Consumer Behaviour

Unit-4

Industrial Buying Behaviour

Industrial buying behaviour refers to the decision-making process and actions of businesses,
organizations, and government institutions when purchasing products or services for
production, resale, or daily operations. Unlike consumer buying, industrial purchasing is more
complex, involves multiple stakeholders, and is driven by business needs rather than
personal preferences.
Example:
A car manufacturer like Toyota purchases steel, rubber, and electronic components from
multiple suppliers to build vehicles.

Characteristics of Industrial Markets

1. Fewer but Larger Buyers
 The number of industrial buyers is smaller than consumer markets, but their purchases
are in bulk.
 Example: A few major airlines (like American Airlines or Emirates) buy aircraft
from Boeing or Airbus, unlike thousands of consumers buying small vehicles.
2. Derived Demand
 The demand for industrial products is linked to consumer demand.
 Example: The demand for smartphone screens depends on the number of
smartphones sold to consumers.
3. Complex Decision-Making Process
 Multiple departments and people (finance, procurement, and management) are
involved in making purchase decisions.
 Example: A hospital purchasing an MRI machine needs approval from doctors,
procurement teams, and finance managers.
4. Emphasis on Long-Term Relationships
 Industrial buyers prefer long-term contracts and supplier partnerships rather than one-
time purchases.
 Example: Apple has long-term supplier agreements with Foxconn to manufacture
iPhones.
5. Negotiation and Price Sensitivity
  Industrial buyers negotiate bulk discounts, delivery schedules, and credit terms.
 Example: A construction company buying cement and steel negotiates lower prices
for large orders.
6. Buying is Based on Specifications & Standards
 Industrial purchases must meet strict technical, quality, and safety standards.
 Example: An automobile company requires specific dimensions and durability for
tires to ensure vehicle safety.
7. Geographically Concentrated Buyers
 Many industrial buyers are located in specific regions based on industry clusters.
 Example: Silicon Valley in the USA is home to many technology hardware and
software companies.

Participants in Industrial Buying

Industrial buying involves multiple participants who influence or make the purchase decision.
These participants form the Buying Center – a group of people within an organization
involved in a purchasing decision.
1. Users
 Employees who actually use the product or service in their daily work.
 Example: Factory workers using a new machine to manufacture goods.
2. Influencers
 Experts who provide technical advice and recommendations on products.
 Example: Engineers and IT specialists suggesting a new software or machine for
production.
3. Buyers (Procurement Team)
 Responsible for negotiating prices, contracts, and placing orders.
 Example: Procurement managers of a pharmaceutical company purchasing raw
materials for medicine production.
4. Deciders
 Senior executives or department heads who approve the final purchase decision.
 Example: The CEO of an airline approving the purchase of new aircraft.
5. Gatekeepers
 Control the flow of information and decide which suppliers are considered.
  Example: Receptionists, administrative staff, or IT managers filtering vendor
proposals before they reach decision-makers.

Stages in the Industrial Buying Process

1. Problem Recognition
The company identifies a need for a product or service.
 Example: A logistics company realizes its fleet requires new GPS tracking systems.
2. Need Description & Product Specifications
The company defines the exact features, quantity, and quality required.
 Example: A textile manufacturer specifies the type, color, and thickness of cotton
fabric needed.
3. Supplier Search
The company looks for potential suppliers through online directories, trade fairs, or
industry contacts.
 Example: A hotel chain looking for furniture suppliers contacts multiple vendors
for quotes.
4. Proposal Evaluation & Supplier Selection
The company evaluates different suppliers based on price, quality, reputation, and delivery
terms.
 Example: An automobile company selects a battery supplier based on durability,
price, and supply chain reliability.
5. Order Placement & Contract Negotiation
The company finalizes the purchase order, negotiates terms, and signs contracts.
 Example: A construction company signs a long-term contract with a cement
supplier.
6. Performance Review & Supplier Relationship Management
After using the product, the company evaluates supplier performance and decides whether to
continue the partnership.
 Example: If a software vendor provides poor customer support, the company may
look for alternatives.

Types of Industrial Buying Situations

1. Straight Rebuy (Routine Purchase)
 The company reorders the same product from an existing supplier without
changes.
 Example: A restaurant regularly ordering cooking oil and flour from the same
supplier.
2. Modified Rebuy
 The company wants to change suppliers, prices, or specifications.
 Example: A hospital upgrading medical equipment and looking for new features.
3. New Task Purchase
 The company is buying a product or service for the first time, requiring extensive
evaluation.
 Example: A retail chain implementing AI-based customer tracking software for
the first time.

Factors Influencing Industrial Buying Behaviour

1. Organizational Factors
 Company size, policies, and financial position influence purchasing decisions.
 Example: A multinational corporation has strict procurement policies, while a
startup may have a flexible approach.
2. Economic Factors
 Inflation, exchange rates, and economic conditions impact purchasing power.
 Example: A manufacturing company may delay buying new machinery due to a
recession.
3. Technological Factors
 Rapid advancements require businesses to upgrade equipment and software.
 Example: A printing company switching from traditional to digital printers for
higher efficiency.
4. Supplier Reputation & Reliability
 Companies prefer reliable suppliers with good service and consistent quality.
 Example: Aerospace companies like Boeing and Airbus choose trusted suppliers
for aircraft components.
5. Environmental & Legal Factors
 Government regulations and environmental policies influence purchasing.
  Example: Automobile manufacturers must comply with pollution control norms
before buying parts.

Case Study: Industrial Buying in the Automobile Industry

Company: Tesla Inc.
Scenario: Tesla, an electric car manufacturer, needs new battery suppliers for its cars.
Buying Process:
1. Problem Recognition → Demand for Tesla cars is increasing, requiring more
batteries.
2. Need Description → Tesla requires high-capacity lithium-ion batteries.
3. Supplier Search → Evaluates Panasonic, LG Chem, and CATL as potential
suppliers.
4. Proposal Evaluation → Compares pricing, performance, and delivery
capabilities.
5. Order Placement → Signs a multi-year contract with Panasonic for battery supply.
6. Performance Review → If Panasonic meets expectations, Tesla extends the contract;
otherwise, it considers alternative suppliers.

Factors Influencing Industrial Markets

Industrial markets are influenced by a combination of internal and external factors that
affect purchasing decisions.
1. Organizational Factors
 Companies follow strict procurement policies based on budget, production needs,
and supplier contracts.
 Example: Tesla follows a structured supply chain process when selecting battery
manufacturers like Panasonic and CATL.
2. Economic Factors
 Inflation, interest rates, and currency exchange rates affect the cost of raw
materials and components.
 Example: A construction company delays bulk purchases of steel if global prices
are high due to inflation.
3. Technological Factors
 Companies prefer suppliers offering the latest technology and innovation to
improve efficiency.
  Example: Amazon uses AI-powered inventory management systems to track
warehouse supplies.
4. Competitive Factors
 Industrial buyers compare multiple suppliers to get the best price, quality, and
service.
 Example: Airlines like Emirates and British Airways evaluate Boeing and Airbus
before purchasing new aircraft.
5. Supplier Reputation and Reliability
 Companies choose trusted suppliers with consistent quality and timely delivery.
 Example: Apple partners with Foxconn for iPhone manufacturing due to its proven
track record.
6. Legal and Regulatory Factors
 Government policies, import/export regulations, and safety standards impact
purchasing decisions.
 Example: The European Union’s carbon emissions regulations influence car
manufacturers to buy eco-friendly components.
7. Social and Environmental Responsibility
 Companies prefer suppliers that follow sustainable practices and ethical sourcing.
 Example: Nike sources raw materials from suppliers with ethical labor practices
to maintain its brand reputation.

Stages of the Industrial Buying Process

Industrial buying follows a structured decision-making process involving multiple
stakeholders.
1. Problem Recognition
 The company identifies a need for a product or service.
 Example: A logistics company realizes it needs new GPS tracking software to
improve delivery efficiency.
2. Need Description and Product Specification
 The company defines the exact technical requirements, quality standards, and
quantity.
 Example: A pharmaceutical company specifies the chemical composition for raw
material procurement.
3. Supplier Search
  The company searches for potential suppliers through trade fairs, industry
directories, and recommendations.
 Example: A hospital looking for MRI machines evaluates brands like Siemens, GE
Healthcare, and Philips.
4. Proposal Evaluation and Supplier Selection
 The company compares supplier proposals based on price, quality, and delivery
time.
 Example: A food processing company selects a packaging supplier offering eco-
friendly and cost-effective solutions.
5. Order Placement and Contract Negotiation
 The company finalizes contracts, negotiates terms, and places an order.
 Example: A supermarket chain signs an annual contract with a dairy supplier for
regular deliveries.
6. Performance Review and Supplier Relationship Management
 After delivery, the company assesses supplier performance to decide on future
collaborations.
 Example: A car manufacturer reviews the quality of brake systems from a
supplier before renewing the contract.

Types of Industrial Buying Situations

1. Straight Rebuy (Routine Purchase)
 The company reorders regularly used products from the same supplier.
 Example: An airline regularly purchasing aviation fuel from a trusted vendor.
2. Modified Rebuy
 The company seeks improvements in price, quality, or supplier services.
 Example: A retail store switching to a packaging supplier offering biodegradable
materials.
3. New Task Purchase
 The company buys a completely new product or service, requiring detailed
evaluation.
 Example: A hospital purchasing AI-driven diagnostic tools for the first time.

Case Study: Industrial Buying in the Automobile Industry

Company: Toyota
Scenario: Toyota needs advanced semiconductor chips for its new electric vehicle models.
Buying Process:
1. Problem Recognition → Demand for electric vehicles is rising, requiring better
semiconductors.
2. Need Description → Toyota specifies chip performance, durability, and power
efficiency requirements.
3. Supplier Search → Evaluates Intel, NVIDIA, and TSMC for chip production.
4. Proposal Evaluation → Assesses cost, innovation, and supplier reliability.
5. Order Placement → Signs a long-term supply contract with TSMC.
6. Performance Review → Regularly audits TSMC’s performance to ensure quality and
delivery timelines.

Customer and Marketing of Services

Services marketing refers to the strategies and techniques used to promote and sell
intangible products offered by businesses. Unlike physical goods, services are intangible,
perishable, and inseparable from their provider, making their marketing approach unique.
Examples of Services:
 Hospitality: Hotels, restaurants, airlines.
 Healthcare: Hospitals, diagnostic centers, telemedicine.
 Financial Services: Banks, insurance, stockbrokers.
 Education: Schools, colleges, online learning platforms.
 Technology: Cloud computing, SaaS (Software-as-a-Service).

Characteristics of Services (The 4 I’s)

1. Intangibility
 Services cannot be touched, seen, or stored before purchase.
 Example: A person can’t test a haircut before getting it; they rely on reviews and
reputation.
2. Inseparability
 Services are produced and consumed at the same time and require direct
interaction.
 Example: A doctor must be present to provide medical consultation; the service
cannot be separated from the provider.
3. Variability (Inconsistency)
 Service quality depends on who provides it, making standardization difficult.
 Example: The same hotel may offer different levels of service depending on the
staff on duty.
4. Perishability
 Services cannot be stored for future use; if not utilized, they are lost.
 Example: An empty airplane seat on a flight is revenue lost forever.

Service Marketing Mix (7Ps of Services Marketing)

1. Product (Service Offering)
 The core service and any additional benefits offered to customers.
 Example: A gym membership includes workout facilities (core) and personal
training (additional service).
2. Price
 Pricing in services is dynamic and based on demand, competition, and value.
 Example: Uber’s surge pricing increases fares during peak hours due to higher
demand.
3. Place (Distribution Channel)
 Services are delivered through physical locations, online platforms, or customer
sites.
 Example: Netflix streams content online, eliminating the need for a physical
distribution channel.
4. Promotion
 Includes advertising, social media, and customer referrals.
 Example: Starbucks uses social media campaigns and loyalty programs to promote
its brand.
5. People
 Employees play a crucial role in delivering customer satisfaction.
 Example: The quality of a restaurant experience depends on the service provided
by the staff.
6. Process
 The steps involved in delivering a service efficiently and consistently.
  Example: McDonald’s has a standardized process for taking orders and preparing
food to maintain consistency worldwide.
7. Physical Evidence
 Tangibles like branding, infrastructure, or digital presence that enhance customer
trust.
 Example: A well-designed bank branch or an intuitive mobile banking app
improves customer confidence.

Strategies for Effective Services Marketing

1. Customer Relationship Management (CRM)
 Building long-term relationships through loyalty programs, feedback systems, and
personalized services.
 Example: Amazon recommends products based on previous purchases,
enhancing customer experience.
2. Service Differentiation
 Offering unique value through quality, customization, or convenience.
 Example: Zappos (an online shoe retailer) offers free returns and excellent
customer service.
3. Managing Customer Expectations
 Setting realistic service promises through advertising and communication.
 Example: Domino’s "30-minute pizza delivery" promise sets clear expectations
for speed.
4. Leveraging Technology
 Using AI, chatbots, and self-service platforms for better customer experience.
 Example: Chatbots in banking apps allow instant query resolution without human
intervention.

Case Study: Airbnb – Revolutionizing Service Marketing

Challenge:
Traditional hotels dominated the hospitality industry, making it hard for individuals to offer
accommodations.
Solution:
Airbnb created a peer-to-peer service model, allowing homeowners to list properties while
offering users a cheaper, customized travel experience.
Marketing Strategies:
 User-generated content → Guest reviews build trust.
 Digital marketing → SEO, social media, referral programs.
 Personalized recommendations → AI-driven pricing and location suggestions.
Results:
 Airbnb became a global hospitality giant with millions of listings worldwide.