ANALYSING BUSINESS MARKETS

PART IV

THE

PROCUREMEN

T PROCESS

• Business buyers seek to obtain the highest

benefit package in relation to a market offering’s

costs.

• Business buyer’s incentive to purchase will be a

function of difference between perceived

benefits and perceived costs.

• The marketer’s task is to construct a profitable

offering that delivers superior customer value to

the target buyers.

• Business marketers must therefore endure that

customers fully appreciate how the firm’s

offerings are different and better.

• Occurs when customers are given a perspective

or point of view that allows the firm to “put its best

foot forward”.

• Can be as simple as making sure customers

realize all benefits or cost benefits afforded by the

firm’s offering.

• Requires understanding how business customers

currently think of and choose among products and

services.

Framing

Supplier diversity is a

benefit that may not have

a price tag but that

business buyers overllok at

their risk.

Minority Suppliers are the

fastest-growing segment of

today’s business

landscape.

In the past, purchasing

departments occupied a low

position in the management

hierarchy,inspite of often

managing more than half the

company’s costs.

Today’s purchasing

departments are most

strategically oriented and

have a mission to seek

the best value from fewer

and better suppliers.

VARIOUS STAGES IN

THE BUYING

PROCESS

GENERAL NEED DESCRIPTION

PRODUCT SPECIFICATION

SUPPLIER SEARCH

PROPOSAL SOLICITATION

PROBLEM RECOGNITION

SUPPLIER SELECTION

ORDER-ROUTINE SPECIFICATION

PERFORMANCE REVIEW

PROBLEM

RECOGNITION

1

Internal

External

MarketersProduct specification

•Buying Process begins when someone in the company

recognizesa problem or need.

•Recognition ca be triggered internally(common events lead

to problem recog.) or externally(buyer may get new ideas).

•Business marketers can stimulate problem recog. By direct

mail,telemarketing and calling on prospects.

2&3 Need&

Simple

Complex

MultipleSingle

•Buyer determines the needed item’s general

characteristics and required quantity.

•Buying Organization develops the item’s technical

specifications.

•Suppliers can use PRODUCT VALUE ANALYSIS as a

tool for positioning themselves to win an account.

SUPPLIER

SEARCH

4

Buyer tries to identify the most appropriate suppliers

through trade directories, contacts with other

companies, trade ads, trade shows and the Internet.

FORMS BY WHICH COMPANITIES UTILIZE ELECTRONIC MARKETFLACES OVER THE

INTERNET

CATALOG SITESVERTICAL MARKETS

AUCTION SITES SPOT MARKETS

PRIVATE EXCHANGES

BARTER MARKETS

BUYING ALLIANCES

• shaves transaction costs

• reduces time between order and delivery

• consolidates purchasing systems

• forges closer relationship

• helps to erode supplier-buyer loyalty

• create potetial security problems

•2 types of e-hubs: Vertical

hubs(plastics,steel) and functional

hubs(logistics,advertising).

• More than acquiring software

• requires purchasing strategy and

structure

Catalogs

Private exchanges

Buying alliances

MarketsVerticalSpotBarter

Auction sites

Direct linksAlliancesRFPs

E-procurement

Advantageous

Lead Generation

• Supplier’s task is to ensure it is

considered when customers are

in market searching for a

supplier.

• Suplliers that lack the required

production capacity or suffer

from a poor reputation will be

rejected.

• After evaluating each

company, the buyer will end up

with a shortlist of qualified

suppliers

PROPOSAL SOLICITATION5

• Buyer invites qualified suppliers to submit

proposals(written and detailed)

• After evaluation, formal presentation should be

made

• Oral presentations of the Business Marketers should

inspire confidence and position the company’s

capabilities and resources so that they stand out

from the competition.

Simple quote

Detailed

proposal

SUPPLIER SELECTION6

• Business marketers need to do a better

job of understanding how business

buyers arrive at their valuations

• Business marketers emplyed 8 various

CVA methods to assess customer value.

CUSTOMER VALUE ANALYSIS

OVERCOMING PRICE PRESSURES

• Buyers may attempt to negotiate with preferres

suppliers for better prices and terms before making

the final selection.

• Marketers can counter rewuest for a lower price

in a number of ways:

1)total cost of owndership

2)life-cycle cost

• Improving productivity helps alleviate price

pressures.

Restrictive condition for lowering the price

• limited quantities

• no refunds

• no adjustments

• no services

NUMBER OF SUPPLIERS

• Companies want their chosen suppliers to be responsible

for a large component system to achieve continuous

quality and performance improement and also lower

prices.

• Suppliers should work closely duting product

development and their suggestions are valued.

• There is a trend toward single sourcing though multiple

sources often cite the threat of a labor strike.

ORDER-ROUTINE SPECIFICATION7

• Buyer negotiates the final order by listing the technical

specifications, quantity needed, expected time of delivery,

return policies and warranty.

• In case of maintenance, repair and operating items,

buyers are moving toward blanket contracts(long-term)

rather than periodic.

• Seller holds the stock and blanket contracts aka stock

purchase plans

• Some companies shift the ordering responsibility to their

suppliers in systems called vendor-managed

inventory(VMI)

8

•Buyer periodically reviews the performance of

the chosen supplier(s).

• Many companies have set up incentive

systems to reward purchasing managers for

good buying performance, in much the same

way sales personnel receive bonuses for good

selling performance.

Created by Aburvaa Ramesh, SVCE , during an internship By Prof. Sameer Mathur, IIM Lucknow.www.IIMInternship.com