SUBJECT: CONSUMER BEHAVIOUR

SUBJECT CODE: F010402T-B

UNIT 4

Industrial Buying Behaviour

MEANING

Industrial buying, also known as business-to-business (B2B) buying, refers to the purchasing
process conducted by organizations or businesses to acquire goods, services, or resources
necessary for their operations.

FEATURES

1. Rational Decision-Making: Industrial buying decisions are typically based on logical

considerations such as cost, quality, reliability, and performance rather than emotional
factors.

2. Complexity: Industrial buying processes tend to be more complex than consumer

buying processes due to the involvement of multiple stakeholders, longer decision-
making cycles, and higher stakes.

3. Professional Purchasing: Industrial buyers are often trained professionals with expertise
in procurement, supply chain management, or specific industry sectors, responsible for
making purchasing decisions on behalf of their organizations.

4. Volume Purchases: Industrial buyers often purchase goods and services in larger
quantities or volumes to meet the needs of their businesses, manufacturing operations,
or projects.

5. Relationships: Building and maintaining relationships with suppliers is crucial in

industrial buying, as it can lead to long-term partnerships, better pricing, and improved
service levels.

6. Technical Expertise: Many industrial purchases involve technically complex products or

solutions, requiring buyers to have a good understanding of the technical specifications,
features, and functionalities.

7. Negotiation: Negotiation plays a significant role in industrial buying, with buyers and
sellers engaging in discussions to agree on pricing, terms, delivery schedules, and other
contract terms.
 8. Risk Management: Industrial buyers often assess and mitigate risks associated with
their purchasing decisions, such as supplier reliability, quality issues, supply chain
disruptions, and changes in market conditions.

9. Value-Based Purchasing: Industrial buyers focus on obtaining value from their

purchases, considering factors such as total cost of ownership, return on investment
(ROI), and the overall impact on their business objectives.

10. Long-Term Contracts: Industrial buying may involve the negotiation and execution of
long-term contracts or agreements between buyers and sellers to establish stable
supply relationships and ensure continuity of supply.

PARTICIPANTS OF INDUSTRIAL BUYING

1. Commercial Enterprises: These are businesses operating in the private sector, including
manufacturers, retailers, wholesalers, and service providers. Commercial enterprises
purchase goods and services to support their business operations, production
processes, inventory management, and customer service.

Example: A manufacturing company purchasing raw materials such as steel, plastic, and
electronic components to produce automobiles.

2. Government Customers: Government entities at various levels (local, regional, national)

procure goods and services for public sector operations and service delivery.
Government customers purchase a wide range of products and services, including
infrastructure projects, defense equipment, office supplies, IT services, and professional
services.

Example: A municipal government purchasing construction materials and services to

build new roads and bridges within the city.

3. Institutional Customers: Institutions such as hospitals, schools, universities, nonprofit

organizations, and religious organizations also engage in industrial buying. They procure
goods and services to support their institutional missions and objectives, including
healthcare supplies, educational materials, facility maintenance services, and catering
services.

Example: A hospital purchasing medical equipment such as MRI machines, X-ray

machines, and surgical instruments to provide healthcare services to patients.

4. Cooperative Societies: Cooperative societies are organizations owned and operated by

their members, who come together to meet common economic, social, or cultural
 needs. Cooperative societies may purchase goods and services collectively on behalf of
their members to achieve economies of scale, negotiate better terms with suppliers,
and provide benefits to their members.

Example: A farmer cooperative society purchasing fertilizers, pesticides, and farming

equipment collectively on behalf of its members to increase agricultural productivity
and profitability.

FACTORS INFLUENCING INDUSTRIAL MARKETS

1. Economic Conditions: Economic factors such as GDP growth, inflation rates, interest
rates, and employment levels influence industrial markets. During economic downturns,
businesses may reduce spending, while during periods of growth, they may invest more
in equipment, technology, and expansion.

2. Industry Trends: Specific trends within industries, such as technological advancements,

regulatory changes, shifts in consumer preferences, and emerging markets, can
significantly impact industrial markets. For example, the adoption of renewable energy
technologies has influenced the demand for traditional energy sources in the industrial
sector.

3. Supplier Relationships: Relationships with suppliers play a crucial role in industrial

markets. Factors such as supplier reliability, quality of products or services, pricing, and
flexibility can influence purchasing decisions. Strong supplier relationships can lead to
long-term partnerships and better supply chain performance.

4. Technological Innovation: Technological advancements can disrupt industrial markets

by introducing new products, processes, and business models. Industries that embrace
innovation can gain a competitive edge, while those that fail to adapt may face
challenges or even obsolescence.

5. Government Regulations: Government regulations and policies, including

environmental regulations, trade policies, taxation, and industry standards, can
significantly impact industrial markets. Compliance with regulations may require
businesses to invest in new equipment, adopt sustainable practices, or change
production processes.

6. Globalization: Globalization has expanded market opportunities and increased

competition in industrial markets. Businesses must navigate global supply chains,
international trade agreements, and cultural differences while identifying new growth
markets and managing global competition.
7. Market Structure: The structure of industrial markets, including the number and size of
competitors, barriers to entry, and the level of market concentration, can influence
pricing, product differentiation, and overall market dynamics. Highly concentrated
markets may have less competition and more pricing power for dominant players.

8. Consumer Demand: Industrial markets are often driven by consumer demand for
finished goods and services. Changes in consumer preferences, such as demand for eco-
friendly products or personalized experiences, can cascade through supply chains and
influence industrial buying patterns.

9. Risk Management: Industrial buyers assess and manage various risks, including supply
chain disruptions, currency fluctuations, geopolitical instability, and changes in market
demand. Risk mitigation strategies may include diversifying suppliers, implementing
contingency plans, and investing in insurance or hedging instruments.

10. Social and Cultural Factors: Social and cultural factors, such as demographic trends,
workforce dynamics, and societal values, can shape industrial markets. For example, an
aging population may drive demand for healthcare products and services, while
changing workforce demographics may impact labor availability and skills requirements.

INDUSTRIAL BUYING PROCESS/ STAGES

Step 1: Problem Recognition

Problem recognition is the first and most essential step of the business buying process.
In this step, a company recognises a problem or need that requires to be solved by
 acquiring a particular product or service. This step can be a result of internal or external
factors.

(i) Internal Factor Responsible for Organisational Problem:

 It can arise as a result of the company’s choice to launch a new product in response to
market demand. This will require the procurement of new materials and machinery.

 The company may have breakdowns, which calls for the procurement of new parts for
machine repairs. Even while machinery has a lifespan, it eventually needs to be
replaced.

 Sometimes the procured material is rejected because it is of poor quality. This causes
the business to procure from a different provider urgently.

(ii) External Factor Responsible for Organisational Problem:

The marketers that the organisation places in the market should act as the external fact-
informers; i.e., they should inform the organisation about the performance of the
product in the market and any improvements that need to be made immediately, as
well as details about the products of its competitors. This will serve as an external
motivator for the business to make rational purchases in order to maintain its level of
competition.

Step 2: General Need Description

The second step involves determining the quantity and quality of the product and thus
preparing a general need description. If the items are standard, the business buying
process presents limited problems. However, in the case of complex products, to define
them, the buyer may have to work with other people like engineers, consultants, users,
etc.

Step 3: Product Specification

After receiving input from the second step, the buying organisation must prepare
technical specifications for the required parts. At this step, the technical and other value-
related specifications of the product are examined. These requirements need to
match the organisational needs. The suppliers may offer products with broader
applications but at a higher price. The product value analysis helps in reviewing product
requirements and actual specifications to reduce waste. The marketer must collaborate
with his technical and financial partners to assess the feasibility of the project and to
explain the services they can provide to create and supply the product.
For instance, The 100 cc bike “Freedom” was designed and developed by LML’s Kanpur
factory, which invited the help of various companies for the design and supply of many
parts. In addition to Daclin designing and providing the frame, Sriram provided the
piston, Borg Warner of Germany provided the cam chain, and MRF was enlisted to
create the tires. The technology components for changes to the gear system were given
by the British company Prodrine.

Step 4: Supplier Search

The next step in buying for a business is to identify the most suitable vendors. The
organisational buyers evaluate the potential vendors and suppliers based on the
effectiveness and quality of their products and services. In general, the vendors’
dependability, market standing, and financial situation are taken into consideration.

Step 5: Solicitation of Proposals

In the fifth stage, vendors are invited to submit their price quotes. To provide their
quotations, the suppliers employ catalogues or sales representatives. When purchasing
expensive and complex things, it is possible to ask vendors for written proposals,
compare those proposals and choose the best vendor based on the results. The
requested proposal from vendors should include both technical and marketing
information. The effectiveness of the oral presentations depends on the vendor’s ability
to gain the organisation’s buyer’s trust by showcasing their capabilities and possibilities.

For instance, A well-known multinational corporation (MNC) that produces soaps

wants potential vendors to go through three stages: qualified vendor, approved
vendor, and chosen vendor. The provider must exhibit expertise in technology, good
financial health, cost efficiency, following high-quality standards, and innovation to be
approved. When a vendor meets these requirements, they submit a sample lot for
approval. When a supplier receives approval and displays high product uniformity,
ongoing quality improvement, and JIT delivery capabilities, the vendor is designated
as a “select supplier.”

Step 6: Supplier Selection

During this step, several ideas are evaluated based on their relevance. The buying centre
is prepared to choose the vendor for organisational buying after carefully examining the
various vendor proposals. It is usually done with the compilation of a list of the
necessary vendor attributes and their significance.

Some of the attributes include:

 Nature of technical support services

 Method and speed of delivery

 Nature of addressing customer needs

 Quality of products supplied

 Reputation in the market

 Price of the products supplied

 Credit Facility

At this point, the vendor analysis not only focuses on the technical aspects but also
considers reliability, punctuality, price, credit offers, etc.

Step 7: Order-routine Specification

The purchaser places an order with the chosen vendor by listing technical specifications,
required quantity, expected time of delivery, return policies, and warranties. However,
in the case of repair, maintenance, and operating products, the buyer instead of using
periodic purchase orders, may use blanket contracts. A blanket contract is a contract
that creates a long-term relationship under which the supplier makes a promise to the
buyer to resupply goods when required at agreed prices for a determined time period.

In present times, various large buyers are practising vendor-managed inventory. Under
this, the buyers turn over ordering and inventory responsibilities to their suppliers.
Here, the buyers share information related to sales and inventory, directly to the major
suppliers. After that, the suppliers monitor inventories and automatically replenish the
stock as per the requirement. Such a system is used by various suppliers and retailers
such as Croma, Big Bazaar, E-Zone, Walmart, etc.

Step 8: Performance Review/ Post-Purchase Evaluation

The final step in an organisation’s purchasing process is post-purchase evaluation.

Buyers create an evaluation based on factors like cost, quality, delivery schedule, after-
sale service, etc. After routine departmental discussions, an overall rating is provided. It
helps in making the choice of whether to work with the vendor going ahead or to look
for another. The assessment sheet is also distributed to them in order to provide
vendors with a chance to get better.

Buying Center
A buying centre is comprised of all those individuals and groups who participate in the buying
decision-making process, who share some common goals and the risks arising from these
decisions.

BUYING CENTRE ROLES

1. Initiators: Usually the need for a product/item and in turn a supplier arises from the users.
But there can be occasions when the top management, maintenance or the engineering
department or any such recognise or feel the need. These people who “initiate” or start the
buying process are called initiators.

2. Users: Under this category come users of various products. If they are technically sound like
the R&D, engineering who can also communicate well. They play a vital role in the buying
process. They also act as initiators.

3. Buyers: They are people who have formal authority to select the supplier and arrange the
purchase terms. They play a very important role in selecting vendors and negotiating and
sometimes help to shape the product specifications. The major roles or responsibilities of
buyers are obtaining proposals or quotes, evaluating them and selecting the supplier,
negotiating the terms and conditions, issuing of purchase orders, follow up and keeping track of
deliveries. Many of these processes are automated now with the use of computers to save time
and money.

4. Influencers: Technical personnel, experts and consultants and qualified engineers play the
role of influencers by drawing specifications of products. They are, simply put, people in the
organisation who influence the buying decision. It can also be the top management when the
cost involved is high and benefits long term. Influencers provide information for strategically
evaluating alternatives.

5. Deciders: Among the members, the marketing person must be aware of the deciders in the
organisation and try to reach them and maintain contacts with them. The organisational formal
structure might be deceptive and the decision might not even be taken in the purchasing
department. Generally, for routine purchases, the purchase executive may be the decider. But
for high value and technically complex products, senior executives are the deciders. People who
decide on product requirements/specifications and the suppliers are deciders.

6. Approvers: People who authorise the proposed actions of deciders or buyers are approvers.
They could also be personnel from top management or finance department or the users.

7. Gate Keepers: A gatekeeper is like a filter of information. He is the one the marketer has to
pass through before he reaches the decision makers.
MEANING

“ A service is an act of performance that one party can offer to another that is essentially
intangible and does not result in the ownership of anything. Its production may or may not be
tied to a physical product.”

EXAMPLE OF SERVICE PRODUCT

• For a passenger airline, the physical items consists of aircraft itself- including its
capacity to transport the person quickly to the desired destination. Thus, the
experienced pilots and engineers also form a part of the physical components of this
“service product”.

COMPARISON OF SERVICES AND GOODS

CHARACTERISTICS OF SERVICE

• INTANGIBILITY

• PERISHABILITY

• INSEPARABILITY

• HETEROGENEITY

• OWNERSHIP

• SIMULTANEITY
 • QUALITY MEASUREMENT

INTANGIBILITY

• Services are intangible we cannot touch, feel, tasted before being purchased.

• A consumer feels that he has the right and opportunity to see, touch, hear, smell or
taste the goods before they buy them but his is not applicable to services.

• Mobile network providers like Vodafone , Airtel , Reliance , etc.

PERISHABILITY

• Value of service exists at the point when it is required.

• Services perish as soon as they are used.

• Services last for a specific time and cannot be stored like a product for later use.

• Services are produced and consumed simultaneously.

PERISHABILITY EXAMPLE
INSEPARABILITY

• Services cannot be separated from the service provider.

• Thus, the service provider would become a part of a service.

• Production and consumption of services go hand in hand. cannot be separated from the
service provider

EXAMPLE

• Taxi operator drives taxi, and the passenger uses it.

• The presence of taxi driver is essential to provide the service.

HETEROGENEITY
The quality of services cannot be standardized.

Systems and procedures are put into place to make sure the service provided is consistent.

The service firms should make an effort to deliver high and consistent quality by selecting good
and qualified personnel for rendering the service.

 Systems and procedures are put into place

EXAMPLE

• Live concerts like singing , dancing and comedy shows , movies , etc.ike

OWNERSHIP

• In the sale of goods, after the completion of process, the goods are transferred in the
name of the buyer and he becomes the owner of the goods.

• But in the case of services, the users have only an access to services.

• They cannot own the services. the owner of the goods.

EXAMPLE

• Membership of gym
4 P'S OF MARKETING

1. Product: This refers to the tangible goods or intangible services that a company offers to
satisfy customer needs and wants. Product decisions involve aspects such as product
design, features, quality, branding, packaging, and product variants. Businesses must
ensure that their products meet the needs and preferences of their target market and
offer value relative to competitors.

2. Price: Price refers to the amount of money that customers are willing to pay for a
product or service. Pricing decisions involve determining the optimal price point that
maximizes revenue and profitability while considering factors such as production costs,
competitor prices, customer perceptions of value, and pricing strategies (e.g., skimming,
penetration, value-based pricing). Pricing strategies can influence consumer perceptions
of product quality, value, and affordability.

3. Place (Distribution): Place refers to the distribution channels and methods used to make
products or services available to customers. Distribution decisions involve selecting the
most appropriate channels (e.g., direct sales, retail stores, e-commerce platforms) and
intermediaries (e.g., wholesalers, distributors, retailers) to reach target customers
efficiently and effectively. Businesses must ensure that their products are accessible and
available at the right time and place to meet customer demand.

4. Promotion: Promotion encompasses all the activities that businesses use to

communicate with customers and persuade them to buy their products or services.
Promotion includes advertising, sales promotions, public relations, personal selling, and
direct marketing. Businesses use various promotional tactics to raise awareness, create
interest, generate demand, and ultimately drive sales. Promotion strategies should be
aligned with target market characteristics, communication preferences, and marketing
objectives.
4 A’s of marketing

1) Acceptability

It is the extent to which an offered product or service either meets or exceeds the customer’s
expectations in the target market.

Its two dimensions- functional acceptability and psychological acceptability here talk about the
overall performance surrounding the attributes of the given product or service in marketing
creating value for target audiences.

2) Affordability
It adheres to the customers’ ability and willingness to pay the price for a particular product or
service. Sheth and Sisodia suggest two types of affordability and they are Economic and
Psychological Affordability.

3) Accessibility

This dimension talks about the extent and ease to which products and services are accessible to
their customers.

4) Awareness
It focuses on both potential and existing customers of a particular product or service.