indl mktg buying behavior models 2

8/4/2019 INDL MKTG Buying Behavior Models 2

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(A) What is Industrial (Business) marketing? It is marketing of products / Services to business

firms. In contrast consumer marketing is marketing

products / services to individuals & households.

(B) What is the difference between industrialmarketing, B2B marketing, Business marketing &Organizational Marketing?

No Difference!

(C) What are the differences between Industrial& Consumer Marketing? Basic tasks of marketing are same difference Exists

in the characteristics shown next.


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AREAS / CHARCTERISTICS IND MARKETS CONSUMER MATKETS

Market GEO Concentrated

Few Buyers

GEO Disbursed

Large no. Of Buyers

(Mass

Markets

Products Technically Complex

Customized

NonTechnical

Standardized

Service Very Important Somewhat important

Buyer Behavior Various Functional

specialists involvedMainly Rational buying

decisions.

Interpersonal

relationship between

buyers and sellers.

Family members involved

Physiological /Psychological Social need

based buying decisions

NonPersonal

Relationship.

Channel More direct

Multi Channel

Indirect

Few Channels with many

layers

Promotional Importance to personal

selling

Importance to Advertising.

Pricing Competitive bidding /

Negotiated prices

MRP


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(D) Why Industrial Demand is called Derived

Demand ?

Because Industrial demand is derived from (or dependson) demand for consumer goods / services.

E.G. Steel is demanded for production of consumerdurable products like Cars & Refrigerators, which aredemanded by household consumers. Hence, Demand

for Steel is derived from forecast of consumer demandfor Cars, Refrigerators, Washing Machines, Etc.,

www.a2zmba.com By Prof. Havaldar

IM/1-4/5


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SUMMARY OF CHAPTER-1

Industrial / Business Marketing is marketing ofproducts / services to business firms.

Differences between Industrial & Consumermarketing are seen in areas / Characteristicslike Market, Product, Buyer Behavior, Channel,Promotion & Price.

Industrial Demand is derived from demand for

consumer goods / services.


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CHAPTER 2UNDERSTANDING INDUSTRIAL

MARKETS AND ENVIRONMENT

LEARNING OBJECTIVES

Understand the types of industrial customers as well as

industrial goods and services. Know the marketing implications for different types of

customers and products.

Understand the purchasing orientations and practices

of industrial customers. Know types of environment and strategies to manage

external environment.



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(A) What are the types/classifications ofIndustrial/Business customers? INTERMEDIARIES /

MIDDLEMEN (DISTRIBUTORS)

OEMS

USERS

PUBLIC SECTORUNITS (BHEL)

GOVT. UNDERTAKINGS(RAILWAYS, DEFENCE UNITS)

PUBLIC INSTITUTIONS(GOVT. HOSPITALS)

PRIVATE INSTITUTIONS(SCHOOLS, COLLEGES)

MANUFACTURINGUNITS (SUGAR, MILK)

NON-MANUFACTURINGUNITS (BANKS, HOUSING)

COMMERCIALENTERPRISES

GOVERNMENTCUSTOMERS

INSTITUTIONALCUSTOMERS

CO-OPERATIVESOCIETIES

INDUSTRIAL /BUSINESSCUSTOMERS

FIG. TYPESOFINU

T

I

/

I


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FIG. CLASSIFICATION / TYPES OF INDUSTRIAL PRODUCTS / SERVICES

(B) How are Industrial Products / Services Classified?

Classification into 3 Groups shown below.

RAW MATERIALS (IRON ORE, CRUDE OIL)

MANUFACTURED MATERIALS

(STEEL, FUEL OIL)

COMPONENT PARTS (BEARINGS, TYRES)

LIGHT EQPT (COMPUTERS, HAND TOOLS)

PLANT/BUILDING (FACTORIES, OFFICES)

SUPPLIES (LUBRICANTS, ELECTRICAL ITEMS)

SERVICES (LEGAL, COURIER)

MATERIALS& PARTS

(ENTER PRODUCT

DIRECTLY)

CAPITAL ITEMS(USED IN

PRODUCTION /OPERATIONS)

SUPPLIES /

SERVICES(TO SUPPORT

OPERATIONS)

INDUSTRIAL

PRODUCTS /SERVICES

SUB ASSEMBLIES (EXHAUST PIPE IN M.C.)

HEAVY EQPT (MACHINES, TURBINES)


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(C) Marketing Implications for different types of

products & customers?i. For Materials & Parts, Direct selling is done to

large OEMs (Original Equipment Manufacturers)and users, but indirect selling through industrial

distributors / dealers becomes cost effective forsmaller volume OEMs and users.

ii. For Capital items, Direct selling throughcompany sales force is common, with extensiveinteractions on technical & commercial factors.

iii. For Supplies Industrial distributors / dealers aremostly used but for marketing of services, word-of-mouth plays an important marketing role, withquality & price of service as key factors.


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(D) Purchasing Orientations of Business Buyers Business buyers/ Industrial customers follow one of the three

purchasing orientations:(i) Buying, (ii) Procurement, or (iii) Supply chainManagement.

(i)Buying Orientation : The firm with buying orientationfollows the practice of (a) selecting lowest price supplier, (b)

gaining power over suppliers and (c) avoiding risk of buyingfrom new suppliers. It has a Short-term focus.

(ii) Procurement Orientation : The purchasing firm withprocurement orientation has a long-term focus. It achievesthe objectives of quality improvement and cost reductions byfollowing the practices of (a) collaborative relationship with

major suppliers and (b) working closely with other functionalareas in the company.

(iii) Supply chain Management Orientation : Here, thefirm focuses on improving the value chain from raw materialsto end users. This is achieved by (a) delivering superior valueto end users, (b) outsourcing non-core activities, (c) and

supporting collaborative relationships with major suppliers.


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(E) Purchasing Practices of Different Types ofIndustrial / Business Customers

(i)Purchasing in commercial enterprises

Involve Technical & Commercial depts.

Major Tasks / Procedure: identifying, negotiating, selectingsuppliers, building relationship.

Purchasing to improve operational efficiency &contribute tofirms competitive advantage.

(ii) Purchasing in Govt. units

DGS&D agency finalizes rate contracts for standard productsfor Govt. units.

Main Tasks / Procedure : Registration of the firm & itsProducts, Tender Advertisements, no negotiation in Opentenders, negotiations done in closed / limited tenders.

Orders Finalised on lowest bidders (suppliers offeringLowest prices / Landed Costs)



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(iii) Purchasing in Institutions

If the Institute is a Govt. Hospital Purchasingpractices of Govt. units Followed

Similarly a private School / College follows practicesof commercial enterprises

However, better to study each major institution.

(iv) Purchasing in cooperative societies

Similar to Institutional purchase.



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(E) Types & Analysis of Environment


AIR & WATER POLLUTION

SOLID WASTE DISPOSAL

CONSERVING NATURAL RESOURCES

WATER, POWER, TRANSPORTATION

COMPANY LOCATION, IMAGE / REPUTATION

R & D & PRODUCTION FACILITIES

ECOLOGICAL

PHYSICAL

INTERNAL(S&W ANALYSIS)

MICRO(AFFECTS APARTICULARFIRM)

ENVIRONMENT

LOW-COST, SKILLED MANPOWER

H R & FINANCIAL RESOURCES

MARKETING EFFECTIVENESS

CUSTOMERS & COMPETITORS

SUPPLIERS

ECONOMIC

TECHNOLOGICAL

GOVT., POLITICAL, LEGAL

CULTURAL & SOCIAL

PUBLIC - PRESS, SHAREHOLDERS, INVESTORS &

PUBLIC INTEREST GROUPS

EXTERNAL(O&T ANALYSIS)

MACRO(AFFECTSALL FIRMS)


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(F) Strategies for Managing Changing External

Environment.

(i) Independent Strategies.

(ii) Cooperative Strategies.

(iii) Strategic Planning. It Aims at keeping thefirm

consistently successful in changing marketingenvironment by market oriented strategic

management.



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SUMMARY OF CHAPTER - 2Types /Classifications of Industrial/ Business Customers are

(i) Commercial Enterprises, (ii) Government

(iii) Institutional, (iv) Cooperative societies.

Industrial Products/Services are classified into

(i) Materials & Parts, (ii) Capital Items, (iii) Suppliers & Services. Marketing strategies differ for different product & Customer

types.

Industrial / business Buyers follow one of the three purchasing

orientations : buying, procurement, or supply chain management. Purchasing practices vary for different types of customers. It is

important to understand it for each major customer.

Types of environment are Ecological, Physical, Internal, &

External, Strategies used for managing changing external

marketing environment are : (i) Independent, (ii) Cooperative,www.a2zmba.com By Prof. Havaldar


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PURCHASING OBJECTIVES OF FIRMS

Reliability in delivery.

Consistent product Quality.

Lowest price (If delivery & Quality objectives are

met)

Excellent pre & post sales services.

Long Term collaborative relationship.

Industrial buyers try to achieve organizational

purchasing objectives & personal objectives like

higher status, job security, salary increments,

promotions & social relationships.www.a2zmba.com By Prof. Havaldar


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Industrial Markets Consumer Markets

MarketStructure

Geographically Concentrated Geographically Dispersed

Oligopolistic Competition Monopolistic competition

Products

Technical Complexity

Customized Standardized.

Service very important Service somewhat important

BuyerBehavior

Functional Involvement Family Involvement

Interpersonal Relationship No personal Relationship


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Industrial Markets Consumer Market

Decision Making Distinct observable stages Unobservable mentalstages

Channels Shorter & Direct Indirect & multiple linkages

Promotion Emphasis on Personal Selling Emphasis on Advertising

Price Competitive BiddingsAnd Negotiating

List Prices


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Industrial Buying Decision Process

Marketers must study this for developing

effective marketing strategy.

In Consumer Marketing, Buyer makes

buying decisions based on certain mental

stages like (i) Problem (Need) Recognition,(ii) Information Search (iii) Evaluation

(iv) Purchase decision (v) Post

Consumer Purchase Behavior


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PHASES IN INDUSTRIAL BUYINGDECISION MAKING PROCESS /BUYPHASES

In Buying Decision making process,

includes sequential activities / stages /

phases, as follows:

PHASE1 :- Recognising A problem / need.

PHASE 2 :- Determining Characteristics &

Quantity needed *. PHASE 3 :- Developing specifications of

the product*.


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PHASES IN INDUSTRIAL BUYINGDECISION MAKING PROCESS /BUYPHASES contd

PHASE 4 :- Searching & QualifyingSuppliers.

PHASE 5 :- Obtaining & Analyzingsuppliers offers*

PHASE 6 :- Evaluating & SelectingSuppliers. (shown on next slide)

PHASE 7 :- Selecting an order routine PHASE 8 :- Post Purchase evaluation

* These are in addition to five stages ofconsumer buying decision process.


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A SUPPLIER EVALUATION SYSTEM.

ATTRIBUTE

/ FACTOR

WEIGHT/

IMPORTANCE

SUPPLIERS

PERFORMANC

E

SUPPLIERS

RATING

SCORE

PRICE 15 0.5 07.5

QUALITY 30 0.7 21.0

DELIVERY 25 0.6 15.0

SERVICE 20 0.7 14.0

FLEXIBILIY 10 0.4 04.0

TOTAL 100 61.5


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Three Common types of purchase/buying situations

New Task / New Purchase :Buyers have limited new product/service knowledgeand experience. Hence, more information is obtained,

more people are involved, risks are more, and decisionstake longer time.

Modified Rebuy / Change in supplier :This situation occurs when the firm is not satisfied withthe performance of existing suppliers, or there is a

change in product specifications.

Straight Rebuy / Repeat purchase :Such decisions are routine, with less risks and lessinformation needs, and can be taken by juniorexecutives.


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Buygrid Framework

BUYPHASES BUYCLASSES

New Task Modified

Rebuy

Straight

Rebuy

1. Problem Recognition Yes May Be No

2. Characteristics of Product Yes May Be No

3. Product Specification Yes May Be No

4. Supplier Search Yes Yes No

5. Analyzing Supplier Offers Yes Yes May Be

6. Supplier Selection Yes Yes No

7. OrderRoutine Selection Yes Yes May Be

8. Post Purchase Review Yes Yes Yes


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BUYGRID FRAMEWORK ANALYSIS

All Phases are Applicable for a New Task.

Some Phases are Applicable for modified / Straight

Rebury.

New task situation is most difficult since buyers have

less knowledge, no experience & more people

involved.

Modified Rebury is not difficult situation since it has

few activities.

Straight rebury situation is handled routinely, as

repeat purchases are made.


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Buying Center roles of key members.

Initiators. First recognize problem / need. Anyindividual in buying firm often, users.

Buyers. Carry out purchase activities. They arepurchase officers / executives.

User. Any person who uses the product / service.

Influencers. Influence buying decision. Technicalpeople are often key influencers.

Deciders. Make buying decisions.

Gatekeepers. They control / filter information &meetings with buying center members.

S l / M k i


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Sales / Marketing personsmustidentify important members of buyingcentre.

Buying centre: Purchase committee, buyingcommittee or decision making unit.

Members of buying centre are(i) Technical persons. Represent design,production/operations, maintenance, Q.C.,Industrial Engg. Depts.

(ii) Purchasers / Materials dept.(iii)Accounts / Finance persons.

(iv) Marketing persons

(v) Top management persons. G. M. & above.


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Organizational buying behavior

Industrial / business buyers are influencedby many factors. Two most importantfactors are (i) Organizational factors /task oriented objectives, like best

product quality, lowest price, dependabledelivery.

(i) Personal factors / Non-taskoriented objectives, such as goodincrements, promotion, Job security,personal favors.


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When suppliers offersare similar

Buyers can satisfy organizationalobjectives from any supplier. Hence,

personal factors become important. However, when suppliers offers differ

substantially, buyers give importance to

organizational factors to satisfyorganizational objectives.


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Focuses on (i) Psychological aspects of

individual buyers (Component 1), (ii)

Conditions causing joint decision making(Component 2), (iii) Conflict among those

involved in decision process & resolution of

conflict (Component 3).

TheShethmodel of industrial

buyer behavior


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TheShethmodel .contd

Situational factors include economic

conditions, labour disputes, mergers &

acquisitions.

The model does not explain their influence

on buying process.


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Fig. : THE SHETH MODEL OF INDUSTRIAL BUYER BEHAVIOUR

Component (1) Component (2) Component (3) Situational Factors

Differences amongindividual buyerscaused by factors :

Background ofindividuals (Education,

role & life style).Their informationsources.Active SearchPerceptual Distortion

Satisfaction withpast purchases

Variables that Determineif buying decision isautonomous or joint :A) Product SpecificFactors :

Time PressurePerceived RiskType of Purchase

B) Company SpecificFactors :

Company SizeCompany OrientationDegree ofCentralisation

Methods used forconflict resolutionin joint-decisionmaking process :

Problem SolvingPersuasionBargainingPoliticking

Supplier orBrand Choice


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Webster & Wind model

Environmental Variables

Organisational Variables

Buying center Variables

Individual Variables


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Environmental Variables

Physical, Technological

Economic, Cultural

Political and Legal

Labour unions

Customer demandsCompetitive practices

Supplier information

WEBSTER AND WIND MODEL

Organisation Variables

Objectives and goals

Organisation Structure

Purchasing Policies / Procedures

Evaluation & reward systems

Degree of decentralisation

Buying Centre Variables

Authority, Size

Key influencers

Interpersonal relationship

Communication

Organisation Buying Decisions

Choice of Suppliers

Delay decision & get more information

Make, Lease or buy

Do not buy

Individual Variables

Personal Goals, Values

Education, Experience

Expertise, Job Position

Lifestyle, Income


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Important Customer ServiceElements.

Pre Sales Service : Advising, Informing,Problem solving

During Sales Service : Product availability,ontime delivery, order cycle time, andinformation.

Post Sales Service : Warranty, AMC,Repair, Installation & Training.

Develop superior service package.

Test, Set Goals, and Establish Control system


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Summary

Industrial marketers should understand thatbusiness buyers try to achieve both

organizational & personal objectives. Industrial buying decision process consists of

eight steps / stages (buyphases) & threetypes of buying situations (buyclasses).

Buygrid model combines buyphases &buyclasses.


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Summary

Marketers must understand roles & key members ofbuying centre, including key buying influencers.

Many factors influence organizational buying

behavior, but major factors are organizational ( ortask oriented ) objectives and personal (non taskoriented ) objectives.

The Sheth model of industrial buyer behavior iscomprehensive, focusing of psychological & jointdecision making aspects.

Webster and wind model is also widely used &comprehensive model on buyer behavior.

indl mktg buying behavior models 2

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