CLO 1 :
Describe Business Marketing, Business
Buying Behaviour And Business Marketing
Mix In Planning Marketing Strategy. (C2)
 For developing effective marketing strategy, BUSINESS
marketers need to understand not only the nature of
business buying but also the BUSINESS buying behavior.
 The buying objectives for business marketing :
i) Delivery / Availability
ii) Product Quality
iii) Lowest Price
iv) Services
v) Supplier Relationship
vi) Personal objectives
(1) Delivery / Availability
• One of the prime objectives is to ensure that
purchased goods and services are available or
delivered when and where needed.
• If not, the work will come to a grinding halt.
This will reflect badly on the performance of the
purchase function.
• The corollary to this is that the vendor/supplier
reliability in delivery is the most important
criterion while evaluating vendors in most of the
cases.
(2) Product Quality
• The product quality should be consistent with the
specification and use of the product.
• It is important to ensure
quality to reduce the cost
interruption, in production
arranging replacements of
consistency in product
of inspection,
process to rejections and
rejected material.
• Hence, product quality of considered as one of the
important objectives of purchasing.
(3) Lower Price
• The buyers would like to buy at the lowest price
consistent with availability and quality of the
product.
• The buyers consider price as an important objective
if delivery and quality objectives are met, because
low price is meaningless, if the product is not
delivered when needed or if the quality of the
product is unacceptable.
(4) Services
• The industrial buyers need many types of services
accompanying the purchase of good. The services
include:
• (i) Prompt and accurate information from supplier.
• (ii) Application or technical assistance
• (iii) Spare parts availability
• (iv) Repairs and maintenance capability
• (v) Training if required
(5) Supplier Relationship
• To develop a good long-term supplier/vendor
relationship and to develop new sources of supply.
• The importance of achieving these purchasing
objectives can be understood the fact that
manufacturing firms generally spend more than 50
percent of their sales revenue on purchases.
• Industrial marketers need to understand that
purchasing objectives described above are based on
the company objectives of the firm and personal
objectives
(6) Personal Objectives
• Business buyers or members of buying centre include :
• (a) Higher status
• (b) Job security
• (c) Salary increments
• (d) Promotions social considerations ( friendship, mutually
beneficial relationship and personal favours )
• The industrial buyers try to achieve both organizational
purchase objectives and personal objectives. The industrial
marketers should realize that it is important to satisfy not
only the purchasing objectives of an industrial firm but also
the personal objectives of the buying members.
INTRODUCTION
• The business purchasing ( buying ) activities consist
of various phases ( stages ) of buying decision
making process .
• The importance to be given to the various phases
will depend upon the type of buying situations.
• The business marketers should understand both
the phases of decision making process and the
type of buying situations.
: Recognition of a Problem (or Need)
• The recognition of a problem or need may originate
within the buying firm or many may also be
recognized by a smart marketer.
• When the quality of material supplied by the
existing supplier is not satisfactory ,or the material
isnot available when required, or the machine
supllied by the existing supplier breaks down too
often, the buying organisation recognises the
problem. If an marketer identifies a problem in the
buying organisation and suggest how the problem
could be solved, there will be a better possibility of
it being selected as a supplier. Consider the case of
material handling equipment manufacturing company :
The sales executive of a material handling
equipment company visited a car manufacturing
company in India,and while taking a walk on the
shop floor of the car manufacturer, he noticed a
long queue of trucks waiting to unload the incoming
components and parts. The operation of unloading
was taking a long time, as it was in semi-manual
way. He studied and then suggested that he could
supply an automatic equipment (that is
Hydroelectric lift-table),which could reduce the
time of unloading substantially.
: Determination of the Characteristic
and Quantity of Needed Product
• Once the problem is recognised within or outside
the buying organisation, the next phase is how to
resolve the problem. The buying firm will try to
answer questions such as :
• (a) What types of product or services to be
consider?
• (b) What quantity of the product needed?.
For technical product, the technical departments
(R&D, industrial engineering, production,or quality
control) will suggest general solutions of the
needed product. For non-technical goods or
servives, either the user department or purchase
department may suggest product or services, based
on experience and also the quantity required to
solve problem. However, if the required
information isnot available internally within the
buying organisation, the same can be obtained from
the outside sources.
: Development of Specification of
Needed Product
• Phases 2 and 3 are closely related. After the
general solutions to the problem is determined in
the second phases, the buying organisation,in the
third stage, develop a precise statement of the
specifications or characteristics of the product or
services needed. During this stage the purchase
department takes the help of their technical
personnel, or if required,outside sources such as
suppliersor consultans. Industrial marketers have a
great opportunity to get involved at this stage by
helping the buyer organisation to develop product
specifications and characteristic.
Early Supplier Involvement ( ESI ) Programme.
Production or operations experts say that about 80
percent of a product’s total cost are decided before
the commercial production. Once the commercial
production starts, any change in the design or
specification would become very costly. It is, therefore
important that suppliers are involved in the early
stages to develop specifications. In addition, the
purchasing persons of the company should also be
included in the design process.
: Search for and Qualifications of
Potential Suppliers
• In this phases the buying organisations searches
for acceptable suppliers or vendors. The first step
taken by the buyer is to obtain information on all
the available suppliers and then into the second
step,decide on the acceptable or qualifying
suppliers. The search for potential suppliers is
based on the various sources of information like
trade journals, sales calls, word-of-mouth,
catalogues, tradeshows and industrial directories.
The qualifications of acceptable supplies will depend
on :
(a) The type of buying organisation (i.e: government
undertaking,private sector commercial organisations,or
institions)
(b) The buying (described subsequently in this chapter)
(c) The decision making members (also described
subsequently in this chapter).
However, generally the factors such as quality of
product or services,reliabilit in delivery,and service
are considered in qualifications of suppliers.
: Obtaining and Analysing Supplier
Proposals
• Once the quality suppliers are decided, the buying
organisation obtains the proposals by sending enquiries
to the qualified suppliers. A supplier`s proposal can be
in the form of a formal bid, submitted by he supplier
to the buying organisation. It should include
• (a) the product specification
• (b) Price
• (c) Delivery period
• (d) Payment terms
• (e) Taxes and duties applicable
• (f) Transportation cost
• (g) Cost of transit insurance
• (h) Any other relevant cost of free service provided.
For purchase of routine products or services, phases
four and five may occur simultaneously, as the buyer
may contact the qualified suppliers to get the latest
information on price and delivery perinds.
For technically complex products and services, a lot of
time is spent on analysing proposal in terms of
comparisons on products, services, deliveries, and the
landed costs (which includes the price after discount
plus excise duty, sales tax, freight, and insurance).
: Evaluation of Proposals and
selection of Suppliers
• The buying organisations evaluates the proposals of
competing suppliers and selects one or more
suppliers. Further negotiations may continue with
selected suppliers on prices, payment terms,
deliveries, and so on. The decision makers in the
buying organisations may evaluate each supplier on a
set of agreed-upon attributes or factors. For
instance, each supplier is evaluated on each
attribute by giving a weightage (or importance) to
each attribute and using a rating scale of 100%
point, as shown in table 3.1;
In table, the supplier total score or rating of 57 is
worked out for one supplier. This process is separeted
for other supplier also. The supplier who get the
highest total score received the business or the order
from the buying organisations.
If a buying firm faces a make-or-buy decision,the
supplier`s proposals are compared with the cost
ofproducing the needed item within the buying
organisation. If it is decided to make the item within
the buying organisations, the buying process is stopped
at this stage.
Table : 3.1
Evaluating Supplier Perfomance by using “Balanced
Scorecard” Technique
The Balanced Scorecard (BCS) is a new technique or
framework that can be used to evaluate supplier
perfomance in information age companies. It translates
a company`s missions and strategy into a set of
perfomance measurements. The framework is organised
intofour parts;
(a) Financial
(b) Customer
(c) Internal Business
(d) Learning growth
As shown in Fig.3.1..
Out of the four parts shown in Fig. 3.1, the internalbusiness –process is relevant for evaluating supplier
perfomance. In the internal-business-process,
company executive should identity the key internal
processes in which the company must excel, in order
to;
(i) Deliver superior customer value
(ii) Satisfy shareholders with excellent financial
perfomance
The internal-business-process includes operations and
innoavtion processes as shown in Fig. 3.2;
Buying products/services from suppliers is a part of
operations processes, as shown in Fig. 3.2. In addition
to the traditional measurement of cost (or price) for
measuring the offers of varoius supplies, the balanced
scorecard approach is used to find additional
measurements or factors that create value to
customers and that are specific to a company. For
instance, an electrical engineering company
manufacturing and marketing electric motors to OEMs
(original equipment manufactures) of pumps and
compressors identified shorter and timely deivery time
as key customer needs, in additation to usual
perfomance evaluation factors of cost and quality. The
company informed their suppliers of components that
perfomance evaluation factors will consist of quality,
cost, as well as, shorter and timely delivery.
Fig : 3.1
Fig : 3.2
: Selection of an Order Routine
• The mechanics of exchange of goods and services
between a buyer and a seller is worked out.
• The activities include :
• a) Placement of orders ( i.e purchase orders) with
the selected suppliers.
• b) The quantity to be purchased from each
supplier.
• c) Frequency of order placement by buyers and
delivery schedules to be adhered to by the
supplier.
d) Levels of inventory needed.
e) Follow up of actual delivery to ensure it to be as
per delivery schedule, and
f) The payment terms to be adhered to by the buyer.
The user (or indenting) department would not be
satisfied until the supplier delivers the required item
as per delivery schedule, and with acceptable quality.
: Perfomance feedback and Postpurchase Evaluation
• In this final phase,
• A formal or informal review regarding the
performance of each supplier or vendor takes place.
• The user department gives a feedback on whether
the purchased item solved the problem or not.
• If not the members of the decision making unit
review their earlier decision and decide to give a
chance to the previously rejected supplier.
(i)
New Purchase
(or New Task)
• In this situation the company is
buying the item for the first time.
The need for a new purchase may
be due to internal or external
factors. For instance, when a firm
decides to diversify into new
products or services, it
necessitates the purchases of a
new machine, materials, or parts.
In the new purchase situations,
the buyers have limited
knowledge and lack of previous
experience. Hence, they have to
obtain a variety of information
about the product, the suppliers ,
the prices and so on.
• In the new task decisions;
• (a) The risks are more
• (b) Decisions may take longer
time, and more people are
involved in decision making.
(ii)
Change in
Supplier
(or modified
Rebuy)
• A modified rebuy situations
accurs when the organisation is
not satisfied with the perfomance
of the existing suppliers,or the
need arises for cost reduction or
quality improvement. The change
in supplier may also be necessary
if technical people in the bunying
organisations ask for changes in
the product specification, or
making department asks for
additional features in the product
to gain some competitive
advantage.
• As a result, search information
about an alternative source of
supply becomes necessary.
Although certain attributes, or
factors can be used to evaluate
the suppliers, there may be
uncertainty regarding which
supplier can best meet the needs
of the buying firm. However, the
modifiedrebuy situations occurs
mostly when the buying firm are
not satisfied with the perfomance
of the existing suppliers.
• Consider the following example;
• A large multi-product,multilocation company took a
decision to change the existing
marketing research firm
because the company was not
satisfied with the quality of
report submitted by the
marketing research firm on a
chemical product. The compan
was planning to diversify and
was keen to get the information
of the competition, potential
customers, long term demandforecasting, and so on, from the
market survey report.
• However, the information given in
the report by the marketing
research firm was vague and
inaccurate. The senior executice
of the company, therefore, took a
decision to change the supplier.
(iii)
Repeat
Purchase
(or straight
Rebuy)
• This situation occurs when the
buying organisation requires
certain products or services
continuously and when such
product/services had been
purchased in the past. In such a
situation, the buying organisation
reorders/places repeat orders
with the suppliers who are
currently suppling suhv items.
This means that a product, the
price, the delivery period, and the
payment terms remain the same
in the reorder,as per the original
purchase order.
• This is a routine decision with low
risk and less information needs,
taken by a jumior executive in
the purchase department.
Generally, the buying firms do not
change the existing suppliers if
their perfomance (on the
previously establised perfomance
criteria) is satisfactory.
Example :
When a machine is not working properly and
downtime becomes unaceptable, the plant
manager may write a memorandum to the chief
executive officer or finance director asking for
funds to purchase a new machine.
The plant manager is playing the role of
initiator.
1.
2.
3.
4
5
• Top Management Persons
• Technical Persons ( or Functions)
• Buyers/Purchasers ( or Purchase/Material Department)
• Accounts/Finance Persons (or Department)
• Marketing Function
Identifying Key Members of Buying Centre in
Buying Organisation
TUTORIAL EXERCISE
( CLO 3 , PLO 8)
QUESTION:
1. For the following scenarios, comment
on the buying situations and suggest
appropriate
strategies
for
these
situations.
2.Identify
the
model
of
the
organizational buying behavior that the
company use.
Susan is a senior marketing manager of a five star
hotel in Singapore. The hotel has a contract with an
important Japanese customer which provides for
suites for for the latter’s guests. One early morning
(2 a.m) a guest of the Japanese company arrives at
the hotel but was turned away by the front desk. All
the suites were taken that morning. The Japanese
guest had to carry his luggage himself to a
neighbouring hotel to get a suite. A senior manager
from the Japanese company called later that day to
express outrage. They had booked a suite that day,
but a hotel staff forgot to record the booking. They
threatened to terminate the contract.
What should Susan do?
FLASHBACK
Pre Test
Refleksi Kendiri
Sigma is in the steel productions
business and is based in China.
 Rhema
is in electronic component
manufacturing and is based in Taiwan.
 What are the environmental factors that
would have a major impact on the
business of the two companies?
 How are the factors similar or different
for the companies?

THAT ALL, GOOD LUCK