An Analysis of the Fundamentals of Marketing (part 28)

The B-to-B (Business to Business) Buying Process

by

Charles Lamson

The questions of what is the nature of the B-to-B buying process and how different is this from consumer buying behavior are addressed in the upcoming series of posts. Research in this area splits into two periods. During the first period of about six years Robinson et al. (1967), Sheth (1973) and Webster and Wind (1972) developed the first deductively based theoretical models dedicated to B-to-B buyer behavior. More recently, there has been a shift in research focus from studying buyers and sellers in isolation to studying the relationship between firms. The whole area of relationship marketing is one that has received much attention.

Early Models

Robinson et al. (1967) specified a model of the organizational decision process. It involved recognition of need, determination of characteristics and the quality of the needed item; search for and qualification of potential suppliers; acquisition and analysis of proposals; evaluation of proposals and supplier selection; selection of order routine; performance evaluation and feedback. While the model shares certain similarities with the consumer buying decision process mentioned earlier, there are some differences. A more simplified version might follow the process as shown in figure 1.

Recognition of Need

The organizational purchasing process begins with the recognition of the need for a product or service. For example, computer manufacturers have a need for printed circuit boards (PCBs). Some firms will make PCBs internally; for others its is more convenient to outsource this to a subcontractor who will deliver PCBs to a predefined routine. This routine will depend on how work in progress is sequenced through the shop floor. For example, many manufacturers use Materials Requirements Planning (MRP I) in conjunction with Manufacturing Resource Planning (MRP II) systems which if used effectively can alert suppliers to the firm's requirements for the next month (or other specified time period). Many suppliers have 'visibility' of their customers' real-time stock situation through electronic data interchange (EDI). In these cases, the 'recognition' of a need is almost as automatic as when the computerized inventory control system reports that an item has fallen below the reorder level. However, where changes to products and new products are concerned, people become more involved in the process.

Determination of Product Specifications

In industrial marketing situations it is important to specify exactly what is required in terms of the product specification. For example, the computer company which is buying PCBs will specify the type of board required and will make specifications for those specific components which are to be mounted on to the board. Unlike consumers, for whom much of the joy of shopping comes from elements of surprise and experimentation, the business buyer must specify the physical characteristics of the product in some detail, detailing its function, design, expected quality and performance levels as well as its relationship and compatibility with related components.

While a level of fine detail is appropriate for an engineering context this does not apply across all contexts, e.g. the 'creative brief' is a form of specification issued by a client to an advertising agency which forms the basis of an advertising campaign. In this case, it is important that the brief is not specified in detail as that might stifle creativity.

Evaluation and Selection of Suppliers

The next stage involves the search for a suitable supplier who can best meet all the specific criteria. This is similar to the process which was outlined in chapter 3, where 'Joe's' choice of a suit was described. Theorists suggest that B-to-B marketers evaluate potential suppliers according to a list of attributes which reflect desired benefits. The criteria used and the relative importance of each attribute vary according to the goods and services purchased and the buyers' needs. Usually price is a critical factor, although product quality is very important. Of even more importance nowadays is flexibility of response.

Researchers have found that just as the steps in the consumer decision-making process can vary with respect to the type of buying situation. Three important and interrelated factors determine the buying task faced by the organization and these can influence choice of supplier.

• The newness of the problem and the relevant buying experience of decision makers in the buying center.
• The information needs of the people in the buying center.
• The number of new alternative approaches and/or suppliers to consider in making the purchase decision.

There are three kinds of buying tasks or situations: the straight rebuy, the modified rebuy and new task buying.

• Straight rebuy. Here the buyer orders something without any modification which, usually, is handled on a routine basis by the purchasing department. The buyer simply chooses from the various suppliers on his/her list. In order to gain an edge, some suppliers will suggest automatic reordering and will be keen to maintain product and service quality, e.g. the situation where computer reordering takes place. In this case, where there is low perceived risk associated with a frequent purchase and a satisfactory supplier, the existing supplier might simply be asked to tender a price for resupply.
• Modified rebuy. This happens when the organization's needs remain unchanged but when buying center members are not satisfied either with the product or with the supplier. They may wish to have a better quality product, better service or are looking for a keener price. In this case, the buyer requires information about the different products and suppliers. This opens up an opportunity for new suppliers to gain entry. The modified rebuy may end with renegotiation of the contract with an existing supplier or with the choice of a new supplier.
• Newtask buying. A firm that is buying a product or service for the first time faces a new task situation. The size of the buying center rises in proportion to the cost and complexity of the decision. In this case, the procedure for supplier selection will be more complex and lengthy, involving negotiations at a high level with a number of potential suppliers before a decision is made.

One factor which can influence selection of a supplier is reciprocity whereby the organization favors a supplier that is a customer, or potential customer, for the firm's own products or services. While this offers a number of advantages, it can operate to restrict the available options and may lead to a situation where the best supplier is not selected.

Commitment

The process does not end once the decision has been finalized. The supply situation is monitored as it unfolds and the supplier performance is measured to determine whether or not it is suitable. For example, frequently a sample of goods supplied is tested to ensure that it has been produced according to specification. If the sample is not deemed to satisfy specifications which have been set, the whole batch may be returned to the supplier. In other situations where the customer uses Jusr-In-Time (JIT) systems to schedule work in progress the result of a late order can be very serious, resulting in the closure of a production line for hours, days or perhaps even weeks. It has been known for customers to invoice suppliers for the entire plant overhead as a form of penalty for late supply, a drastic move which can put small suppliers out of business.

There are several ways of handling supply relationships. The customer may keep suppliers under constant threat and may change suppliers if a product falls below specification on quality or delivery. On the other hand, the company may decide to build and maintain a relationship with the supplier to allow close cooperation and relationships to develop. This does not mean that the customer does not levy penalties on the supplier in the case of poor quality or late delivery, just that these instances will be investigated with a view to ensuring that they do not happen again.

Evaluation of the Model

While the model described in Figure 1 highlights certain features of the buying process, it hides others. The model charts the process as a linear development whereby the organizational buyer follows a sequence of steps in selecting the most appropriate purchase. The model illustrates the importance of developing specifications as to precisely what is required, leaving nothing to chance. For example, if one wishes to purchase a machine component in a manufacturing bill of materials, the physical characteristics of the component must be specified in terms of function, design, expected quality and performance levels. Additional specifications may be drawn up with respect to delivery and price. The establishment of specifications will bring a number of different personnel, e.g. a machine component may involve a design engineer and a production engineer and a quality manager as well as personnel from Procurement and Marketing. Conflicts can and do arise between these personnel and the means of coping with them are often evolved but not directly managed. For example the current author of the book which is the subject of this analysis, Fundamentals of Marketing, was engaged on a research project with a company which manufacture oscilloscopes and where design engineers held considerable power because most senior management were drawn from this group. Consequently, design engineers felt that it was their right to order components which would be incorporated into production. Marketing and Quality personnel were not happy with this procedure because although the components which had been tried and tested, products tended to fail and be returned, which led to dissatisfaction on the part of Quality and Marketing personnel. Procurement personnel were unhappy because of the number of different makes of the same component which were ordered; each engineer had his own favorite make. The company could have saved time and money by standardizing. It was only when a new managing director was appointed who recognized this problem that a team was formed to explore the issues, leading to the recognition of other people's concerns. 

One difficulty with the traditional buying buying model is that organizational buying/purchasing is not viewed as a value-adding function. Buying activity is perceived to be a largely clerical operation, with purchasing agents being evaluated on their negotiation skills. The levels of price discounts obtained from suppliers typically measure purchasing performance. This reward system fosters an adversarial climate between buyers and sellers because these goals are in direct competition. In addition, the approach characterized by Figure 1 (from above) is:

a short-term business orientation, buying based on lowest price, inspection of incoming shipments, large inventories, and very little interaction with suppliers other than the initial negotiations and to express post-purchase dissatisfaction when performance was poor.

(Wilson, 1994)

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 102-106*

END