesperson’s organization is able to fulfill the contract. In established businesses, often only preferred vendors are considered.

14. 5. Acquisition and Analysis of Proposals This step occurs only when the buying organization lacks adequate information to make a decision. Proposals are presented in detail often by a team engineers, users and purchasing agents. Successful proposals determine the supplier. Many times, this step is perfunctory. The buyer may have already determined the preferred vendor, but legally it may be necessary to seek other vendor proposals to attain government contracts.

15. 6. Supplier Selection At this point, negotiation includes not only mon ey , but also: Quantities Delivery times Level of service Warranties Payment schedules And a host of final details that determine selection

16. 7. Selection of Order Routine Once the supplier is selected, the order routines are established Detailed instructions Order placement Delivery terms Payment terms Agreement

17. 8. Performance Review After receipt of the product or service, a performance review asks: Did the supplier meet delivery time? Did the product meet the specs? Does the contract have to be modified? Did the vendor live up to expectations?

18. Buying Process Stages in the buying process are not as sequential as suggested by the model. Sometimes steps are skipped. For example, on straight rebuys, buyers choose to purchase almost immediately. However, the model represents important aspects of how companies buy and evaluate business purchases.

19. Buying Process There other events that influence the buying process, most notably: Economic conditions Competition Basic shifts in the organizational objectives The buying situation

20. Three Buying Situations New task Straight rebuy Modified rebuy

21. 1. New Task There are 2 approaches to New Task purchasing: Judgmental Situations Strategic Decisions

22. Example of New Task India's nuclear power program was formulated in the 1950s by Homi Bhabha, who is known as the father of India's nuclear program. In 1963, India signed the agreement for its first nuclear power plant, RAPP-1, in Rajasthan. In 1964, India and Canada agreed to set up a 200 MWe PHWR power station in Rajasthan.

23. New Task - Judgmental Situations This is the greatest amount of uncertainty because there is little information or experience to support a decision. To overcome this, decision-makers conduct outside research to analyze key aspects of the buying decision. An example of key questions might include: What kind and model of production equipment should we purchase? Who are the available suppliers? Will they provide the services we need?

24. New Task - Strategic Decisions This level of New Task purchasing is the most important because it concerns long-range planning, larger investments and increased risk if they are wrong. An example of strategic questioning might include: Should we develop a new product line which demands us to buy new machinery, retool what we have, and maybe even hire a different type of employee? What should we do?

25. Example of Strategic Decisions New Delhi, 20 July 2022: India's largest integrated energy company, NTPC signed a MoU with MASEN (Moroccan Agency for Sustainable Energy) for cooperation in renewable energy sector during the 17th CII EXIM Conclave on India Africa Growth Partnership held in New Delhi from 19th-20th July 2022. NTPC Green Energy Limited (NGEL) has signed a Memorandum of Understanding (MoU) with Government of Maharashtra for development of Green Hydrogen and derivatives (Green Ammonia, Green Methanol) of up to 1 million Ton capacity per annum, including Pumped Storage Projects of 2 GW and development of renewable energy.

26. Three Buying Situations 2. Straight Rebuy Straight rebuy – a problem or need that is recurring or a continuing requirement. Buyers have experience in the area Require little or no new information Buyers operate in routine problem-solving stage

27. Straight Rebuy Routine problem-solving situations requiring routine solutions. This is the repeat business situation that every major supplier desires. MOR: Maintenance, Operation and Repair items fall into this category .

28. Three Buying Situations 3. Modified Rebuy Modified rebuy —Decision makers feel there is a benefits to re-evaluating alternatives. Internal Forces: Search for quality improvement Cost reductions

29. Modified Rebuy Buyers feel they can make significant advances if they review their buying situations on a regular basis. Often, changes in styles, materials or even alternative solutions facilitate this review. Another reason for Modified Rebuy is dissatisfaction with present supplier. New supplier was able to find the present supplier’s weaknesses and offered buyers new alternatives to “fix” their problem(s).

30. Buying Decision Approaches Casual purchases : Involve no information search or analysis . Routine low priority : Decisions are more important and involve a moderate amount of analysis.

31. Buying Decision Approaches Simple Modified Rebuy: Involves narrow choices and minimal research. The major area of consideration is supplier relationship. Complex Modified Rebuy: Involves larger items, more research, extensive specification development, a competitive bidding process and long-term relationship development with new supplier(s).

32. Forces Influencing Organizational Buying Behavior Environmental Forces Organizational Forces Group Forces Individual Forces Organizational Buying Behavior Economic outlook: domestic & global Pace of technological change Global trade relations Goals, objectives and strategies Organizational position of purchasing Roles, relative influence and patterns of interaction of buying decision participants Job function, past experience, and buying motives of individual decision participants A projected change in business conditions can alter buying plans drastically.

33. Environmental Forces - Economic Influences Changes in the environment such as business conditions, technological advances or new legislation can affect buying plans. Since much of business is driven by derived demand, business marketers must be sensitive to changes in the consumer market. Also, the economy can determine a company’s ability or willingness to buy. If the economy is bad, companies often put off purchasing until they see a change.

34. Economic Influences Finally, there is an effect from foreign competitors such as China. They have strong labor-saving costs as a competitive advantage.

35. Technological Influences Technology is changing so quickly that yesterday’s technological advancement is today’s electronic commodity. Example: Computers However, all companies need to stay alert to these changes. For example, Nokia’s leading position in mobile phones market in India came crashing down within 2 years because they couldn’t foresee the impact of Android based devices. Technological change—especially from the Internet—is drastically changing the way companies do business.

36. Organizational Forces & Growing Influence of Purchasing As manufacturing has become less important, purchasing and procurement have become more important. Companies are outsourcing many activities such as manufacturing, marketing, accounting, etc., yet procurement remains a strong influence resulting in a shift to more professional procurement positions.

37. Strategic Priorities in Purchasing As the purchasing profession grows, so do its goals and priorities. Purchasers are more ambitious, resulting in a more competitive environment. An effective marketing strategy develops stronger and deeper relationships with purchasers. This is the impetus for Relationship Marketing.

38. Strategic Priorities in Purchasing Aligning Purchasing with Strategy, Not Just Buyers Shift from administrative role to value-creating function that serves internal stakeholders and provides competitive edge in market. Source: Adapted from Marc Bourde, Charlie Hawker, and Theo Theocharides, “Taking Center Stage: The 2005 Chief Procurement Officer Survey,” (Somers NY: IBM Global Services, May 2005), pp. 1-14. Accessed at http://www.ibm.com/bcs on July 1, 2005. Exploring New Value Frontiers: It’s Not Just About Price Focus on suppliers’ capabilities, emphasizing business outcomes, total ownership costs, and potential for long-term value creation.

39. Centralized vs. Decentralized Purchasing Purchasing is moving away from a transaction-based support role to a more strategic, executive level role One result of this is to centralize purchasing Centralized purchasing operates differently than decentralized purchasing

40. Decentralized Purchasing Decentralized purchasing allows local branches to purchase what they need. This results in local control, and for many kinds of services this makes sense. Example: Reliance Fresh buys products from local farmers.

41. Roles in the Buying Center Initiator Influencers Gatekeepers Decider Purchaser Users 8

42. Buying Center Roles Initiator Initially perceives a problem and initiates the buying process to solve it. Influencer Affects the purchasing decision by providing technical information or other relevant (internal or external) information. Gatekeeper Controls the information to be reviewed by members of the buying group. (For example, buyer may screen advertising material and even salespeople.) Decider Actually, makes the buying decision, whether or not they have formal authority to do so. Could be the owner, an engineer or even the buyer. Buyer Has formal authority to select and purchase products or services and the responsibility to implement and follow all procurement procedures. User Actually, use the product in question. Can be inconsequential or major players in the process.

43. Who Makes the Decision? Individuals make the decision, not organizations! Each member has a unique personality, experience and motive, and are subject to risk and rewards. Professional marketers understand this and make sure that they learn to recognize and match to it.

44. Evaluative Criteria Industrial product users value: Prompt delivery Efficient and effective service Engineering values: Product quality Standardization Testing Purchasing values: Price advantage and economy Shipping and forwarding

45. Evaluative Differences Education: Engineers have a different educational background than purchasing agents. Also, various occupations have different dispositions. For example: Engineers are usually analytical and suspecting. Salespeople are usually warm, open and optimistic.