5. Proposal solicitation. Qualified suppliers are next invited to submit proposals. Some suppliers send only a catalog or a sales representative. Proposal development is a complex task that requires extensive research and skilled wtiting and presentation. In extreme cases, such proposals are comparable to complete marketing strategies found in the consumer sector.
ORGANIZATIONAL BUYER BEHAVIOR
95
Salespeople
Technical sources Personnel in buyer's firm Purchasing agents in other companies Trade association
Advertising in trade journals Articles in trade journals Vendor files Trade registers Product literature
Sales personnel representing manufacturers or distributors of the product in question.
Engineering types of personnel internal or external to the subject's firm.
Peer group references (e.g., other purchasing agents in the subject's firm).
Peer group references external to the buyer's firm.
Cooperatives voluntarily joined by business competitors designed to assist its
members and industry in dealing with mutual problems (e.g., National
Association of Purchasing Management). Commercial messages placed by the manufacturer or distributor of the
product in question. Messages relating to the product in question but not under the control of the
manufacturer or distributor. Information pertaining to the values of various sources of supply as developed
and maintained by the buyer's firm. Buyer guides providing listings of suppliers and other marketing information
(e.g., Thomas'Register). Specific product and vendor information supplied by the manufacturing or
distributing firm.
6. Supplier selection. At this stage, the various proposals are screened and a choice is made. A significant part of this selection is evaluating the vendor. One study indicated that purchasing managers felt that the vendor was often more important than the proposal. Purchasing managers listed the three most important characteristics of the vendor as delivery capability, consistent quality, and fair price. Another study found that the relative importance of different attributes varies with the type of buying situations.
For example, for routine-order products, delivery, reliability, price, and supplier reputation are highly important. These factors can serve as appeals in sales presentations and in trade ads.
7. Order-routine specification. The buyer now writes the final order with the chosen supplier, listing the technical specifications, the quantity needed, the warranty, and so on.
8. Performance review. In this final stage, the buyer reviews the supplier's performance. This may be a very simple or a very complex process.
NEWSLINE: THE FUTJRE OF THE CONSUMER
Experts say consumers in the new millennium will throw some surprising twists and turns into the business of target marketing, overturning some of the traditional thinking about what we'll buy, how we'll live, and where we'll work. "The 21st century will be the century of the consumer," says Roger Blackwell, a professor of marketing. "Marketers will have to push their understanding beyond knowing what people buy to knowing why they buy." The 2010s will be the "Linked Decade," defined by a busy, mature, ethnically heterogeneous
96 CHAPTER 4 UNDERSTANDING BUYER BEHAVIOR
group of consumers who are confident in their ability to read anything, buy anything, and experience anything.
Several fundamental demographic changes will serve as the underpinning for this new consumer mind-set: the aging of the baby boom generation, the increasing importance of children as consumers, a growing chasm between society's haves and have-nots, and the world's increasingly diverse population.
Given that demographic backdrop, what will be the most powerful values shaping the consumer mind-set? The following possibilities have been proposed:
• The Shrinking Day-Harried baby boomers will create a time famine for themselves by working more hours and committing to more family and community obligations.
• The Connectedness Craze-The urge to connect will pervade all aspects of consumers' lives and increasingly consumers will turn to the World Wide Web for a sense of community between buyers and sellers, information suppliers and consumers, and friends and family.
• The Body vs. Soul Conundrum-Consumers will continue their obsession with fitness and spirituality, while at the same time consuming record amounts of take-out food.
« The Triumph of Individualism-Work, family, and purchase processes will reflect the consumer's need to be treated as a unique individual.
1. Organizational buyer behavior is different from consumer 2. The following stages are involved in the organizational buy-behavior: ing decision:
a. Many individuals make the buying decision a. Problem recognition
b. Behavior is motivated by both rational and emotional b. General need description factors c. Product specification
c. Decisions include a range of complex technical deci d. Supplier's research sions e. Proposal solicitation
d. Lag time exists between contact and actual decision f. Supplier selection
e. Organizations cannot by grouped into precise categories g. Order-routine specification
h. Performance review
THE WALL SKEET JOURNAL.
IN PRACTICE
Understanding buyer behavior is a complicated process, with many factors influencing the process. Why and what products are purchased baffles marketers as much as understanding why certain products are not purchased. Ultimately, understanding buyer behavior influences the marketing mix used for a product.
Marketers must be able to answer two critical questions when assessing consumer and organizational buyer behavior: (1) How do buyers make purchase decisions? and (2) What factors influence decisions and in what way? Answering these questions correctly impacts the success of any product.
Consumer and organizational buyer behavior differ significantly. While considerable research about consumer purchasing decisions has been conducted, minimal research has been done about organizational buyer behavior. Marketers must understand the different factors and influences affecting each group and the impact of these on purchase decisions.
Cisco Systems, Inc., provides networking solutions that connect computer devices and networks for businesses. Check out Cisco's Web site at www.cisco.com. Under Solutions for Your Network, click on Overview. A menu will appear to the left with information for customers such as Large Enterprises, Small and Medium Businesses, and Government entities. Click on one of those links now to read about product offerings for these customers.
The Business Focus section of Marketplace provides information
about various business activities, including purchasing. On the Marketplace home page, click on Business Focus on the left menu.
For information about consumer buying behavior, go to the Interactive Journal's Front Section and click on Marketplace. Click on MarketinglMedia. Look for articles in the Advertising section. These articles discuss examples of advertising efforts that various companies employ to influence consumer buying decisions. Information about retail sales can also be found in MarketinglMedia.
DELIVERABLE
Using the Interactive Journal's Business Index feature under Journal Atlas on the left menu, select a consumer products company featured in today's Interactive Journal. Visit that company's website and search the Interactive Journal for information that will help you identify the Situational and External Influences for customers purchasing the company's product(s).
DISCUSSION QUESTIONS
1. How can marketers use the Internet to influence consumer buyer behavior? Organizational buyer behavior?
2. How has business-to-business (B2B) commerce affected purchasing transactions?
3. What new factors or influences do you foresee impacting consumer buyer behavior? Organizational buyer behavior?
4. What ethical considerations (if any) do advertisers face when they try to influence buyer behavior?
98 CHAPTER 4 UNDERSTANDING BUYER BEHAVIOR
SUMMARY
In this chapter, the rudiments of buyer behavior were presented. The chapter is divided into two parts: consumer behavior and organizational behavior. In the case of consumer behavior, the discussion began with six stages in the consumer decision-making process. These stages include need identification, information search and processing, evaluation of alternatives, product/service/outlet selection, purchase, and postpurchase behavior.
Following the material was a discussion of the factors that influence this decision-making process. The situational influences consist of the complexity, market offerings, and demographics. External influences include the culture, social class, reference groups, and the family. Finally, the internal influences identified were learning/socialization, motivation, personality, lifestyles, and attitudes.
The final section of the chapter dealt with issues germane to how organizations make buying decisions compared to how consumers make buying decisions. Discussion began with a description of the characteristics of organizational buying. The section concluded with a description or the stages followed in organizational buying. These stages were problem recognition, general need description, product specification, supplier's search, proposal solicitation, supplier selection, order-routine specification, and performance review.
MARKETER'S VOCABULARY
Market A group of potential buyers with needs and wants and the purchasing power to satisfy them.
Need A basic deficiency given a particular situation.
Want Placing certain personal criteria as to how a need should be fulfilled.
Information search Involves the mental as well as physical activities that consumers must perform in order to make decisions and accomplish desired goals in the marketplace.
Attitude An opinion we hold toward a person, idea, place, Or thing.
Cognitive dissonance Negative feelings the consumer has after purchase.
High-involvement decisions Decisions that are important to the buyer because they are closely tied to self-image and have an inherent risk.
Low-involvement decisions Decisions that are not very important to the buyer because ego is not involved and risk is low.
Culture A large group of people with a similar heritage.
Social class People grouped together because of similar occupation, wealth, income, education, power, and prestige.
Reference groups Individuals who share common attitudes and behavior.
Family Iifecycle Predictable stages experienced by families.
Learning Changes in behavior resulting from previous experiences.
Socialization The process by which persons acquire the knowledge, skills, and dispositions that make them more or less able members of their society.
Motivation An inner drive or pressure to take action to satisfy a need.
Personality A term used to summarize all the traits of a person that makes himlher unique.
CASE APPLICATION 9 9
DISCUSSION QUESTIONS
1. Discuss several reasons why marketers continue to have a hard time understanding, predicting, and explaining consumer behavior.
2. Based on your understanding of motives, develop some general guidelines or directives for practicing marketing.
3. How can marketers influence a person's motivation to take action? How can they facilitate learning?
4. Define an attitude. Discuss the components of an attitude. What are the implications for marketing?
5. Distinguish between high-involvement and low-involvement decision making.
6. Present a diagram of the consumer decision process. What is the role of marketing in each stage of this process')
7. What are the differences between the consumer decision-making process and organizational decision-making process?
8. Assume that you are training a salesperson to sell industrial products. Although this salesperson has a strong track record, she has been selling consumer products. What would you emphasize during training?
9. Explain how complexity of the product influences the buying decision process.
10. Why are opinion leaders so important to marketers') Discuss how marketers could use this type of individual in prompting a decision.
PROJECT
Locate an individual who has purchased a new automobile during the last year. Using the six-step decision-making process, ask this person to indicate how he or she accomplished each step.
CASE APPLICATION
CUSTOMER SATISFACTION STILL MATTERS
To many American travelers, airline quality is an oxymoron. Ted J. Kredir, director of hobby sales for Dallas-based trading card company, Pinnacle Brands, Inc., complains of frequent flight cancellations, late arrivals, and lousy food. To the surprise of skeptical passengers, the gripes aren't falling on deaf ears. After years of focusing on paring expenses, such major airlines as American, Delta, and Continental are stepping up their quality efforts. Cost-cutting "diverted our attention from the nuts and bolts of out business," concedes American Airlines Chief Executive Robert L. Crandall. "Our customers have noticed."
A.merican, which once dubbed itself the "on-time machine;' placed a dismal ninth among 10 carriers in on-time rankings for the third quarter of 1996. So Crandall told managers at the next meeting that leading all industry-quality ratings is their top job for 1997. An American spokesperson won't provide specifics, but says: "We're talking about a lot of operational things like customer comfort onboard airplanes."
At Delta Air Lines, Inc., customer complaints have nearly doubled since 1994; CEO Ronald W. Allen blames the pursuit of lower costs. "In some cases WC did cut too deeply," he says. Trans World Airlines, Inc., now in the cellar for on-time and customer complaint rankings by the Transportation
1 00 CHAPTER 4 UNDERSTANDING BUYER BEHAVIOR
Department, is getting the message too. After on-time arrivals dropped under 50% during the holidays and cancellations climbed, managers warned workers to get back to basics.
Underscoring the quality drive is the stunning turnaround at Continental Airlines, Inc., where for two years CEO Gordon M. Bethune has hammered away at the theme. Once near the bottom of ,ransportation rankings, Continental now has one of the best racings for on-time performance, baggage handling, and customer complaints. And in 1996, they won the prestigious J.D. Power & Associates, Inc., award for the highest customer satisfaction on long-haul flights. Bethune claims to be grabbing marketing share among business travelers from American and others. "We've been kicking their butts," boasts Bethune.
Jaded coach passengers, however, arent expecting first-ciass treatment anytime soon. "The product is bad, and it's going to stay that way as near as I can tell," says Ed Perkins, editor of Consumer Reports Travel Letters. It's up to the airlines to prove such doubters wrong.
Questions
1. What risk do airlines take when all of them have the same goal-improving service quality?
2. Should the airlines focus on business travelers or consumers? Why?
REFERENCES
1. Henry Assael, Consumer Behavior and Markeling Action, 3rd ed., in Advances in Consumer Research, ed. K. B. Monroe, Vol. 8, Ann Boston: Kent Publishing, 1987, p. 84. Arbor, Mich., 1981.
2. James Bettman, An Information Processin.g Theory of Consumer 6. William O. Bearden and Michael G. Etzel, "Reference Group Influ-Choice, Reading, Mass: Addison Wesley, 1979. cnce on Product and Brand Choice," Journal of Consume, Research,
3. Richard E. Petty, John T. Cacioppo, and David Schumann, "Central September] 982, pp. ] 83-194.
and Peripheral Routes to Advertising Effectiveness: The Moderating 7. C. N. Coffer and M. H. Appley, MOlivation: Theory Research, New
Role of Involvement," Journal of Con.sumer Research 10, September York: John Wiley & Sons, 1964.
]983, pp. 135-146. 8. Martha Farnsworth Riche, "Psychographies for the 1990's," Ameri-
4. L Festinger, A Theory of Cognitive Dissonance, Stanford, Calif.: Stan can Demographics, July [989, pp. 25-6, 30-2.
ford University Press, 1957. 9. William A. Dempsey, "Vendor Selection and the Buying Process,"
5. Richard Petty and John T. Cacioppo, "Issue Involvement as a Mod Industrial Marketing Management 1, 1978, pp. 257-67. erator of the Effects on Attitude Advellising Content and Context,"
CHAPTERS
EXTERNAL CONSIDERATIONS IN MARKETING
LEARNING OBJECTIVES
As you read through this chapter, you should develop an understanding of the external considerations in marketing planning. Specifically, yo u sho uId:
Understand the importance of analyzing the organization's external environment and the impact that the external environment has on strategic marketing planning.
Realize that marketing o rgan izati o nsofte n work with external agencies that perform some of these marketing activities . These agencies include distributors, retailers, market research suppliers, advertising agencies, and materia Issuppliers. Appreciate the external factors that have an impact on marketing activities, including external agencies, competitors, legal/ethical issues, economic/political issues, technology, and social trends. Relate these external facto rsio the marketing planning process.
THE CAR INDUSTRY AND TECHNOLOGY
The
EV1 is an electric car built by General Motors, marketed under the Saturn brand. The EVI was introduced to California and Arizona in 1996 with an estimated $25 million marketing campaign.
In 1997, a clean air mandate went into effect in three states-California, Massachusetts, and New York. The mandate requires that each year, a certain percentage of vehicles sold must be zero-emission vehicles. California has since pushed its deadline to the year 2003, but requires that ten percent of all vehicles sold be zero-emission. General Motors stayed with the original date and won acclaim for the zero-emission technology. General Motors is not the only company with an interest in developing electric-powered vehicles. Here are several other eleci.ric projects that are underway:
Honda EV Plus, introduced in 1997 and marketed to families of four
Chrysler EPIC
Nissan Prairie Jay minivan
Ford Ranger EV
Chevy S-10 pickups
Toyota RAV4-EV sport-utility vehicle
1 02 CHAPTER 5 EXTERNAL CONSIDERATIONS IN MARKETING
Production of electric vehicles was undertaken in response to voter mandates, a factor external to the finn. Now, auto producers are introducing electric vehicles in part to learn about customer reactions. And there is still much to learn about electric-powered technology. Today, there are concerns about things ^ike range, price, and refueling of electric vehicles. This is quite a drastic change from typical customer concerns like car phones, cup holders, and other frills associated with gas-powered vehicles. A few other facts about General Motors' EVl:
• It leases for between $399 and $549 monthly.
• Monthly payments on a typical purchase are around $500.
• They have limited range (about 120 miles between changes).
• Recharging takes several hours.
• They are currently best as a second vehic;e.
Sources: "OM's Advanced Auto Technologies Showcased at Democratic National Convention:' Financial l\eW,S, August 13, 2000; Jon Pepper, "California Mandate for Electric Cars Means OM Has a Lot to Explain:' The Detroit News, August 23, 2000. p. 1; Paul Rogers, "California Air Officials Want AutO Makers to Deliver Electric Cars in Two Years:' San Jose Mercury News, September 9, 2000.
INTRODUCTION
When marketing organizations plan strategically, the key question is, "Does the strategic planning process raise the overall level of the organization's effectiveness, and does it provide the new strategic direction that is required for the future?" A good strategic plan must help marketing organizations recognize the interrelationships among various forces in the business environment. These interrelationships must be accounted for if the organization is to be capable of implementing ils vision.
It is important to recognize that most existing planning processes have an internal focus. Internal planning processes ask questions like, "What are our strengths and weaknesses?", "What comparative cost advantages do we have?" and "What product features provide us with an advantage?"
The external planning approach asks these same questions but also attempts to understand hawall of the elements of the marketplace relate 10 each other. In this chapter, we focus on the external environmental facton that have an impact on the organization, especially the marketing function. In the chapters that follow, we consider the marketplace and its behavior.
As shown in Figure 5.1, marketing managers are confronted with many environmental concerns, including technology: customer; competitor! ethical/legal; and economic, political, demographic, and social trends, All organizations should continuously appraise their situation and adjust their strategy to adapt to the environment.
One technique used by organizations to monitor the environment is known as environmental scanning, which refers to activities directed toward obtaining infonnation about events and trends that occur outside the organization and that can influence the organization's decision making. In a sense, such data collection scanning acts as an early warning system for the organization. It allows marketers to understand the current state of the environment and to predict trends. A formal but simple strategic infornlation scanning system can enhance the effectiveness of the organization's env'ronmental scanning efforts.' An information system (part of marketing research) organizes the scanning effort so that information related to specific situations can be more readily obtained and used.
EXTERNAL FACTORSTHAT AFFECT PLANNING 1 03
Situation analysis
Internal environment
External environment
Financial resources
Technical resources
Technology
-T
Competitive situation
Human resources
Product
line
Competition
Economic/ political
Ethical/ legal
Social trends
FIGURE 5.1 Environmental factors affecting the organization
A good strategic plan requires careful monitoring of the marketing organization's external environment. The external environment represents sources of opportunities and threats. I f the marketing organization is to align its capabilities and resources with opportunities and threats, it must know what those threats are. It is important that marketing organizations have a strategy to uncover relevant strategic opportunities and threats early. As threats and opportunities appear, marketing organizations should develop strategies to deal with them.
Another problem is that at anyone time, there may appear to be a great many opportunities and threats looming. Marketers must be able to prioritize these opportunities and threats according to such factors as their relevance to the organization, the cost effectiveness of strategies to deal with the threats and opportunities, and the urgency of the threat or opportunity. Organizations are inundated with information and must therefore have an effective mechanism for sorting out that information which is relevant to the organization.
Only after the marketing environment is thoroughly understood can an organization spot trends and determine whether they represent market opportunities or market threats.
EXTERNAL FACTORSTHAT AFFECT PLANNING
There are many marketplace changes occurring that marketers cannot control but affect what marketers do. Faced with these environmental uncertainties, successful marketers will be those who recognize the changes that are occurring and who make effective adjustments. There are a number of external factors that constitute the external environment. Our approach is to attempt to present an all-encompassing view of the elements of the external
1 04 CHAPTER 5 EXTERNAL CONSIDERATIONS IN MARKETING
environment. Rather, it is to briefly describe each of the components and show how external factors affect marketing strategy.
External Suprises
Carol Wolfe and Jane Barnes have been friends for six years, sharing carpool responsibilities, a common love of sewing, and a belief that being self-employed would be a dream come true. After two years of tinkering, they produced a child carrier that they felt would appeal to devoted moms who wanted their baby to be physically attached to the parent in a secure and comfortable manner. They knew they would need lots of help getting this business off the ground, but never realized how difficult and complicated it would be to obtain such assistance.
They contacted the chairman of the marketing department at a local college and were told they could be considered as a student project for the capstone marketing course. One month later, they were given a preliminary report. The report began by listing the various agencies and intermediaries they would need to contact in order to start their business. The list included the following: personal attorney, patent attorney, accountant, commercial banker, raw materials providers (e.g., denim, thread, staples), distributors (wholesalers and retailers), advertising agency, marketing research firm, and fulfillment house. Further, they would have to understand the capabilities, options, and costs associated with each agency/intermediary.
Since they lived in a relatively small city (population 185,000), many of these agen-cieslintermediaries were no 1 , readily available. A local attorney put them in touch with a patent attorney and a marketing research company in a nearby large city. The estimated cost of doing the patent search was $5,500, while the cost of preliminary research was $9,300. Their combined savings totalled $18,000. Clearly, they were underfunded. A quick call to the local bank produced another list of requirements they would have to meet in order to qualify for a business loan, including a business plan, aproforma statement, and so forth.
The initial business plan developed by the student group indicated that there were several competitors selling a product very similar to Carol and Jane's baby carrier. Also, the sources for denim were limited and required a minimum purchase of 500 bolts of fabric. Finally, because most retailers selling similar products were already committed to other manufacturers, it was unJikely that they would find retail distributors. The expected cost of manufacturing and marketing 30,000 units the first year was $1.4 million, with a maximum possible profit of $146,000. Carol and Jane gave up on their idea.
While this scenario is quite depressing, it is not that unusual. It is critical that a business identify and evaluate the various agencies and intermediaries that it must deal with. Throughout this book, we will constantly identify these external agencies and attempt to assess their influence on a marketing organization.
Competitors
As with other external forces, management must also prioritize the importance of the factors that affect competition. The relationships between these elements and competition must be understood if the organization is to be able to develop and sustain a competitive advantage.
Competitive analysis focuses on opportunities and threats that may occur because of actual or potential competitive changes in strategy. It starts with identifying current and potential competitors. For example, who are General Motors competitors'' If you named companies like Toyota, Ford, Chrysler and Honda, you are right, but you've just begun. Table 5.1 outlines some of General Motors' competitors and Table 5.2 does the same with Nintendo's competitors.
It is essential that the marketer begin this assessment by answering the following question: "What criteria can be used to identify a salient set of competitors?"
EXTERNAL FACTORS THAT AFFECT PLANNING
105
TABLE 5.2 Analysis of Nintendo's Competitors
It is clear fram these two examples that an accurate accounting of competitors is much broader than the obvious. If we define our competitors too narrowly, we risk the chance that an unidentified competitor will take market share away from us without our knowledge. For example, General Motors obviously competes against Ford, Chrysler, Toyota, and other auto manufacturers. But they also compete against Sears in the repair market, the subway in large cities, the airlines, and Schwinn, among people for whom bicycle riding is popular. Nintendo competes against Sega in the video game market. But they also compete against Blockbuster Video, the local gym, board games, the theater, and rock concerts. Competition focuses on the wants and needs being satisfied, not the product being produced. General Motors, then, is competing to satisfy your need for transportation. Nintendo is competing to satisfy your need for entertainment.
In addition to identifying a competitor from the perspective of the customer, other criteria might be the geographic location of competitors, relative size, history, channels of distribution, and common tactics.
A second question to consider is the following: "What criteria do we need 10 use to make sure thai Our competitors are 'colTectly' identified?" One way of answering this question is to track the customer's perceptions of product groupings and substitution. Do they change over time? Likewise, tracking expected competitors over time may prove insightful.
Once competitors are cOlTectly identified, it is helpful to assess them relative to factors that drive competition: entry, barg2ining power of buyers and suppliers, existing rivalries, and substitution possibilities. These factors relale to a firm's marketing mix decisions and may be used to create a barrier to entry, increase brand awareness, or intensify a fight for market share.