Relevance of Buying Center Analysis in Industrial Markets
©2014
Academic Paper
51 Pages
Summary
This work deals particularly with the analysis of the buying company in the context of the purchasing process in industrial markets. Additionally, the study addresses the question of whether and how companies conduct these analyses on a practical level.The first section explains the specific characteristics of the industrial goods markets and depicts the influences on the buying- and selling center.The second section includes the buying types which strongly influence the size and the composition of the buying center.The third section deals with the buying center and the buying process as well as the buying center models from the literature. These models are verified in terms of their practical application at the end of the study based on expert surveys.
In section four, the sales process as well as the members of the selling company are discussed. Section five represents the most important criteria for a buying center analysis and shows the possibility of a practical implementation by using an example.The last section finally links the previous theoretical fields and displays the results of the qualitative expert interviews.
In section four, the sales process as well as the members of the selling company are discussed. Section five represents the most important criteria for a buying center analysis and shows the possibility of a practical implementation by using an example.The last section finally links the previous theoretical fields and displays the results of the qualitative expert interviews.
Excerpt
Table Of Contents
Table of Contents
1
Introduction ... 1
1.1
Initial statement ... 1
1.2
Problem ... 1
1.3
Objectives ... 1
1.4
Reference Frame ... 3
2
Characteristics of industrial markets ... 4
3
Buying types ... 6
3.1
Value of investments ... 6
3.2
Buying motive ... 6
3.3
Buy classes ... 7
3.4
Product technology ... 8
4
Buying Center ... 9
4.1
Buying Process... 10
4.2
Buying Center models ... 12
4.2.1
Role model Webster/Wind ... 13
4.2.2
Promoters / opponents model ... 15
4.2.3
Gatekeeper concept ... 17
4.2.4
Responders concept ... 18
5
Selling Center ... 19
5.1
Selling Process ... 19
5.2
Selling center roles ... 21
6
Buying Center Analysis ... 22
7
Practical session ... 24
7.1
Qualitative Interviews ... 24
7.2
Who is considered as an expert? ... 25
7.3
Market research process ... 26
7.4
Results of the survey ... 27
7.4.1
General ... 27
7.4.2
Buying Center Analysis ... 28
7.5
Limitations and Future research ... 30
8
Conclusion ... 31
Bibliography ... 32
Appendix... 35
List of figures
Fig. 1: Reference frame ... 3
Fig. 2: Buying process ... 11
Fig. 3: Members of the buying center by Webster/Wind/Bonoma ... 13
Fig. 4: Selling process ... 21
Fig. 5: Classification of the buying center members ... 23
Fig. 6: Seven stages of an interview investigation ... 26
List of tables
Table 1: Characteristics of industrial markets ... 4
List of abbreviations
B2B
business to business
R&D
research and development
CRM
Customer-Relationship-Management
1
1 Introduction
1.1 Initial
statement
Generally, "Marketing" is associated with consumer goods brands like Milka, Nivea,
Coca Cola or Marlboro. Less attention has so far been paid to the industrial-goods
sector where companies assume the role of a customer. Nevertheless, it is recog-
nized that turnovers on Germany's industrial markets are four times higher than on its
consumer markets.
1
Due to this fact, it is necessary to consider the significance of
the organizational exchange process, the associated problems and the relevance in
today's business.
1.2 Problem
A variety of different people participate within an organizational sales process. Due to
this, it is not always easy to define the boundary of the buying center.
2
Additionally,
relationships, roles, activities, motivation and different environmental influences affect
the complexity of the buying center.
3
Moreover, buying center models first appeared in the early 70´s (e.g. Webster/Wind
1972, Witte 1973, Allen 1969) and are still an unmodified part of today's economic
literature. Increasing globalization and consolidation of customers, increasing com-
moditization of products, and expanding levels of service offerings during the past
decades have led to a major change in seller-customer relationships
4
.
1.3 Objectives
The aim of this work is to provide a broad overview of the significant determinants of
a buying and a selling center in the industrial goods sector. Moreover, existing buying
1
Cf. Backhaus, Klaus; Voeth, Markus; Industriegütermarketing, 9th ed., Vahlen, 2009, p. 3
2
Cf. Fließ, Sabine; Industrielles Kaufverhalten, in: Technischer Vertrieb, ed. by Kleinaltenkamp,
Michael; Plinke, Wulff; 2nd ed., Springer, 1999, pp. 254355, here p. 305
3
Cf. Webster, Frederick E.; Wind, Yoram; A General Model for Understanding Organizational Buying
Behavior, in: Journal of Marketing, Vol. 36, Issue 2 / 1972, pp. 12-19, here p. 14
4
Cf. Bradford, Kevin et al.; The embedded sales force, Connecting buying
and selling organizations, in: Marketing Letters, Vol. 21, Issue 3 / 2010, pp. 239-253, here p. 240
2
center models are shown and critically examined. Finally, the relevance of buying
center models in today's industrial business is verified by a number of interviews with
various sales experts of the industrial goods sector.
3
1.4 Reference
Frame
Fig. 1: Reference frame
5
5
prepared by the author
4
2 Characteristics of industrial markets
Industrial markets show certain characteristics which are qualitatively and quantita-
tively different from consumer goods markets. The differences are due to the struc-
ture of the market, the demand, the nature of the industrial purchasing and the
complexity which is related to the technical and organizational interaction between
the buying organization and the supplier. Additionally, within a Customer-Supplier
relationship it can come down to specific investments and opportunistic behavior.
6
The following Table (Table 1) shows the main characteristics of the industrial market.
Table 1: Characteristics of industrial markets
7
Generally, the industrial market structure and demand is defined through less and
larger customers as in the consumer goods sector. The vast majority of customers
are concentrated in a few geographical areas and the demand for industrial goods
derives from the demand for consumer goods. The total demand for industrial goods
and services is almost unaffected by fluctuations in prices, but much more inconstant
than the consumer goods demand. Therefore, a 10% increase in consumer demand
can lead to an explosive increase of up to 200% in industrial demand and vice
versa.
8
6
Cf. Kotler, Philip; Keller, Kevin L.; Bliemel, Friedhelm; Marketing-Management, Strategien für
wertschaffendes Handeln, 12th ed., Pearson, 2007, p. 315
7
Based on: Kotler; Keller; Bliemel; Marketing-Management, p. 315
8
Cf. Kotler; Keller; Bliemel; Marketing-Management, p. 316
5
Industrial purchasing is distinguished from the consumer purchasing by multiple
buying influences, multiple sales contacts and by a professional purchasing man-
agement. The organizational buying decision process is characterized by Buying
Centers consisting of Specialists and top level Managers. Due to the large number of
people who participate in the buying process, multiple sales contacts are necessary
to receive an order. A McGraw-Hill survey shows that on average four to four and a
half contacts are required to close an industrial sale. Furthermore, the time span
between the initial contact and the delivery is up to five years. Additionally, industrial
goods are purchased by professional buyers who have to follow the company's
sourcing policy with all formalities, restrictions and conditions.
9
The complexity within the technical and organizational interaction comes from
complex technical relations, the reciprocity and the long-term collaboration between
Supplier and Customer. Complex technical relations have to be overcome so that
purchased components work easily with parts from the in-house production. There-
fore it is absolutely necessary to provide and collect relevant information in order to
improve the sales process. Furthermore, purchasers often decide on suppliers who
conversely also order goods made by their companies. This increases the complexity
of purchasing decisions in particular when other buying criteria are affected. A close
relationship exists between buyers and sellers on industrial markets as a conse-
quence of the small number of customers and the influence they have on their
suppliers.
10
Customer-Supplier relationships often lead to specific investments. Investments
are specific when they can be allocated to a definite trade relationship and are
worthless beyond this relationship. If one business partner has invested more in the
relationship, there is a risk that the other business partner shows opportunistic
behavior.
11
Opportunism is a mode of behavior based on self-interest seeking with
guile to the detriment of the transaction partner.
12
9
Cf. Kotler; Keller; Bliemel; Marketing-Management, p. 317
10
Cf. Ibidem, pp. 317-318
11
Cf. Kotler; Keller; Bliemel; Marketing-Management, p. 318
12
Cf. Plinke, Wulff; Grundlagen des Marktprozesses, in: Technischer Vertrieb, ed. by Kleinaltenkamp,
Michael; Plinke, Wulff; 2nd ed., Springer, 1999, pp. 399, here p. 24
6
3 Buying
types
The procedure of the procurement process and the structure of the buying center are
determined by specific buying type factors. The value of investments, the buying
motive, the buy classes and the product technology are defined as the characteristics
with the largest influence on purchasing decisions.
13
3.1 Value of investments
A Spiegel Survey from 1982 shows that the amount of investment is the most influen-
tial factor in the decision-making process. This is clearly evident due to the fact that
an investment of several millions Euro contains other risks for the purchasing com-
pany than an investment which is easily revisable. Furthermore, the survey shows
that the amount of investment also influences the structure of the buying center. This
is caused by a wider share of decision-making authority due to the consultation of
experts from different departments. Moreover, the amount of investment not only
influences the structure of the buying center and the length of the decision making
process but also the number of considered suppliers.
14
3.2 Buying
motive
In respect of the buying motive a distinction is made between initial investment,
replacement investment and expansion investment. The procurement organization
has no experiences with the object in the course of initial investments, whereas they
have concrete know-how concerning replacement investments and expansion
investments. For that reason the perceived risk is higher in the case of initial invest-
ments than in replacement investments and expansion investments. Generally, in the
case of replacement investments, solution approaches can be considered due to the
fact that the original object has to be replaced. Whereas in expansion investments,
interface problems arise due to the fact that the object to be procured has to be
compatible with existing objects.
15
13
Cf. Backhaus; Voeth; Industriegütermarketing, p. 74
14
Cf. Ibidem, p. 75
15
Cf. Ibidem, p. 75
7
In order to reduce the higher risk, initial investments are distinguished by particularly
intensive information behavior, whereas the information behavior in terms of re-
placement investments and expansion investments is controlled by the already
existing experiential basis. Moreover, replacement investments and expansion
investments create a different starting position for potential suppliers than initial
investments do. That is because of the previous experience with the supplier which is
crucial for the negotiation basis.
16
3.3 Buy
classes
The influencing factor "level of repetition" has a certain connection with the previously
mentioned criterion "buying motive". Hence, Robinson et. al (1967) distinguishes
three buy classes:
17
x New
Task
x Modified
rebuy
x Straight
rebuy
They are clearly delimited from each other based on the three dimensions "novelty of
the problem", "information demand" and "consideration of new alternatives".
18
New Tasks are characterized by the fact that the buying problem appears for the first
time. Considering that no experience exists, it leads - as with initial investments - to
an enormous information demand. It has to be taken into account that the new task
situation is non-identical to the initial investment. Initial investments are always new
tasks, but also replacement investments can require a new task buying situation
when the former alternative has to be replaced by entirely new alternatives due to
technical developments.
19
The modified rebuy is a procurement situation in which the purchasing organization
is able to draw on experiences. Nevertheless, new aspects occur in some sections
where new information demands arise. It is common that alternatives are considered
16
Cf. Backhaus; Voeth; Industriegütermarketing, p. 76
17
Cf. Ibidem, p. 76
18
Cf. Ibidem, p. 76
19
Cf. Ibidem, p. 76
8
in the course of modified rebuys, however, the number of examined buying alterna-
tives is lower than with new buying tasks.
20
The straight rebuy complies with a routine procurement where the purchasing
organization is able to draw on enormous experiences. The purchased industrial
product is similar in respect of functionality, technical equipment and method of
control to an already existing product. Past experiences are used by the buying
center to select the right provider. Due to the lower complexity and the reduced
information demand in comparison to new tasks or modified rebuys, automated order
systems are regularly deployed. Due to the use of these computer-aided systems,
fewer people participate on the demand side and as a consequence the whole
buying center structure changes.
21
3.4 Product
technology
Buying decisions and buying behavior are influenced by the type of technology
available. Due to the rapid development and the associated shortened lifecycle,
potential clients are often uncertain whether to invest in a certain technology or to
wait for the upcoming technology with improved performance characteristics. The
relevance of the purchasing department decreases more and more due to the
change to primarily administrative activities. Furthermore, in some cases the custom-
er does not even have the ability to recognize the benefit due to the rapid technologi-
cal development. As a consequence of the constant alterations, collected information
becomes obsolete so quickly that in the meantime new information needs are creat-
ed.
22
As a result of the increasing difficulties regarding the performance evaluation, poten-
tial clients approach external consultants more and more. Hence, the size of the
buying center increases and the buying decision defers. Additionally, new and
independent target groups come up within the buying center which should be taken
into account by the potential seller.
23
20
Cf. Backhaus; Voeth; Industriegütermarketing, p. 76
21
Cf. Ibidem, pp. 76-77
22
Cf. Ibidem, pp. 79-80
23
Cf. Ibidem, p. 81
Details
- Pages
- Type of Edition
- Erstauflage
- Year
- 2014
- ISBN (eBook)
- 9783954897674
- ISBN (Softcover)
- 9783954892679
- File size
- 354 KB
- Language
- English
- Publication date
- 2014 (July)
