Industrial buying behaviour
Industrial buying behaviour is the sum total of the organisation’s behaviour, intentions, preferences, and decisions regarding buying behaviour in the market when purchasing goods for manufacturing or resale.
Industrial buying behaviour is the decision making process by which formal organizations establish the need for bought products, and services, and identify, evaluate and select among alternative brands and suppliers. Organizations buy into a surplus of organizational objectives, such as manufacturing, and distributing goods and services to members, customers, or the society.
Industrial buying is very influenced by derived demand, i.e., the demand for the final product or service to be sold by the buyer’s customers. The demand for elements by a manufacturer will depend on the demand coming from their customers, retailers and wholesalers, who in turn are reacting to the demand from their customers, consumers.
Overall consumer demand can in turn be influenced by economic, social, political and technological factors in the environment.
The Industrial buying process is quite different from the consumer buying process. While buying decisions by individual customers are made relatively easily and quickly, organizational buying involves a thorough analysis. Organizations purchase products differing from extremely complex machinery to small components.
In an organisation, purchase decisions are influenced by several people and are not made in isolation by a person. Organizational buyers are more concerned about the price and quality of the product than the service being provided by the seller.
Price plays a major role, as the cost of raw materials is the investment that generates profits. Thus, price is a major factor that affects the profitability of the firm. Service also plays an important role, as no organization would like to buy goods from a businessperson who cannot provide timely and efficient service.
Organizations use certain methods for purchasing products such as checking a sample before the actual purchase. Most organizational buying involves the purchase of products on a large scale. Therefore it is not possible to examine each object separately.
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In such situations, one sample is checked assuming that this sample represents the entire lot. Like consumer markets, the industrial market also has certain demand characteristics. Organizational demand for products or services may be inelastic, derivative, compound or fluctuating in nature.
The industrial market typically purchases goods or services to produce other goods and services using these as raw materials. There are also resellers, who purchase products to sell directly to other customers without modification.
Apart from producers and resellers, there are institutional customers and the government also who buy goods. The government buys goods for public utility or in its departments or for production purposes.
The buying decisions of organizations are influenced by organizational factors, social factors, environmental factors, and individual factors. Participants in the institutional buying process play seven different roles, namely initiator, influencer, user, decider, approver, buyer and gatekeeper.
Although organizations differ greatly from each other in their purchasing process, the various stages of industrial procurement include problem identification, general need recognition, product specification, value analysis, vendor analysis, order routine specification, multiple sourcing and performance reviews.
Marketers need relevant information about the characteristics of industries to effectively market their goods and services. To search for such information, the major sources are government and industrial publications. Standard industrial classification is a process where such characteristics of the manufacturing, financial and service sectors are represented in a coded format.
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The Industrial Buying Process
The Industrial buying process has the following steps:
Stage1 – Identification of Need
The first stage of the business buying process is the identification of a need in which someone in the organisation identifies a need that can be solved by purchasing goods or services.
The Industrial buying process starts with the identification of needs. In an organization, a particular person identifies the need for certain goods and after buying the needed goods, the need is fulfilled. Needs in an organization can be recognized in two ways. They are – external stimuli and internal stimuli.
If a firm chooses to produce new goods itself, it is internal stimuli. It needs to purchase new goods and tools. Similarly, when a buyer witnesses a trade exhibition, he may make an approach to buy new goods. Such an idea is external stimuli because this idea is made from the external environment and materials should be purchased for this.
Stage2 – General Requirement Details
In this phase of the Industrial buying process, after the identification of need, the processing organisation describes the general characteristics and quantity of the necessary items required. After the need is recognized, the buyers should describe the need. While describing the need, features of required goods and their quantity should be defined. If the goods have standards, this task becomes simple; if otherwise, it becomes difficult. The help of employees, users and experts should be taken for complex goods.
Stage3 – Product Specification
At this stage of the organizational buying process, the organization makes the purchase decision of the product and specifies the best technical product characteristics for the item required.
Stage4 – Price Analysis
An approach to cost reduction, in which components are thoroughly examined to determine whether they can be redesigned, ordered, or replaced by less expensive methods of production.
Stage5 – Supplier Search
At this stage of the business buying process, the client seeks to find the best sellers. The buyer prepares a list of all the well-known suppliers and selects good and proper suppliers. A list is prepared by looking at earlier trade records, searching on the internet, asking other businesses for suggestions etc. If the goods to be purchased are unique, complicated and expensive, it needs a great time to seek suppliers.
Stage6 – Proposal Solution
The stage of the business procurement process is in which the buyer invites qualified suppliers to send proposals. Proposal solution is the fifth stage of the organizational buying process. At this stage, the buyer calls the best suppliers for submitting a proposal. As a result, some send records or agents to the organization. If the product is expensive and complicated, the buyer demands a complete proposal, and if the product is technical, the business organization calls for presenting the product itself.
Stage7 – Supplier Selection
The stage of the business procurement process is in which the buyer reviews the proposal and selects a supplier or supplier. At this stage of the organizational buying process, buyers evaluate the proposal and select one or more suppliers. For selecting the suppliers, a list is prepared and a rating is made based on their qualities and importance. Then the best supplier is selected. Supplier is analysed thoroughly and then a decision is made.
Step8 – Order-Routine Specification
The stage of the business buying process is in which the buyer writes a final order with selected suppliers, listing technical specifications, quantity required, expected time of delivery, return policies and warranties. After the best suppliers have been selected, the client makes the final purchase. In this order, all the things such as attributes of goods, specification, warranty, quantity, time for supply, method of payment, service after sale etc. should be clearly stated.
Stage9 – Performance Review
This is the last step of the organizational buying process, in this, the buyer measures his satisfaction with suppliers to decide whether to continue or change them. At this stage, the buyer evaluates suppliers’ performance. This type of analysis helps to make a decision whether to continue the relationship with the supplier/change or end the relationship. If the performance of the supplier is satisfactory, the relationship can be continued; if it is somewhat poor if partial correction is made and the relationship is maintained. But if the performance is offensive, it is broken.
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