Buying Behaviour and the Buying Behaviour and the Buying ProcessBuying Process

Chapter 4Chapter 4

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Important Questions Important Questions AnsweredAnswered

What are the different types of customers?What are the different types of customers? How do organisations make purchase decisions?How do organisations make purchase decisions? Which factors do organisations consider when Which factors do organisations consider when

evaluating products and services?evaluating products and services? Who is involved in the buying decision?Who is involved in the buying decision? What should sales people do in different types What should sales people do in different types

of buying situations?of buying situations? Which changes are occurring in organisational Which changes are occurring in organisational

buying, and how will these changes affect buying, and how will these changes affect salespeople?salespeople?

““A supplier who does a great job at A supplier who does a great job at our France location can use the our France location can use the reputation if trying to earn reputation if trying to earn business in Iowa.”business in Iowa.”

~Marvin Wagner~Marvin Wagner

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Successful salespeopleSuccessful salespeople

Successful salespeople always know Successful salespeople always know their customers, needs of the their customers, needs of the customers and all those who are customers and all those who are involved in making the purchase involved in making the purchase decisions.decisions.

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Types of CustomersTypes of Customers

ProducersProducers OEM PurchasesOEM Purchases End-user PurchasesEnd-user Purchases

ResellersResellers Government AgenciesGovernment Agencies InstitutionsInstitutions ConsumersConsumers

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ProducersProducers

Producers buy products and services to Producers buy products and services to manufacture and sell their products and manufacture and sell their products and services to customersservices to customers

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OEM PurchasesOEM Purchases

Original Equipment Manufacturers Original Equipment Manufacturers (OEM) purchase goods to use in making (OEM) purchase goods to use in making their products.their products.

Salespeople selling OEM products need Salespeople selling OEM products need to demonstrate that their products help to demonstrate that their products help their customers produce products that their customers produce products that will offer superior value. will offer superior value.

OEM usually purchase in bulk and OEM usually purchase in bulk and usually long-term relationships develop usually long-term relationships develop between customers and OEMsbetween customers and OEMs

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End-user PurchasesEnd-user Purchases Goods and services to support their own Goods and services to support their own

production and operationsproduction and operations Capital Equipment are major purchases like Capital Equipment are major purchases like

mainframe computers and machine tools that mainframe computers and machine tools that are used by the manufacturers for years.are used by the manufacturers for years.

MRO (Maintenance, Repair and Operating) MRO (Maintenance, Repair and Operating) supplies include consumables and replacement supplies include consumables and replacement parts of machinery.parts of machinery.

Services include telephone, internet and Services include telephone, internet and employment agencies etc. employment agencies etc. to support the to support the manufacturing operation.manufacturing operation.

Capital equipment items are major purchases

Maintenance, repair, and operating (MRO) supplies include paper towels and replacement parts for machinery.

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ResellersResellers Resellers buy finished products/services to Resellers buy finished products/services to

sell to businesses and consumers.sell to businesses and consumers. Dell Computer makes OEM buying decisions Dell Computer makes OEM buying decisions

when it purchases microprocessors for its when it purchases microprocessors for its computers, acts as an end user when it buys a computers, acts as an end user when it buys a machine to bend sheet metal for the cases that machine to bend sheet metal for the cases that house the computers, and func tions as a reseller house the computers, and func tions as a reseller when it buys software to resell to its computer when it buys software to resell to its computer customers when they place orders.customers when they place orders.

Profit margin is how much a reseller makes on each sale.

Turnover is how quickly an item sells, and how much effort it takes to sell.

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Government AgenciesGovernment Agencies

Governments are usually the largest Governments are usually the largest customers for goods and services. Every customers for goods and services. Every Government (Federal, Local) has rules and Government (Federal, Local) has rules and regulations that the suppliers need to follow regulations that the suppliers need to follow to be able to be eligible as a supplier to the to be able to be eligible as a supplier to the Government Agencies. Government Agencies. Effective selling to Effective selling to government agencies requires a thorough government agencies requires a thorough knowledge of their unique procurement knowledge of their unique procurement procedures and rules. Salespeople also need procedures and rules. Salespeople also need to know about projected needs so they can to know about projected needs so they can influence the development of the buying influence the development of the buying specifications specifications

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InstitutionsInstitutions Institutions can be Public as well Private Institutions can be Public as well Private

such as churches, hospitals, and colleges. such as churches, hospitals, and colleges. Usually the purchasing rules and Usually the purchasing rules and

regulations of the institutions are more regulations of the institutions are more rigid as compared to the rules and rigid as compared to the rules and regulations of the Governments.regulations of the Governments.

Some manufacturers deal with Institutions Some manufacturers deal with Institutions and resellers at the same time. For this and resellers at the same time. For this purpose they keep two different sales purpose they keep two different sales forces for the different types of clients.forces for the different types of clients.

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ConsumersConsumers

Consumers buy products and services for Consumers buy products and services for use by themselves or by their families.use by themselves or by their families.

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Organisational Buying and Organisational Buying and SellingSelling

Selling to Organisations is more complex Selling to Organisations is more complex than selling to Consumers. than selling to Consumers. Complexity of the Organisational Buying Complexity of the Organisational Buying

ProcessProcess Derived versus Direct DemandDerived versus Direct Demand

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Complexity of the Complexity of the Organisational Buying Organisational Buying

ProcessProcess Organisations use highly trained and Organisations use highly trained and

knowledgeable purchasing agents to knowledgeable purchasing agents to make these decisions and Often make these decisions and Often extensive evaluations and negotiations extensive evaluations and negotiations are involved in this process.are involved in this process. Purchasing agentsPurchasing agents Evaluations and negotiationsEvaluations and negotiations Complexity is increasingComplexity is increasing

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Derived Versus Direct Derived Versus Direct DemandDemand

Direct demandDirect demand

Selling to consumers is Selling to consumers is easier as the only the needs of easier as the only the needs of consumers/families are to be consideredconsumers/families are to be considered

Derived demandDerived demand

Organisational selling Organisational selling often requires information about the often requires information about the customers of the customercustomers of the customer

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How do Organisations Make How do Organisations Make Buying Decisions?Buying Decisions?

Steps in the Buying Process: There are Steps in the Buying Process: There are eight steps involved in organisational eight steps involved in organisational buying. Very often all the eight steps are buying. Very often all the eight steps are not followed during organisational buying not followed during organisational buying process.process. Recognition of a needRecognition of a need Definition of the product-type neededDefinition of the product-type needed Development of detailed specificationsDevelopment of detailed specifications Search for qualified suppliersSearch for qualified suppliers Acquisition and analysis of proposalsAcquisition and analysis of proposals Evaluating proposals and selecting a supplierEvaluating proposals and selecting a supplier Placing an order and receiving the productPlacing an order and receiving the product Evaluating product performanceEvaluating product performance

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Recognition of a needRecognition of a need The most important step in buying The most important step in buying

is to recognise the need of having is to recognise the need of having something. This could be triggered by something. This could be triggered by the employees of the customer the employees of the customer company and/or the salespersons of company and/or the salespersons of the vendor company. the vendor company. Salespeople Salespeople often trigger the buying process by often trigger the buying process by demonstrating how their products can demonstrating how their products can improve the efficiency of the improve the efficiency of the customer's operation.customer's operation.

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Definition of the product-Definition of the product-type neededtype needed

The members of the organisation The members of the organisation develop a general approach to solve develop a general approach to solve the problem and make a decision to the problem and make a decision to purchase a particular product/service. purchase a particular product/service. The problem solution is defined in The problem solution is defined in terms of purchasing a product or terms of purchasing a product or service.service.

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Development of detailed Development of detailed specificationsspecifications

The specifications of the product The specifications of the product needed are specified and put in writing.needed are specified and put in writing.The specifications for the product needed The specifications for the product needed to solve the problem are pre pared. to solve the problem are pre pared. Potential suppliers will use these Potential suppliers will use these specifications to develop proposals. The specifications to develop proposals. The buyers will use them to objectively buyers will use them to objectively evaluate the proposals. evaluate the proposals.

Steps 2 & 3 offer a big opportunity to Steps 2 & 3 offer a big opportunity to the salespersons.the salespersons.

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Search for qualified Search for qualified supplierssuppliers

The customer may simply contact The customer may simply contact

previous suppliers or go through an previous suppliers or go through an extensive search procedureextensive search procedure

Salespersons are contacted, Salespersons are contacted, customers of the suppliers are customers of the suppliers are contacted. Word of mouth, business contacted. Word of mouth, business magazines, Internet all are used magazines, Internet all are used nowadaysnowadays

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Acquisition and analysis of Acquisition and analysis of proposalsproposals

Various companies submit proposals Various companies submit proposals

that are often prepared with the help that are often prepared with the help of the representatives of the customer of the representatives of the customer company.company.

Qualified suppliers are asked to Qualified suppliers are asked to submit proposals. Salespeople work submit proposals. Salespeople work with people in their company to with people in their company to develop their proposal.develop their proposal.

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Evaluating proposals and Evaluating proposals and selecting a supplierselecting a supplier

The written proposals are The written proposals are

evaluated; the best possible supplier evaluated; the best possible supplier is selected.is selected. The customer evaluates The customer evaluates the proposals. After selecting a the proposals. After selecting a preferred supplier, further preferred supplier, further negotiations may take place negotiations may take place concerning price, delivery, or concerning price, delivery, or specific perfor mance features. specific perfor mance features.

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Placing an order and Placing an order and receiving the productreceiving the product

Once the order is placed, the supplier Once the order is placed, the supplier supply the goods according to the supply the goods according to the agreement. agreement. The order goes to the The order goes to the supplier, who acknowledges receipt and supplier, who acknowledges receipt and commits to a delivery date. Eventually commits to a delivery date. Eventually the product is shipped to the buying the product is shipped to the buying firm, which inspects the received goods firm, which inspects the received goods and then pays the supplier for the and then pays the supplier for the product. During this step salespeople product. During this step salespeople need to make sure the paperwork is need to make sure the paperwork is correct and their firm knows what has to correct and their firm knows what has to be done to satisfy the customer's be done to satisfy the customer's requirements.requirements.

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Evaluating product Evaluating product performanceperformance

Formally/Informally the items/services Formally/Informally the items/services received are evaluated by the persons received are evaluated by the persons concerned.concerned.Salespeople play an important role in Salespeople play an important role in this step. They need to work with the this step. They need to work with the users to make sure the product users to make sure the product performs well. In addition, salespeople performs well. In addition, salespeople need to work with purchasing agents to need to work with purchasing agents to ensure that they are satisfied with the ensure that they are satisfied with the communi cations and delivery.communi cations and delivery.

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Creeping CommitmentCreeping Commitment

When the consumers become used to a When the consumers become used to a particular course of action, it becomes particular course of action, it becomes kind of a routine to purchase . kind of a routine to purchase . As As decisions are made at each step, the range decisions are made at each step, the range of alternatives narrows; the customer of alternatives narrows; the customer becomes more and more committed to a becomes more and more committed to a specific vendor. Thus it is critical that specific vendor. Thus it is critical that salespeople be very involved in the ini tial salespeople be very involved in the ini tial steps so they will have an opportunity to steps so they will have an opportunity to participate in the final steps.participate in the final steps.

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Types of Organisational Buying Types of Organisational Buying DecisionsDecisions

New tasks: When a particular New tasks: When a particular product/service is needed for the first product/service is needed for the first time.time.

Straight re-buys: When the same product Straight re-buys: When the same product is bought from the same customer when is bought from the same customer when the need arouse previously.the need arouse previously.

Modified re-buys: When the customer has Modified re-buys: When the customer has purchased a product/similar one but purchased a product/similar one but wishes to have new informationwishes to have new information

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Who Makes the Buying Who Makes the Buying Decision?Decision?

The group of people involved in making The group of people involved in making a decision about buying a new product a decision about buying a new product or a modified one is called Buying or a modified one is called Buying Centre. These people are usually theCentre. These people are usually the UsersUsers InfluencersInfluencers GatekeepersGatekeepers DecidersDeciders

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UsersUsers

People who will ultimately be involved in People who will ultimately be involved in using the product.using the product. They often have They often have considerable influence in the early and late considerable influence in the early and late steps of the buying process-need recognition, steps of the buying process-need recognition, product definition, and post purchase product definition, and post purchase evaluation. Thus users are particularly evaluation. Thus users are particularly important in new task and modified re buy important in new task and modified re buy situations. Salespeople often attempt to situations. Salespeople often attempt to convert a straight re buy to a modified re buy convert a straight re buy to a modified re buy by demonstrating superior product by demonstrating superior product performance or a new benefit to users.performance or a new benefit to users.

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InfluencersInfluencers

People from inside/outside the People from inside/outside the organisation who provide information organisation who provide information during the buying process. during the buying process. These members These members of the buying center may provide details of the buying center may provide details on product specifications, criteria for on product specifications, criteria for evaluating pro posals, or information about evaluating pro posals, or information about potential suppliers. potential suppliers.

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GatekeepersGatekeepers

They control the flow of information and They control the flow of information and may limit the alternatives considered. may limit the alternatives considered. Purchasing agents often playa gate Purchasing agents often playa gate keeping role by determining which poten keeping role by determining which poten tial suppliers are to be notified about the tial suppliers are to be notified about the purchase situation and are to have access purchase situation and are to have access to relevant information.to relevant information.

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DecidersDeciders

These are the persons who make the final These are the persons who make the final decision about the purchase. decision about the purchase. Determining Determining who actually makes the purchase decision who actually makes the purchase decision for an organiza tion is often difficult. For for an organiza tion is often difficult. For straight re buys the purchasing agent straight re buys the purchasing agent usually selects the vendor and places the usually selects the vendor and places the order. However, for new tasks many people order. However, for new tasks many people influence the decision, and several people influence the decision, and several people must approve the decision and sign the must approve the decision and sign the purchase order.purchase order.

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Importance of Hospital Importance of Hospital Buying CenterBuying Center

Steps in Buying ProcessSteps in Buying Process

Need recognition (step 1)Need recognition (step 1) HH MM LL LL LL

Definition of product type (step Definition of product type (step 2)2) HH HH MM MM LL

Analysis of proposal (step 5)Analysis of proposal (step 5) HH MM MM HH LL

Proposal evaluation and supplier Proposal evaluation and supplier selection (step 6)selection (step 6) HH LL HH LL MM

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Legend:Legend:P. Agents = Purchase Agents; H = High; M = Moderate; and L = LowP. Agents = Purchase Agents; H = High; M = Moderate; and L = Low

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Supplier Evaluation and Supplier Evaluation and ChoiceChoice

At various steps of the buying process, At various steps of the buying process,

members of the buying centre evaluate members of the buying centre evaluate

the buying process and the results of the the buying process and the results of the

product purchased.product purchased.

The needs of the organisation and the The needs of the organisation and the

decision makers affect the evaluation decision makers affect the evaluation

and selection of products and suppliersand selection of products and suppliers

Factors influencing Factors influencing Organisational Buying Organisational Buying

DecisionsDecisions

7.34

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Organisational Needs and Organisational Needs and CriteriaCriteria Economic Criteria: To increase profit organisations take Economic Criteria: To increase profit organisations take

sophisticated approaches to evaluate cost of equipment.sophisticated approaches to evaluate cost of equipment. Life-cycle costing (total cost of ownership)Life-cycle costing (total cost of ownership)

Quality CriteriaQuality Criteria

To improve profitability quality is to be maintained; To improve profitability quality is to be maintained; TQM approach is adopted.TQM approach is adopted.

What are organizational buyers looking for?What are organizational buyers looking for?

Service CriteriaService Criteria

Nowadays they Organisations want the suppliers to help them Nowadays they Organisations want the suppliers to help them

solve the problems.solve the problems. Value analysisValue analysis

Life Cycle CostingLife Cycle Costing

7.36

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Individual Needs of Buying Individual Needs of Buying Centre MembersCentre Members

Types of Needs: Buying centre members wish to satisfy Types of Needs: Buying centre members wish to satisfy

their own goals and aspirations. Salespersons can meet their own goals and aspirations. Salespersons can meet

these through their strategies.these through their strategies. Financial securityFinancial security

Self-esteemSelf-esteem

RecognitionRecognition

Risk Reduction: Buying centre members try to reduce the Risk Reduction: Buying centre members try to reduce the

risk of losing benefitsrisk of losing benefits Collect additional informationCollect additional information

Develop supplier loyaltyDevelop supplier loyalty

Spread the riskSpread the risk

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Vendor AnalysisVendor Analysis

Organisational buyers often use formal Organisational buyers often use formal

methods to analyse the vendors to be sure methods to analyse the vendors to be sure

that their needs are satisfied. that their needs are satisfied. When using When using

this procedure, the buyer rates the this procedure, the buyer rates the

supplier and its products on a number of supplier and its products on a number of

criteria such as price, quality, criteria such as price, quality,

performance, and on-time delivery. performance, and on-time delivery.

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Personal, Psychological, Personal, Psychological, and Social Forces that and Social Forces that Influence Consumers’ Influence Consumers’

Buying BehaviorBuying Behavior

Consumer buying decision process

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Trends in Organisational Trends in Organisational BuyingBuying

In today’s changing world the In today’s changing world the

technology, competition and customer technology, competition and customer

demands are increasing so are the costs demands are increasing so are the costs

of the raw material.of the raw material.

These challenges force the Organisations These challenges force the Organisations

to adopt strategies to survive in the to adopt strategies to survive in the

current situation.current situation.

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Trends in Organisational Trends in Organisational BuyingBuying

Increasing Importance of Purchasing AgentsIncreasing Importance of Purchasing Agents

Centralised PurchasingCentralised Purchasing

Global SourcingGlobal Sourcing

OutsourcingOutsourcing

Supply Chain ManagementSupply Chain Management

The Internet and Business-to-Business SellingThe Internet and Business-to-Business Selling

Long-term Customer-Supplier RelationshipsLong-term Customer-Supplier Relationships

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Increasing Importance of Increasing Importance of Purchasing AgentsPurchasing Agents

Companies improve the status of Companies improve the status of

their directors to reflect the their directors to reflect the

increasing importance of this increasing importance of this

function.function.

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Centralised PurchasingCentralised Purchasing

Purchasing is becoming more Purchasing is becoming more

centralized. Rather than having each centralized. Rather than having each

manufacturing facility contract for supplies manufacturing facility contract for supplies

to meet its own production needs, more to meet its own production needs, more

purchasing is done at a central location, purchasing is done at a central location,

such as corporate headquarters. Through such as corporate headquarters. Through

centralization, purchasing agents can centralization, purchasing agents can

become specialists, concentrating on partic become specialists, concentrating on partic

ular items and developing extensive ular items and developing extensive

knowledge about the uses, specifications, knowledge about the uses, specifications,

and suppliers for those items.and suppliers for those items.

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Global SourcingGlobal Sourcing

To improve the quality and To improve the quality and

profitability the material is purchased profitability the material is purchased from any where in the world – no from any where in the world – no restriction on country boundariesrestriction on country boundaries

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OutsourcingOutsourcing

Organisations try to purchase goods Organisations try to purchase goods

and services from efficient suppliers. and services from efficient suppliers.

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Supply Chain ManagementSupply Chain Management This is a set of programmes This is a set of programmes

undertaken to increase the efficiency of undertaken to increase the efficiency of the distribution channelthe distribution channel Efficient Consumer Response (ECR) systems.Efficient Consumer Response (ECR) systems.

LogisticsLogistics

Managing inventory while controlling costsManaging inventory while controlling costs

Just-in-time ( Just-in-time ( JIT )JIT ) inventory control system inventory control system

Material requirements planning ( Material requirements planning ( MRP )MRP )

Automatic replenishment ( AR)Automatic replenishment ( AR)

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The Internet and Business-The Internet and Business-to-Business Sellingto-Business Selling

Using up-to-date techniques in selling Using up-to-date techniques in selling and purchasing improve the quality of and purchasing improve the quality of products and services produced for the products and services produced for the end-userend-user ExtranetsExtranets

Support for salespeople rather than Support for salespeople rather than

replacementreplacement

Electronic data interchange (EDI)Electronic data interchange (EDI)

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Long-term Customer-Long-term Customer-Supplier RelationshipsSupplier Relationships

This helps both the customer and This helps both the customer and the supplier to survive better in the supplier to survive better in today’s difficult business today’s difficult business environment; keeping in mind that environment; keeping in mind that the satisfaction of the customer is the the satisfaction of the customer is the only way of retaining the orders as only way of retaining the orders as well as cheaper material does not well as cheaper material does not mean all for the Customermean all for the Customer

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End of Chapter 4End of Chapter 4

Thank youThank you