Business Markets

Nature of Industrial Buying

Industrial buying is the other side of the
industrial marketing coin.
Purchase department of a firm develops
Organization buying objectives
Perform certain purchasing activities
Nature of Industrial Buying
Purpose of industrial buying is
to maintain adequate flow of goods and services into
the operation process.
Organization buying objectives Doing
Right things
It is defined as buying the
right item
in the right quantity
at the right place for delivery
at the right time and place
at the right cost
Buying or Purchasing Objectives
Availability
Material should be available during operation process
Consistent Product Quality
Consistency is required in product quality
to reduce cost of inspection,
interruption in product process due to rejections and
arranging replacements of rejected material
Lowest price
The price should be lowest
Services from supplier
Which buyer is looking for are
Prompt and accurate information from supplier
Technical Assistance
Spare parts availability
Repair and maintenance
Training if required
Supplier relationship
To develop a long term relationship and new sources of supply
Personal Objectives
Personal objectives of Industrial buyer or
members of buying centre are as follows:
Higher status
Job security
Salary increments
Promotions and
Social considerations
Note:
It is important for industrial seller or marketer to satisfy
both
buying objectives and personal objectives of an Industrial
firm.


Nature of Industrial Buying
Industrial buying is the other side of the
industrial marketing coin.
Purchase department of a firm develops
Organization buying objectives
Perform certain purchasing activities
Purchasing activities or Buy Phases
It consist of various stages of buying decision making
process indicating the logical sequence of activities such
as
Problem or need recognition
Determine the characteristics and quantity of needed product
Development of specifications of needed product
Search for potential suppliers
Obtaining and analyzing supplier proposals
Evaluation of proposals and selection of supplier
Selection of an order routine
Performance feedback and post purchase evaluation
The understanding of buy-phases and type of buying
situation is very useful for an industrial marketer
as it helps in developing an appropriate selling strategy.
Problem or Need recognition
The problem may be recognized in the following
circumstances within the buying firm or may be
recognized by a smart marketer:
Availability of material is not there
Supplied product quality is not satisfactory
Supplied machine breaks down too often.
If the industrial marketer identifies a problem
within the buying organization and suggests how the
problem could be solved
then there are better chance of it being selected as a supplier
Example Case of a material handling
equipment manufacturing company
The sales executive visited a car manufacturing
company in India and
while taking a walk on the shop floor he noticed a long
queue of trucks
waiting to unload the incoming components and parts.
The operation of unloading was taking a long time as
it was done in a semi-manual way.
He studied the operation and then suggested that he
could supply an automatic equipment i.e.
Hydroelectric lift table which could reduce the time of
unloading substantially.
Another example is Red Double tape.
Determination of characteristics and
quantity of product needed
It depends on the type of the product such as
In case of technical products:
The technical department such as R&D, production, quality
control
will suggest the needed product and its quality
In case of non technical products:
The purchase department will suggest the needed product and
quantity on the basis of their experience.
Development of specification of needed
product
During this stage, the purchase department
takes the help of
their technical personnel and if required outside
sources such as suppliers and consultants
to develop product specification or dimensions at the early
stage
as any mm change in design or specification would be very costly
for the organization.
E.g.
If diameter of the pipe is increase by even 1mm
then the specific product will not fit in the pipe.
Search for Potential Suppliers
This required the knowledge of
available options and their acceptability.
This knowledge can be obtained by various
sources such as
Trade journals,
Sales calls
Catalogues
Word of mouth
Internet
Trade shows and
Industrial directories etc.
Search for Potential Suppliers
This required the knowledge of
available potions and their acceptability.
The acceptability of the supplier depends on
Type of buying organization
Buying situation
Decision making members
Suppliers reliability in delivery and service
Quality of product and service
Obtaining and analyzing supplier proposals
A supplier proposal can be submitted in the following
forms
Formal offer
Quotation or Estimate
A formal bid
Bill of quantities
It should include
The product specifications
Price
Delivery Period
Payment terms
Taxes and duties applicable
Transportation cost
Cost of transit insurance and
Any other relevant cost if required
Evaluation of Proposals and Selection of
Supplier
Evaluation is done on a set of each attribute
by giving a weight age to each attribute on a 100 point
rating scale. (Refer table 3.1 A supplier evaluation
system)
The supplier who get the highest score from a
total rating of 57
receive the purchase order from the buying
organization.
Also check for references as per next slide

List Of References
S.No. Name of the Company Contact Person Contact Detail's

1 Mercedez Benz-Pune Capt. Shanker Srinivasan (+91) 20 27505000
Head - Corporate Communications (+91) 20 27505306

2 Godrej - Mumbai Mr.Mehernosh B.Pithawalla ( +91) 22 5596 4755
Manager - Marketing (+91) 22 55965656/5959

3
Associated Capsules
Group. Mr. Shirish Vaidya (+91) 22 28682650
Marketing Manager

4 BASF-Mumbai Ms. Sunita Sule (+91) 22 5661 8000

Manager - Corporate
Communications (+91) 22 2495 0512

5 Kirti Ornaments -Mumbai Mr. Sagar Joshi (+91) 22 5636 7773
Director- Marketing (+91) 22 5636 7769

6 Fine Organics - Mumbai Ms. Ujjwala More (+91) 22 2509 3400-11
Manager Marketing

Selection of an order Routine - PO
Here, the mechanics of exchange of goods and
services is worked out. It includes activities such
as
Issuing PO to selected supplier
Qty to be purchased from each supplier
Frequency of order placement by buyers (4 times in a
year)
Delivery schedule for supplier (Deadlines)
Follow up on actual delivery to verify schedule
Payment terms for buyers

Sample PO
Performance feedback and post purchase
evaluation
The user department gives a feedback on
whether the purchased item solved the problem or
not.
A formal or informal review
regarding the performance of each supplier takes
place
If the user is satisfied
then repeat purchase takes place else order is given
to another supplier
Type of purchases or buying situations or
Buy classes
New Purchase or New Task:
This is a first time purchase
due to internal or external factors.
E.g. When a firm diversify into new products or
services
it requires purchase of new machine, materials or parts.
Since, here buyer has limited knowledge and lack of
experience that is why
he obtain a variety of information about product and supplier,
prices and soon.
This process takes more time and more people are
involved in decision making.
Type of purchases or buying situations or
Buy classes
Modified Re-buy or change in supplier :
This situation comes if the buyer is not satisfied
with the suppliers performance or the need arises for cost
reduction or quality improvement.
Therefore buyer search for information
about alternative source of supply
E.g.
Swift VS P&I onsite case
Type of purchases or buying situations or
Buy classes
Repeat Purchase or Straight Re-buy:
This situation comes when buyer requires certain
product or services continuously and
if he is happy with the existing supplier
then PO would go to them as a repeat order.
E.g.
Swift VS P&I Case
Buy-Grid Framework by Robinson
It combines 3 types of buying situations (Buy-classes)
with 8 stages of buying decision process (Buy-Phases).
The result from this framework is as follows:
All 8 stages are applicable in case of a new task buying situation,
however in case of modified or straight re-buy only some of the
buy-phases are applicable
The most difficult situation occurs in case of a new task buying
situation
to determine the characteristics and specification of a product which
require more number of decision makers.
Modified re-buy situations are not very difficult to handle
Straight re-buy situations are handled in a routine manner.
Buying centre or Decision making unit or
buying group
It is defined as a body of all the individuals or
groups
who participate in the buying decisions process and
who have interdependent objectives and share
common risk.
Members or participants in decision making
unit
Top management persons
They are Director, president, vice president, general
manager etc.
Involvement: They are involved in the following
Product diversification
Giving Approvals
Making guidelines and
Purchase of high value capital equipment

Members or participants in decision making
unit
Technical Persons
They are Engineers, Production Manager, Quality
control manager, Maintenance manager, R&D
Manager etc.
Involvement: They are involved in the following
Product specification
Negotiations with suppliers
Performance feedback on technical aspects etc.
Members or participants in decision making
unit
Purchase Department
They are Purchase managers or assistants or gate
keepers
Involvement:
They are involved in coordination within different
departments as well as with suppliers to purchase the items.
Members or participants in decision making
unit
Account and Finance Persons
They are involved while finalizing commercial terms
such as
Mode of payment
Issuance of bank guarantees
Issuing payments and soon
Members or participants in decision making
unit
Marketing function
They are involved in giving suggestions related to
customer satisfaction while purchase in transit
such as packaging related decision to avoid damages,
while finalizing commercial terms such as
Mode of payment
Issuance of bank guarantees
Issuing payments and soon
Buying Centre Roles
Initiators:
They are problem or need Recognizer
which could be resolved by purchase of a product or service.
They could be any individual in the buying firm.
Buyers: They are purchase managers or assistants and
their responsibilities includes
Obtaining quotation
Supplier evaluation and selection
Negotiation
Processing PO
Expediting deliveries
Implementing purchase policies of the organization
Buying Centre Roles
Influencers:
Those who influences buying decisions such as
Technical people, experts and consultants
who have the knowledge about the product
Deciders:
Who take the actual buying decisions which may vary depending
upon the product type.
E.g.
For Routine purchase:
Purchase manager is the decider
For high value products:
Top management people
For technical products:
Technical people
Buying Centre Roles
Gate-Keepers
They are assistants or Junior persons attached to
purchase manager who could control the following:
Control the flow of information to the managers of the buying
centre
Control the sales peoples meeting with the members of the
buying centre.
Marketing strategies for managing Industrial
buying Nature
After getting the PO, (Sample)
the user satisfaction level or complaints
must be monitored by the Industrial marketer
so that immediate corrective action can be taken
before a major damage is done which results in good buyer-
seller relationship.
The marketing strategy depends on the
following
Type of products
Buy-phases
Buy-classes