5.4: The Business Buying Decision Process

5.4.1: Decision-Making Units

Learning Objective

Describe the roles and functions that comprise decision making units in B2B organizations

Key Points

• In a business setting, major purchases typically require input from various parts of the organization, including finance, accounting, purchasing, information technology management, and senior management.
• An economic buyer is a typical member of the DMU. The buyer is buying the product to achieve some sort of business advantage.
• The infrastructure buyer, another typical member of the DMU, influences the buying decision because he’s the guy that is going to make the purchase happen.
• The user buyer, another member of the DMU, influences the buying decision because he is one of the people through which the economic buying objective will be realized.

Key Term

B2B

Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.

Decision Making Units

In the business-to-business (B2B) context (as opposed to B2C), buying decisions are made in groups. The group responsible for making the buying decision in companies is referred to as the decision making unit (DMU).

Within organizations, major purchases typically require input from various parts of the organization, including finance, accounting, purchasing, information technology management, and senior management. Highly technical purchases, such as information technology systems or production equipment, require the expertise of technical specialists. In some cases, the buying center acts as an informal ad hoc group. In other cases, the buying center is a formally sanctioned group with specific mandates, criteria, and procedures.

Purchases

The decision making unit is responsible for an organization’s buying decisions.

San Juan de Dios Market in Guadalajara, Jalisco.

For example, in the hi-tech sector, the decision making unit generally comprises the following roles:

1. The economic buyer – This individual is responsible for buying products that enable the company to achieve a business advantage. The economic buyer justifies the purchase by linking it to profit. The economic buyer’s position within the organization can range from the business unit manager level to as high as the CEO.
2. The infrastructure buyer – This role influences the buying decision at the execution level. If a product poses challenges at the installation phase, then the infrastructure buyer and/or DMU steps in to decide whether the return on investment (ROI) is worth the time and money required to set up the infrastructure. The infrastructure buyer is typically someone in the IT department.
3. The user buyer – This position influences the buying decision at the user level and decides whether the organization will achieve its financial objectives through the purchase. For instance, if end users provide negative feedback about the product, or demonstrate that the product is hard to use, then the economic buyer will determine whether the purchase will prevent the company from reaching its economic goals.

5.4.2: Buying Centers

Learning Objective

Describe the different functions and roles that comprise buying centers within B2B organizations

Key Points

• In a business setting, major purchases typically require input from various parts of the organization, such as finance, accounting, purchasing, information technology management, and senior management.
• The five main roles in a buying center are the users, influencers, buyers, deciders, and gatekeepers.
• In a generic situation, one could also consider the roles of the initiator of the buying process (who is not always the user) and the end users of the item being purchased.

Key Term

Buying Center

A group of employees, family members, or members of any type of organization responsible for finalizing major purchase decisions.

Example

• The stock market is an example of a buying center. A stock market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price. Many people are involved in the daily transactions and the purchase decisions both on the buying side and the selling side. Stock markets allow businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market. Major purchases of stock typically require input from various parts of the organization, such as finance, accounting, and senior management.

Buying Centers

A buying center is a group of employees, family members, or members of any type of organization responsible for finalizing major purchase decisions. In a business setting, major purchases typically require input from various parts of the organization, such as finance, accounting, purchasing, information technology management, and senior management. Highly technical purchases, such as information systems or production equipment, also require the expertise of technical specialists. In some cases the buying center is an informal ad hoc group, but in other cases, it is a formally sanctioned group with specific mandates, criteria, and procedures. The employees that constitute the buying center will vary depending on the item being purchased.

In a generic sense, there are typically six roles within buying centers. These roles include:

1. Initiators who suggest purchasing a product or service
2. Influencers who try to affect the outcome decision with their opinions
3. Deciders who have the final decision
4. Buyers who are responsible for the contract
5. End users of the item being purchased
6. Gatekeepers who control the flow of information

Because of the specialized nature of computer and software purchases, many corporations use buying centers that are specialized for information technology acquisition. These specialized buying centers typically receive information about the technology from commercial sources, peers, publications, and experience. In this process, top management, the IT director, IT professionals, and other users collaborate to find a solution.

A better buying center for marketing might include:

1. Users – The users will be the ones to use the product, initiate the purchase process, generate purchase specs, and evaluate product performance after the purchase.
2. Influencers – The influencers are the tech personnel who help develop specs and evaluate alternate products. They are important when products involve new and advanced technology.
3. Deciders – Deciders choose the products.
4. Buyers – Buyers select suppliers and negotiate the terms of purchase.
5. Gatekeepers – Gatekeepers are typically secretaries and tech personnel. They control the flow of information to and among others within the buying center. Buyers who deal directly with a vendor are gatekeepers.

Making Purchasing Decisions

The chairman of the Hong Kong Stock Exchange is an example of a member in an organization responsible for finalizing major purchase decisions.

Ronald Arculli, Chairman of the Hong Kong Stock Exchange.

5.4.3: Buying Situations

Learning Objective

 Recognize the key differences in the buying situation between B2B and B2C sales

Key Points

• Selling to organizations is quite different (in most cases) than selling to consumers. This means the marketing approach will also be different.
• One of the main differences between B2B and B2C is the buying situation. Buying situations in a B2B exchange are likely to be customized specifically for the client, and strategically oriented.
• Some of the key differences between B2B and B2C buying situations include the importance of relationship building, price, volume, payment, promotions, and the level of negotiation.
• From a more general perspective, a B2B marketer must be aware that their buyers are going to consider the purchase strategically as a team, and come to a practical conclusion.

Key Term

B2B

An abbreviation for business-to-business sales, in which both buyer and seller are organizations rather than individual consumers.

B2B v. B2C

When considering different buying situations as a marketing professional, one of the first questions to ask is whether the goods are being provided to customers (mass marketing B2C) or to other businesses (focused B2B). Selling to businesses usually requires a significantly different marketing approach, including differences in what the buying situation will be like.

B2B Opportunities

As a consumer base, businesses are a huge source of business in and of themselves. Selling to other businesses often has significantly higher transaction amounts (large volume), and the scale of the contracts can make marketing endeavors very cost-effective and profitable.  Just as in B2C, attracting attention through advertising, marketing, and direct sales is central to a successful marketing strategy. 

B2B consumers are often pursued quite differently than B2C consumers as a result of these different circumstances. In mass marketing, the goal is to identify channels where the organization can engage with thousands or millions of potential consumers at once. For B2B, this can also be effective but is much less common. Usually for B2B, the buying situations are a bit more personal, and the buying decision process involves much more strategic consideration.

Buying Situations

In order to understand how to market to another business, a simple first step is understanding how these types of clients approach the buying process. Business are quite different than single consumers in regards to buying strategies, often pursuing much larger contracts with much greater care. To understand the buying situations, it is useful to consider the decision-making process (spontaneity vs. strategy), differences in pricing, payment approaches, repeat purchases, relationships, and the role of a purchaser at an organization.

Spontaneity: B2B buying situations are less likely to be spontaneous, and more likely to be discussed carefully among various stakeholders. For example, a consumer may buy a soft drink without overthinking the price, manufacturer, or business relationships (e.g. just to satisfy their thirst). A grocery store, however, will carefully consider which types of soft drinks to stock, how many to buy, how to ship them, how to price them, etc.

Pricing: B2B buying situations are often less concrete in terms of overall (or per unit) pricing. Take the above example. An individual buying a soft drink will probably not barter the price down with the cashier. However, a store purchasing 10 cases each month will discuss price carefully with the soft drink producer, and will likely pay a different price per unit than other grocery stores (depending on volume, shipping, storage, etc.).

Payment: Payments between companies are generally predicated on monthly, quarterly, or annual invoices. Payments between consumers are immediate, or perhaps will rely on a credit card. This changes the buying situation, particularly when factoring in the time value of money.

Relationships: B2B purchasing situations often require the meeting of various groups in each organization. A relationship will be built on these meetings, creating trust, alignment, and agreement on how the buying process will be planned and executed. B2C purchasing situations are often much less personal, requiring little to no relationship between the organization and the consumer.

Promotions: Finally, it’s also worth noting that the method of promotion and the source of interactions between prospective buyers and sellers is often different for B2B and B2C exchanges. Trade shows, conferences, and meetings are actually forms of marketing communications and promotional strategy, as one-to-one interactions between buyers and sellers is necessary to build trust for high capital and high volume purchases.

B2B Buyer Decision Map

B2B exchanges are often practically driven. They consider what the business needs, how they can fulfill that need, and why the seller is the optimal fit to do so.

A chart that shows what B2B customers want to know. It shows the customers’ questions and what information should be shared with them. “What’s my problem?” (education and thought leadership); “How do I fix my problem?” (solutions and product suitability); “Are you right for me?” (credentials and decision support).

5.4.4: Stages of Business Buying

Learning Objective

Describe the different stages within the business buying decision process

Key Points

• The stages of business buying includes recognizing the problem, developing product specs to solve the problem, searching for possible products, selecting a supplier and ordering the product, and finally evaluating the product and supplier performance.
• Buying B2B products is risky. Usually, the investment sums are high and purchasing the wrong product or service, the wrong quantity, the wrong quality or agreeing to unfavourable payment terms may put an entire business at risk.
• Making a riskier investment can yield to high returns. However, there is also a greater chance that they could lose their investment as well. This can be seen in this diagram. Those involved in the decision buying process need to weigh the risks against the expected returns.
• In order to entice and persuade a consumer to buy a product, marketers try to determine the behavioral process of how a given product is purchased. Understanding the nature of customers’ buying behavior is important to a marketing firm if it is to market its product properly.

Key Terms

B2B

Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.

B2C

The sale of goods and services from individuals or businesses to the end-user.

Stages of the Business Buying Decision Process

The main difference between B2B and B2C is who the buyer of a product or service is. The purchasing process is different in both cases and the following is a list of the stages involved in B2B buying:

Step 1: Recognize the Problem

• Machine malfunction, firm introduces or modifies a product, etc.

Step 2: Develop product specifications to solve the problem

• Buying center participants assess problem and need to determine what is necessary to resolve/satisfy it

Step 3: Search for and evaluate possible products and suppliers

• look in company files and trade directories, contact suppliers for information, solicit proposals from known vendors, examine websites, catalogs, and trade publications
• conduct a value analysis – an evaluation of each component of a potential purchase; examine quality, design, materials, item reduction/deletion to save costs, etc.
• conduct vendor analysis – a formal and systematic evaluation of current and potential vendors; focuses on price, quality, delivery service, availability and overall reliability

Step 4: Select product and supplier and order product

• This step uses the results from Step 3
• An organization can decide to use several suppliers, called multiple sourcing. Multiple sourcing reduces the possibility of a shortage by strike or bankruptcy.
• An organization can decide to use one supplier, called sole sourcing. This is often discouraged unless only one supplier exists for the product; however it is fairly common because of the improved communication and stability between buyer and supplier.

Step 5: Evaluate Product and supplier performance

• Compare products with specs
• Results become feedback for other stages in future business purchasing decisions

This 5 step process is mainly used with new-task purchases and several stages are used for modified rebuy and straight rebuy.

Understanding the stages of business buying and the nature of customers’ buying behavior is important to a marketing firm if it is to market its product properly. In order to entice and persuade a consumer to buy a product, marketers try to determine the behavioral process of how a given product is purchased.

Risks

Buying one can of soft drink involves little money, and thus little risk. If the decision for a particular brand of soft drink was not right, there are minimal implications. The worst that could happen is that the consumer does not like the taste and discards the drink immediately. Buying B2B products is much riskier. Usually, the investment sums are much higher. Purchasing the wrong product or service, the wrong quantity, the wrong quality or agreeing to unfavourable payment terms may put an entire business at risk. Additionally, the purchasing office / manager may have to justify a purchasing decision. If the decision proves to be harmful to the organization, disciplinary measures may be taken or the person may even face termination of employment.

Risk and Return

Less risky investments yield less returns. The riskier the investment, the higher the yield.

5.4.5: Measuring Vendor Performance

Learning Objective

Describe the different tactics B2B companies use to search for and evaluate products and supplier performance

Key Points

• Supply managers evaluate suppliers utilizing the tools of value assessment and the fundamental value equation. They estimate the benefits and total costs paid to each vendor.
• Vendors play a role in two steps of the business buying decision process. Steps 3 and 5 both require researching new and current vendors and analyzing various factors to determine if they should be used again.
• Vendor analysis is a formal, systematic evaluation of current and potential vendors. This focuses on price, quality, service, availability and overall reliability.

Key Term

fundamental value equation

Customer Perceived value of a product is the difference between the prospective customer’s evaluation of all the benefits and all the cost of an offering and the perceived alternatives. Formally, it may be conceptualized as the relationship between the consumer’s perceived benefits in relation to the perceived costs of receiving these benefits. It is often expressed as the equation : Value = Benefits / Cost.

Introduction

Decision makers complete five steps when making a business buying decision:

1. Recognize the problem
2. Develop product specifications to solve the problem
3. Search for and evaluate possible products and suppliers
4. Select product and supplier and order product
5. Evaluate product and supplier performance

Vendor performance measurement plays a role in Steps 3 and 5.

Step 3: Search for and Evaluate Possible Products and Suppliers

Step 3 requires searching for and evaluating possible products and suppliers. This can be done in several ways:

• Looking in company files and trade directories, contacting suppliers for information, soliciting proposals from known vendors, and examining websites, catalogs and trade publications.
• Performing a value analysis (an evaluation of each component of a potential purchase). This examines the quality, design, and materials, with the intention of finding cost savings opportunities.
• Performing a vendor analysis (a formal, systematic evaluation of current and potential vendors). This focuses on price, quality, service, availability, and overall reliability.

Step 5: Evaluate Product and Supplier Performance

Step 5 of the business buying decision process involves evaluating product and supplier performance.

Firms need to compare products with specifications. The results become feedback for other stages in future business purchasing decisions. If a firm has any negative issues with a vendor, it is likely they will look for another one.

Business Feedback Loop

Firms need to compare products with specifications. The results become feedback for other stages in future business purchasing decisions. 

The business feedback loop includes four steps – sell the improved product, access progress (is it selling?), ask customers if they like the new product, and fix it, improve it, and make changes.

Supplier performance evaluation teams are used to monitor activity and performance data, and to rate vendors. But supplier performance evaluation teams are just one of the many teams companies deploy to address tactical issues.

Supplier certification teams help selected suppliers reach desired levels of quality, reduce costs, and improve service. Specification teams select and write functional, technical, and process requirements for goods and services to be acquired.

Supply managers evaluate suppliers utilizing the tools of value assessment and the fundamental value equation. They estimate the benefits and total costs paid to each vendor. Consistent with supply management orientation, these evaluations can be complemented with the firm’s customer feedback. In this way, supply managers can better focus or redirect the efforts of the entire supply network toward the delivery of superior value to end-users.

5.4.6: Influences on Business Buying

Learning Objective

Give examples of how environmental, organizational, interpersonal, and individual factors influence the business buying decision process

Key Points

• The personal characteristics of the people in the buying center can be influential. Age, education level, personality, tenure, and position within the company all play a role in how a person will influence the buying process.
• The company’s objectives, purchasing policies and resources can influence the buying process.
• Firms can suffer from strategic inertia, the automatic continuation of strategies unresponsive to changing market conditions.

Key Term

Buying Center

A group of employees, family members, or members of any type of organization responsible for finalizing major purchase decisions.

Influences on Business Buying

Four main influences impact the business buying decision process: environmental factors, organizational factors, interpersonal factors, and individual factors.

Environmental Factors

Competitive conditions may enable a company’s short-term success, where the organization is able to operate irrespective of customer desires, suppliers, or other organizations in their market environment. Early entrants into emerging industries are likely to be internally focused due to few competitors. During these formative years, customer demand for new products will likely outstrips supply, while production problems and resource constraints represent more immediate threats to the survival of new businesses.

Nevertheless, as industries grow, these sectors become more competitive. New entrants are attracted to potential growth opportunities, and existing producers attempt to differentiate themselves through improved products and more efficient production processes. As a result, industry capacity often grows faster than demand and the environment shifts from a seller’s market to a buyer’s market. Firms respond to changes with aggressive promotional techniques such as advertising or price reductions to maintain market share and stabilize unit costs.

Different levels of economic development across industries or countries may favor different business philosophies. For example:

• Certain environmental and economic factors can lead to an apprehensive buying center.
• Firms can suffer from strategic inertia, or the automatic continuation of strategies unresponsive to changing market conditions.

Organizations that fall victim to strategic inertia believe that one way is the best way to satisfy their customers. Such strategic inertia is dangerous since customer needs as well as competitive offerings eventually change over time.

For example, IBM’s traditional focus on large organizational customers caused the company to devote too little effort to the much faster-growing segment of small technology start-ups. Meanwhile, IBM’s emphasis on computer technology and hardware like the IBM cell processor made the company slow to respond to the explosive growth in demand for Internet-based applications and services. Thus, in environments where such changes happen frequently, the strategic planning process needs to be ongoing and adaptive. All business participants, whether from marketing or other functional departments, must pay close attention to customer preferences and competitor activities.

IBM Cell Processor

IBM traditionally focused on large organizational customers. It did not put enough effort into small technology start-ups, which grew at a faster pace.

Organizational Factors

Organizational factors such as the company’s objectives, purchasing policies, and resources can influence the buying process.The size and composition of the buying center also plays a role in the business buying decision process.

Interpersonal Factors

The interpersonal relationships between people working in the company’s buying center can hinder the buying process. Buying center members need to trust each other and operate under full disclosure.

Individual Factors

The personal characteristics of people in the buying center can influence the buying decision process. Individual factors including age, education level, personality, job tenure, and position within the company all play a role in how a person influences the buying process.

5.4.7: Business Ethics in B2B

Learning Objective

List the pitfalls B2B companies face when ignoring ethics in market research and target marketing, and the advantages to incorporating ethics

Key Points

• Businesses are confronted with ethical decision making every day, and business leaders and managers need to reinforce the importance of using ethics as a guiding force when conducting business.
• Ethical danger points in market research include invasion of privacy and stereotyping.
• Ethical danger points in market audience include excluding potential customers from the market and targeting the vulnerable, such as children and the elderly.

Key Terms

Market Research

The systematic collection and evaluation of data regarding customers’ preferences for actual and potential products and services.

ethics

The moral principles that guide decision making and strategy.

B2B

Business-to-business (B2B) describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer.

Business Ethics in B2B

Ethics refers to the moral principles that guide decision-making and strategy. Business ethics are, therefore, encompassed in the actions of people and organizations that are considered to be morally correct. Ethical objectives may include increased recycling of waste materials or offering staff sufficient rest breaks during their work shift. Businesses that adopt an ethical stance gain from numerous advantages, including:

• Improved corporate image
• Increased customer loyalty
• Cost cutting
• Improved staff motivation
• Improved staff morale

In a B2B environment, the client is another business rather than the customer, which means more attention needs to be given to maintaining a two-way relationship between the two entities. Since business clients have more meticulous and specification-driven buying processes, and the company must ensure that needs are met at all times without taking actions that would be considered unethical.

Ethics in Market Research

Ethical danger points in market research include invasion of privacy and stereotyping. Stereotyping occurs because any analysis of real populations needs to make approximations and place individuals into groups. However, if conducted irresponsibly, stereotyping can lead to a variety of ethically undesirable results. .

Ethics in Market Research

Firms need to be careful not to use irresponsible stereotyping in the market research process.

Ethics in Market Audience

Ethical danger points in market audience include (1) excluding potential customers from the market; selective marketing is used to discourage demand from undesirable market sectors or disenfranchise them altogether; (2) targeting the vulnerable, such as children and the elderly. Examples of unethical market exclusion or selective marketing are past industry attitudes to the gay, ethnic minority and obese (“plus-size”) markets. Contrary to the popular myth that ethics and profits do not mix, the tapping of these markets has proved highly profitable. For example, 20% of US clothing sales is now plus-size. Another example is the selective marketing of health care, so that unprofitable sectors, such as the elderly, will not attempt to take benefits to which they are entitled. A further example of market exclusion is the pharmaceutical industry’s exclusion of developing countries from AIDS drugs.

Marketing ethics is the area of applied ethics that deals with the moral principles behind the operation and regulation of marketing. Ethics provides distinctions between right and wrong; businesses are confronted with ethical decision making every day, and whether or not employees decide to use ethics as a guiding force when conducting business is something that business leaders, such as managers, need to review and enforce. Marketers are ethically responsible for what is marketed, and for the image that a product portrays. With that said, marketers need to understand what constitutes good ethics and how to incorporate such practices into various marketing campaigns to better reach a targeted audience and gain trust from customers. When companies create high ethical standards upon which to approach marketing they are participating in ethical marketing. Ethical behavior should be enforced throughout company culture and through company practices.

5.4.8: Customer Service as a Supplement to Products

Learning Objective

Give examples of how customer service supplement products and services

Key Points

• Customer service is an integral part of an organization’s ability to generate income and revenue, and should be included as part of an overall approach to systematic improvement.
• Customer service may be provided by a person, such as a sales and service representative, or by automated means.
• A challenge working with customer service is to ensure that you have focused your attention on the right key areas as measured by the correct Key Performance Indicator.

Key Terms

customer satisfaction

A measure of how products and services supplied by a company meet or surpass customer expectation.

Key Performance Indicator

Industry jargon for a type of performance measurement. They are commonly used by an organization to evaluate its success or the success of a particular activity in which it is engaged.

Customer Service to Supplement Products

Customer service is the provision of service to customers before, during and after a purchase. Customer support refers to a range of services including assisting clients to make cost effective product choices and getting the most from their purchases. The process includes assistance in planning, installation, training, trouble shooting, maintenance, upgrading, and disposal of a product. In the technology industry, where people buy mobile phones, televisions, computers, software products or other electronic or mechanical goods, customer service is called technical support.

Customer service is regarded as a supplement to the product, and not a replacement for any part of the product. For instance, if a product is faulty in one way, having good, responsive customer service may ameliorate to some degree the customer’s dissatisfaction, but will not make up for the deficiency in product quality. If a person buys a product that they are happy with, however, then good customer service can supplement this satisfaction.

The importance of customer service varies by product, industry and customer. Retail stores, for example, often have a desk or counter devoted to dealing with returns, exchanges and complaints, or will perform related functions at the point of sale ; the perceived success of such interactions are dependent on employees who can adjust themselves to the personality of the guest. From the point of view of an overall sales process engineering effort, customer service plays an important role in an organization’s ability to generate income and revenue. From that perspective, customer service should be included as part of an overall approach to systematic improvement; the customer service experience can change the entire perception a customer has of the organization.

Customer Service Desk

Retail stores and organizations usually have a customer service desk or counter devoted to dealing with returns, exchanges, and complaints.

Customer service may be provided by a person, such as a sales and service representative, or by automated means. An advantage with automated means is an increased ability to provide service 24-hours a day, which can complement in person customer service. Another example of automated customer service is touch-tone phone, which usually involves a main menu and the use of the keypad as options, for example “Press 1 for English, Press 2 for Spanish. “

A challenge working with customer service is to ensure that attention is focused on the right key areas as measured by the correct Key Performance Indicator. The challenge is not to come up with a lot of meaningful KPIs, of which there are many, but to select a few that reflect the company’s overall strategy. In addition to reflecting the firm’s strategy, customer service should also enable staff to limit their focus to the areas that really matter. The focus must be on those KPIs that will deliver the most value to the overall objective, for example, cost saving and service improvement. Customer service must also be delivered in such a way that staff sincerely believe they can make a difference.