60 terms

Capter 3 Buying Behavior and the Buying Process

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Terms in this set (...)

Types of customers
producers, resellers, government agencies, institutions, and consumers
Producers
buy products and services to manufacture and sell there products and services ti customers
Buyers working for producers are involved in two types of buying situations:
1, buying products that will be included in the products the company is manufacturing 2. buying products and services to support the manufacturing operation
Original Equipment Manufactures (OEMs)
purchase goods (components subassemblies, raw and processed materials) to use in making their products. Example- distributor sells pizza toppings to a restaurant = OEM purchase
Salespeople selling OEM products need to demonstrate that their products___1___. Most OEM products are bought ___2___.
1. help customers produce products that will offer superior value 2. in large quantities on an annual contract
End Users
when producers buy goods and services to support their own production and operations. Includes the purchase of capital equipment, maintenance, repair, and overhaul (MRO) supplies, and services
Capital equipment
major purchases, such as mainframe computers and machine tools that the pricer used for a number of years. Sales people work with a namer of people involved in the purchase decision and need to demonstrate the reliability of their products and their support services. Purchase also often focuses on lifetime operating cost rather than the initial purchase price because equipment is used over a long period of time.
MRO supplies
paper towels and replacement parts for machinery. Minor expense
Services
include Internet and telephone connections, employment agencies, consultants, and transportation
Resellers
buy finished products/services with the intention to resell them to businesses and consumers.
Resellers consider 3 elements when making decisions about which products to sell:
profit margin, turnover, and effort. Res(ROI)
Profit margin
Resellers want to maximize their return on investment (ROI), or how much they make on each sale
turnover and effort
how quickly a product will sell and how much effort it takes to sell the product
The largest customer for goods and services in the United States are...
federal , satte, and local governments; which collectively purchase goods and services valued at $1 trillion annually.
Effective selling to government agencies requires...
a thorough knowledge of their unique procurement procedures and rules. Salespeople also need to know about projected needs so they can influence the development of the buying specifications
Derived demand
purchases made by OMEs ultimately depend on the demand for their products-- either other organizations or consumers
Sales to OEMs and resellers are based on...
derived demand rather than direct demand
Steps in the Organizational Buying Process:
1. recognition of need 2. definition of he product type needed 3. development of detailed specifications 4. search for qualified suppliers 5. acquisition and analysis of proposals 6. evaluation and selection of a supplier 7. placing and receiving the order 8. evaluation of product performances
1. Recognizing a Need or a Problem
buying process starts when someone realizes a problem, and employees in customer's firm or outside sales people can trigger the recognition. Salespeople often trigger the buying process by demonstrating how their products can improve the efficiency of the customer's operation
2. Defining the Type of Product Needed
develop general approach to solving problem. Problem solution is defined in terms of purchasing a product or service--the automated assembly equipment needed--and the buying process moves to step 3.
3. Developing Product Specifications
specifications for the product needed to solve the problem are prepared and used by potential suppliers to develop proposals and buyers will use the specifications to objectively evaluate the proposals.
4. Searching for Qualified Suppliers
customer looks for potential suppliers
5. Acquiring and Analyzing Proposals
qualified suppliers are asked to submit proposals and salespeople work with people in their company to develop their proposal.
6. Evaluating Proposals and Selecting a Supplier
customer evaluates the proposals. After preferred supplier is selected, further negotiations may occur concerning price, delivery or specific performance features
7. Placing and Order and Receiving the Product
order is placed with the selected supplier. Order goes to the supplier, who acknowledges receipt and commits to a delivery date. After product is shipped, the buying firm inspects the received goods and pays the supplier for the product. Salespeople need to make sure the paperwork is correct and their firm knows what has to be done to satisfy the customer's requirements.
8. Evaluating Product Performance
final step of purchasing process where product performance is evaluated formally or informally by people involved in the buying process. Supplier is also evaluated on accuracy of billing, how quick service calls were handled and similar criteria. Sales people need to work with the users to make sure the product performs well and work with purchasing agents to ensure that they are satisfied with the communications and delivery. This support ensures that the salesperson's product will give a positive evaluation and that they will be considered a qualified supplier in future procurement.
Creeping Commitment
a customer becomes increasingly committed to a particular course of action while going through the steps in the buying process. As decisions are made at each step, the range of alternatives narrows; customer becomes more and more committed to a specific course of action and vendor.
Early procurement involvement/ early supplier involvement
purchasing components/materials as part of new product development,buyers are more interested in early involvement by possible vendors than when buying other types of products. Has potential suppliers participate in actual design process for a new product.
New task
when a customer purchase a product or service for the first time. Because customer has not made the purchase decision recently, the company's knowledge is limited, and it goes through all 8 steps of the buying process.
Straight buy
the customer buys the same product from the dame source it used when the need arose previously. Customers have purchased the product/service a number of times and they have considerable knowledge about their requirements and the potential vendors.
Modified Rebuys
the customer has purchased the product or a similar product in the past but is interested in obtain new information. Occurs when in-supplier performs unsatisfactorily, a new product becomes available, or the buying needs change
buying center
an informal, cross-departmnet group of people involved in ta purchase decision.
Users
such as the manufacturing personnel for OEM products and capital equipment, typically don't make the ultimate decision, but have considerable influence in the early and late steps of the buying process -- need recognition, product definition, and post purchase evaluation. Are important in new-task and modified rebut situations.
initiators
person who starts the buying process. User can play the role of the initiator
influencers
people inside or outside the organization who directly or indirectly provide information during the buying process who seek to influence issues regarding product specifications, criteria for evaluating proposals, or into about potential suppliers.
economic influencer
person who is concerned about the financial aspects of the decision
technical influencer
person who makes sure the technical requirements (logistics, terms and conditions, quality measurements, or other specifications) are met.
coach
someone in a buying organization who can advise and direct the salesperson in maneuvering through the buying process in an effective fashion, leading to a sale
gatekeepers
control the flow of information and may limit the alternative considered. Purchasing agents often play this role by determining what potential suppliers are to be notified about their purchase situation and are to have access to relevant info
deciders
make the final choice. for direct rebuys, the purchasing agent usually sects the vendor and places the order. For new tasks many people influence the decision and several people must approve the decision and sign the purchase order
Rational needs
direct related to the performance of the product. Thus the organizational needs discussed in the next section are examples of rational needs.
emotional needs
associated with personal rewards and gratification of the personal rewards and gratification of the person buying the product. The personal needs of buying center members often are considered emotional needs.
Factors organizations consider when making buying decisions
economic factors (price), product quality, supplier service,
life -cycling costing
referred to as the total cost of ownership, and is a method for determining the cost of equipment or supplies over their useful lives. Sales people can demonstrate that a product with a higher initial cost will have lower overall cost
value analysis
example of a program in which suppliers and customers work together to reduce costs and still provide the required level of performance. Reps from the supplier and the purchasing department and technical experts from engineering, production or quality control usually form aa team to undertake the analysis. Used to get customers to consider a new product
Risk Reduction strategy
strategy developed after a buyer first assess the potential risk, and is used to reduce risk, where the buying center members may collect additional info, develop a loyalty to present suppliers, or spread the risk by placing orders with several vendors
vendor loyalty
way to reduce uncertainty and risk that is displayed to suppliers--which is to continue buying from suppliers that proved satisfactory in the past
lost for good
converting buying decisions into straight rebuts makes the decision routine, minimizing the chances of a poor decision--for all the out-suppliers, this account can be considered lost for good because the in-supplier has cemented the relationship for a long time.
always a share
the buyer will always allocate only a share to each vendor. The product is proprietary (available from only one supplier), the buyer might insist that the supplier develop a second source for the component.
supply chain management (SCM)
set of programs undertaken to increase the efficiency of there distribution channel that moves products from the producer's facilities to the end user. More than logistics and is now a strategy of managing inventory while containing costs
Just-in-time (JIT) inventory control
example of a logistics SCM system used by a producer to minimize its inventory by having frequent deliveries, sometimes daily, just in time for assembly into the final product. Goal is to eventually eliminate all inventory except products in production and transit.
quick response system/ efficient consumer response (ECR)
JIT inventory systems in a consumer product distribution channel
Automatic replacement
form of JIT where the supplier manages inventory levels for the customer. Materials are provided on consignments, meaning the buyer doesn't pay for them until they are actually used.
electronic data interchange (EDI)
also known as computer systems that share data across companies
material requirements planning (MRP)
systems that are an important element in JIT programs that are used to forecast sales, develop a production schedule, and then order parts and raw materials with delivery dates that requires that customers inform suppliers well in advance about production schedules and needs
supplier relationship management (SRM)
strategy by which organizational buyers evaluate the relative importance of suppliers and use that info to determine with whom they want to develop partnerships
annual spend
first step in SRM, where one identifies the amount that is spent with each vendor and for what products
vendor analysis
second step in SRM, used by organizational buyers frequently to summarize the benefits and needs satisfied by a supplier
multi attribute model of product evaluation
useful approach for understanding the factors individual members of a buying center consider in evaluating products and making choices. often used in complex decisions involving several vendors, and provides framework for developing sales strategies. Based on the idea that people view product as a collection of characteristics/attributes.
Sales people need to know the following info to develop a sales strategy :
1. suppliers or brands the customer is considering 2. product characteristics being used in the evaluation 3. customer's rating of each product's performance on each dimension 4. weights the customer attaches to each dimension