Industrial Buying Behaviour

Theory and Case study

Prof. Geeta Shetti

 Consumer Behavior
Study of how consumers select, buy, use and dispose the
products to satisfy their needs and wants is defined as
Consumer Behavior

Consumer Behavior is a very complex phenomenon and

continues to be a big enigma to the Marketers. Marketers
need to understand the various factors influencing the
Consumer buying process
Consumer Buying Process
(5 step model)
 Consumer decision process

for the
Purchase of a new motorbike
 Problem/Need recognition
 Travelling by train is difficult and risky
 Lot of money is spent on autos
 Reaching by road takes just 15 minutes
 Office is reimbursing petrol charges
 Need to meet clients during office hours and hence
money is also spent on cabs
 All colleagues in office travel by their own cars
 Need to impress female colleagues
 Need a bike which would fit the budget
 Week-ends would like to go out with friends
 Information Search
Information sources fall into 4 categories:
 Personal sources: Family, friends, neighbors etc
 Commercial sources: Advertisement, newspapers,
magazines, dealers, salespersons, hoardings, auto expo,
bike shows etc
 Public source: Mass media, consumer rating organizations
 Experiential sources: Mechanics,
garage persons, drivers etc
 Information Search - Internet
Advantages:
1. Faster information
2. Convenient
3. Price parity
4. Design/Models
5. Review/Critics
6. Finance schemes
7. Dealer address
8. Insurance details
 Evaluation of alternatives
• Look for certain benefits from the product
• Compare each product with a bundle of attributes for
delivering the benefits sought
• Compare the competitors on the same attributes
• Give weightage points to the deciding factors
• Shortlist the potential products to be purchased
 Evaluation factors
• Different brands of bikes available
• Horse power capacity of the engines: 125 cc, 150 cc,

180cc, 220cc, 275cc etc.

• Mileage of the bike, approx. fuel cost per month
• Features, Design of the bike etc so as to suit the
personality of the buyer
• Price of the bike versus the Competitors
• Vehicle loans availability, Cash in hand etc.
 Evaluation factors
• Cameras - Picture sharpness, speed, size, price
• Hotels - Location, cleanliness, atmosphere, price
• Mouthwash - Color, effectiveness, germ-killing capacity, price,
taste/flavor
• Tires – Safety, tread life, ride quality, price
• Mobile Handset – Durability, Battery Life, models,
price
• Motorbikes – Horse power , Mileage, Features, Comfort while
riding
• Jeans – Looks, latest style, comfort, fit etc
• Washing powder – Whiteness, fragrance, lather formation
 Sets in decision making

Total set Awareness

• Bajaj bike set
• Yamaha Gladiator • Yamaha Consideration
• Royal Enfield Gladiator set
• TVS bike Evoked set
• Hero Honda • Hero Honda
• Hero Honda • Yamaha Gladiator
• Bajaj bike 125/150 125 cc
• Kawasaki • Yamaha 125/150 cc
• Harley Davidson • TVS bike
• Rajdoot • Kawasaki
• Suzuki
 Marketing strategy to match attributes
 Redesigning the product
 Alter beliefs about the brand
 Alter beliefs about the competitors
 Alter the importance of weights
 Call attention to the neglected attributes
 Shift the buyer’s ideals
 Purchase Decision

Brand decision Vendor decision Quantity decision

(Dealer/retailer) (How many ?)

Payment decision Timing decision

(Credit or cash) (When to buy)
 Post purchase Behavior
• Post-purchase satisfaction
What consumer’s expect and what he gets
Consumer is either: Dissatisfied/Satisfied/Delighted

• Post-purchase actions
Satisfied consumer buys/re-buys/does not buy

• Post-purchase use & disposals

How the consumer responds while usage
 Post purchase Behavior
• Level of satisfaction or dissatisfaction depends on
the product’s performance vis-à-vis its expectation

Satisfaction is not easily measurable as:

– Means different things to different people
– Level of satisfaction can change over time
– Satisfaction can change when consumer needs
or preferences change
– Satisfaction includes a social dimension
(experience of others may add or subtract from
our satisfaction)
 Organizational Buying
Frederick Webster and Yoram Wind define (1972) organizational
buying as,
• Decision-making process by which organizations
establish the need to purchase the Products
and Services

• Identify and seek P.R, Acquire Quotations from

parties, Evaluate and Choose the ‘Best-fit’
supplier among the alternative Brands and
Suppliers
Organisational Buying Behaviour (B2B)
Marketing of an organisation to another business unit, unlike to an
individual consumer, profitably is called Business-to-Business
(B2B) Marketing.

B2B marketing is mainly aimed at other Business groups,

Institutions and Government purchases.

B2B

Business Re-sellers

Institutions Government
 Growth drivers in B2B

Technological revolution
• Technology is changing at a very fast pace, mainly due to
Internet speeding the pace of new product and service

• High usage of Whatsapp and Mobile Apps have facilitated

many business organisations like Ola, Nykaa, Swiggy etc

• Artifical intelligence, E-commerce, Fin-tech companies

have further boosted marketing and business strategies
 Growth drivers in B2B
Entrepreneurial revolution
• Many companies have downsized and re-invented Adaptability,
flexibility, aggressiveness, speed and innovativeness are keys to
remain competitive

• Marketing is taking entrepreneurial lead in finding market

segments, untapped needs, new uses for existing products and by
creating new processes for sales, distribution and customer service

• Influencing and reaching the buyers efficiently to meet their needs

 De-growth due to pandemic
Covid-19 revolution

• Creativity M
• Many Fine-dine restaurants, Aviation sector, Transportation sector,
Education sector, Consumer durables, Real Estate sector, Hospitality
sector etc have been adversely affected
• New opportuniMarketing is taking entrepreneurial lead in finding
market segments, untapped needs, new uses for existing products
and by creating new processes for sales, distribution & customer
service
• Influencing and reaching the buyers efficiently to meet their needs
 Growth drivers in B2B

Marketing revolution
• Companies are looking beyond traditional assumptions
and adopting new frameworks, theories, models and
concepts

• Companies are moving away from mass markets and

are customizing marketing programs to individual
accounts Cookie-cutter approach is out and marketing
today is defined more by relationship, alliances and
partnerships
 Buying Process Stages
• Problem Recognition
• General description of the need
• Product specifications
• Supplier search
• Acquisition and Analysis of proposals
• Supplier selection
• Selection of order routine
• Performance review
 Types of Buying
• Straight Rebuy

• Modified Rebuy

• New Buy

• Systems Buying
 Straight Rebuy
• Straight Rebuy
In buying routine or recurring item, the dept goes for
a straight rebuy by selecting a supplier from the list of
the approved vendors and then placing an order

Purchase Managers allow individual employees to buy

directly from approved suppliers
 Straight Rebuy
Marketer’s task depends on: ‘In’ or ‘Out’ supplier
‘In Supplier’
• Reinforce buyer-seller relationship
• Meet buying organizations’s expectations
• Be vigilant to changing needs of the buyer

‘Out Supplier’
• Emphasise benefits in breaking the routine
• Persuade to reexamine alternative solutions
• Revise the list to include the new supplier
 Modified Rebuy
• Modified Rebuy
The buyers feel they can get more benefits by re-
evaluating alternatives. Hence they seek additional
information and consider other options.

Factors for Modified Rebuy:

Displeased with the present supplier, searching for
quality improvements, cost reductions.
 Modified Rebuy
Simple modified Rebuy
Involves a narrow set of choice alternatives and
moderate information search and analysis

Complex modified Rebuy

Includes a larger choice of alternatives. Buyer actively
searches for information, applies sophisticated
analytical techniques. ex. online reverse auctions
 New Buy
• New Buy
Product or service is purchased for the first time
Higher the cost, more information gathering, more
participants and hence longer time to take a decision

Buyer makes most decisions in a new buy. New buy is

the Marketer’s greatest opportunity and challenge
 Systems Buying
• Many business buyers buy a total solution to
the various requirements from one seller. Such
a method of purchasing is called Systems
buying.

eg. When there is a big job to be done, the Co.

may give it to the prime contractor, who in-
turn can then give it to the sub-contractors.
 Purchase Situations and Buying Responses
Straight Rebuy Modified Rebuy New Task
Situational Characteristics
Purchase Low Moderate High
Importance
Choice Complexity Low Moderate High

Purchasing Characteristics
Size of DMU Small Medium Large
Level of DMU Low Mid Top Management
Time to decision Very brief Moderate Long
Information Search None/very limited Moderate Extensive

Analysis techniques None/Price Several Extensive, complex

comparisons
 Buying Center

• Consists of individuals who participate in the purchase

decision and share the goals/risks arising from it

• Composition of the Buying Center evolves during the

purchasing process and varies from one purchasing
situation to another and from firm to firm

• Size of the Buying Center may vary from more than 4

and up to 20 for a single purchase
 Buying Center
• Members:
Initiators
Users
Influencers
Deciders
Approvers
Buyers
Gatekeepers

Buying center is thus a very complex phenomenon

 Organizational vs Consumer Buying

1. Market Structure

2. Demand Pattern

3. Organizational Buyer Characteristics

4. Decision Approach and Purchase Patterns

 1. Market Structure
Geographical Concentration
• Compared to individual consumers, OBs are
concentrated in certain geographies
• In India, specific industries in specific industrial areas
• IT and related companies in South India
• Tech start-ups in Bangalore
• Ecommerce start ups in NCR
 Market Structure
Fewer but Larger Buyers
• Number of OBs is very small (unlike numerous
individual consumers)
• OBs place purchase orders of a significant size in
terms of quantity and billing
• Few manufacturers in the auto industry but they
place huge POs for tires
• Branded computer manufacturers buy Intel or AMD
processors in large numbers
 2. Demand Pattern
Derived Demand
• Organizational demand is derived – products used directly or
indirectly to satisfy end consumer demands
• Demand for products is derived from demand for consumer
products
• Branded computer manufacturers have a demand for
processors because there is a demand for home computers by
consumers
• If computer demand by consumers falls, demand for
processors by computer manufacturers also falls
 Demand Pattern
Demand is Price Inelastic
• An increase/decrease in product price will not
significantly affect its demand
• Total industry demand remains relatively unaffected
by price changes, unlike the price sensitive consumer
markets
• If hard disk prices decrease, their demand is unlikely
to increase in B2B markets
• B2C markets?
 Demand Pattern
Joint Demand
• Certain organizational products can only be used in
conjunction with other products
• Sale of one product depends on sale of another
• Petroleum production companies require additives
like octane and boron
• Octane and Boron demand depends on Petroleum
 Demand Pattern
Fluctuating Demand
• Organization demand is closely related to economical
cycle
• During economic slowdowns, OBs use up existing
inventory and postpone purchases
• When the economy is buoyant, OBs may buy large
quantities of raw materials and supplies
 3. Organizational Buyer Characteristics

Group-Based Decision Making

• Organizational purchases are complex and costly
• Decisions are taken by a group of personnel from engineering,
production, finance, purchasing and even top management
Technical Knowledge
• Professional buyers (purchasing agents) in industrial, governmental and
institutional organizations
• Highly knowledgeable about relevant purchases

Rational Motives
• Organizational purchases are technical in nature, thus strongly directed by
rational motives
• Factors like quality specifications, consistency, delivery assurance, price,
terms of credit, warranty, post-sale service
 4. Purchase Patterns
Formality
• Organizational purchases are complex, technical,
financially risky
• Greater formality in decision making than consumer
markets
• Request for proposal, Tenders, Proposals, Quotation
requests, purchase contracts are involved

Less Frequent Purchases

• Long-term contracts with suppliers for raw materials,
spare parts, office supplies. Negotiated every few years
 Purchase Patterns
Negotiations
• Negotiations over a long period of time
• Because
– Product complexity- specifications must be carefully agreed upon
– Large Order size- purchase price is important
– Many people involved in decision-making

Reciprocity
• Arrangement between 2 organizations to buy from each other
• Software development company buys hardware from a
company that is buying its software
 A Hewlett-Packard salesperson’s view of the
Organizational buying process for expensive imaging
systems for large hospitals

“Selling in the hospital market in a 2 stage process and the buying cycle
ranges from 3-12 months.

In the first stage, I deal with medical professionals. They are most
concerned with image quality, reliability and service. I must establish
relationships and awareness of our products’ functionality with a number
of people and the demo is critical.

The second stage is negotiations with administrators, who are more

driven by price and cost issues, But much depends on the hospital’s
situation. For eg, if the hospital is renowned for cancer treatment, they
want the best available systems in that area but are more price-sensitive
with other equipment.”
 B2B Sector Consumer Sector

• Demand is fluctuating as the market is • Demand is stable temporarily as the

very sensitive to technological change market is reasonably sensitive to
• Statutory approvals are a must technological change

• After sales-service influences the • Maintenance facility is not required

decision to purchase

• Mktg. approach is more individualistic

• Mktg. approach is mass-based

• Pricing is worked separately for each &

every customer
• Pricing is uniform and decides the
• Statutory approvals are a must market share

• No such approvals are required

 B2B Sector Consumer Sector

• Purchasing is done professionally and • Purchasing is done personally as

more number of people influence the per customer’s choice &
buying process preferences

• More no. of calls are required to clinch • Sales happens depending on the
a deal customer’s urgency for the product
• Demand is more direct
• Type of demand is derived
• Demand is strongly affected by
• Demand is not affected by price price

• Demand is more universal

• Demand is geographically located