An Analysis of the Fundamentals of Marketing (part 34)

Marketing Research (part B)

by

Charles Lamson

Definition of Marketing Research

Marketing research has been variously defined but, essentially, it relates to the collection of information regarding actual and potential customers in the marketplace together with the analysis and interpretation of these market data for use in management marketing decision making. Usually such decisions relate to the elements of the marketing mix, i.e. to product and pricing, promotion and channels of distribution decisions. The following are examples of marketing research definitions:

the systematic and continuing study and evaluation of all factors bearing on any business operation which involves the transfer of goods from a producer to a consumer (Delens, 1950).

the objective gathering, recording and analyzing of all facts about problems relating to the transfer and sales of goods and services from producer to consumer (British Institute of Management, 1962).

the gathering and analysis of information to assist management in making marketing decisions. These decisions involve the manipulation of the firm's pricing, promotion, distribution and product variables (Wentz, 1972).

the systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the company (Kotler, 1997).

Thus, marketing research systematically collects market data about a product or service which are then analyzed to help management decision making. Definitions of marketing research have been developed further:

any research activity which provides information relating to marketing operations. Whilst the term embraces conventional market research, motivation studies, advertisement attention value, packaging effectiveness, logistics and media research are also included, as well as analysis of internal and external statistics of relevance (Hart and Stapleton,1981).

the process of generating information around given problems or areas of interest, using either secondary or published data sources or the undertaking of primary research to generate new data at the marketplace level (Piercy and Evans, 1983)

links the organization with its marketing environment. It involves the specification, gathering, analyzing and interpretation of information to help management understand the environment, identify problems and opportunities and develop and evaluate areas of marketing action (Cravens and Woodruff, 1986)

 

a set of techniques and principals for systematically collecting, recording, analyzing and interpreting data that can and decision makers who are involved with marketing goods, services or ideas. (Parasuramun, 1991).

the function which links the consumer, customer and public to the market through information - used to identify and define marketing opportunities and problems; generate, refine and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process. Marketing research specifies the information required to address these issues; designs the method for collecting information; manages and implements the data collection process; analyses the results; and communicates the findings and their implications (American Marketing Association, 1987). 

the means used by those who provide goods and services to keep themselves in touch with the needs and wants of those who buy those goods and services (Market Research Society (MRS), 1989).

 

a formalized means of obtaining information to be used in making marketing decisions. It has a single purpose - that of providing information to assist marketing managers to make better decisions. The function of marketing research is to provide information that will assist marketing managers in recognizing and reacting to marketing opportunities and problems (Tull and Hawkins, 1990).

a specialized function of marketing: it is by no means restricted to profit-motivated business activities. It adopts an objective approach when investigating marketing problems and opportunities; it is motivated by the principals of scientific enquiry (Chisnall, 2005). 

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 117-119*

END

An Analysis of the Fundamentals of Marketing (part 33)

Marketing Research (part A)

by

Charles Lamson

Introduction

Marketing research is the activity whereby market information is gathered and analyzed to help management reduce the risk associated with decision making, and as such, marketing research plays an important role within Management Information Systems.

Management Information Systems

Within every organization management is required to bring together the information gathered through its functional activities and to analyze that information to help management decision making. The information obtained can come from a range of sources. The Marketing Information System (MIS) concentrates on the provision of the data related to the market being targeted. These marketing data contribute to the overall Management Information System for the organization. A MIS has been defined as being:

people, equipment and procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision makers.

(Kotler, 1997)

Persons operate within the marketing and marketing research functions under the MIS. Internal staff within the marketing services function (or department), usually located at or within close proximity to, the organization's central head office, are expected to manage the MIS. The marketing information is gathered through a combination of informal and formal communication  routes using internal and external sources within the organization. It can come from any, or all, of the functional areas, including Accounting and Finance, Research and Development, Production and Personnel. Informal communication routes can cover the networks used by the sales staff to reach potential and actual buyers; formal routes could include the functional reporting systems feeding their progress reports to management. Formal internal issues of information are likely to involve sales monitoring and sales force reports; while informal sources could be intelligence gathered through meetings with colleagues and associates. Formal external sources of information can come from sources including statistics produced by international bodies such as the United Nations, the World Health Organization and the World Bank, national governments, trade associations, and so on. More informal external sources of data might be gathered from experts attending trade exhibitions and seminars, as well as from industry marketing research agencies, advertising agencies and management consultancies. A MIS is developed from the inter-linkage and analysis of data collected from three types of information gathering (Figure 1). These are internal reporting, marketing intelligence and marketing research. The three information-gathering sources should interact on a continuous basis. In this way, internal reporting sources covering information obtained from within the organization can be used in the preparation of marketing research studies. Similarly, marketing intelligence environmental scanning may be used in conjunction with the internal reporting process which, in turn, can feed into the marketing research function.

Figure 1 Marketing Information System

Type of information gathering	Information processing	Source of information
1 Internal reporting	Management information	Reports on orders, sales, credit control, etc.
2 Marketing intelligence	Environment scanning	Examines the marketing environment through feedback from sales force, distribution channels, external market reports, etc.
3 Marketing research	Focused Studies	Cover desk and field research targeting specific marketing issues, e.g. market surveys, test marketing and advertising effectiveness studies.
Analysis	Qualitative and quantitative techniques	Use different methods of analysis according to the source material gathered, e.g. statistical analysis for mass market assessment. In-house customer databases and market models may be developed.

All the data gathered from the internal reporting process, from marketing intelligence and from marketing research should be analyzed and assessed to determine market trends. These, in turn, may be used to develop databases for the organizations which are likely to comprise listings of actual and potential customers. They may be used as a management tool to monitor market activity and to ascertain the organization's performance within the market. For example, a list of present customers might detail customer locations, their purchasing patterns and the payment methods that they use. This information could enable the marketing department to decide on the most appropriate marketing mix to use to reach the customer, i.e. it could be used to make targeting and product positioning decisions related to the product's pricing, promotion and its channels of distribution.

Within the organization, the information gathered from the MIS should be analyzed and assessed. The findings should be passed upwards from the marketing services function/department through to corporate or strategic planners to help strategic planners to help strategic decision making. The strategic planners should, in the same way, feed information back into the MIS to direct, or target marketing services department. This information should also be communicated to, and should be received from, the other functional sections of the organization, including Production, Research and Development, Finance and Sales. Within the organization, individual functional departments, company subsidiaries and Strategic Business Units (SBUs) should provide marketing information related to their own particular product, or service, to include within the MIS. The system should take this information, assimilate with the data from all the other sources, inside and outside the organization, analyze and feed back the findings to the various functional department for management decision making.

The information obtained for the MIS will be of varying quality and may require careful interpretation in the light of its source. Information gained from SBUs within an organization may be delayed or adjusted before being passed to the central marketing services for processing within the MIS. For example, sales may be provided in an incomplete manner in an attempt to avoid highlighting a downturn in sales that might lead to reductions in resources for the SBU concerned. Consequently, close control is required in the collection of data for the MIS to ensure that accurate market assessments are made.

While the specific objectives of the MIS will differ from organization to organization, generall, such systems monitor the marketing environment and the performance of the organization within that market. The MIS should provide information that will bring together the different functions, or departments, within the organization. It should identify the needs of customers, competitor performance and indicate how well the organization is performing within the market. It should help to decide on production levels, the most appropriate marketing mix and sales effort as well as product stocking qualities, transport and distribution within logistics to enable customer service needs to be addressed in a cost-effective manner. The MIS should be an effective and reliable decision-making tool to help management satisfy consumer demand.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 114-117*

END

Type of information

gathering

Information

processing

Source of information

1 Internal

reporting

Management

information

Reports on orders, sales,

credit control, etc.

2 Marketing

intelligence

Environment

scanning

Examines the marketing

environment through feedback

from sales force, distribution channels,

external market reports, etc.

3 Marketing

research

Focused

Studies

Cover desk and field research

targeting specific marketing issues,

e.g. market surveys, test marketing

and advertising effectiveness studies.

Analysis

Qualitative and quantitative techniques

Use different methods of analysis

according to the source material

gathered, e.g. statistical analysis

for mass market assessment.

In-house customer databases

and market models may be developed.

An Analysis of the Fundamentals of Marketing (part 32)

Buying a Computer System for a Hospital

by

Charles Lamson

In early 1992 four hospitals in East Anglia, England, collaborated to buy a new information system from McDonnell Douglas. The group comprised Addenbrooke's in Cambridge, Norwich Acute Unit, West Suffolk and James Paget of Great Yarmouth. Their 8.3 million pound system was the largest joint proposal so far for the taxpayer-funded National Health Service (NHS) which spent approximately 250 million pounds on computer equipment that year.

Within the NHS rising costs have become a matter of public concern and are the subject of frequent newspaper headlines and radio talk shows. Hospital managers faced stark choices with respect to IT spending: should they upgrade the mainframe or buy a kidney dialysis machine? While dialysis machines were considered to be urgent requirements, nevertheless it was recognized that computers were urgently needed to streamline hospital administration to link the increasingly broad range of hi-tech equipment. 

The goal of the consortium was to create a unified system within each hospital which would hold all the patient data centrally. Traditionally, each department collected and stored its own data such as the names and addresses of the general practitioners (doctors who work in the community) of its patients. This meant that patients who needed to visit several different departments had to repeat the same information each time so that computer staff could rekey the data into a separate computer system. The new computer system would put an end to this time-wasting repetition of patient details and it would make complete patient histories available at the touch of a button throughout the hospital. However, implementing the system would be a major task, as the average medical records department holds around 3.5 billion pieces of information relating to current patients.

In the past such a major decision would not have been made at hospital level but by the local health authority. While legislation had passed decision making to the hospitals themselves. It meant that hospitals had to compete with each other for patients. Despite this, the idea of a collaborative bid was considered to be common sense. One advantage was that by pooling resources the hospitals were able to exert pressure to secure cost savings which were well in advance of anything that could have been achieved if they had acted individually. Technical expertise was also shared between the sites. This, in turn, had effects for problem solving which was shared. If one hospital encountered a difficulty with respect to system implementation everyone became involved and once it was solved everyone benefited.

Despite this there were some drawbacks. As has already been mentioned, the hospitals had to compete for patients. However, the technology itself was not thought to be an essential competitive issue. Instead competition was based on price and perceived quality of service which would flow in part from better use of the system. In any case, the hospitals had different needs: two provided general healthcare and two were specialist. Another problem was that the weakest member dictated the speed of progress. Finally, the project required a great degree of collaboration between people from different sites. Despite these drawbacks the benefits were seen to outweigh the disadvantages.

To ensure that nothing was missed out in defining the original requirements lengthy consultations were held with all categories of hospital staff, from radiographers and pathologists to administrative, catering and clinical staff. At least 150 people were involved in the discussions, so that everyone knew what was going on. A document outlining 250 individual requirements was published in August 1992. This led to thirty-nine requests for copies from computer suppliers and was followed by sixteen serious responses. Then the process of selection began. NHS procurement is governed by European Commission/World Trade Organization (EC/WTO) regulations intended to ensure fair competition. They oblige customers to debrief all would-be suppliers on the reasons why they were not selected. Although decision makers found this process to be tedious, it was a valuable exercise that forced them to examine their selection criteria. In particular, one decision maker stated that he thought that while often decisions are influenced by a mixture of subjective and objective views, people are not always honest with themselves about the subjective component. By being forced to debrief potential suppliers, decision makers had to face up to the reasons why they were making certain decisions.

To aid the selection process, the East Anglia consortium laid down specific requirements for every stage. In particular, the winning candidate would have to prove that it had the ability to pull together the existing islands of information in each hospital. For example, one supplier who offered to put together the best software on the market for each individual application was rejected while others who offered a common core took precedence, even though their separate modules might not have been quite as good.

The screening process reduced the contenders to eight. Users were then invited to test the systems. 'User feedback is essential,' said the coordinator, 'because suppliers will always try to disguise the weak points of their systems.' For example, a system might require doctors to order pathology tests individually, whereas the doctors might want tests grouped so that a request forone but automatically triggers several others. Such problems do not come to light until users are experimenting with the system.

The trials reduced the number of suppliers to four possible alternatives. Final judgement was based on technical capabilities, applications and customer support. The same two companies came out on top in all three areas. Since both suppliers could clearly meet the requirements the final decision was made on price, with adjustments to allow for the time that would need to be spent on training. Once the winner had been selected the twelve month selection process was over.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND  JOHN DRESMOND, PGS. 110-111*

END

An Analysis of the Fundamentals of Marketing (part 31)

Strategic Use of Technology in Buying: Intranets and Extranets

by

Charles Lamson

Internet communications are of key importance to marketers. Two innovations have been organizational intranets and extranets. The creation of an intranet, using Windows XP or another platform such as Lotus Notes, allows authorized personnel to gain access to database records which are stored on a central server from their desktop computer. The creation of an extranet involves hooking up authorized suppliers and distributors to the intranet to allow them access to data. The creation of intranets and extranets is an important strategic choice for a firm as this often involves changes in organizational culture and procedures for the different partners in addition to the resolution of issues concerned with network and data access.

The appeal of extranets lies in their ability to provide cheaper, more effective and, most important, faster means of communicating with others. The pressure for increased effectiveness and speed is due to increasing competition in many markets, decreasing product development times and lucrative rewards for those who get to the market first. Sometimes a matter of weeks can make the difference between achieving this.

Some organizations use extranets for ordering. For example, PC wholesaler Merisel has found that it is 70 percent cheaper to process a customer order through its extranet than to have one of its telesales personnel handle it over the phone. Another example concerns computer chip manufacturer LSI, which was looking for an efficient way to transmit design information among its design team, its subcontractors and its customers. Since 1996 LSI has been working with twelve of of its top 100 customers over the extranet. The time to get a new product to market was the main motivating force behind the move to establish the extranet. LSI is better known as the company which designed the chip used in the Sony Playstation, a 32 bit game machine from Sony Computer Entertainment America that hit the market for Christmas 1994, six weeks before its competitors. Time is of the essence in providing competitive advantage.

However, one should not underestimate the difficulties involved in implementing extranet systems. As it takes two or more organizations to make up an extranet, each must seek to achieve the same high standard of quality of network addressing systems. Difficulties can arise with accusations that 'It's not my network problem, it's yours.' This means that the implementation must be handled sensitively and should involve all the parties concerned.

General electric uses its extranet for bids for parts ordering for its Lighting Division (GELS). This is a highly complex process costing millions of dollars per year. In order to implement the extranet which would enable potential suppliers to access information through the Web. GELS first worked with a cross-section of suppliers on work flow and technical issues, then it held focus groups. GELS helped those suppliers that bought new PCs to support the extranet system by configuring Windows for them. It assisted others with posting purchasing information electronically and pulling that data into their costing systems. GELS  also held a four-hour training session for its fifty-five suppliers. Despite all this hard effort, not everyone was happy with the system. One supplier claimed that the extranet had created more work because now he had to pull a GELS engineering drawing off the extranet, print it, analyze it and reply with a quote. He claimed that it took him three hours to extract, analyze and respond to thirteen drawings from GELS extranet- an hour longer than it used to take him using the fax. As this example demonstrates, bringing business partners together online can take considerable effort.

Another difficulty of extranets is that whereas other 'sharing' technologies such as EDI use a set of standards between companies and their customers or suppliers to facilitate B-to-B transactions, uniform technologies are not guaranteed in electronic commerce. Often this extends beyond ordering and fulfillment processes. In addition, with a company's mission-critical databases a needed part of almost any extranet, access privileges and security become massive concerns.

Despite this there can be advantages, particularly for smaller organizations which may wish to create strong electronic bonds to confront large competitors. One such supplier in the US called Monitor Medical found that in confronting huge equipment companies like Baxter International it needed every source of competitive advantage available. Monitor developed an extranet which may provide that advantage by enabling customers to check inventories online, helping sales representatives to respond more quickly to activity in their accounts. One day it might enable customers to check inventories online, helping sales representatives to respond more quickly to activity in their accounts. One day it might enable customers to check inventories online, helping sales representatives to respond more quickly to activity in their accounts and develop a national distribution network of other small suppliers. Ideally, if the extranet works out, large hospital chains might place orders with Monitor Medical rather than with one of the big chains, if it is successful at establishing a network of local distributors.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 108-109^

END

An Analysis of the Fundamentals of Marketing (part 30)

New Approaches to Business-to-Business Buying Behavior

by

Charles Lamson

A number of researchers have commented on the dramatic changes which have taken place in B-to-B purchasing over the past thirty years. For example, Wilson (1996) discusses environmental changes which in her opinion led to profound changes in the business environment affecting buying behavior.

Under the new approach, organizations must work more efficiently in order to stay competitive and survive. Costs must be lowered on all fronts, from operations/production, buying and inventory management, supplier development and management to customer service. Buyers and sellers take a more long-term view of  their business activities and the satisfaction of joint goals (a 'win-win' approach) is the desired outcome. For example, to achieve efficiencies in operations, many customers are using fewer supplies than in the past. Xerox went from 2,000 suppliers of copier parts to 350 in its desire to build vendor loyalty/supplier partnerships. Each supplier gets a larger share of Xerox's orders and in return must provide high-quality parts and service to this increasingly important customer.

Other elements of the new model are increased communication and information sharing. 'Open communication also increases the speed and flexibility of new product development for the buying firm when the supplier can help solve potential problems before they arise' (Wilson, 1994). Changes in competition have driven firms to operate more efficiently and effectively. More cooperative and mutually beneficial relationships between buyers and sellers are one result. Lewin and Johnston (1996) noted the following responses to environmental changes which they felt were having a major effect on buyer behavior:

• Move from high volume to high value.
• Experimentation with novel organization structures and processes in order to accommodate the process of change.
• Knowledge-based economy move from large hierarchical organizations to small flexible structures.

The aim in the emerging 'knowledge'-based businesses of the twenty-first century is to add value by thinking smarter than the competition. Within manufacturing industry, where prices are moving inexorably downwards, value can be created by reengineering the production processes to remove bottlenecks and maximize throughput (the amount of material or items passing through a system or process) and flexibility. This has led to experimentation with new 'flatter' forms of organization which place an emphasis on team working. Senior management needs to take care to ensure that it retains the knowledge base at the same time as it reduces organizational complexity. In the short term, cost savings may be affected by reducing the need for several layers of middle management (Bahrami, 1992), further enhancing organizational competitiveness by providing additional reductions in overall operating costs. However, it is possible to go too far and to lose a valuable store of knowledge and experience. Beyond the anticipated cost savings, 'flatter' organizations are expected to be more flexible and responsive to market and competitive dynamics by reducing the time lag between decision and action (Bahrami and Evans, 1987).

Another way in which firms are trying to increase 'flexibility' and generate 'high value' is through outsourcing (Gupta and Zhender, 1994). Firms which successfully manage to stick to their core competences, and which form relationships for supply with others for other work are more flexible and responsive to fluctuations in demand.

Technology is initiating major changes within retailing. In this sector the advent of loyalty initiatives has generated a wealth of customer information. The successful retailers of the next few years will be those which make full use of these data by using IT effectively to understand and serve their customers' needs better. The benefits will be in reduced costs and increased customer satisfaction. One means of achieving this goal will be through Effective Consumer Response (ECR) and effective supply chain management, involving close collaboration between retailers, suppliers and service companies. many differences can be observed in the development of this concept across Europe. In the Netherlands suppliers and retailers are making great efforts to become partners, with joint programs in logistics, sales and product development. By contrast, France and Spain exhibit a much less cooperative approach, with less evidence of collaboration.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND,  PGS. 107-108*

END

An Analysis of the Fundamentals of Marketing (part 29)

Comparison Between Business-to-Business and Consumer Buyer Behavior

by

Charles Lamson

Business-to-business consumer buyer behavior may be compared on several dimensions including demand characteristics, the market demographic profile and buyer-seller relationships.

Taking demand characteristics first, as has been discussed in my last post, while consumers buy for their own use and consumption, the demand for B-to-B goods and services is derived from consumer demand. B-to-B demand tends to be relatively price-inelastic, in that an increase or decrease in the price of one or two components of the thousands that might constitute a computer, for example, will not have a great effect on the overall price. Changes in consumer demand can lead to erratic developments in industrial markets, as even small increases in consumer demand can have a major effect.

The market demographic profile is also different for B-to-B markets. There are fewer B-to-B buyers than there are consumer purchasers; the former are larger and usually more geographically concentrated. 

When one considers the buying process there are some broad similarities between the concepts of 'involvement' which relate to consumer buyer behavior and the 'buy' class which relates to industrial buyer behavior. Both models range from simple, routine decisions to more complex and conscious decisions which may involve a number of people. A certain similarity in terms of the structure of the 'high involvement' consumer buying decision and the 'new task' organizational buying decision can be noted. However, the similarity ends there, the key element of involvement is that it relates to the consumer's ego involvement in relation to the product, while the new task purchase decision is related to lack of experience with the product or service.

While consumers generally buy for themselves and for their families, most consumer purchases are relatively low-risk, low-involvement purchases. Organizational buyers are always buying on behalf of others. This can mean that the organizational buying process is much more complex than that for consumer goods. For this reason, organizations are likely to have formed clear purchasing policies and guidelines which may be summarized in a purchasing manual. Organizational buyers are more apt to buy on specification. B-to-B purchases usually are dealt with by professionals because of the complexity of the decision. With respect to complex purchases the buying center can be expected to be large. Of course, there are group influences in consumer buying behavior, most notably in family decision making, e.g. when choosing a holiday or a new car. However, the family decision making structure is structured more formally than that which is to be found in the organization.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007,  MARILYN A. STONE AND JOHN DRESMOND, 106-107*

END

An Analysis of the Fundamentals of Marketing (part 28)

The B-to-B (Business to Business) Buying Process

by

Charles Lamson

The questions of what is the nature of the B-to-B buying process and how different is this from consumer buying behavior are addressed in the upcoming series of posts. Research in this area splits into two periods. During the first period of about six years Robinson et al. (1967), Sheth (1973) and Webster and Wind (1972) developed the first deductively based theoretical models dedicated to B-to-B buyer behavior. More recently, there has been a shift in research focus from studying buyers and sellers in isolation to studying the relationship between firms. The whole area of relationship marketing is one that has received much attention.

Early Models

Robinson et al. (1967) specified a model of the organizational decision process. It involved recognition of need, determination of characteristics and the quality of the needed item; search for and qualification of potential suppliers; acquisition and analysis of proposals; evaluation of proposals and supplier selection; selection of order routine; performance evaluation and feedback. While the model shares certain similarities with the consumer buying decision process mentioned earlier, there are some differences. A more simplified version might follow the process as shown in figure 1.

Recognition of Need

The organizational purchasing process begins with the recognition of the need for a product or service. For example, computer manufacturers have a need for printed circuit boards (PCBs). Some firms will make PCBs internally; for others its is more convenient to outsource this to a subcontractor who will deliver PCBs to a predefined routine. This routine will depend on how work in progress is sequenced through the shop floor. For example, many manufacturers use Materials Requirements Planning (MRP I) in conjunction with Manufacturing Resource Planning (MRP II) systems which if used effectively can alert suppliers to the firm's requirements for the next month (or other specified time period). Many suppliers have 'visibility' of their customers' real-time stock situation through electronic data interchange (EDI). In these cases, the 'recognition' of a need is almost as automatic as when the computerized inventory control system reports that an item has fallen below the reorder level. However, where changes to products and new products are concerned, people become more involved in the process.

Determination of Product Specifications

In industrial marketing situations it is important to specify exactly what is required in terms of the product specification. For example, the computer company which is buying PCBs will specify the type of board required and will make specifications for those specific components which are to be mounted on to the board. Unlike consumers, for whom much of the joy of shopping comes from elements of surprise and experimentation, the business buyer must specify the physical characteristics of the product in some detail, detailing its function, design, expected quality and performance levels as well as its relationship and compatibility with related components.

While a level of fine detail is appropriate for an engineering context this does not apply across all contexts, e.g. the 'creative brief' is a form of specification issued by a client to an advertising agency which forms the basis of an advertising campaign. In this case, it is important that the brief is not specified in detail as that might stifle creativity.

Evaluation and Selection of Suppliers

The next stage involves the search for a suitable supplier who can best meet all the specific criteria. This is similar to the process which was outlined in chapter 3, where 'Joe's' choice of a suit was described. Theorists suggest that B-to-B marketers evaluate potential suppliers according to a list of attributes which reflect desired benefits. The criteria used and the relative importance of each attribute vary according to the goods and services purchased and the buyers' needs. Usually price is a critical factor, although product quality is very important. Of even more importance nowadays is flexibility of response.

Researchers have found that just as the steps in the consumer decision-making process can vary with respect to the type of buying situation. Three important and interrelated factors determine the buying task faced by the organization and these can influence choice of supplier.

• The newness of the problem and the relevant buying experience of decision makers in the buying center.
• The information needs of the people in the buying center.
• The number of new alternative approaches and/or suppliers to consider in making the purchase decision.

There are three kinds of buying tasks or situations: the straight rebuy, the modified rebuy and new task buying.

• Straight rebuy. Here the buyer orders something without any modification which, usually, is handled on a routine basis by the purchasing department. The buyer simply chooses from the various suppliers on his/her list. In order to gain an edge, some suppliers will suggest automatic reordering and will be keen to maintain product and service quality, e.g. the situation where computer reordering takes place. In this case, where there is low perceived risk associated with a frequent purchase and a satisfactory supplier, the existing supplier might simply be asked to tender a price for resupply.
• Modified rebuy. This happens when the organization's needs remain unchanged but when buying center members are not satisfied either with the product or with the supplier. They may wish to have a better quality product, better service or are looking for a keener price. In this case, the buyer requires information about the different products and suppliers. This opens up an opportunity for new suppliers to gain entry. The modified rebuy may end with renegotiation of the contract with an existing supplier or with the choice of a new supplier.
• Newtask buying. A firm that is buying a product or service for the first time faces a new task situation. The size of the buying center rises in proportion to the cost and complexity of the decision. In this case, the procedure for supplier selection will be more complex and lengthy, involving negotiations at a high level with a number of potential suppliers before a decision is made.

One factor which can influence selection of a supplier is reciprocity whereby the organization favors a supplier that is a customer, or potential customer, for the firm's own products or services. While this offers a number of advantages, it can operate to restrict the available options and may lead to a situation where the best supplier is not selected.

Commitment

The process does not end once the decision has been finalized. The supply situation is monitored as it unfolds and the supplier performance is measured to determine whether or not it is suitable. For example, frequently a sample of goods supplied is tested to ensure that it has been produced according to specification. If the sample is not deemed to satisfy specifications which have been set, the whole batch may be returned to the supplier. In other situations where the customer uses Jusr-In-Time (JIT) systems to schedule work in progress the result of a late order can be very serious, resulting in the closure of a production line for hours, days or perhaps even weeks. It has been known for customers to invoice suppliers for the entire plant overhead as a form of penalty for late supply, a drastic move which can put small suppliers out of business.

There are several ways of handling supply relationships. The customer may keep suppliers under constant threat and may change suppliers if a product falls below specification on quality or delivery. On the other hand, the company may decide to build and maintain a relationship with the supplier to allow close cooperation and relationships to develop. This does not mean that the customer does not levy penalties on the supplier in the case of poor quality or late delivery, just that these instances will be investigated with a view to ensuring that they do not happen again.

Evaluation of the Model

While the model described in Figure 1 highlights certain features of the buying process, it hides others. The model charts the process as a linear development whereby the organizational buyer follows a sequence of steps in selecting the most appropriate purchase. The model illustrates the importance of developing specifications as to precisely what is required, leaving nothing to chance. For example, if one wishes to purchase a machine component in a manufacturing bill of materials, the physical characteristics of the component must be specified in terms of function, design, expected quality and performance levels. Additional specifications may be drawn up with respect to delivery and price. The establishment of specifications will bring a number of different personnel, e.g. a machine component may involve a design engineer and a production engineer and a quality manager as well as personnel from Procurement and Marketing. Conflicts can and do arise between these personnel and the means of coping with them are often evolved but not directly managed. For example the current author of the book which is the subject of this analysis, Fundamentals of Marketing, was engaged on a research project with a company which manufacture oscilloscopes and where design engineers held considerable power because most senior management were drawn from this group. Consequently, design engineers felt that it was their right to order components which would be incorporated into production. Marketing and Quality personnel were not happy with this procedure because although the components which had been tried and tested, products tended to fail and be returned, which led to dissatisfaction on the part of Quality and Marketing personnel. Procurement personnel were unhappy because of the number of different makes of the same component which were ordered; each engineer had his own favorite make. The company could have saved time and money by standardizing. It was only when a new managing director was appointed who recognized this problem that a team was formed to explore the issues, leading to the recognition of other people's concerns. 

One difficulty with the traditional buying buying model is that organizational buying/purchasing is not viewed as a value-adding function. Buying activity is perceived to be a largely clerical operation, with purchasing agents being evaluated on their negotiation skills. The levels of price discounts obtained from suppliers typically measure purchasing performance. This reward system fosters an adversarial climate between buyers and sellers because these goals are in direct competition. In addition, the approach characterized by Figure 1 (from above) is:

a short-term business orientation, buying based on lowest price, inspection of incoming shipments, large inventories, and very little interaction with suppliers other than the initial negotiations and to express post-purchase dissatisfaction when performance was poor.

(Wilson, 1994)

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 102-106*

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An Analysis of the Fundamentals of Marketing (part 27)

The Organizational Buying Center

by

Charles Lamson

Most high-value purchases in B-to-B (business to business) markets involve people from different departments and functions within the organization. People play different roles with respect to the buying decision. Several roles are listed below:

• Users In the case of the purchase of a new university computer network system, discussed in an earlier post, users are the people who will use the network. They will probably know much about hardware and software but little about the various network standards and configurations available. Despite this, users should be involved in the buying process so that they can feel included and can contribute usefully their experience of the present system. It would be worthwhile knowing any defects in the present system to ensure that the new system does not replicate them.
• Influencers provide information for evaluating alternative products and suppliers. With respect to the computer network example, the university central computing services personnel should have the expertise to evaluate different standards and platforms. They should be able to help in drawing up a technical specification for the network system and to advise on the performance and reliability of different options. Other influencers would include computing officers within departments who could communicate the specific requirements of each department.

• Gatekeepers control the flow of information to other people in the purchasing process. Primarily, they involve the organization's purchasing agents and the suppliers' sales people. Within the university example, staff within the computing services section and departmental computing officers would act as gatekeepers and would be able to slant the information flow with respect to the options which they thought were not feasible.
• Buyers are usually referred to as the purchasing agents within the role of purchasing manager. In most organizations buyers have the authority to contact suppliers and negotiate the purchase transaction. In the university computer network example, this may be carried out by a person nominated by the university IT committee who would report back to the committee.

• Deciders are the persons with the authority to make a final purchase decision. In the university computing network example it would probably be the university IT committee. This would include personnel from the central university administration and persons representing departments directly involved.

B-to-B decision making can be much more complex than consumer decision making, although sometimes family decision making approximates to it.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 101-102*

END