Analyzing Business Markets

Industrial Buying Process (Eight stage Process)

Robinson & his associates identified

eight stages & called them buy phases. Stage 1: Problem Recognition: Problem or need for any goods or services are recognized by company & can be triggered by internal stimuli or external stimuli.

 Internal stimuli might be the company

decides to buy a new equipment. External stimuli might be buyer get a new idea at a trade show.

Stage 2: General need description

General characteristics and quantity of the
product is described. Staff members include Purchase manager, Production Manger, engineers, CEO of the company for the higher priced goods or services. Product durability, reliability, performance, price are discussed by the team.

Stage 3:Product Specification

Product Value Analysis (PVA) Tightly written specification will allow the buyer to refuse components that are too expensive or that fails to meet specific standards. So in PA analysis the product is weighed for all its components against the required resources to judge weather to go for the component or part of the product or not.

Stage 4: Supplier Search

The buyer next tries to identify the
most appropriate suppliers through trade directories, contact with other companies, trade advertisements, trade shows and the internet. Companies that purchase over the internet are utilizing electronic marketplaces in several forms:

 Catalog sites: Companies an order

thousands of items through electronic catalog distributed by e-procuement software. For e.g. Indiamart.com Vertical markets: Companies buying industrial products such as plastics, steel can go to specialized web sites. Plastics.com

 PurePlay Auction sites: online

marketplaces such as eBay.com could not be realized without internet. On this website industrial goods such as industrial spare parts, commodities, raw materials etc. are auctioned online.

 Spot Markets: On spot market Price

change at every minute. Chemicals such as benzene is traded online using sites such as -Chcem.connect.com in bulk. Private Exchanges: Specially invited partners and suppliers are trading using private exchanges. For e.g. Hewlett-Packard has its own exchange called HP exchange. Barter Markets: Participants offer to trade goods/services

 Buying alliances: Several companies

buying the same good join together form an alliance called buying alliance. For e.g. Transora and Covisint.

Benefits of online business buying

Online business buying offers several
advantages: It shaves transactions costs for both buyers and suppliers. It reduces time between order and delivery. It consolidates purchasing system. It forges more direct relationship between buyers and suppliers.

Drawbacks of online business buying system

Online business buying has less but
serious drawbacks or adverse effects such as: It may erode supplier buyer relationship. It may pause a threat to security.

 E-Procurement: Online availability o suppliers to the buyers may

come in to different forms called ways of Eprocurement. 1. Vertical Hubs: the hubs centered on industries are called vertical hubs. For e.g. Plastic, steel etc. Functional Hubs: The medium of smooth transactions between industrial suppliers and industrial buyers form the part of functional hubs. For e.g. Logistic, media etc.

 Industries & E-procurement: Apart from

websites industries can use Eprocurement for different advantages like: Set up direct extranet links to major suppliers: for e.g. a company can have a direct account at companies depo and make purchases from there only. for e.g. company account at Dell.

 Form buying alliances: A large number

of buyers form a buying alliance to integrate crucial business information and processes between partners, customers and suppliers. For e.g. Colgate Palmolive Set up Co. buying sites: a trading process unit is formed where company can post its request for proposals (RFP), negotiate terms, and places orders. GE has a Trading Process Unit.

 Lead generation: the suppliers task is

to ensure it is considered when buyer is or would be in the market. So it has to develop a Sales ready approach. Knowing the exact demand of the prospective buyer before the competitor and satisfy him immediately helps any supplier to convert the generated lead.

Stage 5: Proposal Solicitation

Buyer asks qualified suppliers to send
their proposals or quotations. Detailed written proposal as well as oral representation to the buyer must be impressive enough to make a competitive existence.

Stage 6: Supplier Selection

Before selecting a supplier, the buying

center will specify desired supplier attributes and indicate the relative importance. To rate and identify the most attractive suppliers, buying centers often use a supplier-evaluation model such as the one shown in table.

 Customer Value Assessment method.

Attributes Rating Scale

Importance Weights

Poor(1)

Fair(2) Good(3)

Excellent(4)

Price Product Reliability

0.30 0.20 yes

yes

Supplier Reputation

0.30

yes

Service Reliability

0.10

yes

yes

Supplier flexibility

0.10

yes

So, total Score: 0.30(4)+0.20(3)+0.10(2)+0.10(3)=3.5 The choice and importance varies according to the buying situation. Thus using this model every supplier is judged against total score and the final decision of choosing the supplier is made.

Overcoming Price Pressures

The buying center may attempt to
negotiate with preferred suppliers for better prices and terms before making the final decision. The moves include A) strategic sourcing B) partnering C) participation in cross functional team

 Moves from the supplier to counter

react Apart from that marketers can counter request for a lower prices in number of ways: The total cost of ownership or lifecycle cost of their product is lower than the competitor's. They can sought the value buyer receives if it is superior to that of the competitors. Suppliers know-how ability and timely marketing to the buyer can even reduces the price pressure.

 Some of the other solutions used by

supplier (marketer) are as follows: Solutions to enhance customer revenues: Well diversified company ITC ltd. Has provided rural farmers with online data of the local mandies daily trading. Even facilities like farmers can sell its commodities t ITC on the last day closing price was availed.

 Also farmers could know about latest

techniques of farming, news of farming, details of fertilizers, seeds, pesticides and could buy this online. Solutions to decrease customer risks: E.g. ICI Explosives formulated a safer way to ship explosives. Solutions to reduce customer costs: Material Management cost fundamental is used by Tata Steel.

Number of suppliers
Most of the buyer have reduced from 2080% of their suppliers. Single sourcing trend is even used by many large scale organizations.

Stage 7:Order Routine Specification

After selecting suppliers, the buyer
negotiates the final order. Delivery, price, warranties, product specifications etc are discussed. In lease deal the lesee has several advantages like: Conserving the capital, getting the latest products, receiving better services, and gaining some tax advantage.

 The lessor gets large income and a

chance to sell the customers who cant afford the outright price. Blanket Order is the method where supplier will send you the inventory as buyers computer gives the message that inventory stock is below limit. Vendor managed inventory system suppliers computer gives the message for sending new lot of inventory to the buyer.

Stage 8:Performance Review:

The product and services of the supplier
are checked after the consumption. Three methods are used for this: Buyer may contact the end user of the product. Supplier is ranked using weighted score method. Compromise for the quality is measured in terms of price.

Industrial Buying Process

Meaning: Webster & Wind define
organization buying as the decisionmaking process by which formal organizations establish the need for purchased products & services and identify, evaluate, and choose among alternative brands and suppliers.

The Business Market versus the Consumer Market

Fewer ,Larger Markets: The business
marketers with far fewer, large buyers than the consumers marketers does, in such industries as aircraft engines and defense weapons.

Close supplier-customer relationship

Because of the smaller customer base and
the importance and power of the larger customers, suppliers are frequently expected to customize their offerings to individual business customer needs.

Professional purchasing
Business goods are purchased by a
trained purchasing agents. They must follow organizations purchasing policies, constraints and requirements. This means to be good seller business suppliers must provide greater technical data about their product and its advantages over competitors product.

Multiple buying influences

Buying committees consists of technical
experts and even senior management. Business marketers need to send trained sales officer & trained sales team to deal with well trained business purchaser.

Multiple sales calls

Studies show that on an average it takes
four to four & half calls to close an average industrial sale. For larger projects, in capital equipment projects it takes years from quotationtodelivery period.

Derived Demand
The demand for the business goods is
ultimately derived from the demand for consumer goods. Business buyers must pay close attention to final consumers buying patterns. current and expected future economic conditions of final consumers affect to great extent the buying behavior of the consumers.

 For instance, In recession business

marketers can hardly do anything with the environmental factors, what they can do is only increase or maintain their share of demand. But in boom if the demand for the housing sector increases the demand for the construction machinery even increases to a great extent.

Inelastic Demand
The total demand for many business
goods and services is inelastic. For e.g. shoe manufacturers are not going to buy much more leather if the price of leather falls. Demand is inelastic in short run because producers cannot make quick changes in production methods.

Fluctuating Demand
The business demand for goods is more
volatile than consumer goods demand. For e.g. a rise of 10% demand in consumer goods may lead to more than 200% increase in business demand. This is due to increased requirements of plant & machinery for producing increased demand goods. Economist refers to this as the accelerating effect.

Geographically concentrated buyers

Different types of industries in India tend to
get concentrated in different regions. For e.g. diamond industry in Surat, hosiery industry in Coimbatore. The geographical concentration of producer helps to reduce selling costs.

Direct purchasing
Business buyers buy directly from
manufacturers than intermediaries. Especially when items are very complex or expensive like aircraft.