Relevance of Buying Center Analysis in Industrial Markets

Bachelor Thesis , 2014 , 48 Pages , Grade: 3,0

Business economics - Supply, Production, Logistics

Die vorliegende Arbeit beschäftigt sich im speziellen mit der Analyse des beschaffenden Unternehmens im Zuge eines Kaufprozesses auf Industriegütermärkten sowie der Frage wie bzw. ob Unternehmen diese Analysen in der Praxis durchführen.
Hierzu ist die Arbeit in sechs Kernbereiche unterteilt. Im ersten Abschnitt werden die Besonderheiten der Industriegütermärkte erläutert und deren Einflüsse auf das Buying- sowie das Selling Center dargestellt.
Der zweite Abschnitt umfasst die Kauftypen, die den Umfang und die Zusammensetzung des Buying Centers sowie das Verhalten seiner Mitglieder erheblich beeinflussen. Der Wert einer Investition, der Kaufanlass, der Wiederholungsgrad einer Kaufentscheidung sowie die Produkttechnologie haben einen besonders großen Einfluss auf das Ergebnis und den Ablauf von Beschaffungsentscheidungen in der Praxis.
Der dritte Abschnitt beschäftigt sich mit dem Buying Center, dem Kaufprozess sowie den Buying Center Modellen aus der Literatur. Diese werden am Ende der Arbeit, im Zuge der Expertenbefragungen, auf Ihre Anwendung in der Praxis überprüft.
In Abschnitt vier wird auf den Verkaufsprozess sowie die Mitglieder des verkaufenden Unternehmens - das Selling Center - eingegangen. Für das verkaufende Unternehmen ist es essenziell die Mitglieder des Selling Centers auf die Mitglieder des Buying Centers abzustimmen. Abschnitt fünf stellt nun die wichtigsten Kriterien einer Buying Center Analyse dar und zeigt die Möglichkeit einer praktischen Umsetzung anhand eines einfachen Beispiels.
Der letzte Abschnitt verknüpft die vorangegangenen theoretischen Bereiche und stellt die Ergebnisse der qualitativen Experteninterviews dar. Die Ergebnisse aus den Experteninterviews zeigen, dass die Buying Center Modelle aus der Literatur nur wenig bis keine Anwendung in der Praxis finden. In den wenigen Fällen in denen Buying Center Analysen in der Praxis durchgeführt werden, geschieht dies anhand von eigens entwickelten Modellen. Dennoch hat die Mehrheit der Befragten angemerkt, dass Buying Center Analysen bereits sehr wichtig sind und auf Grund der hohen Anforderung an partnerschaftliche Geschäftsbeziehungen auch immer wichtiger werden.

Table of Contents

1 Introduction
1.1 Initial statement
1.2 Problem
1.3 Objectives
1.4 Reference Frame

2 Characteristics of industrial markets

3 Buying types
3.1 Value of investments
3.2 Buying motive
3.3 Buy classes
3.4 Product technology

4 Buying Center
4.1 Buying Process
4.2 Buying Center models
4.2.1 Role model Webster/Wind
4.2.2 Promoters / opponents model
4.2.3 Gatekeeper concept
4.2.4 Responders concept

5 Selling Center
5.1 Selling Process
5.2 Selling center roles

6 Buying Center Analysis

7 Practical session
7.1 Qualitative Interviews
7.2 Who is considered as an expert?
7.3 Market research process
7.4 Results of the survey
7.4.1 General
7.4.2 Buying Center Analysis
7.5 Limitations and Future research

8 Conclusion

Bibliography

Appendix

List of figures

Fig. 1: Reference frame

Fig. 2: Buying process

Fig. 3: Members of the buying center by Webster/Wind/Bonoma

Fig. 4: Selling process

Fig. 5: Classification of the buying center members

Fig. 6: Seven stages of an interview investigation

List of tables

Table 1: Characteristics of industrial markets

List of abbreviations

illustration not visible in this excerpt

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 recognized 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 commoditization 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 thesis 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 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.

1.4 Reference Frame

illustration not visible in this excerpt

Fig. 1: Reference frame^[5]

2 Characteristics of industrial markets

Industrial markets show certain characteristics which are qualitatively and quantitatively different from consumer goods markets. The differences are due to the structure 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.

illustration not visible in this excerpt

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]

Industrial purchasing is distinguished from the consumer purchasing by multiple buying influences, multiple sales contacts and by a professional purchasing management. 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. Therefore 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 consequence 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]

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 influential 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 company 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 investments 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]

In order to reduce the higher risk, initial investments are distinguished by particularly intensive information behavior, whereas the information behavior in terms of replacement 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]

- New Task
- Modified rebuy
- 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 in the course of modified rebuys, however, the number of examined buying alternatives 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 customer does not even have the ability to recognize the benefit due to the rapid technological development. As a consequence of the constant alterations, collected information becomes obsolete so quickly that in the meantime new information needs are created.^[22]

As a result of the increasing difficulties regarding the performance evaluation, potential 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]

4 Buying Center

Generally, a buying center is described as all individuals and groups who participate in the buying decision process, who share some mutual objectives and the risks arising from the decisions.^[24] Therefore, it is not always easy to determine the boundaries of the buying center. Based on the personal relationships, even individuals from outside the company are able to influence the buying decision consciously or unconsciously, intentionally or unintentionally.^[25]

Webster and Wind established some characteristics of the organizational buying behavior which help to describe the complexities of the buying center.

First, more people are involved in organizational buying decisions and different people are able to play different roles. Moreover, the assumed roles can change from one purchase situation to the next. When dealing with organizational buying the sales representatives will be concerned with the buying center. Hence, it is critical to identify the members of the buying center, to determine their particular roles and the criteria they will be using in their evaluation of options.^[26]

Second, technical complexities in terms of the product or the service are often considered in organizational buying decisions. In order to evaluate new technical equipment, specialized information as well as carefully considered opinions by those who can best predict the future development of the technology are necessary.^[27]

[...]

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^[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. 254–355, 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

^[5] prepared by the author

^[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

^[9] Cf. Ibidem, 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. 3–99, here p. 24

^[13] Cf. Backhaus; Voeth; Industriegütermarketing, p. 74

^[14] Cf. Ibidem, p. 75

^[15] Cf. Backhaus; Voeth; Industriegütermarketing, p. 75

^[16] Cf. Ibidem, p. 76

^[17] Cf. Ibidem, p. 76

^[18] Cf. Ibidem, p. 76

^[19] Cf. Backhaus; Voeth; Industriegütermarketing, p. 76

^[20] Cf. Ibidem, p. 76

^[21] Cf. Ibidem, pp. 76-77

^[22] Cf. Ibidem, pp. 79-80

^[23] Cf. Backhaus; Voeth; Industriegütermarketing, p. 81

^[24] Cf. Webster, Frederick E.; Wind, Yoram; Organizational Buying Behavior, Englewood Cliffs, 1972, p. 6

^[25] Cf. Fließ; Industrielles Kaufverhalten, in: Technischer Vertrieb, pp. 254–355, here p. 305

^[26] Cf. Webster; Wind; Organizational Buying Behavior, p. 6

^[27] Cf. Ibidem, p.6

• College: Campus02 University of Applied Sciences Graz (International Marketing und Sales Management)
• Course: Sales Management
• Grade: 3,0
• Author: Markus Gaggl (Author)
• Publication Year: 2014
• Pages: 48
• Catalog Number: V270609
• ISBN (eBook): 9783656614272
• ISBN (Book): 9783656614265
• Language: English
• Tags: Buying Center, Selling Center, Sales Management, Marketing, Organizational Buying Behavior, Buying Types, Buying Center Analysis, organisationelle Beschaffung, Einkauf, Verkauf, Purchasing