Description
This is a comprehensive presentation on B2B Buyer Behaviour and it contains topics like industrial buying process, phases in decision making process, buying grid framework
INDUSTRIAL BUYING PROCESS
Purchasing Objective: Generally, the Purchase / Materials Management is defined as “buying the right quantity, at the right price, for delivery at the right time and place” It is the Management’s job to define what is “right” for each dimension. The objectives of the purchasing function are briefly given below. 1. Delivery / Availability:One of the prime objectives is to ensure that purchased goods and services are available or delivered as and when & where required.If not work will come to a grinding halt.This will reflect baldly on the performance of the Purchase Function. The corollary to this that is that Vendor Reliability in delivery is the most important criterion while evaluating vendors in the most of the cases . 2. Product Quality: The Product Quality should be consistent with the Specifications and use of the Product. It is important to ensure consistency in Product Quality to reduce the cost of inspection, interruptions in production process due to rejections and replacement of rejected material. Hence, product Quality is considered as one of the important objectives of purchasing.
1
3. Lowest Price :Subject to availability in time, with good and consistent quality, buyers would like to buy at the lowest price. 4. Supplier Relationship:To develop a good long term Supplier/ Vendor Relationship and to develop new sources of supply. 5. Services:Industrial Buyers need many types of services like prompt and accurate information from supplier, application or technical assistance, spare part availability, repairs and maintenance capability and training if required. 6. Personal Objectives:Industrial Buyers try to achieve both organizational purchase objectives and personal objectives. The Industrial Marketers should realize that it is important to satisfy not only the purchasing objectives of an Industrial Firm but also the personal objectives of the buying members.
2
BUY - PHASES IN THE INDUSTRIAL BUYING-DECISION PROCESS.
Buying is an organizational-decision making process. There are eight phases (or stages) in the buying decision process, indicating the logical sequence of activities 1. Recognition of a problem or need. 2. Determination of the application or characteristics and quantity of needed product. 3. Development of specifications or description of needed product. 4. Search for and qualifications of potential suppliers. 5. Obtaining and analyzing supplier proposals. 6. Evaluation of proposals and selection of suppliers. 7. Selection of an order routine. 8. Performance feed back and post-purchase evaluation. UNDERSTANDING THE VARIOUS PHASES OF BUYING-DECISION MAKING IS USEFUL TO AN INDUSTRIAL MARKETER AS IT HELPS IN DEVELOPING AN APPROPRIATE SELLING STRATEGY. We will now study the above eight phases, one by one. PHASE 1- RECOGNITION OF A PROBLEM OR NEED. The Recognition of a problem or need may originate within the buying firm or may also be recognized by a smart marketer. When the quality of material supplied by the existing supplier is not satisfactory, or the material is not available when required, or the machine supplied by the Existing Supplier breaks down too often, the buying organization recognizes the problem. If an Industrial Marketer identifies a problem in the buying organization and suggests how the problem could be solved, there will be a better possibility of it being selected as a supplier.
3
PHASE- 2 :- DETERMINATION OF THE CHARACTERISTICS AND QUANTITY OF NEEDED PRODUCT. Once the problem is recognized within or outside the buying organization, the next phase is to resolve the problem. The buying firm will try to answer questions such as: what type of product or services to be considered? What quantity of product needed & so on. For technical products, the Technical Department, (R& D, Industrial Engg, Production or Quality Control) will suggest general solutions of the needed product. For non technical goods or services, either the User Dept or Purchase Dept may suggest product or services, based on experience and also quantity required to solve the problem. Sometimes advice is taken from experts from outside. PHASE- 3 : - DEVELOPMENT OF SPECIFICATION OF NEEDED PRODUCT. Phases-2 & 3, are closely related. After general solution to the problem is determined in the 2 nd phase, the buying organization, in the 3rd stage, develops precise statement of the specifications or characteristic of the product or service required. During this stage the purchase dept takes the help of their technical people, or if required, out side sources such as suppliers or consultants. Industrial Marketers have a great opportunity to get involved at this stage by helping the buyer organization to develop products specification and characteristic. This will give a definite advantage to the marketer to incorporate his product’s specification & characteristics. PHASES- 4: - SEARCH FOR AND QUALIFICATIONS OF SUPPLIERS. The search for potential suppliers is based on various sources like trade journals, sales calls, word of mouth, catalogues, trade shows, industrial directories, yellow pages etc. generally the factors such as quality of product or service, reliability in delivery & service are considered.
4
PHASES IN THE INDUSTRIAL BUYING – DECISION PROCESS PHASE 5 :- OBTAINING AND ANALYZING SUPPLIER’S PROPOSALS. •Once the qualified suppliers are decided, the buying organization obtains proposals by sending enquiries to the qualified suppliers. •The supplier’s offer should include the product specification, price, delivery period, payment terms, taxes and duties applicable transportation cost ( or fright), cost of transit insurance and any other relevant cost or free services provided. •For purchases of routine products or services, the phases 4 & 5 may occur simultaneously, as the buyer may contact qualified suppliers to get the latest information on prices and delivery periods. •For technically complex products and services a lot of time is spent in analyzing proposals in terms of comparison on products, services, deliveries & landed costs. PHASE6:- EVALUATION OF PROPOSALS & SELECTION OF SUPPLIERS •The buying organization evaluates the proposals of competing suppliers and selects one or more suppliers. •Further negotiations may continue with selected suppliers on price, payment terms, deliveries etc. •The decision makers may evaluate each suppliers on a set of agreed – upon attributes or factors. •For instance, each supplier is evaluated on each attribute by giving a weightage ( or importance) to each attribute and using a rating scale of 100 percentage point as shown in the 5 table in the next slide.
A SUPPLIER EVALUATION SYSTEM.
ATTRIBUTE (OF FACTOR)
WEIGHT (IMPORTANCE)
SUPPLIER PERFORMANCE
SUPPLIER RATING ( OR SCORE)
1) 2) 3) 4) 5) 6)
Quality Delivery Price Service Flexibility TOTAL
30 25 15 20 10 100
0.8 0.4 0.6 0.6 0.2
30 X 0.8 = 24 25 X 0.4 = 10 15 X 0.6 = 9 20 X 0.6 = 12 10 X 0.2 = 2 57
6
PHASES IN THE INDUSTRIAL BUYING – DECISION PROCESS PHASE 7:- SELECTION OF AN ORDER ROUTINE:•In this stage the mechanics of exchange of goods and services between a buyer and a seller is worked out. •The activities include placement of purchase orders with selected suppliers, the quantity to be purchased from each supplier, frequency of order placement by buyers and delivery schedules to be adhered to by the supplier, levels of inventory needed, follow up of actual delivery to ensure it to be as per delivery schedule, and the payment terms to be adhered by the buyer.
PHASE 8:- PERFOMANCE FEED BACK AND POST PURCHASE EVALUATION
•In this final phase a formal or informal review about the performance of each supplier ( or vendor) takes place. •The user dept gives a feed back on whether the purchased item solved the problem or not. If not , the members of the decision making unit review the earlier decision and decide to give a chance to a previously rejected supplier.
7
MARKETING IMPLICATIONS:• While understanding the various phases in buying decision making process ( or buy phases), the individual sales person should recognize that marketing effort is not over after the order is received or even after order is executed. • • • • • He should monitor the feedback and evaluation process in the customer ( buyer) organization In particular the user satisfaction levels or complaints must be monitored by the Industrial Marketer so that immediate corrective actions can be taken before a major damage is done. In fact a good and quick response to customer complaints can result in good buyer – seller relationship. The Marketing Strategy to be adopted, will depend on the type of products, the phase of buying- decision making process and purchasing situations. To better understand the buying process, it is necessary to consider different types of purchases or buying situations.
TYPES OF BUYING SITUATIONS There are three common types buying situations called buy classes 1. NEW PURCHASE ( OR NEW TASK) 2. CHANGE IN SUPPLIER( OR MODIFIED REBUY) 3. REPEAT PURCHASE ( OR STRAIGHT REBUY)
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1. NEW PURCHASE (OR NEW TASK):• In this situation the company is buying the item for the first time. • When a firm decides to diversify into new products or services it necessitates the purchase of a new machine, materials or parts. • In the new purchase situation the buyers have limited knowledge and lack of previous experience. • Hence they have to obtain a variety of information about the product, the suppliers, the prices etc. • In the new task decisions, the risks are more, decisions may take longer time, and more people are involved in decision making. 2. CHANGE IN SUPPLIER (OR MODIFIED REBUY) • A modified re buy situation occurs when the organization is not satisfied with the performance of the existing suppliers or the need arises for cost reduction or quality improvement. • The change in supplier may become necessary due to suggestion from technical people for additional product features. • As a result, search for information about an alternate source of supply becomes necessary. 3. REPEAT PURCHASE (OR STRAIGHT REBUY) • The situation occurs when the buying organization requires certain products or services continuously and when such products / services have been purchased in the past. • In such situations the buying firm places repeat orders on suppliers who are currently supplying such goods. • Minimum risk, routine decision • Annual rate contracts.
9
THE BUYGRID FRAME WORK • Understanding organizational buying becomes easier if it is divided into different buying phases ( buy phases) and these phases are analyzed under different buying situations ( buy classes). • Robinson formulated the buy grid framework which combined three types of buying situations (buy classes) with eight phases of buying decision process (buy phases). An analysis of the buy-phases in relation to the buy-classes gave interesting results, which are summarized below. 1. All eight phases of industrial buying process are applicable to a new buying solution however, in case of modified re buy and straight re buy situations, only some of the buy phases are applicable. 2. The most difficult buying situation occurs for a new task in buy phases of problem recognition, and determination of product characteristics and specification. This is because; maximum number of decision makers and influencers are involved. 3. Modified Re buy situation are not very difficult to handle. 4. Straight Re buy situation are handled in a routine matter. Decision can be taken by junior executive in the purchase dept.
10
BUYING CENTER ROLES. • Before identifying the individuals and groups involved in the buying decision process, it is important to understand the roles of buying-center members. • Understanding the buying center roles helps the Industrial Marketer to develop an effective Marketing Strategy. There are six roles of buying center members. 1. INITIATORS :These are the individuals who first recognize a problem or need, which could be resolved by purchase of a product or service. Often, the users of the product / service play the role of the initiators.
2. BUYERS :The Major roles or responsibilities of buyers are obtaining quotation from suppliers, supplier evaluation and selection, negotiation, processing purchase orders, expediting delivery and generally implementing purchasing policies of the firm. Usually they are purchase [or materials] officers & executives.
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3. USERS:These individuals use the product or service that is to be purchased. Often users play the role of initiators. They may define the specifications of the needed Product .They may be shop floor workers, maintenance engineers, or R & D Engineers. 4. INFLUENCERS:They influence the buying decision. Generally technical people have a substantial influence on purchase decisions. Sometimes outside Consultants or Experts play the role of influencers by drawing specifications of products or services. 5. DECIDERS:Actual buying decisions are made by the deciders. They may be one or more Individuals involved in the buying decisions. Generally for routine purchases, the buyer or purchase executive may be the decider. But for high value and technically complex products, senior executives are the deciders. 6. GATE KEEPERS:They are individuals controlling flow of information regarding products & services to the buying centre. They also control sales people’s meetings with members of buying of buying centre. They are normally assistants or junior persons in the purchase dept.
12
doc_442771387.pptx
This is a comprehensive presentation on B2B Buyer Behaviour and it contains topics like industrial buying process, phases in decision making process, buying grid framework
INDUSTRIAL BUYING PROCESS
Purchasing Objective: Generally, the Purchase / Materials Management is defined as “buying the right quantity, at the right price, for delivery at the right time and place” It is the Management’s job to define what is “right” for each dimension. The objectives of the purchasing function are briefly given below. 1. Delivery / Availability:One of the prime objectives is to ensure that purchased goods and services are available or delivered as and when & where required.If not work will come to a grinding halt.This will reflect baldly on the performance of the Purchase Function. The corollary to this that is that Vendor Reliability in delivery is the most important criterion while evaluating vendors in the most of the cases . 2. Product Quality: The Product Quality should be consistent with the Specifications and use of the Product. It is important to ensure consistency in Product Quality to reduce the cost of inspection, interruptions in production process due to rejections and replacement of rejected material. Hence, product Quality is considered as one of the important objectives of purchasing.
1
3. Lowest Price :Subject to availability in time, with good and consistent quality, buyers would like to buy at the lowest price. 4. Supplier Relationship:To develop a good long term Supplier/ Vendor Relationship and to develop new sources of supply. 5. Services:Industrial Buyers need many types of services like prompt and accurate information from supplier, application or technical assistance, spare part availability, repairs and maintenance capability and training if required. 6. Personal Objectives:Industrial Buyers try to achieve both organizational purchase objectives and personal objectives. The Industrial Marketers should realize that it is important to satisfy not only the purchasing objectives of an Industrial Firm but also the personal objectives of the buying members.
2
BUY - PHASES IN THE INDUSTRIAL BUYING-DECISION PROCESS.
Buying is an organizational-decision making process. There are eight phases (or stages) in the buying decision process, indicating the logical sequence of activities 1. Recognition of a problem or need. 2. Determination of the application or characteristics and quantity of needed product. 3. Development of specifications or description of needed product. 4. Search for and qualifications of potential suppliers. 5. Obtaining and analyzing supplier proposals. 6. Evaluation of proposals and selection of suppliers. 7. Selection of an order routine. 8. Performance feed back and post-purchase evaluation. UNDERSTANDING THE VARIOUS PHASES OF BUYING-DECISION MAKING IS USEFUL TO AN INDUSTRIAL MARKETER AS IT HELPS IN DEVELOPING AN APPROPRIATE SELLING STRATEGY. We will now study the above eight phases, one by one. PHASE 1- RECOGNITION OF A PROBLEM OR NEED. The Recognition of a problem or need may originate within the buying firm or may also be recognized by a smart marketer. When the quality of material supplied by the existing supplier is not satisfactory, or the material is not available when required, or the machine supplied by the Existing Supplier breaks down too often, the buying organization recognizes the problem. If an Industrial Marketer identifies a problem in the buying organization and suggests how the problem could be solved, there will be a better possibility of it being selected as a supplier.
3
PHASE- 2 :- DETERMINATION OF THE CHARACTERISTICS AND QUANTITY OF NEEDED PRODUCT. Once the problem is recognized within or outside the buying organization, the next phase is to resolve the problem. The buying firm will try to answer questions such as: what type of product or services to be considered? What quantity of product needed & so on. For technical products, the Technical Department, (R& D, Industrial Engg, Production or Quality Control) will suggest general solutions of the needed product. For non technical goods or services, either the User Dept or Purchase Dept may suggest product or services, based on experience and also quantity required to solve the problem. Sometimes advice is taken from experts from outside. PHASE- 3 : - DEVELOPMENT OF SPECIFICATION OF NEEDED PRODUCT. Phases-2 & 3, are closely related. After general solution to the problem is determined in the 2 nd phase, the buying organization, in the 3rd stage, develops precise statement of the specifications or characteristic of the product or service required. During this stage the purchase dept takes the help of their technical people, or if required, out side sources such as suppliers or consultants. Industrial Marketers have a great opportunity to get involved at this stage by helping the buyer organization to develop products specification and characteristic. This will give a definite advantage to the marketer to incorporate his product’s specification & characteristics. PHASES- 4: - SEARCH FOR AND QUALIFICATIONS OF SUPPLIERS. The search for potential suppliers is based on various sources like trade journals, sales calls, word of mouth, catalogues, trade shows, industrial directories, yellow pages etc. generally the factors such as quality of product or service, reliability in delivery & service are considered.
4
PHASES IN THE INDUSTRIAL BUYING – DECISION PROCESS PHASE 5 :- OBTAINING AND ANALYZING SUPPLIER’S PROPOSALS. •Once the qualified suppliers are decided, the buying organization obtains proposals by sending enquiries to the qualified suppliers. •The supplier’s offer should include the product specification, price, delivery period, payment terms, taxes and duties applicable transportation cost ( or fright), cost of transit insurance and any other relevant cost or free services provided. •For purchases of routine products or services, the phases 4 & 5 may occur simultaneously, as the buyer may contact qualified suppliers to get the latest information on prices and delivery periods. •For technically complex products and services a lot of time is spent in analyzing proposals in terms of comparison on products, services, deliveries & landed costs. PHASE6:- EVALUATION OF PROPOSALS & SELECTION OF SUPPLIERS •The buying organization evaluates the proposals of competing suppliers and selects one or more suppliers. •Further negotiations may continue with selected suppliers on price, payment terms, deliveries etc. •The decision makers may evaluate each suppliers on a set of agreed – upon attributes or factors. •For instance, each supplier is evaluated on each attribute by giving a weightage ( or importance) to each attribute and using a rating scale of 100 percentage point as shown in the 5 table in the next slide.
A SUPPLIER EVALUATION SYSTEM.
ATTRIBUTE (OF FACTOR)
WEIGHT (IMPORTANCE)
SUPPLIER PERFORMANCE
SUPPLIER RATING ( OR SCORE)
1) 2) 3) 4) 5) 6)
Quality Delivery Price Service Flexibility TOTAL
30 25 15 20 10 100
0.8 0.4 0.6 0.6 0.2
30 X 0.8 = 24 25 X 0.4 = 10 15 X 0.6 = 9 20 X 0.6 = 12 10 X 0.2 = 2 57
6
PHASES IN THE INDUSTRIAL BUYING – DECISION PROCESS PHASE 7:- SELECTION OF AN ORDER ROUTINE:•In this stage the mechanics of exchange of goods and services between a buyer and a seller is worked out. •The activities include placement of purchase orders with selected suppliers, the quantity to be purchased from each supplier, frequency of order placement by buyers and delivery schedules to be adhered to by the supplier, levels of inventory needed, follow up of actual delivery to ensure it to be as per delivery schedule, and the payment terms to be adhered by the buyer.
PHASE 8:- PERFOMANCE FEED BACK AND POST PURCHASE EVALUATION
•In this final phase a formal or informal review about the performance of each supplier ( or vendor) takes place. •The user dept gives a feed back on whether the purchased item solved the problem or not. If not , the members of the decision making unit review the earlier decision and decide to give a chance to a previously rejected supplier.
7
MARKETING IMPLICATIONS:• While understanding the various phases in buying decision making process ( or buy phases), the individual sales person should recognize that marketing effort is not over after the order is received or even after order is executed. • • • • • He should monitor the feedback and evaluation process in the customer ( buyer) organization In particular the user satisfaction levels or complaints must be monitored by the Industrial Marketer so that immediate corrective actions can be taken before a major damage is done. In fact a good and quick response to customer complaints can result in good buyer – seller relationship. The Marketing Strategy to be adopted, will depend on the type of products, the phase of buying- decision making process and purchasing situations. To better understand the buying process, it is necessary to consider different types of purchases or buying situations.
TYPES OF BUYING SITUATIONS There are three common types buying situations called buy classes 1. NEW PURCHASE ( OR NEW TASK) 2. CHANGE IN SUPPLIER( OR MODIFIED REBUY) 3. REPEAT PURCHASE ( OR STRAIGHT REBUY)
8
1. NEW PURCHASE (OR NEW TASK):• In this situation the company is buying the item for the first time. • When a firm decides to diversify into new products or services it necessitates the purchase of a new machine, materials or parts. • In the new purchase situation the buyers have limited knowledge and lack of previous experience. • Hence they have to obtain a variety of information about the product, the suppliers, the prices etc. • In the new task decisions, the risks are more, decisions may take longer time, and more people are involved in decision making. 2. CHANGE IN SUPPLIER (OR MODIFIED REBUY) • A modified re buy situation occurs when the organization is not satisfied with the performance of the existing suppliers or the need arises for cost reduction or quality improvement. • The change in supplier may become necessary due to suggestion from technical people for additional product features. • As a result, search for information about an alternate source of supply becomes necessary. 3. REPEAT PURCHASE (OR STRAIGHT REBUY) • The situation occurs when the buying organization requires certain products or services continuously and when such products / services have been purchased in the past. • In such situations the buying firm places repeat orders on suppliers who are currently supplying such goods. • Minimum risk, routine decision • Annual rate contracts.
9
THE BUYGRID FRAME WORK • Understanding organizational buying becomes easier if it is divided into different buying phases ( buy phases) and these phases are analyzed under different buying situations ( buy classes). • Robinson formulated the buy grid framework which combined three types of buying situations (buy classes) with eight phases of buying decision process (buy phases). An analysis of the buy-phases in relation to the buy-classes gave interesting results, which are summarized below. 1. All eight phases of industrial buying process are applicable to a new buying solution however, in case of modified re buy and straight re buy situations, only some of the buy phases are applicable. 2. The most difficult buying situation occurs for a new task in buy phases of problem recognition, and determination of product characteristics and specification. This is because; maximum number of decision makers and influencers are involved. 3. Modified Re buy situation are not very difficult to handle. 4. Straight Re buy situation are handled in a routine matter. Decision can be taken by junior executive in the purchase dept.
10
BUYING CENTER ROLES. • Before identifying the individuals and groups involved in the buying decision process, it is important to understand the roles of buying-center members. • Understanding the buying center roles helps the Industrial Marketer to develop an effective Marketing Strategy. There are six roles of buying center members. 1. INITIATORS :These are the individuals who first recognize a problem or need, which could be resolved by purchase of a product or service. Often, the users of the product / service play the role of the initiators.
2. BUYERS :The Major roles or responsibilities of buyers are obtaining quotation from suppliers, supplier evaluation and selection, negotiation, processing purchase orders, expediting delivery and generally implementing purchasing policies of the firm. Usually they are purchase [or materials] officers & executives.
11
3. USERS:These individuals use the product or service that is to be purchased. Often users play the role of initiators. They may define the specifications of the needed Product .They may be shop floor workers, maintenance engineers, or R & D Engineers. 4. INFLUENCERS:They influence the buying decision. Generally technical people have a substantial influence on purchase decisions. Sometimes outside Consultants or Experts play the role of influencers by drawing specifications of products or services. 5. DECIDERS:Actual buying decisions are made by the deciders. They may be one or more Individuals involved in the buying decisions. Generally for routine purchases, the buyer or purchase executive may be the decider. But for high value and technically complex products, senior executives are the deciders. 6. GATE KEEPERS:They are individuals controlling flow of information regarding products & services to the buying centre. They also control sales people’s meetings with members of buying of buying centre. They are normally assistants or junior persons in the purchase dept.
12
doc_442771387.pptx