Weekly Application #3

To Buy or Not To Buy

MAR 6805

Introduction:

This module covers pricing strategies, with an emphasis on the buyer decision process, and then the multicultural marketplace.

The following is a short outline and dialogue that focuses on one of the concepts that are covered to some degree in the text, but that are important enough for today’s business environment that I want you to get a little more information, and I want you to do a little more thinking about how this concept applies to you in your workplace environment.

Remember, when you spend a few moments trying to apply what you’ve read or watched to your own situation, you learn better, retain information better, and will be better able to use the information in the future. And that’s hopefully why you’re in this program. I truly want you to be successful and to take useful information from this class to your lives outside of the MBA program.

To Buy or Not to Buy?

· A wide range of businesses participate in B2B transactions. Many of these purchases with B2B are also managed through CRM systems like we talked about last week.

· You’ll find many purchasers or sellers of products in the B2B realm listed in the North American Industry Classification System NAICS– the government’s method of classifying business activity. Take a few moments to study the site and think about where your company (either where you work or the one you’re using for your assignment) might be classified.

· Did you know that the Local, State and Federal Government is the largest consumer in the world according to the Government Contractors Association with a total spending of $6 trillion?

· Many firms sell exclusively to government entities and therefore are adept at meeting the unique needs of governmental buyers. For example, firms in the defense industry generally sell exclusively to governments.

· One essential, yet potentially confusing component of doing business with Government organizations locally or globally is mastering the use of acronyms. Take a look at the Small Business Administration’s sample list of Government acronyms just to get an idea.

· If you have worked for a company of any size you will no doubt see that they have a process for making those purchases.

· It begins with a request for solicitors or Request for Proposals (RFP). RFPs enable the buyer to solicit pricing and other information from a variety of suppliers and they also allow suppliers to learn about the buyer and its specific needs.

· In the examples here, one school district is looking for an evaluator for a grant and another is seeking bids on various equipment. Potential suppliers can view the products/services being sought and then create a customized bid to supply that product or service.

· A vendor is chosen, after a review of the criteria selected by the buyer as shown in the example. Then, for many institutions, a purchase order is generated to start the delivery process. Then an invoice is sent by the vendor and upon successful receipt of the order, the vendor is paid. This can be a 30-90 day process, so think about what type of reserves would you need as a company owner to compensate for this time lapse?

· What is not always considered in this process is the critical part that marketers and marketing departments play in this purchasing process. Purchasing departments are the “gate-keepers” for many purchases. These departments must look at many purchase requests for products and then approve a purchase or require more information.

· The individuals in the purchasing department frequently are not familiar with the products being requested for purchase and must rely solely on the descriptions of the product to make their decisions. If the products are missing some details or not fully represented by the marketers with the purchasing departments in mind, the companies and individuals requesting these purchases run the risk of not being approved.

· Read the following to learn an example of such a case.

The Purchasing Dilemma

To demonstrate the power of Purchasing Departments in determining what can or can not be purchased. Take a moment to review this actual email exchange taking place in a public school district between a purchasing department and the physical education department. [Names have been removed.]

The value of a product may not be conveyed through conventional marketing messages and purchasing departments will look for the lowest price without really understanding the difference in specs. How well and detailed you construct the initial bid request in addition to how well the product itself is described by the company can make or break a deal.

This situation reminds me why it is so important for the marketing messages to be ultra-clear in communicating the value, not just the price. Descriptions need to be written with the purchasing decision-maker (Purchasing Dept.) in mind not simply the end user (PE Teacher). As you can see in the conversation below…the PE Dept. was in jeopardy of not ending up with the desired type of pedometer and Company A may completely lose the sale (in this case over $60K.

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From: Instructional Services

To: Purchasing Subject: RE: R1428011

 

What is the status of this purchase requisition? Please let me know if you need any additional information.

 

 

From: Purchasing

To: Instructional Services Subject: RE: R1428011

 

I am still getting quotes.  You can look for vendors on buyboard and TCPN that might be able to give you a quote.

 

From: Instructional Services

To: Purchasing Subject: R1428011

We have already gotten several other quotes for the pedometers.

 

From: Purchasing

To: Instructional Services Subject: RE: R1428011

 

Please send me the quotes that you have.

 

From: Instructional Services

To: Purchasing Subject: RE: R1428011

 

Attached are all the quotes I have collected. Please let me know if you have any questions.

  

From: Purchasing To: Instructional Services Subject: FW: R1428011

 

Please attach the quote sheet and release your requisition back to purchasing.  Please include all the emails and quotes.  The recommended vendor is the lowest vendor its Company B.

 

From: Instructional Services

To: Purchasing Subject: RE: R1428011

 

We appreciate your assistance in helping us find additional quotes however, the original Company A quote shows each pedometer priced at 20.79 and meets our requested needs. Therefore we still wish to continue with our original request of Company A. Please let us know if you have any questions.

  

From:  Purchasing

To: Instructional Services Subject: RE: R1428011

 

Company A is $10,000 more than Company B.  That is a big difference.  “A” is $19 each vs $20.79 for “B”.  I am looking at pricing as our reason to go with the lowest vendor.  We cannot purchase from A they are a lot higher unless you have a valid reason.

 

From: Instructional Services To: Purchasing Subject: RE: R1428011

 

When we attend our professional conferences, we have access to the exhibit hall to review products from many vendors to determine in advance which meet the needs of our students and PEP Grant.

 

We chose the Company A Pedometer for its ability be used as an assessment tool – it uploads the movement data to our physical education teacher’s computer through proprietary software which allows specific reports to be generated for the students.  This reporting feature is now compatible with the IHT system that we currently are using in our schools to allow even greater reporting capacities.  This supports the health and physical education portion of the IB initiative in the District as well as the federal grant outcomes.

 

The Company B is a well-made pedometer, however it has only an internal system that tracks one individual’s activity.  There is no uploadable feature, no software and no reporting feature. While it is a pedometer, it does not have the additional software that we need offered by Company A.

 

Thanks again for your assistance, however we do still need to request the purchase from Company A, to meet our needs in the physical education program grant.

__________________________________________________________________________

To recap, the Purchasing Department was looking for other pedometers on their own to find cheaper versions because they determined that the requested pedometer was too expensive and did not find a significant difference based on product descriptions. They did not understand the unique software that came with the pedometer provided by Company A and were not going to approve that purchase. The software was a critical component of the pedometer purchase for the physical educators were going to use the software in the pedometers as assessment tools to report student progress to both a grant program and state education standards.

This exchange continued for several more days in attempt to help the purchasing department (clerk all the way up to Director) understand how this particular pedometer truly was unique from all other pedometers and why the software supplied made it necessary.

Without the continued intervention of the physical education administrators in the process to help describe the uniqueness of these pedometers, the sale would have been lost to a lower priced item that would not have met the intended functional requirements; initially because Company A had not provided enough details in their description of the product.

 

Now put this Purchasing Department situation in the global marketplace and it becomes even more complex. There are even more potential issues such as: language, culture, branding, product descriptions, channels, adaptation for a foreign market, etc.

· Some companies use statistical resources such as the Nation Master website for decisions regarding how, where and when to expand into the global marketplace.

· Consider again how your company or industry may interact with the individual buyer, business buyer or global buyer. What have you found to be successful or challenging in these areas?

· Take a look at the United Nations Global Marketplace site to review the process for international RFP type opportunities. This is one of many type of clearinghouse type sites for a variety of products and services solicitations around the world.