Chapter 3 Organizational Buying and Buyer Behavior

The

Consumer

Buying Decision Process Need Recognition Information Search Evaluation of Alternatives Purchase Decision Postpurchase Behavior Involvement influences whether some steps are de-emphasized or extended.

This is more of a

simultaneous

than a sequential process.

2

Organizational Buying

• Organizational buying involves many inputs from professional specialists within the organization.

• The organization relies on inputs from decision makers and influencers (“stakeholders”) to satisfy the diverse set of needs within the organization.

• This requires communication among stakeholders in the buying organization.

3

The Buying Center

External Factors Internal Factors

Technology Accounting Management Marketing Legal Production/Mfg.

Finance Service 4

Major Differences, Organization Buying vs. Consumer Buying • Organizational buying involves more buyers – more decision makers or contributors to portions of the decisions.

• Participants (stakeholders) in the buying center are driven by the specific needs of their professional responsibilities.

• Different types of decisions are often occurring simultaneously in the process, spread throughout the buying organization.

5

Steps in the Buying Decision Process

1. Problem recognition 2. General need description 3. Product specification 4. Supplier/Source search 5. Proposal Solicitation 6. Selection 7. Make the transaction routine 8. Evaluate performance 6

Intricacies of the Buying Decision Process Individual roles and personal needs Interaction creates fluidity (people w/in the buying center interact) The buying process is

simultaneous

, not

sequential

Relationships and loyalty Three kinds of needs: 1. Need for product benefits 2. Individual needs w/in buying center 3. Buying center member’s personal needs Cluster of stakeholders’ values 7

Stages in the Process Flow Model of the Buying Decision Process:

Definition Stage

•

Process Flow

Stages – Problem definition – Solution definition – Problem specification •

Buying Decision

Process Steps – Problem recognition – General need description – Problem specification 8

Stages in the Process Flow Model of the Buying Decision Process:

Selection Stage

•

Process Flow

Stages – Solution provider search – Acquire solution provider(s) •

Buying Decision

Process Steps – Supplier/Source search – Proposal solicitation – Contract for supplier(s) 9

Stages in the Process Flow Model of the Buying Decision Process:

Deliver Solution Stage

•

Process Flow

Stages – Customize as needed – Install/Test/Train •

Buying Decision

Process Steps – Make the transaction routine 10

Stages in the Process Flow Model of the Buying Decision Process:

End Game Stage

•

Process Flow

Stages – Operate solution – Reach end result – Evaluate outcomes – Determine next set of needs •

Buying Decision

Process Steps – Evaluate outcomes – Resell the job 11

Stage 1: Problem Recognition

New Task Modified Rebuy A buying situation that has not been previously faced by the organization.

•Significantly steep learning curve, organization seeks many sources of information.

A buying situation that is somewhat similar to past problems/solutions •Examines alternatives within a limited scope, involves fewer people than a new task situation and more than a straight rebuy.

Straight Rebuy A routine buying situation with established solutions.

•Abbreviated steps in the process, fewer people in the buying center, less time to completion.

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Stage 2: Vendor Selection

• RFQ = Request for Quotation – Usually associated with that which can be thoroughly and quantitatively defined • RFP = Request for Proposal – Usually defined by a set of specifications that have more flexibility regarding the final form of the offering • For government purchases, RFP/RFQ are often published in a specified outlet.

13

Stage 3: Solution Delivery

• Often takes longer than

definition selection

combined.

and • Stage ends when delivery is complete and approved by the buyer.

• Involves merging the logistics of the buyer with the logistics of the customer.

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Stage 4: End Game

• Buying organizations frequently formally evaluate purchase outcomes in terms of areas like – Market share – Position – Market ownership – Profitability • Individual buying center members also may evaluate the purchase, the purchase process, and the supplier.

15

Organization and Individuals Needs in the Buying Decision Process

Steps in Flow Organizational Needs Individual Needs

Define problem Define solution Acquire provider Develop solution Install, test, train Operate solution End result Evaluation outcomes Clear, concise, tractable Appropriate, affordable Choice, speed, Speed, easy use Ease of integration, speed User friendly Effective, low cost Information Information & time Design assistance Information, assurance Execution help Knowledge, comfort Easy to maintain Recognition Communication, reward 16

Buying Decision Evolution

17

More Buying Decision Evolution

18

Variability of Rational Buying

Human Factors •Objective means are used to narrow choices.

•Suppliers who recognize cultural/relationship needs of the organization become the “in” supplier.

•A review of facts is often done because it is culturally acceptable.

•Facts can be arranged to justify the decisions that individuals want to make •People seek reinforcement for their beliefs in every factor presented to them 19

Variability of Rational Buying

Mutual Dependence and Customer Loyalty •Long-term commitment increase both risk and rewards for both parties involved.

•When both vendor and customer share financial interests that favor cooperation, there is greater motivation to continue the relationship through difficult times.

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Value Image

• Value Image – It is the total of all impressions that a customer has of the firm (whether relevant to the buying situation).

–

Value image positioning

goods.

is similar to

product

that occurs with consumer – Need to maximize the value image of the offering in the “mind” of the buyer.

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Introduction

• E-Business Models – Competition with physical channels – Parallel channels – Application Service Providers (ASPs) – Auction sites • Continuous improvements noted in the supply chain 22

Alternative Channels of Distribution

• • •

1. Manufacturer Direct Sale to the End User

End user can buy product from the company catalog through the net Examples: Dell Computers, Amazon.com – Lack of industrial applications • • • Standardization Data Standardization – Matching all supply chain partners’ information Supply chain standards Process Standardization – When and how a conversation should take place between systems 23

Alternative Channels of Distribution

– Technical sophistication of supply chain • Distribution channels are too fragmented • Lack of consistent processes for different channels – Distributor value adds • Inventory management • Transaction volume, multiple small orders • Technical knowledge and after sale support • Financial support for small customers • Additional product modification • Local transportation • Counter sales and will call • Prospecting sales force • Reverse logistics i.e., returned goods 24

Alternative Channels of Distribution

The Direct Channel 25

Alternative Channels of Distribution

• • • • •

2. Manufacturer as Information Controller

Manufacturer-hosted website for information control of the ordering and routing of end user demand Order to be routed to the distributor who can give the best price quote Distributor gets online updated product specifications and prices Manufacturer receives point of sale (POS) customer information.

Could be viewed as a threat by their distributors 26

Alternative Channels of Distribution

The Manufacturer Controlled Channel 27

Alternative Channels of Distribution

3. Distributor as Information Controller

• Information center controlled by the distributor • Distributor receives manufacturers’ and other suppliers’ production schedules, and customer data • Distributor passes information to the manufacturer for their planning purposes after optimizing his operations • The strategy minimizes channel conflict • Financial commitments required • Manufacturer may be outwitted by a competitor with a direct approach 28

Alternative Channels of Distribution

The Distributor Controlled Channel 29

Alternative Channels of Distribution

• •

4.

The Mixed Model

– – Direct channel for customers with: Technical sophistication on the product High consumption that meets critical mass for the manufacturer’s system – – Strong financial status Capability to customize product to their needs – – – – Distributor or a retailer channel for customers with: Technical assistance requirement Break/make bulk and local inventory (lack of critical mass) Need financial support (small accounts) Do not have the capability to customize product beyond the manufacturer’s original product 30

Alternative Channels of Distribution

The two channels are in conflict • The manufacturer sees an opportunity to gain more customer control and possibly larger profit margins through the direct channel. • The distributor sees opportunity to improve the efficiency of its operations, encroach on the retailer, and possibly use information to "own" the customer while fearing growth of the other channels at its expense. 31

Alternative Channels of Distribution

• In the mixed model the individual channels will grow, stay the same, or decline based on the value they offer the end user • Mixed model is currently the dominant one in non-information product channels • As a near term strategy, the mixed model is safer 32

Alternative Channels of Distribution

The Mixed Model 33

Alternative Channels of Distribution

4. The Independent Infomediary (The Cannibal)

• It is an independent website is supported by the parent company, which exercises no control over its actions. • Competes with existing channels independently of the company or its supply chain partners • It cannibalizes the distribution channel because an internet company produces no physical product • Most often introduced as a defensive move to prevent independent infomediaries from taking over the channel. • Evolved into an infrastructure provider for the channel 34

Alternative Channels of Distribution

The Cannibal 35

The E-Channel

• Distribution channels are heavily dependent on information – The E-Channel • E-Channel works backward from the customer • Information flow may be filtered • The completely automated channel is the ultimate goal of E-Business 36

The E-Channel

The E-Channel 37

The E-Channel

The End User Connection: E-Marketing and E-Sales • Front end is the customer’s order system • Customer’s order system interacts with the distributor through either an electronic connection or human interaction. • An electronic connection is more efficient and error free, but a human interaction can lead to additional sales • Technical shortcomings like bar coding facilities may prove to be impediments to an electronic connection • Human interaction is eliminated due to an electronic connection 38

The E-Channel

• Electronic connections if used properly are time savers and may win over the human interaction aspect • It seems likely that the distributor will continue to automate the customer relationship • PDA, E-Catalog and E-Sales will be used in tandem • E-Business is more about the automation of existing processes than replacing them • Well-designed automated processes are the key to success 39

The E-Channel

The Back End: E-Resource Management and E Procurement • Can range from spreadsheets to ERP systems • ERP systems have been growing in use since the mid 1990s • The ERP revolution could have provided a clearer direction to E-Business • Connecting customers and manufacturers before internal integration produces inefficiencies • A system-to-system connection will face standardization problems and lack of trust between supply chain partners 40