the nature of industrial buying

7/27/2019 The Nature of Industrial Buying

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Module- 2

The Nature Of IndustrialBuying



Organizational Buying Activities

Organizational buying activity centers on

the level of experience and information that

firm have in purchasing certain product &service.

Buying activity consists of various phases

of decision making.



THE BUYGRID MODEL

Buygrid incorporates three types of buying

situation

(1) The “ New task” (2) The “Straight Rebuy”

(3) The “ Modified Rebuy”

As well as eight phases in the buying

decision process



Buying Situations

New Task :

The need or problem is considerably

different from past experience. Decision maker lack the experience and

product knowledge to make comparison of

alternative products & suppliers.



Buying Situations…

Mod if ied Rebuy:

Occurs when decision makers feel that

significant benefits such as qualityimprovements or cost reduction may be

derived from reevaluating alternatives.

Occurs most often when the firm isdispleased with present suppliers.



Buying Situations…

Straigh t Rebuy:

Most common buying situation.

Little or no information is needed. As long as choice criteria are met,

alternative solution are seldom evaluated.



Phases in the Purchasing Decision Process

Phase-1:Ant ic ipat ion or Recogni t ion of a

Prob lem (need).

It may originate within a buying firm or may also

be recognized by a smart marketer. Such recognition may originate when product

becomes out dated, equipment breaks down, orexisting materials are unsatisfactory

Early involvement in new task/problem recognitionphase offers marketer differential advantage overcompetitors.



Phases in the Purchasing DecisionProcess…

Phase-2: Determ ination of the Character ist ics

& Quanti ty o f The Needed Item.

The firm will seek answer to questions like What are the application requirements? What type of goods and services to be considered?

What quantities will be needed?

In case of technical products engineering dept will

usually prepare performance specification. Fornon technical items user dept will decide onproduct specification.




Phase-3: Descrip t ion of the Character ist ics

and Quant i ty o f Produc t Needed

During this phase buying influencers may change

from department head to engineers and

manufacturing personnel.

During this phase buying influencers begin to look

outside the firm for suppliers and productinformation and for assistance in developing

product specification.




Phase-4: Search fo r and Quali f icat ion of

Potential Sou rce.

Obtain information on all available suppliers

Decide on acceptable or qualifying suppliers.

The important end result of this phase is that

decision makers have determined which suppliers

will be considered as potential vendors.




Phase-5: Acquisi t ion and Analys is of

Proposals.

Proposals In the form of quotations shall include:

Product Specification

Price

Delivery Period

Payment terms

Taxes & Duties applicable

Transportation cost

Cost of transit insurance. Etc..




Phase-6: Evaluat ion of Proposals &

Select ion o f Suppl iers.

The attributes for evaluation and selectioninclude; Quality

Delivery

Price Service

Flexibility etc..




Phase-7:Select io n o f an Order Rou tine:

Order routine are established by forwardingpurchase order to the vendors and the status

report to the using department and by determiningthe level of inventory that will be needed.

This phase begins with the placement of orderand ends with delivery and use of the required

items.the effectiveness of suppliers in handling this phase is therefore critical.




Phase-8: Performance Feedback &

Evaluat ion:

This is the final phase, it consists of aformal or informal review and feed backregarding product performance, as well asvendor performance

It involves determination by the user deptas to whether the purchased item solvedthe original problem.



Overview of Buygrid Model

Creeping Comm itment:

• Decision making, according to the concept

of “Creeping Commitment” involves asequence of choices, each of whicheliminates certain alternatives from furtherconsideration.

• In other words commitment to the finalsolution is becoming firmer and morespecific (“creeping”) with each phase.



Overview of Buygrid Model…

Center of Gravity

• The concept of “center of gravity” holds that

various phases or combination of phasesbecome more critical to final outcomes of

purchase decisions and that individuals

involved in these critical phases have

greater power than do individuals in other

phases.



Marketing ImplicationsPhases New task Modified

rebuy

Straight

rebuy1 Problem recognition Anticipate problem;

use advertising &

creative salespeople to convince

buyer of problem

solving capacity

In supplier:

maintain

quality/servicestandards; out

supplier: watch

for developing

trends.

In supplier:

maintain close

relationshipwith users

and buyers;

Out supplier

2 Solution

determination

Provide technical

assistance and

information

In supplier and

out supplier:

stress capability,

reliability, and

problem solving

capabilities

Same as

phase 1



Marketing Implications…

Phases New Task Modified

Rebuy

Straight

Rebuy

3 Determining

needed item

Provide detailed

product/service

information to

decision makers

same as

phase 2

Same as

phase 1

4 Searching for &

qualifying supplier

In supplier:

maintain

dependability; outsupplier:

demonstrate ability

to perform task

In supplier:

watch for

problems;out supplier:

demonstrate

ability to

perform task

Same as

phase 1



Marketing Implications…

Phases New Task Modified

Rebuy

Straight

Rebuy

5 Analyzing proposal Understand

details of

problem/needs; make

timely

proposals.

Understand

details of

problem/needs; make

timely

proposals

Make timely

proposals



Buying centers

A decision-making unit may consists of onlyone person, but it is normally a group ofindividuals “who share a common goal or

goals which the decision will hopefully helpthem to achieve, and who share the riskarising from decision.”

In industrial marketing, these decisionmakers are referred to as the buyingcenter.



Identifying Buying Center Members

The buying center is an “informal, cross-

departmental decision making unit in which

primary objective is the acquisition, impartation,

and processing of relevant purchasing relatedinformation.”

People within an organization become involved in

buying center for one of the two reasons-

They have formal responsibility

They have importance as a source of information



Identifying Buying Center Members…

Marketing:-

• When a purchasing decision has an effect on themarketability of a firms product

Manufacturing:-

• Involved when new products or models are being developed

• Responsible for determining the feasibility and economicconsiderations of producing end products.

• Continuous feed back to the purchasing department on the

performance of suppliers makes manufacturing keyinfluencer in the selection and retention of suppliers and theallocation of quantities among suppliers.




Research and Development:-

• Involved in initial development of product andprocesses and set broad specifications for

component and material criteria• They are important to marketers for two majorreasons:• The earlier the marketer becomes involved in the

development process, the greater the chance of

incorporating his product into the final design.• By understanding the direction in which customers aremoving, marketers are better able to plan the direction oftheir own business.




General Management:-

• When firm is faced with unfamiliar situations not related today to day activities, or when purchasing decisions are likelyto have major consequences on the firms operation.

Purchasing:-• Contrary to widely held belief, purchasing is not the most

central figure in the purchasing process

• Research indicates that purchasing’s dominant sphere ofinfluence falls within phases 4,5,& 6 of the purchasingdecision process- when specifications of products to bepurchased have been established & suppliers qualified.

• They are dominant decision makers and influencers inrepetitive buying situation.



Buying Center Roles

Primary Roles:-

Deciders

Influencers Secondary role

Users

Buyers

Gatekeepers



Model for Determining The Composition OfThe Organizational Buying Center Environment & Mission

Production

Distribution

service

Purchase needs Capital Equipment

Product Essential

Support Essential

Consumption

Buygrid Components



Continued…

Dollar Value & Complexity

High

Low Time Commitment & Life Cycle

Long

Short

Buying Center Membership, Procurement,

& Other members



Objective In Organizational Buying

Task-Oriented Objectives:-

Price

Services

Quality

Assurance of Supply

Reciprocity

Nontask Objectives:- Social considerations, such as friendship,

reputation, and mutually beneficial interactions.



Materials Requirement Planning

Under MRP a firm estimates its future sales,

schedules production accordingly, and then

orders parts and materials to coordinate with

production schedules so that inventories will notbecome too large or too small

To utilize MRP firms are combining functions of

purchasing, transportation, inventory control,

receiving and in some cases production control

under one functional area referred to as materials

management.



Just-in-Time Purchasing

JIT is an inventory control system which

enables a manufacturer to maintain

minimum inventory levels by relying on onlyone supplier to deliver frequent shipments



Centralized Purchasing

It is centralization of purchasing

Purchasing specialist concentrate their

attention on selected items, developingextensive knowledge of supply and

demand condition.

Places more importance on long termavailability and supplier relationship.



Marketing Implications

MRP, JIT and Centralized purchasing have

a definite impact on industrial marketing

programs. Close buyer seller relationship will be

developed through MRP and JIT.



Sheth Model of industrial buying behavior.

It helps to understand Buying Center

Involvement and Interactions Patterns in

organizational buying.

It is useful for examining organizational buying

behavior from the perspective of

1. The condition that precipitate joint decision making

2. The psychological world of the individual involved

3. Conflict among those involved in the decision process

and resolution of conflict.



Joint Decision Making

Number of organizational member involvedin a buying decision depends on Characteristics of the firm

The type of purchasing situation

Perceived importance of the product

Available resources for handling the purchase.

Company specific factors (1,4)Product specific factors (2,3)



Buying Center Interaction Patterns

Size of the buying center and the amount

of interaction between those involved is

dependent upon1. Vertical involvement

2. Lateral involvement

3. Extensivity

4. Connectedness



Purchasing Situation Influence

Organizational Influence

Marketing Implication



Psychological Factors

Difference in Role orientation

Difference in information Exposure

Perceived Risk in the Vendor Selection Process

Strategies to minimize or avoid the perceived risk:

Reduce uncertainty

Play the odds

Spread the risk



Conflict and Resolution In JointDecision Making

The potential for conflict emanates from:

Differences in expectations regarding suppliers

Difference in evaluating criteria employed. Difference in buying objective.

Difference in decision making styles



Conflict Resolution Strategies

1. Competing- “lets do it in my way!”

2. Accommodating- “ I see your point of view”

3. Collaborating- “ May be we can work this one out.”

4. Avoiding- “ Better let the situation cool down before we act”

5. Compromise- “ Let’s split the difference!”

6. Coalition- individuals within the formation attempt tocooperate with specific other group members to enhancetheir competitive position with respect to the entire group.



Thank You..

the nature of industrial buying

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