The Nature of Industrial

Buying
Industrial Marketing
Winter 2019
 Organizational Buying Activities
• Organizational buying activities center on the level of experience and
information that firms have in purchasing certain products and
services.

• Routine Purchase vs New Purchase.

• Buying activity requires different phases of decision making.

 The Buygrid Framework
• A conceptual model , referred to as the Buygrid , is quite useful in analyzing the
purchasing decision process over various buying situations.

• Developed by Robinson, Faris and Wind in 1967.

• Buygrid Model incorporates three types of buying situations ; eight phases in the
buying decision process; and buying influences.
 The Buygrid Framework

BUYGRID MODEL

Buying
Buyclasses/Buying Buyphases/Buying
Influence/Buying
Situations Process
Center
 The Buygrid Framework
• The model has three major dimensions
• Buyclasses
• Buyphases
• Buying Center

• Buygrid model provides a frame of reference for dividing the overall

decision-making process into distinct segments that are useful for
recognizing critical decisions and specific information requirements.
 The Buygrid Framework

BUYGRID MODEL

Buying
Buyclasses/Buying Buyphases/Buying
Influence/Buying
Situations Process
Center
 Buyclasses
New
Task

Buyclasses

Straight Modified
Rebuy Rebuy
 New Task
• Problem or need is considerably different from past
experiences.

• Company is buying the item for the first time.

• The need for a new purchase maybe due to internal or

external factors.
 New Task
• Decision makers lack experience and product knowledge.

• In the new task decisions

• The risks are more.
• Decisions may take longer time.
• More people are involved in decision making.
 Modified Rebuy
• Organizational decision makers enter into a modified rebuy situation when they
feel that significant benefits such as quality improvements or cost reductions may
be derived from reevaluating alternatives.

• Modified rebuy situation occurs most often when the firm is not satisfied with the
performance of present suppliers.
 Modified Rebuy
• The change in supplier may also be necessary if technical
people in the buying organization ask for changes in the
product specification.

• Finding a new supplier is not an easy task for the most buying
organizations.
 Straight Rebuy
• The buying organization reorders/places repeat orders with the
suppliers who are currently supplying such items.

• Product, price, delivery period, and the payment terms remains the
same in the reorder, as per the original purchase order.
 Straight Rebuy
• Straight rebuy is the most common buying situation in
industrial purchasing.

• Little or no information is required.

• As long as choice criteria are met, alternative solutions are

seldom evaluated.
 The Buygrid Framework

BUYGRID MODEL

Buying
Buyclasses/Buying Buyphases/Buying
Influence/Buying
Situations Process
Center
Phases in Purchasing Decision Process
Evaluation of
Anticipation or
proposals and Selection of an
Recognition of a
selection of order routine
Problem (Need)
suppliers

Determination of
Acquisition and Performance
characteristics and
analysis of feedback and
quantity of needed
proposals evaluation
item

Description of
Search for and
characteristics and
qualification of
quantity of needed
potential sources
item
 Phases in Purchasing Decision Process
• Phase 1: Anticipation or Recognition of a Problem (Need)
• Purchasing decision process is triggered by recognition of a problem, need or
potential opportunity.

• Examples:
• Quality of material supplied by the supplier is not satisfactory.
• Machine supplied by existing supplier breaks down too often.
• Required material is not available.
• New product development.
 Phases in Purchasing Decision Process
• Phase 2: Determination of characteristics and quantity of
needed item

• Organizational members must determine specifically how the situation may be

resolved.
• What type of products or services should be considered?
• What quantity of the product is needed?

• Solutions are suggested by user department or engineering department.

 Phases in Purchasing Decision Process
• Phase 3: Description of characteristics and quantity of
needed item
• Phase 2 and Phase 3 are closely related.

• Influencers enter the purchasing process.

• Buying influencers' begin to look outside the firm for supplier product information and for
assistance in developing product specification.

• Solution is identified and precisely described.

 Phases in Purchasing Decision Process
• Phase 4: Search for and qualification of potential sources
• Obtain information on all available suppliers.
• Trade journals, sales calls, word-of-mouth, catalogues, trade-shows, and industrial
directories.

• Qualification of suppliers is dependent on three factors

• Type of buying organization.
• Buying situation.
• Decision making members.
 Phases in Purchasing Decision Process
• Phase 5: Acquisition and analysis of proposals
• Request for specific proposals will be made.
• Formal offer, quotation or a formal bid.
• Contents:
• Product Specification
• Price
• Delivery Period
• Payment Terms
• Transportation Cost

• Phase 4 and Phase 5 may occur simultaneously in straight rebuy.

• Phase 4 and Phase 5 are separate and distinct in modified rebuy.
 Phases in Purchasing Decision Process
• Phase 6: Evaluation of proposals and selection of suppliers
• Various proposals of competing suppliers are weighed and analyzed.
• Make or Buy trade off?
• Comparison with cost of producing item
• Phase 7: Selection of an Order Routine
• Activities in this phase includes:
• Placement of orders with selected suppliers.
• Frequency of order placement.
• Levels of inventory needed.
• Order routines are established by forwarding purchase orders to the vendors.
• Purchase process is not completed until ordered item is not delivered and accepted for
use.
 Phases in Purchasing Decision Process

• Phase 8: Performance Feedback and Evaluation

• Consists of formal or informal review and feedback.

• This phase involves a determination by the user department as to whether the

purchased item solved the original problem.
 The Buygrid Framework

BUYGRID MODEL

Buying
Buyclasses/Buying Buyphases/Buying
Influence/Buying
Situations Process
Center
 Buying Center and Multiple Buying
Influences
• Those individuals who are in any way involved in the purchasing
decision process are part of decision-making unit.

• In industrial marketing these decision makers are referred to as the

buying center.

• Buying center is an informal ,cross-departmental decision making unit

in which the primary objective is the acquisition , impartation and,
processing of relevant purchasing-related information.
Buying Center Influence Matrix
Phase New Buy Modified Rebuy Straight Rebuy
Need Identification Engineering , Purchasing, Purchasing , Production Production and
R&D, Production. and Engineering. Purchasing.
Establishment of Engineering , Purchasing, Engineering , Purchasing, Production, Engineering
Specification R&D, Production. R&D, Production, Quality and Purchasing.
Control
Modification and Engineering , Purchasing, Production, Engineering Production, Engineering
evaluation of buying R&D. and Purchasing. and Purchasing.
alternatives
Supplier Selection Engineering , Purchasing, Production, Engineering Production, Engineering
R&D, Quality Control. and Purchasing. and Purchasing.
Identifying Buying Center Members
• Marketing:
• The perspective of marketing in purchasing process is: "Will it enhance salability?”.

• Manufacturing:
• Manufacturing is responsible for determining the feasibility and economic considerations of
producing products.

• Research and Development:

• This department is involved in initial development of products and processes and set broad
specifications for component and materials criteria , minimum end-product performance
standards and manufacturing techniques.
Identifying Buying Center Members
• General Management:
• Top management becomes involved in purchasing decisions when the firm is faced with
unfamiliar situations not related to day-to-day activities.

• Purchasing:
• Purchasing’s dominant sphere of influences falls within phases 4,5, and 6 of the purchasing
decision process.
• Purchasing agents are the dominant decision makers and influencers in repetitive buying
situations.
 Objectives in Organizational Buying
• Industrial buying tends to reflect organizational goals.

• Organization members are influenced by both task and non-task objectives.

• Task-Oriented objectives involve pragmatic considerations such as price, quality, service, and
return on investment.

• Non-task objectives center on personal factors such as the desire for job security, recognition,
promotion, and salary increase.
 Task-Oriented Objectives
• Price:
• Buyers are concerned with the ”evaluated price” of a product.

• Services:
• Multiple services are required by industrial buyers to achieve organizational goals.

• Quality:
• Organizational customers search for quality levels that are consistent with
specifications and intended use of the product.

• Assurance of Supply:
• Interruptions in the flow of materials and parts can cause shutdown of the
production process , resulting in costly delays and lost sales.
 Non-task Objectives
• People join organizations to accomplish personal objectives such as greater status,
promotions, high salary, increased job security, and social interactions.

• In the sphere of industrial marketing, it has been found that major factors that
influence the purchasing decision are social considerations, such as friendship,
reputation, and mutually beneficial interactions.
 Product Analysis for a New Computer Installation (Example)
Functional Influencers
Product Needs Marketing Engineering Management Comptroller Purchasing

Technical 0.2 0.2 0.4

Competency
Expansion 0.1 0.2 0.1 0.1 0.4
Capability
Installation 0.1 0.1
Credit Terms 0.2
Personnel Training 0.3 0.3 0.5 0.1
Programs 0.4 0.2
Investment 0.7
Payback Period
Maintenance 0.4
Service
1.0 1.0 1.0 1.0 1.0
 Psychological Factors Influencing
Decision Making
• Usually purchasing , engineering , manufacturing, and marketing personnel are
involved both individually and jointly at various phases in the purchasing decision
process.

• Expectations regarding the potential of alternative suppliers to satisfy a number of

different purchasing criteria will differ.

• Two different factors account for these differences

• Differences in Role Orientation
• Differences in Information Exposure
 Differences in Role Orientation
• Each individual has a different perception of his or her role in the
decision process.
• Purchasing agents look for price advantage and economy in shipping.
• Engineers look quality and pretesting.

• Organizations typically reward individuals for achieving their

respective departmental goals .
• Purchasing agents are rewarded for economic achievement.
• Engineers are rewarded for product performance.
Differences in Information Exposure
• Expectations and objectives are further influenced by the type
and source of information exposure.

• Purchasing agents are exposed to greater amounts of commercial sources of

information.

• Personnel in engineering and production, typically have a disproportionately

smaller amount of information.
 Conflict and Resolution in Joint
Decision
• Reason for conflict in organizations‘.
• Differences in expectations.
• Differences in evaluative criteria.
• Differences in buying objectives.
• Differences in decision making styles.

• When conflict is resolved through cooperation and the search or a

mutually beneficial solution, joint decision making tends to be rational.

• When conflict is resolved through bargaining or politicking , joint

decision making tends to be based on irrational criteria.
 Power in Conflict Resolution
• The use of power in resolving conflict is common in
industrial buying.

• Power does not always correlate with organizational rank or

the functional area of an individual.
 Supplier Choice and Evaluation
• Supplier selection in straight or modified rebuy is not
difficult.

• A supplier may even be recommended for selection on the

basis of reciprocity considerations.

• Supplier selection may involve extensive research in new

task.
Evaluating Supplier Performance
• Categorical Method

• The Weighted-Point Method

• The Cost-Ratio Method

The Cost-Ratio Method
Supplier Quoted Price per Unit

A $95.50

B $95.00

C $94.75

D $95.25
 The Cost-Ratio Method
Supplier Quality/Cost Delivery/Cost Ratio Service/Cost Ratio Total Cost Quoted Price Net Adjusted
Ratio Penalty per Unit Price per Unit

A 2% 1% -4% -1% $95.50 ?

B 2% 3% 2% 7% $95.00 ?

C 2% 1% 1% 4% $94.75 ?

D 1% 1% -1% 1% $95.25 ?
 Assignment
• Explain different methods of evaluating supplier performance (10 marks)
• Select the supplier on the basis of following information with cost-ratio method
(10 marks)

(Note: Delivery/Cost ratio is 3% for all suppliers)

Supplier Quoted Price per Total Cost of the Quality Cost Service/ Cost Ratio
Unit Product
A Rs 100 Rs 10000 Rs 300 -2%
B Rs 98.75 Rs 9875 Rs 493.75 -5%
C Rs 105.25 Rs 10525 Rs 105.25 1%
D Rs 99 Rs 9900 Rs 297 -7%