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Cater Inc.:

Targeting the

buying centre Case Study

Catering is usually one of the first processes that is outsourced to partners. Running a

company cafeteria is not a core activity and increasing competition forces companies

to outsource everything that is not considered core. Cater Inc. is a Stockholm-based

firm specialising in managing catering processes from start to finish for all kinds of

organisations in the Scandinavian countries. Cater Inc. has 7,500 employees and

1,285 contracts for 1,740 locations, where catering services are offered to almost

500,000 individuals. Its annual sales are approximately %450 million.

Cater Inc. distinguishes between three types of customer: companies,

institutions and government agencies. Companies represent by far the largest part

of annual sales, but there is no longer much growth potential in this market segment.

All companies that want to outsource their catering have already done so by now.

In contrast, many institutions have never considered outsourcing their catering,

while increasing privatisation of government agencies also represents a potential for

growth. The composition and size of the buying centre varies significantly between

the three customer groups:

In companies, the composition of the buying centre can sometimes be deduced

from the number of tender copies requested. When a prospect only asks for two

copies of a tender, Cater Inc. probably deals directly with the key decisionmakers.

But when four or more copies are requested, the buying centre and

decision-making process may be quite complex. It is often difficult for Cater Inc.

to get a good grip on such complex decision-making processes, because it

usually deals with just one contact person (a facility manager or someone from

the management team or from human resources). The job description of the

contact person is an indicator of their role in the decision-making process.

In institutions, the size and composition of the buying centre depends on the

nature of the institution. In hospitals, someone from the management team

usually conducts the negotiations, while in prisons Cater Inc. has to deal with

a facility manager and a representative from the government.

In government agencies different decision-making processes are also used. Some

agencies purchase their catering services directly, while others use a central

purchasing organisation. In the latter case, price is usually the most important

buying motive (second to the quality of the catering service).

Negotiations with a prospect usually start when Cater Inc. is invited for an initial

meeting, where the discussion focuses on the customer's wishes and requirements,

such as the desired service level, pricing level, service personnel and free meals.

Based on this discussion, Cater Inc. writes a catering proposal that details the service

offered and its financial consequences. Most prospects invite several catering fi rms

for an initial briefing. Two or three of them are invited to present their proposal to

several employees of the prospect. Usually, the prospect will also demand a visit to

one of Cater Inc.'s customers to experience its catering service in a real-life situation

that matches the prospect's situation as closely as possible. When several catering

fi rms are still in the running, such a customer visit may determine the eventual

decision. After a caterer has been selected, negotiations focus on the details of

the contract and the operational issues. This decision-making process takes

approximately four to six months, while in extreme situations it may last

as long as two years or just one week. The key buying motives are:

effective management of personnel

improved cost control

improved quality.

Cater Inc. uses long-term contracts; its customers tend to be very loyal (the

average length of a customer relationship is nine years). This is very different from

some other countries, such as the US, where customers switch caterers on average

once every three years. Scandinavian customers tend to be more forgiving towards

their caterers; even when mistakes have been made, caterers usually get a chance

to restore the relationship. This means that in 90 per cent of cases, the proposal is

for a new customer, outsourcing its catering for the fi rst time (rather than a customer

switching caterers). When Cater Inc. is asked to write a proposal for a customer that

considers switching caterers, the customer's current caterer usually goes to great

lengths to keep its customer. In such situations, the customer frequently decides to

give its current caterer a second chance. All this implies that the loss of a customer

is taken very seriously.

Cater Inc.'s service offering, and personal selling are its most important marketing

instruments. Telemarketing does not work in this business; a personal approach is

essential to acquire new customers. Prospects are only visited when an appointment

has been made in advance; cold calling is not appreciated. Personal selling is

supported by direct mail and participation in networks of facility managers.

Ultimately, everything revolves around the effective management of personal

relationships. This is also reflected in the emotional buying motives that often play

a role in the final buying decision ('which caterer would I like to award the contract

to?'). Services marketing is a matter of trust and trust is built through effective

personal relationships.

Questions

1 Cater Inc. distinguishes between three market segments: companies, institutions

and government agencies. Are these three market segments independent from

each other? Describe the (potential) relationships that may exist between these

three groups of customers.

2 When problems have occurred, the customer's caterer is usually given a second

chance. What should Cater Inc. do when a serious problem has occurred with one

of its customers to prevent a competitor from stealing this customer. What can

Cater Inc. do to poach a customer from a competitor when that competitor has

experienced a serious problem with that customer?

3 A key marketing instrument to win new customers is a persuasive catering

proposal. List all elements that you would include in such a proposal. Describe

for each of these elements whether you would offer them as fixed elements or

whether their content can be negotiated.

4 The marketing of catering services strongly depends on effective relationship

management. This means that Cater Inc. must invest in developing personal

relationships with its customers. But the majority of sales efforts concern new

customers. How can Cater Inc. use relationship management to win new

customers?