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Differences between Institutional Markets and Government Markets
The American Management Association defines government markets as, “…one which includes purchases by governmental units-federal, state, and local-that procure or rent goods and services in carrying out the main functions of the government.” Likewise, institutional markets can be defined as, “…a market consisting of schools, universities, hospitals, charities, clubs, and similar organisations which buy goods and services for use in the production of their own goods and services.”
Institutional and government markets constitute a not-for-profit market with the primary objective of the general welfare of the people. Low budgets and captive patrons characterize such markets. Companies catering to institutional markets, establish and maintain separate departments to meet the requirements. Whereas Governments are the primary and bulk buyers of goods and services. Government organizations have specific procedures that suppliers should follow.
Companies catering to institutional markets, establish and maintain separate departments to meet the requirements. Whereas Governments are the primary and bulk buyers of goods and services. Government organizations have specific procedures that suppliers should follow.
What are Institutional Markets?
Institutional markets consist of organizations that look after people’s welfare. Such markets include schools, hospitals, nursing homes, and other institutions that provide goods and services to people in their care.
Many of these organizations have low budgets and captive clientele. For example, hospitals must decide what quantity of food to buy for patients. Here, the objective is not to make profits as the food is provided as part of the total service package. Similarly, the hospital will also not consider cost minimisation because poor quality of food will cause patients to complain and hurt the hospital’s reputation.
Thus, the purchase and procurement teams must search for Institutional food vendors whose quality meets or exceeds a certain minimum standard and whose prices are low. In fact, many food vendors have separate divisions to sell to institutions only because of their special needs and characteristics.
What are Government Markets?
Many companies enjoy great opportunities in the government market. Irrespective of whether the company is large or small, these facilities can be enjoyed by all. In many countries, government organizations are the major buyers of goods and services. Technically, there may not be a great difference between government and institutional markets.
However, there exist some differences that marketers understand well in selling their goods and services to the government.
Stages and Requirements - Companies selling to governments should understand the differences that help them to become better suppliers. The companies should understand the various stages and requirements in buying for governments. They must identify the key decision-makers, besides the factors that affect buyer behaviour, and understand how buying decisions are made.
Selects Suppliers - For a government market, it is the government that selects the suppliers who have the lowest bids. Sometimes, the government makes some allowances for the suppliers having a reputation and superior quality.
Negotiation Contract - The government also buys on a negotiation contract basis.
Provide Facilities - Government organization provides facilities to domestic suppliers than foreign suppliers, sometimes compromising on the quality as well.
National Favouritism - A major complaint of multinationals operating in Europe is that each country shows favouritism towards its national suppliers even when the foreign firms might have made better offers. However, the European Economic Commission has been working consistently to reduce this bias and make the marketplace a fairer one.
Maintaining Documents - Government organizations require maintaining documents from suppliers. Government organizations themselves do documentation of all transactions. Suppliers require maintaining all documents regarding transactions. Often, there are complaints about excessive paperwork, bureaucracy, regulations, decision-making delays, and frequent shifts in procurement personnel, but that’s how the process has been.
Other factors - Government buyers, like consumer and business buyers, are also affected by environmental, organizational, interpersonal, and individual factors. It is also being continuously scrutinised by all stakeholders closely as the money of taxpayers is involved in government spending.
Government Markets vs. Institutional Markets
The major difference between these two markets is based on the strategies they adopt.
Marketing Strategies - Institutional Markets
Companies that cater to institutional markets need to serve the requirements of diverse stakeholders and adopt several marketing strategies to meet the requirements of their stakeholders.
Separate Division to Cater Institutional Buyers
Companies involved in food businesses often set up a separate division to cater to the requirements of institutional buyers.
For example, a leading ketchup manufacturer processes its products differently to satisfy the requirements the institutions they supply to, which include prisons, hospitals, and educational institutes. The products are produced, packaged, and priced differently.
Adoption of Different Marketing Strategies
Different companies operating in institutional markets adopt different marketing strategies.
For example, a company that does a monopoly business with different institutions, probably offers a cost that is much lower than the competitors. In some cases, quality perhaps was compromised to meet food cost limits. Else, such low prices cannot be matched by operators outside the market.
However, a change in the purchase and procurement strategies, the company will search for unique partners who could satisfy those requirements. The partners now must provide the products at price points which the company never could have imagined before. The partners should also have in-depth knowledge about the products and should know how to provide low-priced products without compromising with the quality of the products. This will allow the company to further lower their cost while maintaining or improving the quality.
Marketing Strategies - Government Markets
Companies operating in government markers adopt several marketing strategies to meet the requirements of their stakeholders.
Adhering to Different Guidelines
Governments require suppliers to adhere to different guidelines and policies formulated by the governments. Suppliers interested in selling to governments are required to submit bids. Governments evaluate the bids based on several criteria and often award the contract to the lowest bidder.
However, this is not done while compromising with the quality.
Quality and on Time Project Completion
Contracts are awarded to those who provide great quality and who complete large projects on time. Governments also buy through negotiated contracts basis, primarily in complex projects that involve major research and development costs and risks and those where there is little competition.
Proper Relationships with Suppliers
The spending decisions of government and government organizations are always under public scrutiny. Governments maintain proper relationships with their suppliers. However, governments do have a number of grievances against the suppliers, one of which is that they do not do proper homework.
Acknowledgement of Specific Requirements
The government has varied customers - defence, civilian, and intelligence - and each of them have their own specific requirements. Each of these verticals have different needs, priorities, purchasing styles, and time constraints. Suppliers should acknowledge these specific requirements of each of the stakeholders and modify their supplies based on the requirements of the respective stakeholders.
Cost Minimization
Although product quality is important, one of the main concerns for government procurement professionals is to minimize the cost which is often not followed or is ignored by suppliers. Companies who desire to be government contractors should help government agencies and should try to analyse the bottom-line impact of products.
Present Success Case Studies
Suppliers should also share with governments their previous experiences and successful past performance. Suppliers may convince governments by presenting case studies of their superior past performance with other government organizations.
Detailed Procedures and Guidelines for Purchase
Companies provide government agencies with detailed procedures and guidelines for purchasing products. Similarly, suppliers are also provided with detailed procedures and guidelines specifying the process of selling to governments. Suppliers may get their contracts terminated and may have to face legal actions if they fail to abide by the procedures and guidelines.
Conclusion
Institutional and government markets make up a not-for-profit market with the primary goal of improving people's lives. Such markets are characterised by low budgets and captive clients.
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