International University of Management

Marketing Studies IV
Assignment 8
Tarcila Melo 110015584
Business Administration
Degree 4
Mr Clement




Chapter 5

Introduction
Purchasing refers to a business or organization attempting to acquiring goods or services to
accomplish the goals of its enterprise. Though there are several organizations that attempt to set
standards in the purchasing process, processes can vary greatly between organizations. Typically
the word purchasing is not used interchangeably with the word procurement, since
procurement typically includes expediting, supplier quality, and traffic and logistics (T&L) in
addition to purchasing.
Purchasing managers/directors, and procurement managers/directors guide the
organizations acquisition procedures and standards. Most organizations use a three-way check
as the foundation of their purchasing programs. This involves three departments in the
organization completing separate parts of the acquisition process. The three departments do not
all report to the same senior manager, to prevent unethical practices and lend credibility to the
process. These departments can be purchasing, receiving and accounts payable; or engineering,
purchasing and accounts payable; or a plant manager, purchasing and accounts payable.
Combinations can vary significantly, but a purchasing department and accounts payable are
usually two of the three departments involved.
When the receiving department is not involved, it is typically called a two-way check or two-way
purchase order. In this situation, the purchasing department issues the purchase order receipt not
required. When an invoice arrives against the order, the accounts payable department will then
go directly to the requestor of the purchase order to verify that the goods or services were
received. This is typically what is done for goods and services that will bypass the receiving
department. A few examples are software delivered electronically, NRE work (non-reoccurring
engineering services), consulting hours, etc.
Historically, the purchasing department issued purchase orders for supplies, services, equipment,
and raw materials. Then, in an effort to decrease the administrative costs associated with the
repetitive ordering of basic consumable items, "blanket" or "master" agreements were put into
place. These types of agreements typically have a longer duration and increased scope to
maximize the quantities of scale concept. When additional supplies were required, a simple
release would be issued to the supplier to provide the goods or services.
Another method of decreasing administrative costs associated with repetitive contracts for
common material, is the use of company credit cards, also known as "Purchasing Cards" or
simply "P-Cards". P-card programs vary, but all of them have internal checks and audits to
ensure appropriate use. Purchasing managers realized once contracts for the low dollar value
consumables are in place, procurement can take a smaller role in the operation and use of the
contracts. There is still oversight in the forms of audits and monthly statement reviews, but most
of their time is now available to negotiate major purchases and setting up of other long term
contracts. These contracts are typically renewable annually.
This trend away from the daily procurement function (tactical purchasing) resulted in several
changes in the industry. The first was the reduction of personnel. Purchasing departments were
now smaller. There was no need for the army of clerks processing orders for individual parts as
in the past. Another change was the focus on negotiating contracts and procurement of large
capital equipment. Both of these functions permitted purchasing departments to make the
biggestfinancial contribution to the organization. A new terms and job title emerged Strategic
sourcing and Sourcing Managers. These professionals not only focused on the bidding process
and negotiating with suppliers, but the entire supply function. In these roles they were able to add
value and maximize savings for organizations. This value was manifested in lower inventories,
less personnel, and getting the end product to the organizations consumer quicker. Purchasing
managers success in these roles resulted in new assignments outside to the traditional
purchasing function logistics, materials management, distribution, and warehousing. More and
more purchasing managers were becoming Supply Chain Managers handling additional
functions of their organizations operation. Purchasing managers were not the only ones to
become Supply Chain Managers. Logistic managers, material managers, distribution managers,
etc. all rose the broader function and some had responsibility for the purchasing functions now.
In accounting, purchases is the amount of goods a company bought throughout this year. It also
refers to information as to the kind, quality, quantity, and cost of goods bought that should be
maintained. They are added to inventory. Purchases are offset by Purchase
Discounts and Purchase Returns and Allowances. When it should be added depends on the Free
On Board (FOB) policy of the trade. For the purchaser, this new inventory is added on shipment
if the policy was FOB shipping point, and the seller remove this item from its inventory. On the
other hand, the purchaser added this inventory on receipt if the policy was FOB destination, and
the seller remove this item from its inventory when it was delivered.
Goods bought for the purpose other than direct selling, such as for Research and Development,
are added to inventory and allocated to Research and Development expense as they are used. On
a side note, equipments bought for Research and Development are not added to inventory, but
are capitalized as assets.


The Purchase Decision Process
I. Need recognition / Problem recognition :
The need recognition is the first and most important step in the buying process. If there is no
need, there is no purchase. This recognition happens when there is a lag between the consumers
actual situation and the ideal and desired one.
However, not all the needs end up as a buying behavior. It requires that the lag between the two
situations is quite important. But the way (product price, ease of acquisition, etc.) to obtain this
ideal situation has to be perceived as acceptable by the consumer based on the level of
importance he attributes to the need.
For example, you have a pool and you would like someone to take care of regularly cleaning it
instead of you (ideal situation) because it annoys you to do it yourself (actual situation). But you
dont judge the way to reach this ideal situation (pay $250 / month for a specialized company)
as acceptable because its price to obtain it seems too high. Especially compared to the
relatively low level of importance you attach to it. So you wont have a purchase behavior in this
situation.
On the other hand, the ability to be able to go to your work by car in 20 minutes every morning
(ideal situation) rather than lose three hours in transit because you do not have a car and you live
in the countryside (actual situation) is something that means a lot to you. So you will have a
buying behavior to purchase a car. Even if the price is important.
In addition to a need resulting from a new element, the gap between the actual situation and the
ideal situation may be due to three cases. The current situation has not changed, but the ideal
situation has (a neighbor told you about the possibility that you did not know to clean the
pool by a specialized company). Or, the ideal situation is still the same but its the actual
situation has changed (youre tired of cleaning your pool by yourself). Or finally, the two
situations have changed.
The recognition of a need by a consumer can be caused in different ways. Different
classifications are used:
Internal stimuli (physiological need felt by the individual as hunger or thirst) which opposes
the external stimuli such as exposure to an advertisement, the sight of a pretty dress in a
shop window or the mouth-watering smell of a french pain au chocolat when passing by a
bakery.
Classification by type of needs:
o Functional need: the need is related to a feature or specific functions of the product or
happens to be the answer to a functional problem. Like a computer with a more powerful
video card to be able to play the latest video games or a washing machine that responds
to the need to have clean clothes while avoiding having to do it by hand or go to the
laundromat.
o Social need: the need comes from a desire for integration and belongingness in the social
environment or for social recognition. Like buying a new fashionable bag to look good at
school or choose a luxury car to show that you are successful in life.
o Need for change: the need has its origin in a desire from the consumer to change. This
may result in the purchase of a new coat or new furniture to change the decoration of
your apartment.
The Maslows hierarchy of needs: Developed by the eponymous psychologist, this is one the
best known and widely used classifications and representations for hierarchy of needs. It
specifies that an individual is guided by certain needs that he wants to achieve before
seeking to focus on the following ones:
o 1. Physiological needs
o 2. Safety needs
o 3. Need of love and belonging
o 4. Need of esteem (for oneself and from the others)
o 5. Need of self-actualization
II. Information search
Once the need is identified, its time for the consumer to seek information about possible
solutions to the problem. He will search more or less information depending on the complexity
of the choices to be made but also his level of involvement. (Buying pasta requires little
information and involves fewer consumers than buying a car.)
Then the consumer will seek to make his opinion to guide his choice and hisdecision-making
process with:
Internal information: this information is already present in the consumers memory. It
comes from previous experiences he had with a product or brand and the opinion he may
have of the brand.
Internal information is sufficient for the purchasing of everyday products that the consumer
knows including Fast-Moving Consumer Goods (FMCG) or Consumer Packaged Goods
(CPG). But when it comes to a major purchase with a level of uncertainty or stronger
involvement and the consumer does not have enough information, he must turns to another
source:
External information: This is information on a product or brand received from and obtained
by friends or family, by reviews from other consumers or from the press. Not to mention, of
course, official business sources such as an advertising or a sellers speech.
During his decision-making process and his Consumer Buying Decision Process, the consumer
will pay more attention to his internal information and the information from friends, family or
other consumers. It will be judged more objective than these from an advertising, a sellers
speech or a commercial brochure of the product.
III. Alternative evaluation
Once the information collected, the consumer will be able to evaluate the different alternatives
that offer to him, evaluate the most suitable to his needs and choose the one he think its best for
him.
In order to do so, he will evaluate their attributes on two aspects. The objective characteristics
(such as the features and functionality of the product) but also subjective (perception
and perceived value of the brand by the consumer or its reputation).
Each consumer does not attribute the same importance to each attribute for his decision and his
Consumer Buying Decision Process. And it varies from one shopper to another. Mr. Smith may
prefer a product for the reputation of the brand X rather than a little more powerful but less
known product. While Mrs. Johnson has a very bad perception of that same brand.
The consumer will then use the information previously collected and his perception or image of a
brand to establish a set of evaluation criteria, desirable or wanted features, classify the different
products available and evaluate which alternative has the most chance to satisfy him.
The process will then lead to what is called evoked set. The evoked set (aka consideration
set) is the set of brands or products with a probability of being purchased by the consumer
(because he has a good image of it or the information collected is positive).
On the other hand, inept set is the set of brands or products that have no chance of being
purchased by the shopper (because he has a negative perception or has had a negative buying
experience with the product in the past). While inert set is the set of brands or products for
which the consumer has no specific opinion.
The higher the level of involvement of the consumer and the importance of the purchase are
stronger, the higher the number of solutions the consumer will consider will be important. On the
opposite, the number of considered solutions will be much smaller for an everyday product or a
regular purchase.
IV. Purchase decision
Now that the consumer has evaluated the different solutions and products available for respond
to his need, he will be able to choose the product or brand that seems most appropriate to his
needs. Then proceed to the actual purchase itself.
His decision will depend on the information and the selection made in the previous step based on
the perceived value, products features and capabilities that are important to him.
But his Consumer Buying Decision Process and his decision process may also depend or be
affected by such things as the quality of his shopping experience or of the store (or online
shopping website), the availability of a promotion, a return policy or good terms and conditions
for the sale.
For example, a consumer committed to the idea of buying a stereo of a well-known brand could
change his decision if he has an unpleasant experience with sellers in the store. While a
promotion in a supermarket for a yogurt brand could tip the scale for this brand in the
consumers mind who was hesitating between three brands of his evoked set.
V. Post-purchase behavior
Once the product is purchased and used, the consumer will evaluate the adequacy with his
original needs (those who caused the buying behavior). And whether he has made the right
choice in buying this product or not. He will feel either a sense of satisfaction for the product
(and the choice). Or, on the contrary, a disappointment if the product has fallen far short of
expectations.
An opinion that will influence his future decisions and buying behavior. If the product has
brought satisfaction to the consumer, he will then minimize stages of information search and
alternative evaluation for his next purchases in order to buy the same brand. Which will produce
customer loyalty.
On the other hand, if the experience with the product was average or disappointing, the consumer
is going to repeat the 5 stages of the Consumer Buying Decision Process during his next
purchase but by excluding the brand from his evoked set.
The post-purchase evaluation may have important consequences for a brand. A satisfied
customer is very likely to become a loyal and regular customer. Especially for everyday
purchases with low level of involvement such as Fast-Moving Consumer Goods (FMCG) or
Consumer Packaged Goods (CPG). A loyalty which is a major source of revenue for the brand
when you combine all purchases made by customer throughout his entire life (called lifetime
customer value). The Holy Grail that all brands in the industry are trying to achieve.
Positive or negative, consumers will also be able to share their opinion on the brand. Whether in
their family or by word-of-mouth. Or on a much broader scale now with social networks or on
consumer product review websites. A tendency not to be overlooked because now with the
Internet, an unhappy customer can have a strong power to harm for a brand.
Thats why thats important for companies to have awareness of that matter. In addition to
optimizing the customer experience, a guarantee (for example, for a washing machine), an
efficient customer service and a specific call center are some of the assets that can be developed
to improve post-purchase behavior if there is any trouble with the product.
An example of Consumer Buying Decision Process
Nothing like a real example to better understand the five stages of the Consumer Buying
Decision Process. Maybe this situation sounds familiar to you.
Stage 1 Need recognition: Its sunday night. Youre hungry (internal physiological stimuli)
and there is nothing in the fridge. You will order food (statement of need).
Stage 2 Information search: You already have ordered to the Indian restaurant in your street
last month (internal information). A friend recommended a pizzeria in your neighbourhood
(external information from environment). And this morning youve found a flyer for a sushi
restaurant in your mailbox (external information from advertising).
Stage 3 Alternative evaluation: You have a bad opinion of the Indian restaurant since youve
been sick the last time (inept set). The pizzeria is both recommended by your friend and also
happens to be a well-known brand (positive perception evoked set). As for the sushi restaurant,
it got good reviews on Tripadvisor (positive perception evoked set).
Stage 4 Purchase decision: After evaluating the possibilities, youve decided to choose the
well-known pizza delivery chain. In addition, a new episode of your favorite TV show is
broadcasted tonight on TV.
Stage 5 Post-purchase behavior: The pizza was good (positive review). But you know there
was too many calories and you regret a little bit (mixed feelings about yourself). The next time
you will choose the sushi restaurant. There is less fat in sushi than pizza (next purchase
behavior)!
Understand the Consumer Buying Decision Process in order to adapt your marketing
strategy
By improving their knowledge of the Consumer Buying Decision Process, brands can improve
their marketing strategy to effectively respond and be present with their customers at each stage
of their buying behavior. And thus raise and create a need, strengthen their relationship with their
customers and grow their sales.
It always starts with a recognition of a need!
The start of the buying behavior of the consumer is the need recognition. If there is no need,
there is no purchase! Thats why generate or reinforce a need in consumers mind to trigger the
buying behavior has a fundamental importance for brands.
Steve Jobs had become a master in the area with Apple thanks to remarquable marketing
campaigns by successfully creating a need for millions of consumers for products they had never
thought before before. But have finally become an important part of their daily lives.
In a different field, TV infomercials are remarquable examples of how to create an unexpected
need in a consumers mind for a new product. You probably never felt any difficulty to cook a
salad, but while watching the introduction of thisgreat infomercial for this new kitchen tool, you
finally realize the difficulty of the task and the importance of this new product as a solution to
this problem.
Brands must focus on the activation or recall of a need whether physiological, functional,
social or change-related for the consumer through their advertising campaigns. An even
stronger challenge for new products, those with new features or those on new segments that
consumers ignore the need or interest.
Brand awareness for everyday purchases is crucial
For everyday purchases with low level of involvement, consumers will consider only a limited
number of brands when making their choice. Those that come in head first or they know at least
by name. This is called Top-of-mind awareness (TOPA).
For brands of the Fast-Moving Consumer Goods (FMCG) or Consumer Packaged Goods (CPG)
industry, branding and brand awareness can therefore be a real factor of influence of the
consumer buying decision process. Especially for products with a low level of differentiation.
Provide concrete information for the alternative evaluation
During the alternative evaluation stage of the Consumer Buying Decision Process, consumers
are looking for solid, reliable and tangible information that will allow them to make their choice.
Especially for purchasing and products with high level of involvement.
The brands interest is to provide concrete information and proof of the product features, its
added value compared to its competitors and how it will respond to their need in order to provide
consumers with the information they need and positive influence in their decision making
process.
Improve the shopping experience and customer relationships
As we saw in previous section, the stage of post-purchase behavior can have important
consequences for a brand. Positively or negatively.
To avoid reputation damage and to develop a lasting relationship with its customers, the brands
interest is to multiply actions for optimizing the shopping experience in-store as well as the
product experience. But also provide great customer service in case of dissatisfaction or issue
with the product.
Why people shop?
Some of these are self-explanatory. The forces that influence whether people buy include:
1. Basic needs. We buy things to fulfill what Maslow describes as the bottom of his hierarchy;
things like food and shelter.
2. Convenience. You need something now and will take the easiest or fastest path to get it.
Think about the last time you were running out of gas, or were thirsty and found the nearest
beverage of choice. This could also be choosing the safe vendor (no one ever gets fired for
hiring IBM), or purchasing something to increase comfort or efficiency.
3. Replacement. Sometimes you buy because you need to replace old things you have (e.g.,
clothes that don't fit or are out-of-date). This could be moving from a VCR to a DVD player.
4. Scarcity. This could be around collectibles or a perceived need that something may run out or
have limited availability in the future. Additionally, there's a hope to gain a return on
investment, such as collectibles or antiques; anything that accrues value over time.
5. Prestige or aspirational purchase. Something that is purchased for an esteem-related reason
or for personal enrichment.
6. Emotional vacuum. Sometimes you just buy to try to replace things you cannot have and
never will.
7. Lower prices. Something you identified earlier as a want is now a lower price than before.
Maybe you were browsing for a particular large-screen TV and you saw a great summer
special.
8. Great value. When the perceived value substantially exceeds the price of a product or
service. This is something you don't particularly need; you just feel it's too good of a deal to
pass up. (Like the stuff they place near the endcaps or checkout counters of stores.)
9. Name recognition. When purchasing a category you're unfamiliar with, branding plays a big
role. Maybe you had to buy diapers for a family member and you reach for Pampers because
of your familiarity with the brand, even though you don't have children yourself.
10. Fad or innovation. Everybody wants the latest and greatest (i.e., iPhone mania.) This could
also be when someone mimics their favorite celebrity.
11. Compulsory purchase. Some external force, like school books, uniforms, or something your
boss asked you to do, makes it mandatory. This often happens in emergencies, such as when
you need a plumber.
12. Ego stroking. Sometimes you make a purchase to impress/attract someone or to have
something bigger and better than others. To look like an expert/aficionado; to meet a standard
of social status, often exceeding what's realistically affordable to make it at least seem like
you operate at a higher level.
13. Niche identity. Something that helps bond you to a cultural, religious, or community
affiliation. Maybe you're a Harvard alumnus and Yankee fan who keeps kosher. (You can
also find anti-niche identity by rebellion, assuming you're pretty comfortable with irony.)
14. Peer pressure. Something is purchased because your friends want you to. You may need to
think back to your teen years to think of an example.
15. The "Girl Scout Cookie effect." People feel better about themselves by feeling as though
they're giving to others; and especially when they're promised something in return.
Purchasing things they don't need - or wouldn't normally purchase - because it will help
another person or make the world a better place incrementally is essential to certain buying
decisions.
16. Reciprocity or guilt. This happens when somebody - usually an acquaintance, or someone
rarely gift-worthy - buys you a gift or does something exceptionally nice and/or unnecessary.
Now it's your turn to return the favor at the next opportunity. Examples:
Event. When the social decorum of an event (e.g., wedding, Bar Mitzvah, etc.) dictates
buying something or another.
Holiday. 'Nuff said.
17. Empathy. Sometimes people buy from other people because they listened and cared about
them even if they had the lesser value alternative.
18. Addiction. This is outside the range of the normal human operating system, but it certainly
exists and accounts for more sales than any of us can fathom. Can you think back to the last
time you bought something and fully explain the reason why?
19. Fear. From pink Taser stun guns to oversized SUVs to backyard bomb shelters - and even
stuff so basic as a tire pressure gauge - these things are bought out of fear. So, before you go
knocking "fear" as a motivator.
20. Indulgence. Who doesn't deserve a bit of luxury now and then? So long as you can afford it,
sometimes there's no better justification for that hour-long massage, that pint of Cherry Garcia
ice cream, or that $75 bottle of 18-year single malt scotch other than "you're worth it" (best
when said to self in front of mirror with a wink and/or head tilt).

Determinants of Retailer Success or Failure

1. Location
2. Nature and quality of assortment
3. Price
4. Advertising and promotion
5. Sales Personnel
6. Services offered
7. Physical store attributes
8. Nature of store clientele
9. Point of purchase
10. Consumer logistics




References
1. Purchasing and Supply Chain Management Kenneth Lyons and Michael
Gillingham ISBN 0-273-65764-X
2. Jump up^ Purchasing Handbook: Standard Reference Book on Purchasing Policies,
Practices, Procedures ... By George W. Aljian
3. Bunn, Michele D. (January 1993). "Taxonomy of Buying Decision Approaches". Journal
of Marketing (American Marketing Association) 57 (1): 3856. doi:10.2307/1252056.
Retrieved 9 February 2013.
4. Jump up^ Blythe, Jim (2008) Consumer Behavior. U.K., Thompson Learning, 2008