Activity 1. Consumer behaviour

Activity 1. Consumer behaviour

1. WHY PEOPLE BUY

   • People buy to satisfy a want or desire, to solve a problem, or to satisfy an impulse
     • Buyers have personal goals and aspirations

2. TYPES OF CUSTOMERS

   • MANUFACTURERS
     • OEM Purchasers
       • Buyers for original equipment manufacturers (OEMs)
         • Purchase goods (components, subassemblies, raw and processed materials) to use in making their products
           • Example: Dell
           • Most OEM products are bought in large quantities on an annual contract
     • End Users
       • End-user buying situations include the purchase of capital equipment; maintenance, repair, and overhaul (MRO) supplies; and services.
         • Capital equipment: mainframe computers and machine tools that the producer uses for a number of years.
           • MRO supplies include paper towels and replacement parts for machinery
             • Services include Internet and telephone connections, employment agencies, consultants, and transportation.
       • Manufacturers buy goods and services to support their own production and operation
   • RESELLERS
     • Resellers buy finished products or services with the intention to resell them to businesses and consumers
       • Three elements
         • Profit margin, turnover and effort
           • Resellers want to maximize their return on investment (ROI), which is a function of profit margin, or how much they make on each sale; turnover (TO), or how quickly a product will sell; and how much effort it takes to sell the product.
   • GOVERNMENT AGENCIES
     • Government buyers develop detailed specifications for a product
       • Unique procurement procedures and rules
   • INSTITUTIONS
     • Group consists of public and private institutions such as churches, hospitals, and colleges
       • Purchasing rules and procedures that are as complex and rigid
   • CONSUMERS
     • Consumers purchase products and services for use by themselves or by their families

3. HOW DO ORGANIZATIONS MAKE BUYING DECISIONS?

   • STEPS IN THE BUYING PROCESS
     • Recognizing a Need or a Problem (Step 1)
       • A problem exists
     • Defining the Type of Product Needed (Step 2)
       • General approach to solve the problem
     • Developing Product Specifications (Step 3)
       • Specifications for the product needed to solve the problem are prepared
         • Potential suppliers use these specifications to develop proposals. The buyers use them to evaluate the proposal
     • Searching for Qualified Suppliers (Step 4)
       • Looking for potential suppliers
     • Acquiring and Analyzing Proposals (Step 5)
       • Qualified suppliers are asked to submit proposals.
     • Evaluating Proposals and Selecting a Supplier (Step 6)
       • Customer evaluates the proposals
     • Placing an Order and Receiving the Product (Step 7)
       • The order goes to the supplier, who acknowledges receipt and commits to a delivery date
     • Evaluating Product Performance (Step 8)
       • Formal or informal assessment made by people involved in the buying process
     • Buying Processes Vary
   • CREEPING COMMITMENT
     • A customer becomes increasingly committed to a particular course of action while going through the steps in the buying process.
       • Customer’s point of view is a series of steps that results in a purchase

4. WHO MAKES THE BUYING DECISION?

   • USERS
     • Do not make the ultimate purchase decision. They have considerable influence in the early and late steps of the buying process
   • INITIATORS
     • Person who starts the buying process
   • INFLUENCERS
     • People inside or outside the organization who directly or indirectly provide information during the buying process
   • GATEKEEPERS
     • Gatekeepers control the flow of information and may limit the alternatives considered
       • Purchasing agents, also called buyers or supply chain managers
   • DECIDERS
     • Make the final choice
       • Senior executives

5. TYPES OF ORGANIZATIONAL BUYING DECISIONS

   • NEW TASKS
     • When a customer purchases a product or service for the first time, a new-task situation occurs
   • STRAIGHT REBUYS
     • The customer buys the same product from the same source it used when the need arose previously
   • MODIFIED REBUYS
     • In a modified rebuy situation, the customer has purchased the product or a similar product in the past but is interested in obtaining new information
       • Unsatisfactority, a new product becomes available, or the buying needs change

6. ORGANIZATIONAL BUYING AND SELLING

   • COMPLEXITY OF THE ORGANIZATIONAL BUYING PROCESS
     • Extensive evaluations and negotiations over time
       • Number of people involved and Purchasing agents
     • Salespeople must be able to deal effectively with a wide range of people working for their customer and their company
   • DERIVED VERSUS DIRECT DEMAND
     • Derived demand
       • OEMs and resellers
       • Purchases made by these customers ultimately depend on the demand for their products

7. SUPPLIER EVALUATION AND CHOICE

   • ORGANIZATIONAL NEEDS AND CRITERIA
     • Economic Criteria
       • Objective of businesses is to make a profit
         • Life-cycle costing, also referred to as the total cost of ownership, is a method for determining the cost of equipment or supplies over their useful lives.
     • Quality Criteria
       • Quality and reliability of their products are as important to their customers as price
         • Quality criteria can include such objective measures as the number of defects per thousand products, the amount of time a machine operates before needing service, or the number of items a system can process in a given period of time
         • Salespeople need to know what organizational buyers are looking for
     • Service Criteria
       • Products that are low cost, that perform reliably, and that are aesthetically pleasing
         • Service-level agreements (SLAs) are standards for minimum service delivery for specific objective measures of how the vendor will perform services
         • Value analysis is an example of a program in which suppliers and customers work together to reduce costs and still provide the required level of performance
           • Salespeople can use value analysis to get customers to consider a new product
   • INDIVIDUAL NEEDS OF BUYING CENTER MEMBERS
     • Types of Needs
       • Personal goals and aspirations
         • Salespeople can influence members of the buying center by developing strategies to satisfy individual needs.
     • Risk Reduction
       • Buyers first assess the potential for risk and then develop a risk-reduction strategy
         • To reduce risk, buying center members may collect additional information, develop a loyalty to present suppliers, or spread the risk by placing orders with several vendors
           • Sales Technology illustrates the importance of the Internet for word-of-mouth information, as well as company-created information
           • Another way to reduce uncertainty and risk is to display vendor loyalty to suppliers that is, to continue buying from suppliers that proved satisfactory in the past
             • Lost for good; for all the out-suppliers, this account can be considered lost for good because the in-supplier has cemented this relationship for a long time
             • Types of vendor loyalty
               • Behavioral loyaltyis a form of vendor loyalty where a buyer will make the same purchases over and over, so long as the vendor doesn’t make any major mistakes.
               • Attitudinal loyalty is different; the buyer has a strong emotional attachment to the vendor, the vendor’s product, or even the salesperson, which then translates into sales as opportunities arise.

8. SUPPLY CHAIN MANAGEMENT AND PROFESSIONAL PURCHASING

   • SUPPLY CHAIN MANAGEMENT
     • SCM has become more than just logistics; it is now a strategy of managing inventory while containing costs.
       • SCM includes logistics systems, such as just-in-time inventory control, as well as supplier evaluation processes, such as supplier relationship management systems
     • The just-in-time (JIT) inventory control system is an example of a logistics SCM system used by a producer to minimize its inventory
       • These JIT inventory systems are referred to as quick-response (QR) systems or efficient consumer response (ECR) systems in a consumer product distribution channel.
     • Automatic replenishment (AR) is a form of JIT where the supplier manages inventory levels for the customer
       • Efficient consumer response systems use automatic replenishment technology through electronic data interchange (EDI)
         • Supplier relationship management (SRM) is a strategy by which organizational buyers evaluate the relative importance of suppliers and use that information to determine with whom they want to develop partnerships

9. MULTIATTRIBUTE MODEL OF PRODUCT EVALUATION AND CHOICE

   • PERFORMANCE EVALUATION OF CHARACTERISTICS
     • The final decision depends on the relationship between the performance evaluations and the company’s needs
       • he buying center members must consider the degree to which they are willing to sacrifice poor performance on one attribute for superior performance on another
   • IMPORTANCE WEIGHTS
   • OVERALL EVALUATION
   • VALUE OFFERED
   • SUPPLIER SELECTION
   • IMPLICATIONS FOR SALESPEOPLE

10. SELLING YOURSELF

    • Recognize that there is a buying center
      • Who is the gatekeeper, who is the decider, and who are influencers?
        • You need to understand the process by which the decision is made
          • Take some time to understand who is involved in the decision, what criteria they will use, and what process they will use to reach a decision

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