Dealing with Institutional Customers
Written by Malarvizhi K for Gaebler Ventures
Selling to institutions is more challenging than selling to consumers. We look at understanding Business to Business (B2B) customers and the keys to dealing with them successfully.
This article is for entrepreneurs involved in the Business to Business Space (popularly known as B2B).
Dealing with institutional customers is not the same as dealing with retail customers.
When it comes to the retail space, an individual buying an idea or product will not have a huge impact on your business. But the case is vastly different in the B2B space where each customer could lead to a big ticket transaction.
Generally speaking, however, institutional customers are more knowledgeable in terms of the product or service they require. So, the efforts that go into educating a consumer in the B2C space are less relevant, and effort and resource must be dedicated into gaining a better understanding of the needs of B2B customers and tailoring the solution in a B2B environment.
B2B Purchasing Orientations
There are three different types of purchasing orientations in B2B marketing, namely the buying orientation, procurement orientation and the Supply management orientation.
Buying Orientation is where fulfilling the requirement at the least possible price is the only criterion of concern.
Managers with a Procurement Orientation look to minimize the total cost of ownership (TOC) of the product over its lifetime.
Supply management orientation is another step ahead and focuses more on value delivered than on the price per se.
Winning in B2B
Purchasing managers in organizations have a good part of their compensation linked to minimizing the input costs and their performance is also reviewed on similar lines and hence no prizes for guessing that the buying orientation is the one that is most prevalent in many corporations.
From an Entrepreneurial point of view, competing on Price, in the initial stages, would be virtually impossible without the Economy of scale and hence would be an unsustainable strategy, unless there is some inimitable breakthrough technology involved. Let's hence focus on tactics on how to deal better with purchasing managers who are willing to look beyond price.
If you own a start-up company and are competing with relatively bigger players in the space to supply a product or service to an institutional buyer, it is critical to instill confidence in the buyer that you are capable of delivering more value than the others. Business demand is mostly derived demand and requires intricate planning in terms of the lead times involved in ordering, procuring and manufacturing.
To earn orders, one has to establish that the company is capable of delivering the product on time and ensure accuracy in the required specifications. This is very crucial for two reasons. Firstly, the buyer and the user are mostly different in B2B and any mismatch at one stage will substantially impact several other factors in the Value chain. Secondly, the cost of acquiring a customer is high in a B2B market and reliability is vital to keep the relationships going in the long term to get repeat orders.
If there is already a Supplier who has been supplying the organization for a long period, the task becomes more difficult. When Reliable service, on-time delivery, good quality and a competitive price all become a given, one has to look at ways to match the existing standards (Points of Parity) and deliver superior value than the competitor (Points of Differentiation).
Dislodging the existing supplier and acquiring the first order is often the most daunting task. There is a possibility that the existing supplier has got complacent over time or does not have the capability to meet the evolving needs of the Organization.
So, the strategy should be to find the loopholes in the current offering, the changing requirements and the emerging needs of the organization and plug the gap with one's offering at a competitive price.
Malarvizhi K is a student at the Indian Institute of Management, Bangalore(IIMB). Most recently, Malarvizhi worked at Macquarie Capital Advisers.
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