Business Buyer Behavior

The model in Figure 7.1 on page 219 suggests four questions about business buyer behavior: What buying decisions do business buyers make? Who participates in the buying process? What are the major influences on buyers? How do business buyers make their buying decisions?

There are three major types of buying situations.⁶ At one extreme is the straight rebuy, which is a fairly routine decision. At the other extreme is the new task, which may call for thorough research. In the middle is the modified rebuy, which requires some research.

In a straight rebuy, the buyer reorders something without any modifications. It is usually handled on a routine basis by the purchasing department. Based on past buying satisfaction, the buyer simply chooses from the various suppliers on its list. "In" suppliers try to maintain product and service quality. They often propose automatic reordering systems so that the purchasing agent will save reordering time. "Out" suppliers try to offer something new or exploit dissatisfaction so that the buyer will consider them.

In a modified rebuy, the buyer wants to modify product specifications, prices, terms, or suppliers. The modified rebuy usually involves more decision participants than does the straight rebuy. The in suppliers may become nervous and feel pressured to put their best foot forward to protect an account. Out suppliers may see the modified rebuy situation as an opportunity to make a better offer and gain new business.

A company buying a product or service for the first time faces a new-task situation. In such cases, the greater the cost or risk, the larger the number of decision participants and the greater their efforts to collect information will be. The new-task situation is the marketer's greatest opportunity and challenge. The marketer not only tries to reach as many key buying influences as possible but also provides help and information.

The buyer makes the fewest decisions in the straight rebuy and the most in the new-task decision. In the new-task situation, the buyer must decide on product specifications, suppliers, price limits, payment terms, order quantities, delivery times, and service terms. The order of these decisions varies with each situation, and different decision participants influence each choice.

Many business buyers prefer to buy a packaged solution to a problem from a single seller. Instead of buying and putting all the components together, the buyer may ask sellers to supply the components and assemble the package or system. The sale often goes to the firm that provides the most complete system meeting the customer's needs. Thus, systems selling is often a key business marketing strategy for winning and holding accounts.

Sellers increasingly have recognized that buyers like this method and have adopted systems selling as a marketing tool. Systems selling is a two-step process. First, the supplier sells a group of interlocking products. For example, the supplier sells not only glue, but also applicators and dryers. Second, the supplier sells a system of production, inventory control, distribution, and other services to meet the buyer's need for a smooth-running operation.

Systems selling is a key business marketing strategy for winning and holding accounts. The contract often goes to the firm that provides the most complete solution to the customer's needs. For example, the Indonesian government requested bids to build a cement factory near Jakarta. An American firm's proposal included choosing the site, designing the cement factory, hiring the construction crews, assembling the materials and equipment, and turning the finished factory over to the Indonesian government. A Japanese firm's proposal included all of these services, plus hiring and training workers to run the factory, exporting the cement through their trading companies, and using the cement to build some needed roads and new office buildings in Jakarta. Although the Japanese firm's proposal cost more, it won the contract. Clearly, the Japanese viewed the problem not as just building a cement factory (the narrow view of systems selling) but of running it in a way that would contribute to the country's economy. They took the broadest view of the customer's needs. This is true systems selling.⁷

Who does the buying of the trillions of dollars' worth of goods and services needed by business organizations? The decision-making unit of a buying organization is called its buying center: all the individuals and units that participate in the business decision-making process. The buying center includes all members of the organization who play a role in the purchase decision process. This group includes the actual users of the product or service, those who make the buying decision, those who influence the buying decision, those who do the actual buying, and those who control buying information.

The buying center includes all members of the organization who play any of five roles in the purchase decision process.⁸

•	Users are members of the organization who will use the product or service. In many cases, users initiate the buying proposal and help define product specifications.

•	Influencers often help define specifications and also provide information for evaluating alternatives. Technical personnel are particularly important influencers.

•	Buyers have formal authority to select the supplier and arrange terms of purchase. Buyers may help shape product specifications, but their major role is in selecting vendors and negotiating. In more complex purchases, buyers might include high-level officers participating in the negotiations.

•	Deciders have formal or informal power to select or approve the final suppliers. In routine buying, the buyers are often the deciders, or at least the approvers.

•	Gatekeepers control the flow of information to others. For example, purchasing agents often have authority to prevent salespersons from seeing users or deciders. Other gatekeepers include technical personnel and even personal secretaries.

The buying center is not a fixed and formally identified unit within the buying organization. It is a set of buying roles assumed by different people for different purchases. Within the organization, the size and makeup of the buying center will vary for different products and for different buying situations. For some routine purchases, one person—say a purchasing agent—may assume all the buying center roles and serve as the only person involved in the buying decision. For more complex purchases, the buying center may include 20 or 30 people from different levels and departments in the organization.

Buying center: Allegiance Healthcare Corporation deals with a wide range of buying influences, from purchasing executives and hospital administrators to the surgeons who actually use its products.

The buying center concept presents a major marketing challenge. The business marketer must learn who participates in the decision, each participant's relative influence, and what evaluation criteria each decision participant uses. For example, Allegiance Healthcare Corporation, the large health care products and services company, sells disposable surgical gowns to hospitals. It identifies the hospital personnel involved in this buying decision as the vice president of purchasing, the operating room administrator, and the surgeons. Each participant plays a different role. The vice president of purchasing analyzes whether the hospital should buy disposable gowns or reusable gowns. If analysis favors disposable gowns, then the operating room administrator compares competing products and prices and makes a choice. This administrator considers the gown's absorbency, antiseptic quality, design, and cost, and normally buys the brand that meets requirements at the lowest cost. Finally, surgeons affect the decision later by reporting their satisfaction or dissatisfaction with the brand.

The buying center usually includes some obvious participants who are involved formally in the buying decision. For example, the decision to buy a corporate jet will probably involve the company's CEO, chief pilot, a purchasing agent, some legal staff, a member of top management, and others formally charged with the buying decision. It may also involve less-obvious, informal participants, some of whom may actually make or strongly affect the buying decision. Sometimes, even the people in the buying center are not aware of all the buying participants. In the opening Gulfstream example, the decision about which corporate jet to buy may actually be made by a corporate board member who has an interest in flying and who knows a lot about airplanes. This board member may work behind the scenes to sway the decision. Many business buying decisions result from the complex interactions of ever-changing buying center participants.

Business buyers are subject to many influences when they make their buying decisions. Some marketers assume that the major influences are economic. They think buyers will favor the supplier who offers the lowest price or the best product or the most service. They concentrate on offering strong economic benefits to buyers. However, business buyers actually respond to both economic and personal factors. Far from being cold, calculating, and impersonal, business buyers are human and social as well. They react to both reason and emotion.

Today, most business-to-business marketers recognize that emotion plays an important role in business buying decisions. For example, you might expect that an advertisement promoting large trucks to corporate truck fleet buyers would stress objective technical, performance, and economic factors. However, a recent ad for Volvo heavy-duty trucks shows two drivers arm-wrestling and claims, "It solves all your fleet problems. Except who gets to drive." It turns out that, in the face an industrywide driver shortage, the type of truck a fleet provides can help it to attract qualified drivers. The Volvo ad stresses the raw beauty of the truck and its comfort and roominess, features that make it more appealing to drivers. The ad concludes that Volvo trucks are "built to make fleets more profitable and drivers a lot more possessive."

When suppliers' offers are very similar, business buyers have little basis for strictly rational choice. Because they can meet organizational goals with any supplier, buyers can allow personal factors to play a larger role in their decisions. However, when competing products differ greatly, business buyers are more accountable for their choice and tend to pay more attention to economic factors. Figure 7.2 lists various groups of influences on business buyers—environmental, organizational, interpersonal, and individual.⁹

Business buyers are influenced heavily by factors in the current and expected economic environment, such as the level of primary demand, the economic outlook, and the cost of money. As economic uncertainty rises, business buyers cut back on new investments and attempt to reduce their inventories.

An increasingly important environmental factor is shortages in key materials. Many companies now are more willing to buy and hold larger inventories of scarce materials to ensure adequate supply. Business buyers also are affected by technological, political, and competitive developments in the environment. Culture and customs can strongly influence business buyer reactions to the marketer's behavior and strategies, especially in the international marketing environment. The business marketer must watch these factors, determine how they will affect the buyer, and try to turn these challenges into opportunities.

Each buying organization has its own objectives, policies, procedures, structure, and systems, and the business marketer must understand these factors well. Questions such as these arise: How many people are involved in the buying decision? Who are they? What are their evaluative criteria? What are the company's policies and limits on its buyers?

ACTIVE FIGURE 7.2	Major influences on business buyer behavior

Emotions play animportant role in business buying: This Volvo truck ad mentions objective factors, such as efficiency and ease of maintenance. But it stresses more emotional factors such as the raw beauty of the truck and its comfort and roominess, features that make "drivers a lot more possessive."

The buying center usually includes many participants who influence each other, so interpersonal factors also influence the business buying process. However, it is often difficult to assess such interpersonal factors and group dynamics. As one writer notes, "Managers do not wear tags that say ‘decision maker' or ‘unimportant person.' The powerful are often invisible, at least to vendor representatives."¹⁰ Nor does the buying center participant with the highest rank always have the most influence. Participants may influence the buying decision because they control rewards and punishments, are well liked, have special expertise, or have a special relationship with other important participants. Interpersonal factors are often very subtle. Whenever possible, business marketers must try to understand these factors and design strategies that take them into account.

Each participant in the business buying-decision process brings in personal motives, perceptions, and preferences. These individual factors are affected by personal characteristics such as age, income, education, professional identification, personality, and attitudes toward risk. Also, buyers have different buying styles. Some may be technical types who make in-depth analyses of competitive proposals before choosing a supplier. Other buyers may be intuitive negotiators who are adept at pitting the sellers against one another for the best deal.

Figure 7.3 lists the eight stages of the business buying process.¹¹ Buyers who face a new-task buying situation usually go through all stages of the buying process. Buyers making modified or straight rebuys may skip some of the stages. We will examine these steps for the typical new-task buying situation.

Active FIGURE 7.3	Stages of the business buying process

The buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a specific product or service. Problem recognition can result from internal or external stimuli. Internally, the company may decide to launch a new product that requires new production equipment and materials. Or a machine may break down and need new parts. Perhaps a purchasing manager is unhappy with a current supplier's product quality, service, or prices. Externally, the buyer may get some new ideas at a trade show, see an ad, or receive a call from a salesperson who offers a better product or a lower price. In fact, in their advertising, business marketers often alert customers to potential problems and then show how their products provide solutions.

Having recognized a need, the buyer next prepares a general need description that describes the characteristics and quantity of the needed item. For standard items, this process presents few problems. For complex items, however, the buyer may have to work with others—engineers, users, consultants—to define the item. The team may want to rank the importance of reliability, durability, price, and other attributes desired in the item. In this phase, the alert business marketer can help the buyers define their needs and provide information about the value of different product characteristics.

The buying organization next develops the item's technical product specifications, often with the help of a value analysis engineering team. Value 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 methods of production. The team decides on the best product characteristics and specifies them accordingly. Sellers, too, can use value analysis as a tool to help secure a new account. By showing buyers a better way to make an object, outside sellers can turn straight rebuy situations into new-task situations that give them a chance to obtain new business.

The buyer now conducts a supplier search to find the best vendors. The buyer can compile a small list of qualified suppliers by reviewing trade directories, doing a computer search, or phoning other companies for recommendations. Today, more and more companies are turning to the Internet to find suppliers. For marketers, this has leveled the playing field—the Internet gives smaller suppliers many of the same advantages as larger competitors.

These days, many companies are viewing supplier search more as supplier development. These companies want to develop a system of supplier-partners that can help it bring more value to its customers. For example, Wal-Mart has set up a Supplier Development Department which seeks out qualified suppliers and helps them through the complex Wal-Mart buying process. It offers a Supplier Proposal Guide and maintains a Web site offering advice to suppliers wishing to do business with Wal-Mart.

The newer the buying task, and the more complex and costly the item, the greater the amount of time the buyer will spend searching for suppliers. The supplier's task is to get listed in major directories and build a good reputation in the marketplace. Salespeople should watch for companies in the process of searching for suppliers and make certain that their firm is considered.

In the proposal solicitation stage of the business buying process, the buyer invites qualified suppliers to submit proposals. In response, some suppliers will send only a catalog or a salesperson. However, when the item is complex or expensive, the buyer will usually require detailed written proposals or formal presentations from each potential supplier.

Business marketers must be skilled in researching, writing, and presenting proposals in response to buyer proposal solicitations. Proposals should be marketing documents, not just technical documents. Presentations should inspire confidence and should make the marketer's company stand out from the competition.

The members of the buying center now review the proposals and select a supplier or suppliers. During supplier selection, the buying center often will draw up a list of the desired supplier attributes and their relative importance. In one survey, purchasing executives listed the following attributes as most important in influencing the relationship between supplier and customer: quality products and services, on-time delivery, ethical corporate behavior, honest communication, and competitive prices. Other important factors include repair and servicing capabilities, technical aid and advice, geographic location, performance history, and reputation. The members of the buying center will rate suppliers against these attributes and identify the best suppliers.

Buyers may attempt to negotiate with preferred suppliers for better prices and terms before making the final selections. In the end, they may select a single supplier or a few suppliers. Many buyers prefer multiple sources of supplies to avoid being totally dependent on one supplier and to allow comparisons of prices and performance of several suppliers over time.

The buyer now prepares an order-routine specification. It includes the final order with the chosen supplier or suppliers and lists items such as technical specifications, quantity needed, expected time of delivery, return policies, and warranties. In the case of maintenance, repair, and operating items, buyers may use blanket contracts rather than periodic purchase orders. A blanket contract creates a long-term relationship in which the supplier promises to resupply the buyer as needed at agreed prices for a set time period. A blanket order eliminates the expensive process of renegotiating a purchase each time that stock is required. It also allows buyers to write more, but smaller, purchase orders, resulting in lower inventory levels and carrying costs.

Blanket contracting leads to more single-source buying and to buying more items from that source. This practice locks the supplier in tighter with the buyer and makes it difficult for other suppliers to break in unless the buyer becomes dissatisfied with prices or service.

In this stage, the buyer reviews supplier performance. The buyer may contact users and ask them to rate their satisfaction. The performance review may lead the buyer to continue, modify, or drop the arrangement. The seller's job is to monitor the same factors used by the buyer to make sure that the seller is giving the expected satisfaction.

We have described the stages that typically would occur in a new-task buying situation. The eight-stage model provides a simple view of the business buying-decision process. The actual process is usually much more complex. In the modified rebuy or straight rebuy situation, some of these stages would be compressed or bypassed. Each organization buys in its own way, and each buying situation has unique requirements. Different buying center participants may be involved at different stages of the process. Although certain buying-process steps usually do occur, buyers do not always follow them in the same order, and they may add other steps. Often, buyers will repeat certain stages of the process. Finally, a customer relationship might involve many different types of purchases ongoing at a given time, all in different stages of the buying process. The seller must manage the total customer relationship, not just individual purchases.

During the past few years, advances in information technology have changed the face of the business-to-business marketing process. Online purchasing, often called e-procurement, is growing rapidly. One research firm estimates that the dollar value of materials purchased online will swell from $75 billion in 2000 to more than $3 trillion in 2003.¹² In addition to their own Web pages on the Internet, companies are establishing extranets that link a company's communications and data with its regular suppliers and distributors. Much online purchasing also takes place on public and private online trading exchanges, or through reverse auctions in which sellers put their purchasing requests online and invite suppliers to bid for the business.

E-procurement gives buyers access to new suppliers, lowers purchasing costs, and hastens order processing and delivery. In turn, business marketers can connect with customers online to share marketing information, sell products and services, provide customer support services, and maintain ongoing customer relationships.

So far, most of the products bought online are MRO materials—maintenance, repair, and operations. For instance, Los Angeles County purchases everything from chickens to lightbulbs over the Internet. National Semiconductor has automated almost all of the company's 3,500 monthly requisitions to buy materials ranging from the sterile booties worn in its fabrication plants to state-of-the-art software. The actual dollar amount spent on these types of MRO materials pales in comparison to the amount spent for items such as airplane parts, computer systems, and steel tubing. Yet, MRO materials make up 80 percent of all business orders, and the transaction costs for order processing are high. Thus, companies have much to gain by streamlining the MRO buying process on the Web.

General Electric, one of the world's biggest purchasers, plans to be buying all of its general operating and industrial supplies online within the next few years. Five years ago, GE set up its Global eXchange Services network—a central Web site through which all GE business units could make their purchases. The site was so successful that GE has now opened it up to other companies, creating a vast electronic e-purchasing clearinghouse.

Business-to-business e-procurement yields many benefits.¹³ First, it shaves transaction costs and results in more efficient purchasing for both buyers and suppliers. A Web-powered purchasing program eliminates the paperwork associated with traditional requisition and ordering procedures. On average, companies can trim the costs of purchased goods alone by 15 to 20 percent. For example, Owens Corning estimates that e-procurement has shaved 10 percent off its annual purchasing bill of $3.4 billion.

E-procurement also reduces order processing costs. "The first advantage is clearly the lower prices (about 20 percent) that we are paying," says Hewlett-Packard's vice president of supply-chain services. "But we are now also 20 to 25 percent more efficient." Through online purchasing, Texas Instruments has trimmed its cost of processing a purchase order from $80 to $25. And 3M slashed the price of processing an order from $120 to under $40, while also cutting its error rate dramatically. A more efficient centralized purchasing platform also saves time and money. One key motivation for GE's massive move to online purchasing has been a desire to get rid of overlapping purchasing systems across its many divisions.

E-procurement reduces the time between order and delivery. Time savings are particularly dramatic for companies with many overseas suppliers. Adaptec, a leading supplier of computer storage, used an extranet to tie all of its Taiwanese chip suppliers together in a kind of virtual family. Now messages from Adaptec flow in seconds from its headquarters to its Asian partners, and Adaptec has reduced the time between the order and delivery of its chips from as long as 16 weeks to just 55 days—the same turnaround time for companies that build their own chips.

Finally, beyond the cost and time savings, e-procurement frees purchasing people to focus on more-strategic issues. For many purchasing professionals, going online means reducing drudgery and paperwork and spending more time managing inventory and working creatively with suppliers. "That is the key," says the H-P executive. "You can now focus people on value-added activities. Procurement professionals can now find different sources and work with suppliers to reduce costs and to develop new products."

The rapidly expanding use of e-purchasing, however, also presents some problems. For example, at the same time that the Web makes it possible for suppliers and customers to share business data and even collaborate on product design, it can also erode decades-old customer-supplier relationships. Many firms are using the Web to search for better suppliers. Japan Airlines (JAL) has used the Internet to post orders for in-flight materials such as plastic cups. On its Web site it posts drawings and specifications that will attract proposals from any firm that comes across the site, rather than from just the usual Japanese suppliers.

E-purchasing can also create potential security disasters. More than 80 percent of companies say security is the leading barrier to expanding electronic links with customers and partners. Although e-mail and home banking transactions can be protected through basic encryption, the secure environment that businesses need to carry out confidential interactions is still lacking. Companies are spending millions for research on defensive strategies to keep hackers at bay. Cisco Systems, for example, specifies the types of routers, firewalls, and security procedures that its partners must use to safeguard extranet connections. In fact, the company goes even further—it sends its own security engineers to examine a partner's defenses and holds the partner liable for any security breach that originates from its computer.