Chapter 3 Buying Behavior and the Buying Process

Chapter 3 Buying Behavior and the Buying Process

Types of Customers Producers • buy goods and services to manufacture and sell other goods and services to their customers Original Equipment Manufacturers • when buyers purchase goods to use in making their products • some components have such a high reputation they help sell the product • most bought in large quantities on an annual basis • Example: Dell

Continued • End Users action when producers buy goods and services to support their own production and operations Capital equipment- major purchases that the producer uses for a number of years (Ex. Mainframe computers and machine tools) MRO supplies- minor purchases that have a short useful life (Ex. Paper towels and pencils) Resellers • buy furnished products or services with the intention to resell them to businesses and consumers • interested primarily in the attractiveness of the products to their customers • See examples in textbook – Brazos Valley Equipment – P. 61

Resellers l Resellers want to maximize ROI: (their return on investment) l What is their profit margin – 10%, 20%, 50%? l Turnover (how quickly will the product sell? l Note: Same customer can be an OEM, an end user, and a reseller – P. 62

Continued Government – (Federal, State, & Local) • Largest customer for goods and services in the U. S. & the world! (over $1 trillion in goods and services annually) • Buyers bidding • Effective selling requires a thorough knowledge for their unique procurement procedures and rules • Many international salespeople

Continued Institutions • Public and private (ex. churches, hospitals, and colleges) • institutional Packaged goods manufacturers sell to both resellers & customers Consumers • End users vary for consumers • Text focuses on selling to business enterprises, government agencies, or institutions (A large number of college graduates frequent these sales positions)

Organizational Buying and Selling • • • Complexity of the Organizational Buying Process involve extensive evaluations and negotiations over a period of time salespeople must be able to work effectively with a wide range of people increased complexity with increased global businesses Derived Vs. Direct Demand – See P. 65 for examples Derived demand- purchase made by these customers ultimately depend on the demand for their products-either organizations or consumers Direct demand increases its efforts toward the ultimate consumer (Strategy: increasing in-store displays)

The Organizational Buying Process Steps in the buying process: l l l l Recognizing a Need or a Problem Defining the Product Needed Development of Specifications Searching for Qualified Suppliers Acquiring and Analyzing Proposals Evaluation of Proposals and Selection of a Supplier Placement of an Order and Receipt of Product Evaluation of Product Performance

Continued Creeping commitment- a customer becomes increasingly committed to a particular course of action while going through the steps in the buying process

Types of Organizational Buying Decisions • • New Task – See Exhibit 3. 2 -P. 69 a customer purchases a product or service for the first time company’s knowledge is limited; initial buying process steps/post purchase evaluation is critical • • Straight Rebuy a customer buys the same product from the same source it used when the need arose previously brand loyalty • Modified Rebuy the customer has purchased the product or a similar product in the past but is interested in obtaining new information

Who Makes The Buying Decision l • • Buying center- an informal, cross-department group of people involved in a purchase decision Users typically don’t make the ultimate purchase decision considerable influence in the early and late steps of the buying process Initiators people who start the buying process – can be user or executive

Continued • Influencers people inside or outside the organization who directly or indirectly provide information • Gatekeepers control the flow of information and may limit the alternatives considered • • Deciders one or more members of a group that make the final choice mostly senior executives

Supplier Evaluation and Choice l Affected by the needs of both the organization and the individuals making the decisions Classified into two categories: Rational needs- directly related to the performance of a product Emotional needs- associated with the personal rewards and gratification of the person buying the product

Organizational Needs and Criteria • • Economic Criteria Objective of businesses: Profit achieve price efficiency by evaluating the cost of equipment Life-cycle costing (total cost of ownership)- method for determining the cost of equipment or suppliers over their useful lives Quality Criteria l Need for quality varies by industry group and ultimate market reached

Life-Cycle Costing (Total cost of ownership)

Continued • Service Criteria buyers want suppliers to work with them to solve their problems Value analysis- an example of a program in which suppliers and customers work together to reduce costs and still provide the required level of performance (can use to get customers to try a new product)

Individual Needs of Buying Center Members • Types of Needs influence members of the buying center by developing strategies to satisfy individual needs • Risk Reduction Buying center sometimes more concerned about losing benefits than increasing benefits Vendor loyalty- continue buying from suppliers that have proven satisfactory in the past Always-a-share – always have a second source for a product •

Trends In Organizational Buying • • Increasing Importance of Purchasing Agents Critical function in the learning organization Heavy emphasis on computer information and control systems • • • Centralized Purchasing & Supply Chain Management More purchasing is done at a central location (corporate headquarters) A national account manager coordinates the firm’s efforts to satisfy the needs of a major customer A NAM works directly with the purchasing department and coordinates the activities of its salespeople

Supply Chain Management Definition: a set of programs undertaken to increase the efficiency of the distribution that moves products from the producer’s facilities to the end user Just-in-time (JIT) inventory control- used by a producer to minimize its inventory by having frequent deliveries, sometimes daily, just in time for assembly into the final product

Supply Chain Management Quick response or efficient consumer response (ECR) systems l retailers & distributors work closely with their suppliers to make sure they minimize their inventory investments, while cutting costs & satisfying customers

Supply Chain Management Automatic replenishment – AR l Form of JIT were supplier manages inventory levels for customers. Materials provide on consignment. Used in industrial settings. See Exhibit 3. 6 – Page 83

Supply Chain Management Electronic Data Interchange – EDI l Automatic replenishment technology used electronic data interchange. l Computers share data across companies Materials Requirements Planning – MRP l Important element of JIT systems l Forecast sales, schedules, etc.

Supplier Relationship Management (SRM) l Strategy to evaluate buyers l Identify annual spending l Vendor analysis next l Track results

Vendor Analysis Use Multiattribute Model l Summarizes the benefits and needs satisfied by a supplier l Buyer rates the supplier and its products on a number of criteria (quality, on-time delivery, price & other) l They are then weighed by importance See exhibit 3. 7 – P. 82 -83

Business-to-Business Selling The Internet l Web is a Tool for supporting salespeople l Reverse auction – buyer offers a contract & sellers bid l Can save time & money l Best used with large purchases, clear descriptions, & a good infrastructure to support an auction

Case – Midwest Surgical l Read thoroughly – class discussion will follow l Will go over in class – questions from the case will be on the test