BUSINESS BUYER

UNIT 5 (CONSUMER BEHAVIOR)

Business Buyer
For marketers, the selling environment of business markets present uniquely different circumstances when compared to selling to consumers. Business markets are more likely to be price driven than brand driven. Demand in business markets tends to be more volatile than consumer markets.

Business Buyer
Business and consumer markets are dissimilar in other ways requiring marketers to take a different approach when selling to business customers than to consumers. These differences include: How Decisions Are Made Existence of Experienced Purchasers Time Needed to Make Buying Decision Size of Purchases Number of Buyers Type of Promotional Effort Needed to Reach Buyer
3

Buying Differences
In the consumer market a very large percentage of purchase decisions are made by a single person. There are situations in which multiple people may be involved in a consumer purchase decision, such as a child influencing a parent to choose a certain brand of cereal or a husband and wife deciding together to buy a house, but most of the time purchases are individual decisions.
4

Buying Differences
The business market is significantly different. While single person purchasing is not unusual, especially within a small company, a significant percentage of business buying, especially within larger organizations, requires the input of many. Those associated with the purchase decision are known to be part of a Buying Center, which consists of individuals within an organization that perform one or more of the following roles:
5

Buying Differences (Buying Center Decisions)

Initiator any Buying Center member who is the first to determine that a need exists Influencer has the ability to affect what is ordered such as setting order specifications (e.g., engineers, researchers, product managers) Buyer responsible for dealing with suppliers and placing orders (e.g., purchasing agent) Decider has the power to make the final purchase decision (e.g., CEO) User those who will actually use the product when it is received (e.g., office staff) Gatekeeper anyone who controls access to other Buying Center members (e.g., administrative assistant)
6

Buying Differences (Experienced Purchasers)

Organizations often employ purchasing agents or professional buyers whose job is to negotiate the best deals for their company. (Purchase Department) Unlike consumers, who often lack information when making purchase decisions, professional buyers are generally as knowledgeable about the product and the industry as the marketer who is selling to them.
7

Buying Differences (Decision Making Timing)

Depending on the product, business purchase decisions can drag on for an extensive period. Unlike consumer markets where impulse purchasing is rampant, the number of people involved in business purchase decisions results in decisions taking weeks, months or even years.

Buying Differences (Size of Purchases)

For products that are regularly used and frequently purchased, businesses will often buy a larger volume at one time compared to consumer purchases. Because of this business purchasers often demand price breaks (e.g., discounts) for higher order levels.

Buying Differences (Number of Buyers)

While there are several million companies worldwide that operate in the overall business market, within a particular market the number is much smaller. For example, while in the United States there are over 95 million households who may shop at a grocery store, there are only a few thousand grocery stores with many of these centrally controlled as part of a chain of stores. Additionally, within some industries buyers are highly concentrated in certain geographic areas. Compared to consumer products, marketing efforts are confined to a smaller targeted group.
10

Buying Differences (Type of Promotions)

Companies who primarily target consumers often use mass advertising methods to reach an often widely dispersed market. For business-to-business marketers the size of individual orders, along with a smaller number of buyers, makes person-to-person contact by sales representatives a more effective means of promotion.
11

Organization Buying Process

Organization buying process involves the decisionmaking by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers.

12

Difference Between Consumer and Organizational Buying

Fewer organizational buyers Close, long-term relationship between organizational buyers and sellers Organizational buyers are more rational Organizational buying may be to specific requirements Reciprocal buying may be important in organizational buying
13

Difference Between Consumer and Organizational Buying

Organizational selling/ buying may be more risky Organizational buying is more complex Negotiation is often more important in organizational buying

14

Organization Buying Process DMU-Decision Making Unit

15

Organization Buying Process

Users people in the organization who actually use the product or service. Influencers affect the buying decision, usually by helping define the specifications for what is bought. Buyers have the formal authority and responsibility to select the supplier and negotiate the terms of the contract.

16

Organization Buying Process

Deciders have the formal or informal power to select or approve the supplier that receives the contract. Gatekeepers control the flow of information to other members of the buying center. (Please refer text book pages 122 to 125 for a detailed explanation)

17

Organization Buying Behavior

Problem recognition

Determine product dimensions and quantity

Precise description of product characteristics Search and qualification of potential sources

Acquisition and analysis of proposals

Evaluation of proposals and supplier selection Selection of an order routine

Performance feedback and evaluation

(Refer Pages 125-127)

18

Choice Criteria in Evaluating Suppliers

Good purchasing practices are integral to small business success. Finding good suppliers and maintaining solid relations with them can be an invaluable tool in the quest for business success and expansion. For many organizations, suppliers have become their secret competitive weapon, their hidden resource, their competitive edge. These competitive gains can manifest themselves in a wide range of areas, from better prices and delivery times to increased opportunities to consider and implement innovative practices. 19

Choice Criteria in Evaluating Suppliers

Five general categories in which choosing the right supplier and involving him can help buyers compete in the marketplace are: Improvement of products through contributions to product design, technology, or ideas for producing new products. In most such instances, suppliers help buyers by pointing out ways in which designs can be improved or more desirable materials can be used. Improvements in product quality. In addition to providing design recommendations that result in improved products, suppliers are often sources of suggestions that allow buyers to hold consistent tolerances in production.
20

Choice Criteria in Evaluating Suppliers

Improvements in "speed to market. Reductions in total product cost, either through streamlining of work processes (inventory management, new product design, scheduling, etc.) or replacement of costly components with less expensivebut still effectiveones. Improvements in customer satisfaction.

21

Choice Criteria in Evaluating Suppliers

Whether searching out new suppliers or benchmarking the performance of current suppliers, businesses are urged to consider the following when evaluating their options: Commitment to quality. Product quality is regarded as an essential factor in selecting a supplier. Cost-competitiveCompetitive pricing is another huge factor, especially for businesses that are smaller or experiencing financial difficulties.
22

Choice Criteria in Evaluating Suppliers

CommunicationSuppliers who do not maintain a policy of open communicationor actively practice deceptionshould be avoided at all costs. The frustrations of dealing with such companies can sometimes assume debilitating (devastating) dimensions. Moreover, constant exposure to such tactics can have a corrosive effect on internal staff. Timely serviceBusinesses strategies are depend on schedules, which in turn are based on receiving shipments at agreed-upon times. When those shipments slip, business strategies suffer. The blow can be particularly severe if the supplier is negligent or late in reporting the problem
23

Choice Criteria in Evaluating Suppliers

Production capabilitiesthe supplier's capacity for program management and production should be considered, including its ability to integrate design and manufacturing functions, its approach to design changes, and its program measurement features. Financial stabilityBusinesses that allocate large sums for purchasing materials often prefer to make long-term deals with suppliers that are financially stable. Such arrangements not only convey security, but they allow companies to learn about one another and gain a fuller understanding of each business's needs, desires, operating practices, and future objectives.

24

Choice Criteria in Evaluating Suppliers

Logistics/LocationSupplier capabilities in this area include transportation capacity, sourcing capabilities, and 'just-in-time' performance. Inventory evaluation of this consideration is dependent somewhat on the supplier's business. If the supplier is a distributor, the emphasis will be on how well his inventory is set up to avoid stock outs. With a manufacturer, emphasis has to be on inventory accessibility. If the supplier has a [just in time] program with 24hour assured delivery, it's in better condition than the manufacturer with a lot of raw material inventory and an eight-week lead time for raw material.

25

Choice Criteria in Evaluating Suppliers

Flexibility and special servicesMany purchasers express appreciation for suppliers that take extra measures to satisfy their customers. These "perks" can range from after-hours accessibility to training or inventory support. Market knowledgeSuppliers with extensive knowledge of market conditions and mastery of contemporary issues impacting your business can be immensely valuable in helping small companies chart a course to sustained financial success.

26

Choice Criteria in Evaluating Suppliers

Ability to provide technical assistanceSuppliers with top research and development capacities can be quite valuable to buyers, providing them with significant savings in both price and quality.

27

Influence on Business Buying Behavior

The Buy Class: Straight Rebuy
routine purchase associated with frequently purchased items

Modified Rebuy
routine purchase frequent purchase, but buyer does review product specifications or supplier

New Task
not routine product needs and specifications researched, vendors evaluated

28

The Buy Class

An example of a straight rebuy situation would be the purchase of photocopy paper for a large organization. Once a relationship is established with a supplier who appears to be providing good products at good terms and prices, there is no need to re-negotiate the terms and conditions every time more supplies of paper are needed. The purchase of a large, expensive crane, however, would require more than a good relationship between a purchasing agent and a salesperson.
29

The Buy Class

In a straight rebuy situation, the buyer is likely to periodically apply value analysis and vendor analysis. value analysis: a periodic review of the qualities of the product for the price vendor analysis: a periodic review of the services of the vendor (seller) An annual value analysis of the paper in the above example might show that the product performs well, but a vendor analysis might show that the vendor is often late in deliveries and often delivers the wrong assortment of products. In this situation, the purchasing agent might search for a new supplier of the same brand of paper.
30

Modified Re-buy
The buying organization will have some experience of the product involved. The particular purchase may have some degree of customizationproduct specification, or faster delivery or better price etc. There is less perception of risk than in a new task situation. A firm may look for different suppliers from its approved list of suppliers.
31

New Task Purchase

An organization is buying the product/service for the first time. The organization has no experience of supplier capabilities. The DMU is larger and takes longer to arrive at a decision. For suppliers it is a good opportunity to gain new business and they can have an edge over competition.
32

The Product Type

Products can be classified according to four types Materials Components Plant and equipment Products and services for maintenance, repair, and operation (MROs) e.g. spanners, welding equipment

33

The Product Type

There are differences in buying behavior for different types of products. Senior Management tend to get involved in purchase of plant and equipment or when new material is being purchased for the first time. Design engineers tend to get involved in buying components and materials. Decision making process tends to be slower and complex as product type moves from MROcomponents-materials-plant and equipment.
34

Importance of Purchase to the Organization

A purchase is considered important when it involves large sums of money, considerable uncertainty about the outcome of alternative offerings, or if the cost of making the wrong decision is high. In such a situation many people are involved in the decision process and it tends to take a long time to arrive at a decision.

35

Just in Time Purchasing (JIT)

An approach to purchasing that requires long-term agreements with few suppliers. Reduces the need for central warehousing and storage More personal relationship with suppliers Long-term relationships that help to certify suppliers Receiving inspection is reduced and in some cases eliminated In many cases, having more personal relationships with suppliers makes the quality of the service higher. You know exactly who you are dealing with every time.
36

Just in Time Purchasing (JIT)

Lowered variety in suppliers Reliable delivery schedules High quality materials used Reduced waste Lowered variety in suppliers leads to better relations. Suppliers have to be nearby in this type of purchasing because of the more frequent delivery schedule required
37

Just in Time Purchasing (JIT)

Most companies are accustomed to the traditional ways of storing inventory. To suddenly change the whole process can be very difficult. With the shorter cycle times involved, there is more pressure and stress on the workers to get the work done quicker. The success of JIT varies from company to company. What works very well in some companies can be a total failure in others. Employees must be committed to the JIT process in order for it to work efficiently. They must set the improvement of quality as their ultimate goal. The production level that works the best for a JIT system is one that has medium to high production. The employees must have very flexible skills and be willing to learn new ones at all times.

38

Why Companys use JIT

Reduce waste Increased cycle times Higher quality in products Fewer suppliers Reduction in warehouses Dependable delivery

39

Centralized Purchasing
Centralized purchasing involves coordination all purchasing activities for the entire plant through one central location. That purchasing department is the only place in the firm where requisitions are processed and suppliers are selected.

40

Centralized Purchasing
The advantages of centralized purchasing: Centralized purchasing results in lower costs because of the availability of purchase quantity discounts. If the material uses are coordinated into one major purchase, the supplier will work harder to service the buying power. Centralized purchasing promotes the effective use of purchasing professionals. Promotes the effective use of manager (authority and credibility).
41

Centralized Purchasing
General Motors, Dell and IBM all use centralized purchasing and have in-house expertise ranging from engine parts to rental cars to office equipment. Centralized purchasing enables the buying firm to do a better job monitoring various changes throughout the industry. Centralized purchasing also lends itself to periodic (1) reviews of purchasing activities, (2) evaluation of suppliers, and (3) the development of purchasing training programs.
42

Centralized Purchasing
Disadvantages of centralized purchasing organizations: High involvement in procurement decision making. High need to coordinate purchased parts with production schedules. High need to buy from local community.

43

Reverse Marketing
Reverse marketing- the deliberate effort by organizational buyers to build relationships that shape suppliers products, services, and capabilities to fit a buyers needs and those of its customers

44

Reverse Marketing
Purchasing is taking on a more proactive, aggressive stance in acquiring the products and services needed to compete. This process whereby the buyer attempts to persuade the supplier to provide exactly what the organization wants is called reverse marketing It provides an opportunity to develop a stronger and longer relationship It could be a source of new product opportunities that may be developed to a broader customer base.
45

Leasing
A lease is a contract by which the owner of an asset grants the right to use the asset (e.g. a car ) for a period of time to another party in exchange for payment of rent. You might prefer to lease public warehouse space to provide the flexibility to change locations when the market demands, to lease trucks so that you can leave the problems of maintenance and disposition to someone else, etc.
46