MarketingManagement

Unit6

Unit6
Structure

BusinessBuyerBehavior

6.1 Introduction 6.2. Differencesbetweenconsumerandbusinessbuyerbehavior 6.3. Buyingsituationsinindustrialmarketing 6.4. Buyingrolesinbusinessbuyingprocess 6.5. Factorsthatinfluencesbusinessbuyers 6.6. Stepsinbusinessbuyingprocess. TerminalQuestions AnswerstoSAQsandTQs 6.1 Introduction Any market in which customer buys the product for other than personal consumption is called business market. This market includes organizational buying, institutional buying and government buying. The market consist very few buyers but they purchase in a very big quantity. These customersareusuallyfoundintheindustrialtowns,techparksandindustrialarea.Thedemandfor the product in this market is derived i. e depend upon the final consumption of the product and service. For example, Demand for car engines will depend on the how many consumers will purchase the car. If the number of people who purchase car declines in a particular month then demandfortheenginesalsogoesdown.Thisshowshowenginecompaniesaredependingonthe final consumption. The fluctuation in the market is inelastic. The product is purchased only after thoroughexamination. Therefore it includes more thanone member in the purchasing department. Thishasresultedinthecomplexbuyingbehavior.

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LearningObjectives Afterstudyingthisunit,youwillbeableto:

1. Differentiatebetweenconsumerbehaviorandorganizationbehavior. 2. Discussthedifferenttypesofbuyingsituationsinvolvedintheorganizationalbuying. 3. Understandthebuyingrolesandtheirimportanceinindustrialmarketing. 4. Analyzethefactorsthatinfluencetheorganizationbuyingprocess. 5. ExaminethebusinessbuyingprocessintheIndustrialmarketing.

1.2. Differencebetweenconsumerandbusinessbuyerbehavior.
Table6.1 Characteristics 1. Demand 2. Noofcustomers 3. Location 4. Natureofbuy 5. Noofbuyingroles 6. Negotiations 7. Promotion ConsumerMarket Direct Large Dispersed Personal Few Easy Advertising Businessmarket Derived Few Concentrated. Profession Many Complex Personalselling

6.3.Buyingsituationsintheindustrialmarketing. Buying situations varies to the large extent in the industrial marketing compared to the consumer markets.Thenegotiationprocessandvendorevaluationstageswillnotbethereifcompanywantsto purchasethesamematerialfromtheexistingsuppliers.Itmeansforeachsituationsbuyingprocess

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changes.Thereforeinthissectionwearediscussingthedifferentsituationinvolvedinthebusiness buying.Industrialmarketingusuallyinvolvesthreedifferenttypesofbuyingsituations.Theyare a. NewTask b. Straightrebuyand c. Modifiedrebuy.

1. New task: The stage in which an organization is purchasing a major productfor thefirst time.
Thereforecompanywillbehavingmorenumberofpeopleinvolvedinthedecisionmaking.Inthis situationsellertrytomeetallthebuyingparticipantsoftheorganizationandconvincethem.This willberesultedinhigheruncertaintyandcostfortheseller.

2. Straightrebuy:Inthissituationorganizationfollowroutinestepofinformingsellersabouttheir
requirements and supply specifications. This is the easiest situation inthe organization buying. This provides lot of flexibility to both buyers and sellers. Company already has the list of suppliers, it gets the information from the floor about their requirements and the same is conveyed to the supplier. After the advent of ERP software things have become simpler and easier.

3. Modifies rebuy: In this stage buyer wantseither product modification, price modification, terms
modificationorsuppliersmodifications.Forexample,acompanyXisbuyingRs100,000worthof ironmaterialsfromcompanyYeverymonth.CompanywouldliketoreducethecostofIronOre. Itstartsthenegotiationwiththeirsuppliersonthenewtermsandconditions. 6.4.BuyingrolesintheIndustrialmarketing. As we discussed in the beginning the difference between the consumer buying process and businessbuyingprocess,thenumberofpeopleinvolvedinthedecisionmakingaremoreinthe industrial marketing. Therefore many business organizations constitute the buying center or buyingcommittee.Thecharacteristicsofbuyingcenterarelistedbelow

1. Severalindividualscanoccupyagivenrole(e.g.manyusers/influencers)andoneindividualcan
occupymultipleroles.
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2. The buying center may include people outside the organization such as government officials,
consultants,technicaladvisorsandothermembersofthemarketingchannel.

3. Different members of the buying centre have different influences, for e.g. the engineering
departmentmaybeconcernedwithactualperformanceoftheproduct,whereasproductionmay bemoreinterestedineaseofuseandreliabilityofsupply.

4. Members of buying centre have different personal motivations, perceptions and Preferences
which in turn are dependent on age, income, education, job position, personality, attitudes towardsriskandculture Differentbuyingrolesinvolvedinthebusinessbuyingprocessare a. Users are people whoactuallyuse theproduct.For example, lathe machine is used by the shopflooremployee.Thispersoncantellthespecificationclearlythananyotherperson. b. Influencersarepeople whoprovide the information requiredtoevaluatethe vendorandhis products.Example:technicalpersonnel. c. Buyers: Purchasing persons who put the specification for vendors. These people also evaluatethevendorandselecthim. d. Deciders:Thesepeoplegivefinalconsentonthechosensuppliers e. A gatekeeper acts as filtering agents between buying committee and sellers. For example, a technicalpersonmayseethevendorquotationsandfilteritbeforeitgoestobuyingcommittees. SelfAssessmentQuestions1: 1. Anymarketinwhichcustomerbuystheproductforotherthanpersonalconsumptioniscalled 2. Commonmethodusedinpromotingtheproductinthebusinessmarketingis 3. Deriveddemandexistsmarket. 4. Shopflooremployeesaretypeofbuyingroles. 5. Businessorganizationsaredispersedinmanylocations a. True
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6.5.Factorsthatinfluencesonbusinessbuyers. 1. Economic developments: Purchasing of materials depend upon the countrys economic conditions. If the economy is growing rapidly usually the consumption also grows proportionately then company should source materials accordingly. The economic health of the nation provides imagefortheorganizationtoo. 2.Supplyconditions:rawmaterialsrequiredshouldbematchedwiththedemandconditionofthe company. If there is an irregular or seasonal demand exists then company should adjust their supplies.Anyshortageoftherawmaterialswillforcethecompanytogooutofthecompany. 3.PoliticalandLegalenvironment:theunstablegovernmentwillhaveunpredictablepolicies.Any changeinthegovernmentpolicywillhavedirectorindirectimpactonthecompany.Forexample,An engineering firm work towards better environment standards in their products assuming that all automobile companies adhere to the international regulations but the government decided to post ponetheregulationstandardimplementationfor12yearstheentirematerialmanufacturedandraw materialswillhaveextraholdingandinventorycosts. 4. Competitive environment: Business buying is very complex. The numbers of buyers are very few.Anytechnologychangeadoptedbythecompetitorshouldbecarefullyobserved.Ifthecompany notabletoidentifythecompetitorsmovesurvivalwillbecomedifficult. 5. Culture and customs: Every countryhas itsown culture and customs. As we discussed in the previousunit,whyoneshouldnotsellbeefproductsinIndia,insamewaybusinessbuyingisalso influencedbythecultureandcustoms.Forexample,mostoftheproductsproducedinJapanareof smallsizetosuittheircustomers.AnycompanybuyingproductsinJapanshouldalwayskeepthese thingsinmind. 6. Organizational objectives: Purchasing objectives are derivedfrom the organization objectives. Forexample,anorganizationobjectiveistoreducetheoverallcostof20%.Itspurchasingobjectives takethisasbenchmarkandtrytoreducethecostby20%.Sometimestheywillbeforcedtocancel thenegotiationwithamajorsupplierwhomayprovidevaluetotheorganizationinthefuturetomeet thecurrentcostprojection.

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7. Organizational policies and procedures: Companies policies like centralization versus decentralizationofbuyingandsellingwillhavedirectimpactonthecompanysproduction. 8. Organization structure and systems: Lesser the hierarchy more will be the flexibility in the organization. Companies with more number of hierarchies will have plenty of problems to be addressed. 9. Interpersonal factors: business buying will have different outcome on the basis of authority, status,empathyandpersuasivenessthatcustomerandorganizationposses. 10. Individual factors. Age, education, job position, Personality risk attitudes of individual will determinethebuyingbehaviorofeachroleandinturnthesechangeswillhavedirectimpactonthe organizationbuying. 6.6.Stepsinbusinessbuyingprocess

Problem recognition

Needdescription

Product specification

Suppliersearch

Proposal association

Supplierselection

Orderroutine specification

Performance review

Figure6.1

Stage1:Problemrecognition

1. Problemcanbeidentifiedfromeitherinternalstimuliorexternalstimuli.Companywouldliketo
launch new product hence it searches for the suppliers who can supply the material and equipmentsrequiredforthenewproduct.
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2. Externalstimuliliketradeshow,conferencealsohelpsthecompanytoidentifytheproblem.
Stage2:Needdescription:Afterfinalizingtheproblem,companieswilldefineneeddescription.The needdescriptionincludes

1. Characteristicsandquantityoftheneededitem. 2. Forthecomplexproductsteamassessmentisrequired. 3. Therequireditemsareassessedonthebasisofreliability,durability,price,andotherattributes

neededintheitem. Stage3:Productspecification: Organizations develop detailed product specification with value analysis. In the value Analysis Companyanalyzesthecomponentsandtheirproductionprocess.Hereemphasisisgiventofindthe alternative methods of producing the components and finding the optimum method that suits the company. Stage4:Suppliersearch The buyer now tries to identify the most appropriate suppliers. The buyer can examine trade directories, do a computer search, phone other companies for recommendations, watch trade advertisements, and attend trade shows. The suppliers task is to get listed in major business directories,developastrongadvertisingandpromotionprogram,andbuildagoodreputationinthe marketplace.Supplierswholacktherequiredproductioncapacityorsufferfromapoorreputationwill berejected.Thosewhoqualifymaybevisitedtoexaminetheirmanufacturingfacilitiesandmeettheir personnel.Qualifiedsuppliersareshortlistedforfurtherprocess. Stage5:Proposalsolicitation The buyer will now invite qualified suppliers to submit proposals. Some suppliers will send only a catalog or a sales representative. Where the item is complex or expensive, the buyer requires a detailed written proposal from each qualified supplier. The buyer will invite qualified suppliers to makeformalpresentations.

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Thus business marketers must be skilled in researching, writing and presenting proposals. Their proposals should be marketing documents, not just technical documents. Their oral presentations should inspire confidence. They shouldposition their companys capabilitiesand resources sothat theystandbutfromthecompetition. Stage6:Supplierselection Thisstageisalsoknownasvendorselection.Duringthisstagecompanieswillpreparethechecklist. Weightages are assigned against each checklist point and evaluated. Some of the important attributesthosecommonlyfoundinthevendorevaluationsare a. Quality b. Delivery c. Communication d. Competitiveprices. e. Servicing f. Technicaladvice g. Performancehistory h. Reputation Stage7:Orderroutinespecifications: The buyer now negotiates the final order with the chosen supplier(s), listing the technical specificationsthequantityneeded,theexpectedtimeofdelivery,returnpolicies,warrantiesandso on. In case of MRO items (Maintenance, Repair and Operating items), buyers are increasingly moving towards blanket contracts rather than periodic purchase orders. Writing a new purchase order each time stock is needed, is expensive. Nor does thebuyer want to write fewer and larger purchase orders because that means carrying more inventories. A blanket contract establishes a longtermrelationshipwherethesupplierpromisestoresupplythebuyerasneededonagreedprice terms over a specified period of time. The stock is held by the seller, hence the name stockless purchase plan. The buyers computer automatically sends an order to the seller when stock is needed. This locks the supplier with the buyer and makes it difficult for outsuppliers to break in unlessthebuyerbecomesdissatisfiedwiththeinsuppliersprices,qualityorservice.
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Stage8:Performancereview Inthisstageorganizationreviewtheperformanceofthesuppliers.Thiswillhelpittodecidewhether tocontinuewithexistingsuppliersorshouldsearchforthenewvendor. These eight stages are very much essential for new task but not necessary for straight rebuy or modifiedrebuy.Toknowwhichstagesareimportantinthenewtask,astraightrebuyormodified rebuywewillstudyBuygridModel Buygridmodel Buygridmodelisdevelopedtounderstandthebusinessbuyingprocessinthreedifferentbusiness buyingsituations Table6.2. Buyingprocess 1. Problem recognition 2. General description 3. Product specification 4. suppliersearch 5. Proposal solicitation 6. Supplier selection 7. order routine (Sometime) (sometimes) need (sometimes) Newtask Modifiedrebuy Straightrebuy.

specification 8. Performance review

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SelfAssessmentQuestions2: 1. Tradeshowisaninternalstimulusin a. True a. True b.False b.False 2. Problemrecognitionisrequiredinstraightrebuysituation 3. isalsoknownasvendorselectionstage. 4. stagequalifiedsuppliersareinvitedtomakeformalpresentations 5. ThefullformofMROis,,and.

TerminalQuestions 1. Differentiatebetweenconsumerandbusinessbuyerbehavior. 2. Explainthebuyingsituations. 3. Discussthebuyingrolesintheindustrialmarketing. 4. Writeanoteonfactorsthatinfluencebusinessbuying. 5. Describethestagesofbusinessbuyingprocess.

AnswerstoSelfAssessmentQuestions SelfAssessmentQuestions1 1. Businessmarketorindustrialmarket. 2. Personalselling. 3. Businessmarket. 4. Users. 5. False

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SelfAssessmentQuestions2 1. Externalstimuli 2. False 3. Supplierselection 4. Proposalsolicitation. 5. Maintenance,Repair,andoperatingitems. AnswerstoTerminalQuestion. 1. Refer6.2 2. Refer6.3 3. Refer6.4 4. Refer6.5 5. Refer6.6

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