The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Institutions differ from one another in their sponsors and their objectives. For example, Community Health Systems runs 203 for-profit hospitals in 29 states, generating $18 billion in annual revenues. By contrast, the Shriners Hospitals for Children is a nonprofit organization with 21 facilities that provide free specialized health care for children, whereas the government-run Veterans Affairs Medical Centers located across the country provide special services to veterans.13 Each institution has different buying needs and resources.

Institutional markets can be huge. Consider the massive and expanding U.S. prisons economy:

More than 720 out of every 100,000 people in the United States are in prison—that’s 2.2 million people. Criminal correction spending has outpaced budget growth in education, transportation, and public assistance. U.S. prisons spend about $74 billion annually—an average of $31,000 per prisoner—to keep their facilities running, an amount greater than the GDP of 133 nations. The ultimate captive market, it translates into plenty of work for companies looking to break into the prison market. “Our core business touches so many things—security, medicine, education, food service, maintenance, technology—that it presents a unique opportunity for any number of vendors to do business with us,” says an executive at Corrections Corporation of America, the largest private prison operator in the country.14

Many institutional markets are characterized by low budgets and captive patrons. For example, hospital patients have little choice but to eat whatever food the hospital supplies. A hospital purchasing agent has to decide on the quality of food to buy for patients. Because the food is provided as a part of a total service package, the buying objective is not profit. Nor is strict cost minimization the goal—patients receiving poor-quality food will complain to others and damage the hospital’s reputation. Thus, the hospital purchasing agent must search for institutional food vendors whose quality meets or exceeds a certain minimum standard and whose prices are low.

Many marketers set up separate divisions to meet the special characteristics and needs of institutional buyers. For example General Mills Convenience and Foodservice unit produces, packages, prices, and markets its broad assortment of cereals, cookies, snacks, and other products to better serve the specific food service requirements of hospitals, schools, hotels, and other institutional markets in addition to ­traditional B-to-B businesses such as convenience stores.15

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. In the United States alone, federal, state, and local governments contain more than 89,000 buying units that purchase more than $3 trillion in goods and services each year.16 Government buying and business buying are similar in many ways. But there are also differences that must be understood by companies that wish to sell products and services to governments. To succeed in the government market, sellers must locate key decision makers, identify the factors that affect buyer behavior, and understand the buying decision process.

Government organizations typically require suppliers to submit bids, and normally they award the contract to the lowest bidder. In some cases, a governmental unit will make allowances for the supplier’s superior quality or reputation for completing contracts on time. Governments will also buy on a 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 suppliers over foreign suppliers. A major complaint of multinationals operating in Europe is that each country shows favoritism toward its nationals in spite of superior offers that are made by foreign firms. The European Economic Commission is gradually removing this bias.

Like consumer and business buyers, government buyers are affected by environmental, organizational, interpersonal, and individual factors. One unique thing about government buying is that it is carefully watched by outside publics, ranging from Congress to a variety of private groups interested in how the government spends taxpayers’ money. Because their spending decisions are subject to public review, government organizations require considerable documentation from suppliers, who often complain about excessive paperwork, bureaucracy, regulations, decision-making delays, and frequent shifts in procurement personnel.

Given all the red tape, why would any firm want to do business with the U.S. government? The reasons are quite simple: The U.S. government is the world’s largest buyer of products and services—about $450 billion last year—and its checks don’t bounce. The government buys everything from socks to stealth bombers. For example, this year, the federal government will spend a whopping $80 billion on information technology, $11.4 billion of which is for managing the technology of the Department of Health and Human Services.17

Most governments provide would-be suppliers with detailed guides describing how to sell to the government. For example, the U.S. Small Business Administration provides on its website detailed advice for small businesses seeking government contracting ­opportunities (www.sba.gov/category/navigation-structure/contracting​/contracting-opportunities). And the U.S. Commerce Department’s website is loaded with information and advice on international trade opportunities (www.commerce.gov​/about-commerce/grants-contracting-trade-opportunities).

In several major cities, the General Services Administration operates Business Service Centers with staffs to provide a complete education on the way government agencies buy, the steps that suppliers should follow, and the procurement opportunities available. Various trade magazines and associations provide information on how to reach schools, hospitals, highway departments, and other government agencies. And almost all of these government organizations and associations maintain internet sites offering up-to-date information and advice. Still, suppliers have to master the system and find ways to cut through the red tape, especially for large government purchases.

Noneconomic criteria are playing a growing role in government buying. Government buyers are asked to favor depressed business firms and areas; small business firms; minority-owned firms; and business firms that avoid race, gender, or age discrimination. Sellers need to keep these factors in mind when seeking government business.

Many companies that sell to the government have not been very marketing oriented for a number of reasons. Total government spending is determined by elected officials rather than by any marketing effort to develop this market. Government buying has emphasized price, making suppliers invest their effort in technology to bring costs down. When the product’s characteristics are specified carefully, product differentiation is not a marketing factor. Nor do advertising or personal selling matter much in winning bids on an open-bid basis.

Several companies, however, have established separate government marketing departments, including GE, Boeing, and Goodyear. Other companies sell primarily to government buyers, such as Lockheed Martin, which makes more than 80 percent of its sales from the U.S. government, either as a prime contractor or a subcontractor. These companies anticipate government needs and projects, participate in the product specification phase, gather competitive intelligence, prepare bids carefully, and produce stronger communications to describe and enhance their companies’ reputations.

Other companies have established customized marketing programs for government buyers. For example, Dell has specific business units tailored to meet the needs of federal as well as state and local government buyers. Dell offers its customers tailor-made Premier web pages that include special pricing, online purchasing, and service and support for each city, state, and federal government entity.

During the past decade, a great deal of the government’s buying has gone online. The Federal Business Opportunities website (www.fbo.gov) provides a single point of entry through which commercial vendors and government buyers can post, search, monitor, and retrieve opportunities solicited by the entire federal contracting community. The three federal agencies that act as purchasing agents for the rest of government have also launched websites supporting online government purchasing activity. The General Services Administration, which influences more than one-quarter of the federal government’s total procurement dollars, has set up a GSA Advantage! website (www.gsaadvantage.gov). The Defense Logistics Agency offers an Internet Bid Board System (www.dibbs.bsm.dla.mil) for purchases by America’s military services. And the Department of Veterans Affairs facilitates e-procurement through its VA Advantage! website (https://VAadvantage.gsa.gov).

Such sites allow authorized defense and civilian agencies to buy everything from office supplies, food, and information technology equipment to construction services through online purchasing. The General Services Administration, the Defense Logistics Agency, and the Department of Veterans Affairs not only sell stocked merchandise through their websites but also create direct links between government buyers and contract suppliers. For example, the branch of the Defense Logistics Agency that sells 160,000 types of medical supplies to military forces transmits orders directly to vendors such as Bristol-Myers Squibb. Such online systems promise to eliminate much of the hassle sometimes found in dealing with government purchasing.18