Chapter 3Chapter 3

Buying Behavior and the Buying Process

Types of CustomersTypes of Customers

Producers• buy goods and services to manufacture and sell other

goods and services to their customers

Original Equipment Manufacturers

• when buyers purchase goods to use in making their products

• some components have such a high reputation they help sell the product

• most bought in large quantities on an annual basis

ContinuedContinued End Users

• action when producers buy goods and services to support their own production and operations

Capital equipment- major purchases that the producer uses for a number of years (Ex. Mainframe computers and machine tools)

MRO supplies- minor purchases that have a short useful life (Ex. Paper towels and pencils)

Resellers• buy furnished products or services with the intention to resell them to

businesses and consumers

• interested primarily in the attractiveness of the products to their customers

ContinuedContinued

Government – (Federal, State, & Local)• Largest customer for goods and services in the U.S. & the world!

(over $1 trillion in goods and services annually)

• Buyers bidding

• Effective selling requires a thorough knowledge for their unique procurement procedures and rules

• Many international salespeople

ContinuedContinued

Institutions

• Public and private (ex.churches, hospitals, and colleges)

• Packaged goods manufacturers sell to both resellers & institutional customers

Consumers• End users vary for consumers

• Text focuses on selling to business enterprises, government agencies, or institutions

(A large number of college graduates frequent these sales positions)

Organizational Buying and SellingOrganizational Buying and Selling

Complexity of the Organizational Buying Process

• involve extensive evaluations and negotiations over a period of time

• salespeople must be able to work effectively with a wide range of people

• increased complexity with increased global businesses

Derived Vs. Direct Demand – See P. 65 Derived demand- purchase made by these customers ultimately

depend on the demand for their products-either other organizations or consumers

Direct demand increases its efforts toward the ultimate consumer (Strategy: increasing in-store displays)

The Organizational Buying ProcessThe Organizational Buying Process

Steps in the buying process:

Recognizing a Need or a Problem Defining the Product Needed Development of Specifications Searching for Qualified Suppliers Acquiring and Analyzing Proposals Evaluation of Proposals and Selection of a Supplier Placement of an Order and Receipt of Product Evaluation of Product Performance

ContinuedContinued

Creeping commitment- a customer becomes increasingly committed to a particular course of action while going through the steps in the buying process

Types of Organizational Buying Types of Organizational Buying DecisionsDecisions

New Task – See Exhibit 3.2-P.69

• a customer purchases a product or service for the first time

• company’s knowledge is limited; initial buying process steps/post purchase evaluation is critical

Straight Rebuy

• a customer buys the same product from the same source it used when the need arose previously

• brand loyalty

Modified Rebuy

• the customer has purchased the product or a similar product in the past but is interested in obtaining new information

Who Makes The Buying DecisionWho Makes The Buying Decision

Buying center- an informal, cross-department group of people involved in a purchase decision

Users

• typically don’t make the ultimate purchase decision

• considerable influence in the early and late steps of the buying process

Initiatorspeople who start the buying process – can be user or executive

ContinuedContinued

Influencers

• people inside or outside the organization who directly or indirectly provide information

Gatekeepers

• control the flow of information and may limit the alternatives considered

Deciders

• one or more members of a group that make the final choice

• mostly senior executives

Supplier Evaluation and ChoiceSupplier Evaluation and Choice

Affected by the needs of both the organization and the individuals making the decisions

Classified into two categories:

Rational needs- directly related to the performance of a product

Emotional needs- associated with the personal rewards and gratification of the person buying the product

Organizational Needs and CriteriaOrganizational Needs and Criteria

Economic Criteria

• Objective of businesses: Profit

• achieve price efficiency by evaluating the cost of equipment

Life-cycle costing (total cost of ownership)- method for determining the cost of equipment or suppliers over their useful lives

Quality Criteria Need for quality varies by industry group and ultimate

market reached

Life-Cycle CostingLife-Cycle Costing

ContinuedContinued

Service Criteria

• buyers want suppliers to work with them to solve their problems

Value analysis- an example of a program in which suppliers and customers work together to reduce costs and still provide the required level of performance (can use to get customers to try a new product)

Individual Needs of Buying Center Individual Needs of Buying Center MembersMembers

Types of Needs

• influence members of the buying center by developing strategies to satisfy individual needs

Risk Reduction

• Buying center sometimes more concerned about losing benefits than increasing benefits

Vendor loyalty- continue buying from suppliers that have proven satisfactory in the past

• Always-a-share – always have a second source for a product

Trends In Organizational BuyingTrends In Organizational Buying

Increasing Importance of Purchasing Agents

• Critical function in the learning organization

• Heavy emphasis on computer information and control systems

Centralized Purchasing & Supply Chain Management

• More purchasing is done at a central location (corporate headquarters)

• A national account manager coordinates the firm’s efforts to satisfy the needs of a major customer

• A NAM works directly with the purchasing department and coordinates the activities of its salespeople

Supply Chain ManagementSupply Chain Management

Definition: a set of programs undertaken to increase the efficiency of the distribution that moves products from the producer’s facilities to the end user

Just-in-time (JIT) inventory control- used by a producer to minimize its inventory by having frequent deliveries, sometimes daily, just in time for assembly into the final product

Supply Chain ManagementSupply Chain Management

Quick response or efficient consumer response (ECR) systems

retailers & distributors work closely with their

suppliers to make sure they minimize their inventory investments, while cutting costs & satisfying customers

Supply Chain ManagementSupply Chain Management

Automatic replenishment – AR

Form of JIT were supplier manages inventory levels for customers. Materials provide on consignment. Used in industrial settings.

See Exhibit 3.6 – Page 83

Supply Chain ManagementSupply Chain Management

Electronic Data Interchange – EDIAutomatic replenishment technology used

electronic data interchange. Computers share data across companies

Materials Requirements Planning – MRPImportant element of JIT systemsForecast sales, schedules, etc.

Supplier Relationship Supplier Relationship Management (SRM)Management (SRM)

Strategy to evaluate buyers

Identify annual spending

Vendor analysis next

Track results

Vendor AnalysisVendor Analysis

Summarizes the benefits and needs satisfied by a supplier

Buyer rates the supplier and its products on a number of criteria (quality, on-time delivery, price & other)

They are then weighed by importance

See exhibit 3.7 – P. 86

Business-to-Business Selling Business-to-Business Selling The InternetThe Internet

Web is a Tool for supporting salespeopleReverse auction – buyer offers a contract &

sellers bidCan save time & moneyBest used with large purchases, clear

descriptions, & a good infrastructure to support an auction

Case – Midwest SurgicalCase – Midwest Surgical

Read thoroughly – class discussion will follow

Will go over in class – questions from the case will be on the test