INDUSTRIAL BUYER BEHAVIOUR

1. INDUSTRIAL BUYER BEHAVIOUR

2. 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

3. 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 we’ll cover

4. 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. Page 161

5. - producers and manufacturers- trade industries (wholesalers and retailers)- governments 3 types of industrial markets Page 161

6. 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 3 types of industrial markets Page 161

7. 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 3 types of industrial markets Page 162

8. 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 …... 3 types of industrial markets Page 162

9. 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. Value Added Page 162

10. 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 Value Added

11. 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” Value Added

12. 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 Industrial Market - Features Page 162-163

13. 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

14. 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 NAICSNorth American Industry Classification System

15. Industrial Market Demand 1. Derived Demand 2. Joint Demand 3. Inventory Adjustments 4. Demand Variability

16. 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 page 165

17. 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 page 165

18. 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 page 165

19. Industrial Market Demand 4. Demand Variabilitythe “impact” of derived demand on the demand for interrelated products used in producing consumer goods page 166

20. 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 page 166 not equal

21. 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

22. 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

23. Categories of Industrial Products • Depreciation • Theaccounting concept for charging a portion of the cost of a capital item as a deduction against the company’s revenue- eg. 486 DX2 Office computer bought in 1995 - deduct $750 in 1995- deduct $750 in 1996etc. page 166

24. 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 Industrial Buying Page 167

25. 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” Industrial Buying Page 167

26. 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 Industrial Buying Page 168 - 169

27. 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 Classifying Industrial Purchasing Situations Page 170

28. Buying Centre Roles 1. Users 2. Gatekeepers 3. Influencers 4. Deciders 5. Buyers Page 171

29. A Model of the Industrial Buying Process Page 173

30. 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

31. 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

32. A Model of the Industrial Buying Process Delineation of Suppliers - collect information on potential suppliers

33. 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

34. A Model of the Industrial Buying Process Advertisements - usually done in trade magazines and newsletters

35. A Model of the Industrial Buying Process Technical articles + in the late 1990’s, extensive Internet searches - the buying group examines this information to determine how it fits their requirements

36. A Model of the Industrial Buying Process • Word of Mouth • Personal and interpersonal influences • Review of Internal Proposals Page 173

37. 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 ! Reciprocity

38. Government buying of products and services is 52% of Canada’s GDP therefore selling to the government is important business Government Markets Page 174

39. Bids price quotations from potential suppliers Specifications Specific descriptions of the items in many situations, this information is extremely detailed Government Markets Page 174

40. 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 Government Markets Page 175