Chapter 7 Analyzing Business Markets 1) ________ refers to the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. A) Marketing channels B) Organizational buying C) Corporate retailing D) Brand auditing E) Inventory control Answer: B 2) The ________ consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. A) business market B) consumer market C) e-commerce market D) global market E) domestic market Answer: A 3) The ___________ normally deals with far fewer, much larger buyers than the consumer marketer does. A) savvy marketer B) retail marketer C) business marketer D) global marketer E) regional marketer Answer: C 4) Which of the following is true for business marketers? A) They deal with more and larger buyers than consumer marketers. B) They deal with more and smaller buyers than consumer marketers. C) They deal with fewer and larger buyers than consumer marketers. D) They deal with fewer and smaller buyers than consumer marketers. E) They deal with the same kind of buyers as consumer marketers. Answer: C 5) Which of the following is a challenge in which business marketers differ from the consumer marketers? A) understanding deep customer needs in new ways B) identifying new opportunities for organic business growth C) geographically concentrated buyers D) calculating better marketing performance and accountability metrics E) competing and growing in global markets, particularly China Answer: C 6) Ultimately, the amount of steel sold to General Motors depends on the consumers' demand for GM cars and trucks. From the standpoint of the steel manufacturer, which of the following demand forms is most pertinent? A) derived demand B) inelastic demand C) geographic demand D) relational demand E) static demand Answer: A 7) The demand for business goods is ultimately derived from the demand for ________. A) raw materials B) consumer goods C) services D) business solutions E) e-commerce Answer: B 8) A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for plant and equipment necessary to produce the additional output. Economists refer to this as ________. A) derived demand B) inelastic demand C) the acceleration effect D) a straight rebuy E) the sales cycle Answer: C 9) The total demand for many business goods and services is not much affected by price changes. Thus, this demand is ________. A) derived B) fluctuating C) accelerated D) multiple E) inelastic Answer: E 10) The purchasing department buys office supplies on a routine basis from a pre-approved list of suppliers. This type of purchase is classified as a ________. A) straight rebuy B) modified rebuy C) new task D) secondary purchase E) procure-to-pay Answer: A 11) Sometimes a rise of only 10% in consumer demand can cause as much as a 200% rise in business demand for products for the next period. This is an example of ________. A) inelastic demand B) direct purchasing C) fluctuating demand D) derived demand E) a straight rebuy Answer: C 12) Shoe manufacturers are not going to buy much more leather if the price of leather falls, nor will they buy much less leather if the price rises, unless they can find satisfactory substitutes. This is an example of ________. A) inelastic demand B) direct purchasing C) the acceleration effect D) a modified rebuy E) a straight rebuy Answer: A 13) Asiaworth Pte Ltd is shifting from its rented four-room office to a standalone office building owned by the company itself. This can be classified as a ________. A) modified rebuy B) regular buy C) straight rebuy D) new rebuy E) new task Answer: E 14) In a ________ purchasing situation, the buyer wants to make some change to existing product specifications, prices, delivery requirements, or other terms. A) new rebuy B) regular buy C) straight rebuy D) modified rebuy E) new task Answer: D 15) The business buyer has to make the fewest decisions when involved in a ________. A) modified rebuy B) regular buy C) straight rebuy D) new rebuy E) new task Answer: C 16) Jason Lim’s company is considered to be an in-supplier for a vacuum cleaner manufacturer. However, recently the vacuum cleaner company has put out a memo to in- and out-suppliers indicating that it would like to change product specifications and delivery schedules. Which of the following buying situations is most likely to be in operation given this data? A) straight rebuy B) single rebuy C) rakeback rebuy D) system buy E) modified rebuy Answer: E 17) Orica Pte Ltd competes in the market for commercial explosives. The company recently changed its business model from just selling explosives to managing an entire blast in a quarry. This customer-solution-based approach to the sale of explosives is an example of ________. A) systems selling B) straight rebuying C) customer referencing D) derived demand E) channel consolidation Answer: A 18) If you decided to go into the systems contracting business, which of the following categories would constitute your main area of expertise, the service you provide for customers? A) computer applications B) database management C) manufacturing D) promotion management E) MRO (maintenance, repair, operating) supplies Answer: E 19) Many business buyers prefer to buy a total solution to a problem from one seller. This process is also known as ________. A) channel consolidation B) systems buying C) vertical buying D) horizontal buying E) supply buying Answer: B 20) Xerox offers a ________ approach to prospective clients when it offers a complete turnkey solution, including the operation and management of the client's information and communication need. A) guided selling B) fair trading C) systems buying D) cross-selling E) local purchasing Answer: C 21) If Ampex Support Systems is the single supplier for a local manufacturing company's MRO (maintenance, repair, operating) supplies and needs, Ampex Support Systems is considered as providing ________ for the manufacturer. A) guided selling B) purchasing support C) turnkey logistics D) decision support E) systems contracting Answer: E 22) ________ is a key industrial marketing strategy in bidding to build large-scale industrial products such as dams, pipelines, etc. A) Systems contracting B) Systems buying C) Systems selling D) Solutions buying E) Turnkey logistics Answer: C 23) ________ is composed of all parties who participate in the purchasing decision-making process and share common goals and risks associated with their decisions. A) The buying center B) The marketing sales team C) Strategic management D) Engineering support E) The logistics center Answer: A 24) In the purchasing decision process, the ________ are those who request that something be purchased. They may be users or others in the organization. A) users B) initiators C) influencers D) deciders E) approvers Answer: B 25) In the purchasing decision process, the ________ are those who have the power to prevent sellers or information from reaching members of the buying center. A) approvers B) buyers C) initiators D) gatekeepers E) deciders Answer: D 26) In the purchasing decision process, the major role of ________ is in selecting vendors and negotiating. A) gatekeepers B) buyers C) initiators D) approvers E) deciders Answer: B 27) If you performed the role of the ________ in a buying center, you would be the person that has the power to prevent sellers or information from reaching other members of the buying center. A) initiator B) influencer C) decider D) gatekeeper E) approver Answer: D 28) When purchasing disposable surgical gowns, Changi Hospital's vice president of purchasing analyzes whether the hospital should buy disposable gowns or reusable gowns. If the findings favor disposable gowns, then the operating-room administrator compares various competitors' products and prices and makes a choice. Surgeons influence the decision retroactively by reporting their satisfaction with the particular brand. In this situation, the operating-room administrator performs the role of the ________. A) gatekeeper B) initiator C) user D) decider E) influencer Answer: D 29) When purchasing disposable surgical gowns, Changi Hospital's vice president of purchasing analyzes whether the hospital should buy disposable gowns or reusable gowns. If the findings favor disposable gowns, then the operating-room administrator compares various competitors' products and prices and makes a choice. Surgeons influence the decision retroactively by reporting their satisfaction with the particular brand. In this situation, the surgeons perform the role of the ________. A) decider B) initiator C) user D) gatekeeper E) buyer Answer: C 30) In which of the following is a person performing the role of an influencer? A) Dan decides on the product requirements and makes the final choice of suppliers. B) Leo has the authority to pick out the supplier and negotiate the terms of purchase. C) Liam heads the Tech team at LKG and provides information for evaluating the possible alternatives. D) LKG gets many calls from potential suppliers, and it is Leah's job to weed out the good prospects and refer them to others in LKG. E) Dana authorizes the actions of the deciders and buyers in LKG. Answer: C 31) In which of the following is a person performing the role of an approver? A) Dan decides on the product requirements and makes the final choice of suppliers. B) Leo has the authority to pick out the supplier and negotiate the terms of purchase. C) Liam heads the Tech team at LKG and provides information for evaluating the possible alternatives. D) LKG gets many calls from potential suppliers, and it is Leah's job to weed out the good prospects and refer them to others in LKG. E) Dana authorizes the actions of the deciders and buyers in LKG. Answer: E 32) In which of the following is a person performing the role of a gatekeeper? A) Dan decides on the product requirements and makes the final choice of suppliers. B) Leo has the authority to pick out the supplier and negotiate the terms of purchase. C) Liam heads the Tech team at LKG and provides information for evaluating the possible alternatives. D) LKG gets many calls from potential suppliers, and it is Leah's job to weed out the good prospects and refer them to others in LKG. E) Dana authorizes the actions of the deciders and buyers in LKG. Answer: D 33) Which of the following is true about the buying center? A) In a buying center, one person cannot play more than one role. B) A typical buying center has a maximum of five or six members. C) A buying center consists of only mid-level managers and below. D) It is the decision-making unit of a buying organization. E) Gatekeepers in a buying center are people who authorize the proposed actions of deciders or buyers. Answer: D 34) Small sellers should first concentrate their marketing efforts on reaching ________. A) approvers B) initiators C) influencers D) users E) initiators Answer: C 35) If you were an upper-level marketing executive of a large seller of trucks, which of the following strategies would be most appropriate in reaching buying center targets? A) Concentrate on key buying influencers. B) Use multilevel in-depth selling. C) Use trade-based promotions. D) Concentrate sales efforts on the support staff. E) Move all operations to the Internet. Answer: B 36) ________ occurs when customers are given a perspective or point of view that allows the firm to “put its best foot forward.” A) Gatekeeping B) Commoditization C) Framing D) Rebuying E) Bartering Answer: C 37) The new, more strategically oriented purchasing departments have a mission. Which of the following most accurately describes that mission? A) Make the most profit possible and remain independent of entanglements. B) Approach every purchasing opportunity as means to create interdependency. C) Seek the best value from fewer and better suppliers. D) Outsource the supply function. E) Abandon all strategies except for systems selling and buying. Answer: C 38) Patrick Jung and his associates have identified eight stages in the business buying-decision process. This model is called the ________ framework. A) buygrid B) buying/selling C) seller-centered D) commercial E) buy-analysis Answer: A 39) According to Patrick Jung, the eight stages in the business buying-decision process are known as ________. A) buyphases B) buybacks C) buyouts D) buyables E) buyoffs Answer: A 40) Which of the following is a step in the straight rebuy buyclass? A) problem recognition B) general need description C) product specification D) supplier search E) proposal solicitation Answer: C 41) A new-task buyclass decision begins with which of the following steps? A) supplier search B) general need description C) product specification D) problem recognition E) proposal solicitation Answer: D 42) In reordering office supplies, the only stages that the buyer passes through are the product specification stage and the ________ stage. A) problem recognition B) general need description C) order-routine specification D) supplier search E) performance review Answer: E 43) The approach to cost reduction that studies whether components can be redesigned or standardized or made by cheaper methods of production without adversely impacting product performance is termed as ________. A) maintenance, repair, and operating (MRO) B) product value analysis (PVA) C) vendor managed inventories (VMI) D) supplier performance management (SPM) E) supplier added value effort (SAVE) Answer: B 44) Business buyers may get new ideas at a trade show, see an ad, or receive a call from a sales representative who offers a better product or a lower price compared to the current in-supplier. These situations spur the ________ stage. A) problem recognition B) general need description C) order-routine specification D) supplier search E) performance review Answer: A 45) Business marketers can stimulate problem recognition by ________. A) ensuring a presence in trade directories B) direct mail, telemarketing, and calling on prospects C) encouraging the Better Business Bureau to release statistics D) using consumer advertising E) conducting surveys of existing customers Answer: B 46) With respect to e-procurement, Coca-Cola, Sara Lee, Kraft, PepsiCo, P&G, and several other companies joined forces to form a ________ called Transora to use their combined leverage to obtain lower prices for raw materials. A) manufacturer's co-op B) supplier's co-op C) middleman group D) buying alliance E) buying cabal Answer: D 47) Plastics.com allows plastics buyers to search the best prices among thousands of plastics sellers. Plastics.com is an example of a(n) ________. A) buying alliance B) barter market C) systems seller D) vertical market E) auction site Answer: D 48) On an online ________, prices change by the minute. A) buying alliance B) barter market C) systems seller D) spot market E) catalog site Answer: D 49) With respect to e-procurement, which of the two types of e-hubs are Web sites organized around? A) vertical and horizontal hubs B) vertical and functional hubs C) functional hubs and organizational hubs D) supplier and user hubs E) manufacturer and supplier hubs Answer: B 50) Which of the following is an example of a vertical hub? A) Plastics.com allows plastics buyers to search the best prices among thousands of plastics sellers. B) ChemConnect.com is an online exchange for buyers and sellers of bulk chemicals. C) SteelMart.com concentrates on steel buyers from the United States. D) Garments & Textiles Online was launched to help international buyers trade more effectively with apparel manufacturers in China, India, and other supply markets. E) PaperTiger.com offers paper buyers a comprehensive look at the prices and quality in the paper market. Answer: D 51) The ________ approach to consumer research asks customers to attach a monetary value to alternative levels of a given attribute. The value of a given configuration is determined by adding the average values of each of the given attributes. A) benchmarking B) compositional C) importance rating D) focus-group E) conjoint analysis Answer: B 52) In the ________ method for assessing customer value, customers are asked how costs of using a new product compare to those of using an incumbent. A) direct survey B) importance ratings C) field value-in-use assessment D) benchmarking E) conjoint analysis Answer: C 53) In the ________ method for assessing customer value, customers are asked to rank their preference for alternative market offerings or concepts. Statistical analysis is used to estimate the implicit value placed on each attribute. A) internal engineering assessment B) importance ratings C) field value-in-use assessment D) benchmarking E) conjoint analysis Answer: E 54) In the ________ method for assessing customer value, company engineers use laboratory tests to estimate the product’s performance characteristics. However, this ignores the fact that in different applications, the product will have different economic value. A) internal engineering assessment B) importance ratings C) field value-in-use assessment D) benchmarking E) conjoint analysis Answer: A 55) In the ________ method for assessing customer value, customers are asked to place a direct dollar value on one or more changes in the market offering. A) internal engineering assessment B) direct survey C) importance ratings D) field value-in-use assessment E) benchmarking Answer: B 56) In the ________ method for assessing customer value, customers are asked to rate the importance of different attributes and their suppliers’ performance on these attributes. A) internal engineering assessment B) importance ratings C) field value-in-use assessment D) benchmarking E) conjoint analysis Answer: B 57) In the ________ method for assessing customer value, customers are shown a “benchmark” offering and then a new market offering. They are asked how much more they would pay for the new offering or how much less they would pay if certain features were removed from the benchmark offering. A) internal engineering assessment B) importance ratings C) field value-in-use assessment D) benchmarking E) conjoint analysis Answer: D 58) Which of the following methods is most likely to be used by buyers to review the performance of chosen suppliers? A) the buyer may contact different suppliers and ask for their evaluations B) the buyers may rate the end-users on several criteria using a weighted-score method C) the buyer might aggregate the cost of poor performance to come up with adjusted costs of purchase, including price D) the buyers may aggregate the opinions of various competitors and come up with the adjusted cost of supply E) the buyers might adopt the Supplier Added Value Effort technique to calculate supplier efficiency Answer: C 59) A ________ establishes a long-term relationship in which the supplier promises to resupply the buyer as needed, at agreed-upon prices, over a specified period of time. A) stockless purchase plan B) direct stock purchase plan C) defined contribution plan D) stock purchase plan E) share purchase plan Answer: A 60) In the ________ category of buyer-supplier relationships, competition rather than cooperation is the dominant form of governance. A) basic buying and selling B) bare bones C) contractual transaction D) customer supply E) collaborative Answer: D 61) Which of the following relationships is characterized by much trust and commitment leading to a true partnership? A) mutually adaptive B) collaborative C) basic buying and selling D) customer supply E) cooperative systems Answer: B 62) The partners in ________ systems are united in operational ways, but neither demonstrates structural commitment through legal means or adaptation. A) mutually adaptive B) cooperative C) basic buying and selling D) customer supply E) cooperative Answer: B 63) Value Central has a partnership of high trust and commitment with certain suppliers and gives them access to its sophisticated and detailed daily, individual store-based sales data. In exchange, those suppliers are responsible for managing Value Central's inventory of their products. This relationship is best described as ________. A) basic buying and selling B) contractual transaction C) collaborative D) customer supply E) customer is king Answer: C 64) The relationship between a company and its office supplies vendor where competition rather than cooperation is the dominant form of governance is probably best described as ________. A) basic buying and selling B) contractual transaction C) collaborative D) customer supply E) customer is king Answer: D 65) In the ________ category of buyer-supplier relationship, although bonded by a close, cooperative relationship, the seller adapts to meet the customer's needs without expecting much adaptation or change on the part of the customer in exchange. A) contractual transaction B) cooperative system C) collaborative D) mutually adaptive E) customer is king Answer: E 66) According to research studies, the closest relationships between customers and suppliers arise when ________. A) supply is important to the customer and there were procurement obstacles B) procurement is simple C) there are many undifferentiated vendors in the marketplace D) the customer is highly price sensitive E) the suppliers charge a premium for their products Answer: A 67) The type of buyer-supplier relationship in which buyers and sellers make many relationship-specific adaptations, but without necessarily achieving strong trust or cooperation is termed as ________. A) customer is king B) mutually adaptive C) collaborative D) contractual transaction E) customer supply Answer: B 68) ________ investments are those expenditures tailored to a particular company and value chain partner. A) Diversified B) Pooled C) Specific D) Umbrella E) General Answer: C 69) Which of the following is a form of cheating or undersupply relative to an implicit or explicit contract which usually takes place when buyers cannot easily monitor supplier performance? A) Institutional sale B) Business buying C) Opportunism D) Vertical integration E) Contractual transactionism Answer: C 70) The ________ market consists of schools, hospitals, nursing homes, prisons, and other institutions that must provide goods and services to people in their care. A) vertical B) nonprofit C) spot D) secondary business E) institutional Answer: E 71) In most countries, ________ are the major buyers of goods and services. They typically require suppliers to submit bids and often award the contract to the lowest bidder. A) consumer packaged-goods companies B) government organizations C) health services vendors D) educational institutions E) households Answer: B 72) Organizational buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. Answer: True 73) The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. Answer: True 74) Business markets have several characteristics that contrast sharply with those of consumer markets. Answer: True 75) The business market is essentially the same market as the consumer market. Answer: False 76) Business buyers often select suppliers who also buy from them. Answer: True 77) The business marketer normally deals with far fewer, much larger buyers than the consumer marketer does. Answer: True 78) An increase in the demand for plant and equipment can lead to a much larger increase in consumer demand. This is known as the acceleration effect. Answer: False 79) The demand for business goods is ultimately derived from the demand for raw materials. Answer: False 80) The total demand for many business goods and services is inelastic, that is, not much affected by price changes. Answer: True 81) In the straight rebuy, “out-suppliers” try to get a small order and then enlarge their purchase share over time. Answer: True 82) The buyer in a straight rebuy usually changes product specifications, prices, delivery requirements, or other terms. Answer: False 83) The business buyer makes the fewest decisions in the straight rebuy situation and the most in the new-task situation. Answer: True 84) Most business buyers reject what is called systems buying from one seller. Answer: False 85) Systems selling is a key industrial marketing strategy in bidding to build large-scale industrial projects such as dams or pipelines. Answer: True 86) Sellers benefit from systems contracting through lower operating costs as a result of steady demand and reduced paperwork. Answer: True 87) The buying center is where consumers go to purchase their goods and services. Answer: False 88) With respect to the buying center, approvers are people who have the power to prevent sellers or information from reaching members of the buying center. Answer: False 89) Initiators are those who authorize the proposed action of deciders or buyers. Answer: False 90) Influencers influence the buying decision by helping define specifications and providing information for evaluating alternatives. Answer: True 91) In the buying center, several people can occupy a given role such as user or influencer, and one person may play multiple roles. Answer: True 92) Small sellers concentrate on multilevel in-depth selling instead of reaching the key buying influencers. Answer: False 93) In the business market, small sellers concentrate on reaching as many participants as possible because their chances of success are slim. Answer: False 94) Framing occurs when customers are given a perspective or point of view that allows the firm to “put its best foot forward.” Answer: True 95) A performance review is the first step in the buygrid framework. Answer: False 96) The buying process begins when someone places an order with a sales representative. Answer: False 97) Product value analysis is an approach to efficiency that studies whether components can be redesigned or made by more efficient methods of production without adversely impacting product performance. Answer: False 98) On spot electronic markets, prices of products or commodities change by the minute. Answer: True 99) In buying alliances, participants offer to trade goods or services. Answer: False 100) With respect to assessing customer value, in conjoint analysis customers are asked to rank their preference for alternative market offerings or concepts. Answer: True 101) The buying center may attempt to negotiate with preferred suppliers for better prices and terms before making the final selection. Answer: True 102) Vertical coordination can facilitate stronger customer-seller ties but at the same time may increase the risk to the customer’s and supplier’s specific investments. Answer: True 103) Companies are increasingly reducing the number of suppliers they utilize, and there is a trend toward single sourcing. Answer: True 104) Companies that use multiple sources often cite the threat of a labor strike as the biggest deterrent to single sourcing. Answer: True 105) Companies that fear a shortage of key materials are willing to buy and hold large inventories. Answer: True 106) Corporate credibility depends on corporate expertise, corporate trustworthiness, and corporate likability. Answer: True 107) One of the problems facing B2B on the Web is that many firms often impose more stringent requirements on their online business partners than they do on non-online partners. Answer: True 108) The “customer is king” category of buyer-seller relationship is relatively simple, and one in which routine exchanges with moderately high levels of cooperation and information exchange occur. Answer: False 109) Contracts are always sufficient to govern supplier transactions and prevent supplier opportunism. Answer: False 110) A good illustration of a member of the institutional market would be Boeing because it is a member of the aviation institution structure. Answer: False 111) Government organizations typically require suppliers to submit bids, and normally they award the contract to the highest bidder. Answer: False 112) Business markets have several characteristics that contrast sharply with those of consumer markets. Name and briefly characterize five of those characteristics. Answer: The characteristics of business markets as compared to consumer markets are: (1) fewer, larger buyers, (2) close supplier-customer relationship, (3) professional purchasing, (4) multiple buying influences, (5) multiple sales calls, (6) derived demand, (7) inelastic demand, (8) fluctuating demand, (9) geographically concentrated buyers, and (10) direct purchasing. See chapter section for brief characterizations. 113) Explain how fluctuating demand impacts business markets differently from consumer markets. Answer: The demand for business goods and services tends to be more volatile than the demand for consumer goods and services. A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for plant and equipment necessary to produce additional output. Economists refer to this as the acceleration effect. 114) Illustrate the differences between a straight rebuy, modified rebuy, and a new-task purchase. Answer: In a straight rebuy, the purchasing department reorders on a routine basis and choose from suppliers on an approved list. In a modified rebuy, the buyer wants to modify product specifications, prices, delivery requirements, or other terms. Lastly, in the new-task purchase, a purchaser buys a product or service for the first time. 115) What are the three different types of buying situations faced by a typical business buyer? Answer: The business buyer faces many decisions in making a purchase. Three types of buying situations are the straight rebuy, modified rebuy, and new task. Straight rebuy—In a straight rebuy, the purchasing department reorders supplies such as office supplies and bulk chemicals on a routine basis and chooses from suppliers on an approved list. The suppliers make an effort to maintain product and service quality and often propose automatic reordering systems to save time. “Out-suppliers” attempt to offer something new or exploit dissatisfaction with a current supplier. Their goal is to get a small order and then enlarge their purchase share over time. Modified rebuy—The buyer in a modified rebuy wants to change product specifications, prices, delivery requirements, or other terms. This usually requires additional participants on both sides. The in-suppliers become nervous and want to protect the account. The out-suppliers see an opportunity to propose a better offer to gain some business. New task—A new-task purchaser buys a product or service for the first time (an office building, a new security system). The greater the cost or risk, the larger the number of participants, and the greater their information gathering, the longer the time to a decision. 116) Describe the practices of systems buying and systems contracting. Answer: Systems buying involves buying a total solution to a problem from one seller. Systems contracting is a variant of systems selling in which a single supplier provides the buyer with his entire requirement for maintenance, repair, and operating supplies. During the contract period, the supplier manages the customer's inventory. 117) What is the composition of the buying center? Answer: A buying center is composed of “all those individuals and groups who participate in the purchasing decision-making process, who share some common goals and the risks arising from the decisions.” The buying center includes all members of the organization who play any of seven roles in the purchase decision process: initiators, users, influencers, deciders, approvers, buyers, gatekeepers. Buying centers usually include several participants with differing interests, authority, status, and persuasiveness. Each member of the buying center is likely to give priority to very different decision criteria. 118) List the seven roles of people in a buying center. Answer: 1. Initiators—Users or others in the organization who request that something be purchased. 2. Users—Those who will use the product or service. In many cases, the users initiate the buying proposal and help define the product requirements. 3. Influencers—People who influence the buying decision, often by helping define specifications and providing information for evaluating alternatives. Technical personnel are particularly important influencers. 4. Deciders—People who decide on product requirements or on suppliers. 5. Approvers—People who authorize the proposed actions of deciders or buyers. 6. Buyers—People who have formal authority to select the supplier and arrange the purchase terms. Buyers may help shape product specifications, but they play their major role in selecting vendors and negotiating. In more complex purchases, buyers might include high-level managers. 7. Gatekeepers—People who have the power to prevent sellers or information from reaching members of the buying center. For example, purchasing agents, receptionists, and telephone operators may prevent salespersons from contacting users or deciders. 119) Explain the concept of systems contracting. Answer: Systems contracting is where a single supplier provides the buyer with his or her entire requirement of MRO (maintenance, repair, operating) supplies. During the contract period, the supplier manages the customer’s inventory. For example, Shell Oil manages the oil inventory of many of its business customers and knows when it requires replenishment. The customer benefits from reduced procurement and management costs, and from price protection over the term of the contract. The seller benefits from lower operating costs because of a steady demand and reduced paperwork. 120) How do business marketers target firms? Answer: Business marketers may divide the marketplace in many different ways to decide on the types of firms to which they will sell. Finding those business sectors with the greatest growth prospects, most profitable customers, and most promising opportunities for the firm is crucial. 121) What are the benefits of vertical coordination? Answer: Much research has advocated greater vertical coordination between buying partners and sellers so that they transcend mere transactions to engage in activities that create more value for both parties. These benefits include gaining a more than proportionate increase in market share through mass production and advertising, overcoming barriers to entry when relationships are formed with another company that is already in the industry, and lowering the cost of reproducing products when the same offering is given to multiple clients. 122) The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. List the major industries that make up the business market. Answer: The major industries making up the business market are agriculture, forestry, and fisheries; mining; manufacturing; construction; transportation; communication; public utilities; banking, finance, and insurance; distribution; and services. 123) Define organizational buying. Answer: Organizational buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. 124) Explain the concept of derived demand. Answer: The demand for business goods is ultimately derived from the demand for consumer goods. Consumer demand for business' end products drives their production. Production of those end products drives business demand for the inputs to those production processes. 125) If you were a purchasing agent facing a modified rebuy situation, how would you describe that situation? Answer: The buyer wants to modify product specifications, prices, delivery requirements, or other items. The modified rebuy usually involves additional participants on both sides. 126) Which type of buying situation would be preferred if the management wants to minimize decision-making time and effort? Answer: The business buyer makes the fewest decisions in the straight rebuy situation and the most in the new-task situation. Hence, a straight rebuy situation would be preferable. 127) In systems buying, governments often solicits bids from prime contractors. What do prime contractors do? Answer: Governments solicit bids from prime contractors who assemble the package or system. The contractor who was awarded the contract would be responsible for bidding out and assembling the system's subcomponents from second-tier contractors. Thus, the prime contractor provides a turnkey solution. 128) Systems selling is a key industrial marketing strategy in bidding to build large-scale industrial projects. Competition for these projects is fierce. What are the main areas of competition for these project engineering firms? Answer: Primary competitive areas include: price, quality, reliability, and other attributes to win contracts. 129) List the seven roles played by members of a buying center. Answer: The roles are: (1) initiators, (2) users, (3) influencers, (4) deciders, (5) approvers, (6) buyers, and (7) gatekeepers. 130) Buying centers usually include several participants with differing interests, authority, status, and persuasiveness. Explain. Answer: Each member of the buying center is likely to give priority to very different decision criteria. For example, engineering personnel may be concerned primarily with maximizing the actual performance of the product; production personnel may be concerned mainly with ease of use and reliability of supply; financial personnel may focus on the economics of the purchase; purchasing personnel may be concerned with operating and replacement costs; union officials may emphasize safety issues, and so on. 131) BEL is a small seller of specialized auto parts, while MES is a large seller of auto parts. Both firms want to approach the same car company with a view to supplying parts to it. How will their approaches differ? Answer: Small sellers like BEL concentrate on reaching the key buying influencers in order to make the most effective use of their small sales force. Large sellers like MES go for multilevel in-depth selling to reach as many participants as possible to increase sales volumes and strengthen relationships. 132) With reference to online buying, what are vertical markets? Give an example of a vertical market. Answer: Student answers may vary. Companies buying industrial products such as plastics, steel, or chemicals or services such as logistics or media can go to specialized Web sites (called e-hubs). Plastics.com allows plastics buyers to search the best prices among thousands of plastics sellers. Vertical markets in online buying refer to niche markets that focus on specific industries or sectors, catering to specialized needs and requirements. An example of a vertical market is the healthcare industry, where online platforms specialize in selling medical equipment, pharmaceuticals, or software tailored for healthcare providers. These markets often require industry-specific knowledge and solutions, distinguishing them from broader horizontal markets. 133) E-procurement Web sites are organized around two types of e-hubs. If you were in the advertising business and were seeking to take advantage of e-procurement, what type of e-hub should be constructed by your company? Answer: The two types of hubs are vertical hubs (centered on industries such as plastics) and functional hubs (centered on functions such as advertising). Therefore, you would construct a functional hub. 134) What are the benefits of e-procurement? Answer: Aggregating purchases across multiple departments gains larger, centrally negotiated volume discounts. There is less buying of substandard goods from outside the approved list of suppliers, and a smaller purchasing staff is required. 135) Why are companies increasingly reducing the number of suppliers? Answer: These companies want their chosen suppliers to be responsible for a larger component system; they want them to achieve continuous quality and performance improvement while at the same time lowering the supply price each year by a given percentage. These companies expect their suppliers to work closely with them during product development, and they value their suggestions. 136) What do you understand by “blanket contract”? Answer: A blanket contract establishes a long-term relationship in which the supplier promises to resupply the buyer as needed, at agreed-upon prices, over a specified period of time. 137) As part of the buyer selection process, buying centers must decide how many suppliers to use. What might motivate a buyer to use multiple sources? Answer: Companies that use multiple sources often cite the threat of a labor strike as the biggest deterrent to single sourcing. Another reason companies may be reluctant to use a single source is that they fear they'll become too comfortable with the relationship and lose their competitive edge. 138) In the buygrid framework model, where the major stages of the industrial buying process are listed and characterized, supplier selection is an important process. What follows supplier selection and what occurs in this phase? Answer: The step that follows supplier selection is order-routine specification. After selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the quantity needed, the expected time of delivery, return policies, warranties, and so on. 139) Researchers have found that buyer-supplier relationships differed according to four factors: availability of alternatives; importance of supply; complexity of supply; and supply market dynamism. Based on these four factors, they classified buyer-supplier relationships into eight different categories. What are those categories? Answer: The categories are: (1) basic buying and selling, (2) bare bones, (3) contractual transaction, (4) customer supply, (5) cooperative systems, (6) collaborative, (7) mutually adaptive, and (8) customer is king. For additional information, see the specific chapter section. 140) As a seller in the business market, you have promised your customers that you have corporate credibility as one of your corporate goals. What three factors will have some bearing on whether you will be able to meet your goal and promise? Answer: The three factors are: (1) corporate expertise, (2) corporate trustworthiness, and (3) corporate likability. In other words, a credible firm is seen as being good at what it does, it keeps its customers’ best interests in mind, and it is enjoyable to work with. 141) Researchers have found that buyer-supplier relationships could be classified into eight different categories. What category would be appropriate for a relationship where, although bonded by a close, cooperative relationship, the seller adapts to meet the customer's needs without expecting much adaptation or change on the part of the customer in exchange? Answer: The appropriate category would be the “customer is king” category. The appropriate category for such a buyer-supplier relationship is "responsive relationship." 142) Explain the term opportunism with respect to business relationships. Answer: When buyers cannot easily monitor supplier performance, the supplier might shirk or cheat and not deliver the expected value. Opportunism is “some form of cheating or undersupply relative to an implicit or explicit contract.” It may entail blatant self-serving and deliberate misrepresentation that violates contractual agreements. 143) Your organization is considering selling its products to the institutional market. What type of customers will you be making your appeals to? Answer: The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that must provide goods and services to people in their care. Test Bank for Marketing Management: A South Asian Perspective Philip Kotler, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha 9789810687977, 9780132102926
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