You are on page 1of 8

Industrial Customers Purchasing Orientations

Industrial marketers are aware that all business buyers or industrial customers do not have the same
purchasing orientation or overall purchasing philosophy, which guides them through their buying
decisions. Buyers normally choose one of the three purchasing orientations Buying, Procurement and
Supply chain management.
Buying Orientation The purchasing firm with buying orientation has a narrow and short term focus.
They usually select the lowest price supplier. Quality and availability are the factors that are considered as
qualifiers for a supplier to be considered. The buying firm gains power over suppliers by using tactics like
commoditization and multi-sourcing. Buyers avoid risk altogether, in order to reduce the chance of
criticism and penalization for making a mistake by following standard purchase procedure.
Procurement Orientation The purchasing firm has a strategic focus and is proactive. The span of
influence of purchasing is more with integration of other activities like order processing, material
handling and logistics. The buyers, with procurement orientations, seek both quality improvements and
cost reductions. This can be achieved by collaborative relationship with major suppliers and working
closely with other functional areas.
Supply Chain management orientation It includes coordination and integration of purchasing
function with other functions within the company and also with other organizations in the whole value
chain like customers, intermediaries and suppliers. The company with supply chain management
orientation focuses on how to improve the whole value chain from raw materials to end users.

Types of Purchasing Processes:


Marketers need to understand how business purchasing departments work. These departments purchase
many types of products, and the purchasing process will vary depending on the types of products
involved. Four product related purchasing processes are distinguished,
1. Routine product: These products have low value and cost to the customer and involve little risk (e.g.
office supplies). Customers will seek the lowest price and emphasize routine ordering. Suppliers will offer
to standardize and consolidate orders.
2. Leverage products: These products have high value and cost to the customer but involve little risk of
supply (e.g. engine pistons) because many companies make them. The supplier knows that the customer
will compare market offerings and costs, and it needs to show that its offering minimizes the customer
total cost.
3. Strategic products: These products have high value and cost to the customer and also involve high
risk (e.g. mainframe computers). The customer will want a well-known and trusted supplier and be
willing to pay more than the average price. The supplier should seek strategic alliances that take the form
of early supplier involvement, co-development programs, and co-investment.
4. Bottleneck products: These products have low value and cost to the customer but they involve some
risk (e.g. spare parts). The customer will want a supplier who can guarantee a steady supply of reliable
products. The supplier should propose standard parts and offer a tracking system, delivery on demand,
and a help desk.
The conclusion is that the upgrading of purchasing means business marketers must upgrade their sales
personnel to match the higher caliber of the business buyers. Formally, we can distinguish three company
purchasing orientations.

Buying process in industrial marketing


Unlike the consumer purchasing decision process, which is mainly a series of mental stages, industrial
purchasing decision making involves more physical and observable stages. There are many decision
makers involved in each of the eight stages as elaborated by the buy grid framework.

Phase 1: Recognition of a Problem: The purchasing/buying process begins when someone in the
company recognises a problem or need that can be met by acquiring goods or services.
The common events that lead to this phase could be:
i. The company decides to develop a new product and needs new equipment and materials to produce this
product.
ii. It decides to diversify or expand and hence requires a multitude of new suppliers.
iii. Purchasing Manager assesses an opportunity to obtain lower prices or better quality.
iv. A machine breaks down and requires replacement or new parts.
v. Purchased materials turn out to be unsatisfactory and the company searches for another supplier.
Early emolument in the new task/problem recognition phase offers the marketer an advantage over
competitive suppliers.
Phase 2: Description of the need: This phase involves determination of the characteristics and quantity
of the needed item. The general characteristics could be reliability, durability, price etc. and the marketer
along with the purchasing manager, engineers and users can describe the needs.
The questions that could be posed are:
i. What performance specifications need to be met?
ii. What types of goods and services should be considered?
iii. What are the application requirements? and
iv. What quantities would be needed?
The answers to such questions will give the marketer a general description of the need which will be the
input for the next phase.
Phase 3: Product Specification: Obtaining the input from the second phase, the buying organisation has
to develop the technical specifications of the needed items. In this phase, the product is broken down into
items. The items in turn are sorted into standard ones and new ones which need to be designed.
The specifications for both are listed. As a marketer, he must involve himself and his technical and
financial counterpart to determine the feasibility and also to elaborate the services they can offer to
develop and supply the product. Unless it is a known supplier many companies do not encourage the
supplier participation at this stage. Customer relationship plays a vital role here.

Phase 4: Supplier Search: This phase pertains to the search for the qualified suppliers among the
potential sources. The marketer has to ensure that he is in the list of potential suppliers. For this to
happen, he has to make periodic visits to all potential companies and create awareness. Brochures have to
be circulated and advertisements placed in specific media like trade journals. This phase only involves
making a list of qualified suppliers.
Phase 5: Proposal Solicitation: The lists of qualified suppliers are now further shortened based on some
critical factors. For example, if the buyer is not willing to try any new firm which has not been in the
market for more than three years, it can delist those suppliers. Then the purchasing departments ask for
proposals to be sent by each supplier.
After evaluations, based on the specified criteria, some firms are asked to come over for formal
presentations. The proposal must include product specification, price, delivery period, payment terms,
taxes of experts and duties applicable, transportation cost, cost of transit insurance and any other relevant
cost or free service provided. For purchase of routine products or services, phases 4 and 5 may occur
simultaneously as the buyer may contact the qualified suppliers to get the latest information on prices and
delivery periods.
For technically complex products and services, a lot of time is spent in analysing proposals in terms of
comparison on products services, deliveries and the landed cost.

A leading MNC which manufactures soaps requires, the-would be suppliers to pass through three stages:
that of a qualified supplier, an approved supplier and a select supplier. To become qualified, the supplier
has to demonstrate technical capabilities, financial health, cost effectiveness, high quality standards and
innovativeness. A supplier that satisfies these criteria then applies sample lot for approval. Once
approved, the supplier becomes a select supplier when it demonstrates high product uniformity,
continuous quality improvement and JIT delivery capabilities.
Phase 6: Supplier Selection: Each of the suppliers presentations are rated according to certain
evaluation models. The buying organisation may also attempt to negotiate with its preferred suppliers for
better prices and terms before making a final decision.
Phase 7: Order Routine Specification: After the suppliers have been selected, the buyer negotiates the
final order, listing the technical specifications, the quantity needed, the expected time of delivery, return
policies, warranties etc. In case of maintenance, repair and operating items, buyers are increasingly
moving towards blanket contracts rather than periodic purchase orders.
Blanket contracting leads to more single sources buying and ordering of more items from that single
source. This system brings the supplier in closer with the buyer and makes it difficult for out-suppliers to
break in unless the buyer becomes dissatisfied with the in-suppliers prices, quality or service.
Phase 8: Performance Review: The final phase in the purchasing process consists of a formal or
informal review and feedback regarding product performance as well as vendor performance. The buyer
may contact the end user and ask for their evaluations which are in turn given to the supplier or he may
rate the supplier on several criteria using a weighted score method or the buyer might also aggregate the
cost of poor supplier performance to come up with adjusted costs of purchase including price.
The performance review might lead to the buyer to continue, improve or drop a supplier. It is essential for
a marketer to have a good relationship and always follow up any customer complaints as soon as possible.
More than the defects and problems faced by the buyers in the product, it is the attitude of the supplier
which is seen more in focus.

Industry Environment Analysis


Definition: Industry Environment Analysis is a study or exercise done to assess the current industry
environment. This exercise helps understand the various aspects and predict trends of the industry
better, and helps in many other ways. Generally, industry analysis is done by external research
agencies, consulting firms or businesses themselves.
The major objectives of industry environment analysis are:
-

To identify key success factors of that industry

To assess attractiveness and growth prospects for entry

To formulate competitive strategy

To study changes over time and predict trends

The industry environment is composed of the following stakeholders, around which analysis is done.
Namely: Competitors, Suppliers and Buyers. There are also other major considerations like the
political, legal, technological aspects which are a part of the environment analysis.
To analyse these aspects of the industry, models such as PEST, PESTEL, and PORTERs 5 forces have
been developed.
Let us look at the automobile industry.
PEST and PESTEL are two models used to analyze political, legal, economic, social, environmental
and technological factors pertaining to that particular industry.
Example: PEST analysis for the automobile industry

Porters 5 forces analysis is done to study aspects like Suppliers, Buyers, Competitors, new potential
entrants and substitutes of that industry.
Example: Porters 5 force analysis for automobile industry:

Buying Centre and Influences


A buying centre is comprised of all those individuals and groups who participate in the buying decisionmaking process, who share some common goals and the risks arising from these decisions. Before
identifying the individuals and groups involved in the buying decision process, a marketer must
understand the roles of buying centre members. Understanding the buying centre roles helps industrial
marketers to develop an effective promotion strategy. Within any organisation, the buying centre will vary
in the number and type of participants for different classes of products.
But on an average a buying center of an organisation has the following seven members or a group of
members who play these roles:
1. Initiators: Usually the need for a product/item and in turn a supplier arises from the users. But there
can be occasions when the top management, maintenance or the engineering department or any such
recognise or feel the need. These people who initiate or start the buying process are called initiators.
2. Users: Under this category come users of various products. If they are technically sound like the R&D,
engineering who can also communicate well. They play a vital role in the buying process. They also act as
initiators.
3. Buyers: They are people who have formal authority to select the supplier and arrange the purchase
terms. They play a very important role in selecting vendors and negotiating and sometimes help to shape
the product specifications.
The major roles or responsibilities of buyers are obtaining proposals or quotes, evaluating them and
selecting the supplier, negotiating the terms and conditions, issuing of purchase orders, follow up and
keeping track of deliveries. Many of these processes are automated now with the use of computers to save
time and money.
4. Influencers: Technical personnel, experts and consultants and qualified engineers play the role of
influencers by drawing specifications of products. They are, simply put, people in the organisation who
influence the buying decision. It can also be the top management when the cost involved is high and
benefits long term. Influencers provide information for strategically evaluating alternatives.
5. Deciders: Among the members, the marketing person must be aware of the deciders in the organisation
and try to reach them and maintain contacts with them. The organisational formal structure might be
deceptive and the decision might not even be taken in the purchasing department.
Generally, for routine purchases, the purchase executive may be the decider. But for high value and
technically complex products, senior executives are the deciders. People who decide on product
requirements/specifications and the suppliers are deciders.
6. Approvers: People who authorise the proposed actions of deciders or buyers are approvers. They could
also be personnel from top management or finance department or the users.
7. Gate Keepers: A gatekeeper is like a filter of information. He is the one the marketer has to pass
through before he reaches the decision makers. They allow only that information favourable to their
opinion to flow to the decision makers. By being closest to the action, purchasing managers or those
persons involved in a buying centre may act as gatekeepers. They are the people whom our industrial
marketer would first get in touch with. Hence, it so happens that information is usually routed through
them. They have the power to prevent the sellers or information from reaching members of the buying
centre. They could be at any level and even be the receptionists and telephone operators.

Strategies for Resolving Conflicts in Industrial Buying Process


In industrial buying, it is joint decision making which plays a vital role. When there is more than one
member and more than one decision and more than one parameter involved decision making leads to
differences or conflict. They not only have to decide on the product specifications but also on vendor
capabilities, multiple sourcing, order routines etc. The potential for conflict emanates from the differences
in these goals, expectations, requirements, experiences, objectives and decision making styles.
Sometimes conflicts are good as all options are thoroughly weighed and the best chosen, but at the same
time it is time consuming and may not be resolved amicably leading to disturbances in the organisation.
For an industrial marketer, it is important to know how conflict is resolved.
Conflict Resolution Strategies: Conflicts arising in the organisation during the buying process can be
resolved in many ways. When conflict is resolved through cooperation and the search for a naturally
beneficial solution, join decision making tends to be rational. However, when conflicts resolved through
bargaining or politicising, joint decision making tends to be based on irrational criteria.
A model proposed by Ralph Day et al in Industrial Marketing Management in l988, can be used to
understand the different strategies available for resolving conflicts.
1. Avoiding: This strategy could be used when the situation warrants diplomatically side-stepping the
issue or if the issue could be postponed or dealt with in a better manner at a later date, when probably the
arguments have died down or when the conflicting members are not together. Reasoning with individuals
could be easier than a group as a group psychology.
2. Accommodating: This falls at the far end of the x-axis i.e. partys attempt to satisfy others concern.
Hence in this strategy, there is a desire to compromise on ones own concerns and problems so that others
concerns could be satisfied. The group has a goal of peaceful co-existence with cooperative behaviour.
This kind of strategy will avoid short-term conflicts and help the group to focus on long-term objectives
by unassertive and selfless behaviour.
3. Compromising: In industrial buying, where members of the buying group are from different
departments of the organisation with different objectives, total satisfaction of each member in joint
decision making is rare.
In this strategy, mutually acceptable middle ground solutions which can be obtained or reached
expediently is desired. The behaviour of the members would fall somewhere between assertive and
cooperative.
4. Competing: It is lets do it my way. If the members of the buying group have this attitude and the
desire to win ones own concern whatever the other members opinions are, the strategy is termed as
competing strategy for conflict resolutions. The members have a desire to dominate or having bossy
attitude and hence exhibit uncooperative behaviour. None of the members of the buying group would
compromise. Contrarily they would be very assertive and will aim for a win-lose situation.
5. Collaborating: This is an ideal situation or strategy wherein the members have the desire to fully
satisfy the concerns of all parties involved. In-depth problem solving is attempted by exploration of issues
and sharing responsibilities.
The behaviour that can be seen here is the cooperative behaviour which will lead to reaching a mutually
beneficial agreement. The type of conflict resolution strategy that individuals like, however, depends on
several mediating variables, such as the communication network, internal organisational dynamics, base
of power in the buying centre, size its characteristics of the purchase situation, etc.

It is not unusual for individual objectives to clash due to differing reward criteria of different departments
and levels. This gives rise to conflicts in group decision making. It also becomes increasingly important
for marketers to understand and identify the source of power and the conflict resolution strategies in order
to work the strategy in such a manner so as to help resolve conflicts or provide information and encourage
quick decision making.

Variables of Segmentation: Industrial Markets


Industrial marketing involves the marketing of goods and services from one business to another. The
industrial gods are used in the industry for producing different end products. The segmentation of the
Industrial markets takes into account the Size of Industry, Size of company, Location, Infrastructure,
purchasing criteria and so on. These variables have been divided into 5 broad categories viz.
Demographic variables, Operating Variables, Purchasing approaches, Situational Factors and Personal
characteristics. Here is a brief discussion:
Demographical Variables: The demographic variables of Industrial market segmentation include the
type of industry, type of the target company, its location. Some marketers target a specific type of industry
while some marketers seek a group of industries to target. For example, a company, which produces
clutch wires for motorcycles, may target a motorcycle company. On the other hand, a company which
deals with multiple products such as Spoilers, GRP Components, GRP Panels, Car Styling Kits, Rear
Parcel Shelves, Door Trim Panels, Injection Molding, Azdel Components, Tractor Body Parts etc. will
look for a portfolio of target companies such as Automobiles, Trucks and Buses manufacturers, tractors
and construction equipment manufacturers, Locomotives and Railways, Defense, Airport furniture
manufactures, medical equipment, windmills and so on.
Operating Variables: Operating variables deal with the customer technologies, user and no user or heavy
user status, and the customer capabilities.
Purchasing Approaches: Some companies have centralized purchasing while others have decentralized
purchasing. Industrial marketing often involves competitive tendering. In this process, the purchasing
organization undertakes to procure goods and services from suitable suppliers. This is normally done for
high value of some purchases and the purchasing organization shall seek a number of bids from
competing suppliers and choose the best offering. This is called strategic procurement. Organizational
structure or power structure is also important criteria. This gives an insight into the general purchase
policy of the buying organization.
Situational Variables: These variables include the urgency, quick delivery or scheduled delivery of the
goods and services. The other criteria may be specific application and size of the order.
Personal Characteristics: Personal selling is very important & effective in industrial marketing because
many products need to be customized to suit the requirements of the individual customer. Other criteria
are buyer-seller similarity, attitude towards risk and loyalty of an industrial customer.