Multimedia Marketing/Marketing.iso/market/chapter3.8p

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SECTION 3.8 Governmental Buying

INSTRUCTIONS Think about how governmental agencies purchase goods and services.
In what ways might these agencies behave differently than industrial goods purchasers in profit seeking companies?

EXAMPLE

At ,3,900 for a full-page ad and with a total circulation of only
5,000 copies, the "National Journal" is probably the most expensive
magazine advertising buy in the world. Its purchase price is no
bargain either, at ,546 per year for the weekly publication.

On the other hand, the "National Journal" is no "National Enquirer".
Boasting a subscription unparalleled among other publications, it
includes senators and congress members and 100 paid copies are
delivered to the White House. The balance of the readership is
made up of corporate executives, media people, and advertising
agency executives. The mean reading time is currently 68 minutes--
practically unheard of, considering the decision making power of
the audience.

Advertisers in the journal are trying to reach decision makers
in Washington. They realize that powerful governmental officials
are devoted readers of the journal. This being the case, if a
company desires to sell to the federal government, this is a
very desirable medium. Its advertisers include some of the largest
companies in the United States and abroad.

DETAILS

The level of governmental spending is huge. Federal, state, and local
agency purchases lumped together account for nearly a fourth of
the Gross Domestic Product of the United States. Two thirds of this
amount is spent by the federal government, making it the single most
largest purchaser of goods and services in the world.

Besides missles, tanks, and naval vessels, the federal government
purchases products as diverse as food, clothing, education, pencils,
and even illicit drugs for research purposes. The major categories
of expenditure are defense, education, and social welfare.

Many marketing managers pay considerable attention to governmental
needs. Just one contract for a very small portion of what the
government buys can mean the difference between success and failure
for even a large company.

Because the risks are so great and the opportunities so substantial,
many companies, both large and small, are recognizing the importance
of employing the marketing concept to direct their orientation to
obtaining governmental business. Opportunities are substantial but
competition is difficult in this market.

Generally, governmental demand for goods and services is derived;
however it is derived not from consumers but indirectly from voters
through their elected representatives. If voters want a new dam,
new facilities for the homeless, or new university buildings, these
are likely to be forthcoming.

Further, total governmental demand is very inelastic. Mainly, this
stems from the way money is appropriated for expenditures.
Governmental budgeting procedures are different from those employed
in private business. Administrative action determines the budgeted
amounts. The various spending agencies consider all items, including
capital expenditures, to be expenses during the year incurred, rather
than as investments (as in private business).

Similarly, since government is a not-for-profit organization,
authorities appropriate money with the intention that it will be
spent. Administrators are often penalized for spending less than
their budgets because future budgets are often based on previous
expenditures. Administrators, then, are motivated to spend all
of their budgets. Total demand, therefore, tend to be very inelastic.

The budgeting process does not mean that government is unconcerned
about price. In fact, price may be the government's primary
criterion in the selection of a particular supplier. This is
essentially the case when agencies employ competitive bidding.

PROBLEM 1

An agency of the federal government has an inelastic demand pattern
in buying goods and services. An important reason for this is:

A. Governmental agencies use competitive bidding.
B. Governmental agencies' budgets are often based on past expenditures.
C. Governmental agencies do not consider price when they make
   purchases.
D. Governmental agencies tend to practice the marketing concept.

WORKED

Federal government (and many state and local government) agencies
are characterized by inelastic demand. An important reason is that
future budgets are based on past expenditures. If the agency bases
its expenditures on price it may seriously underspend or overspend
its budget. Hence, the agencies generally strive to spend amounts
that are equal to or perhaps slightly more or less than the budgeted
amounts. This insures that they will not suffer future budget setbacks
or reprimands by superiors.

ANSWER  B

INSTRUCTIONS Think about how governmental agencies purchase goods and services.
In what ways might these agencies behave differently than industrial goods purchasers in profit seeking companies?

EXAMPLE

At ,3,900 for a full-page ad and with a total circulation of only
5,000 copies, the "National Journal" is probably the most expensive
magazine advertising buy in the world. Its purchase price is no
bargain either, at ,546 per year for the weekly publication.

On the other hand, the "National Journal" is no "National Enquirer".
Boasting a subscription unparalleled among other publications, it
includes senators and congress members and 100 paid copies are
delivered to the White House. The balance of the readership is
made up of corporate executives, media people, and advertising
agency executives. The mean reading time is currently 68 minutes--
practically unheard of, considering the decision making power of
the audience.

Advertisers in the journal are trying to reach decision makers
in Washington. They realize that powerful governmental officials
are devoted readers of the journal. This being the case, if a
company desires to sell to the federal government, this is a
very desirable medium. Its advertisers include some of the largest
companies in the United States and abroad.

DETAILS

The federal government's buying organization and procedures look
overwhelmingly complex to the uninitiated, but they are actually
quite uncomplicated. Essentially all buying is divided into two
major sectors, civilian and military.

The General Services Administration (GSA) plays a dominant role
in the civilian sector by serving as a purchasing agent for standard
items, such as supplies and stationary. Perhaps more important, the
GSA develops purchasing procedures for the rest of the civilian
sector to follow.

The Defense Logistics Agency (DLA) is the military equivalent of
the GSA. Further, it attempts to identify and develop standardized
equipment, such as weapons, that all military branches can use.
There is a large turnover of personnel within these buying groups,
complicating the marketing process and necessitating continuous
advertising and personal selling to educate buyers on the merits
of a particular company's products and services.

To be sure, Washington,D.C. is the haven of federal government
buying, but it also takes place throughout the country, in cities
as large as New York and in towns as small as Arco,Idaho. Practically
every government office and post throughout the world buys many local
products and services such as food and fuel. This means that small
local firms can also effectively penetrate part of the market.

PROBLEM 2

A manaufacturer of refrigeration equipment is interested in selling
walk-in freezers to several civilian governmental agencies. A good
initial strategy would be to:

A. Advertise the products in Washington, D.C. newspapers.
B. Contact Defense Logistics Agency personnel.
C. Contact the Securities and Exchange Commission.
D. Contact the General Services Administration.

WORKED

Companies desiring to sell to the civilian sector of the government
should contact the General Services Administration. This was the
initial step undertaken by a company that wanted to sell walk-in
freezers to several civilian agencies. The company discovered that
the GSA provided a wealth of information on the governmental agencies
that might be able to use the freezers, what types of products they
needed, procedures to be followed in making sales, and specific
individuals to contact. The GSA imparted useful information to
company personnel through conversations with several GSA employees
and also brochures and pamphlets.

ANSWER  D
INSTRUCTIONS Think about how governmental agencies purchase goods and services.
In what ways might these agencies behave differently than industrial goods purchasers in profit seeking companies?

EXAMPLE

At ,3,900 for a full-page ad and with a total circulation of only
5,000 copies, the "National Journal" is probably the most expensive
magazine advertising buy in the world. Its purchase price is no
bargain either, at ,546 per year for the weekly publication.

On the other hand, the "National Journal" is no "National Enquirer".
Boasting a subscription unparalleled among other publications, it
includes senators and congress members and 100 paid copies are
delivered to the White House. The balance of the readership is
made up of corporate executives, media people, and advertising
agency executives. The mean reading time is currently 68 minutes--
practically unheard of, considering the decision making power of
the audience.

Advertisers in the journal are trying to reach decision makers
in Washington. They realize that powerful governmental officials
are devoted readers of the journal. This being the case, if a
company desires to sell to the federal government, this is a
very desirable medium. Its advertisers include some of the largest
companies in the United States and abroad.

DETAILS

Marketing opportunities are not restricted to federal agencies: each
state and local government also engages in buying activity. Education
and welfare activities account for a large proportion of the total
dollars spent. Also important are expenditures for projects such as
roads, parks, trash removal, and hospitals. State and local units
sometimes supplement their funds with federal money, as when they
employ Federal Highway Trust Fund money to construct roads. Revenue
sharing programs also provide substantial assistance to many cities
and localities.

In many respects, state and local buying resembles buying by the
federal government. There are variations from one state to another,
however. Some states and local units have agencies such as the
GSA and the DLA that purchase many goods and services for other
agencies and establish procedures for other agencies to follow in
their buying decisions. In other state and local jurisdictions,
buying is entirely decentralized and is the perogative of individual
departments who have authority over specific functions, such as
education. Given these variations, it is a good idea for marketers
to carefully assess the conditions and procedures for buying in
each individual situation.

PROBLEM 3

A large manufacturing company is looking for opportunities in state
government budgets. An especially attractive field is:
    A. Roads.
    B. Parks.
    C. Hospitals
    D. Education.

WORKED

A large manufacturing company is looking for opportunities in state
government budgets. An especially attractive field is education.
States spend large amounts on primary, secondary, vocational, and
higher education. For many it is the highest expenditure category.
Further, the expenditures for education are growing faster than
most others.

ANSWER  D

INSTRUCTIONS Think about how governmental agencies purchase goods and services.
In what ways might these agencies behave differently than industrial goods purchasers in profit seeking companies?

EXAMPLE

At ,3,900 for a full-page ad and with a total circulation of only
5,000 copies, the "National Journal" is probably the most expensive
magazine advertising buy in the world. Its purchase price is no
bargain either, at ,546 per year for the weekly publication.

On the other hand, the "National Journal" is no "National Enquirer".
Boasting a subscription unparalleled among other publications, it
includes senators and congress members and 100 paid copies are
delivered to the White House. The balance of the readership is
made up of corporate executives, media people, and advertising
agency executives. The mean reading time is currently 68 minutes--
practically unheard of, considering the decision making power of
the audience.

Advertisers in the journal are trying to reach decision makers
in Washington. They realize that powerful governmental officials
are devoted readers of the journal. This being the case, if a
company desires to sell to the federal government, this is a
very desirable medium. Its advertisers include some of the largest
companies in the United States and abroad.

DETAILS

Individual states generally decentralize buying responsibility. That
is, individual school boards, road commissions, hospital boards, water
and sewer boards, and similar units make the bulk of all procurement
decisions. Thus, managers of even small firms in less-populated cities
and towns have an opportunity to compete for a piece of the action.

Government buyers sometimes make their acquisitions through negotiated
contracts when a particular supplier's products are uniquely desirable.
The normal approach, however is through description and competitive
bidding. Generally, the lowest bidder receives the contract, unless
the low bidder is not considered "responsible or responsive to the
terms of the solicitation". This means that buyers may consider a
company's reputation, financial solvency, and past experience.

To a large degree, governmental buyers operate much like the buyers
of industrial goods in profit-seeking companies. As in the case of
industrial buying, marketers have substantial opportunity to shape
their strategies around the target customer's needs. In fact an
astute marketer frequently helps in identifying the government
agency's needs.

PROBLEM 4

A manufacturer of hospital supplies hopes to sell its products to
a hospital owned and operated by a city. The sales representatives
should contact:

A. The hospital board.
B. The state governor's office.
C. The local mayor or city manager's office.
D. The state department of health.

WORKED

Most states and municipalties decentralize buying authority.A
company that wants to sell hospital supplies to a hospital should
contact the hospital board or its appointies (employees of the
hospital). These individuals are directly responsible for acquisitions
that the hospital needs for its ongoing operations. Different people
may make up the buying center for different items (such as capital
items versus expense items). The marketer is well-advised to engage
in fact finding to discover who is in the buying center for a
particular purchase.

ANSWER  A