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DERIVED VERSUS DIRECT DEMAND Salespeople selling to consumers typically can focus on individual consumer or family needs. Organizational selling often requires salespeople to know about the customer's customers. Sales to OEMs and resellers are based on derived demand rather than direct demand. Derived demand means that purchases made by these customers ultimately depend on the demand for their products—either other organizations or consumers. For example, Micron Technology makes the microprocessors used in Apple products. The company enjoyed 58 percent growth in sales when Apple launched a new iPhone. 5 Derived demand has big effects on the sales of some types of companies. For example, Applied Materials makes the equipment that Micro uses to make the microprocessors. As you can see in Table 3.1, changes in demand for micro- processors can have a far greater effect on Applied Materials than on Micro. HOW DO ORGANIZATIONS MAKE BUYING DECISIONS? To effectively sell to organizations, salespeople need to understand how organizations make buying decisions. This sec- tion discusses the steps in the organizational buying process, the different types of buying decisions, and the people involved in making the decisions. STEPS IN THE BUYING PROCESS Exhibit 3.1 shows the eight steps in an organizational buying process. Recognizing a Need or a Problem (Step 1) The buying process starts when someone realizes a problem exists. Employees in the customer's firm or outside sales- people can trigger this recognition. An employee of a hospital might discover that the optical scanner is making mis- takes in reading barcode labels, triggering a review of the system which could ultimately lead to a purchase. Or a Baxter salesperson might start the process by showing how inventory costs can be reduced by using an updated optical scan- ner for inventory management. Recent research suggests that salespeople who can influence need recognition stand a much better chance of shaping the rest of the stages and winning the sale, even when purchase processes are created to try to increase competition. 6 Table 3.1 Example of Derived Demand's Effects Year Demand for Chips Beginning Number of Machines Machines Needed Machines Scrapped Total Order 1 10% 50 55 5 10 2 −10% 55 50 5 0 Demand for computer chip-making equipment is derived from the demand for computer chips. In this instance, if a chip manufacturer replaces 10% of its machines each year, a 10% increase in chip demand doubles the number of new machines that has to be purchased to meet the demand. But if that demand falls by 10%, then no new machines are needed because even if they scrap the five oldest machines, they have enough. Thus, the machine maker's sales are significantly affected by the demand for chips. 64 CHAPTER 3: Buying Behavior and the Buying Process

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