Ch7 Understanding Organisational Markets and Buying Behaviour

Ch7 Understanding Organisational Markets and Buying Behaviour 7.1: Who Is the Customer? A comparison of Organizational Versus Consumer Markets What distinguishes organizational markets from consumer markets is often not the kinds of products being purchased. Instead, the crucial differences from a marketing viewpoint are (1) the motivations of the buyer: what the organization will do with the product and the benefits it seeks to obtain, (2) the demographics of the market, and (3) the nature of the purchasing process and the relationship between buyer and seller. Exhibit 7.1 Differences between organizational and consumer markets Demand characteristics The demand for industrial goods and services is: Derived from the demand for consumer goods and services. Relatively inelastic – price changes in the short run are not likely to affect demand drastically. More erratic because small increases in consumer demand can, over time, strongly affect the demand for manufacturing plants and equipment. More cyclical. Market demographics Organizational buyers, when compared with buyers of consumer goods, are: Fewer in number. Larger. Geographically concentrated. Buyer–seller relationships Organizational markets are characterized by the following when compared with the markets for consumer goods: The use of professional buying specialists following prescribed procedures. Closer buyer–seller relationships. The presence of multiple buying influences. More apt to buy on specifications. Purchase Motives-Derived Demand Individual consumers and households buy goods and services for their own personal use and consumption. Organizational buyers purchase things for one of three reasons: (1) to facilitate the production of another product or service, as when Toyota buys sheet steel, engine components, or computerized welding machines; (2) for use by the organization’s employees in carrying out its operations (office supplies, computer software, advertising agency services); or (3) for resale to other customers, as when a retailer such as Target buys a truckload of towels to be distributed to its many stores and sold to individual consumers. Derived demand tends to be relatively erratic and cyclical, making accurate sales forecasting and planning more difficult. Market Demographics Organizational markets tend to have fewer potential customers, but on average they buy much larger volumes than consumers do. In many industries, the largest organizations also tend to cluster in one or a few geographic areas, as with the concentration of major banks and financial service firms in New York, London, Frankfurt, Zurich and Tokyo. Purchasing Processes and Relationships Organizational purchase decisions often involve evaluation processes focused on detailed, formally specified criteria. These processes are typically carried out by specialized purchasing managers with a great deal of input and influence from other members of the organization. What Do the Unique Characteristics of Organizational Markets Imply for Marketing Programs? The fact that the demand for many organizational goods and services is derived from underlying consumer demand not only makes it harder to forecast sales, but it also limits the marketer’s ability to influence demand among organizational buyers. The forward-looking company selling to organizational markets needs to keep one eye on possible changes in organizations’ buying behavior for its product and another eye on trends in the underlying consumer markets. Some firms even engage in marketing actions aimed at stimulating demand in those consumer markets in hopes of increasing demand from their organizational customers. Direct selling, with its emphasis on personal communications through company salespeople and vertically integrated distribution channels. Organizational marketers also tend to be heavy users of ‘high-involvement’ media, such as trade journals, product brochures, and websites. Interdependence between buyers and sellers tends to be greater. The economic success of the marketer depends greatly on the economic success of the organizational customer. The marketer is part of the customer’s supply chain and is therefore relied on for services such as coordinated delivery schedules, maintenance, spare parts availability, and efficient order handling. This high level of mutual interdependence encourages the development and maintenance of long-term relationships and alliances between the parties. It also demands that supplier firms be customer-oriented and have all their functional activities – including production, R&D, finance, logistics, and customer service – focused on providing superior customer value. ‘By its very nature, marketing requires that all parts of the business be customer-oriented and that all marketing decisions be based on a complete and accurate understanding of customer needs. The Organizational Customer is Usually a Group of Individuals Individual members, make purchase decisions on the organization’s behalf. Organizations do not form relationships with other organizations. Relationships are built and maintained among their individual members. Participants in the Organizational Purchasing Process Organizational purchasing often involves people from various departments. These participants in the buying process can be grouped as users, influencers, gatekeepers, buyers, and deciders. Users: The people in the organization who must use or work with the product or service often have some influence on the purchase decision. Influencers: Influencers provide information for evaluating alternative products and suppliers. They are usually technical experts from various departments within the organization. Influencers help determine which specifications and criteria to use in making the purchase decision. Gatekeepers: Gatekeepers control the flow of information to other people in the purchasing process. They primarily include the organization’s purchasing agents and the suppliers’ salespeople. Gatekeepers influence a purchase by controlling the information that reaches other decision makers. An organization does not decide to buy a new product, for example, unless information about its existence and advantages over alternatives is brought to the decision makers’ attention. Buyers: The buyer is usually referred to as a purchasing agent or purchasing manager. In most organizations, buyers have the authority to contact suppliers and negotiate the purchase transaction. In some cases they exercise wide discretion in carrying out their jobs. In other cases, they are tightly constrained by specifications and contract requirements determined by technical experts and top administrators Deciders: The decider is the person with the authority to make a final purchase decision. Sometimes buyers have this authority, but often lower-level purchasing managers carry out the wishes of more powerful decision makers. The Organizational Buying Centre For most high-value organizational purchases, several people from different departments participate in the decisions process. The individuals in the group, called a buying centre, share knowledge and information relevant to the purchase of a particular product or service. A buyer or purchasing manager is almost always a member of the buying centre. Different members of the buying centre may participate at different stages in the decision process. The makeup of the buying centre also varies with the amount of past experience the firm has in buying a particular product or service. The buying centre tends to be smaller when reordering items the firm has purchased in the past when buying a new product. These variations in the relative influence of different members of the buying centre across types of purchase decisions and stages in the buying process are shown in the graph below. Exhibit 7.2 The relative influence of various functional departments at different stages in two types of organizational purchase decision Marketing Implications An important part of planning a marketing programme aimed at organizational customers involves determining which individuals to target, how and when each should be contacted, and what kinds of information and appeals each is likely to find most useful and persuasive. Fortunately, in many cases the roles played by various members of the buying centre are sufficiently consistent across similar types of firms in an industry that a marketing manager can tailor different promotional messages and sales policies for specific members. A manager marketing to this industry might develop account management policies directing the sales force to seek appointments with top executives when calling on smaller firms, but to initiate contacts through the purchasing department in larger organizations. 7.2: How Organizational Members Make Purchase Decisions Organizational purchase decisions often involve extensive information search and evaluation processes similar to those consumers use when buying high-involvement items. Types of Buying Situations Organizations encounter three kinds of buying tasks or situations: the straight rebuy, the modified rebuy, and new-task rebuying. A straight rebuy: involves purchasing a common product or service the organization has bought many times before. Such purchases are often handled routinely by the purchasing department with little participation by other departments. Such purchases are almost automatic, with the firm continuing to purchase proven products from reliable, established vendors. In straight rebuy situations, all phases of the buying process tend to be short and routine. Even so, when large quantities are involved, the need for quality assurance, parity pricing, and on-time delivery to minimize inventory requires a competent sales force to help the supplier maintain a continually satisfying relationship with the buyer over time. A modified rebuy occurs when the organization’s needs remain unchanged, but buying centre members are not satisfied with the product or the supplier they have been using. They may desire a higher-quality product, a better price, or better service. Here buyers need information about alternative products and suppliers to compare with their current product and vendor. New-task buying occurs when an organization faces a new and unique need or problem – one in which buying centre members have little or no experience and, thus, must expend a great deal of effort to define purchasing specifications and to collect information about alternative products and vendors. Because the buying centre members have limited knowledge of the product or service involved, they may choose a well-known and respected supplier to reduce the risk of making a poor decision. The Purchase Decision-Making Process The stages in the organizational purchase decision- making process are shown below: Exhibit 7.4 The organizational decision-making process for new-task purchases Recognition of a Problem or Need The organizational purchasing process starts when someone in the firm recognizes a need that can be satisfied by buying some good or service. Most of an organization’s needs are derived from the demand for the goods or services they produce or resell to their own customers. Most organizational purchases are motivated by the needs of the firm’s production processes and its day-to-day operations. Changes in the organization’s operations can create new needs There may be changes in the firm’s objectives, resources, market conditions, government regulations, or competition. Needs, then may be recognized by many people within the organization, including users, technical personnel, top management, and purchasing agents. Requirements Planning Some firms attempt to forecast future requirements so as to plan their purchases in advance. Requirements planning governs the purchase of raw materials and fabricating components as well as supplies and major installations. One result of such planning is often the signing of long-term purchase contracts, particularly for products projected to be in short supply or to increase in price. Requirements planning can also lead to lower costs and better relations between a purchaser and its suppliers. Determining Product Specifications When the firm needs a unique component or piece of equipment, it might even seek help from potential suppliers in setting the appropriate specifications. Search for Information about Products and Suppliers Once specifications for the desired product/service are developed, purchasing performs a value analysis. This systematic appraisal of an item’s design, quality, and performance requirements helps to minimize procurement costs. It includes an analysis of the extent to which the product might be redesigned, standardized, or processed using less-expensive production methods. A cost analysis that attempts to determine what the product costs a supplier to produce is also part of a value analysis. Such information helps the purchasing agent better evaluate alternative bids or negotiate favorable prices with suppliers. Make-or-Buy Decisions Sometimes a firm has the option of producing some components and services internally or buying them from outside suppliers. Information about Potential Suppliers There is often considerable information about that supplier’s quality of performance on file. Where new suppliers are involved, the purchasing department typically engages in an in-depth investigation before qualifying that firm as a potential supplier. An investigation would include such information as the firm’s finances, reputation for reliability, and the ability to meet quality standards, information that can be obtained from personal sources (such as salespersons, trade shows, other firms, and consultants) and nonpersonal sources including catalogues, advertising, and trade literature. Evaluation and Selection of Suppliers Organizational buyers evaluate alternative suppliers and their offerings by using a set of choice criteria reflecting the desired benefits. The criteria used and the relative importance of each attribute vary according to the goods and services being purchased and the buyer’s needs. Price is critical for standard items such as steel desks and chairs, but for more technically complex items, such as computers, a broader range of criteria enters the evaluation process. Vendor Analysis The procedure involves selecting a set of salient attributes and assigning to each a weight reflecting its relative importance. Suppliers are then rated by summing their weighted scores across all attributes. Such ratings serve several useful purposes, including facilitating the comparison of alternative suppliers, providing a basis for discussions with suppliers about their performance, and controlling the number of qualified suppliers. The end result of a vendor analysis is typically the development of a list of approved suppliers. This step in the buying process, along with the previous steps, seems to imply that the individuals making up the buying centre respond only to economic arguments. But industrial buyers are social entities in addition to being interested in the economics of the situation. In general, the more similar the suppliers and their offerings, the more likely it is that social factors will affect the buying decision. What If the Customer Makes Unethical Demands of Its Suppliers? A supplier’s ethics can have a direct effect on its success in the marketplace because organizational buyers are more likely to purchase from firms they consider ethical.[11] Ethical behavior plays a crucial role in establishing the trust and cooperation necessary for the development and maintenance of long-term relationships with customers Some buyers engage in is reciprocity, which occurs when an organization favors a supplier that is also a customer or potential customer for the organization’s own products or services. Although this situation is relatively common, it can cause serious problems, including undermining the morale of purchasing and sales personnel who are constrained in the way they do their jobs. Also, reciprocal buying is illegal when it substantially injures free competition among alternative suppliers. Another unethical practice that causes headaches for many suppliers – particularly in global markets where there are great differences in cultural values and legal restrictions – is the demand for bribes as a precondition for winning a purchase. Buyers and merchandise managers for some large chain retailers have been known to pressure smaller suppliers to deposit into the buyer’s private Swiss bank account a few pennies per item purchased, say, socks, packages of Easter candy, or whatever. The would-be seller faces a difficult decision whether to report such behavior to the buyer’s superiors – some of whom may also engage in and therefore condone such behavior – or whether to simply refuse to play ball and thereby walk away from that chain’s business. Building relationships at multiple levels in the customer organization can offer some level of protection against this problem. The purchase The purchase agreement between a supplier and an organizational customer can take several forms, ranging from individual spot contracts on the open market, to long-term purchasing contracts covering a year or more, to ongoing informal relationships based on cooperation and trust rather than legal agreements. An annual requirements contract obligated a supplier to fill all of a buyer’s needs for a specific product at a consistent, usually discounted, price over a year. One problem with long-term legal contracts, though, is that they must precisely specify all the details of a purchase agreement, including technical specifications, prices, credit terms, and so on. But in today’s rapidly changing economic and technical environments, it can be difficult for the parties to foresee what their needs and market conditions will be like months or years into the future. This inflexibility of long-term contracts is a major reason their popularity has declined in favor of increased reliance on spot market contracts, or auctions, on one hand, and less formal long-term relationships between customers and suppliers on the other. The increased reliance on both of these approaches has been facilitated by a common factor: the growth of telecommunications technology and the Internet. One Impact of Technology: The Growth of Auctions or E-exchanges A number of Internet firms have emerged to help organizations cut their purchasing costs. The earliest entrants, such as Commerce One and Ariba, focused on improving the efficiency of organizations’ search for information and evaluation of alternative products and suppliers. More recently, sellers’ auction websites have emerged in a number of industries. These provide lively global spot markets for standard processed materials such as steel, chemicals, and plastics. For example, ChemConnect (www.chemconnect.com) is an exchange for buyers and sellers of bulk chemicals such as benzene. The site’s user-friendly design attracted a large number of potential buyers and sellers. As a result ChemConnect is now the largest online spot market for chemical trading, with over a million barrels traded daily.[13] The websites that may have the greatest future impact on organizational purchasing behavior, however, are those that facilitate buyers’ auctions. Such auctions invite qualified competing suppliers to submit bids to win a contract where the buyer has specified all of the purchase criteria in great detail, except the price. By enabling all suppliers to see what the competition is bidding in real time, these auctions have the potential to greatly increase price competition and lower buyers’ acquisition costs in some cases by as much as 30 or 40 per cent. Because buyers’ auctions are feasible only when the buyer is able to specify all its requirements except price – including all technical and performance attributes of the good or service, delivery schedules, inventory arrangements, payment schedules, and the like – they work best for purchases where the buyer has experience to draw upon, and where those requirements are unlikely to change rapidly. One service offered by auction sites such as FreeMarkets (www.FreeMarkets.com) is to help clients examine their needs and clearly spell out every aspect of their request for quotes (RFQs) so potential suppliers will know exactly what they’re bidding for. Thus, buyers’ auctions are like ‘modified rebuy’ situations where the buyer knows the physical requirements of the purchase but wants to see whether an alternative supplier might offer a better price. Because auctions throw every purchase up for grabs among alternative suppliers, they work against the development of a cooperative long-term relationship with a given supplier. And they are unlikely to replace such relationships where the product or service being purchased is very technically complex or innovative, is highly customized to the buyer’s unique requirements, or requires specialized equipment or other investments to produce. Auctions are also unlikely to replace long-term cooperation between a buyer and a trusted supplier where there are substantial savings to be gained from logistical alliances, as discussed in the next section. Consequently, while the proportion of global business-to-business online sales volume accounted for by auctions or e-exchanges is predicted to increase steadily for the foreseeable future, other forms of purchasing arrangements, including long-term alliances and partnerships, will continue to dominate Logistical Alliances Technology also has changed organizational purchasing over the past decade by facilitating logistical alliances involving the sharing of sales and inventory data and computerized reordering. Initially, such systems involved electronic data interchange through dedicated telephone or satellite links and were mainly limited to large firms. More recently, software for developing such systems on the Web and protecting the security of proprietary data has improved substantially, thereby lowering costs and increasing their availability to smaller firms. Consumer package goods manufacturers such as Procter & Gamble have formed supply chain management alliances with mass merchandisers such as Wal-Mart and Target. Performance Evaluation and Feedback When a purchase is made and the goods delivered, the buyer’s evaluation of both product and supplier begins. The buyer inspects the goods on receipt to determine whether they meet the required specifications. Later, the department using the product judges whether it performs to expectations. Similarly, the buyer evaluates the supplier’s performance on promptness of delivery and postsale service. In many organizations this process is done formally through reports submitted by the user department and other persons involved in the purchase. This information is used to evaluate proposals and select suppliers the next time a similar purchase is made. The Marketing Implications of Different Organizational Purchasing Situations The extensive purchasing process we have been talking about applies primarily to new-task purchases, where an organization is buying a relatively complex product or service for the first time. Buyers in such circumstances tend to collect a lot of information about alternative products and suppliers and to engage in extensive comparisons before making a final purchase decision. Such situations are relatively favorable to potential new suppliers who have never sold to the organization. Such newcomers can win the organization’s business if they can provide superior product benefits, superior customer service, or better prices – in other words, better customer value – and if they can convince the customer of their superiority through an effective sales pitch, a user-friendly website, or other promotional efforts. One major reason for establishing long-term cooperative relationships with major customers is to become an active partner in designing – and setting the specifications for – the next generation of the customer’s products. In the process, the supplier may have a major influence on the purchase criteria for major materials and components of the new product, thereby gaining the inside track on winning the purchase contract for those new-task purchases. At the other extreme is the straight rebuy, where the customer is reordering an item it has purchased many times before. These purchases tend to be more routine and computerized. From the seller’s viewpoint, being the established or ‘in’ supplier in such purchase situations provides a major competitive advantage because the customer spends little or no effort evaluating alternatives. Therefore, established suppliers should develop procedures to maintain and enhance their favored position with current customers. New technologies have made it easier for established suppliers to strengthen their ties to customers through supply chain management systems and logistical alliances. For ‘out’ suppliers who do not have well-established relationships with an organizational customer, however, the marketing challenge is more difficult. Such competitors must try to move the buyer away from the relatively routine reordering procedures of the straight rebuy toward the more extensive evaluation processes of a modified rebuy purchase decision. Developing Long-Term Buyer –Supplier Relationships From a supplier’s perspective, developing logistical alliances and computerized reorder systems can help tie major customers to the firm and increase the proportion of purchases they make from the supplier. Trust between Supplier and Customer Develops Person-to-Person Such complex relationships not only involve a great deal of cooperation between the parties, but they also require mutual trust. Both parties must trust one another to avoid opportunistic behaviors that would advance their own short-term self-interest at their partner’s expense. Organizations develop trust through the actions of individual members of the firm. Therefore, company salespeople, account teams, logistics managers, and customer service personnel often play crucial roles in winning customer trust and loyalty. Unfortunately, this can make buyer–supplier relationships vulnerable to personnel turnover. Suppliers can minimize such problems by (1) developing effective corporate policies and performance standards with respect to customer service, (2) instituting training programmes and succession planning for customer contact personnel, and (3) fostering and rewarding a strong customer orientation within the corporate culture. Conditions Favoring Trust and Commitment While mutual trust is important for the development and maintenance of long-term commitments between suppliers and their organizational customers, it is not always easy to develop. First, trust tends to build slowly. Thus, the parties must have some history of satisfying experiences with one another to provide a foundation for trust. It also helps if each party brings an established reputation for fair-dealing within its industry. From the customer’s perspective, a firm is more likely to trust and develop a long-term commitment to a supplier when that supplier makes dedicated, customer-specific investments. In markets characterized by complex and uncertain technical environments, such as where competing technologies are emerging simultaneously, as in the networking software industry, customers are less likely to develop a long-term orientation toward a single supplier. Purchasing Processes in Government Markets A government’s purchasing processes tend to be different in some respects from those of a business organization. For one thing, government organizations tend to require more documentation and paperwork from their suppliers because their spending decisions are subject to public review. Another difference is that government organizations typically require suppliers to submit bids, and contracts are usually awarded to the lowest bidder who meets the minimum standards specified in the contract. In some cases, though, a government unit will make allowances for a supplier’s superior product quality or customer service. They also sometimes purchase on a negotiated or ‘cost-plus’ contract basis, particularly when the product being purchased will require a lengthy development period or major and uncertain R&D investments, or when there are few alternative suppliers to compete for the contract. These differences in governmental purchasing processes make many standard marketing strategies and tools less relevant and effective than in other organizational markets. a strategy of product differentiation via superior features or performance would be not likely to be successful, particularly if it resulted in higher costs. For the same reason, comparative advertising appeals or personal sales demonstrations have little impact. Nevertheless, many organizations have created separate government marketing departments or sales teams. 7.3: Selling Different Kinds of Goods and Services to Organizations Requires Different Marketing Programs Different types of goods and services require sellers to employ varying marketing strategies and actions to be successful in organizational markets. Marketers commonly classify industrial goods according to the uses made of the product by organizational purchasers. With this in mind, six categories of industrial goods and services can be identified: raw materials, component materials and parts, installations, accessory equipment, operating supplies, and business services. Exhibit 7.7 Categories, characteristics and marketing implications of goods and services bought by organizations Category Description Characteristics Raw material Relatively unprocessed goods that become a portion of a final product. Limited supply, few producers; distribution is a key function, price is a critical competitive variable. Component parts and materials Processed goods that become a portion of a final product (engines, microchips, etc.). High-volume purchases, long-term contracts; fierce competition among suppliers, requires good service and nurturing of relationships with buyers; Web auctions also important for standard components. Installations Major capital goods used to produce a final product, but not part of the final product (plant installations, production machinery, etc.). Long-lasting; involved in production of many units of the final product over several years; involve large monetary outlays; capital budgeting committee involved in purchase decision; sold directly from manufacturer; personal selling and system design services are crucial. Accessory equipment Finished goods that facilitate production of a final product. Enduring but less so than installations; more standardized, more frequently purchased and less costly than capital equipment; less complex buying; intermediaries may be involved. Operating supplies Finished goods that facilitate repair, maintenance and ongoing operations (office supplies, repair parts, etc.). Analogous to consumer convenience goods, frequently purchased and consumed in a short time; standardized; broad market; heavy use of channel intermediaries; Web-based wholesalers and catalogue sites becoming important. Business services Provide special expertise to facilitate ongoing operations (law firms, adv. agencies, etc.). Long-term relationships with customers; supplier’s qualifications, experience and reputation critical to success; purchase Raw Materials Raw materials are goods receiving little or no processing before they are sold, except what is necessary for handling and shipping. Purchased primarily by processors and manufacturers, they are inputs for making other products. The two types of raw materials are natural products (fish, lumber, iron ore, and crude petroleum) and farm products (fruits, vegetables, grains, beef, cotton, and wool). Implications for Marketing Decision Makers Often only a few large firms produce particular natural products, and in some countries those producers have been nationalized. These supply conditions give producers the power to limit supplies and administer prices, as with the Organization of Petroleum Exporting Countries (OPEC). Natural materials are generally bulky and low in unit value; therefore, producers try to minimize their handling and transportation costs. Distribution channels for natural materials tend to have few middlemen; most materials are marketed directly to processors and manufacturers. Component Materials and Parts Component materials and parts are purchased by manufacturers as inputs for making other products. Component materials differ, though, in that they have been processed to some degree before they are sold (for instance, flour bought by a baker). Component parts are manufactured items assembled as part of another product without further changes in form (electric motors for washing machines, batteries for new cars). Implications for Marketing Decisions Makers Manufacturers buy most component materials and parts in large quantities; therefore, they are usually sold direct, without the use of middlemen. However, wholesale distributors sell to smaller manufacturers in some lines of trade. To avoid disrupting production runs, sellers must ensure a steady, reliable supply of materials and parts, especially when a JIT management system is being used by the buyer. This system’s objective is to eliminate inventories at the customer’s manufacturing site, which requires the delivery of 100 per cent quality (zero-defect) products. A JIT system is costly to set up and cannot be effectively implemented without a continuing and close working relationship between buyer and seller. This may explain why a growing proportion of the purchases of component materials and parts, particularly in situations where the components are standardized and the buyer is able to specify all requirements in detail, are being made through electronic buyer auctions such as Free Markets, Inc. Installations Installations are the buildings and major capital equipment that manufacturers and service producers use to carry out their operations. They are expensive and long-lived; examples are factory buildings constructed for a manufacturer, office buildings built for government agencies, computers used by the Inland Revenue Service, presses used by an automobile manufacturer, and aircraft purchased by Ryanair. Implications for Marketing Decision Makers The marketing of installations presents a real challenge because there are few potential customers at any one time, and the average sale is very large. Many installations are custom-made to fit a particular customer’s needs; therefore, sellers must provide some engineering and design services before making a sale. Often a long period of negotiation precedes the final transaction. Firms selling installations must usually provide many postsale services, such as installing the equipment, training the customer’s personnel in its use, providing maintenance and repair services, and sometimes financing. Because of the small number of buyers, the large dollar volume of each sale, and the custom engineering involved, distribution is usually direct from producer to customer. Promotional emphasis is usually on personal selling versus advertising. High-calibre, well-trained salespeople are critically important in the marketing of installations Accessory Equipment Accessory equipment includes industrial machines and tools that manufacturers, services producers, and governments use to carry out their operations. The difference is that although installations determine the scale of operations of the firms that buy and use them, accessory equipment has no such impact since it consists of tools and machines with relatively short lives and small price tags. Implications for Marketing Decision Makers When there are many different types of potential customers scattered around the country, the average order size is small, and the product does not require much technical service, producers use wholesale distributors (for instance, Black & Decker hand tools) Operating Suppliers Operating supplies do not become a part of the buyer’s product or service, nor are they used directly in producing it. Instead, these supplies facilitate the buying organization’s day-to-day operations. They are usually low-priced items purchased frequently with a minimum of decision-making effort. Examples include heating fuel, floor wax, typing paper, order forms, paper clips, and pencils. Implications for Marketing Decision Makers These supplies are purchased in small quantities by many different organizations, so wholesale middlemen, including those with extensive websites such as Office Depot, are typically used to distribute them. Price is usually the critical decision variable, and there tends to be little brand loyalty. Business Services Many business services producers, or facilitating agencies, have special areas of expertise used and paid for by other organizations. These include security and guard services, janitorial services, equipment repair services, public warehouses, transportation agencies, consulting and marketing research services, advertising agencies, and legal and accounting services. Implications for Marketing Decision Makers Services are intangible and are purchased before they can be evaluated by the buyer. Thus, the supplier’s qualifications, past performance, and reputation become critical determinants of the success of the marketing effort. Price is less important in selling business services because a lawyer or consultant with an outstanding reputation can often charge much more for a given service than one who is less well known. Also, price often serves as an indicator of quality, especially when there are no other quality cues Personal selling and negotiation are important elements in most services producers’ marketing programmes. This selling is often done by high-level executives in the service producer’s organization. The negotiation process can be lengthy; for instance, an ad agency team spends months developing proposals and making presentations to a prospective client before finding out whether it has landed the new account. Many companies employ the same law firm, advertising agency or logistics services firm for years or even decades.