Leg 2 from Lisbon to Cape Town (VII). Bases for segmenting business markets and government entities.
Hi to all of you.
We will continue with the topic Bases for segmenting business markets.
Buying Situations
“Lady Reading by a Window” by Thomas Benjamin Kennington (1856-1916).
Any organization buyer or business buyer faces many decisions in making a purchase. How many decisions? Well, it depends on the complexity of the problem being solved, the newness of the buying requirement, number of people involved, and time required. The procurement for a multinational corporation is not the same than for a local petit company. For example: Just imagine the purchasing process from suppliers for Huawei Technologies Co. Ltd. Can you get it? Huawei is a Chinese multinational networking and telecommunications equipment and services company headquartered in Shenzhen, Guangdong. It is the largest telecommunications equipment manufacturer in the world, having overtaken Ericsson in 2012. The buying process for Huawei means a Global Procurement Business and Professional Procurement Organization. Huawei has one procurement department at headquarters, 3 procurement qualification centers outside of China, and 12 regional procurement qualification departments. Huawei runs procurement projects in more than 170 countries and regions.
The procurement process for Huawei is not the same one than for a bank. Let´s think about UBS Bank. UBS Bank appointed an external company called Chain IQ to provide procurement services for UBS. UBS has outsourced this part of its business since the year 2013, with a third party: Chain IQ is an independent, internationally active company based in Switzerland, offering comprehensive end-to-end procurement solutions for Swiss and international companies in the financial sector and other areas. Clients benefit from significant cost savings, which are achieved, among other things, through efficiency gains, economies of scale and the bundling of purchase volumes. Chain IQ has developed Smart Connect, which is an innovative middleware application, allowing clients to connect their ERP (Enterprise resource planning) or any other master data system to their procurement platform in a simple, smart and secure way.
Each company has different buying situations: According to Kotler and Keller, there are three types of buying situations: the straight rebuy, modified rebuy, and new task.
- Straight rebuy. In a straight rebuy, the purchasing department reorders supplies such as any type of supplies 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.
The business buyer makes the fewest decisions in the straight rebuy situation and the most in the new-task situation. Over time, new-buy situations become straight rebuys and routine purchase behavior.
Online selling efforts may be useful at all stages. In the new-task situation, the buyer must determine product specifications, price limits, delivery terms and times, service terms, payment terms, order quantities, acceptable suppliers, and the selected supplier. Different participants influence each decision, and the order in which these decisions are made varies.
Systems Buying and Selling
Many business buyers prefer to buy a total problem solution from one seller. Called systems buying, this practice was originated with government purchases of major weapons and communications systems.
The governments solicited bids from prime contractors that, if awarded the contract, would be responsible for bidding out and assembling the system’s subcomponents from second-tier contractors. The prime contractor thus provided a turnkey solution, so-called because the buyer simply had to turn one key to get the job done. Sellers have increasingly recognized that buyers like to purchase in this way, and many have adopted systems selling as a marketing tool. One variant of systems selling is systems contracting, in which a single supplier provides the buyer with its entire requirement of MRO supplies. During the contract period, the supplier also manages the customer’s inventory. In the USA there is a website which I invite you to visit if you want to know about the USA government systems selling platform: https://www.usaspending.gov/Pages/default.aspx
Another example: Shell Oil manages the oil inventories of many of its business customers and knows when they require replenishment. The systems selling is called “eVMI, Shell Electronic Vendor Managed Inventory (eVMI). Shell wished its clients to reduce fuel inventory and operating costs with eVMI. It is a fully automated stock management and ordering process that monitors the stock levels in your fuel tank using tank telemetry that sends data to an online system. The data is used to forecast your future expected fuel usage and automatically creates orders and arranges deliveries to replenish fuel stock – what you need, when you need it”.
Systems selling is a key industrial marketing strategy in bidding to build large-scale industrial projects such as dams, steel factories, irrigation systems, sanitation systems, pipelines, utilities, and even new towns. Customers present potential suppliers with a list of project specifications and requirements. Project engineering firms must compete on price, quality, reliability, and other attributes to win contracts. Suppliers, however, are not just at the mercy of customer demands.
With the Internet of Things (IoT), the Systems Selling business model has changed for the audacious, it is being considered or is happening for some, and is being under scrutiny for the skeptics. Many companies have started to build prototypes or to change its business models, on how to apply the IoT to the systems selling procedures. According to Wired.com, “IoT isn’t likely to get scale until the industry addresses its security issue. That will take a cooperation among vendors, government intervention, and standardization. IoT is still under-secured and presents possibly catastrophic security risks as companies trust IoT devices for business, operational and safety decisions. Existing standards are not in place and vendors keep struggling to embed the right level of intelligence and management into products. Add the increasing collaboration among attackers creates a need to address these challenges across a set of dimensions”.
Participants in the Business Buying Process
Who buys the trillions of dollars’ worth of goods and services needed by business organizations? Purchasing agents are influential in straight-rebuy and modified-rebuy situations, whereas other department personnel is more influential in new-buy situations. Whatever the case each company has a “buying center” department at least.
What is The Buying Center? Webster and Wind call the decision-making unit of a buying organization the buying center. It consists 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.”
Buying Center Influences
Buying centers usually include several participants with differing interests, authority, status, persuasiveness, and sometimes very different decision criteria. Engineers may want to maximize the performance of the product; production people may want ease of use and reliability of supply; financial staff focus on the economics of the purchase; purchasing may be concerned with operating and replacement costs; union officials may emphasize safety issues. Business buyers also have personal motivations, perceptions, and preferences influenced by their age, income, education, job position, personality, attitudes toward risk, and culture. In this sense, industrial buying decisions are both “rational” and “emotional”—they serve both the organization’s and the individual’s needs.
Now is the turn to talk about how the internet of things and the Industrial Internet of Things will and is changing the industry. “The Industrial Internet of Things (IIoT) combines people, machines, and analytics. Also known as the Industrial Internet, IIoT is a network of devices connected by communications technologies, resulting in systems that can track, gather, exchange, evaluate, and provide insights like never before. Based on these insights, industrial companies can make smarter and faster business decisions”.
In businesses and particularly the industrial businesses, since the year 2013, the Industrial Internet of Things has come to disrupt every single piece of the “value chain” of businesses. The systems selling is just one little part of what the IoT will change in the future. The big issue at the moment is the IoT Security issues and IoT privacy issues. In the USA, “at the moment though, no government agency oversees the IoT used in smart factories or consumer-focused IoT devices for smart homes”. Meanwhile, this issue is not solved, even the most audacious is taking the risk of being a pioneer. At the moment “Instead of one or two standards, the industry has several entities right now and none appears to be edging toward dominance. Those include vendor-based standards and ones put forth by the IoT Security Foundation, the IEEE, the Trusted Computing Group, the IoT World Alliance and the Industrial Internet Consortium Security Working Group. All of those bodies are working on standards, protocols and best practices for security IoT environments”. The IoT industry is working on a comprehensive IoT solution for the issues mentioned above (lack of regulation, IoT problems with security, lack of standards).
My own opinion about starting your business model transformation by including IoT is to take it easy. Measure your risks. If you risk of losing your company in the case of hackers damage reputation, better to wait some time. IoT and Industrial IoT has been adopted by many pioneers and will be adopted more and more, but keep an eye on the risks. The Industrial IoT still is dealing with the IoT security problems, IoT privacy issues, lack of government regulations, lack of standards and social-ethical vulnerabilities. Watch out!
Internet of Things Security Issues Require a Rethink on Risk Management
Ahhh… at this time, there are 4 teams which have arrived at Cape Town: MAPFRE, Dongfeng, Vestas, Team Brunel just arrived 5 minutes ago. Congratulations to all!
Source References:
https://www.amazon.co.uk/Marketing-Management-Philip-Kotler-Keller/dp/9332557187
https://beta.usaspending.gov/#/
https://www.gep.com/white-papers/internet-of-things-reimagining-procurement-new-digital-ecosystem
https://www.linkedin.com/pulse/internet-things-security-issues-require-rethink-risk-matt
https://www.salesforce.com/blog/2016/10/connected-customer-research.html
https://www.linkedin.com/pulse/reimagining-possibilities-industrial-internet-things-sherry-james-
http://www.businessinsider.com/internet-of-things-security-privacy-2016-8
http://www.shell.com/investors/email-alerts-and-social-media/investor-and-media-mobile-app.html
https://hbr.org/2013/05/how-the-internet-of-things-cha
https://www.weforum.org/agenda/2015/06/3-industries-being-changed-by-the-internet-of-things/
http://scs.huawei.com/supplier/about-global-layout.html
Disclaimer. All the pictures shown on this blog are not mine. I do not own any of the lovely photos posted unless otherwise stated.
Eleonora Escalante Strategy 