Business buying behaviour

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Business buying behaviour

  1. 1. BUSINESS BUYING BEHAVIOUR - Sometimes described as Business to Business buyer or industrial buyer. - Organizations that buy goods and services for further production of other goods and services, reselling, renting or supplying to others( Kotler and Amstrong,2008) - 4 main categories of a Business buyers : - 1. Producers Purchase goods and services to produce other products. Examples: manufacturers, construction builders 2. Resellers Wholesalers or retailers that purchase finished goods and resell them for a profit. 3. Government Federal, state and local bodies which purchase goods to provide benefits to the public at large. 4. Institutions College, Universities, schools, hospitals Differences between Organizational and Consumer MarketCharacteristics Organizational Market Consumer MarketDemand Organizational IndividualDistribution structure Direct IndirectNature of buying unit More Professional More PersonalType of decision and decision More complex and formalized Simpler and informalprocessUse of reciprocity Yes NoUse of leasing Greater LesserDemand  Demand for business products is derived demand and therefore suppliers must monitor demand patterns and preferences of final consumers.  Demand for organizational product is inelastic. A situation in which the supply and demand for a good are unaffected when the price of that good or service changes.  An example of perfectly inelastic demand would be a life saving drug that people will pay any price to obtain. Even if the price of the drug were to increase dramatically, the quantity demanded would remain the same.  Demand for organizational products is more volatile. Means…a decrease consumer demand will lead to a much larger change for business products. Example: when the demand for proton cars decreases, the demand for tyres used in the production also reduces.
  2. 2. Distribution Structure  More common in organization market because products are often sold in larger quantities. Nature of Buying Unit  Organiszational buyers involves many people and also professional approach.  Some organization hires purchasers who concentrate on making better purchaser for the organization.Type of Decisions and Decision process  The purchase decision for organization is more complex as it involves price negotiations, payment terms, deliver date and so on.  It takes months and also involved lots of money and technical interactions in an organization.  The decision process is more formal where details on products and suppliers are searched thoroughly.Use of ReciprocityApa maksud Reciprocity – mutual or cooperative exchange of things with others for mutual benefit)  Business buyer purchase from their own customer.  Example: Manufacturer of plastic container may buy chemicals used in the production from the customer a chemical manufacturerUse of LeasingApa maksud leasing –( sewa) contract of renting land, bulding  Business tend to lease products for use as is uses less capital, better services are the advantages business gain.  Example: Machines, equipment, land, buildingBuying centres  The decision making unit in an organization.  Includes all members in the organization in purchase decisions.  Example : Purchasing Department or Purchasing Officer and he or she plays the role of a buying centre.  The role of a gatekeeper only exits in the buying centre. ROLES IN THE PURCHASING PROCESS DOMINANT PEOPLE ROLES Users People in the organization who uses the product Gatekeepers Members who control the information flow in relation to purchasers. Example: Secretary to Manager maybe the ‘Gate’ as she controls the request from others in the department Influencers People who influence the buying decision Deciders The person who have formal and informal powers to choose the final vendors or brands. Buyers Members who have formal authority to select vendors and negotiate the purchases.
  3. 3. BUSINESS BUYING DECISION-MAKING PROCESSThere are 3 main stages in the business buying decision making process:1. NEED RECOGNITION AND SPRCIFICATION PHASE. a) Problem Recognition o Someone sees that specific product or services can solve a problem or fulfill the need in the organization. o Maybe internal stimuli – Organization may need to replace an old computer o Maybe external stimuli- Manager sees machine at a trade exhibition. b) General Need Description o Describe the characteristics and quantity of the needed item. o At this stage, the buying centre may need to discuss with technical people to define the type of products needed to complete the task. o Defining the product will require ranking according to its importance. c) Product Specification Purchasing department will need to develop the technical spec for the product required.2. SUPPLIER IDENTIFICATION PHASE a) Supplier Search Search for the qualified supplier and starts with the available list of suppliers from the company’s record. b) Proposal Solicitation o People at the buying centre will request for proposals or bids from [potential suppliers. o If it’s a complex buying then a written proposal may be requested from the suppliers. c) Suppler Selection o Buying centre analyze the choice of proposal and select a supplier. o Normally a rating system is developed in which the rating may include: Honesty, competitive process, customer service, reputation, location and performance history.3. ORDER PLACEMENT AND PERFORMANCE REVIREW PHASE a) Order Placement o Once the supplier has been selected, the purchasing agent will place the order and determine on the delivery instructions. o This may include the DO, information on the product, quantity, methods of payment, price, mode of delivery, payment terms in which all are detailed out. b) Performance Review o Purchaser’s and users may need to monitor the performance of the supplier o This review will determine whether to continue, change or stop the arrangement.
  4. 4. FACTORS AFFECTING BUSINESS BUYER BEHAVIOUR1. ENVIRONMENTAL FACTORS o Business buyer need to pay attention to the economic climate, political, technological and also competitive factors. o Example : During recession, companies may defer investments or purchase new equipment until the economic situations improves. o Cultural also affects on the buying decision process across the globe. o Demand and Supply conditions ( labor and raw material) is another factor that need to be consider as an increase in the price of raw materials may force organization to look for domestic alternatives.2. ORGANIZATIONAL FACTORS o Business buying decisions are affected by the organizations goals and objectives, policies and procedures, structures and purchasing system. o This is because organizations objectives and goals may differ in the criteria use to make buying decisions. o Example: If a firm wants to be a cost leader in an industry then the materials purchased are at reasonable quality at lowest possible.3. INTERPERSONAL FACTORS o There are many people in the buying centre and they influence other in the organization. o Individuals in an organization may influence the buying decision process maybe because of the authority, status, expertise and relationship with other buying centre members. o Buying decisions may also be affected by personal, social, cultural and psychological factors. o Power, conflicts may also complicate buying process as we need to remember that individuals in the buying centre may have different experiences and skills and also personality.

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