CHAPTER 4

THE NATURE OF INDUSTRIAL BUYING AND BUYING BEHAVIOR

This chapter should enable you to understand and explain: o The concept
of industrial buying behavior o Motivating factors for purchase of
industrial products and services o Model of industrial buying
behavior

1) The concept of industrial buying behavior

Businesses tend typically to be more cautious in their buying than are final consumers.
Generally, businesses make a conscious and deliberate effort to act rationally (planned
purchase) and to do what is best for the company. Though it is true that the demand or need
for business products usually is economically motivated and rational, organizational buying
behavior often is a multi-phase, multi-person, multi-departmental, and multi-objective
process.

Most business marketers and sales managers go to great lengths to differentiate their products
or services. Yet no matter how favorably the seller presents an offering, unless the buyer is
convinced of the seller’s integrity and of the adequacy of postsale support, it is unlikely that the
purchase will be made from that seller.

2) Understanding buyer motivations

Although it is generally conceded that industrial buyers are more rational in their purchasing
than are ultimate consumers, those buyers are still people, and as such, they are influenced by
some degree of emotions atmost every time the purchase made.

Rational motivating factors are those based primarily on economic considerations such as:

o Lowest price o Reciprocity o After sales services like technical assistance service o
Expertise: in purchasing a product for the first time, the buyer may be unsure about the
right product for its particular requirements. In this case it is likely to buy from a company
that it believes has the expertise to advise it, even though the company may not offer the
best prices.
o Product range: supplier who provide package o Technology
o Speed and reliability of delivery
o Convenience: the extent to which the product is compatible with the customer’s existing
products and procedures (conformity to industrial technical standards) etc.

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Emotional motivating factors are more subjective in nature and may best be explained by such
things as:

o The image of a supplier or a brand/reputation of supplier, where the product involves

high risk
o The size of the supplier’s operations o Whether or not a company is a present supplier
or a new supplier etc.
3) Models of industrial buying behavior

In general there are three classes of models: task model (focuses upon variables that can be
directly related to the purchasing decision itself), non-task model (This model introduces the
human element in to organized industrial buying. In essence, they add non-economic or
nonrational elements in to the business process), and complex or joint model (this model
combines various task and non-task models in the attempt to better understanding of business
buying behavior).

A) Task model: include the following variables o The minimum price model: the buyer buys
the product from the supplier offering lowest price.
o The lowest total cost model: the buyer purchases the product from the supplier
providing the lowest overall cost (like training, freight, purchase price etc).
o The rational buyer model: the buyer purchases the product from the supplier
who will satisfy the total economic expectations. That is customers do not buy
products rather they buy value or satisfaction.
o The materials management model: the buyer purchases the right quantity, right
quality (that conforms purchase specifications), at right price (minimum price),
from the right source (best supplier who fulfill the purchase specification at
minimum price), at the right time (quick and reliable supplier).
o The reciprocity buying model: it assumes that one company buys from another
because the latter also buys from the former. It is based on trade relation and
ignores all buying where reciprocity is not involved. The objective of reciprocity
is to reach an agreement in an exchange of business that is mutually benefited.
o The constrained choice model: most buyers purchase from a limited set of
supplier.
B) Non-task model: include the following variables o The ego enhancement model: argues
that the buyer will favor suppliers who provide recognition and worth to that buyer.
o The perceived risk model: the buyer purchases from trusted, large, or better
known suppliers. All of these things may be seen as ways to reduce the risk
inherent in the buying decision.

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 o The dyadic/dualism interaction model: the buyer develops certain role
expectations for sales people calling on the company, and tends to favor those
sales representatives conforming to these expectations.
o The lateral relationship model: this focuses not up on the interaction between
buyer and sales person, but rather up on the buyers’ interactions with others in
the company. This enables the marketer to identify critical decision phases, the
information needs of purchasing organizations, and the various criteria buyers
consider when making purchase decisions.
o The buying influences model: it explains buying as a joint effort of all influences
involved. Buying influences are those people in each company who have an
effect on what is purchased or not purchased.
o The diffusion process model: diffusion of innovation is the process whereby a
new product idea spreads through a population/market (rate of acceptance of
new products). New products involve high perceived risk and a marketer need to
provide sufficient information/educate the market/ and prove its product to get
quick acceptance or diffusion. The diffusion process in each PLC include:
a) Introduction stage: the customers are called innovators (risk takers)
and they constitute 2.5% of the total market.
b) Growth stage: the customers are called early adopters and they
constitute 13.5% of the total market.
c) Maturity stage: the customers are called middle majority (34% early
majority and 34% late majority) and they constitute 68% of the total
market.
d) Decline stage: the customers are called laggards (risk avoiders) and
they constitute 16% of the total market.
C) Complex/joint model: this model includes the Webster and wind model, the
RobinsonFaris- and Wind model (the buy-grid model), and the Jagdish N-sheth model.
THE WEBSTER AND WIND MODEL: FACTORS AFFECTING PURCHASE

This model groups the various factors affecting purchase into four levels of buying influences:
environmental, organizational, buying center, and individual factors.

o Environmental factors: includes the following

 Physical environment: having geographically a close supplier helps the
company keep a reduced inventory and facilitates Just-In-Time (JIT) delivery
schedule (delivery whenever required). This will minimizes the firm’s cost and
associated logistical problem.

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  Economic environment: this includes corporate profitability/cost minimization,
interest rate, and economic growth/recession that will affect industrial
marketing practices.
 Legal and political environment: this is various government legislation affects
purchasing directly or indirectly. It includes like:
• Environmental production legislation, affects which products can be
bought or sold/produced in some countries.
• Employee protection or labor union laws will indirectly affects
companies profit and hence their ability to buy some products etc.
 Cultural environment: all those national attitudes and beliefs that affect
business demand like economic patriotism/nationalism, and country of origin
effects.
 Fastest rate of technological changes which increase the product replacement
costs of business because of high product obsolescence rate.
o Organizational factors: this includes
 Technology: buyers buy the technologies on which that product is based. These
include the suppliers’ skills and knowledge in developing, designing, and
manufacturing the product. When the buying company has developed its own
design for a component, it will seek suppliers that are willing to make to its
design (or blueprint) and are able to offer the best combination of quality,
service, price, and delivery. We call this ‘’make to print’’. Instead, the buyer
will be paying for the seller’s skills in manufacturing the product to the
appropriate standards and consistency. We refer to this as the seller’s process
technology.
 Goals and tasks: business buyers are making a long-term commitment to
suppliers to achieve value and quality improvements, as opposed to
frequently changing suppliers to achieve a short-term price advantage.
 Actors: this is the business philosophy and motivation of the buyers. It is more
concerned about the long-term development of their company or its
shortterm profit. We may expect a very particular set of requirements from a
buying company in which the culture of the management is centered on
product excellence, such as Mercedes-Benz.
 Structures: this is decentralized purchase (reliability of deliveries can be easy)
and centralized purchase (products can be standardized).
o Buying center factors: this includes the role/function and responsibility/ and
resources/information and expertise/. PARTICIPANTS IN THE BUYING CENTER INCLUDE
THE FOLLOWING:

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  Initiator: the person who recognizes that the company has a problem or
requirement. The initiator is not always someone inside the buying company.
The buying companies often rely on the technological knowledge of their
suppliers. In this case a sales person from a potential supplier may initiate the
buying process by pointing the current problem or possible improvement.
They are the potential user of a product.
 User: these are user-customers who use the product in order to support or
facilitate the business process. They may develop product specifications (e.g.,
production department).
 Decider: this is the one who approve the purchase/make decision on
purchase/ regardless of whether they hold the formal authority. A decider
often is quite difficult to identify since a decider can be a company president, a
purchasing director, or a research and development analyst.
 Influencer: these are technical people within the organization who formulate
the ultimate product specification. Normally influencers operate within the
buying center, such as quality control or research and development. Yet, at
other times influencers operate outside the buying center, such as architects
who create very specific building requirements.
 Buyers: these are purchasers who assigned the formal authority to select
vendors and complete the purchasing transaction (selects a supplier and
arranges the terms of deal). For many repeat purchases or lower-value items,
the buyer will be the sole member of the buying center. For the purchase of
major capital equipment, the buyer’s role may simply be to search for and
evaluate suppliers and to present this data to other center members.
 Gatekeepers: these are those who keep a tight control on the flow of
information to other members of the buying center. They can open the gate
to members of the buying center for some salespeople, yet close it for others
(e.g., secretaries and purchasers).
o Individual factors: this includes
 Buyer’s status (rank or position): business buyers are often paid less than
marketing people of similar seniority, and some buyers occupy a relatively
lowstatus position in the organizational hierarchy. These de-motivate business
buyers to buy quality inputs for the organization and hence affect the output
quality.
 Organizational politics: this is a struggle to get the upper hand in the purchase
decision of organizational buying unit. Buyers may use a number of tactics to
increase their influence in the company. For example, a buyer may ‘’bend the

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 rules’’ for someone in the company. Buyers often value information provided
by salespeople if it increase their influence over others in the company.
 Ethics: many companies prohibit even the smallest gifts from suppliers, and
there is strong legislation against corrupt practices in business buying. Some
business buyers will seek or be offered a personal inducement to favor one
particular supplier. Giving or accepting bribe is not only unethical and illegal, it
also weakness the position of both parties in any future transaction.

THE ROBINSON-FARIS AND WIND MODEL (THE BUY-GRID MODEL)

This model discusses the buy classes/types of purchase and buy phases/purchase decision
making processes.

o Buy classes/buying situation or types of purchasing: purchases may be categorized

into three buy classes according to the newness of the buying situation. They include
the following:
 New-task buying: this when the company is buying a product or service for the
first time. The company will have to evaluate a wide range of possible problem
solutions or suppliers. The process tends to be time consuming and involves a
number of people. It has the following characteristics:
 It is a requirement/problem that has not arisen before
 It has little or no relevant past buying experience to draw upon
 It requires a good deal of information
 It must seek out alternative ways of solving the problem and alternative
suppliers
 It occurs infrequently
 It may be anticipated and developed by creative marketing

MARKETING STRATEGIES: the supplier who is ‘’in’’ (current supplier) keeps track of evolving
purchasing needs in the organization. The supplier who is ‘’out’’ (potential supplier) on the
other hand need to recognize specific needs and supplying information and technical advice.

 Straight re-buy: it is repeat purchases of products when existing stocks reach a

certain level as in the case of office supplies, such as paper, pens, or envelops. It
has the following characteristics:
 The buyer has little involvement in the purchase and makes no
evaluation of competing brands
 It constitutes the majority/bulk of business purchases.

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  Organizations may also opt for a straight re-buy because of lack of
resources to evaluate alternative purchases, the possible risks in
changing suppliers. There are considerable costs and risks to both
buyers and sellers in switching from an established relationship.
 Continuing or recurring requirement, handled on a routine basis.
 Usually the decision on each separate transaction is made in the
purchasing department.
 Formally or informally, a list of acceptable supplier exists. No unlisted
supplier is considered.
 Buyers have more relevant experience; hence, little new information is
needed.

MARKETING STRATEGIES: the current supplier need to strengthen the buyer-seller relationship
by achieving organization’s expectations and adapts to evolving needs of the customer. The
potential supplier on the other hand needs to show organizations the potential benefits and
costs of the product.

 Modified re-buy: purchases in which the buyer is re-evaluating a product or

service that has been bought before (re-evaluating of existing suppliers). It has
the following characteristics:
 May develop from either new task or straight re-buy situation.
 The requirement is continuing or recurring.
 The buying alternatives are known, but they are changed.
 Some additional information is needed before the decisions are made.
 May arise because of outside events, such as an emergency or the
actions of a marketer.
 May arise internally because of new buying influence or for potential
cost reductions, potential quality improvements, or potential service
benefits.
 Marketers who are not active suppliers try to convey customers’ of
straight re-buy into modified re-buys. The buyer reviews (modifies):
product specifications, price and other terms, and suppliers.

MARKETING STRATEGIES: the current supplier needs to correct problems with customers. The
potential supplier on the other hand persuades organization to try alternative offerings.

o Buy phases (the business purchase/buying decision making process): it includes:

 Recognizing the need/problem/requirement: this is describing the
characteristics (like brand name) and quantity of the needed item/s.
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 Developing product specifications: those influencers (like engineers and R & D
personnel) develop the ultimate product specifications (detailed technical
requirements). For example, in purchase of electric motor the specification
includes requirements regarding horsepower, life in hours, and ability to
operate at stated temperature and humidity level. The purchasing department
calls upon the technical expertise of vendors as well as developing appropriate
design specifications.
Product value (PV) analysis will be undertaken with the help of value analysis
engineering team. PV analysis is an approach to cost reduction in which
components are studied carefully to determine if they can be redesigned,
standardized, or made by less costly method of production (make or buy
decisions). In make or buy decisions costs like item cost, purchase cost, set-up
cost and holding cost will be analyzed.
 Soliciting bids/proposal from potential suppliers (if the above decision is buy):
buying personnel select the names of potential vendors believed to be
qualified to supply the item and send each a Request For Quotation (RFQ)
form describing the quantity needed, the delivery date required, and the
product specifications. The buyer invites qualified supplier to submit
proposals.
 Supplier evaluation and selection: the buying center will draw up a list of
desired supplier attributes/evaluative criteria/ and the relative importance to
select the best supplier. Such attribute includes:
Product and service quality
Reputation
On-time delivery
Ethical corporate behavior
Honest communication, and
Competitive price.
 Issuing the contract: the buyer and the seller enter in to an agreement that is
legally binding on both sides, is a crucial part of the purchasing process.
Sometimes contracts are awarded directly to vendors based on the data they
provide in RFQ forms. At other times, the purchasing managers selects the
vendor and awards a contract in the form of a purchase order, which is an
authorization for the vendor to provide the item under the agreed-upon terms
and to bill the purchasing firm upon completion of the order.
The purchase stage in organizations covers the period from selecting the
vendor and placing the purchase order through product delivery. This period

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 may take weeks, or even months. During the time, the purchasing manager
Follow up with the vendor
Expedites the order, and
Negotiate the contract terms if specification changes are made
after the initial contract is awarded.
 Inspecting delivered goods for quality: the quality control department tests
the purchased products to ensure that they meet specifications. If the products
purchased are unsatisfactory (not meet specifications), the purchasing
manager will negotiate with the supplier to rework the items according to
specifications or will arrange for a new shipment.
In the case of maintenance, repair, and operating items buyers may use
blanket (long term) contract. It creates long-term relationships. Many large
buyers now practice Vendor Managed Inventory (VMI), in which they turn over
ordering and inventory responsibilities to their suppliers. Under such systems,
buyers share sales and inventory information directly with key suppliers. The
suppliers then monitor inventories and replenish stock automatically as
needed.
 Evaluating vendor performance: performance on past contracts determines a
vendor’s chances of being asked to bid on future purchases; poor performance
might result in a vendor’s name being dropped from the bidder list. It may lead
the buyer to continue, modify, or drop the arrangement. THE
JAGDISH N.SHETH MODEL

This model is useful for examining organizational buying behavior from the perspective of

 Joint decision making.

 Psychological factors influencing individual decision making.
 The inevitable conflict among those involved in the decision process and resolution of
this conflict.
o Joint decision making: first let us see Buying Center Interaction Patterns. The size of the
buying center and the amount of interaction between those involved is dependent
upon:
Vertical Involvement (VI): the number of organizational levels (tall or
flat) in the hierarchy (e.g., from lower level people up through the
board of directors).
Lateral Involvement (LI): the number of functional departments that
become involved in the purchase decision.

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 Extensivity (E): the total number of individuals involved in the
communication network of the buying center.
Connectedness (C): the degree to which buying center members
directly communicate with one another regarding the purchase.

The number of organizational members involved in a buying decision depends on:

• The characteristics of the firm/company specific factors/: as the size of the firm
increases, the number of influencers involved in the purchase decision increases. More
influencers are also involved when the organization is a nonprofit institution or
governmental agency. This is because functional areas tend to be more specialized in
larger firms.
When purchasing decision is concentrated at corporate headquarters (more centralized
purchasing organization), extensivity will decrease but the degree of connectedness
between buying center members tends to be high. Hence, purchase decision making will
not be late.
• Product and supplier specific factors: this includes:
a) Risk involved: the higher the perceived importance of the product, the higher
the decision making member of the buying center. The greater the importance
and complexity of the purchase situation, the greater the vertical involvement,
the lateral involvement, and the extensivity. Perceived risk or buyer’s
uncertainties can be classified into:
 Need uncertainties: this is fear of performance failurity of the product (Which
product to buy?).
 Market uncertainty: this is fear of performance failurity of the supplier (Which
supplier to choose?).
 Transaction uncertainties: this is fear of loss of money during payment.

MARKETING STRATEGIES: the following strategies of the buying company will minimize the
perceived risk

 Reduce uncertainty by gathering additional information (so the marketer

needs to provide sufficient information).
 Selecting the supplier with the most favorable expected value.
 Multiple sourcing of suppliers
 The most effective strategy approach for out- suppliers (potential marketers)
is to offer performance guarantees as part of the proposals.
b) Time pressure: the lesser the time, the lesser the purchase decision makers.

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 o Psychological factors influencing individual decision making: the factors include
differences in role orientation and differences in information exposure. Individuals
tend to view the importance of the various buying criteria differently.. Purchasing
agents, for instance, look for price advantage and economy in shipping; engineers
look for quality and pretesting. This may result in conflict when applied to a supplier
choice decision.
Purchasing agents, because of their position within the organization, are not only
exposed to greater amount of commercial sources of information, but are normally
delegated the task of actively searching for information through trade reports,
professional meetings, and word of mouth. Therefore, given the different goals and
values of these individuals, the same information will be interpreted differently
(cognitive process of selective distortion and retention), leading to further differences in
expectations and objectives.
o Conflict and resolution in joint decision making: the potential for conflict emanates
from:
 Differences in expectations regarding suppliers,
 Differences in evaluative criteria employed,
 Differences in buying objectives,
 Differences in decision making styles of the individuals involved etc.

Conflict that supports the goals of the organization and improves the firm’s performance rather
than hinders it is good. During conflict resolution through cooperation and the search for a
mutually beneficial solution joint decision making need to be rational.

Conflict resolution strategies: the following will be conflict resolution strategies:

a) Competing: ‘’ let’s do it my way’’, this is the desire to dominate.

b) Accommodating: ‘’I see your point of view’’, this is the desire to satisfy other’s concern.
c) Collaborating: ‘’May be we can work this one out’’, this is the desire to satisfy the
concern of both parties-sharing responsibility.
d) Avoiding: ‘’Better let the situation cool down before we act’’, this is exerting an attitude
indifference to the concerns of either party.
e) Compromising: ‘’Let’s split the difference!’’, this is the desire to reach mutually
acceptable agreement.

The type of conflict-resolution strategy that individuals use, however, depends on several
mediating variables, such as:

 The characteristics of the purchase situation

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 The size of the buying center
 The network of communication links, and their base of power in the organizational
buying decisions.

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