Reading: Lesson 4 - The Business Buying Decision

11.4.A - The Business Buying Decision

1. PLANNING A BUSINESS PURCHASE

1. Marketing managers are responsible for ensuring that their companies are able to develop long-term relationships with business customers—those customers who purchase the products or services in large quantities. To achieve this, marketing managers must understand how business customers make decisions. When planning a purchase, business buyers make several specific decisions. They must decide what to purchase, when to purchase, from whom to purchase, and how much to purchase.
   
2. To be successful, a business must keep the right kind of products in stock. Manufacturers buy products to use in producing products to sell to their customers. Wholesale or retail businesses purchase products for resale or for use in the operation of their businesses. In all cases, the most important consideration in generating sales is the customers’ needs. Businesses that do not satisfy customers will not thrive. Businesses must consider both quality and assortment of products in deciding what to purchase. Some buyers try to sell more products than their competitors do by offering low-quality products at a low price. They believe that price is so important to customers that they will accept lower quality to save money. This strategy can backfire. Customers balance price and quality to make the best possible decision. They frequently do not select the absolute cheapest product if it is of inferior quality, nor pay the highest price even if quality is superior.
   
3. Two factors influence a business’s selection of product assortment. The first is competition. A new store will have a hard time attracting customers if it carries only the same products or brands that are carried by local businesses that are already successful. The business needs to emphasize the products customers want but offer differences from competitors’ products. The second factor in choosing a product assortment is the financial strength of the business. It costs a lot of money to keep a wide selection of products available. Businesses can stock a limited variety of products while still offering customers a good selection. Product variety is a difficult decision. Businesses need to stock items that customers want, while staying within the budget of the business. Businesses have several resources to help determine what to purchase. Websites, catalogs, and salespeople are valuable tools. Trade associations and their publications can also help. Businesses should listen carefully to their customers in determining what meets customer needs. They should also review company sales records and regularly study what products sell well for competitors.
   
4. The types of products, the types and locations of suppliers, and other factors such as style and price trends influence the decision about when to purchase. For a manufacturer, raw materials and component parts must be available when needed for production, or the business will not be able to maintain its production schedule. Wholesalers and retailers need an adequate supply of products when customers want to buy. Businesses often must place orders well in advance for products to be available when needed by customers. For example, retail clothing chains often order summer fashions during the winter. Whether a buyer believes the prices of products will fall or rise also influences when product orders are placed.
   
5. Part of the purchasing decision is to choose the right suppliers. Businesses consider the reputation of each supplier based on aspects such as providing customer service, filling orders rapidly and exactly as requested, and providing other necessary services. Other considerations are the supplier’s price and credit terms. Businesses must decide whether to make purchases from a single supplier or to spread the orders among several suppliers. Most businesses concentrate their buying among a few suppliers. This practice usually develops better relationships between the suppliers and the purchaser. Better prices, credit terms, and service are also likely to result. However, relying on one supplier leaves the purchaser vulnerable if that supplier experiences problems.
   
6. A business should have sufficient products available to meet customer demand. If customers cannot purchase the products when they want them, they will go elsewhere. If a manufacturing business runs out of the necessary raw materials and parts, that business must delay production. On the other hand, if businesses have a much larger inventory than they need, they are tying up large amounts of money in inventory that they could use in other ways to make a profit. The large inventory also requires extra storage space. If businesses keep only small quantities in stock, they reduce the risk of loss from spoilage, changes in design, or changes in demand. Many suppliers are now able to fill orders quickly through “just-in-time” supply chains, making it easier for companies to carry lower quantities of many of the products they sell.
   

2. BUSINESS BUYING PROCESS

1. When a business decides to purchase a product, it typically follows a set of formal procedures called the business buying process, as outlined in the Figure below. Businesses do not always go through every step of this process. There are three different types of buying processes. 
   

   
   

2. Businesses must conduct a new task purchase process when they are purchasing a product, inventory item, or supply for the first time. Businesses typically purchase a large quantity of products and face larger risks than consumers making purchases. For example, if a supplier is unable to supply inventory items, a business could lose sales or have no tasks for workers, resulting in higher costs. To lower these risks, businesses conduct careful searches for suppliers, following company procedures based on the business buying process. Depending on the purchase, new task purchases can take over a year to complete. In a modified rebuy, a business purchases a new or modified product from established suppliers. In this case, a business may submit new specifications or ask for bids from new suppliers to ensure they are getting the best price for their needs. When purchase decisions are low risk and can be made without modifications, a business does a straight rebuy. For example, when a business needs more paper for copiers or printers, it often repurchases from the same suppliers as the previous purchase.