Beckman PowerPoint Presentation

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INDUSTRIAL BUYER BEHAVIOUR
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The purpose for mentioning Bombardier The
success of this company is because it has a good
understanding of the buyer behaviour of the
business market
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INDUSTRIAL BUYER BEHAVIOUR

• The Industrial Buying Process
• 3 types of industrial markets- producers and
  manufacturers- trade industries (wholesalers and
  retailers)- governments
• industrial market demand characteristics
• industrial product categories
• government markets

In this chapter well cover
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Industrial Market
Individuals and organizations that acquire goods
and services to be used, directly or indirectly,
in the production of other goods and services or
to be resold. TEXT
People who buy stuff to make other things.
W.T.G.R.
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3 types of industrial markets

• - producers and manufacturers- trade industries
  (wholesalers and retailers)- governments

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3 types of industrial markets

• producers and manufacturersThose who transform
  goods and services, through production, into
  other goods and services
• manufacturing firms (eg. Auto parts, computers)
• farms
• mining and forest industries
• construction and building companies
• service companies (trucking, air, rail)
• public utilities, banks, insurance companies

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3 types of industrial markets

• Trade Industries (gong ye maoyi)
• Organizations such as wholesalers and retailers
  that buy things for resale to customers
• examples - lumber dealers, fabric wholesalers,
  building materials
• metal and electrical products

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3 types of industrial markets

• Governments (zheng fu)
• Federal Ministries and Crown Corporations,
  Provincial Ministeries and Crown Corporations,
  Municipal governments and agencies
• examples Dept. of Defense buying trucks from GM,
  Dept. of Revenue buying computers, Royal Canadian
  Mint buying paper and
• Provincial agencies buy services such as snow
  clearance, cellular phone service ...

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Value Added

• The Increase in value of input material when
  transformed into semi-finished or finished goods.
• input material parts, raw resources, components
  etc.
• transformed process, or manufactured, or
  shaped, or altered etc.

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Value Added

• Example
• asbestos company makes asbestos material
• another company buys it, shapes it, and makes
  asbestos brake pads
• another company buys the pads - puts them
  together with the other brake parts to form a
  component
• the auto assemble company buys the whole
  component and puts it on the car as it is going
  down the assembly line

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Value Added

• Example
• sport shoes, with special NIKE logo - makes the
  shoes more expensive
• t-shirt with special design or drawing
• animal fur - made into a fur coat
• ice cream - ice cream w strawberries on top
• watch - watch with diamonds and jewels added
• wood - wood made into furniture
• blank canvas - Picasso

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Industrial Market - Features

• Geographiceg. Auto parts companies tend to
  locate near auto assembly plants
• Small number of buyers34,000 mfg companies in
  Canada30 million population as consumers-
  however mfg. Companies make bigger purchases than
  an individual consumer

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Standard Industrial Classifications (SIC) Codes
A series of industrial classifications developed
by the federal government for use in collecting
detailed statistics for each industry.
SIC out of date - it will be replaced by the NAICS
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NAICSNorth American Industry Classification
System

• It is a new system that replaces the SIC
• The purpose is to promote uniformity in
  collecting statistics about the economy and
  companies activities
• Will be used in U.S.A., Canada and Mexico
• see http//www.webplaces.com/naics/back.htm

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Industrial Market Demand
1. Derived Demand 2. Joint Demand 3. Inventory
Adjustments 4. Demand Variability
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Industrial Market Demand
1. Derived Demandmeans the demand is derived (or
caused by, or linked to) demand for a consumer
item- demand for lithium is derived from the
demand for lithium batteries, which is in turn
derived from the demand for cell phones -
demand for wood pulp is derived from the demand
for paper, which is derived from the increase in
people printing on paper
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Industrial Market Demand
2. Joint Demandmeans the demand is related to
the demand for other industrial thingseg. The
demand for printer cartridges is linked to the
demand for printer paperfor services, the
demand for Netscape 4.05 - is linked to the
demand for an ISP account
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Industrial Market Demand
3. Inventory Adjustmentsmeans the demand is
related to how much the buyer needs to have in
stockIf the buyer needs a larger inventory, then
demand will be higherIf the buyer is trying to
cut back on inventory (eg. Using computer
controlled materials handling) then they will
need less inventory and just buy in time (called
JIT) Just In Time
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Industrial Market Demand
4. Demand Variabilitythe impact of derived
demand on the demand for interrelated products
used in producing consumer goods

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Industrial Market Demand
Accelerator PrincipleThe disproportionate
impact that changes in consumer demand have on
industrial market demandeg. Small changes in
consumer demand can have big changes in the
requirement for industrial parts, components and
materials to make those products
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not equal
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Categories of Industrial Products
1. Capital Items- things that last a long time,
and become less and less in value over time2.
Expense Items - things that are used within a
short period of time - some types of raw
materials, office supplies, materials in
production
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Categories of Industrial Products
1. Capital Itemsex - car - office building -
machinery and equipment2. Expense Items ex - gas
for the car - washing the windows for the
building - parts for the machinery
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Categories of Industrial Products

• Depreciation
• The accounting concept for charging a portion of
  the cost of a capital item as a deduction against
  the companys revenue- eg. 486 DX2 Office
  computer bought in 1995 - deduct 750 in 1995-
  deduct 750 in 1996etc.
  page 166

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Industrial Buying

• Many people involved in the decision making
  process
• Takes a lot of time to network and explain
  aspects of the product
• Need to get the approval of many peope to get a
  final decision
• Committees may be involved and this takes time
• Many organizations try to use different sources
  and therefore do not always buy from the same
  supplier all the time

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Industrial Buying

• The Complexity of Industrial Purchases
• negotiations can take a long time
• Many people involved in the decision making
  process have different points of view
• Many companies selling industrial parts and
  components spend a lot of time in developing
  relationships with key people who are buyers
• Many companies buying industrial parts and
  components have a person who specifically deals
  with buying - the purchasing manager

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Industrial Buying

• The Purchase of a Capital Item
• negotiations can take months to full explain all
  the- features- advantages- benefitsof the
  product
• sometimes the seller has to convince the buyer
  they can create a special customized product for
  their special industrial needs
• eg. New type of utility pole

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Classifying Industrial Purchasing Situations

• Straight Rebuy
• recurring (buying all the time) the same thing
• Modified Rebuy
• regular buying, but with some re-evaluation to
  think about things each time
• New Task / First-time Buying
• this takes a lot of effort on the part of the
  buyers to consider many aspects

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Buying Centre Roles
1. Users 2. Gatekeepers 3. Influencers 4.
Deciders 5. Buyers
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A Model of the Industrial Buying Process
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A Model of the Industrial Buying Process
Need Recognition - simply the understanding that
you need something - can be caused by an
emergency, or just the execution of your plans to
do something
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A Model of the Industrial Buying Process
Information Search - make a list of who are the
best potential suppliers - purpose is to know, in
detail, what you need, and what you should buy -
have to develop a list of technical
specificationseg. Waterproof, or withstand heat
of 200 degrees
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A Model of the Industrial Buying Process
Delineation of Suppliers - collect information on
potential suppliers
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A Model of the Industrial Buying Process
Sales Demonstration/Proposal - potential
suppliers are then invited to make a
presentation, or come for a meeting to provide a
proposal - includes technical and economic
considerations
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A Model of the Industrial Buying Process
Advertisements - usually done in trade magazines
and newsletters
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A Model of the Industrial Buying Process
Technical articles in the late 1990s,
extensive Internet searches - the buying group
examines this information to determine how it
fits their requirements
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A Model of the Industrial Buying Process

• Word of Mouth
• Personal and interpersonal influences
• Review of Internal Proposals

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Reciprocity

• Buying from suppliers who are also customers
• eg. Computer manufacturer buys all computer paper
  from forest products company that uses their
  computers
• eg. Ford executives rent cars from Hertz - cause
  Hertz uses Ford cars !

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Government Markets

• Government buying of products and services is 52
  of Canadas GDP
• therefore selling to the government is important
  business

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Government Markets

• Bids
• price quotations from potential suppliers
• Specifications
• Specific descriptions of the items
• in many situations, this information is extremely
  detailed

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Government Markets

• Three Ways of Obtaining Bids
• An Invitation to Tender (offer)
• - for big things that cost a lot of money
• Requests for Quotations
• - for small purchases less than 5,000
• Requests for Proposals
• - for noncompetitive purchases more than 5,000

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