4 It’s importance …Knowledge of the ways and means adopted by an organization for the procurement of its needs is the first step in developing a strategy to cater to these needs
5 Buying Process The buying process is: An ‘exchange ‘ process between buyers & sellersInvolves a decisionThat comes through an ‘evaluation’Establishes a ‘relationship’ between the buyer and the sellerThe seller’s objective is to make it to the last ‘A’ on “AIDA”!!
6 Exchange process - Centres The exchange process brings 2 centres into playSelling centreGets all the information &executes selling strategyBuying centreGroup that ‘share’ goals & risks of purchasing actionComposition of group decided by need, usually functional
7 Buying – Selling process MarketingPurchasingManufacturingSellingBuyingR & DEngineeringDistributionMarketing
8 Stages in a ‘buying process’ 8 stages in the buying process:Recognition of need & a solutionEstablish specifications & quantity of the item neededDescribe them to the prospective vendorSearch for prospective vendorsObtain proposalsEvaluate proposalsSelect a vendorEvaluate performance and feedback
9 Stages in a ‘buying process’ 8 stages in the buying process:Recognition of need & a solutionEstablish specs & quantity of the item neededDescribe them to the prospective vendorSearch for prospective vendorsObtain proposalsEvaluate proposalsSelect a vendorEvaluate performance and feedback
10 Buying situations There are 3 types of buying situations: New taskStraight rebuyModified rebuyEach of these types must be looked at in terms of the 8 stages
11 1. New Task The “New task” can fall into 2 categories Judgmental New activity – with no prior data or experiences to fall back onUnpredictable. Requires ‘judgment’.StrategicOf great importance – strategically and financially - to the organization, even for the routine items of purchase
12 1. New Task - Guidelines Gain an advantage by: Being involved from the beginning in the ‘New task”Those already ‘in’ have distinct advantage in getting first access to the information
13 2. Straight rebuy Characterized by: Recurring requirement Buyers know the ‘business’ – especially the selection criteriaSuppliers have already been evaluateConditioned, ‘Pavlovian’ response to new suppliers
14 2. Straight rebuy - Guidelines As the ‘purchase’ is routine, and the approach is likely to be casual: “In” supplier: Reinforce position – that you’re the best. “Out” supplier: Develop a relationship. Wait for an opportunity.
15 3. Modified rebuy‘Purchase’ needs constant analysis and evaluation as changes could yield significant benefitsExamplesImport substitutionDirect relationship with manufacturer – cutting out middlemen
16 3. Modified rebuy - Guidelines Again, would depend on current status:“In” supplier:Work towards moving the item into “straight rebuy” categoryNip moves to source afresh in the bud – be proactive“Out” supplier:Hold buyer in “uncertainty”Determine factors that made buyer want to take a fresh lookOffer benefits not given by others
17 The “Influentials” Every buying process would have some “influentials” They could change – depending on the stage the purchasing process is inImportant to identify them
18 Evaluating potential suppliers Seller cannot afford to be ‘filtered’ out at any stage, especially at the startWould apply to ‘product’ and ‘capability’Need to understand, and account for, factors that could influence the buyerRational factors: e.g. economicEmotional factors:Both can vary – person, functional area etcSeller must identify these factors quicklyBoth get translated into “value”
19 Measuring value “Value analysis” – used to measure the value Commonly used:Value-in-useCalculates value based on total cost of usage over a period
20 Measuring capability Many areas: Technical / production capability Managerial capabilityFinancialServiceQualitySupplier would be evaluated on each, and an index developed for supplier / product
21 Relationship management - Transaction Relationship between supplier and buyer can be classified on the character of the transaction:Pure Transaction: One timeRepeated Transaction: Frequent, but essentially ‘one-time’ type transactionsLong term: Relationship is still adversarial in naturePartnership: Working togetherAlliance: Working together towards a shared goal
22 Relationship management – Duration & Cost Relationships can also be looked at from the duration of the relationship, and the cost involved in switching suppliers.Lost-for-Good Customers:Unlikely to change suppliersHigh cost involved to changeBenefits of switch not commensurate with the risk
23 Relationship management – Duration & Cost Always-a-Share Customer:Ever willing to switch!Low switching costPerspective – transaction to transactionIntermediate Customer:In betweenFlaring-out by UnbundlingFlaring-out with Augmentation
24 Relationship management - Strategy A) Flaring-out by UnbundlingFrom total package to corePrice lowered at each stepPrice of consolidated bundle less than aggregate of eachUseful for transaction type customersB) Flaring-out with AugmentationCollaborativeProduct enriched by features valued by customerPrice premium on package
26 It’s importanceBuyer is influenced by forces within and without his organizationNecessary to understand these forces, and how they have changed, for the seller to respond effectively to them
27 Forces impacting behaviour Organizational behaviour impacted by primarily four forces:Environmental forcesOrganizational forcesGroup forcesIndividual forces
28 Environmental forces 6 types: Economic Political & Legal Cultural PhysicalTechnologicalEnvironmental Uncertainty
29 Environmental Forces 1. Economic Very rational Demand is derived (industrial products); hence final consumer market has to be watched very carefullyThe same economic force could have a differential impact, and not impact demand equally for all products. Could complicate issues.(Example: Impact of interest rates on various sectors)
30 Environmental Forces 2. Political & Legal Rational – generally! Examples:1. EEC rules governing imports2. Preferred status – for many countries3. State incentives (Setting up automobile units)4. “Sons of the soil” policy5. Reservations
31 Environmental Forces 3. Cultural 4. Physical Examples: 1. Women – in the Gulf countries4. Physical1. Proximity to users2. Landed cost concept
32 Environmental Forces 5. Technological 6. Environmental uncertainty Technological change influences what an organization can buy / use, and in turn what it can giveAs pace increases, impacts necessity to take decisions quickly6. Environmental uncertaintyMore uncertain, more people involved
33 Organizational Forces Buying process influenced by the valence the organization attaches to:AchievementRulesInnovationIndustriousnessSelling must consider all this – the ‘personality’ of the organization – and the way it is organized
34 Positioning of purchasing Purchasing can be organized – centralized or decentralizedCentralized:Originates from a commonality of requirementsOriginates from requirement of controlLeads to specializationPoint for discussion:Said that the need to involve other functions likeR&D and Engineering is an important factor forcentralization.Is this true?
35 Group Forces The answers to these questions have to be sought: Who are the members of the buying centreRelative influence of each memberCriteria used for evaluationAll can change from stage to stage.
36 Individual ForcesThe ‘buying’ individual also brings his personal ‘slant’ (selective interpretation) into the pictureExposure: Accept those consistent with own beliefsAttention: Paying attention to those consistent with own beliefsPerception: Interpret inputs in a way consistent with own beliefsRetention: Retain those consistent with own beliefsComposition of all can change from stage to stage - it is task dependent.
37 Individual ForcesBuyers, as individuals, would also like to lower risk:ExternalVisit plant, audit supplierCheck with other organizations using the supplierInternalConsult with others in the company
38 Group vs. Individual decision making Product specificRisk: Higher – rely on groupPurchase type: New task – rely on groupTime (Urgency): IndividualCompany specificSize: Large – GroupCentralized: Individual
39 Exercise! Pick a ‘purchase’ situation Analyze the situation in terms of the parameters discussed
40 Exercise – what would you look at? DefineBuying situationNew task / Straight rebuy / Modified rebuyStatus of supplierIn / OutEvaluationValueSupplier capability (let’s drop this for this exercise!)Relationship soughtTransaction / Long term
41 Moving Forward Read: Next Class PGDM-RS-04: Thursday, Jan 14, 2010 Business Marketing Management: Hunt & SpehChapter 5: Business Marketing IntelligenceChapter 7: Demand Analysis
42 We can’t forget this! Dead Cat Bounce A short-term increase in the value of a stock following a precipitous drop in value.Jack SpeakTotally confusing!