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Personal Selling: Chapter 4


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Personal Selling: Chapter 4

  1. 1. Buying Behaviour and the Buying Process Chapter 4
  2. 2. Important Questions Answered What are the different types of customers? How do organisations make purchase decisions? Which factors do organisations consider when evaluating products and services? Who is involved in the buying decision? What should sales people do in different types of buying situations? Which changes are occurring in organisational buying, and how will these changes affect salespeople? 2
  3. 3. “A supplier who does a great job at our France location can use the reputation if trying to earn business in Iowa.” ~Marvin Wagner
  4. 4. Successful salespeople Successful salespeople always know their customers, needs of the customers and all those who are involved in making the purchase decisions. 4
  5. 5. Types of Customers Producers  OEM Purchases  End-user Purchases Resellers Government Agencies Institutions Consumers 5
  6. 6. Producers Producers buy products and services to manufacture and sell their products and services to customers 6
  7. 7. OEM Purchases Original Equipment Manufacturers (OEM) purchase goods to use in making their products. Salespeople selling OEM products need to demonstrate that their products help their customers produce products that will offer superior value. OEM usually purchase in bulk and usually long-term relationships develop between customers and OEMs 7
  8. 8. End-user Purchases Goods and services to support their own production and operations Capital Equipment are major purchases like mainframe computers and machine tools that are used by the manufacturers for years. MRO (Maintenance, Repair and Operating) supplies include consumables and replacement parts of machinery. Services include telephone, internet and employment agencies etc. to support the manufacturing operation. Maintenance, repair, and operating (MRO) Capital equipment supplies include paper items are major towels and replacement purchases parts for machinery. 8
  9. 9. Resellers Resellers buy finished products/services to sell to businesses and consumers. Dell Computer makes OEM buying decisions when it purchases microprocessors for its computers, acts as an end user when it buys a machine to bend sheet metal for the cases that house the computers, and func­tions as a reseller when it buys software to resell to its computer customers when they place orders. Turnover is how Profit margin is how quickly an item sells, much a reseller makes and how much effort it on each sale. takes to sell. 9
  10. 10. Government Agencies Governments are usually the largest customers for goods and services. Every Government (Federal, Local) has rules and regulations that the suppliers need to follow to be able to be eligible as a supplier to the Government Agencies. Effective selling to government agencies requires a thorough knowledge of their unique procurement procedures and rules. Salespeople also need to know about projected needs so they can influence the development of the buying specifications 10
  11. 11. Institutions Institutions can be Public as well Private such as churches, hospitals, and colleges. Usually the purchasing rules and regulations of the institutions are more rigid as compared to the rules and regulations of the Governments. Some manufacturers deal with Institutions and resellers at the same time. For this purpose they keep two different sales forces for the different types of clients. 11
  12. 12. Consumers Consumers buy products and services for use by themselves or by their families. 12
  13. 13. Organisational Buying and Selling Selling to Organisations is more complex than selling to Consumers.  Complexity of the Organisational Buying Process  Derived versus Direct Demand 13
  14. 14. Complexity of the Organisational Buying Process Organisations use highly trained and knowledgeable purchasing agents to make these decisions and Often extensive evaluations and negotiations are involved in this process.  Purchasing agents  Evaluations and negotiations  Complexity is increasing 14
  15. 15. Derived Versus Direct Demand Direct demand Selling to consumers is easier as the only the needs of consumers/families are to be considered Derived demand Organisational selling often requires information about the customers of the customer 15
  16. 16. How do Organisations Make Buying Decisions? Steps in the Buying Process: There are eight steps involved in organisational buying. Very often all the eight steps are not followed during organisational buying process.  Recognition of a need  Definition of the product-type needed  Development of detailed specifications  Search for qualified suppliers  Acquisition and analysis of proposals  Evaluating proposals and selecting a supplier  Placing an order and receiving the product  Evaluating product performance 16
  17. 17. Recognition of a need The most important step in buying is to recognise the need of having something. This could be triggered by the employees of the customer company and/or the salespersons of the vendor company. Salespeople often trigger the buying process by demonstrating how their products can improve the efficiency of the customers operation. 17
  18. 18. Definition of the product-type needed The members of the organisation develop a general approach to solve the problem and make a decision to purchase a particular product/service. The problem solution is defined in terms of purchasing a product or service. 18
  19. 19. Development of detailed specifications The specifications of the product needed are specified and put in writing. The specifications for the product needed to solve the problem are pre­pared. Potential suppliers will use these specifications to develop proposals. The buyers will use them to objectively evaluate the proposals. Steps 2 & 3 offer a big opportunity to the salespersons. 19
  20. 20. Search for qualified suppliers The customer may simply contact previous suppliers or go through an extensive search procedure Salespersons are contacted, customers of the suppliers are contacted. Word of mouth, business magazines, Internet all are used nowadays 20
  21. 21. Acquisition and analysis of proposals Various companies submit proposals that are often prepared with the help of the representatives of the customer company. Qualified suppliers are asked to submit proposals. Salespeople work with people in their company to develop their proposal. 21
  22. 22. Evaluating proposals and selecting a supplier The written proposals are evaluated; the best possible supplier is selected. The customer evaluates the proposals. After selecting a preferred supplier, further negotiations may take place concerning price, delivery, or specific perfor­mance features. 22
  23. 23. Placing an order and receiving the product Once the order is placed, the supplier supply the goods according to the agreement. The order goes to the supplier, who acknowledges receipt and commits to a delivery date. Eventually the product is shipped to the buying firm, which inspects the received goods and then pays the supplier for the product. During this step salespeople need to make sure the paperwork is correct and their firm knows what has to be done to satisfy the customers requirements. 23
  24. 24. Evaluating product performance Formally/Informally the items/services received are evaluated by the persons concerned. Salespeople play an important role in this step. They need to work with the users to make sure the product performs well. In addition, salespeople need to work with purchasing agents to ensure that they are satisfied with the communi­cations and delivery. 24
  25. 25. Creeping Commitment When the consumers become used to a particular course of action, it becomes kind of a routine to purchase . As decisions are made at each step, the range of alternatives narrows; the customer becomes more and more committed to a specific vendor. Thus it is critical that salespeople be very involved in the ini­ tial steps so they will have an opportunity to participate in the final steps. 25
  26. 26. Types of Organisational Buying Decisions New tasks: When a particular product/service is needed for the first time. Straight re-buys: When the same product is bought from the same customer when the need arouse previously. Modified re-buys: When the customer has purchased a product/similar one but wishes to have new information 26
  27. 27. Who Makes the Buying Decision? The group of people involved in making a decision about buying a new product or a modified one is called Buying Centre. These people are usually the  Users  Influencers  Gatekeepers  Deciders 27
  28. 28. Users People who will ultimately be involved in using the product. They often have considerable influence in the early and late steps of the buying process-need recognition, product definition, and post purchase evaluation. Thus users are particularly important in new task and modified re buy situations. Salespeople often attempt to convert a straight re buy to a modified re buy by demonstrating superior product performance or a new benefit to users. 28
  29. 29. Influencers People from inside/outside the organisation who provide information during the buying process. These members of the buying center may provide details on product specifications, criteria for evaluating pro­posals, or information about potential suppliers. 29
  30. 30. Gatekeepers They control the flow of information and may limit the alternatives considered. Purchasing agents often playa gate keeping role by determining which poten­tial suppliers are to be notified about the purchase situation and are to have access to relevant information. 30
  31. 31. Deciders These are the persons who make the final decision about the purchase. Determining who actually makes the purchase decision for an organiza­tion is often difficult. For straight re buys the purchasing agent usually selects the vendor and places the order. However, for new tasks many people influence the decision, and several people must approve the decision and sign the purchase order. 31
  32. 32. Importance of Hospital Buying Center Hosp.Admin Engineers Physicians P. Agents NursesSteps in Buying ProcessNeed recognition (step 1) H M L L LDefinition of product type (step 2) H H M M LAnalysis of proposal (step 5) H M M H LProposal evaluation and supplier H L H L Mselection (step 6) Legend: 32 P. Agents = Purchase Agents; H = High; M = Moderate; and L = Low
  33. 33. Supplier Evaluation and Choice At various steps of the buying process, members of the buying centre evaluate the buying process and the results of the product purchased. The needs of the organisation and the decision makers affect the evaluation and selection of products and suppliers 33
  34. 34. Factors influencingOrganisational Buying Decisions 7.34
  35. 35. Organisational Needs and Criteria Economic Criteria: To increase profit organisations take sophisticated approaches to evaluate cost of equipment.  Life-cycle costing (total cost of ownership) Quality Criteria To improve profitability quality is to be maintained;  TQM approach is adopted.  What are organizational buyers looking for? Service Criteria Nowadays they Organisations want the suppliers to help them solve the problems.  Value analysis 35
  36. 36. Life Cycle Costing 7.36
  37. 37. Individual Needs of Buying Centre Members Types of Needs: Buying centre members wish to satisfy their own goals and aspirations. Salespersons can meet these through their strategies.  Financial security  Self-esteem  Recognition Risk Reduction: Buying centre members try to reduce the risk of losing benefits  Collect additional information  Develop supplier loyalty 37  Spread the risk
  38. 38. Vendor AnalysisOrganisational buyers often use formal methods toanalyse the vendors to be sure that their needs aresatisfied. When using this procedure, the buyer rates thesupplier and its products on a number of criteria such asprice, quality, performance, and on-time delivery. 38
  39. 39. Personal, Psychological, and SocialForces that Influence Consumers’ Buying Behavior Consumer buying decision process 39
  40. 40. Trends in Organisational Buying In today’s changing world the technology, competition and customer demands are increasing so are the costs of the raw material. These challenges force the Organisations to adopt strategies to survive in the current situation. 40
  41. 41. Trends in Organisational Buying Increasing Importance of Purchasing Agents Centralised Purchasing Global Sourcing Outsourcing Supply Chain Management The Internet and Business-to-Business Selling Long-term Customer-Supplier Relationships 41
  42. 42. Increasing Importance of Purchasing Agents Companies improve the status of their directors to reflect the increasing importance of this function. 42
  43. 43. Centralised Purchasing Purchasing is becoming more centralized. Rather than having each manufacturing facility contract for supplies to meet its own production needs, more purchasing is done at a central location, such as corporate headquarters. Through centralization, purchasing agents can become specialists, concentrating on partic­ular items and developing extensive knowledge about the uses, specifications, and suppliers for those items. 43
  44. 44. Global Sourcing To improve the quality and profitability the material is purchased from any where in the world – no restriction on country boundaries 44
  45. 45. Outsourcing Organisations try to purchase goods and services from efficient suppliers. 45
  46. 46. Supply Chain Management This is a set of programmes undertaken to increase the efficiency of the distribution channel  Efficient Consumer Response (ECR) systems.  Logistics  Managing inventory while controlling costs  Just-in-time ( JIT ) inventory control system  Material requirements planning ( MRP )  Automatic replenishment ( AR) 46
  47. 47. The Internet and Business-to- Business Selling Using up-to-date techniques in selling and purchasing improve the quality of products and services produced for the end-user  Extranets  Support for salespeople rather than replacement  Electronic data interchange (EDI) 47
  48. 48. Long-term Customer-Supplier Relationships This helps both the customer and the supplier to survive better in today’s difficult business environment; keeping in mind that the satisfaction of the customer is the only way of retaining the orders as well as cheaper material does not mean all for the Customer 48
  49. 49. 49
  50. 50. End of Chapter 4
  51. 51. Thank you