Stages of Business Buying
Understanding the stages of business buying is important to a marketing firm if it is to market its product properly.
LEARNING OBJECTIVES
Describe the different stages within the business buying decision process
KEY TAKEAWAYS
Key Points
- The stages of business buying includes recognizing the problem, developing product specs to solve the problem, searching for possible products, selecting a supplier and ordering the product, and finally evaluating the product and supplier performance.
- Buying B2B products is risky. Usually, the investment sums are high and purchasing the wrong product or service, the wrong quantity, the wrong quality or agreeing to unfavourable payment terms may put an entire business at risk.
- Making a riskier investment can yield to high returns. However, there is also a greater chance that they could lose their investment as well. This can be seen in this diagram. Those involved in the decision buying process need to weigh the risks against the expected returns.
- In order to entice and persuade a consumer to buy a product, marketers try to determine the behavioral process of how a given product is purchased. Understanding the nature of customers’ buying behavior is important to a marketing firm if it is to market its product properly.
Key Terms
- B2B: Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.
- B2C: The sale of goods and services from individuals or businesses to the end-user.
Stages of the Business Buying Decision Process
The main difference between B2B and B2C is who the buyer of a product or service is. The purchasing process is different in both cases and the following is a list of the stages involved in B2B buying:
Step 1: Recognize the Problem
- Machine malfunction, firm introduces or modifies a product, etc.
Step 2: Develop product specifications to solve the problem
- Buying center participants assess problem and need to determine what is necessary to resolve/satisfy it
Step 3: Search for and evaluate possible products and suppliers
- look in company files and trade directories, contact suppliers for information, solicit proposals from known vendors, examine websites, catalogs, and trade publications
- conduct a value analysis – an evaluation of each component of a potential purchase; examine quality, design, materials, item reduction/deletion to save costs, etc.
- conduct vendor analysis – a formal and systematic evaluation of current and potential vendors; focuses on price, quality, delivery service, availability and overall reliability
Step 4: Select product and supplier and order product
- This step uses the results from Step 3
- An organization can decide to use several suppliers, called multiple sourcing. Multiple sourcing reduces the possibility of a shortage by strike or bankruptcy.
- An organization can decide to use one supplier, called sole sourcing. This is often discouraged unless only one supplier exists for the product; however it is fairly common because of the improved communication and stability between buyer and supplier.
Step 5: Evaluate Product and supplier performance
- Compare products with specs
- Results become feedback for other stages in future business purchasing decisions
This 5 step process is mainly used with new-task purchases and several stages are used for modified rebuy and straight rebuy.
Understanding the stages of business buying and the nature of customers’ buying behavior is important to a marketing firm if it is to market its product properly. In order to entice and persuade a consumer to buy a product, marketers try to determine the behavioral process of how a given product is purchased.
Risks
Buying one can of soft drink involves little money, and thus little risk. If the decision for a particular brand of soft drink was not right, there are minimal implications. The worst that could happen is that the consumer does not like the taste and discards the drink immediately. Buying B2B products is much riskier. Usually, the investment sums are much higher. Purchasing the wrong product or service, the wrong quantity, the wrong quality or agreeing to unfavourable payment terms may put an entire business at risk. Additionally, the purchasing office / manager may have to justify a purchasing decision. If the decision proves to be harmful to the organization, disciplinary measures may be taken or the person may even face termination of employment.
Risk and Return: Less risky investments yield less returns. The riskier the investment, the higher the yield.
Measuring Vendor Performance
Firms can measure vendor quality, service, availability, and overall reliability to determine future engagement with the vendor.
LEARNING OBJECTIVES
Describe the different tactics B2B companies use to search for and evaluate products and supplier performance
KEY TAKEAWAYS
Key Points
- Supply managers evaluate suppliers utilizing the tools of value assessment and the fundamental value equation. They estimate the benefits and total costs paid to each vendor.
- Vendors play a role in two steps of the business buying decision process. Steps 3 and 5 both require researching new and current vendors and analyzing various factors to determine if they should be used again.
- Vendor analysis is a formal, systematic evaluation of current and potential vendors. This focuses on price, quality, service, availability and overall reliability.
Key Terms
- fundamental value equation: Customer Perceived value of a product is the difference between the prospective customer’s evaluation of all the benefits and all the cost of an offering and the perceived alternatives. Formally, it may be conceptualized as the relationship between the consumer’s perceived benefits in relation to the perceived costs of receiving these benefits. It is often expressed as the equation: Value = Benefits / Cost.
Introduction
Decision makers complete five steps when making a business buying decision:
- Recognize the problem
- Develop product specifications to solve the problem
- Search for and evaluate possible products and suppliers
- Select product and supplier and order product
- Evaluate product and supplier performance
Vendor performance measurement plays a role in Steps 3 and 5.
Step 3: Search for and Evaluate Possible Products and Suppliers
Step 3 requires searching for and evaluating possible products and suppliers. This can be done in several ways:
- Looking in company files and trade directories, contacting suppliers for information, soliciting proposals from known vendors, and examining websites, catalogs and trade publications.
- Performing a value analysis (an evaluation of each component of a potential purchase). This examines the quality, design, and materials, with the intention of finding cost savings opportunities.
- Performing a vendor analysis (a formal, systematic evaluation of current and potential vendors). This focuses on price, quality, service, availability, and overall reliability.
Step 5: Evaluate Product and Supplier Performance
Step 5 of the business buying decision process involves evaluating product and supplier performance.
Firms need to compare products with specifications. The results become feedback for other stages in future business purchasing decisions. If a firm has any negative issues with a vendor, it is likely they will look for another one.
Business Feedback Loop: Firms need to compare products with specifications. The results become feedback for other stages in future business purchasing decisions.
Supplier performance evaluation teams are used to monitor activity and performance data, and to rate vendors. But supplier performance evaluation teams are just one of the many teams companies deploy to address tactical issues.
Supplier certification teams help selected suppliers reach desired levels of quality, reduce costs, and improve service. Specification teams select and write functional, technical, and process requirements for goods and services to be acquired.
Supply managers evaluate suppliers utilizing the tools of value assessment and the fundamental value equation. They estimate the benefits and total costs paid to each vendor. Consistent with supply management orientation, these evaluations can be complemented with the firm’s customer feedback. In this way, supply managers can better focus or redirect the efforts of the entire supply network toward the delivery of superior value to end-users.
Influences on Business Buying
Environmental, organizational, and interpersonal factors all impact the business buying decision process.
LEARNING OBJECTIVES
Give examples of how environmental, organizational, interpersonal, and individual factors influence the business buying decision process
KEY TAKEAWAYS
Key Points
- The personal characteristics of the people in the buying center can be influential. Age, education level, personality, tenure, and position within the company all play a role in how a person will influence the buying process.
- The company’s objectives, purchasing policies and resources can influence the buying process.
- Firms can suffer from strategic inertia, the automatic continuation of strategies unresponsive to changing market conditions.
Key Terms
- Buying Center: A group of employees, family members, or members of any type of organization responsible for finalizing major purchase decisions.
Influences on Business Buying
Four main influences impact the business buying decision process: environmental factors, organizational factors, interpersonal factors, and individual factors.
Environmental Factors
Competitive conditions may enable a company’s short-term success, where the organization is able to operate irrespective of customer desires, suppliers, or other organizations in their market environment. Early entrants into emerging industries are likely to be internally focused due to few competitors. During these formative years, customer demand for new products will likely outstrips supply, while production problems and resource constraints represent more immediate threats to the survival of new businesses.
Nevertheless, as industries grow, these sectors become more competitive. New entrants are attracted to potential growth opportunities, and existing producers attempt to differentiate themselves through improved products and more efficient production processes. As a result, industry capacity often grows faster than demand and the environment shifts from a seller’s market to a buyer’s market. Firms respond to changes with aggressive promotional techniques such as advertising or price reductions to maintain market share and stabilize unit costs.
Different levels of economic development across industries or countries may favor different business philosophies. For example:
- Certain environmental and economic factors can lead to an apprehensive buying center.
- Firms can suffer from strategic inertia, or the automatic continuation of strategies unresponsive to changing market conditions.
Organizations that fall victim to strategic inertia believe that one way is the best way to satisfy their customers. Such strategic inertia is dangerous since customer needs as well as competitive offerings eventually change over time.
For example, IBM’s traditional focus on large organizational customers caused the company to devote too little effort to the much faster-growing segment of small technology start-ups. Meanwhile, IBM’s emphasis on computer technology and hardware like the IBM cell processor made the company slow to respond to the explosive growth in demand for Internet-based applications and services. Thus, in environments where such changes happen frequently, the strategic planning process needs to be ongoing and adaptive. All business participants, whether from marketing or other functional departments, must pay close attention to customer preferences and competitor activities.
IBM Cell Processor: IBM traditionally focused on large organizational customers. It did not put enough effort into small technology start-ups, which grew at a faster pace.
Organizational Factors
Organizational factors such as the company’s objectives, purchasing policies, and resources can influence the buying process.The size and composition of the buying center also plays a role in the business buying decision process.
Interpersonal Factors
The interpersonal relationships between people working in the company’s buying center can hinder the buying process. Buying center members need to trust each other and operate under full disclosure.
Individual Factors
The personal characteristics of people in the buying center can influence the buying decision process. Individual factors including age, education level, personality, job tenure, and position within the company all play a role in how a person influences the buying process.