Industrial Buying Behaviour Meaning, Characteristics, Process, Buying Centres
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 society.
Table of Contents:-
- Industrial Buying Behaviour
- Industrial Buying Behaviour Meaning
- Industrial buying behaviour influence
- Characteristics of Industrial Buying Behaviour
- Industrial Buying Process
- Factors Influencing Industrial Buying Behaviour
- Buying Centers
Industrial Buying Behaviour
Industrial buying behaviour is the total of the organisation’s behaviour, intentions, preferences, and decisions regarding buying behaviour in the market when purchasing goods for manufacturing or resale.
The business buyers (also referred to as the producer/ manufacturer/ organisational /industrial buyers) consist of all the individuals or organisations who acquire goods and services that enter into the production of other products or services that are rented, sold, or supplied to others.
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, and 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.
Industrial Buying Behaviour Meaning
Industrial buying can be defined as the decision making process by which formal organisations establish the need to purchase products and services and identify, evaluate, and choose among alternative brands and suppliers. Although no two companies buy in the same way, the seller hopes to identify clusters of business firms that buy in similar ways to permit marketing targets and strategies.
Developing effective marketing strategies to reach organisational buyers rests on the organisational marketers working towards understanding the nature of organisational buying. This entails knowledge of the different types of buying situations that organisations encounter, the process that organisational buyers go through in reaching purchasing decisions, and how those decisions are affected by different members of the firm & the criteria they apply in making purchasing decisions.
In making decisions, purchasing managers must coordinate with numerous people with diverse organisational responsibilities who apply different criteria to purchasing decisions.
Organisational marketing is characterised by complex interaction processes both within the marketing and purchasing companies and between these companies. Financial and technological dependencies are generally more pronounced in organisational buyer-seller relations than in consumer markets.
This tends to increase both the time dimension and involvement of the exchange process. The understanding of this typically multi-phased and multi-objective process is essential for effective purchase planning, and supplier negotiations, as well as for designing organisational marketing programs.
The organisational buyers have a derived demand and a homogenous mix as compared to consumers, divided on the geographical area and are more complex to deal with since there is more than one decision-maker involved.
Industrial buying behaviour influence
In an organization, 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 who buy goods. The government buys goods for public utility 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. 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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Characteristics of Industrial Buying Behaviour
The characteristics of industrial buying behaviour are as follows :
1) Multiperson Buying Activity: A large number of buying situations in industries or organisations (manufacturing, government, hospitals, and educational institutions) would involve many persons. These persons may be from different functions (production, purchase, design, maintenance), and may have different levels within buying organisation (Managing Director, General Manager, Material Manager).
Further, persons in a buying concept appear to play different roles over the entire buying decision exercise. The concept of the buying centre is the grand conceptualisation of various roles of different members.
2) Formal Activity: Irrespective of the rupee value of technical complexities of products and services, buying activities have to conform to the formal processes and procedures of an organisation. Even for emergencies, a typical organisation would have a set of policies, and the suppliers must be aware of these. Additionally, all buying decisions are finally converted into formal contracts between buyers and suppliers.
3) Longer Time Lag between Efforts and Results: Due to multiperson and a formal activity, the organisation’s buying decisions take typically longer time. This leads to greater time lags between the application of the market effort and obtaining the buying response. A marketer may design unrealistic plans if he is not aware of the response time of his customer for various buying situations.
4) Rational but also Emotional Activity: Despite a formal activity following rational criteria of evaluation, organisational buying cannot be devoid of the emotional (or irrational) aspects. This is because it involves human beings in buying decisions. These human considerations are likely to play a vital role in situations of almost similar alternatives like buying commodities, raw materials, standard products and components.
5) Uniqueness of Organisations: Despite the above common characteristics, no two organisations would be similar in their buying behaviour and decisions. These differences would be due to the nature of buying problems, resources, objectives, capabilities and so on. It is therefore important to consider each organisation as a separate segment at the level of selling.
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 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 organization 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, the features of required goods and their quantity should be defined. If the goods have standards, this task becomes simple; 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 takes 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. The proposed solution is the fifth stage of the organizational buying process. At this stage, the buyer calls the best suppliers to submit 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. The 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 selection of the best suppliers, 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 step, the buyer measures his satisfaction with suppliers to decide whether to continue or change them. At this stage, the buyer evaluates the suppliers’ performance. This type of analysis helps to decide 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 partial correction is made and the relationship is maintained. But if the performance is offensive, it is broken.
Factors Influencing Industrial Buying Behaviour
There are four broad categories of factors that influence industrial buying behaviour:
1) Environmental Factors
Seven environmental factors influence organisational buyers:
The physical environment includes such factors as the climate and geographical location of the organisation and can affect the behaviour of organisational members and determine the constraints and options for the buying organisation. A supplier’s geographical location, for example, is an important consideration in whether it is chosen or not. Many companies prefer local suppliers and in the international sphere, many shoppers prefer to use domestic suppliers where possible.
The level of technological development defines what types of goods and services are available to the organisational buyer.
The economic environment for the buying organisation is affected by price and wage conditions, money and credit availability, consumer demand, and levels of inventory in key organisational sectors, these sorts of factors will determine the availability of goods and services, the ability of buyers to finance purchases, and what price will be paid.
The political influence could include such factors as country trade agreements, tariff barriers, lobbying activities, defence spending, government assistance to certain organisations or companies, and government attitude toward business generally.
Local, state, and federal legal and regulatory environments influence buying activities that take place. Government regulation sets standards for what must be bought to be included in products (for example, auto and lawnmower safety equipment). Terms of sale and conditions of competition are also enforced by legal means on all the organisational buyers.
The ethical environment is of major importance in the buyer-salesperson relationship. Shoppers and salespeople must exhibit ethical behaviour if they are to be accepted as professionals. Thus, each group needs to know what is considered to be ethical and unethical behaviour.
Culture establishes values that are shared by members and which influence their buying behaviour. Large organisations, too, have developed their own corporate culture, which differs in its values, norms, habits, traditions, and customs. The nature of these differing values, styles, and behaviours may be evident in the organisation’s buying behaviour.
2) Organisational Factors
Because organisational buying occurs within the framework of a formal organisation, the organisation’s objectives, policies, procedures, structure, and systems of rewards, authority, status, and communication will all have a significant influence on every factor of the buying decision process.
The buying task is performed by the organisation to accomplish its objectives. These tasks may be classified in different ways such as by purpose, level of expenditure, type of good or service purchased, the extent to which the process is routine or not, and the extent to which responsibility for purchasing is centralised or decentralised.
The buying structure of the organisation affects the purchasing process. Organisations have a formal and informal organisation structure. The organisational chart illustrates the formal relationships between people in the organisation. Informal relationships and communication patterns may be entirely different, however, from the formal structure. Marketers must understand both the formal and informal organisation to effectively sell to a buyer.
Technology may influence not only what is bought but also the buying decision process itself. Manual systems for directing and controlling the buying process are widespread in the industry. computerisation is rapidly taking over. Marketing success requires an understanding of the organisation’s technology so that any new product or service fits into the system that is already in place.
The people in the organisation who are involved in the purchasing situation will be a major determinant of the organisational buying process. These people are interdependent and interact with each other to influence fellows’ buying behaviour. The marketer’s task is to identify those within the organisation with responsibility and authority for buying decisions to persuade them to purchase.
3) Interpersonal Factors
The interaction between only two people or a larger number is a significant influence on organisational buying decisions. The influence of one person on another is what is meant by interpersonal influence.
i) The Buying Centre and its Roles
The buying centre is comprised of those people in the organisation who interact during the buying decision process. The buying centre usually involves several people with different formal authority, status and persuasiveness. The marketer needs to know who exerts the maximum authority and ability to persuade others to agree with his viewpoint. Knowledge of group dynamics helps the marketer evolve his strategy for selling to the buying centre.
ii) Power Relationships
The marketer must be careful to accurately assess the role and power relationships that may exist in a buying centre. Purchasing agents perceive themselves to have a higher level of involvement in buying decisions than other executives. Thus, the true locus of power in an organisational buying decision must be understood by the vendor.
4) Individual Factors
Participants in the organisational buying process bring to the situation their thoughts, feelings, and actions. These psychological factors are very relevant.
Motivations of buying-centre members are difficult to assess accurately. They have generally been categorised into task-related and no task-related motives. Task-related motives include such needs as product quality, price, service, and delivery, or getting the “right” product for the “right” price at the “right” time from the “right” source. These pertain to the problems leading to the buying decisions.
No task-related motives include such variables as the potential for promotion, salary increases, more job security, and so forth. Generally, these pertain to the individual’s advancement, recognition, and desire to reduce uncertainty or risk.
Individuals receive and interpret stimuli and organise them into a coherent picture of their world. Organisational buying-centre members’ perceptions are important to marketers’ development of effective strategies. Two dimensions of the element are significant: perceptions of the selling company’s products and people, and perceptions of their role in the buying centre decision process.
Learning is another variable strongly influencing the individual in the organisational buying process. Learning occurs as customers make decisions that are satisfactory and this reinforcement increases their tendency to make the same decision in future similar situations. The continual reinforcement of a decision leads to a habit, which is a fairly automatic response.
A buying centre includes all those persons in an organisation who become involved in the purchase decision. Membership and influence differ from company to company.
For example, in engineering-dominated firms like Bell Helicopter, the buying centre may consist almost entirely of engineers. In marketing-oriented companies like Toyota and IBM, marketing and engineering have almost equal authority.
In consumer goods, firms like Procter & Gamble, product managers and other marketing decision-makers may dominate the buying centre. In a small manufacturing organisation, almost everyone may be a member.
A buying centre of an organisation has the following seven members who play these roles:
1) Initiators: Usually, the need for a product or item and in turn, a supplier arises from the users. But there can be occasions when the maintenance, top management, engineering department or any such recognise, feel the need. Individuals who “initiate” or start the buying process are called initiators.
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2) Users: Under this category, users of various products come. If they are technically strong like the R&D, engineering can also communicate well. They play an important role in the buying process. They also work as initiators.
3) Buyers: They are individuals who have formal authority to select the supplier and arrange the purchase terms. They play a very important role in selecting vendors, negotiating and sometimes helping to shape product specifications. The major roles or responsibilities of buyers are obtaining proposals or quotes, evaluating and selecting the supplier, negotiating the terms and conditions, issuing purchase orders, follow-up and keeping track of deliveries.
4) Influencers: Technical personnel, experts, consultants and qualified engineers play the role of influencers by drawing specifications of products.
5) Deciders: Among the members, the marketing person must be aware of the deciders in the organisation, try to reach them and maintain contact with them. People who decide on product requirements, specifications and suppliers are deciders.
6) Approvers: Individuals who authorise the proposed actions of deciders or buyers are approvers. They can also be personnel from top management the finance department or the users.
7) Gatekeepers: A gatekeeper is like a filter of information. He controls the flow of information from the marketer to the decision-maker.
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