Description
It Describes the purchasing decision process that organizational buyers apply when confronted with different buying situations and how marketing strategy is affected.
•
•
•
The purchasing decision process that organizational buyers apply when confronted with different buying situations and how marketing strategy is affected The various roles of buying influencers in the purchasing decision process and why it is important to indentify influencers The criteria that organizational buyers apply in making purchasing decisions
?
INDUSTRIAL BUYING ADDS EXTENSIONS AND ENTIRELY NEW DIMENSIONS TO THE TRADITIONALLY STUDIED CONSUMER BUYING PROCESS
?
IN MAKING DECISIONS , PURCHASING MANAGERS MUST COORDINATE WITH NUMEROUS PEOPLE WITH DIVERSE ORGANIZATIONAL RESPONSIBILITIES WHO APPLY DIFFERENT CRITERIA TO PURCHASING DECISIONS
?
DEVELOPING EFFECTIVE MARKETING STRATEGY TO REACH ORGANIZATIONAL BUYERS RESTS ON THE INDUSTRIAL MARKETER’S UNDERSTANDING OF THE NATURE OF INDUSTRIAL BUYING
?
EFFECTIVE INDUSTRIAL BUYING MUST BEGIN WITH AN UNDERSTANDING OF INDUSTRIAL BUYING BEHAVIOR
THIS REQUIRES KNOWLEDGE OF THE DIFFERENT TYPES OF BUYING SITUATIONS THAT ORGANIZATIONS ENCOUNTER THE PROCESS THAT ORGANIZATIONAL BUYERS GO THROUGH IN REACHING PURCHASING DECISIONS HOW THOSE DECISIONS ARE AFFECTED BY DIFFERENT MEMBERS OF THE FIRM AND THE CRITERIA THEY APPLY IN MAKING PURCHASING DECISIONS
?
Organizational buying activities center on the level of experience and information that firms have in purchasing certain products and services
?
ROUTINE PURCHASE
? Little need for information ( because of past experience with the purchasing situation )
?
NEW PURCHASE
? Information needs are extensive due to lack of experience with the product , service or suppliers
? ?
?
Effective industrial marketing strategy requires that marketers focus their attention on the type of buying situation a firm is facing, where it is in the decision – making process ( which phase ) and what criteria various influencers will emphasize in the purchasing decisions
?
Understanding organizational buying behavior is easier if it is divided into the various phases and the phases are analyzed under different buying situations
? ?
?
This enables marketers to identify Critical decision phases The information needs of purchasing organizations and The various criteria buyers consider when making purchase decisions
?
The purchasing decision process over various buying situations can be analyzed by a conceptual model referred to as BUYGRID
•
•
Buygrid incorporates three types of buying situations – “new task”, “straight rebuy” & “modified rebuy” and eight phases of buying decision process It provides a frame of reference for dividing the overall decision – making process into distinct segments that are useful for recognizing critical decisions and specific information requirements
Buying phases
Buyclasses New Task Modified Rebuy Straight Rebuy
1 2 3 4 5
Anticipation or recognition of problem ( need ) and a general solution Determination of characteristics and quantity of needed item Description of characteristics and quantity of needed item Search for and qualification of potential sources Acquisition and analysis of proposals
6
7 8
Evaluation of proposals and selection of suppliers
Selection of an order routine Performance feedback and evaluation
?
?
Buyers have various levels of experience and information to use in purchasing products and services Market strategy, therefore, must begin with identifying the types of buying situation the purchasing firm is facing
•
•
•
In the new task buying situation, the problem or need is considerably different from past experiences Problem recognition may be triggered by internal or external factors e.g. firm’s decision to add a new machinery may necessitate the purchase of new equipment of parts or materials OR A change in customer requirements may necessitate the purchase of new machinery to meet the changed need
•
•
•
Since both situations are new, decision makers lack the experience and product knowledge to make comparisons of alternative products and suppliers Hence , decision makers and influencers enter into extensive problem – solving activity They must obtain a variety of information to explore alternative solutions adequately before a purchase can be made
?
?
Organizational decision makers enter into a modified rebuy situation when they feel that significant benefits such as quality improvements or cost reduction may be derived from reevaluating alternatives Well defined criteria may be employed in the purchase decision , there may be uncertainty about which supplier can best fill specific needs
?
?
Re-evaluation of supply alternatives may be triggered by internal and / or external forces The modified rebuy situation occurs most often when the firm is displeased with the performance of present suppliers
?
?
?
It is the most common buying situation in industrial purchasing When purchases are continuing or recurring, little or no information is required ; routine response is the normal buying pattern Organizational buyers usually have well – developed choice criteria that have been used and refined over time
?
The consumer decision purchasing decision is usually described as a series of mental stages that include
? ? ? ? ? Problem recognition Information search Information evaluation Purchase decision making and Post purchase behavior
?
The industrial purchasing decision process accents physical , observable stages, as opposed to mental stages, because several people are usually involved in various ways in each phase
?
?
The purchasing decision process is triggered by the recognition of a problem, need, or potential opportunity Such recognition may originate within the buying organization , especially when
? Products become outmoded ? Equipment breaks down or ? Existing materials are unsatisfactory in quality or availability
?
It may also originate outside the buying organization with a marketer who recognizes and reveals opportunities for potential performance improvement
?
The marketer who initiates or becomes involved in the buying process at this phase, particularly in a new task situation, will have a distinct advantage in influencing the final decision , thus a greater probability of being selected as a supplier
?
?
Once a problem has surfaced, organizational members must determine specifically how the situation may be resolved ; that is , the problem and solution alternatives must be narrowed and precisely analyzed In the case of technical products, either the user department or engineering usually prepare performance specifications
?
?
The narrowing of the problem and alternatives is a task internal to the user department. Influencers from outside the department may be used as additional sources of information, critical decisions and information needs at this phase lie chiefly within the user department
?
?
?
Extremely critical phase for the marketer During this phase, those influencers who prepare or affect specifications ,enter the purchasing process Buying influencers may change from department heads to engineers or manufacturing department
?
?
Buying influencers also begin to look outside the firm for supplier and product information and for assistance in developing product specifications Because of the opportunity to develop a close working relationship with organizational influencers prior to other competitors coming on the scene, a definite advantage accrues to the marketer who triggered the need , or who is aware of the need at this point in time
?
Once solutions have been identified and precisely described, a buying organization begins to search for alternative sources of supply, which leads to qualifications of suppliers
?
Qualifications sought will vary with
? The type of buying organization ? The specific buying situation ? The buying influencers involved
?
?
After identifying of qualified suppliers, requests for specific proposals are made In case of straight rebuy-----buyers may merely check a catalog or contact suppliers to obtain up-to- date information about prices and deliveries
?
For complex situations, need for information is intensive and great deal of time given to analyzing proposals and comparing products, services and costs
?
?
?
Proposals of competing suppliers are weighed and analyzed In case of make – or – buy decision, proposals are compared to the cost of producing the needed item within the buying firm In other instances, one or more offers are accepted from competing suppliers and negotiations may continue on terms, delivery, prices, or other aspects of suppliers’ proposal
?
?
Order routines are established by forwarding purchase orders to the vendors and status reports to the user department and by determining the levels of inventory that will be needed over various time periods The purchase process is actually not completed until the ordered item is delivered and accepted for use
?
?
The final phase in the purchasing process consists of a formal or informal review and feedback regarding product performance, as well as vendor performance. This phase involves in assessing by the user department, as to whether the purchased item solved the original problem
?
?
If it did not , suppliers that were screened earlier may be given further consideration Feedback that is critical of the chosen vendor or product can cause the various members of the decision – making unit to re examine their positions.
?
PRICE
? Buyers are concerned with the “ evaluated price “ of a product. Customers do not buy products; they buy value ( satisfaction ) ? In evaluating price , buyers consider a variety of factors that generate or minimize costs, such as :
? What amount of scrap or waste will result from the use of the material ? ? What will the cost of processing material be ? ? How much power will the machine consume ?
?
?
?
In case of capital equipment, quantifiable economic measures of ROI are also used The proposed purchase of a new machine may be supported by expected increase in productivity or reduced labor costs A supplier who has a reputation for high – quality products and dependable delivery may be awarded a contract even though his prices may be higher
?
?
The cost of shutting down manufacturing due to faulty equipment or missed deliveries may far outweigh the greater price. Industrial marketers should understand the importance of price and know that low bidders often fail to meet other important criteria of buyers
?
?
?
SERVICES Multiple services are required by industrial buyers to achieve organizational goals Such services include :
? ? ? ? Technical assistance Availability of spare parts Repair capability and Training information
?
?
?
Technical contributions of suppliers are highly valued wherever equipment , materials , or parts are in use Suppliers with reputations for being technical leaders in their fields are invariably favored The marketer who can offer sound technical advice, adequate training , and a ready supply of replacement parts very often has a differential advantage over less capable competitors
?
?
?
QUALITY Organizational customers search for quality levels that are consistent with specifications and the intended use of the product There is always a reluctance to pay for extra quality and unwillingness to compromise specifications for a reduced price
?
The crucial factor is uniformity or consistency in product quality that will
? Generate uniformity in end products ? Reduce costly inspections and testing of incoming shipments and ? Ensure a smooth blending with the production process
?
Marketers can determine the degree of consistency and uniformity needed by, and the tolerance levels acceptable to, a customer firm only through close communication and coordination with the firm
?
?
?
ASSURANCE OF SUPPLY Interruptions in the flow of parts and materials can cause a shutdown of the production process, resulting in costly delays and lost sales Physical distribution services rank second to product quality in influencing the purchasing decision
?
? ?
Interruptions in supply can be due to several factors e.g. strikes, accidents, fires or natural catastrophes and purchasers are reluctant to rely on a single source of supply Purchases are often split between suppliers Marketer who understand the policies that customers follow in seeking continuity of supply & develop suitable strategy around them, would be treated as a preferred supplier & get a lion’s share of the order quantities
?
?
?
?
RECIPROCITY Giving consideration to selecting suppliers because of their value as customers is known as “ reciprocity “ Theoretically, the objective of reciprocity is for the buyer and seller to reach an agreement on an exchange of business that is mutually beneficial It has become an important part of the trade relations responsibility of purchase & materials management
?
?
Reciprocity is legal if it is not enforced through coercive power or if a reciprocal agreement does not substantially lessen competition Because of the increasing shortages in raw materials and the soaring costs of production inputs, purchasers may initiate reciprocal arrangements to “ meet their firms’ basic purchasing needs “
?
People join organizations to accomplish personal objectives such as
? ? ? ? ? Greater status Promotions Salary increases Increased job security and Social interaction
?
In industrial marketing, the major factors that influence the purchasing decision are social consideration such as
? Friendship ? Reputation and ? Mutually beneficial interactions
?
?
?
Organizations work best when people accomplish personal and organizational objectives simultaneously A buyer can take pride, a personal objective, in making a correct buying decision that also accomplishes an organizational objective A single action accomplishes two different objectives and vendors need to keep both sets of objectives in mind
?
?
?
Marketing strategy is influenced by the number and background of influencers in the buying center One need to consider task and non task objectives of buying influencers The information needs of buying influencers must be met , to help them take best supplier selection
?
?
Information needs are product and service related and should be viewed with regard to firm’s task objectives and the product’s impact upon functional areas As various influencers evaluate product characteristics from their individual perspective, product analysis should be used to identify the major interests of key influencers and their respective information needs
doc_441031295.pptx
It Describes the purchasing decision process that organizational buyers apply when confronted with different buying situations and how marketing strategy is affected.
•
•
•
The purchasing decision process that organizational buyers apply when confronted with different buying situations and how marketing strategy is affected The various roles of buying influencers in the purchasing decision process and why it is important to indentify influencers The criteria that organizational buyers apply in making purchasing decisions
?
INDUSTRIAL BUYING ADDS EXTENSIONS AND ENTIRELY NEW DIMENSIONS TO THE TRADITIONALLY STUDIED CONSUMER BUYING PROCESS
?
IN MAKING DECISIONS , PURCHASING MANAGERS MUST COORDINATE WITH NUMEROUS PEOPLE WITH DIVERSE ORGANIZATIONAL RESPONSIBILITIES WHO APPLY DIFFERENT CRITERIA TO PURCHASING DECISIONS
?
DEVELOPING EFFECTIVE MARKETING STRATEGY TO REACH ORGANIZATIONAL BUYERS RESTS ON THE INDUSTRIAL MARKETER’S UNDERSTANDING OF THE NATURE OF INDUSTRIAL BUYING
?
EFFECTIVE INDUSTRIAL BUYING MUST BEGIN WITH AN UNDERSTANDING OF INDUSTRIAL BUYING BEHAVIOR
THIS REQUIRES KNOWLEDGE OF THE DIFFERENT TYPES OF BUYING SITUATIONS THAT ORGANIZATIONS ENCOUNTER THE PROCESS THAT ORGANIZATIONAL BUYERS GO THROUGH IN REACHING PURCHASING DECISIONS HOW THOSE DECISIONS ARE AFFECTED BY DIFFERENT MEMBERS OF THE FIRM AND THE CRITERIA THEY APPLY IN MAKING PURCHASING DECISIONS
?
Organizational buying activities center on the level of experience and information that firms have in purchasing certain products and services
?
ROUTINE PURCHASE
? Little need for information ( because of past experience with the purchasing situation )
?
NEW PURCHASE
? Information needs are extensive due to lack of experience with the product , service or suppliers
? ?
?
Effective industrial marketing strategy requires that marketers focus their attention on the type of buying situation a firm is facing, where it is in the decision – making process ( which phase ) and what criteria various influencers will emphasize in the purchasing decisions
?
Understanding organizational buying behavior is easier if it is divided into the various phases and the phases are analyzed under different buying situations
? ?
?
This enables marketers to identify Critical decision phases The information needs of purchasing organizations and The various criteria buyers consider when making purchase decisions
?
The purchasing decision process over various buying situations can be analyzed by a conceptual model referred to as BUYGRID
•
•
Buygrid incorporates three types of buying situations – “new task”, “straight rebuy” & “modified rebuy” and eight phases of buying decision process It provides a frame of reference for dividing the overall decision – making process into distinct segments that are useful for recognizing critical decisions and specific information requirements
Buying phases
Buyclasses New Task Modified Rebuy Straight Rebuy
1 2 3 4 5
Anticipation or recognition of problem ( need ) and a general solution Determination of characteristics and quantity of needed item Description of characteristics and quantity of needed item Search for and qualification of potential sources Acquisition and analysis of proposals
6
7 8
Evaluation of proposals and selection of suppliers
Selection of an order routine Performance feedback and evaluation
?
?
Buyers have various levels of experience and information to use in purchasing products and services Market strategy, therefore, must begin with identifying the types of buying situation the purchasing firm is facing
•
•
•
In the new task buying situation, the problem or need is considerably different from past experiences Problem recognition may be triggered by internal or external factors e.g. firm’s decision to add a new machinery may necessitate the purchase of new equipment of parts or materials OR A change in customer requirements may necessitate the purchase of new machinery to meet the changed need
•
•
•
Since both situations are new, decision makers lack the experience and product knowledge to make comparisons of alternative products and suppliers Hence , decision makers and influencers enter into extensive problem – solving activity They must obtain a variety of information to explore alternative solutions adequately before a purchase can be made
?
?
Organizational decision makers enter into a modified rebuy situation when they feel that significant benefits such as quality improvements or cost reduction may be derived from reevaluating alternatives Well defined criteria may be employed in the purchase decision , there may be uncertainty about which supplier can best fill specific needs
?
?
Re-evaluation of supply alternatives may be triggered by internal and / or external forces The modified rebuy situation occurs most often when the firm is displeased with the performance of present suppliers
?
?
?
It is the most common buying situation in industrial purchasing When purchases are continuing or recurring, little or no information is required ; routine response is the normal buying pattern Organizational buyers usually have well – developed choice criteria that have been used and refined over time
?
The consumer decision purchasing decision is usually described as a series of mental stages that include
? ? ? ? ? Problem recognition Information search Information evaluation Purchase decision making and Post purchase behavior
?
The industrial purchasing decision process accents physical , observable stages, as opposed to mental stages, because several people are usually involved in various ways in each phase
?
?
The purchasing decision process is triggered by the recognition of a problem, need, or potential opportunity Such recognition may originate within the buying organization , especially when
? Products become outmoded ? Equipment breaks down or ? Existing materials are unsatisfactory in quality or availability
?
It may also originate outside the buying organization with a marketer who recognizes and reveals opportunities for potential performance improvement
?
The marketer who initiates or becomes involved in the buying process at this phase, particularly in a new task situation, will have a distinct advantage in influencing the final decision , thus a greater probability of being selected as a supplier
?
?
Once a problem has surfaced, organizational members must determine specifically how the situation may be resolved ; that is , the problem and solution alternatives must be narrowed and precisely analyzed In the case of technical products, either the user department or engineering usually prepare performance specifications
?
?
The narrowing of the problem and alternatives is a task internal to the user department. Influencers from outside the department may be used as additional sources of information, critical decisions and information needs at this phase lie chiefly within the user department
?
?
?
Extremely critical phase for the marketer During this phase, those influencers who prepare or affect specifications ,enter the purchasing process Buying influencers may change from department heads to engineers or manufacturing department
?
?
Buying influencers also begin to look outside the firm for supplier and product information and for assistance in developing product specifications Because of the opportunity to develop a close working relationship with organizational influencers prior to other competitors coming on the scene, a definite advantage accrues to the marketer who triggered the need , or who is aware of the need at this point in time
?
Once solutions have been identified and precisely described, a buying organization begins to search for alternative sources of supply, which leads to qualifications of suppliers
?
Qualifications sought will vary with
? The type of buying organization ? The specific buying situation ? The buying influencers involved
?
?
After identifying of qualified suppliers, requests for specific proposals are made In case of straight rebuy-----buyers may merely check a catalog or contact suppliers to obtain up-to- date information about prices and deliveries
?
For complex situations, need for information is intensive and great deal of time given to analyzing proposals and comparing products, services and costs
?
?
?
Proposals of competing suppliers are weighed and analyzed In case of make – or – buy decision, proposals are compared to the cost of producing the needed item within the buying firm In other instances, one or more offers are accepted from competing suppliers and negotiations may continue on terms, delivery, prices, or other aspects of suppliers’ proposal
?
?
Order routines are established by forwarding purchase orders to the vendors and status reports to the user department and by determining the levels of inventory that will be needed over various time periods The purchase process is actually not completed until the ordered item is delivered and accepted for use
?
?
The final phase in the purchasing process consists of a formal or informal review and feedback regarding product performance, as well as vendor performance. This phase involves in assessing by the user department, as to whether the purchased item solved the original problem
?
?
If it did not , suppliers that were screened earlier may be given further consideration Feedback that is critical of the chosen vendor or product can cause the various members of the decision – making unit to re examine their positions.
?
PRICE
? Buyers are concerned with the “ evaluated price “ of a product. Customers do not buy products; they buy value ( satisfaction ) ? In evaluating price , buyers consider a variety of factors that generate or minimize costs, such as :
? What amount of scrap or waste will result from the use of the material ? ? What will the cost of processing material be ? ? How much power will the machine consume ?
?
?
?
In case of capital equipment, quantifiable economic measures of ROI are also used The proposed purchase of a new machine may be supported by expected increase in productivity or reduced labor costs A supplier who has a reputation for high – quality products and dependable delivery may be awarded a contract even though his prices may be higher
?
?
The cost of shutting down manufacturing due to faulty equipment or missed deliveries may far outweigh the greater price. Industrial marketers should understand the importance of price and know that low bidders often fail to meet other important criteria of buyers
?
?
?
SERVICES Multiple services are required by industrial buyers to achieve organizational goals Such services include :
? ? ? ? Technical assistance Availability of spare parts Repair capability and Training information
?
?
?
Technical contributions of suppliers are highly valued wherever equipment , materials , or parts are in use Suppliers with reputations for being technical leaders in their fields are invariably favored The marketer who can offer sound technical advice, adequate training , and a ready supply of replacement parts very often has a differential advantage over less capable competitors
?
?
?
QUALITY Organizational customers search for quality levels that are consistent with specifications and the intended use of the product There is always a reluctance to pay for extra quality and unwillingness to compromise specifications for a reduced price
?
The crucial factor is uniformity or consistency in product quality that will
? Generate uniformity in end products ? Reduce costly inspections and testing of incoming shipments and ? Ensure a smooth blending with the production process
?
Marketers can determine the degree of consistency and uniformity needed by, and the tolerance levels acceptable to, a customer firm only through close communication and coordination with the firm
?
?
?
ASSURANCE OF SUPPLY Interruptions in the flow of parts and materials can cause a shutdown of the production process, resulting in costly delays and lost sales Physical distribution services rank second to product quality in influencing the purchasing decision
?
? ?
Interruptions in supply can be due to several factors e.g. strikes, accidents, fires or natural catastrophes and purchasers are reluctant to rely on a single source of supply Purchases are often split between suppliers Marketer who understand the policies that customers follow in seeking continuity of supply & develop suitable strategy around them, would be treated as a preferred supplier & get a lion’s share of the order quantities
?
?
?
?
RECIPROCITY Giving consideration to selecting suppliers because of their value as customers is known as “ reciprocity “ Theoretically, the objective of reciprocity is for the buyer and seller to reach an agreement on an exchange of business that is mutually beneficial It has become an important part of the trade relations responsibility of purchase & materials management
?
?
Reciprocity is legal if it is not enforced through coercive power or if a reciprocal agreement does not substantially lessen competition Because of the increasing shortages in raw materials and the soaring costs of production inputs, purchasers may initiate reciprocal arrangements to “ meet their firms’ basic purchasing needs “
?
People join organizations to accomplish personal objectives such as
? ? ? ? ? Greater status Promotions Salary increases Increased job security and Social interaction
?
In industrial marketing, the major factors that influence the purchasing decision are social consideration such as
? Friendship ? Reputation and ? Mutually beneficial interactions
?
?
?
Organizations work best when people accomplish personal and organizational objectives simultaneously A buyer can take pride, a personal objective, in making a correct buying decision that also accomplishes an organizational objective A single action accomplishes two different objectives and vendors need to keep both sets of objectives in mind
?
?
?
Marketing strategy is influenced by the number and background of influencers in the buying center One need to consider task and non task objectives of buying influencers The information needs of buying influencers must be met , to help them take best supplier selection
?
?
Information needs are product and service related and should be viewed with regard to firm’s task objectives and the product’s impact upon functional areas As various influencers evaluate product characteristics from their individual perspective, product analysis should be used to identify the major interests of key influencers and their respective information needs
doc_441031295.pptx