| Re: marketing gurus please help me CHANDA,
HERE IS SOME USEFUL MATERIAL.
For MANUFACTURERS/ WHOLESALERS understanding how RETAIL businesses make purchase decisions is critical to their organizations’ marketing efforts.
There are different types of retailers and hence different types of retailer buying decisions.
-small retailers [ one man shop]
-large stores retailers
-large department stores
-chain stores[ selling one types of products like electronic goods]
-large chain stores
etc etc
In some ways understanding the RETAIL business market is not as complicated as understanding the consumer market. For example, in certain business markets purchase decisions hinge on the outcome of a bidding process between competitors offering similar products and services. In these cases the decision to buy is often whittled down to one concern – who has the lowest price.
However, in many other ways RETAIL business buying is much more complicated. For instance, the demand by RETAIL businesses for products and services is affected by consumer purchases (called derived demand) and because so many organizations may have a part in creating consumer purchases, a small swing in consumer demand can create big changes in RETAIL business purchasing. Automobile purchases are a good example. If consumer demand for cars increases many companies connected with the automobile industry will also see demand for their products and services increase . Under these conditions companies will ratchet up their operations to ensure demand is met, which invariably will lead to new purchases by a large number of companies. In fact, it is conceivable that an increase of just one or two percent for consumer demand can increase RETAIL business demand for products and services by five or more percent. Unfortunately, the opposite is true if demand declines. Trying to predict these swings requires RETAIL businesses to not only understand their immediate customers but also the end user.
In the consumer market a very large percentage of purchase decisions are made by a single person. There are situations in which multiple people may be involved in a consumer purchase decision, such as a child influencing a parent to choose a certain brand of cereal or a husband and wife deciding together to buy a house, but most of the time purchases are individual decisions.
The RETAIL business market is significantly different. While single person purchasing is not unusual, especially within a small RETAILER , a significant percentage of RETAIL business buying, especially within larger organizations, requires the input of many. In the marketing literature those associated with the purchase decision are known to be part of a Buying Center, which consists of individuals within an organization that perform one or more of the following roles:
Buyer – responsible for dealing with suppliers and placing orders (e.g., purchasing agent)
Decider – has the power to make the final purchase decision (e.g., CEO)
Influencer – has the ability to affect what is ordered such as setting order specifications
User – those who will actually use the product when it is received
Initiator – any Buying Center member who is the first to determine that a need exists
Gatekeeper – anyone who controls access to other Buying Center members (e.g., administrative assistant)
For marketers confronting a Buying Center it is important to first identify who plays what role. Once identified the marketer must address the needs of each member, which may differ significantly. For instance, the Decider, who may be the company president wants to make sure the purchase will not negatively affect the company’s bottom line while the Buyer wants to be assured the product will be delivered on time. Thus, the way each Buying Center member is approached and marketed to requires careful planning in order to address the unique needs of each member.
Experienced Purchasers
As noted in the discussion of the Buying Center, organizations often employ purchasing agents or professional buyers whose job is to negotiate the best deals for their company. Professional buyers are generally as knowledgeable about the product and the industry as the marketer who is selling to them.
Decision Making Time
Depending on the product, RETAIL business purchase decisions can drag on for an extensive period. The number of people involved in business purchase decisions results in decisions taking weeks, months or even years.
Larger Purchases
For products that are regularly used and frequently purchased, RETAIL businesses will often buy a larger volume at one time. Because of this business purchasers often demand price breaks (e.g., discounts) for higher order levels.
Number of Buyers
While there are several million companies worldwide that operate in the overall RETAIL business market, within a particular market the number is much smaller.
Promotional Focus
For business-to-RETAIL business, marketers the size of individual orders, along with a smaller number of buyers, makes person-to-person contact by sales representatives a more effective means of promotion.
Types of Business Purchase Decisions
Straight Re-Purchase - These purchase situations involve routine ordering. In most cases buyers simply reorder the same products or services that were previously purchased. In fact, many larger companies have programmed re-purchases into an automated ordering system that initiates electronic orders when inventory falls below a certain pre-determined level. For the supplier benefiting from the re-purchase this situation is ideal since the purchaser is not looking to evaluate other products. For competitors who are not getting the order it may require extensive marketing efforts to persuade the buyer to consider other product or service options.
Modified Re-Purchase – These purchases occur when products or services previously considered a straight re-purchase are for some reason now under a re-evaluation process. There are many reasons why a product is moved to the status of a modified re-purchase. Some of these reasons include: end of purchase contract period, change in who is involved in making the purchase, supplier is removed from an approved suppliers list, mandate from top level of organization to re-evaluate all purchasing, or strong marketing effort by competitors. In this circumstance the incumbent supplier faces the same challenges they may have faced when they initially convinced the buyer to make the purchase. For competitors the door is now open and they must work hard to make sure their message is heard by those in charge of the purchase decision.
New Task Purchase – As the name suggests, these purchases are ones the buyer has never or rarely made before. In some ways new task purchases can be considered as either minor or major depending on the total cost or overall importance of the purchase. In either case the buyer will spend considerably more time evaluating alternatives. For example, if faced with a major new task purchase, which often involves complex items, such as computer systems, buildings, robotic assembly lines, etc., the purchase cycle from first recognizing the need to placement of the order may be months or even years.
How Businesses Buy
To cap our discussion of the RETAIL business market we now look at how purchasing decisions are made. Business purchasing follows the five-step buying process :
Need Recognition
Search
Evaluate Options
Purchase
After-Purchase Evaluation.
1. Need Recognition
In a business environment needs arise from just about anywhere within the organization. The Buying Center concept shows that Initiators are the first organizational members to recognize a need. In most situations the Initiator is also the User or Buyer. Users are inclined to identify the need for new solutions (i.e., new products) while Buyers are more likely to identify the need to re-purchase products. But marketers should also understand that more companies are replacing human involvement in re-purchase decisions with automated methods, thus making it more challenging for competitors to replace currently purchased products. In straight re-purchase situations, whether there is human intervention or not, the purchasing process often jumps from Need Recognition to Purchase and little search activity is performed.
As part of this step, a specifications document may be generated that lays out the requirements of the product or service to be purchased. Several members of the Buying Center may be involved in creation of the specifications. For the marketer, establishing close contact with those who draw up the specifications may help position the marketer’s product for inclusion in the search phase.
2. Search
The search for alternatives to consider as potential solutions to recognized needs is one of the most significant differences between consumer and business purchasing. Much of this has to do with an organization’s motive to reduce costs. While a consumer will probably not search hard to save two cents a gallon on gas, a company that has a large fleet of cars or trucks certainly will. In fact, this step in the purchase process is where professional buyers make their mark. The primary intention of their search efforts is to identify multiple suppliers who meet product specifications and then, through a screening process, offer a selected group the opportunity to present their products to members of the Buying Center. Although in some industries, such as chemicals, online marketplaces and auction sites offer buyers another option for selecting suppliers that may not include supplier presentations
For suppliers, the key to this step of the purchase process is to make sure they are included within the search activities of the Buyer or others in the Buying Center. In some instances this may require that a supplier work to be included within an approved suppliers list. In the case of online marketplaces and auction sites, suppliers should work to be included within relevant sites.
3. Evaluate Option
Once the search has produced options, members of the Buying Center may then choose among the alternatives. In more advanced purchase situations, members of the Buying Center may evaluate each option using a checklist of features and benefits sought by the buyer. Each feature/benefit is assigned a weight that corresponds to its importance to the purchase decision. In many cases, especially when dealing with Government and Not-For-Profit markets, suppliers must submit bids with the lowest bidder often being awarded the order, assuming products or services meet specifications.
4. Purchase
To actually place the order may require the completion of paperwork (or electronic documents) such as a purchase order. Acquiring the necessary approvals can delay the order for an extended period of time. And for very large purchases, such as buildings or large equipment, financing options may need to be explored.
5. After-Purchase Evaluation
After the order is received the purchasing company may spend time reviewing the results of the purchase. This may involve the Buyer discussing product performance issues with Users. If the product is well received it may end up moving to a straight re-purchase status thus eliminating much of the evaluation process on future purchases.
FOR MAKING THE BUYING DECISION FOR A PRODUCT ,
THE RETAILERS WOULD CONSIDER THE FOLLOWING:
1.MARKET FACTORS
-what is the market potential for the product [ in that city/area]
-what is the market size
-what are the market characteristics
-who buys the product
-when do they buy
-why do they buy
-how do they buy
-how often do they buy
-how much would the customer pay
etc etc
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2.PRODUCT
-what is the quality
-what is the brand
-what are the competitive brands
-what is the packaging
-what is the product positioning
etc etc
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3.SALES
-what is the annual sales target
-what is the monthly sales target
-what is the target for stock holding
-any sales commission
etc etc
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4.SUPPLY
-what is the supply situation
-what is the minimum quantity to be ordered
etc etc
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5.PRICING
-what is the retail price
-what is the competitive retail price
-what is the list price
-what is the sales tax [ if any ]
-what is the trade discount
-what is the volume discount
-what other incentives
-is there a rebate
-is there annual bonus for performance
etc etc
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6.PROMOTIONS
-what is the company promotion programs
-newspaper
-TV
-radio
-point of sales support program
-merchandising support
-trade spend support for coop. campaign
-retailer identification campaign
-brochures
-catalogue support
etc etc
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7. TRAINING
-staff training [ if technical product]
-sales training for shop floor people ]
etc etc
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8. JOINT PLANNING / PROMOTIONS WITH RETAILERS
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REGARDS
LEO LINGHAM |
