Chapter Ten
Understanding and
Negotiating with
Organizational
Buyers
PowerPoint presentation prepared by
Dr. Rajiv Mehta
Chapter Outline
• Types of organizational markets
• What organizational buyers want from salespeople
• Industrial markets
• Resellers
• Government markets
• Not-for-profit markets
• Negotiating styles of organizational buyers
• Business orientation of organizational buyers
• International negotiations
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Chapter 10 | Slide 2
Learning Objectives
After reading this chapter, you should understand:
• Four kinds of organizational buyers.
• Roles of the members of the buying center.
• Major steps in the buying process and the
three types of buying situations.
• Why, what, and how organizational markets
buy products and services.
• Six negotiation styles of organizational
buyers.
• Buyers’ preferred relationships with
salespeople.
• Decision-making styles of buyers.
• How to do business in international
markets.
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Chapter 10 | Slide 3
Types of Organizational Markets
•
From a salesperson's perspective, there are four types of organizational markets
1. Industrial markets
• Also called producer or manufacturer markets,
these are organizations that buy goods and
services or the production of other products
and services that are sold, rented, or supplied
to other organizations and final consumers
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2. Reseller markets
• Individuals and organizations (retailers,
wholesalers, and industrial distributors) that buy
goods to resell or rent to other organizations
and final consumers
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Chapter 10 | Slide 4
Types of Organizational Markets cont’d
3. Government markets
• Federal, state, and local governmental units that
buy goods and services for conducting the
functions of government
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4. Nonprofit markets
• Organizations such as public and private
universities, colleges, hospitals, nursing homes,
prisons, museums, libraries, and charitable
institutions that buy goods and services for
carrying out their functions
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Images
Chapter Review Question:
What four major characteristics distinguish nonprofit
markets from the three other organizational markets?
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Chapter 10 | Slide 5
What Organizational Buyers
Want from Salespeople
• To buy from salespeople they
trust to deliver on their
promises, provide reliable
service, and supply them
with precise, accurate, and
complete information
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• To do business with salespeople who are looking out for
their organization’s best interests and who help them look
good personally
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Chapter 10 | Slide 6
Creating and Maintaining
Long-Term Relationships
• Relationships in organizational markets are critical for
customer satisfaction and loyalty
• Salespeople who successfully
sell to organizations understand
that it is more profitable to
create and nurture long-term
relationships with customers
(instead of taking a short-term
view that emphasizes profit)
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Chapter 10 | Slide 7
Selling the Relationship
• Relationship selling includes all activities aimed at
creating, developing, and maintaining successful exchange
relationships with prospects and customers
• Relationships between
buyers and sellers are
more effective and longlasting when both
parties cooperate with
one another, have
mutual trust in one
another, and realize that
each of them needs the
other
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Chapter 10 | Slide 8
Industrial Markets
• Largest and most diverse of all the organizational markets;
dollar volume far exceeds that for consumer markets.
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• There are more careers in
industrial selling than in
other kind of selling because
almost all industries buy
from and sell to one another
in creating products for the
final consumer
Chapter 10 | Slide 9
North American Industry
Classification System (NAICS)
• One of the best basic sources for identifying new business
prospects and their general requirements is the North
American Industry Classification System (NAICS) published
by the U.S. Office of Management and Budget (OMB)
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• NAICS replaces the old
Standard Industrial
Classification (SIC) System
and provides for
standardization in reporting
economic data between
Mexico, Canada, and the
United States
Chapter 10 | Slide 10
North American Industry
Classification System (NAICS) cont’d
• NAICS is more detailed than SIC and provides better
coverage of services such as health care, entertainment,
and financial institutions
• The NAICS code starts with the broad industry category
identified by two digits then focuses more specifically on
products and services with each additional digit
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Chapter 10 | Slide 11
Figure 10.1: North American Industrial
Classification System for
Identifying Business Prospects
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Chapter 10 | Slide 12
Industrial Market Characteristics cont’d
•
Industrial markets differ from consumer markets in:
1. Demand
•
Industrial demand tends to be derived demand as the demand for the industrial good
comes from demand for a consumer good
2. Buyers
•
Industrial buyers tend to be geographically concentrated
3. Purchasing Process
•
•
Industrial purchases are less frequent and normally require a longer negotiation period
than do consumer purchases
Organizations often tend to buy from one another and engage in a mutual exchange of
benefits
4. Marketing Mix
•
The many differences between industrial and consumer markets in terms of demand,
buyers, and purchasing process require that companies selling to industrial
organizations develop marketing mixes tailored to specific customer groups and their
unique needs
Chapter Review Question:
Compare and contrast industrial markets and consumer markets.
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Chapter 10 | Slide 13
Table 10.1 Industrial Versus
Consumer Market Characteristics
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Chapter 10 | Slide 14
Table 10.1 Industrial Versus
Consumer Market Characteristics cont’d
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Chapter 10 | Slide 15
The Role of the Industrial Buyer
•
Industrial buyers are frequently called “purchasing agents”
because they are the buying experts for their organizations
•
The success of industrial buyers depends largely on their ability to:
1. Negotiate favorable prices and
purchase terms
2.
Develop alternative solutions to
buying problems
3.
Protect the organization's cost
structure
4.
Assure reliable, long-run sources of
supply
5.
Maintain good relationships with
suppliers
6.
Manage the procurement process
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Chapter 10 | Slide 16
What Do Industrial Markets Buy? cont’d
•
Industrial buyers are interested in three basic categories of goods and
service:
1. Foundation Goods
•
Goods used in the production process that do not become part of the finished
product, such as fixed major equipment and office equipment
2. Entering Goods
•
Ingredients or components that become part of the finished product, such as
raw materials and semi-manufactured goods
3. Facilitating Goods
•
Consumed while assisting in the ongoing production process, such as
maintenance and repair items
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Chapter 10 | Slide 17
Table 10.2 Classification
of Industrial Goods
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Chapter 10 | Slide 18
Table 10.2 Classification
of Industrial Goods cont’d
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Chapter 10 | Slide 19
Table 10.2 Classification
of Industrial Goods cont’d
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Chapter 10 | Slide 20
How Do Industrial Markets Buy?
• In larger organizations, it’s realistic to refer to industrial
purchasing operations as buying centers because several
people participate in purchasing decisions
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Chapter 10 | Slide 21
Buying Centers cont’d
•
A buying center consists of all people in the organization who
participate in or influence the purchase decision process and may
include anyone playing any of the following six roles in the buying
process
1. Initiators
•
2.
Gatekeepers
•
3.
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People who control information or access
to decision makers
Influencers
•
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People who first recognize a problem
which may require the purchase of a
product or service
People who influence the purchase
decision by setting specifications or by
providing information about evaluating
alternatives
Chapter 10 | Slide 22
Buying Centers cont’d
4. Deciders
•
Higher level managers who have power to
approve suppliers and final purchase
decisions
5. Buyers
•
People with formal responsibility and
authority to order products and negotiate
purchase terms
6. Users
•
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People who will actually use the product
or service and can help initiate the
purchase and set specifications
Chapter Review Question:
What are the six roles that different members of a
buying center can play in the industrial buying
process?
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Chapter 10 | Slide 23
Types of Buying Situations cont’d
There are three basic types of buying situations
1.
Straight rebuy
•
2.
Modified rebuy
•
3.
Routine reorder such as office supplies and
utilities
Change in product specifications, prices, or
supplier performance, such as consulting
services, company vehicles, and heavy
equipment
New task buy
•
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Complex product purchase such as a new
heating plant or the construction of a
building
Chapter Review Question:
List, discuss, and give examples of the three types of industrial buying situations.
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Chapter 10 | Slide 24
Figure 10.2:
Three Types of Industrial Buying
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Chapter 10 | Slide 25
Stages in the Buying Process cont’d
There are eight major steps in the buying process:
1. Recognizing the problem
2. Describing the basic need
3. Developing product specifications
4. Searching for suppliers
5. Soliciting proposals
• Basic decision criteria: (i) performance, (ii) economic, (iii)
integrative, (iv) adaptive, and (v) legalistic
6. Evaluating proposals and selecting suppliers
7. Setting up the ordering procedure
8. Reviewing performance
Chapter Review Question:
Name and describe the sequential stages in
the industrial buying process.
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Chapter 10 | Slide 26
Resellers
•
Includes all those
intermediary
organizations that buy
goods for reselling or
renting to others at a
profit or for conducting
their own operations
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•
Resellers serve as purchasing agents for their customers
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Chapter 10 | Slide 27
Types of Resellers cont’d
1. Industrial distributors
•
Sell to manufacturers and producers.
•
There are three types of industrial
distributors:
a) General-line distributors (mill
supply houses)
b) Specialist firms
c) Combination houses
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Chapter 10 | Slide 28
Resellers
2. Wholesalers
•
Dell to retailers
•
More than 370,000 wholesalers in the
U.S. who handle half of all
manufacturer consumer goods
3. Retailers
•
Sell to consumers
•
Most retail store salespeople, usually
called salesclerks, are little more than
order takers; only recently have a few
large chains begun offering incentives
or commissions on sales to their retail
salespeople
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Chapter 10 | Slide 29
Reseller Buying Situations cont’d
•
Resellers usually find themselves concerned with one or more of three
types of buying situations
•
New-product
•
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•
•
Six criteria most often used for new product
buying situations are
a.
Pricing and profit margins
b.
Product's uniqueness and strength of the product
category
c.
Seller's intended positioning and marketing plan
d.
Test market evidence of consumer acceptance
e.
Advertising and sales promotion support
f.
Selling company's reputation
Selection of the best supplier
Better set of terms from current supplier
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Chapter 10 | Slide 30
Reseller Information Systems
• Electronic point-of-sale (POS) systems and in-store
computers began appearing in retail outlets in the early
1970s
• Today, resellers often have
more information than the
salesperson about inventory
turnover, product performance,
cash flow, customer
complaints, and accounts
payable
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Chapter 10 | Slide 31
Computer-Assisted Buying
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• As reseller information
systems based on
computerized purchasing
operations increase in
sophistication, the
professional salesperson's
job will rapidly shift toward
providing buyers with detailed
and comprehensive data
• Some salespeople have already edged out competitors by
providing their reseller customers with individualized
merchandising service
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Chapter 10 | Slide 32
Incentives and Sales Tools
Offered to Resellers
• Several incentives and sales tools can be used to make help salespeople
make their offerings more attractive to resellers
• Radio Frequency Identification
(RFID)
• Reseller Contests and
Sweepstakes
• Point-of-Sale Inventory-Tracking
Systems
• Point-of-Purchase Displays
• Product Tags
• In-Store Demonstrations
• Cooperative Advertising
Allowances
• Slotting Allowances
• Promotional Pricing
• Reseller Training Programs
• Just-in-Time Purchasing
• Trade Margins and Allowances
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Chapter 10 | Slide 33
Table 10.3 Incentives
Offered to Resellers
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Chapter 10 | Slide 34
Government Markets
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• The U.S. government, 50
state governments, more
than 3,000 county
governments, and 86,000
local government units
purchase over $1 trillion
worth of goods and services
annually
• The federal government accounts for more than 40 percent
of the total spent by all government levels
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Chapter 10 | Slide 35
Sales Opportunities in Government Markets
• Government markets offer opportunities for both producers
and “middlemen” to sell everything from spacecraft to
toothpaste—everything needed to provide citizens with such
services as national defense, fire and police protection,
education, health care, water, postal service, waste
disposal, and public transportation
• Government purchasing patterns sometimes change
abruptly in response to budget constraints and the service
demands of citizens
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Chapter 10 | Slide 36
How Do Governments Buy?
•
Federal buying is done for two sectors:
1. The General Services Administration (GSA) purchases goods
and services for civilian government agencies.
•
•
•
2. The Defense Logistics Agency (DLA) purchases for the military
services.
Both the GSA and the DLA function like wholesalers and resellers for
other government units.
Nearly 20 percent of all government contracts are awarded on the basis
of only one bid.
Most purchases are made by either negotiated contracts or open bids
(where the award usually goes to the lower-cost qualified bidder).
Chapter Review Question:
Briefly discuss government markets. What are the two sectors for which the federal
government buys? How are most government purchases made? What sources of help
in dealing with the government are available?
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Chapter 10 | Slide 37
Not-for-Profit Markets
• Also called noncommercial or not-for-profit organizations, nonprofits
include colleges, hospitals, libraries, charities, churches, museums, and
various associations such as the National Organization for Women
(NOW) and the American Association of Retired People (AARP)
• Nonprofit organizations have distinct characteristics:
1. providing services and creating social change
2. close public scrutiny from multiple publics
3. multiple objectives such as the social impact of their efforts, the
number of people served, and the amount of donation attracted
4. dual management (professional managers and specialists with
managerial responsibilities)
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Chapter 10 | Slide 38
Negotiating Styles of
Organizational Buyers cont’d
1. Hard Bargainers
• Keep several suppliers competing aggressively against
one another to win the business
2. Facilitators
• Try to work efficiently and cooperatively with salespeople
to reach mutually acceptable agreement
3. Straight-Shooters
•
Exhibit honesty and integrity throughout negotiations and
refrain from pressuring the salesperson into concessions
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Chapter 10 | Slide 39
Negotiating Styles of
Organizational Buyers cont’d
4. Socializers
• Keep several suppliers competing aggressively against
one another to win the business
5. Persuaders
• Try to make salespeople show respect to them and their
organizations and express appreciation for their business
6. Considerate buyers
•
Empathize with salespeople and try to work with them to
reach mutually acceptable agreements
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Chapter 10 | Slide 40
Business Orientation of
Organizational Buyers
•
Organizational buyers differ with respect to the preferred
kind of relationship they have with salespeople
•
Salespeople must
determine the kind of
relationship their
prospects and customers
desire and adapt their
behavior accordingly
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Chapter 10 | Slide 41
Business Orientation of
Organizational Buyers cont’d
•
Three types of customers have been identified with respect to their
preferred relationship:
1. Commercial Friends
• Interact with salespeople like personal
friends, as they share intimacy and
casual conversation and engage in joint
leisure activities beyond the usual sales
call (e.g., attending sporting events).
Such relationships tend to be long term.
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Chapter 10 | Slide 42
Business Orientation of
Organizational Buyers cont’d
2. Customer Coworkers
• Treat salespeople almost like a fellow employee and
meld both personal and business aspects of the
relationship, but are less intimate than commercial
friends are with salespeople. As with commercial
friends, relationships between the salespeople and a
customer coworker are long term.
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3. Business Acquaintances
• Maintain a formal relationship with salespeople and are
reliant on them for economic gain; although the
association is cordial—and may even incorporate
discussions of personal life—it lacks intimacy and does
not entail interaction beyond the business context.
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Chapter 10 | Slide 43
Buyers and Decision-Making
Styles cont’d
•
There are three kinds of decision-making styles:
(1) Planning-oriented,
(2) Entrepreneurially Oriented, and
(3) Bureaucratically Oriented
• A buyer’s style influences
his or her preferences for
the seller’s selling strategy.
• The selling strategy a
salesperson uses with a
given customer should
reflect that customer’s
decision-making style.
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Chapter 10 | Slide 44
Buyers and Decision-Making
Styles cont’d
1. Planning-Oriented Style
•
Entails making decisions on the basis of long-run considerations, as the needs
of the firm are carefully evaluated and planned. It requires detailed information
and consultations with multiple departments
2. Entrepreneurially Oriented Style
•
Try to work efficiently and cooperatively with salespeople to reach mutually
acceptable agreement
3. Bureaucratically Oriented Style
•
Characterized by utilization of formal rules and policies that determine
information flows, activities, and interactions among company members
Chapter Review Question:
Compare and contrast the three different types of decision-making styles used by
professional buyers: the planning-oriented, entrepreneurially oriented, and
bureaucratically oriented styles. How would you negotiate with buyers who exhibit
each of the three styles?
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Chapter 10 | Slide 45
Table 10.4 Type of
Decision-Making Style
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Chapter 10 | Slide 46
International Negotiations
• As domestic markets become saturated, nearly every
company is interested in increasing international sales
• This is little more than wishful thinking until the company's
sales representatives find global customers, build trustful
relationships, and bring the global sales concept to reality
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• Therefore, professional sales
personnel must be especially
aware of cultural differences
that they will encounter when
doing business with international
organizational buyers and how
those differences will influence
the buyer-seller relationship
Chapter 10 | Slide 47
Guidelines for
Doing Business in International Markets
• Several guidelines are important to consider in international
selling:
• Don't Be in a Hurry
• Understand Time
• Continue Gathering Information
• Be Comfortable with Silence
• Never Be Confrontational or Argumentative
• Thoroughly Prepare Before Any Negotiations
• Stay Open to Different Negotiating Styles
• Try Negotiating by the Other Side's Rule Book
• Be Knowledgeable About Etiquette in Other Cultures
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Chapter 10 | Slide 48
Table 10.5 Considerations in
Doing International Business
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Chapter 10 | Slide 49
Table 10.5 Considerations in
Doing International Business cont’d
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Chapter 10 | Slide 50
Table 10.5 Considerations in
Doing International Business cont’d
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Chapter 10 | Slide 51
Table 10.5 Considerations in
Doing International Business cont’d
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Chapter 10 | Slide 52
International Views of Negotiation
• Buyers from other
countries often see U.S
salespeople as negotiating
with a "winner-take-all"
attitude
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• Many other cultures, by contrast, prefer to develop buyerseller relationships up front that encourage win-win
negotiations based on trust
• International negotiators generally believe that trust and
shared interests characterize a healthy relationship, not
some complex legal contract
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Chapter 10 | Slide 53
Know Your Negotiating Partner
• When salespeople
engage in international
negotiations, they must
understand local
customers—traditions,
customs, habits, and
sensitivities
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• This will help avoid misunderstandings, enhance mutual
respect, and increase the chances for success in the
negotiations
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Chapter 10 | Slide 54
Business Etiquette in
Other Cultures
• Salespeople must learn as much as they can about local
business etiquette when negotiating in different countries
• Avoiding a mistake in
business etiquette can
often make the difference
between successful and
unsuccessful negotiations
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Chapter 10 | Slide 55
Business Etiquette in
Other Cultures cont’d
Some major issues to be aware of and sensitive to
• Use of business cards
• Use of first names
• Eye contact
• Understanding what “yes”
means
• Acceptance of gifts
• Interpretation of smiling
handshakes
• Use of one’s voice
• Posture and body language
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• Distance between buyer and
seller
• Awareness of host country
holidays
• Use of the term “foreigners“
• Importance of face-to-face
contact
• Importance of humility and
modesty
Chapter Review Question:
Provide some basic guidelines and rules of
business etiquette for salespeople selling in
international markets.
Chapter 10 | Slide 56
Key Terms
•
•
•
•
•
North American Industry Classification System (NAICS)
• Focuses on all activities aimed at creating, developing, and maintaining
successful exchange relationships with prospects and customers.
Derived Demand
• Demand created as a result of consumer demand; typical of industrial
markets.
Reciprocity
• In industrial buyer-seller relationships, an informal agreement between two
or more organizations to exchange goods and services on a systematic and
more or less exclusive basis. In other words, “you buy from me, and I’ll buy
from you.”
Industrial Buyer
• The buying expert for an organization. Sometimes called the purchasing
agent.
Foundation Goods
• Goods used in the production process that do not become part of the
finished product, such as fixed major machine tools and office equipment.
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Chapter 10 | Slide 57
Key Terms cont’d
•
Entering Goods
• Ingredients or components that become part of the finished product, such as
raw materials and semi-manufactured goods.
•
Facilitating Goods
• Goods consumed in the ongoing production process, such as maintenance
and repair items.
•
Gatekeeper
• Person who controls information or access to decision makers. Examples
include technical advisers, secretaries, security guards, and even telephone
switchboard operators.
•
Influencers
• People who can influence the purchase decision by helping set product
specifications, negotiating purchasing procedures and prices, or providing
information about evaluating alternatives.
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Chapter 10 | Slide 58
Key Terms cont’d
•
Buying Center
• In a buying organization, a group of organization members responsible for
making purchases.
•
FedBizOpps.gov
• Website that contains all federal contracting community solicitations for
purchases exceeding $25,000
•
Dual Management
• A management system in which both professional managers and specialists
without managerial training run an organization, sometimes resulting in
conflict. Typical of many nonprofit organizations.
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Chapter 10 | Slide 59
Chapter Review Questions
1. Explain why industrial demand is derived demand. Why
are industrial markets more price inelastic and volatile than
consumer markets?
2. Name the different criteria on which the success of a
purchasing agent is determined by his or her company.
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Chapter 10 | Slide 60
Topics for Thought and
Class Discussion
1. How would you go about becoming acquainted with
members of an organization’s “buying center”? How would
you determine which specific role each person played?
2. What do you think about the practice of reciprocity in
business?
3. If you were a small business owner who wanted to obtain
some federal government contracts, how would you find
out how to sell to the government? Outline the steps that
you would take.
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Chapter 10 | Slide 61
Topics for Thought and
Class Discussion cont’d
4. What do you think are some of the reasons why U.S.
salespeople sometimes fail when trying to negotiate
contracts with prospects from other countries? What might
they do to increase their success?
5. Of the four different types of organizations (manufacturers,
resellers, governments, and nonprofits), which do you think
you would most like to call on as a salesperson? Which
would you least like to call on? Why?
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Chapter 10 | Slide 62
Internet Exercises
1. Use the Internet to access the North American Industry
Classification System (NAICS) website at www.naics.com.
What are the different industrial sectors on which you can
find information? Describe the type of information that is
available about manufacturing and service firms in North
America. As a salesperson, how would you be able to use
this information?
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Chapter 10 | Slide 63
Internet Exercises cont’d
2. Using Google or any other search engine, find guidelines
(in addition to those discussed in this chapter) for doing
business in international markets.
3. Use the Internet to find articles on business etiquette that
salespeople should be aware of when doing business in
countries whose cultural systems are very different from
those in the United States.
4. Using an Internet search engine, find articles on different
international negotiation approaches. Which countries do
you think differ the most in their negotiation approaches?
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Chapter 10 | Slide 64
Projects For Personal Growth
1. Your company’s R&D department has developed a chemical compound
made from corn by-products that provides airtight sealing properties
when coated over various substances. R&D scientists believe that this
product, tentatively named Sealatron, will have many uses in the heavy
construction industry. They say it may be appropriate for a final coating
on top of the outer insulation wrappings for large oil and gas pipes,
power lines, and perhaps sewer and water mains. It might also be used
for waterproofing the exteriors of commercial buildings. Go to your
school library and use the North American Industry Classification
System (NAICS) to research the potential markets for this new chemical
sealant. How specifically can you define the potential markets with
NAICS digits? Once you’ve found the level of specificity that you want,
how will you use the NAICS information?
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Chapter 10 | Slide 65
Projects For Personal Growth cont’d
2. Assume that you sell for a small clothing manufacturer that wants to
supply your company’s undershirts, undershorts, and trousers to one or
more of the military branches. Go to FedBizOpps.gov and see what
information you can find about federal government solicitations for
clothing contracts. What other websites did you visit to find more
information? Keep at it until you find at least two solicitations that you
believe your company could bid on. Find out how, when, and where to
submit your bid.
3. Select a country (other than the United States) in which you would like
to sell products and services for a U.S.-based company. What are some
basic considerations and rules of etiquette that you need to know and
follow in order to sell successfully in this country?
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Chapter 10 | Slide 66
Case 10.1: Do I Really Have To
Worry About All These People?
1. In terms of buying-center roles (initiators, gatekeepers,
influencers, deciders, buyers, and users), how should
Linda classify each of the seven people she met at
Gamble & Simpson (Marie Doyle, Bill Constantin, Esther
Hughes, Dr. Stuart Forbes, Dr. Li Chu, Fred Burnett, and
Dr. Leland Birsner)
2. Which of these people do you think has the greatest
influence on purchase decisions? Why?
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Chapter 10 | Slide 67
Case 10.1: Do I Really Have To
Worry About All These People? cont’d
3.
What advice would you give Linda in her efforts to think up a strategy
and tactics to develop and maintain good relationships with all of these
buying center members?
4.
Now that her first sales call is over, what should Linda do to follow up
with some or all of the Gamble & Simpson people?
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Chapter 10 | Slide 68
Case 10.2:
Now What Am I Going To Do?
1. Do you think Keith has been doing a good job serving the
Eaton account? Why or why not?
2. In what stage of the buying process is Eaton’s new
purchasing organization? What is the buying situation from
their perspective?
3. What specific actions would you advise Keith to take now?
4. If Keith manages to retain the Eaton account, what advice
would you give him for long-run maintenance of the
account?
Case 10.2 is found online at
http://college.hmco.com/pic/andersonps2e.
Copyright © Houghton Mifflin Company. All rights reserved.
Chapter 10 | Slide 69