Understanding Industrial & Individual Buyer Behaviour

Understanding Industrial & Individual Buyer Behaviour

Buyer behaviour is the study of when, why, how, and where people do or do not buy [[Product (business)|product).It blends elements from psychology, sociology, social anthropology and economics.

It attempts to understand the buyer decision making process, both individually and in groups. It studies characteristics of individual consumers such as demographics and behavioural variables in an attempt to understand people's wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general.

Customer behaviour study is based on consumer buying behaviour, with the customer playing the three distinct roles of user, payer and buyer. Relationship marketing is an influential asset for customer behaviour analysis as it has a keen interest in the re-discovery of the true meaning of marketing through the re-affirmation of the importance of the customer or buyer. A greater importance is also placed on consumer retention, customer relationship management, personalisation, customisation and one-to-one marketing. Social functions can be categorized into social choice and welfare functions.

Each method for vote counting is assumed as a social function but if Arrow’s possibility theorem is used for a social function, social welfare function is achieved. Some specifications of the social functions are decisiveness, neutrality, anonymity, monotonocity, unanimity, homogeneity and weak and strong Pareto optimality. No social choice function meets these requirements in an ordinal scale simultaneously. The most important characteristic of a social function is identification of the interactive effect of alternatives and creating a logical relation with the ranks. Marketing provides services in order to satisfy customers. With that in mind, the productive system is considered from its beginning at the production level, to the end of the cycle, the consumer (Kioumarsi et al., 2009).

Belch and Belch define consumer behaviour as 'the process and activities people engage in when searching for, selecting, purchasing, using, evaluating, and disposing of products and services so as to satisfy their needs and desires'.'

1.Industrial buyer behavior theory

It is considered as highly important to be aware of why a customer or buyer makes a purchase. Without such an understanding, businesses find it hard to respond to the customer ‟ s needs and wants (Parkinsson & Baker, 1986). It is important to be aware of the differences between consumer buying and industrial buying because the industrial buyer behavior differs from consumer buying in many aspects such as; using more variables and greater difficulty to identify process participants (Moriarty, 1984). The industrial buying is described by Parkinsson & Baker (1986) as the buy of a product which is made to please the entire organization instead of satisfying just one individual. Industrial buying behavior is considered as being a elementary concept when it comes to investigating buyer behavior in all types of organizations (ibid). Also, in industrial buying situations there is a perception of greater use of marketing information, greater exploratory objective in information collection and greater formalization. (Deshpande & Zaltman, 1987)

The article by Johnston & Lewin (1996) illustrates that the broad amount of research conducted consolidated the existence and relevance of three important dimensions when investigating industrial buyer behavior.

1.             How the buyer decision process looks like when organizations stands in front of different buying situations.

2.             The buying decision center and factors influencing the buying process within the organization

3.             The different criterion’s used by industrial buyers when buying a product/service.

Fig 2. Industrial buyer process [Authors creation]

These three dimensions are considered as highly relevant for this research and will therefore be used throughout the study [fig 2]. In order to increase knowledge about the industrial buyer behavior, these three dimensions will be further described in more detail in the coming chapters of the theoretical framework.

2. Situations affecting the Industrial buyer behavior

We consider it to be crucial to describe the essential circumstances that influence the buyer behavior and thereafter we will continue with describing other relevant factors. Robinson et al. (1967) argues that there are some circumstances during a purchase being more important than the actual product/service being bought. Based on these assumptions the authors studies different buying situations and present these situations in three main categories, so called

―buy-classes‖; (1) new task; (2) straight re-buy; (3) modified re-buy (ibid). In a new task buying situation the product/service is completely new to the organization. The buyer has insufficient or no experience and knowledge about the product/service in order to compare alternative suppliers with each other. The buyer and the influencers need to gather relevant information before the decision to purchase is made. A straight re-buy is the most common form of industrial purchase situation where the buying organization requires little or no information about the product/service. This situation is considered as routine buying and the industrial buyer most often have well developed criterion ‟s that have been often used before.

(ibid). Evaluating criterion‟s, suppliers and other stages in the process are considered as unnecessary in this situation since the same product has been bought before. However, the first step of the process (need recognition) is taken into consideration. On the other hand, a modified re-buy occurs after the buyer have bought a new product or made a straight re-buy. The industrial buyer reevaluates the supplier, product, prices and services; however this doesn‟t mean that the buyer will change product or supplier. According to Robinson et al (1967) there are four factors leading to a modified re-buy; cost reductions, disaffection with current supplier, development of product or better offerings from another supplier surrounding price, quality or service. In this case the buying organization puts most focus in evaluating suppliers. (ibid)

3.Buyer decision process

After defining the different circumstances influencing the buyer behavior we argue that it is important to define the actual buying decision process. In order for a marketer to be successful [s]he needs to examine the complex subject of buyer decision processes (Kotler et al, 2007). The buying process involves different stages that organizations phase during and after a purchase. Yet, this buying process may differ a lot depending on what type of product that will be bought (ibid). The authors Robinsson et al (1967) illustrate this process by developing a model which lays down how the process of deciding to buy a product looks like for industrial organizations. This model is separated into eight different buy-phases. These phases will be described in more detail below;

1.       Need recognition: This is the first step in the buyer process where a problem or need is identified by someone in the organization

2.       Definition of the characteristics of the item needed: In this stage a description of alternative solutions is presented and questions like; what does the company need? Which service attributes and quanities are needed ?

3.       Development of the specifications: A more detailed technical specification of the product/service is presented. This information will be vital for the coming stages.

4.       Search for supplier; The buying organization searchs for suppliers that can offer them the wanted product/service. When dealing with more complex and costly products/services the buying organization spends more time finding their supplier.

5.       Acquistion and analysis of proposals: The most qualifying suppliers are chosen and their different proposals are analyzed. If the buying organization are buying more complex and expensive products/services the suppliers need to make formal presentations of alternativ solutions responding to the organizations need. This stage is similar to the previous stage and occur almost always in parallel. However, if the buyer have very little information from the beginning then these stages are more separable.

6.       Evaluation of suppliers: The members of the buying decision center evaluate the supplier by the product/service attributes offered (which attributes matter most?), brand belief (opinions about the brand)

1.       Selection of an order routine: This phase starts by sending an order to the supplier. However, the buying process is not finished until the product/service has been delivered and the buying organization has accepted it. Preparation of the order before it is sent to the supplier, control and evaluation of the order are some of the activities done in this phase

2.         Evaluation: Post purchase evaluation to see whether the supplier and the product/service fulfilled the requirements and preferences.

4.Buyer decision center

A group of individuals within an organization form the buyer decision center. According to Cyert & March (1992), all organizations have their own decision center. However, this center might differ in terms of size and structure from one organization to another. The term of decision center implies to all members being a part of the industrial buying decision process (Robinson et al., 1967). According to Cyert & March (1992), the decision center consists of individuals having different goals such as profit, sales, market shares and production. According to Parkinsson & Baker (1986) when a organization identify their buying center it is important to tackle two important factors;

1.                 Roles in the decision center

2.                 Factors influencing the members

1.                 Roles in the decision center

In every decision center there are different members having different roles and authorities and according to Webster & Wind (1972) this decision center can be a very complex environment consisting of initiators, buyers, users, influencers, decision makers and gatekeepers. The initiators are the individuals within the organization that first recognizes the need for a product or service. The buyers have the formal authority and responsibility for choosing suppliers, deciding buyer conditions and price negotiations. (ibid)

While the users are the actual individuals that will use the product and they are best equipped with the right knowledge and experience to evaluate the product. The influencer do not have any direct authority when it comes to the buyer decision, however, they still affect the decision outcome. The decision makers have a formal authority and responsibility to make the final decision. Finally, the gatekeepers control the information flow in this decision making process and thereby they affect the process indirectly (Webster &Wind, 1972).

6.Factors influencing the buying center

The variables are; (1) conditions of the buying situation, (2) personal characteristics and (3) organizational structure characteristics. These variables are illustrated in the model below:

7.Conditions of the buying situation

According to Samaniego & Cillian (2004) there are five different variables that influences the buying center; (1) Buyclasses; have a direct influence on the buying center. According to the industrial buying theory, the buying center searches for more information if they are facing a new task and thereby it decreases uncertainty. (2) Level of complexity; this variable consists of two types of areas; the complexity of the buying situation and; the complexity of the product (Dadzie, Johntson et al 1999). According to Bonoma (1982), the higher the level of complexity (buying situation & product), the more individuals involved in the buying center.

(3) Importance; the degree of importance is defined as how much the purchase has influence on the organizations productivity and profitability. Bonoma (1982) argues if the degree of importance and complexity is low, one single individual can hold all roles in the decision center. (4) Risk; if the industrial buyer experience greater risk with the purchase the degree of influence and involvement in the buying center increases. This is done in order to reduce and minimize potential risks.

(5)Time pressure; According to Speakman & Mariarty (1984) referred by G.Samaniego & G.Cillian (2004) the degree of involvement and influence reduces when there is a high time pressure.

8.Personal characteristics

According to Samaniego & Cillian (2004) there are two different variables related to the personal characteristics that influences the buying center. (1) Personal influence; the more an individual is involved in the buying process the greater the possibility for the individual to feel motivated to participate and influence the buying center. (2) Personal experience; the greater individual experience [in terms of buying] increases the involvement and influence on the buying center.

According to Samaniego & Cillian (2004) there are five different variables related to the organizational structure that influences the buying center; (1) Size; Size and the structure of an organization determine the size and complexity of the buying center , (2) Specialization; higher degree of specialization within an organization leads to higher involvement and influence on the buying center, (3) Standardization; higher level of standardization increases the possibilities to develop well structured buying centers and thereby decreases the degree of involvement and influence, (4) Centralization; a higher degree of decentralization indicates that a larger number of departments within the organization are involved, which in turn signify that more individuals are involved and influence the buying center, (5) Formality;

Different types of formalities such as rules, policies and different procedures for certain activities influence the buying center and thereby the buying process (ibid).

Supplier selection criterions

According to Axelsson (1998), there is always a step in the buying process where the buying center evaluates different suppliers based on some certain criterions. The author presents important factors that need to be addressed when choosing a certain supplier. These factors where brought from an earlier research where organizations where asked what they considered to be the most important factors when evaluating a supplier (ibid). These factors

are as follows;

1. Price

2. Product quality

3. Accessibility to information

4. Service & Support.

5. Delivery costs

6. Delivery time

7. Stability in the delivery

8. Participation in the Product 

9. Supplier flexibility Geographic

10. localization Technological

11. standard

12. ISO-certification

However, the authors Cebi & Bayraktar (2003) also present some other important factors when evaluating a supplier such as;

1 Supplier reputation

2. Earlier experience with Supplier

3 . Guarantees of results

4. supplier knowledge and competence Direct

5. communication and contact

9.The buy grid framework

It is not easy to develop a model that fits in all situations for industrial buyer behavior. The buyer decision process will most often change from one situation to another depending on which factors influence the decision in each specific situation (Parkinson & Baker, 1986). However, Robinson et al (1967) have developed a model called the Buy grid framework where they combine the eight staged buyer decision in process [fig 4] with the three different buying situations. This framework illustrates the process of an industrial buyer moving through finding a need/identifying a problem towards purchasing and evaluating it. Depending on the buyclass the different steps become more or less important.

10.Theoretical Framework

To be able to analysis the industrial buying behavior a clear understanding of how these different fields relates to each other. Figure 5 visualizes the relation between the buying center, buy grid framework and the suppliers criterions. This aims to help us in our analysis, it visualizes the relationships and how it affects each other.

Step 1: Planning

Step2 : Define the objective

Step3 :Understand consumer

Step4 :Define problem

Step5 :Information search

Step6 :Evaluation of alternatives

Step7 :Purchase

Step8 :Postpurchase Evaluation