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Essentials of Marketing 16th Edition

Perreault Solutions Manual


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Chapter-by-chapter aids: Chapter 6

CHAPTER 6: BUSINESS AND ORGANIZATIONAL CUSTOMERS


AND THEIR BUYING BEHAVIOR
CHAPTER 6 – COMMENTS ON USE OF ETHICAL DILEMMA QUESTIONS WITH
THIS CHAPTER
Situation: What would you do? Assume that you are a salesperson in a small company. For months
you’ve been trying to get a big order from a large firm. A purchasing manager at the firm casually
mentions that she is trying to help two friends find tickets for a big hockey game. Your boss has season
tickets for entertaining customers, but you know that the purchasing manager’s company strictly prohibits
any gift to employees. When you ask your boss what to do, the reply is, “Well, the tickets would be used
by the friends and not the customer firm’s employee, so you can offer them if you think you should.” What
should you do? What are the pros and cons of your decision?

In class discussions, most students will suggest that it would be unethical to give the purchasing manager
the tickets. Indeed, the AMA Statement of Ethics (Exhibit 1-7) indicates that a marketer should not
encourage unethical behavior in a customer. The twist in this scenario is that the gift is not for the
customer himself, but rather would be used by his friends. But isn’t the salesperson still giving a gift to the
buyer – by entertaining the buyer’s friends.

Adding a discussion of the pros (perhaps building a relationship with the customer, creating a situation
where the customer firm’s employee feels indebted to you, and leading to more potential sales) and cons
(would the customer company see your offering the tickets unethical? and does this cross an ethical line
for either of you?) lets students explore a more utilitarian approach to ethical decisions.

It might also be useful to discuss the role of the sales manager in this case. The manager leaves it to the
salesperson to decide what to do and, in doing so, puts pressure on the sales rep to do something the rep
considers inconsistent with the customer firm’s policies. Managers in organizations are role models—and
that includes being role models with respect to ethical behavior. So, in a situation like this, it would be
best for the sales manager to voice a clear opinion about what action to take. The gift of the tickets would
violate the spirit of the customer firm’s policies, so it would be a bad idea for the selling firm to disregard
that policy. When marketing managers don’t take a stand on ethical issues, it sends the message that the
people who work for them should “do whatever it takes” to get business. And when that attitude is
communicated, it quickly breeds a poor ethical climate in a business.

CHAPTER 6 – COMMENTS ON USE OF MARKETING ANALYTICS IN ACTION


QUESTIONS IN THIS CHAPTER
The Marketing Analytics in Action (MAiA) exercises were designed to expose students to basic (and
sometimes more advanced) analytics used by marketing managers today. This exercise shows how
buyers’ typically monitor and evaluate supplier performance and the use of multiple sources for a
particular supply. The buyer (HighFly Drones) shows three months of supplier scorecard “scores” for two
suppliers. One supplier – Ace Electronics – has lower scores overall, but is showing improvement. The
second supplier – Charter Components – has higher overall scores but performance (particularly with
quality) have declined in the recent three-month period. The questions have no clear right and wrong
answers and might therefore provide a good basis for in-class discussion.

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the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 6

Ace Electronics Charter Components


Sept. Oct. Nov. Sept. Oct. Nov.
Quality 85 88 92 98 86 78
Communication 81 72 84 92 94 92
Delivery 71 94 82 92 96 94
Average 79 78 86 97 92 88

1. Ace Electronics might be questioned with respect to delivery and communication—both have very
inconsistent ratings from month to month.
2. The major concerns with Charter Components is the recent decline in product quality. HighFly
may want to find out the reasons for the precipitous decline to better understand if this is a
temporary issue or a long-term trend.
3. There is no right answer to this question—it is the students’ interpretation of the data that will
drive their decisions. The “Average” scores favor Charter Components while trends favor “Ace
Electronics. The “Average” shown in the table assumes the three criteria are equally important,
but that may not be the case. If communication and delivery are more important Charter is
probably favored.

CHAPTER 6 – COMMENTS ON QUESTIONS AND PROBLEMS


6-1. The John Deere case highlights buying by business and organizational customers. Examples
of key terms and concepts from this chapter include but are not limited to:
• Types of business and organizational customers – Metokote and Deere are both
producers of goods and services – and also manufacturers.
• Close relationships – Deere-MetoKote
• Relationship specific adaptations – MetoKote building a painting facility right next to
Deere’s manufacturing plant
• Vendor analysis – value analysis by Deere customers
• Buyers are experts – Deere’s customers are experts
• Deere’s buyers must identify, evaluate, and monitor suppliers for its OneSource program
• And more.

6-2. This question allows students to dig deeper into the Deere case and to explore concepts in the
section, “Step 3 – Managing Buyer-Seller Relationships in Business Markets.” Deere might use
a contract to spell out expectations. An instructor might point students to Exhibit 6-7. High
levels of information sharing and cooperative bonds would also build a closer relationship with
MetoKote. That might be contrasted by the relationship it would have with a supplier of
cleaning supplies. Such a relationship may not need the same levels of bonding suggested by
Exhibit 6-7.

6-3. The answer to this question is discussed in the section “Organizational Customers Are
Different” but the basic ideas are simple. Specifically, while there are some important
differences in business customs in different countries, many of the basic approaches used by
organizational buyers are the same in businesses all around the world. Similarly, many of
these customers can be reached with similar marketing mixes. And, of course, business
customers, more so than final consumers, are often willing to work with a distant supplier who
has developed a superior marketing mix.

6-4. This question can be used to highlight the similarities between buying processes of final
consumers and organizational buyers, to highlight the differences, or both. The behavioral

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the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 6

influences discussed in the previous chapter may apply equally to final consumers and
organizational buyers. In most cases, the organizational buying process is likely to put more
emphasis on economic needs than the final consumer with regard to how a purchase will help
the organization achieve its objectives. That often leads to more systemic evaluation of
possible choices – perhaps through a formal vendor analysis. But, in business purchases as in
consumer purchases, how extensive the decision process is may depend on how important the
purchase is. Here, it is useful to stress the parallel between the three kinds of organizational
buying processes (new-task buying, straight rebuy, and modified rebuy) and the consumer
problem solving continuum (extensive problem solving, routinized response behavior, and
limited problem solving). As noted in the next question, there may be multiple influences on the
purchase decision process with either final consumers or business customers – although it is
probably more common (and more complicated) in organizational purchasing.

6-5. It is important for a marketing manager to think about who is likely to be involved in the buying
center for a business or organizational purchase because each person may influence the
purchase – and perhaps influence it in different ways. The marketing manager needs to see if
all of the different buyer center's needs are being met, and if not, why not. Clearly, this kind of
thinking can help in guiding promotion planning. Multiple influences in consumer purchases are
really quite common, and can operate much as the buying center idea does in the
organizational buying context. For example, a decision about how much to spend – and how to
spend it – for a family vacation may be influenced by every member of the household. See
section “Multiple buying influence in a buying center” for more discussion of the buying center
concept.

6-6. The fact that the hospital is a nonprofit organization is not a critical issue in this question -
students should see that. As contrasted with the types of multiple influence in a purchase by a
manufacturing concern, the specific titles of some of the people might be different (for
example, doctors, nurses and imaging technicians might be the “users”- rather than
"production" workers in a factory), but the fact remains that such a "high ticket" purchase would
be treated seriously and a number of different people might be involved in determining the final
purchase. For example, the hospital is likely to have a purchasing department with buying
specialists who would manage many of the administrative aspects of dealing with potential
vendors and who would actually develop the purchase contracts and place the order. Various
people in the purchasing department – perhaps a secretary or administrative assistant – might
be a gatekeeper and participate in determining what information is passed along to other
influencers (or what sellers had a chance to call on specific specialists). The chief hospital
administrator (who might not be a doctor) or the head of the imaging department at the hospital
might have final say (be the decider) in the purchase. Others in the hospital – perhaps those
concerned with financial matters or with physical facilities (who would have to arrange for
power supplies, safety considerations, security, etc.) might also have inputs.

6-7. When a producer of pickup trucks first designs a new truck, it is likely to go through a new task
buying process. A number of different people in different roles in the firm may influence the
specification of the lightweight bumper (appearance, materials, crash resistance, finishes used,
etc.) and the selection of one or more vendors who are capable of providing not only the right
quality bumper but also the service necessary to insure smooth production. When the firm is in
a mode of producing the truck and simply replenishing the supply as needed to meet inventory
or production requirements, the firm is likely to use straight rebuys – from a vendor or vendors
who have been selected as meeting the requirements. Such purchases might even be made
based on a longer-term contract negotiated when the supplier was initially selected. However,
if something changes to break the "business as usual" pattern (e.g., there are quality problems,
a breakdown in delivery reliability, etc. or if a new supplier makes an effective case that he can
do the job better), the buying firm may seek to obtain new or updated information and
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the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 6

reconsider the alternatives. This sort of discontinuity might even occur if there is not a specific
problem – but rather a predetermined schedule to make sure that the producer isn't missing
some opportunity (for example, to get bumpers at a lower price) by routinely working with the
same supplier(s).

6-8. The most basic reason that a business buyer would want to get competitive bids is to try to
stimulate price competition among different possible suppliers. Of course, there might also be
a company policy that requires obtaining bids. Competitive bids can be used when the same
basic product is available from different vendors, or if they offer different products, when any of
them meet the basic requirement. That, of course, suggests that competitive bids are not likely
to be used when the supplier really has a unique good or service that can't be matched by
another source. However, even if the product is available from several vendors, the time and
effort of getting bids may not be justified for a small or insignificant purchase – even if there are
a number of possible sources of supply. In such cases, the convenience of relying on a single
source might outweigh the potential savings of going to the trouble of getting bids. Finally,
competitive bidding requires that the seller have a pretty good idea about how to best fill the
needs – so that a set of specifications can be written. If the buyer is looking for help from the
vendor in deciding how best to meet a need, bids may not be feasible. In the same vein,
purchases that are influenced by unknown factors may not be conducive to bids. For example,
an airplane manufacturer that wants a supplier to develop a new type of jet engine may decide
to select a "partner" on a number of factors (financial solvency, attitudes of top management,
etc.) that are not simply price-oriented.xxx

6- 9. Any of the organizations might rely on the use of competitive bids as part of the purchase
process – although the "bidding process" or “collection of bids" might be more informal in some
cases than in others. However, a hardware store that wants to add a new lawnmower line
would probably be less likely to use competitive bids – as the overall relationship with a
potential supplier might be influenced by many factors that would be hard to anticipate in
setting up bid specifications.

More specifically:
(a) the small town that needs a road resurfaced is probably the most likely to get competitive
bids; government organizations are often required by law to obtain bids, especially on
purchases that are likely to involve a significant expenditure. While a small town might not
have the resources (on its own) to set up an online bidding process, many states have a
system that can be used by local governments (counties, towns, etc.) for their own purchases.
(b) a local scouting organization probably wouldn't get competitive bids; the people involved in
a nonprofit organization like scouts are often volunteers, and they may be less inclined to go
through the hassle of a formal bid process, especially if the printing job is not very large.;
However, if the national organization were to contract for a large print job, it might very well
handle the purchase like a business and get bids.
(c) the hardware retailer might first check with its wholesale suppliers to see if one of them
could provide an acceptable line of mowers at a reasonable price. The retailer is more likely to
want to learn about the available alternatives and then make a decision based on the overall
marketing mix (including the reputation of the brand with consumers) that its supplier/channel
partner can provide, not just on price. However, a large hardware chain that wanted to offer a
lawnmower under its own brand name might very well go out for competitive bids.
(d) a grocery store that wants to install a new checkout scanner faces a significant outlay that
has important long term consequences (compatibility with other computer systems, concerns
about ease of use by employees, reliability, etc.) and it might very well seek competitive bids –
especially if it could provide detailed specifications of exactly what capabilities were expected
in a scanner. If such detailed specs were not feasible, the bid approach might not be used.

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Chapter-by-chapter aids: Chapter 6

(e) as with the scouting example, the sorority would probably turn to one of its more
knowledgeable members for volunteer help in selecting a computer system; a volunteer might
simply make the purchase like a typical consumer would make a purchase; however, if the
purchase were made through a university's purchasing department, it is probable that bids
would be solicited.

6- 10. From the buyer's point of view, "just-in-time" delivery systems are likely to result in a lower total
cost of working with a supplier, especially if it means that lower levels of inventory can be
maintained. On the other hand, the close working relationship and coordination required
between the buyer and seller means that the buyer must provide the seller with a significant
amount of information about its operations, needs, and the like. The buyer may not want a
seller to know that much about his or her company practices and policies. An advantage will
result if by working together, the two firms can both benefit (improve profits and compete better
with other, alternative channels). On the other hand, once a decision has been made to work
very closely with a given supplier, it may be much harder to shift to someone else if the
relationship does not work as well as expected. In other words, the close working relationship
might increase the buyer's "switching costs" – costs of changing suppliers. From the supplier's
perspective, it might be an advantage; for the buyer, it might be a disadvantage.

6- 11. The idea of a customer building a closer working relationship with a supplier is discussed in the
section “Buyer-Seller Relationships in Business Markets.” There are a number of functions that
can be done better or at lower cost if there is cooperation between the buyer and seller. For
example, a buyer that is able to trust and work closely with a supplier may be able to share
proprietary information (demand forecasts, inventory levels, costs of handling products, etc.) so
that both parties can find ways to shift functions with the shared goal of reducing costs.
Similarly, approaches such as just-in-time delivery that involve a closer working relationship
between the customer and the seller may involve operational linkages and/or specific
investments. It simply may not be practical for a buyer to start from scratch with a new supplier
each time there's a need to make a new purchase.

6-12. A tool manufacturer would in all likelihood need a different strategy for dealing with a big retail
chain than a single hardware store run by its owner. The large chain might employ buying
specialists for each specific line of tools. The large chain might be very concerned about not
only price and adequate availability but also issues such as computer-ordering compatibility
and allowances for local advertising and marketing efforts. The owner-buyer of a single store
might be concerned with these matters as well, but the relationship between the seller and the
buyer might prove to be a more important consideration in how the decision was made. In
other words, the personal selling effort might be much more important in the smaller store.
Further, the owner of the small store might be much more concerned with the extent to which
the manufacturer has already presold the tool to the target market (shelf space is scarce) and
whether or not the manufacturer will also be distributing the same tool through competing
stores (including the big discount chains that might sell the tool at a lower price).Delete this
blank page. For some reason, program won’t allow me to delete it. KM

6-13. This question anticipates the discussion in Chapter 8 on business product classes. Possible
topics are: methods of buying, average quantity purchased, attention to quality, price-
consciousness, who buys and multiple-buying influence, number and variety of sources of
supply, inventory policy, and likelihood of reciprocity. After thoroughly discussing this question,
it might be fruitful to extend the question to the kinds of distribution facilities that might be
expected for these products, the kind of promotion job that might be necessary, and the
demand elasticity likely in each market.

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the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 6

6-14. Although business and organizational customers are not as numerous as final consumers are,
there are many different types and varieties of them. Within these groups, there are many of
the more subtle groupings that we discussed in the previous chapters. Therefore, target
marketing is just as (or maybe even more) important here.

6-15. NAICS codes are especially useful as a way of getting additional information about potential
customers in a particular line of business – how many there are, where they are, and how
these might be shifting. See “Manufacturers Are Important Customers” for a more detailed
discussion of NAICS codes and how they might be used.

6-16. This question anticipates the discussion of Promotion in later chapters. Here, the student
should be led to consider the relative importance of personal selling and advertising in relation
to the nature of the products being handled and the target markets. Large chain buyers might
have to be approached with a meticulously developed presentation for consideration by a
buying committee. Smaller, independent buyers, on the other hand, might call for a somewhat
more emotional/personal approach. The brand familiarity that has been achieved for the firm’s
products will also have a bearing on the personal selling job and, of course, affect the amount
of advertising that will need to be done. The importance of and type of sales promotion effort
needed will depend on the strength of the company's brand and whether it has any novelty
elements that might help the retailer add variety to his offering. In other words, the nature of
the other three Ps does have a bearing on the Promotion variable – and how personal selling,
advertising, and sales promotion should be combined.

6-17. One reason some firms tend to ignore the government market is the great number of
heterogeneous target markets that have different procedures for announcing their
requirements, bidding, and awarding bids. Further, specifications must be read carefully to
determine the lowest cost item that will meet the minimum specification. Then it may be
necessary to meet one or more city employees to explain how or why the firm's product does
meet the specifications. In addition, sales and service efforts may not be rewarded if a bidding
system is used with alternate suppliers offering the "same" physical products. In the extreme,
wholesalers or retailers may find themselves in price competition for the sale of the identical
physical item. In such situations, spending much time on personal selling effort may be a waste
of money and yet without some personal selling effort the firm may not be aware of upcoming
demands or bid notices. Some government buyers – especially federal government buyers –
may require the maintenance of detailed cost records that will facilitate renegotiation of prices
during the job or after the job is completed. This may require extra bookkeeping or records that
are not normally maintained. By way of contrast, normal business customers may reward a
sales rep who has been especially helpful – and when a price is set, it is up to the supplier to
deliver the goods at that price without any supporting cost records or any possibility of price
reductions.

The great variety of customers in the government market, and their differences from each other
as well as nongovernment customers, makes segmenting imperative. Some companies do
make money catering to government markets. Others – especially small companies – seem to
feel that it is more trouble than it is worth. In those situations, where a considerable amount of
personal or technical service is part of the company's product, they may be right – because the
normal bidding procedure does not easily provide compensation for these intangibles. This is a
serious debility of the bidding method. It is not one easily remedied because of the possibility
of favoritism entering into the awarding of contracts. Not all government buyers follow industrial
purchasing agents along the "value analysis" route. Many are not trained for the purchasing job
– being political appointees with no tenure. Therefore, they should be treated differently in
marketing mix planning.

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the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 6

6-18. The Foreign Corrupt Practices Act probably does make it difficult for some U.S. firms to
compete in markets where suppliers from other countries use bribes or similar "under the
table" inducements to influence the purchase process. The issue here is whether the U.S.
government should set the rules of behavior for some other market. Some people argue that is
not a reasonable role for the government. On the other hand, it has been argued that the
absence of such rules encourages marketing practices that are not in the best interest of the
citizens of other countries – and the U.S. government shouldn't directly or indirectly endorse
such harmful approaches.

CHAPTER 6 – COMMENTS ON USE OF MARKETING PLANNING FOR HILLSIDE


VETERINARY CLINIC QUESTIONS WITH THIS CHAPTER
Appendix D (the Appendices follow Chapter 19) includes a sample marketing plan for Hillside Veterinary
Clinic. Hillside decided to focus on final consumers and their pets rather than include organizational
customers that might need veterinary care for animals. Such customers might range from dog breeders
and farmers to animal protection shelters and law enforcement agencies that work with dogs. Would it be
easy or hard for Hillside to expand its focus to serve customers who are not final consumers? Explain
your thinking.

Instructors might start by asking if students would expect any differences in the organizational customer
market and HVC’s current consumer market. To the extent that customers and competitors are different,
then the marketing strategy may need to be adapted to the new target market. The extent of the
adaptation would drive the practicality of making such a change.

For example, these business customers would be larger and the higher volume might warrant moving into
the market – even for a smaller number of customers. But the organizational customers may expect a vet
to visit them – and this may not be practical for a small veterinary clinic like HVC that has only one vet.
These customers may also be more price sensitive, which may result in lower prices and lower margins.
Also, they may have different needs – forcing Dr. Hardy to develop new expertise or the clinic to purchase
new equipment. The final answer depends on the assumptions made about these new markets.

CHAPTER 6 – COMMENTS ON USE OF SUGGESTED CASES WITH THIS


CHAPTER

Case 5: Polymer Dynamics


This case can be used to show multiple buying influences – and the importance of understanding the
needs and attitudes of all of the influences in the U.S. and in global markets. Not fully understanding the
buying process and market needs is a common cause of failure in business markets – as illustrated in this
case. See case discussion.

Case 6: Steel Solutions


This case also illustrates the importance of multiple buying influence and correctly understanding the
customers' buying processes. See case discussion.

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the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 6

DISCUSSION OF MARKETING ANALYTICS: DATA TO KNOWLEDGE, PROBLEM 6:


VENDOR ANALYSIS
In this problem, an industrial buyer is evaluating different suppliers of microchips used in producing the
firm's products. The student uses the program to do a complete vendor analysis – evaluating the total
cost of buying from the suppliers taking into consideration differences in price, order quantity discounts,
delivery times, the number of defective products in an order, and other factors. The problem focuses
attention on why industrial purchasers evaluate suppliers on many criteria – and shows why the "best"
choice may not always be clear cut. It also shows how changes in a supplier's marketing mix – for
example, introducing a wholesaler in a channel of distribution – can improve its competitive position in the
industrial market.

This problem can also be used with Chapter 17 – to illustrate the idea of "value in use" pricing – or with
the discussion of wholesalers in Chapters 10 or 12.

The initial spreadsheet for the problem is given below:

NOTE: As a general convention, when reviewing the spreadsheets for these problems, cells that
the students may modify in the tool are denoted with an asterisk (*) as can be seen in the initial
spreadsheet below.

SpreadSheet
Supplier 1 Supplier 2

Quantity of Chips Needed 100,000* 100,000*


COST per Chip $1.91* $1.87*
Cost for Total Order of Chips $191,000.00 $187,000.00
DEFECTIVE Rate (Percent Defective) 1.00%* 2.00%*
Number of Defective Chips 1,000 2,000
Cost to Replace Defective Chip $2.00* $2.00*
Total Cost of Replacing Chips $2,000.00 $4,000.00
CONNECTOR Cost for Each Chip $0.10* $0.08*
Total Cost-Connectors $10,000.00 $8,000.00
INVENTORY Cost as Percent of Total Order 2.00%* 5.40%*
Total Inventory Cost $3,820.00 $10,098.00
TRANSPORTION Cost per Chip $0.02* $0.03*
Total Transportation Cost $2,000.00 $3,000.00
TOTAL COSTS FOR VENDOR $208,820.00 $212,098.00

Answers to Computer-Aided Problem 6:

a. Based on the initial spreadsheet (given above), Supplier 1 appears to be the best choice (Answer A).
While the price of the needed chips is higher, the total cost of Supplier 1`s offering would be lower for
purchaser. Supplier 1 also provides the qualitative benefit of being closer which can provide shorter
transit delays in case of unexpected demand.

b. At the lower quantity, Supplier 2 would probably be the best choice (Answer B). At the lower
quantity, the price from Supplier 1 would be higher – and as a result the customer's total cost of
purchasing from Supplier 2 would be slightly lower ($1,79222.81 vs. $1,79900.50 for Supplier 1.)
The spreadsheet for the analysis is given below:

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the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 6

SpreadSheet
Supplier 1 Supplier 2

Quantity of Chips Needed 84,500* 84,500*


COST per Chip $1.95* $1.87*
Cost for Total Order of Chips $164,775.00 $158,015.00
DEFECTIVE Rate (Percent Defective) 1.00%* 2.00%*
Number of Defective Chips 845 1,690
Cost to Replace Defective Chip $2.00* $2.00*
Total Cost of Replacing Chips $1,690.00 $3,380.00
CONNECTOR Cost for Each Chip $0.10* $0.08*
Total Cost-Connectors $8,450.00 $6,760.00
INVENTORY Cost as Percent of Total Order 2.00%* 5.40%*
Total Inventory Cost $3,295.50 $8,532.81
TRANSPORTION Cost per Chip $0.02* $0.03*
Total Transportation Cost $1,690.00 $2,535.00
TOTAL COSTS FOR VENDOR $179,900.50 $179,222.81

c. $1.87 per chip is the highest price at which Supplier 2 will be the "lowest cost" vendor. At $1.88 per
chip, Supplier 2’s total cost raises to $180,113.44 which slightly exceeds Supplier 1’s total cost of
$179,900.50. The spreadsheet for the analysis is found in the spreadsheet above.

d. Even though this change represents a substantial improvement in quality for Supplier 2, the total cost
is still worse than using Supplier 1 (Answer A). The spreadsheet for the analysis is found in the
spreadsheet below:

SpreadSheet
Supplier 1 Supplier 2

Quantity of Chips Needed 84,500* 84,500*


COST per Chip $1.95* $1.94*
Cost for Total Order of Chips $164,775.00 $163,930.00
DEFECTIVE Rate (Percent Defective) 1.00%* 0.50%*
Number of Defective Chips 845 423
Cost to Replace Defective Chip $2.00* $2.00*
Total Cost of Replacing Chips $1,690.00 $845.00
CONNECTOR Cost for Each Chip $0.10* $0.08*
Total Cost-Connectors $8,450.00 $6,760.00
INVENTORY Cost as Percent of Total Order 2.00%* 5.40%*
Total Inventory Cost $3,295.50 $8,532.81
TRANSPORTION Cost per Chip $0.02* $0.03*
Total Transportation Cost $1,690.00 $2,535.00
TOTAL COSTS FOR VENDOR $179,900.50 $182,922.22

e. The improvement in quality resulted in a higher cost per chip but one that is still less than what
Supplier 1 is charging ($1.94 vs. $1.95). The cost of replacing chips is substantially reduced and the
cost of connectors remains lower. However, the biggest issue is the additional inventory required for
Supplier 2. Supplier 2 has an inventory cost of $8,943.48 vs. $3,295.50 for Supplier 1 (a difference
of $5,647.98). That difference is primarily responsible for Supplier 2 being more expensive than
Supplier 1 (Answer D). The spreadsheet for the analysis is found in the spreadsheet above.

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the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 6

MARKETING ANALYTICS DISCUSSION


This discussion provides an opportunity to discuss qualitative factors that influence selection. In question
b, we found the difference in cost would be less than $700. At that point the costs are close enough that
other factors may be more important. For instance, factors such as existing relationship, lower failure
rates, closer proximity, future forecasts, etc. might sway the company to choose Supplier 1 even though
Supplier 2 is slightly less expensive.

CHAPTER 6 – SUMMARY OF CONNECT HOMEWORK EXERCISES


Question 1: Glass Bracelet Jewelry
Question Type: Decision Generator
Learning Objectives: 6.4
Topic: The decision-making process
AACSB: Reflective thinking
Bloom’s: Remember, understand, apply

Question 2: Multiple Buying Influences


Question Type: Click and Drag
Learning Objectives: 6.2
Topic: Many different people influence a decision
AACSB: Reflective thinking
Bloom’s: Remember, understand

Question 3: Organizational Buyers


Question Type: Click and Drag
Learning Objectives: 6.2
Topic: Organizational customers are different
AACSB: Reflective thinking
Bloom’s: Remember, understand

Question 4: The Timken Company


Question Type: Video Case
Learning Objectives: all objectives
Topic: Cuts across the chapter
AACSB: Analytic, reflective, technology
Bloom’s: Remember, understand, apply, analyze

Question 5: The Buyer-Seller Relationship


Question Type: Drag and drop
Learning Objectives: 6.5
Topic: Managing Buyer-Seller Relationships in Business Markets
AACSB: Analytic, understand,
Bloom’s: Remember, understand, apply

Question 6: The B2B Buying Process (iSeeIt)


Question Type: Video Case
Learning Objectives: 6.2, 6.3
Topic: Organizational buying
AACSB: Analytic, understand
Bloom’s: Remember, understand, apply

Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without


the prior written consent of McGraw-Hill Education.
Chapter-by-chapter aids: Chapter 6

Question 7: Vendor Analysis


Question Type: Marketing Analytics
Learning Objectives: 6.4
Topic: Vendor Analysis
AACSB: Analytic, technology, reflective thinking
Bloom’s: Apply, analyze

Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without


the prior written consent of McGraw-Hill Education.

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