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Learning Objectives

 Understand Organizational buying objectives

 Gain knowledge of buying activities, including different

phases in buying decision process, types of buying
situations; buy-grid framework & its analysis.

 Identify members of buying centers

 Understand organizational buying behavior

 Know how industrial buyers choose and evaluate suppliers

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Purchasing Objectives of
Business Buyers
• Purchasing objectives
– Perfect delivery /ready availability
– Superior quality of product / service
– Lowest price
– Good long-term supplier relationship

• Personal objectives
– Higher status
– Job security
– Salary increments
– Promotions
– Social considerations
3

Buying Process of Organisational

Buyers
• Eight phases (Buyphases) of buying process:
1. Problem / Need recognition
2. Decide characteristics and quantity of needed product
3. Develop specifications / description of needed product
4. Search for potential suppliers
5. Obtain & analyse supplier proposals
6. Evaluate and select suppliers
7. Select an order routine
8. Performance feedback & post – purchase evaluation

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Phases in purchasing decision

• Phase 1 : Recognition of problem or need
– Recognition may originate within the buying organization
when products become outmoded, equipment breaks down or
existing material are unsatisfactory in quality or availability.
– It may also originate outside the buying organization when a
marketer reveals opportunities for performance enhancement.

• Phase 2 : Determination of the characteristics &

quantity of item needed
– Answer questions such as “What performance specifications
need to be met?” “What type of goods should be considered.”

Optic fiber light rings

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Phases in purchasing decision

• Phase 3 : Developing specifications of the
product.
– Influencers (who affect specifications) enter the purchasing
process
– Buying influencers start looking outside the firm for supplier
and product information.
– Many suppliers do not become aware until the firm begins
outside search
– A definitive advantage accrues to the marketer who triggered
the need.

Phases in purchasing decision

• Phase 4 : Search for and qualification of potential
sources
– Qualifications sought would differ on the type of buying
organization, specific buying situation or buying influencers
involved. (e.g. Price could be criteria)
– End result of phase 4 : Decision makers have decided which
suppliers would be considered as potential vendors
• Phase 5 : Acquisition and analysis of proposals
– Requests for specific proposals maybe made
– Several months maybe spent on proposals and counter proposals
– Need for information is extensive – great deal of time is spent on
comparing products, services and costs.

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Phases in purchasing decision

• Phase 6 : Evaluation of proposal and selection of
supplier :
– “Make –or-buy” decision maybe taken
– One or more offers from competing suppliers is accepted
– Negotiations may continue on terms, prices and deliveries

• Phase 7 : Selection of an order routine

– Order routines are established
– Purchase order to the vendor
– Status report to the using department (levels of inventory etc.)
– Critical phase since the user department (where the need
originated) does not view the problem solved until the specific
product is received and available for use.

Phase 6 : A SUPPLIER EVALUATION SYSTEM

ATTRIBUTE/ WEIGHT/ SUPPLIER’S SUPPLIER’S

FACTOR IMPORTANCE PERFORMANCE RATING
SCORE
PRICE 15 0.5 07.5

QUALITY 30 0.7 21.0

DELIVERY 25 0.6 15.0

SERVICE 20 0.7 14.0

FLEXIBILIY 10 0.4 04.0

TOTAL 100 61.5

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Phases in purchasing decision

• Phase 8 : Performance feedback and evaluation
– Formal and informal review of product performance and vendor
performance
– Determination by the user department as to whether the
purchased item solved the original problem.
– If problem is not solved, suppliers who were screened earlier
maybe given further consideration.

Supplier/Vendor Analysis using

Multi attribute model
Attributes Weight Supplier Total
(or Criteria) (or Importance) Performance Rating Score
Product Quality 3 8 24
Service Quality 3 7 21
Price 2 6 12
Reputation 1 8 08
Flexibility 1 6 06
Total 10 71
Performance rating scale : 1-10, ( 10 = excellent, 1 = poor )

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Buying Process of Organisational

Buyers
• Types of Buying Situations (Buyclasses)
1. New Task / New purchase
– More information, risk, decision time, people involved

2. Modified Rebuy / Change in Supplier

– Due to existing suppliers’ poor performance, or change in
specifications
– Hence, search for alternate supplier

3. Straight Rebuy / Repeat Purchase

– Due to existing suppliers’ good performance
– Routine, low risk decision. Less information needed
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Buygrid Framework
Buyclasses
Buyphases New Modified Straight
Task Rebuy Rebuy
1. Problem / need recognition Yes May be No
2. Characteristics, Quantity of needed Yes May be No
product
3. Specification of needed product Yes May be No
4. Potential suppliers’ search Yes Yes No
5. Obtain and analyze supplier Yes Yes May be
proposals
6. Evaluate proposals and select Yes Yes No
suppliers
7. Select an order routine Yes Yes May be
8. Performance feedback and Yes Yes Yes
evaluation 15

Buying Process of Organisational

Buyers
• Eight phases (Buyphases) of buying process:
1. Problem / Need recognition
2. Decide characteristics and quantity of needed product
3. Develop specifications / description of needed product
4. Search for potential suppliers
5. Obtain & analyse supplier proposals
6. Evaluate and select suppliers
7. Select an order routine
8. Performance feedback & post – purchase evaluation

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(B) Buying Situations / Buyclasses

Three Common types of purchases / buying situations

i. New Task
Here, buyers have limited knowledge and experience of the new
product/service. Hence, more information is obtained, more people are
involved, risks are more, and decisions take longer time.

ii. Modified Rebuy

This situation occurs when the firm is not satisfied with the performance
of existing suppliers, or there is a change in product specs. Hence, the
need for searching and reevaluating alternatives.

iii.Straight Rebuy
Most common situation in industrial purchasing. Here, the buying firm
places repeat orders on suppliers who are currently supplying certain
products/services. Such decisions are routine, with less risks and less
information needs, and can be taken by junior executives.

INDUSTRIAL MARKETING: Chapter 3 17

NOTES

 The most complex buying situations occur in the upper left

portion (New task in its initial phase of problem recognition.)

 New task may entail policy questions and special studies

 Modified rebuy maybe routine.

 Straight rebuy is essentially automatic

 As Buy phases are completed (moving through phase 1 to phase

8) the process of “creeping commitment” occurs. There is

diminishing likelihood of new vendors gaining access to the

buying situation.

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Creeping commitment
• Decision making according to the concept of
creeping commitment involves a sequence of
choices – each of which eliminates certain
alternatives from further consideration.
• As decisions are made over the various phases
of purchasing process, the range of alternatives
is narrowed.
• Commitment to the final solution is becoming
firmer and more specific (“creeping”) with each
phase.

4-19

Center of Gravity
• Individuals involved in critical phases have
greater power
• E.g. In Ford ; purchasing is asked to assist
design engineers in estimating costs. This is a
critical phase.
• Relative importance of each phase will vary
from purchase to purchase

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Appropriate Marketing strategies over

various buying situations/phases
Phases New Task Modified rebuy Straight rebuy

Anticipate problem. In supplier : Maintain In supplier : Maintain

Quality/service close relationships
standards with users and buyers.
1. Problem recognition Use advertising and
creative sales people Outsupplier : Watch Outsupplier -
to convince buyers of for developing trends. Convince the firm to
problem-solving reexamine the
capabilities alternatives.

Providing technical In suppler and Out

2. Solution supplier : Stress on
assistance and Same as phase 1
determination capability, reliability
information
and problem solving
abilities

4-21

Appropriate Marketing strategies over

various buying situations/phases
Phases New Task Modified rebuy Straight rebuy

3. Determining needed Provide detailed

product/service Same as phase 2 Same as phase 1
item
information to the
decision makers.

4. Searching for and In supplier : Maintain

qualifying supplier dependability. In supplier : Watch out Same as phase 1
Outsupplier : for problems. Out
demonstrate ability to supplier : demonstrate
perform task ability to perform task

Understand details of Understand details of

5. Analyzing proposals
customer problem / customer problem /
needs. Make timely needs. Make timely
proposals proposals Make timely proposal

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(D) Buying Center roles & key members

Roles of Buying center members are

PRIMARY ROLES
 Deciders. Have formal or informal authority to make buying decisions.
Senior executives are deciders for high value & complex products. For
straight routine purchase, buyer can be decider.
An engineer who designs specifications such that ONLY ONE vendor can
meet them becomes an informal decision maker.

 Influencers. Influence buying process by providing information or by

establishing product specifications. Technical people such as design
engineers and quality control inspectors have significant influence on
purchasing decision.
Individuals outside the firms, such as architects who draw up specifications,
can also assume this role.

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(D) Buying Center roles & key members

Roles of Buying center members are

SECONDARY ROLES
 User. Any person who uses the product / service.
May exert a minor to significant degree of influence on the purchasing
decision. They may initiate the process and can play an important role in
defining product specifications.
 Buyers. They implement purchase procedures. E.g. Purchase
executives, purchase managers. In complex purchases, buyers may
include high level officers of the company. Major role is selection of
suppliers and negotiating purchases.
 Gatekeepers. They control / filter information & meetings with buying
center members. Often, Purchasing managers may act as gatekeepers
and filter the information reaching the decision makers.

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(E) Identifying key members of buying center

 Sales / Marketing persons must identify important members of

buying center.
 Buying center consists of individuals and groups who take part in
buying decision making process, have common objectives &
share common risks. It is also called purchase committee, buying
committee or decision making unit.
 Members of buying center are
(i) Technical persons. Represent design,production/operations,
maintenance, Q.C., Industrial Engg. Depts.
(ii) Purchasers / Buyers. Purchase / Materials dept. persons.
(iii) Accounts / Finance persons.
(iv) Marketing persons
(v) Top management persons. G. M. & above.

INDUSTRIAL MARKETING: Chapter 3 25

(E) Identifying key members of buying center

 Research indicates that “Key Influencers” are mostly outside the

Purchase department
 In highly technical products – Purchasing agents, engineers,
scientists, production managers and quality personnel are
included in the Buying center
 The greatest influence is however the scientists and engineers.
 Key influencers are capable of swaying the other influencers –
knowingly or unknowingly due to their authority, knowledge and
information.
 The ability to identify key buying influencers is vital to good
marketing strategy.

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(F) Organizational buying behavior

 Industrial / business buyers are influenced by many factors. Two most

important factors are
 (i) Organizational factors / task – oriented objectives, like best product
quality, lowest price, dependable delivery.

 (i) Personal factors / Non-task oriented objectives, such as good

increments, promotion, Job security, personal favors.

 When suppliers’ offers are similar, buyers can satisfy organizational

objectives from any supplier. Hence, personal factors become
important.

 However, when suppliers’ offers differ substantially, buyers give

importance to organizational factors to satisfy organizational objectives.

INDUSTRIAL MARKETING: Chapter 3 27

 Many models have been developed to explain organizational

buying behavior. One of the comprehensive models is the Sheth
model, described below.
 The Sheth model of industrial buyer behavior, shown below ,
focuses on (i) Psychological aspects of individual buyers
(Component 1), (ii) Conditions causing joint decision making
(Component 2), (iii) Conflict among those involved in decision
process & resolution of conflict
(Component 3).
 Situational factors include economic conditions, labour disputes,
mergers & acquisitions. The model does not explain their
influence on buying process.

INDUSTRIAL MARKETING: Chapter 3 28

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Objectives in organizational buying

• Task oriented objectives
– Organizations are predominantly oriented to purchase at
lowest possible price without compromising on product
quality, service and delivery.
– One or more offers from competing suppliers is accepted
– Negotiations may continue on terms, prices and deliveries
• Price
– “Evaluated price”
– Value (satisfaction)
– Variety of factors are considered such as “How much power
will the machine consume ?” OR “What amount of scrap /
waste will result from using this material”

Objectives in organizational buying

• Services
– Technical assistance
– Repair capability
– Spare parts
– Training information

• Quality
– Quality levels should be consistent with specifications
– Uniformity/consistency
– Reduce costly inspections and testing of incoming shipments
– Marketing can find out regarding the tolerance levels by close
communication and co-ordination with the firm

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Objectives in organizational buying

• Assurance of supply
– Interruption in the flow of parts/materials can cause
shutdown
• Reciprocity
– Objective is for the buyer and seller to reach an agreement for
exchange of business that is mutually beneficial.
– Mutual dependence for increased profits

Objectives in organizational buying

• Non-task objectives
– People join organizations to accomplish personal objectives
such as promotions, salary increases and social
interaction.
– Organizations work best when people accomplish personal
and organizational objectives
– A buyer can take pride (in a personal objective - in
making correct buying decision) that also accomplishes
organizational objective.
– Vendors needs to keep both sets of objectives in mind
– Marketers can open doors to future business by sending a
letter of appreciation to the buyer or the buyers supervisor.

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Materials Requirement Planning

• Under MRP, a firm estimates its future sales,
schedules production and accordingly orders
materials and parts.
• Firms combining the functions of purchasing,
transportation, inventory control, receiving and
production control under one functional area –
“Materials management.”

6-33

JIT
• JIT is an inventory control system that enables the
manufacturer to maintain minimum inventory
levels by relying on one supplier to deliver frequent
shipments (sometimes daily) – just in time for
assembly into final products.
• Long-term, one-supplier relationship to reduce risk
of material flows and “Zero defect quality”
• JIT requires supplier deliver the ordered product at
the precise time in the precise quality

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Centralized purchasing
• Growing tendency towards centralized purchasing
• Priorities are different
• More emphasis on long term supply availability
and supplier relationships.
• Purchasing specialists focus on selected products
and develop extensive knowledge.
• This knowledge combined with volume buying
increases the firms buying strength.

6-35

Marketing implications
• MRP, JIT and Centralized purchasing have a
definite impact on Industrial marketing programs.
• Marketers must keep upto date on latest
purchasing practices.
• Sales people must possess the tools necessary to
respond to their needs and provide information on
a broad range of functions.

6-36

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THE SHETH MODEL OF INDUSTRIAL BUYER BEHAVIOUR

37

THE SHETH MODEL OF INDUSTRIAL BUYER

BEHAVIOUR

Component (1) Component (2) Component (3) Situational Factors

Differences among Methods used for

individual buyers conflict resolution
caused by factors : in joint-decision

! Background of A) Product Specific making process :

individuals (Education, Factors :
role & life style). ! Time Pressure ! Problem Solving
Supplier or
! Their information ! Perceived Risk ! Persuasion
sources. Brand Choice
! Type of Purchase ! Bargaining
! Active Search B) Company Specific !
! Perceptual Distortion Factors :

! Satisfaction with ! Company Size

past purchases ! Company Orientation
! Degree of
Centralisation

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Psychological factors influencing individual

decision making
Differences in • Purchase managers look for price and economy in
Role transportation
orientation • Engineers look for quality and pre-testing

Differences in • Purchase managers have greater amount of information

information
exposure • Engineers have smaller amount of information

• Functional risk
Perceived risk
• Psychological risk

Marketing • Supplier loyalty is a formidable obstacle

implications • Sales people should emphasize guarantees.

5-39

Evaluating supplier performance

 The categorical method: A list of significant performance
factors is drawn out. Users merely assign +, - or neutral to
each factor.
Overall high rating is selected. It is non-quantitative and biased.

 The Weighted point method: Assigning weights to

different evaluation criteria
◦ Composite performance index.

 The cost ratio method : Use of cost analysis in evaluating

suppliers
◦ E.g. (Quality / Cost ratio ; Delivery / Cost ratio )
◦ Ratio of costs to products to evaluate suppliers.

10-40

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WEIGHTED POINT METHOD

ATTRIBUTE/ WEIGHT/ SUPPLIER’S SUPPLIER’S

FACTOR IMPORTANCE PERFORMANCE RATING
SCORE
PRICE 15 0.5 07.5

QUALITY 30 0.7 21.0

DELIVERY 25 0.6 15.0

SERVICE 20 0.7 14.0

FLEXIBILIY 10 0.4 04.0

TOTAL 100 61.5

41

Marketers too can develop supplier rating

system
• The use of self-evaluation (based on customer
needs)
• Promote and enhance the value of the customer’s
products and services
• Provide special control over items that customers
consider critical to their operation
• Supply ‘hard data’in support of contract
negotiations

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Value Analysis
• The objective is to reduce the cost while
maintaining product reliability
• Intensive appraisal of all items
• Brainstorming
• Various departments
• Can the weight be reduced? Thickness reduced?
Capacity increased?

• Step-by-step procedure was developed by GE

in 1947

4-43

Value Analysis
• Selection : A product that is ripe for improvement
• Information gathering : Drawings, costs, usage
forecasts
• Function definition : (e.g. Flower pot >> Contains
Soil )
• Generation of alternatives ( What other substitutes
can be used. How can it be modified?)
• Evaluation of alternatives
• Presentation
• Implementation.

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The successful B2B salesperson

• Unravelling the complex forces that encircle
organizational buying is difficult

• Marketer must concentrate on the individual

members of the buying center

• Each brings a particular set of experiences

• The marketer must be sensitive to individual

differences and develop responsive marketing
communications.
4-45

B2B Top Performers

• Interviews with 60 B2B salespersons at a
Fortune 500 firm

#1 : Align their organizations special capabilities

with the customer’s goals

#2 : Establish and maintain profitable customer

relationships.

4-46

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CUSTOMER SERVICE
 Important Customer Service Elements. Carry out market survey to
understand which of the following elements of customer service
are important to customers, what service levels are expected by
customers, the service levels offered by the firm and its
competitors.
(i) Pre – Sales Service : Advising, Informing,
Problem solving
(ii) During – Sales Service : Product availability,
on–time delivery, order cycle time, and information.
(iii) Post – Sales Service : Warranty, AMC, Repair,
Installation & Training.
 Develop superior service package.
 Test, Set Goals, and Establish Control system

INDUSTRIAL MARKETING: Chapter 3 47

SUMMARY

 Industrial buying decision process consists of eight steps / stages

(buyphases) & three types of buying situations (buyclasses).

 Buygrid model combines buyphases & buyclasses.

 Marketers must understand roles & key members of buying center,

including key buying influencers.

 Many factors influence organizational buying behavior, but major factors

are organizational ( or task – oriented ) objectives and personal (non –
task oriented ) objectives.

 The Sheth model of industrial buyer behavior is comprehensive, focusing of

psychological & joint – decision making aspects.

INDUSTRIAL MARKETING: Chapter 3 48

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BUYING CRITERIA
TANGIBLE/RATIONAL INTANGIBLE/NON RATIONAL
FACTORS FACTORS
1 QUALITY 1 REPUTATION OF SUPPLIER
2 PERFORMANCE 2 RELIABILITY
3 DELIVERY FULFILLMENT 3 BRAND
4 AFTER SALES SERVICE 4 RELATIONSHIP WITH SUPPLIERS
5 PRICE
6 AVALIBILITY
7 EASE OF MAINTENANCE
8 EASE OF OPERATION

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SUPPLIERS EVALUATION
Rating Scale

BUYING IN ORDER OF POOR FAIR GOOD EXCELLENT

S.NO.
CRITERIA IMPORTANCE %
PRODUCT
1 30
QUALITY
SUPPLIER
2 20
REPUTATION

3 PRICE 20

SERVICE
4 15
SUPPORT
PAYMENT
5 15
EXECUTION

51

‘INFLUENCES’ ON THE
BUYING DECISIONS
External Factors–Social,
Economic, Political ,
Environmental
- Interest Rates
- Physical Infrastructure
- Fiscal Policies
- Vendor Base and its Location

Internal Organisational Factors Individual’s Characteristics

ORGANISATIONAL
- Ownership Pattern like Govt.,
Professional, Family Owned BUYING - Educational Background
BEHAVIOURS AND - Experience in the Job
- Organisational Purchasing
- Personality and Attitude
- Organisational Culture DECSION - Risk Taking Abilities
- Organisation Size

Group Dynamics
- Members of the Buying Centre (BC)
- Relationship Formal
- Informal amongst the Buying
Centre Members
- Background of the Members of the
52
BC

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Organisational Buying
and
Buying Behaviour
Chapter
3

Chapter Questions
• What are the purchasing objectives of business buyers?

• How is the buying process (buyphases) of organisations?

• What are the types of buying situations (buyclasses) in business

organisations? Is vendor analysis/ multi-attribute model useful ?

• What is the buygrid framework?

• Who are buying centre members and key influentials?

• What are the roles in organisational buying?

• Which are the comprehensive models of organisational buying behavior?

• Which are the contemporary purchasing activities?

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Purchasing Objectives of
Business Buyers
• Purchasing objectives
– Perfect delivery /ready availability
– Superior quality of product / service
– Lowest price
– Good long-term supplier relationship

• Personal objectives
– Higher status
– Job security
– Salary increments
– Promotions
– Social considerations
55

Buying Process of Organisational

Buyers
• Eight phases (Buyphases) of buying process:
1. Problem / Need recognition
2. Decide characteristics and quantity of needed product
3. Develop specifications / description of needed product
4. Search for potential suppliers
5. Obtain & analyse supplier proposals
6. Evaluate and select suppliers
7. Select an order routine
8. Performance feedback & post – purchase evaluation

56

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Supplier/Vendor Analysis using

Multi attribute model
Attributes Weight Supplier Total
(or Criteria) (or Importance) Performance Rating Score
Product Quality 3 8 24
Service Quality 3 7 21
Price 2 6 12
Reputation 1 8 08
Flexibility 1 6 06
Total 10 71
Performance rating scale : 1-10, ( 10 = excellent, 1 = poor )

57

Buying Process of Organisational

Buyers
• Types of Buying Situations (Buyclasses)
1. New Task / New purchase
– More information, risk, decision time, people involved

2. Modified Rebuy / Change in Supplier

– Due to existing suppliers’ poor performance, or change in
specifications
– Hence, search for alternate supplier

3. Straight Rebuy / Repeat Purchase

– Due to existing suppliers’ good performance
– Routine, low risk decision. Less information needed
58

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Buygrid Framework
Buyclasses
Buyphases New Modified Straight
Task Rebuy Rebuy
1. Problem / need recognition Yes May be No
2. Characteristics, Quantity of needed Yes May be No
product
3. Specification of needed product Yes May be No
4. Potential suppliers’ search Yes Yes No
5. Obtain and analyze supplier Yes Yes May be
proposals
6. Evaluate proposals and select Yes Yes No
suppliers
7. Select an order routine Yes Yes May be
8. Performance feedback and Yes Yes Yes
evaluation 59

Buying Centre Members And Key

Influentials

• Buying centre, or purchase committee, consists of members

who make buying decisions, share common objectives and risks

• Key influentials are the few most influential members

• Buying centre members are:

– Top management persons
– Technical persons: Key influentials for new task and modified
rebuy situations and technical products
– Buyers / purchasers: Key influentials for straight rebuy
– Commercial persons: Finance & Marketing persons
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Users

Roles in
Organisational Buyers

Buying

Influentials

Gatekeepers Deciders

61

Models of Organisational Buying

Behaviour
• Most important factors influencing organisational
buyers:
– Organisational / Task – oriented
– Personal / non-task oriented
– Enviromental
– Buying Centre

• Most comprehensive models:

– Webster and Wind
– Sheth
– Choffray and Lilien
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The Webster and Wind Model

Environmental Variables: Technological, Economic, etc.

Organisational Variables: Technology (for purchasing), Buying

Centre structure, buying goals and tasks, buying centre members.

Buying centre variables: Interpersonal interactions, Group

functioning: Buying and non-buying tasks, external influences.

Individual variables

Buying Decision Process:

Individual and Group. Buying
Decision
63

The Sheth Model

Componet-1 Componet-2 Componet-3

Differences in Variables that • Methods Situational

individual determine if used for Factors
buyers’ buying decision conflict
expectations is autonomous or resolution in
caused by joint : joint Supplier
factors: • Product decision or
• Background specific making Brand choice
• Information • Company process
sources specific • Problem
• Past solving
purchases • Persuasion
• Perceptual • Bargaining
distortion • Politicking

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The Choffray and Lilien Model

Obtain alternative offers from
suppliers

Organisational Constraints Environmental Constraints

Source of information Likely alternative offers

Evaluation criteria Individual preferences formed

Negotiation
Organisational preferences
Group problem solving

Organisational choice
65

Contemporary Purchasing
Activities
• Just-in-time (JIT) Delivery

• Out sourcing

• World sourcing

• Single sourcing

• Value analysis / Value engineering

• Supplier evaluation system/Multi attribute model

• Buying committee/Buying centre 66

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