BUYING BEHAVIOUR IN B2B MARKETS

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UNDERSTANDING PURCHASING ORIENTATION

Buying Orientation : Obtaining the best deal : price / quality / availability Maximise power over suppliers : commoditization / multi vs single Avoid Risk where ever possible Developing in buying : target pricing / global & e sourcing

Procurement Orientation : Improving quality : Specifications / specified / certification Reducing total cost of ownership : total cost of

UNDERSTANDING PURCHASING ORIENTATION

Supply Management Orientation : Focus on end users Craft a sourcing strategy Build a supply network : Speculation vs. Postponement strategy manufacturing $ logistics / made to stock vs build to order / efficient customer response ( ECR) system Sustain high collaberative relationships with select suppliers : Value in use price Applying purchasing portfolio management : supplier segmentation as generic / leverage / bottleneck / criticals Putting knowledge of purchasing orientation to use

PURCHASING OBJECTIVES OF FIRMS

Reliability in delivery. product Quality.

Consistent Lowest

price (If delivery & Quality objectives are met) pre & post sales services.

Excellent Long

Term collaborative relationship.

Industrial buyers try to achieve organizational purchasing objectives & personal objectives like higher status, job security, salary increments,

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Industrial Buying Decision Process

Marketers must study this for developing effective marketing strategy. In Consumer Marketing, Household / Individual consumer / Buyer makes buying decisions based on certain mental stages like (i) Problem (Need) Recognition, (ii) Information Search (iii) Evaluation (iv) Purchase decision (v) Post Purchase Behavior In Industrial Marketing, Buying Decision making process is observable, involving many people in buying firm & includes sequential activities / stages / phases, as follows:5

OUTSOURCING : A GROWTH INDUSTRY

Outsourcing is increasing rapidly

Not just materials, many business functions are being outsourced Leveraging of the suppliers expertise Increases in innovation lower staffing levels reduced costs more flexibility04/07/12

Outsourcing can enable:

And result in:

Strategic Issues

Core Competencies Supplier Dominance The Creation of Strategic Vulnerabilities The Dangers of Vertical Integration

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Horizontal Integration

Outsourcing all non-critical activities is a trend

The idea is to achieve significant cost leverage

To identify non-critical activities, the firms core competencies must be defined

All other activities are candidates for outsourcing

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From A Strategic Level: What Should Not Be Outsourced1. An item that is critical to the success of the product 2. An item that requires specialized design, manufacturing skills or equipment 3. An item that fits well within the firms core competencies

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Make or Buy at Tactical Level

Poor supplier performance Changing sales demand Restricted manufacturing capability Modification of product Increased manufacturing capability Improved supplier capability04/07/12

Considerations Which Favor Making 1. Cost considerations 2. Desire to integrate plant operations 3. Use of excess plant capacity 4. Control over production and/or quality 5. Design secrecy required 6. Unreliable suppliers 7. Desire to maintain a stable work 04/07/12 force

Considerations Which Favor Buying 1. Limited production facilities 2. Cost considerations (less expensive to buy) 3. Small-volume requirements 4. Suppliers specialized know-how 5. Stable work force (rising sales) 6. Multiple-source policy 7. Indirect managerial control considerations 8. Procurement and inventory 04/07/12 considerations

Major Elements Included in a To Make Cost Analysis1. Delivered purchased material costs 2. Direct labor costs 3. Any follow-on costs stemming from quality and related problems 4. Incremental inventory carrying costs 5. Incremental factory overhead costs 6. Incremental managerial costs 04/07/12

Major Elements Included in a To Buy Cost Analysis1. 2. 3. 4. 5. Purchase price of the part Transportation costs Receiving and inspection costs Incremental purchasing costs Any follow-on costs related to quality or service

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PHASES IN INDUSTRIAL BUYING DECISION MAKING PROCESS / BUYPHASES

PHASE 1 :- Recognizing A problem / need. PHASE 2 :- Determining Characteristics & Quantity of needed product / Service*. PHASE 3 :- Developing specifications of the product*. PHASE 4 :- Searching & Qualifying Suppliers. PHASE 5 :- Obtaining & Analyzing suppliers offers* PHASE 6 :- Evaluating & Selecting Suppliers. PHASE 7 :- Selecting an order routine PHASE 8 :- Post Purchase evaluation15

Buying Situations / Buy classes3 Common types of purchases / buying situations

i. New Task / New Purchase : Here, buyers have limited knowledge and experience of the new product/service. Hence, more information is obtained, more people are involved, risks are more, and decisions take longer time. ii. Modified Re-buy / Change in supplier : This situation occurs when the firm is not satisfied with the performance of existing suppliers, or there is a change in product specs. Hence, the need for searching alternate suppliers. iii. Straight Re-buy / Repeat purchase : Here, the buying firm places repeat orders on suppliers who are currently supplying certain products/services. Such decisions are routine, with less risks and less information needs, and can be taken by junior executives.

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Buying Center roles & key members.Roles of Buying center members are

Initiators. First recognize problem / need. Any individual in buying firm often, users. Carry out purchase activities. They are purchase officers / executives. Any person who uses the product / service. Influence buying decision. Technical people are often key influencers. Make buying decisions. Senior executives are deciders for high value & complex products. For straight rebuy / routine purchase, junior purchase officer can decide. They control / filter information & meetings with buying center members. Often, P.A. /17

Buyers. User.

Influencers. Deciders.

Gatekeepers.

Identifying key members of buying centre

Sales / Marketing persons must identify important members of buying centre. Buying centre consists of individuals and groups who take part in buying decision making process, have common objectives & share common risks. It is also called purchase committee, buying committee or decision making unit. Members of buying centre are

(i) Technical persons. Represent design,production/operations, maintenance, Q.C., Industrial Engg. Depts. (ii) Purchasers / Buyers. Purchase / Materials dept. persons. (iii) Accounts / Finance persons. (iv) Marketing persons (v) Top management persons. G. M. & above. 18

Organizational buying behavior Industrial

/ business buyers are influenced by many factors. Two most important factors are (i) Organizational factors / task oriented objectives, like best product quality, lowest price, dependable delivery.

(i) Personal factors / Non-task oriented objectives, such as good increments, promotion, Job security, personal favors. When

suppliers offers are similar, buyers can satisfy organizational objectives from any supplier. Hence, personal factors become important. when suppliers offers differ substantially, buyers give importance to19

However,

Buygrid FrameworkBUYPHASES 1.ProblemRecognition 2.Characteristicsof Product 3.ProductSpecification 4.SupplierSearch 5.AnalyzingSupplier Offers 6.SupplierSelection 7.OrderRoutine Selection 8.PostPurchaseReview NewTask Yes Yes Yes Yes Yes Yes Yes Yes BUYCLASSES Modified Rebuy MayBe MayBe MayBe Yes Yes Yes Yes Yes Straight Rebuy No No No No MayBe No MayBe Yes20

BUYGRID FRAMEWORK ANALYSIS All

Phases are Applicable for a New Task.

Some

Phases are Applicable for modified / Straight Rebury. task situation is most difficult since buyers have less knowledge, no experience & more people involved. Rebury is not difficult situation since it has few activities. rebury situation is handled routinely, as repeat purchases are made.

New

Modified

Straight

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Many models have been developed to explain organizational buying behavior. One of the comprehensive models is the Sheth model, described below. The Sheth model of industrial buyer behavior, shown below , focuses on (i) Psychological aspects of individual buyers (Component 1), (ii) Conditions causing joint decision making (Component 2), (iii) Conflict among those involved in decision process & resolution of conflict (Component 3). Situational factors include economic conditions, labour disputes, mergers & acquisitions. The model does not explain their influence on buying process.22

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CUSTOMER SERVICE

Important Customer Service Elements. Carry out market survey to understand which of the following elements of customer service are important to customers, what service levels are expected by customers, the service levels offered by the firm and its competitors. (i) Pre Sales Service : Advising, Informing, Problem solving (ii) During Sales Service : Product availability, ontime delivery, order cycle time, and information. (iii) Post Sales Service : Warranty, AMC, Repair, Installation & Training.

Develop superior service package. Test, Set Goals, and Establish Control system24

SUMMARY

Industrial marketers should understand that business buyers try to achieve both organizational & personal objectives. Industrial buying decision process consists of eight steps / stages (buyphases) & three types of buying situations (buyclasses). Buygrid model combines buyphases & buyclasses. Marketers must understand roles & key members of buying centre, including key buying influencers. Many factors influence organizational buying behavior, but major factors are organizational ( or task oriented ) objectives and personal (non task oriented ) objectives. The Sheth model of industrial buyer behavior is comprehensive, focusing of psychological & joint decision making aspects. Webster and wind model is also widely used & comprehensive model on buyer behavior. 25

Internet ExerciseDell Inc. has been widely successful in selling its products over the internet to customers of all type, including every category of customers in the business markets : commercial enterprise, institutions and governments. Assume your college library is planning to purchase 25 new conputers. Go to dell website and online store and provide a critique of the website and consider how well it provided access to the information that a potential buyer may want from your point of view.