Chapter 4

Buying Behavior and the Buying Process

Types of Customers
Salespeople use different approaches when selling to different types of customers. Producers Resellers Government Agencies Institutions Consumers

Types of Customers

buy goods and services to manufacture and sell other

goods and services to their customers

Producers

when buyers purchase goods to use in making their products some components have such a high reputation they help sell the product-Intel microprocessor most bought in large quantities on an annual basis-R/S b/w
purchasing department and suppliers

Original Equipment Manufacturers

Continued

End Users action when producers buy goods and services to support their own production and operationscapital equipment, MRO and services 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) Services-Internet and telephone connections, consultant and transportation

Continued

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

Government largest customer for goods and services in the U.S. (over $1 trillion in goods and services annually) 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 customers Packaged goods manufacturers sell to both resellers &

End users vary for consumers Insurance, clothing and automobiles etc
(A large number of college graduates frequent these sales positions)

Consumers

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 Derived demand- purchase made by these customers ultimately depend on the demand for their products-either other organizations or consumers Direct demand increases its efforts toward the ultimate consumer

The Organizational Buying Process

Steps in the buying process:

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 4.2, P-95 a customer purchases a product or service for the first time companys knowledge is limited; initial buying process steps/post purchase evaluation is critical

Straight Rebuys 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

Buying center- an informal, cross-department group of people involved in a purchase decision

Users typically dont 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

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 Need for quality varies by industry group and ultimate market reached

Life-Cycle Costing

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 firms 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 producers 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

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

Form of JIT were supplier manages inventory levels for customers. Materials provide on consignment. Used in industrial settings. See Exhibit 4.6 P. 105

Supply Chain Management

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

Supplier Relationship Management

Strategy to evaluate buyers

Identify annual spending Vendor analysis next Track results

Vendor Analysis

Summarizes the benefits and needs satisfied by a supplier

Buyer rates the supplier and its products on a number of criteria (quality, on-time delivery, price & other)
They are then weighed by importance

See exhibit 4.7 P. 107

Business-to-Business Selling The Internet

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

Case 4.2

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