Industrial buyer behavior | Management Optional Notes for UPSC PDF Download

Introduction

• In the marketing process, it is crucial to comprehend the reasons behind a customer or buyer's decision to purchase goods and services. Existing literature on industrial buyer behavior has predominantly focused on modeling and mapping the behavior of industrial buyers (Parkinson and Baker, 1986). However, limited research has delved into how industrial buyers navigate significant product innovations. Buyer behavior involves the operations and decision-making processes employed to choose between alternatives, and acquire, and use products or services. Some argue that buyer behavior is of interest solely to marketers seeking to influence and manipulate it, raising ethical considerations about the marketing profession. Industrial buyer behavior is fundamentally about understanding how industrial organizations procure products and services (Dwyer and Tanner, 2001), also known as organizational or business buying processes. This understanding is crucial for meeting customer needs.
• Differentiating between consumer buying and industrial buying is imperative due to variations in factors such as the use of more variables and greater complexity in identifying process participants in industrial buyer behavior (Moriarty, 1984). Parkinson and Baker (1986) describe industrial buying as the acquisition of a product aimed at satisfying the entire organization rather than an individual. Analyzing industrial buying behavior is essential for understanding buyer behavior across various organizations.
• The industrial market process differs significantly because market forces influence industrial demand. Executives in the industrial market must adapt to changing markets, develop products to align with evolving market dynamics and employ different strategies to target new customers while adhering to corporate policies. Consequently, industrial marketers face unique challenges not typically encountered in the consumer market. Moreover, the industrial market is dynamic and presents challenges to any nation's economic growth and development.

Concept

• Understanding the motives behind purchasing in the market is essential. According to Parkinson and Baker (1986), industrial buying involves acquiring a product intended to meet the needs of the entire organization rather than catering to an individual. Investigating buyer behavior in organizations often hinges on comprehending industrial buying behavior. In industrial buying scenarios, there is a recognition of increased reliance on marketing information, a more extensive exploratory objective in information collection, and greater formalization (Deshpande and Zaltman, 1987).
• Industrial marketing introduces a more intricate buying process compared to consumer marketing. Decisions in industrial marketing are influenced by factors such as adherence to product specifications, product quality, availability, timely supply, acceptable payment and other commercial terms, cost-effectiveness, and after-sales service, rather than social and psychological desires. The buying process in industrial marketing typically takes more time and involves individuals from technical, commercial, and finance departments. Following the initial proposal by a retailer, negotiations and information exchange occur between experts and representatives from both the purchasing and selling organizations. 
• Consequently, inter-organizational contacts are established, leading to the development of interpersonal relationships. The relationships between sellers and consumers are highly valued and tend to become stable over the long term due to a high level of interdependence. Webster and Wind proposed that factors influencing industrial buyer behavior can be categorized into two variables: tasks and non-tasks. Tasks are directly linked to buying problems, while non-tasks encompass aspects beyond specific buying issues.

Variables Influencing Industrial Buying Behavior

• The commonly accepted model by Webster and Wind faces criticism as it is not always feasible to neatly categorize a set of variables as strictly task or non-task. Instead, any given set of variables tends to exhibit both task and non-task dimensions (Agbonifoh et al., 2007).
• An alternative model that elucidates industrial buying behavior is The Robinson, Faris, and Wind model. Regarded as one of the earliest and extensively utilized models to delineate organizational buyer behavior differences (Agbonifoh et al., 2007), the model posits that the industrial buying process consists of stages that vary based on the specific buying situation (referred to as classes) confronting the buying firm. The model analyzes organizational buying behavior in terms of the buyer's experience with the product class, the information sought, and the time invested in the decision-making process. A cross-tabulation of phases with buy classes results in a Buy-Grid framework.
• The Nelson box model amalgamates components of organizational buyer behavior with consumer behavior. Built on two crucial assumptions— a) decisions at different organizational levels may not always involve the same individuals or tasks, and b) decisions at one level form the basis for subsequent decisions—the model outlines four decision-making levels in an organization:
• The general buying decision, encompassing the decision to initiate a project, which may involve establishing a new building or launching a new product.
• The actual buying decision, involving the selection of a specific project, including defining objectives and project specifications.
• The decision associated with selecting the most suitable suppliers/vendors and products.
• The technical buying decision, involving decisions related to the practical mechanics of transportation, contract drafting, final price and payment negotiations, and specification of other features.
• Another influential model is The Hobbesian Organizational Buyer Model developed by Thomas Hobbes. This model assumes that the purchasing officer's commitment to the organization is hindered by his simultaneous commitment to personal goals. It explains why an organizational buyer may choose a vendor offering a higher price or slightly lower quality over a seller offering a lower price for the same value.

Johnston and Lewin (1996) argue that extensive research consolidates the existence and significance of three essential dimensions when analyzing industrial buyer behavior:

• The appearance of the buyer decision process when organizations face different buying situations.
• The buying decision center and factors influencing the buying process within the organization.
• The various criteria used by industrial buyers when purchasing a product/service.

Industrial Buyer Process

• Effectiveness in industrial marketing is achieved by marketers through a profound understanding of the nature of industrial buying and a comprehensive grasp of industrial buying behavior. Industrial buying behavior is a complex process that cannot be succinctly explained by a single descriptive variable such as price, total cost, reciprocity, or ego enhancement. 
• A thoroughly comprehensive model of industrial buying behavior should be capable of addressing the complexity of decisions, involving various individuals (users, deciders, influencers, and buyers), technical considerations, extended decision timelines, and intricate interactions of personal, interpersonal, organizational, and environmental factors. Numerous scholars have elucidated industrial buying behavior through different models, incorporating both technical and psychological aspects of multiple individuals (Webster & Wind, 1972). Webster (1965) emphasized the importance of understanding both the industrial and individual facets of decision-making when studying the industrial buying process.
• In 1973, Prof. Jagdish and N Sheth proposed the Sheth model, which acknowledges that not all buying decisions stem from an organized decision-making process. Unplanned situational factors, such as unexpected events like machinery damage, also influence buying decisions. The literature notes that industrial buyer behavior involves the procurement process, with significant phases including information search and supplier evaluation (Sheth, 1973). Another key aspect of industrial buyer behavior is the decision-making group within an organization. The Sheth interactive model places emphasis on information search, recognizing that the expectations of purchasing agents, engineers, users, and others directly involved in the buying process, collectively known as the buying center, can be influenced by their experiences. 

To delineate organizational buyer behavior, Sheth divides it into three distinct aspects:

• The psychological world of individuals engaged in organizational buying, acknowledging that purchase decisions in an organization are not made by a single individual but by members of different departments, and the psychological makeup of decision-makers is crucial (Iruka, 2001).
• The conditions that trigger joint decision-making, recognizing that not all decisions are made collectively. The model identifies six factors determining whether a specific buying decision will be joint or independent, with three related to product or service characteristics and three related to the buyer organization's characteristics.
• The process of joint decision-making, outlined by the Sheth interactive model, includes initiation of the decision to buy, gathering information, evaluating alternative suppliers, and resolving conflicts among the parties involved in the joint decision.

Sheth Interactive model of industrial buying behaviour

The Hill and Hiller model, reproduced for the analysis of purchase decisions from the buyer's perspective, comprises three major components: the usage of purchased items, the reasons for purchase, and the complexity of the purchase. The intended use of the proposed purchase is deemed crucial information for the vendor as it indicates the technical content, value, and essentiality of the item, the level of risk involved, the likely timing of the purchase, and whether the product is likely to be buyer or supplier specified. Hill and Hiller identified five main categories of use:

• For incorporation into production output, which may be either to order or to stock.
• For utilization during production processes but not incorporated into the final product.
• To provide production facilities for manufacturing, service, or resale.
• For use in maintenance operations.
• For use in development and engineering work.

The Anatomy of Purchase Elements

Webster and Wind's model posits that industrial buying behavior is influenced by various variables, which are categorized into four primary groups: environmental, organizational, interpersonal, and the buying center and individual. The factors affecting these variables include:

• Buying situation
• Environmental factors
• Organizational factors
• Interpersonal factors
• Personal factors
• Additional influences

Influencing Factors in Industrial Buying Behavior

Buying Situation:

• Buying situations arise when employees in an organization face a problem, leading to the exploration of a new task or product.
• Different types of buying situations include new task, modified rebuy, and straight rebuy.
• The comparative importance of attributes when selecting a supplier changes depending on the different buying situations.

New Task:

• This situation arises when an internal stimulus or an environmental factor prompts the organization to explore a new task or product.
• It requires a thorough analysis of suppliers, involving the complete buying process to scrutinize alternatives.

Straight Rebuy:

• In this common situation, the buyer reorders a previous product with established solutions.
• The solution remains routine, and the quantity may change over time while maintaining product and service quality.

Modified Rebuy:

• This situation involves considering new alternatives from suppliers, usually prompted by changes in selection criteria or a reassessment of product specifications, terms, or suppliers.
• It requires less time and involvement than a new task but more than a straight rebuy.

Buying Centre:

• The concept of the buying center originated with Robinson et al., referring to all members involved in the buying process.
• It is a group activity where individuals from various business areas contribute to the final purchase decision.
• Key considerations for sellers include identifying members, understanding their decision responsibilities, assessing their influence, and determining the criteria they use.

Johnston and Bonoma's Dimensions:

• Johnston and Bonoma developed five structural and interactive dimensions of the buying center, specifying and determining its characteristics.

Dimensions of the Buying Centre (Source: Bonoma, 1981):

• Members of the buying center ascertain the organization's needs and the methods employed by the organization to fulfill those needs. The complexity of the buying center depends on the significance and intricacy of the requirements. The buying center is not confined to a specific location for decision-making. It is conceptualized as representatives from various independently operating parts of the organization, such as finance, production, purchasing, engineering, human resources, and more. In large and complex organizations, influencers (members of the buying center) may be physically distant from each other (Vitale et al., 2010).
• Primary objectives for business marketers include identifying the major influencers within the buying center, understanding their roles, and recognizing the factors that influence their decisions. Another crucial aspect of the buying center is the psychology and motivation of its members. While business-to-business customer decisions are based on organizational needs and professional opinions, they are also significantly influenced by individual roles, social positions, and self-perception. Business marketers should acknowledge that, for every business decision, individuals with their unique qualities and psychology (Kozulya, 2010).

Buying Centre's Role Defined

Factor of Influence:

• Organizational buying is fundamentally a decision-making process performed by individuals in interaction with others and various environmental forces. Webster and Wind (1996) distinguish four classes of factors determining industrial buying behavior: Individual, Interpersonal, Organizational, and Environmental.

Environmental Influences:

• Webster and Wind's model (1972) posit that environmental influences play a role in buying. Business buyers are significantly influenced by factors in the current and expected economic environment, including institutions and business firms, government, trade unions, political parties, trade associations, and professional groups. Differences in these institutions across countries are crucial for establishing relationships with foreign companies (Kotler, 1997). 
• Environmental influences encompass the availability of goods and services, general business conditions, and factors facing the buying organization such as financial growth, national income, interest and technological rates, and unemployment. Economic and political factors strongly impact general business conditions, and buyers are also affected by regulatory factors and changes in the political landscape. Business marketers are advised to monitor environmental factors, understand influencing institutions, assess their impact on buyers, and transform challenges into opportunities.

Organizational Influences:

• Individual decision-makers respond differently in industrial buying decisions due to the influences they encounter within the organizational environment. The organizational environment directly surrounds an individual during their work, encompassing office colleagues, workplace, organization size, orientation, market position, management involvement, structure, wage system, social guards, work conditions, employment relationship, organizational philosophy, rules of conduct, internal order, and the degree of risk aversion present in the culture. 
• Individuals within an organization must interact as group members, and organizational factors cause decision-makers to proceed differently than if they were working alone or in a different organization. Organizational behavior is influenced by the organization's goals and controlled by its financial, technological, and human resources.

Interpersonal Factor:

• Interpersonal factors are primarily associated with the relationships and interactions between members of the buying center. These interactions result in unique buying behavior within each customer organization. Webster and Wind (1996) describe three aspects of role performance to understand interpersonal interaction within the buying center: role expectations, role behavior, and role relationships. 
• These variables characterize the individual role set, and understanding each dimension is crucial for business marketers. In the buying decision process, three classes of variables must be recognized: distinguishing different roles among buying center members, variables for interaction among individuals in the buying center, and identifying the dimension that makes the group function. Sheth presented an explanation of joint decision-making within the buying center, involving various departments whose members are connected to different stages in the buying process.

Personal Factors:

• The foundation of all industrial buying behavior is individual behavior. Individuals in an organization are the ones analyzing, deciding, and acting to execute the purchase either individually or in groups. Only individuals, either as individuals or as members of a group, can describe and analyze buying situations, decide, and act. Each member of the buying process has personal motivations, perceptions, and preferences influenced by their age, income, education, job position, personality, attitudes toward risks, and culture. The attributes of industrial buyers will influence their response to the situation and marketing actions taken by a seller.
• Major characteristics such as personality, motivation, perceived role set, reception skills, and learning are crucial. Marketers or prospective vendors must consider the individual determinants and strategies that buyers are likely to use if they wish to impact an individual industrial buyer. Sheth emphasizes that the background of individuals is the most significant factor for each person involved in the buying process. Different demographic, social, educational, and lifestyle backgrounds create distinct goals and values between purchasing agents, engineers, and managers.

Additional Influences (Situational)

• Thomas and Wind (1980) explained other factors that influence industrial buying behavior. Inter-organizational factors are the relationships between buying and selling organizations. Marketing variables such as positioning, price, distribution, and the marketing strategies of rivals also influence industrial buying behavior. 
• Sheth (1973) stated that some organizational buying decisions are influenced by situational factors rather than any systematic decision-making process. Industrial buyers often decide on factors other than rational or practical criteria.

Industrial Buyer's Decision Process:

• Industrial purchasing decision-making involves more physical and observable stages. The process of organizational buying and decision-making is presented by Kotler (1997) and Vitale et al. (2010).

A model of Organizational Buyers' decision making Process

The initial phase, the problem recognition stage, marks the beginning of the buying process when an individual within an organization identifies a problem or need that can be addressed by acquiring goods and services. The buying center then assesses organizational needs and explores available options. The definition stage encompasses activities such as identifying and defining the organizational problem, outlining potential solutions, and specifying the product or service that can fulfill organizational needs (Webster & Wind 1996).

• The second phase involves the description of needs, and determining the characteristics and quantities required. Common attributes include reliability, durability, and price. Activities in this stage include searching for potential suppliers, soliciting proposals, evaluating offers, and ultimately selecting the most suitable supplier. In the case of a straight rebuy, the organization is likely to stick with the same supplier, even if not the cheapest, due to the awareness of service and safety. Conversely, in a new-task situation, the company is more inclined to carefully consider both financial and service factors (Vitale et al., 2010).
• The third phase is the product specification or delivery solution stage, which builds on inputs from the previous stage. The buying organization formulates the technical specifications for the required products, dividing them into distinct items.
• The fourth phase involves searching for potential suppliers among the available sources. Marketers must ensure that the supplier is included in the list of potential suppliers.
• In the fifth phase of proposal solicitation, the list of capable suppliers is narrowed down based on critical factors. The purchasing department then requests proposals from each supplier, inviting some for presentations after evaluation. Proposals must include all specifications, such as price, delivery period, charges, and taxes.
• The sixth phase comprises supplier selection, where each supplier's presentation is rated according to a specific evaluation model. Buying organizations attempt to negotiate with the selected supplier for a reasonable price and agree on terms and conditions for the final selection. Parameters like reliability, delivery, flexibility, price, and services are considered in the supplier selection process.

To adhere to routine specifications, the buyer negotiates the final order, detailing technical specifications, the required quantity, and the expected delivery time. The final phase of the purchase decision process involves formal and informal reviews and feedback on product and merchant performance. The buyer may contact customers to gather their responses.

In summary, industrial buying behavior is a complex process involving multiple individuals, varied goals, and potentially conflicting decision criteria. It encompasses the purchase and usage behavior of industrial/business goods users, along with the thoughts and decision processes occurring before, during, and after product acquisition. A comprehensive understanding of the organizational buying process is a key requirement for the development of a business marketing strategy. Various models have been developed to explain the concept of industrial buying behavior. Industrial buyers are more likely to purchase products directly from suppliers or manufacturers and in larger quantities than consumers. Consumer market buying decisions are simpler, relying solely on consumer preferences.