The Business Buying Decision Process

Stages Involved in the Business Buying Decision Process

We’ve seen there are several players in the business buying process, beginning with an initiator and ending with a buyer. To make matters even more complex to marketers, members of the buying team go through several stages in the decision making process. The business buying decision process, as Figure X-1 shows, is a series of steps similar to those in the consumer decision process.

Figure X-1 Steps in the business buying decision process Source: The Internet, courtesy of SlideServeOpens in new window

To help understand these steps, let’s say you’ve just started working at the “Big Skateboard Company” and you’ve been assigned to be in the decision-making unit (DMU) for the purchase of new web-page-design computer software (a new-task buy) for your firm.

Step 1: Problem recognition

As with consumer buying, the first step in the business buying decision process occurs when someone sees that a purchase can solve a problem. For straight re-buy purchases, this steps may result because the firm has run out of paper, pens or bin bags. In these cases, the buyer places the order and the decision-making process ends.

Recognition of the need for modified re-buy purchases often comes from wanting to replace outdated equipment, from changes in technology, or from an ad, brochure or some other marketing communication that offers the customer a better product or one at a lower price.

Two events may occur in the problem-recognition step. First, a firm makes a request or requisition, usually in writing and second, depending on the complexity of the purchase, the firm may form a DMU.

The need for new-task purchases often occurs because the firm wants to enhance its operations in some way, or when a smart salesperson tells the business customer about a new product that will increase the efficiency of the firm’s operations or improve the firm’s end products. In the case of Big Skateboard Company’s new software purchase, your marketing department has previously had its web page designed and maintained by an outside agency. The company has become dissatisfied with the outside supplier and has decided to move the design function in-house. Now the company needs new software to create a website.

Step 2: Information Search

In the second step of the decision process (process purchases other than straight re-buys), the buying centre searches for information about products and suppliers. Members of the DMU may individually or collectively refer to reports in trade magazines and journals, seek advice from outside consultants and pay close attention to marketing communications from different manufacturers and suppliers.

As in consumer marketing, it’s the job of marketers to make sure that information is available when and where business customers want it. This can be achieved by placing ads in trade magazines, through mailing out brochures and other printed material to prospects, and via having a well-trained, enthusiastic sales force regularly call on customers.

For Big Skateboard Company’s purchase, you may try to find out what software your outside supplier has been using (if the supplier will tell you), talk to the information technology experts in your firm or review ads and articles in trade magazines.

There are thousands of specialized publications out there that cater for just about any industry you can think of, and each is bursting with information from competing companies that cater to a specific niche.

1.     Developing Product Specifications

Business buyers often develop product specifications. That is a written description of the quality, size, color, features, quantity, training, warranty, service terms and delivery requirements for the purchase. When the product needs are complex or technical, engineers and other experts are the key players in identifying specific product characteristics and determining whether standard off-the-shelf of customized made-to-order goods and services are needed. Although there is excellent web-design software available, for some computer applications custom-designed software is necessary.

2.     Identifying Potential Suppliers and Obtaining Proposals

Once the product specifications are in hand, the next step may be to identify potential suppliers and obtain written or verbal proposals, or bids, from one or more of them.

For standardized or branded products in which there are few if any differences in the products of different suppliers, this may be as simple as an informal request for pricing information, including discounts, shipping charges and confirmation of delivery dates. At other times, the potential suppliers will receive a formal written request for a proposal, or ask for a quotation that requires specific detail such as price and terms for supplying the product. For the Big Skateboard Company’s software, which is likely to be a standardized package, you would probably just ask for general pricing information.

Step 3: Evaluation of Options

At this stage of the business decision process, the DMU assesses the proposals. Total spending for goods and services can have a major impact on the firm’s profitability so, all other things being equal, price is the primary consideration.

Pricing evaluations must take into account discount policies for certain quantities, returned-goods policies, the cost of repair and maintenance services, terms of payment and the cost of financing large purchases.

For capital equipment (such as large machinery), cost criteria can also include the life expectancy of the purchase, the expected re-sale value, as well as the disposal costs. In some cases, the buying centre may negotiate with the preferred supplier to match the lowest bidder.

Although a firm often selects a bidder because it offers the lowest price, there are times when the buying decision is based on other factors, and these may be related to a number of issues including reputation, quality, previous experience, history or even environmental concerns (as explained in “Marketing ethics and sustainability”).

The more complex and costly the purchase, the more time buyers will spend searching for the best supplier (and the more marketers must try to win the order).

In some cases, a company may even ask one or more of its current customers to participate in a reference program, where they recommend products to others. For example, Siebel Systems once asked over 350 corporate buyer of its computer systems to explain to new prospects how their system worked and why they chose Siebel’s products.k

The pay-off for customers was that they could network with other existing customers to gain insights about how to use the company’s products. As a Siebel executives observes, customers become heroes – and by involving them in speaking engagements and articles in trade magazines, a real win-win scenario is evident for everyone.

Marketers often make formal presentations and product demonstrations to the DMU. In the case of installations and large equipment, marketers sometimes arrange for buyers to speak to or even visit other customers to examine how the product performs.

For less complex products, the buying firm may ask potential suppliers for samples of the products to evaluate alternatives. For the Big Skateboard Company website, your buying centre may ask salespeople from various companies to demonstrate their software for your group, so that you can compare the capabilities of different products.

Step 4: Product and Supplier Selection

Once buyers have assessed all proposals, the next step in the buying process is the purchase decision, which is the selection of the best product and supplier to meet the firm’s needs. Reliability and durability rank especially high for equipment and systems that keep the firm’s operations running smoothly without interruption.

For some purchases, warranties, repair service and regular maintenance after the sale are important. For the Big Skateboard Company, the final decision may be based not only on the capabilities of the software itself, but also on the technical support provided by the software company. What kind of support is available and at what cost to the company?

One of the most important decisions for a buyer is how many suppliers can best serve the firm’s needs. Sometimes a single supplier is more beneficial to the organization than having several suppliers.

However, reliance on a single source means that the firm is at the mercy of the chosen supplier to deliver the needed goods or services without interruption.

However, using one or a few suppliers rather than many has its advantages. A firm that buys from a single supplier becomes a large customer with a lot clout when it comes to negotiating prices and contract terms. Having one or a few suppliers also lowers the firm’s administrative costs because it has fewer invoices to pay, fewer contracts to negotiate and fewer salespeople to see than if it used many sources.

Many large organizations work with a number of preferred suppliers for certain goods. For example, companies use preferred suppliers when purchasing IT products and solutions or business travel. For the marketer, this often presents a challenge, as becoming a preferred supplier may pose many difficulties.

Obtaining approval can be a long-drawn-out process and may involve careful scrutiny by the decision-making unit. However, once approval has been granted, business can often evolve in a straight re-buy situation. Many hospitals are now moving towards single sourcing, where possible. Historically, hospital buyers have had to negotiate with hundreds of suppliers for a vast range of products from disposable gloves to surgical implants. Some hospitals have more recently tried to reduce their supplier lists by only working with specific suppliers that can provide a diverse range of items.

Sometimes, supplier selection is based on reciprocity, which means that a buyer and seller agree to be each other’s customers by saying, essentially, “I’ll buy from you, and you buy from me”. For example, a firm that supplies mechanical component parts to a company that manufactures vans would agree to buy their fleet vans only from that company.

Reciprocal agreements between firms often limit the effect of free-market competition. New suppliers simply don’t have a chance against the preferred suppliers. In certain, less-developed countries, reciprocity or countertrade is a practice that is common and even expected in business-to-business marketing.

Outsourcing is an increasingly popular strategy, but also a controversial one. Many critics object when companies contract with firms or individuals in remote places such as China or India to perform work that used to be done at home. These tasks range from complicated jobs such as writing computer code to fairly simple ones like manning reservation desks and call centers for telephone sales.

Controversy aside, many companies are finding that it may be both cost-effective and productive to call upon outsiders from around the world to provide such assistance. However, they must ensure that service is not compromised by moving their operations to less-developed economies. The experience gained is now leading some companies to reconsider their initial strategies.

Yet another type of buyer-seller partnership is reverse marketing. Instead of sellers trying to identify potential customers and then pitching for business, buyers try to find suppliers capable of producing specific, needed products and then attempt to “sell” the idea to the suppliers.

The seller aims to satisfy the buying firm’s needs. Through advertising in well-regarded international trade directories, such as Kompass, European companies have been able to receive unsolicited business orders from buyers as far away as Saudi Arabia that are keen to acquire supply of a European standard.

Step 5: Post-Purchase Evaluation

Just as consumers evaluate purchases, an organizational buyer assess whether the performance of the product and supplier is living up to expectations. The buyer surveys users to determine their satisfaction with the product as well as the installation, delivery and service provided by the supplier. For producers of goods, this may relate to the level of satisfaction of the final consumer of the buying firm’s product. Has demand for the manufacturer’s product increased, decreased or stayed the same?

By documenting and reviewing supplier performance, a firm decides whether to keep or drop the supplier. Many suppliers recognize the importance of conducting their own performance reviews on a regular basis. Measuring up to a customer’s expectations can mean winning or losing a big account. Many a supplier has lost business because of a past history of late deliveries or poor equipment repairs and maintenance.