How do the business buyers make buying decisions?
In a previous post, I have discussed the purchasing decision process of individual buyers. In this post, I will discuss how the business buyers make their purchasing decisions and the steps involved in the decision process. There are generally eight steps involved in a business buying situation. Business buyers buying new products will typically go through each of these eight individual processes. The buyer may skip a few of these steps in a straight rebuy (where he is buying the same product again without any changes in the specification) or modified rebuy (where product specifications, prices, or other terms have changed). However, a business faced with a new task situation (buying a new product or service for the first time), will follow all the steps in the process.
In simpler terms, the individual buying decision-making process where people buy for themselves or their families differs from how businesses arrive at buying decisions. There are businesses that sell to individual customers and others that sell to only businesses or both. When businesses are buyers, then there may be more decision-makers involved than in a single or family consumer scenario. Moreover, the type of businesses that organizations buy from can be different from which individuals buy. In a business-to-business scenario, the seller organization becomes a supplier. For example, if Netflix buys cloud technology resources from Amazon, then Amazon is a supplier. Supplier search is also a critical step in the business buying decision process.
In the next paragraphs, I have detailed how buying decision making happens inside organizations.
Steps in the Business Buyer Decision Process:
There are eight steps involved in the business buying decision process starting from problem recognition and ending at a performance review. The search for a supplier begins when the need for a product arises and the company itself does not make that product. It ends when the company is sure that its need is fulfilled and the product it has bought serves its need as per its expectations. However, between the first and the last step, there are six more steps and when a company is buying a new product, this is the process or pattern that buying decision making inside the organization follows.
The process of buying decision-making inside an organization begins with problem recognition. It starts when the company recognizes that there is a need that can be met by acquiring something specific. How does the company recognize a need or how does problem recognition occur? It results from internal or external stimuli.
Internal stimuli come from internal sources like the launch of a new product that requires new resources to produce or the need for a specific part for a machine that may have stopped working. If the purchasing manager is unhappy with an existing supplier’s product, he would like to have a substitute.
Externally, you find a customer group switching to a rival’s product since its products are superior to the company’s. There are several sources of stimuli in both the internal and external environments of the company.
Many times marketing managers alert customers about potential problems and offer products that can solve the problem. For example, a company recognizes that several small businesses are unable to attract and retain enough customers. It creates a technology or software that helps them attract and retain customers easily. In another instance, HP promotes a product or an entire range of solutions that help organizations process more data in less time.
General Need Description:
The next step in the organizational buying decision process is having a clear description of the need. Need description includes describing the characteristics and quantity of the needed item. In the case of standard items, this is not a complex step. However, in the case of complex items, the manager may need to consult engineers and others inside the organization whom he believes have an understanding of the need or the needed product. It may also involve the end-users.
Unless it is a basic and standard item a team may be needed to define and rank the attributes that the organization wants to find in the needed product. Smart business marketers help buyers define their needs and provide information about the product attributes they value.
The next step in the process is to define the technical specifications of the needed item, which is often carried out with the help of a value analysis engineering team.
Product value analysis is a cost reduction approach in which organizations study product components carefully to know if there is a method to redesign or standardize or produce them using less costly methods. The value analysis team decides and specifies the best product characteristics.
The sellers can show the buying organizations new methods to produce the same objects and turn a straight rebuy situation into a new task situation and gain new business.
Supplier search begins after the rest of the previous steps are carried out. There are several ways to compile a list of qualified suppliers. The buying business can review trade directories. It can search online or on eCommerce portals. Several suppliers also advertise on social media channels. For a large number of companies, the best method is using an online search. They can reach both small and large suppliers by searching online. To a large extent, the internet has leveled the field for suppliers and offers the same advantages to smaller suppliers as the large ones. The time invested in supplier search is higher when it is a new task situation or the product is highly complex. In straight rebuys, the purchasing manager can simply skip this step and contact the existing suppliers to buy.
In order to be considered suppliers need to get listed in major directories and build a strong reputation in the marketplace. Their salespeople must keep looking for companies that are searching for suppliers and make sure that their firm is considered by pitching themselves.
In the next step, the buyer invites qualified suppliers to submit their proposals. The process is called proposal solicitation. Supplies will respond by referring the buyer to their website or promotional materials or ask one of their salespeople to get in touch with the buying firm. If the product is complex, the buying firm may require each potential supplier to make a detailed presentation.
Business marketers must be skilled at researching, writing, and presenting proposals in response to proposal solicitation. Presentations must not include only technical specifications. They must be marketing documents that make the supplier firm stand out from the competition.
The sourcing team will now review supplier proposals for supplier selection. They will prepare a list of supplier attributes and their relative importance. For example, they may consider various attributes including product and service quality, reputation, on-time quality, ethics, and competitive prices. To identify the best suppliers, the sourcing team may rate the suppliers based on the attributes listed. However, they would negotiate with the preferred suppliers for obtaining better prices and terms before final selection.
In the end, the buying firm will select a single supplier or a group of suppliers. Firms do not want to remain dependent on a single supplier. Selecting a group of suppliers also allows them to compare supplier performance, prices, and service quality over time. With time, the importance of supplier management has grown as competition has grown industrywide. Companies are working to develop their supplier network to grow business resilience. Supplier managers focus on developing a full network of qualified suppliers who can help the company bring higher value to the customers.
Order Routine Specification:
The next step for the buying organization is to develop an order routine specification. It includes the final order with the selected supplier group and lists items like technical specifications, quantity needed, expected delivery time, return policies, and warranties. The buying organization may use blanket contracts instead of periodic purchase orders for maintenance, repair, and operating items.
A blanket contract establishes a long-term relationship between the buyer and the supplier. The supplier agrees to resupply the agreed items at agreed prices for an agreed time period. Most large buyers across the industry now rely upon a practice called vendor-managed inventory. They turn over the ordering and inventory responsibilities to the vendors. Large buyers often share information using digital resources with their suppliers like a shared database from which key suppliers can monitor inventories and replenish stock as needed. This practice is common across the retail industry and is practiced by large buyers like Walmart, Home Depot, Target, Costco, and their suppliers.
This is the final stage in the business buying decision process, where the buyer reviews supplier performance. The buyer contacts users to rate their satisfaction. Based on the review he may terminate, retain or modify the arrangement with the seller. The seller should use the same factors used by the buyer to make sure that he is generating the expected satisfaction.
This model provides a simple view of how business buying occurs inside an organization. However, in reality, the process may turn out to be even more complex. Organizations may bypass some of these processes in case of a straight rebuy or modified rebuy situation. Apart from that buying methods or environments vary from organization to organization based on unique needs and environments. Moreover, the sequence is not always the same and some stages may be repeated. Apart from that, some buyers may add extra steps as needed. At last, Kotler notes that the emphasis of the seller must not be on individual purchases but on total customer relationship management.