1. Stephen B. Castleberry | John F. Tanner Jr. Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. CHAPTER 3 BUYING BEHAVIOR AND THE BUYING PROCESS

2. 3-2 LEARNING OBJECTIVES What are the different types of customers? How do organizations make purchase decisions? Which factors do organizations consider when they evaluate products and services? Who is involved in the buying decision?

3. 3-3 LEARNING OBJECTIVES What should salespeople do in the different types of buying situations? Which changes are occurring in organizational buying, and how will these changes affect salespeople?

4. 3-4 PRODUCERS Buy products and services to manufacture and sell their products and services to customers Types of buying situation Products included in manufacturing Products and services to support the manufacturing operation Original equipment manufacturer (OEM): Purchase goods to use in making their products End users: Producers who buy goods and services to support their own production and operations

5. 3-5 END-USER BUYING SITUATIONS Capital equipment Maintenance, repair, and overhaul (MRO) supplies Services Major purchases Mainframe computers Machine tools Paper towels and replacement parts for machinery Internet and telephone connections, employment agencies, consultants, and transportation Focuses on lifetime operating cost Cost is low, availability can be critical Purchased in a manner similar to capital equipment purchases

6. RESELLERS Buy finished products or services with the intention to resell them to businesses and consumers Profit margin: How much they make on each sale? Turnover: How quickly a product will sell? Effort - How much effort it takes to sell the product? Maximize return on investment (ROI) 3-6

7. GOVERNMENT AGENCIES Purchase goods and services Develop detailed specifications for a product and then invite qualified suppliers to submit bids Contract is awarded to the lowest bidder Conduct small purchases without bidding Require a thorough knowledge of unique procurement procedures and rules 3-7

8. 3-8 TYPES OF CUSTOMERS Institutions - Public and private Churches, hospitals, and colleges Purchasing rules and procedures are as complex and rigid as those of government agencies Consumers - Purchase products and services for use by themselves or by their families

9. 3-9 ORGANIZATIONAL BUYING AND SELLING Complexity of the organizational buying process Purchasing agents make purchase decisions Buying decisions involve extensive evaluations and negotiations Complexity is increasing as more customers become global businesses

10. 3-10 ORGANIZATIONAL BUYING AND SELLING Derived versus direct demand Sales to OEMs and resellers are based on derived demand rather than direct demand Derived demand: Purchases made by the OEMs and resellers depend on the product demand

11. 3-11 EXHIBIT 3.1 - STEPS IN THE ORGANIZATIONAL BUYING PROCESS

12. 3-12 CREEPING COMMITMENT Customer's commitment to a particular course of action while following the buying process Early procurement involvement or early supplier involvement Potential suppliers participate in the actual design process for a new product

13. 3-13 TYPES OF ORGANIZATIONAL BUYING DECISIONS New tasks: Purchasing a product or service for the first time Straight rebuys: Buying the same product from the source it was bought previously Modified rebuys: Obtaining new information of a product or a similar product that was purchased in the past

14. 3-14 EXHIBIT 3.2 - TYPES OF ORGANIZATIONAL BUYING DECISIONS

15. 3-15

16. WHO MAKES THE BUYING DECISION? Manufacturing personnel for OEM products and capital equipment Do not make the ultimate purchase decision Users Start the buying process Could be an executive making a decision Initiators 3-16

17. WHO MAKES THE BUYING DECISION? Directly or indirectly provide information Economic influencer: Concerned about the financial aspects of a decision Technical influencer: Makes sure the technical requirements are met Coach: Advises and directs a salesperson in a buying process leading to sale Influencers 3-17

18. WHO MAKES THE BUYING DECISION? Control the flow of information and limit the alternatives considered Ensure that purchases are consolidated under one contract Reduce costs and increase quality Gatekeepers Make the final choice For straight rebuys the purchasing agent usually selects the vendor and places the order Deciders 3-18

19. 3-19 SUPPLIER EVALUATION AND CHOICE Evaluation and selection of products and suppliers are affected by the needs of: Organization Individuals making the decisions Categories of organizational and personal needs Rational needs: Performance of the product Emotional needs: Personal rewards and gratification of the person buying the product

20. EXHIBIT 3.4 - FACTORS INFLUENCING ORGANIZATIONAL BUYING DECISIONS 3-20

21. ORGANIZATIONAL NEEDS AND CRITERIA Economic criteria Life-cycle costing: Method for determining the cost of equipment or supplies over their useful lives Proves that a product with a higher initial cost will have a lower overall cost Quality criteria Firms expect their suppliers to support their efforts to provide quality products Salespeople need to know what organizational buyers are looking for 3-21

22. ORGANIZATIONAL NEEDS AND CRITERIA Service criteria Value analysis: Suppliers and customers work together to reduce costs and still provide the required level of performance Used by salespeople to get customers to consider a new product Useful for the out-supplier in a straight rebuy situation 3-22

23. 3-23 INDIVIDUAL NEEDS OF BUYING CENTER MEMBERS Types of needs Financial security Self-esteem and recognition Risk reduction To reduce risk, buying center members: Collect additional information Develop a loyalty to present suppliers Spread the risk by placing orders with several vendors

24. 3-24 INDIVIDUAL NEEDS OF BUYING CENTER MEMBERS Vendor loyalty: Continuing to buy from suppliers that proved satisfactory in the past Lost for good: Minimizing the chances of a poor decision by converting buying decisions into straight rebuys Decision becomes routine

25. 3-25 SUPPLY CHAIN MANAGEMENT Strategy of managing inventory while containing costs Just-in-time (JIT) inventory control: Minimizes the inventory by having frequent deliveries just in time for assembly into the final product Automatic replenishment: Form of JIT where the supplier manages inventory levels for the customer Electronic data interchange: Computer systems that share data across companies

26. 3-26 SUPPLY CHAIN MANAGEMENT Material requirements planning: Used to: Forecast sales Develop a production schedule Order parts and raw materials with delivery dates

27. 3-27 EXHIBIT 3.6 - EDI TRANSACTIONS

28. 3-28 SUPPLIER RELATIONSHIP MANAGEMENT (SRM) Strategy by which organizational buyers: Evaluate the relative importance of suppliers Determine with whom they want to develop partnerships Annual spend: Amount that is spent with each vendor and for what products Outcome - Ability to consolidate purchases and negotiate better terms

29. 3-29 SUPPLIER RELATIONSHIP MANAGEMENT (SRM) Vendor analysis: Summarizes the benefits and needs satisfied by a supplier Buyer rates the supplier and its products on following criteria Price, quality, performance, and on-time delivery Sustainability - Making purchasing decisions that do not damage the environment

30. 3-30 MULTIATTRIBUTE MODEL OF PRODUCT EVALUATION AND CHOICE Used to understand the factors individual members of a buying center consider in: Evaluating products Making choices Used in complex decisions involving several vendors Based on the idea that people view a product as a collection of characteristics or attributes

31. MULTIATTRIBUTE MODEL OF PRODUCT EVALUATION AND CHOICE Performance evaluation of characteristicsImportance weightsOverall evaluationValue offeredSupplier selection 3-31

32. IMPLICATIONS FOR SALESPEOPLE Information needed for salespeople to develop a sales strategy Suppliers or brands the customer is considering Product characteristics being used in the evaluation Customer’s rating of each product’s performance on each dimension Weights the customer attaches to each dimension 3-32

33. IMPLICATIONS FOR SALESPEOPLE Approaches for changing perceived value Increasing the performance rating for the product Decreasing the rating for a competitive product Increasing or decreasing an importance weight Adding a new dimension Decreasing the price of the product 3-33