Module- 2

The Nature Of Industrial Buying

Organizational Buying Activities

Organizational buying activity centers on the level of experience and information that firm have in purchasing certain product & service. Buying activity consists of various phases of decision making.

THE BUYGRID MODEL

Buygrid incorporates three types of buying situation

(1) The New task (2) The Straight Rebuy (3) The Modified Rebuy

As well as eight phases in the buying decision process

Buying Situations

New Task: The need or problem is considerably different from past experience. Decision maker lack the experience and product knowledge to make comparison of alternative products & suppliers.

Buying Situations

Modified Rebuy: Occurs when decision makers feel that significant benefits such as quality improvements or cost reduction may be derived from reevaluating alternatives. Occurs most often when the firm is displeased with present suppliers.

Buying Situations

Straight Rebuy: Most common buying situation. Little or no information is needed. As long as choice criteria are met, alternative solution are seldom evaluated.

Phases in the Purchasing Decision Process

Phase-1:Anticipation or Recognition of a Problem (need). It may originate within a buying firm or may also be recognized by a smart marketer. Such recognition may originate when product becomes out dated, equipment breaks down, or existing materials are unsatisfactory Early involvement in new task/problem recognition phase offers marketer differential advantage over competitors.

Phases in the Purchasing Decision Process

Phase-2: Determination of the Characteristics & Quantity of The Needed Item. The firm will seek answer to questions like

What are the application requirements? What type of goods and services to be considered? What quantities will be needed?

In case of technical products engineering dept will usually prepare performance specification. For non technical items user dept will decide on product specification.

Phases in the Purchasing Decision Process

Phase-3: Description of the Characteristics and Quantity of Product Needed During this phase buying influencers may change from department head to engineers and manufacturing personnel. During this phase buying influencers begin to look outside the firm for suppliers and product information and for assistance in developing product specification.

Phases in the Purchasing Decision Process

Phase-4: Search for and Qualification of Potential Source. Obtain information on all available suppliers Decide on acceptable or qualifying suppliers. The important end result of this phase is that decision makers have determined which suppliers will be considered as potential vendors.

Phases in the Purchasing Decision Process

Phase-5: Acquisition and Analysis of Proposals. Proposals In the form of quotations shall include:

Product Specification Price Delivery Period Payment terms Taxes & Duties applicable Transportation cost Cost of transit insurance. Etc..

Phases in the Purchasing Decision Process

Phase-6: Evaluation of Proposals & Selection of Suppliers. The attributes for evaluation and selection include;

Quality Delivery Price Service Flexibility etc..

Phases in the Purchasing Decision Process

Phase-7:Selection of an Order Routine: Order routine are established by forwarding purchase order to the vendors and the status report to the using department and by determining the level of inventory that will be needed. This phase begins with the placement of order and ends with delivery and use of the required items. the effectiveness of suppliers in handling this phase is therefore critical.

Phases in the Purchasing Decision Process

Phase-8: Performance Feedback & Evaluation: This is the final phase, it consists of a formal or informal review and feed back regarding product performance, as well as vendor performance It involves determination by the user dept as to whether the purchased item solved the original problem.

Overview of Buygrid Model

Creeping Commitment: Decision making, according to the concept of Creeping Commitment involves a sequence of choices, each of which eliminates certain alternatives from further consideration. In other words commitment to the final solution is becoming firmer and more specific (creeping) with each phase.

Overview of Buygrid Model

Center of Gravity The concept of center of gravity holds that various phases or combination of phases become more critical to final outcomes of purchase decisions and that individuals involved in these critical phases have greater power than do individuals in other phases.

Marketing Implications
Phases New task Modified rebuy
In supplier: maintain quality/service standards; out supplier: watch for developing trends.

Straight rebuy
In supplier: maintain close relationship with users and buyers; Out supplier

1 Problem recognition Anticipate problem; use advertising & creative sales people to convince buyer of problem solving capacity 2 Solution determination Provide technical assistance and information

In supplier and Same as out supplier: phase 1 stress capability, reliability, and problem solving capabilities

Marketing Implications
Phases
3 Determining needed item

New Task
Provide detailed product/service information to decision makers

Modified Rebuy
same as phase 2

Straight Rebuy
Same as phase 1

Searching for & qualifying supplier

In supplier: maintain dependability; out supplier: demonstrate ability to perform task

In supplier: watch for problems; out supplier: demonstrate ability to perform task

Same as phase 1

Marketing Implications
Phases New Task Modified Rebuy Straight Rebuy

5 Analyzing proposal

Understand details of problem/nee ds; make timely proposals.

Understand Make timely details of proposals problem/nee ds; make timely proposals

Buying centers

A decision-making unit may consists of only one person, but it is normally a group of individuals who share a common goal or goals which the decision will hopefully help them to achieve, and who share the risk arising from decision. In industrial marketing, these decision makers are referred to as the buying center.

Identifying Buying Center Members

The buying center is an informal, crossdepartmental decision making unit in which primary objective is the acquisition, impartation, and processing of relevant purchasing related information. People within an organization become involved in buying center for one of the two reasons

They have formal responsibility They have importance as a source of information

Identifying Buying Center Members

Marketing:When a purchasing decision has an effect on the marketability of a firms product Manufacturing:Involved when new products or models are being developed Responsible for determining the feasibility and economic considerations of producing end products. Continuous feed back to the purchasing department on the performance of suppliers makes manufacturing key influencer in the selection and retention of suppliers and the allocation of quantities among suppliers.

Identifying Buying Center Members

Research and Development: Involved in initial development of product and processes and set broad specifications for component and material criteria They are important to marketers for two major reasons:

The earlier the marketer becomes involved in the development process, the greater the chance of incorporating his product into the final design. By understanding the direction in which customers are moving, marketers are better able to plan the direction of their own business.

Identifying Buying Center Members

General Management:When firm is faced with unfamiliar situations not related to day to day activities, or when purchasing decisions are likely to have major consequences on the firms operation. Purchasing:Contrary to widely held belief, purchasing is not the most central figure in the purchasing process Research indicates that purchasings dominant sphere of influence falls within phases 4,5,& 6 of the purchasing decision process- when specifications of products to be purchased have been established & suppliers qualified. They are dominant decision makers and influencers in repetitive buying situation.

Buying Center Roles

Primary Roles:Deciders Influencers Secondary role Users Buyers Gatekeepers

Model for Determining The Composition Of The Organizational Buying Center

Environment & Mission

Production Distribution service Capital Equipment Product Essential Support Essential Consumption

Purchase needs

Buygrid Components

Continued

Dollar Value & Complexity

High Low Long Short

Time Commitment & Life Cycle

Buying Center Membership, Procurement, & Other members

Objective In Organizational Buying

Task-Oriented Objectives:Price Services Quality Assurance of Supply Reciprocity Nontask Objectives:Social considerations, such as friendship, reputation, and mutually beneficial interactions.

Materials Requirement Planning

Under MRP a firm estimates its future sales, schedules production accordingly, and then orders parts and materials to coordinate with production schedules so that inventories will not become too large or too small To utilize MRP firms are combining functions of purchasing, transportation, inventory control, receiving and in some cases production control under one functional area referred to as materials management.

Just-in-Time Purchasing

JIT is an inventory control system which enables a manufacturer to maintain minimum inventory levels by relying on only one supplier to deliver frequent shipments

Centralized Purchasing

It is centralization of purchasing Purchasing specialist concentrate their attention on selected items, developing extensive knowledge of supply and demand condition. Places more importance on long term availability and supplier relationship.

Marketing Implications

MRP, JIT and Centralized purchasing have a definite impact on industrial marketing programs. Close buyer seller relationship will be developed through MRP and JIT.

Sheth Model of industrial buying behavior.

It helps to understand Buying Center Involvement and Interactions Patterns in organizational buying. It is useful for examining organizational buying behavior from the perspective of
1. 2. 3.

The condition that precipitate joint decision making The psychological world of the individual involved Conflict among those involved in the decision process and resolution of conflict.

Joint Decision Making

Number of organizational member involved in a buying decision depends on

Characteristics of the firm The type of purchasing situation Perceived importance of the product Available resources for handling the purchase. Company specific factors (1,4) Product specific factors (2,3)

Buying Center Interaction Patterns

Size of the buying center and the amount of interaction between those involved is dependent upon
1. 2. 3. 4.

Vertical involvement Lateral involvement Extensivity Connectedness

Purchasing Situation Influence Organizational Influence Marketing Implication

Psychological Factors

Difference in Role orientation Difference in information Exposure Perceived Risk in the Vendor Selection Process Strategies to minimize or avoid the perceived risk:

Reduce uncertainty Play the odds Spread the risk

Conflict and Resolution In Joint Decision Making

The potential for conflict emanates from:

Differences in expectations regarding suppliers Difference in evaluating criteria employed. Difference in buying objective. Difference in decision making styles

Conflict Resolution Strategies

1. 2. 3. 4. 5. 6.

Competing- lets do it in my way! Accommodating- I see your point of view Collaborating- May be we can work this one out. Avoiding- Better let the situation cool down before we act Compromise- Lets split the difference! Coalition- individuals within the formation attempt to cooperate with specific other group members to enhance their competitive position with respect to the entire group.

Thank You..