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Buying experience and information is an important factor in the organizational purchase. If the buyers have past experience in the purchase, they have little need for information. If the purchasing situation is entirely new, information needs may be extensive as the firm lacks in the experience. Consists of various phases of decision making, depending on the buying situation, whether its new or routine.
A conceptual model useful in analyzing the purchase decision process over the various buying situation
The Buygrid model incorporates three types of buying situations with the 8 phases in the buying decision process
Buying Situations
New Task
Problem or need is considerably different from past experience Problem recognition may be triggered by internal or external factors
Illustration:A firm's decision to add new product line may necessitate the purchase of new equipment or a change in the customer requirements may necessitate the purchase of new machinery to meet the demand.
The decision makers and influencers enter into extensive problem solving activity.
Buying Situations
Modified Rebuy
Organizational decision makers reevaluate the alternatives in terms of quality improvements or cost reductions. If there is a scope of improvement in the purchase decision and if there is an uncertainity about the suppliers, buyers seek for alternatives
Buying Situations
Straight Rebuy:
Its the most common buying situation in industrial purchasing. Purchasing is continuing or recurring, and little or no information required. Usually have a predefined set of choice criteria
Purchasing decision is triggered by the recognition of a problem, need or potential opportunity. Need originates especially when products outmod, equipment breakdown, or existing material are unsatisfactory in quality or availability. Need originates with opportunities for potential performance improvement.
The problem and solution alternatives must be narrowed and precisely analyzed. Decides about the performance specifications Decides about the application requirements Decides about the type of goods and services to be considered Decides about the quantities to be needed
The influencers prepare and effect the specifications of the buying process The influencers evaluate suppliers and gather information for assisting in developing product specification.
Once the solution is identified and precisely described, the buying firm begin to search for alternative sources and decide on the potential vendors They qualify the suppliers, with the influence of the buyers.
Qualified suppliers are indentified and specific proposals are requested. Buyers check catalog or contact suppliers to obtain information about the prices and deliveries. In complex buying situation the need for information is extensive and long time is take to analyze the proposals.
Various proposals of competing suppliers are weighed and analyzed. If the firm is facing a make-or-buy decision, proposals are comparedto the cost of needed item within the firm If the firm is not facing a make-or-buy decision, one or more offers from the competing suppliers are accepted.
Order routines are established by forwarding purchasing orders to the vendors and status reports to the using department. Determining the level of inventory that will be needed over various time periods. The purchase process is not complete until the ordered item is delivered and accepted.
Consists of formal or informal review and feedback regarding product performance, as well as vendor performance. Determination by the user dept. As to whether the purchased item solved the original problem. If not suppliers are given further consideration. Critical for decision making as to choose the potential vendors.
2. Solution Determination
Insupplier and out Same as phase1 supplier: stress capability and reliability and problem solving capabilities
Provide detailed Same as phase 2 Same as phase 1 product/service information tot he decision makers
4. Searching for In supplier: and qualifying maintain supplier dependability; Out supplier:demons trate ability to perform task 5. Analyzing Proposals Understand details of customer problems/needs; make timely proposals
Establishment of Engineering, Engineering, specification Purchasing, R&D, Purchasing, Production Production, R&D, Quality Control Modification and Engineering, evaluation of Purchasing, R&D buying alternatives Supplier selection Purchasing Engineering, R&D, Quality Control Purchasing, Engineering, Production Purchasing, Engineering, Production
Primary Roles
Deciders-The organizational members who have formal or informal authority who actually make the buying decision. Identifying the actual decision makers is the most difficult task. Influencers-Those individuals inside or outside the organization who influence the decision process(directly or indirectly). They provide information on criteria for evaluating buying alternatives by establishing product specifications.
Secondary Roles
Users-Those organizational members who use the product or services. They have minor or very significant influence on the purchasing decision. They may even initiate the purchasing process Buyers-Buyers are organizational members who have the formal authority in the selection of suppliers. They may even at instance include high level officers of the company who may be the decision makers.
Gatekeepers- These are organizational members who control the flow of information into the buying center, it might be done by controlling printed information and advertisement. They even have a control on the sales person, who are allowed to speak to individuals within the buying center. Identifying the role of the gatekeepers is critical in the development of industrial marketing strategy. They act as filters from source to destiny, who become a virtual decision maker by allowing only the information favourable to their opinion to actual decision makers.
Identifying the key buying influencers is complex; as the buying centers changes for different organizations The key influencers are most often located outside the purchasing departments.
Creeping Commitment- Decision making involves a sequence of choices, each of which eleminates certain alternatives from further consideration. Center of Gravity- Varoius phases or combinations of phases become more critical to final outcome of purchase decisions, and the individual involved in critical cases have more power.
The vendors must understand the various criteria that customers use in evaluating potential sppliers. The organizational buying reflects organizational goals and the members are influenced by both task and nontask objectives Task oriented objective involve price, quality, service and return on investment Nontask objectives are mainly job security, recognition, promotion, and salary
Price- Customer do not buy products; they buy value(Satisfaction). In evaluating price, buyers consider factors that minimize costs, ie.
What amount of waste will result from the use of the material? What will be the cost of processing the material be?
A supplier is given a contract even if he is priced high, but has a high reputation for quality and dependable delivery
Quality-Customer search for quality levels that are consistant with specifications of the product
customers are reluctant to pay for extra quality and are unwilling to compromise with specifications
Assurance of Supply-Interruptions in the flow of parts and materials may cause a shutdown of the production process, resulting in delay and loss of sales. Distribution system is one of the important factor which can influence the purchasing decision.
Reciprocity-Giving considerations to selecting suppliers because of their value as customers is known as reciprocity. Its an agreemnent on an exchange of business that is mutually beneficial for the buyer and the seller.
Nontask Objectives
People join organization to accomplish their personal goals such as status, promotion, job security, salary increase and social interaction. In Industrial marketing, the major factors influence purchase decisions are social considerations such as friendship, reputation, mutually beneficial interactions.
It includes a set of variables which affect the buying decision process in the firm, they are:
The Sheth Model- Emphasis on the joint decision making by two or more individuals
Buyer-Seller Relationship
Development of a mutually satisfying, profitable long term relationship with the customer is an asset to an industrial marketer. Factors include: the Content of information, and the Style in which the information is exchanged. The content includes product features, prices,services, as well as the individual needs of the buyer and seller. The style includes mannerism and the format usedin the communication
Compatible content
Ideal Transaction
Insufficient Transaction
Incompatible content
Insufficient Transaction
No Transaction
Types of Relationships
Transactional Exchanges or Relationships- Its timely exchange of basic product, for a competitive price between customer and supplier.Transactional exchange includes only one-time exchange. Little interest either by buyer or seller to extend the relationship. It is preferred when:
Many suppliers are available The supplier market is stable The purchase decision is not complex The purchase decisoin is considered less important
Types of Relationships
Collaborative Relationships- Moving beyond the relationship range to have a collaboration between customer and the supplier. Its the prosess of building a strong social, economic, service and technical ties over a long period of time. The foundations are commitment and trust
Types of Relationships
Value Added Exchanges- Its between the Transactional and the collaborative relationships. The firms group the customers as A, B, C depending on the profitability. The focus is on the complete understanding of the present and future needs of the customer, and meeting better than the competitors
Criteria for selecting business firms for transactional value added are based on the characteristics of customer
Styles of Negotiation
I win you lose (winning at all cost)- generally used when a strong competition prevails
They start with tough demands and rediculous offers They have no authority to make concessions They raise voice to make emotional outburst They are rigid in making any changes in the offer They ignore deadlines
Styles of Negotiation
Negotiations widely used to have a mutual satisfaction, with emphasis on the relationship for customers, suppliers, employees, relaties and so on.
Build an environment of a strong trust and confidance, have en open mind for the customer to cummunicate easily Relate the terms of the agreement to the general statement of the problem
Styles of Negotiation
Both sides have to work togetreguher, pooling their resources, ideas and sharing information. Regualar frequency of concessions is needed( not on the size of the concesions) Avoid defencive, don not be ignorant, be responsive and responsive to the information Adopt the friendly, amenable approach rather leagalistic or contractual appraoch.
Styles of Negotiation
You win I lose-Sometimes used by the sales persons with demanding and highly cost concious customers, who feel satisfied if they win the negotiation. Its adopted to gain market share and build customer relationship. Both of us lose-Persons who behave 'child like' bossy and immature in their negotiations end up in a lose-lose situation, and the negotiation ends with a loss.
Opening- Always be positive and introduce the team. Listen and observe the signals of the customer. Show intensions of win-win style of approach
Bidding-If the discussion is favourable to the supplier, he can aim high with his proposal. Make concessions slowly and in small amounts. The weakest party will make the first concession. Variables are used to get concessions.
Product specifications Information credibility Vendor capability Contact tems Multiple sourcing Order routine Buying objectives Evaluation criteria
Compromising
Personality Power
Coercive power
Financial To succeed financially, focus on financial objectives that will satisfy shareholders
Customer Which customer value company Should focus on, to achieve Its mission
Learning and Growth How can company improve And change to achieve its mission
30 25 15 20 10 100
Making purchases that arrive on time Making purchases that pass incoming quality assurance inspection Meeting target costs Knowledge of productsin the buyer's area of responsibility Ability to control purchase order cycle time Ability to cultivate qualified suppliers Ability to perform work with minimum errors Ability to determine bottom price a supplier will take Amount of complexity of products in buyer's responsibility Providing timely responses to inquires from suppliers and internal customers