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Q : Compare the institutional markets and government markets and explain how

institutional and government buyers make their buying decisions?

Government markets: Governments buy goods and services to support their internal operations;
they do not transform the goods and services or resell them to make a profit. Government
markets usually buy their goods through a bidding process and include federal, state, county, and
local governments.

Institutional markets: Institutions are non-government organizations that buy goods and
services to support their internal operations. The function of institutions is to better their
communities, not to make a profit. Examples of institutional markets are hospitals and colleges

If we talk about the institutional market so it consists of schools, hospitals, nursing homes,
prisons and other institutions that must provide goods and services to people in their care. Many
of these organizations are characterized by low budgets and captive clienteles. For example
hospitals have to decide what quantity of food to buy for patients. The buying objective here is
not profit, because the food is provided as part of the total service package; nor is cost
minimization the sole objective, because poor food will cause patients to complain and hurt the
hospitals reputation. The hospital purchasing agent has to search for Institutional food vendors
whose quality meets or exceeds a certain minimum standard and whose prices are low. In fact,
many food vendors set up a separate division to sell to institutional buyers because of these
buyers special needs and characteristics.

However, the government market offers large opportunities for many companies, both big and
small. In most countries, government organizations are major buyers of goods and services
Government organizations typically require suppliers to submit bids and normally they award the
contract to the lowest bidder. In some case, the government unit will make allowance for the
supplier’s superior quality or reputation for completing contracts on time.

Government will also buy on negotiated contract basis, primarily in the case of complex projects
involving major R&D costs and risks and in cases where there is little competition. Government
organizations tend to favor domestic supplier. A major complaint of multinationals operating in
Europe was that each country showed favoritism towards its nationals in spite of superior offers
available from foreign firms. Government organizations require considerable paperwork from
suppliers, who often complain about excessive paperwork, bureaucracy, regulations, decision
making delays, and frequent shifts in procurement personnel.

Institutional buyer passes through different stages to buy goods or services and the buying
decisions of Institutions are as follows
1. Need Recognition

The first stage of organizational buying process is to recognize problem or need. Such problem
or need is recognized due to internal reasons such as unsatisfactory performance of existing
machines and equipment or external reasons such as announcement of new product, consultation
of supplier with sales representative, newspaper advertisement. Similarly, the external reasons
such as newspaper advertisement and trade fair etc. also motivate to buy a new product. A
successful marketer tries to understand the problems or needs of his institutional customers and
uses making program that can to identify problems.

2. Determination of the Product and Buying Specifications

In this stage of buying process, special specifications such as quantity, quality, price, mode of
payment etc are determined. After problem or need is recognized, an imagination of the product
that can solve the problem comes into mind. This stage helps consultants, engineers, designers,
researchers, developers, producers and sales specialists to find out the product for solving the

3. Search for Qualified Supplier

In this stage, a capable supplier of the necessary goods is searched. Purchase agent can seek
capable supplier in consultation with related employees. A Potential supplier is searched and a
proposal demanded by looking the record of the company, contacting with suppliers for
information, requesting acquainted suppliers to send their proposal, looking in price list or
looking in different business publications etc.

4. Analysis and Evaluation of Supplier's Proposal

In this stage, evaluation and analysis of the proposals submitted by different suppliers are made.
The suppliers can submit their proposals in both written and oral
form. Buying organization should do vendor analysis for systematic evaluation of potential
suppliers. The received proposals should be comparatively evaluated on the basis of price,
quality, goodwill, services, delivery capacity and personal relation with buyer etc.
5. Selection Of suppliers And Purchase Order

After detailed evaluation of the proposals, the buyer can negotiate for better terms, conditions
and price before taking final decision. The buyer should take decision whether to buy all the
materials from a supplier or use different suppliers. After a proper supplier has been selected,
purchase order is given to the supplier. In this stage, packing, mode of transportation and
delivery, condition of credit facility, mode of payment, services and agreement are determined.

6. Evaluation of Performance

In the last stage of buying process, products as well as performance of supplier is evaluated. In
comparison of personal consumers, the activity of institutional buyers becomes very formal,
directed and clear after buying any products. They evaluate the quality and performance of the
product supplied by a supplier. evaluation of the products is useful for both supplier and buyer. It
also helps to maintain quality and ensure satisfaction of the buyers.

On the other hand, the buying process of the government is as follows,

Purchasing process is determined

The first step which an agency will take after determining that goods or services need to be
purchased is to determine which process they need to adopt. This will depends on the value of
the purchase and the type of goods or services required
Bid documents are prepared
The agency will develop documentation that outlines what it is that they are seeking to purchase
and how you should go about submitting an offer. The decisions made in relation to the process
will largely determine the style of document used and the amount of detail provided.
The documentation may include formal documentation such as:

1 Conditions of Tender or Quotation, including:

2 An explanation of the evaluation criteria to be used to evaluate the bids

3 Information on relevant government policies; and

4 Closing time, date and place of lodgement.

5 A specification describing the goods, services or works required.

6 Conditions of Contract
Bids are invited
Depending on the process, the agency may contact suppliers directly or they may
publicly advertise the purchase.
Quotes are generally not advertised while an open tender will be. Therefore, to maximise your
opportunities, you should make sure that the government buyer is aware of you and your
business and you should also ensure your are registered on the Tenders website.
Suppliers respond
The next step requires you to respond to the invitation to quote or advertisement. To do this,
make sure you have received all relevant documents from the agency contact (noting that for
very simple purchases there may be no formal documentation).
You should also

1 Attend any pre-bid briefings if these are being conducted;

2 Clarify any uncertainties you have in relation to the purchase or the documents;

3 Plan and prepare your response; and

4 Submit your response in the right format, on time and at the right location.

Evaluation and selection

Depending on the process undertaken, either a formal committee or an individual will be
responsible for the evaluation of bids and the final selection of a supplier.
If an informal process is being used, generally your submission will be assessed on how well it
meets the requirements and whether it offers value for money.
More complex purchases or higher value projects will be evaluated against the criteria specified
in the bid documents and will generally be assessed by a formal evaluation committee.
Notification and debriefing
When a decision has been made and the contract has been awarded, the successful supplier will
be advised of the outcome. Unsuccessful bidders are also advised and a debriefing is available.
Contracts established and managed
A contract may be established by using a letter of acceptance, issuing a Purchase Order, or using
a formal agreement with specific conditions of contract. A decision will be made by the agency
on the appropriate contract format.
Once the contract has been established, both you and the government agency have
responsibilities to manage and complete the contract.
Payment will be made at the completion of the contract or as outlined in the payment schedule in
the bid documentation.