Sheth Model, Industrial Buyer Behaviour 2u6w69

CONSUMER BEHAVIUOR

INDUSTRIAL BUYER BEHAVIOUR

STETH MODEL

PRESENTED BY: TAFADZWA MEDZA AND MUNYARADZI NYAMARIWA

Organizational buyer behavior consists of three distinct aspects. The first aspect is the psychological world of the individuals involved in organizational buying decisions. The second aspect relates to the conditions which precipitate t decisions among these individuals. The final aspect is the process of t decision making with the inevitable conflict among the decision makers and its resolution by resorting to a variety of tactics.

Psychological World of the Decision Makers Contrary to popular belief, many industrial buying decisions are not solely in the hands of purchasing agents. Typically in an industrial setting, one finds that there are at least three departments whose are continuously involved in different phases of the buying process. The most common are the personnel from the purchasing, quality control, and manufacturing departments. These individuals are identified in the model as purchasing agents, engineers, and s, respectively. Several other individuals in the organization may be, but are typically not, involved in the buying process (for example, the president of the firm or the comptroller). There is considerable interaction among the individuals in the three departments continuously involved in the buying process and often they are asked to decide tly. It is, therefore, critical to examine the similarities and differences in the psychological worlds of these individuals.

Several different aspects of the psychology of the decision makers are included in the model. Primary among these are the expectations of the decision makers about suppliers and brands. The model specifies five different processes which create differential expectations among the individuals involved in the purchasing process: the background of the individuals, information sources, active search, perceptual distortion, and satisfaction with past purchases. These variables must be explained and operationally defined if they are to fully represent the psychological world of the organisational buyers. Expectations Expectations refer to the perceived potential of alternative suppliers and brands to satisfy a number of explicit and implicit objectives in any particular buying decision. The most common explicit objectives include, in order of relative importance, product quality, delivery time, quantity of supply, after-sale service where appropriate, and price. Expectations can be measured by obtaining a profile of each supplier or brand as to how satisfactory it is perceived to be in enabling the decision maker to achieve his explicit and implicit objectives. Expectations substantially differ among the purchasing agents, engineers, and product s because each considers different criteria to be salient in judging the supplier or the brand. In general, it is found that product s look for prompt delivery, proper installation, and efficient serviceability; purchasing agents look for maximum price advantage and economy in shipping and forwarding; and engineers look for excellence in quality, standardization of the product, and engineering pretesting of the product. These differences in objectives and, consequently, expectations are often the root causes for constant conflict among these three types of individuals. Background of Individuals The first, and probably most significant, factor is the background and task orientation of each of the individuals involved in the buying process. The different educational backgrounds of the purchasing agents, engineers, and plant managers often generate substantially different professional goals and values. In addition, the task expectations also generate conflicting perceptions of one another’s role in the organization. Finally, the personal life styles of individual decision makers play an important role in developing differential expectations.

Information Sources and Active Search The second and third factors in creating differential expectations are the source and type of information each of the decision makers is exposed to and his participation in the active search. Purchasing agents receive disproportionately greater exposure to commercial sources, and the information is often partial and biased toward the supplier or the brand. In some companies, it is even a common practice to discourage sales representatives from talking directly to the engineering or production personnel. The engineering and production personnel, therefore, typically have less information and what they have is obtained primarily from professional meetings, trade reports, and even word-of- mouth. In addition, the active search for information is often relegated to the purchasing agents because it is presumed to be their job responsibility. Perceptual Distortion A fourth factor is the selective distortion and retention of available information. Each individual strives to make the objective information consistent with his own prior knowledge and expectations by systematically distorting it. For example, since there are substantial differences in the goals and values of purchasing agents, engineers, and production personnel, one should expect different interpretations of the same information among them. Satisfaction with Past Purchases The fifth factor which creates differential expectations among the various individuals involved in the purchasing process is the satisfaction with past buying experiences with a supplier or brand. Often it is not possible for a supplier or brand to provide equal satisfaction to the three parties because each one has different goals or criteria. For example, a supplier may be lower in price but his delivery schedule may not be satisfactory. Similarly, a product’s quality may be excellent but its price may be higher than others. The organization typically rewards each individual for excellent performance in his specialized skills, so the purchasing agent is rewarded for economy, the engineer for quality control, and the product ion personnel for efficient scheduling. This often results in a different level of satisfaction for each of the parties involved even though the chosen supplier or brand may be the best feasible alternative in of overall corporate goals.

Determinants of t vs. Autonomous Decisions Not all industrial buying decisions are made tly by the various individuals involved in the purchasing process. Sometimes the buying decisions are delegated to one party, which is not necessarily the purchasing agent. It is, therefore, important for the supplier to know whether a buying decision is t or autonomous and, if it is the latter, to which party it is delegated. There are six primary factors which determine whether a specific buying decision will be t or autonomous. Three of these factors are related to the characteristics of the product or service and the other three are related to the characteristics of the buyer company . Product-Specific Factors The first product-specific variable is perceived risk in buying decisions. 1 Perceived risk refers to the magnitude of adverse consequences felt by the decision maker if he makes a wrong choice, and the uncertainty under which he must decide. The greater the uncertainty in a buying situation, the greater the perceived risk. The second product-specific factor is type of purchase. If it is the first purchase or a once-in- alifetime capital expenditure, one would expect greater t decision making. On the other hand, if the purchase decision is repetitive and routine or is limited to maintenance products or services, the buying decision is likely to be delegated to one party. The third factor is time pressure. If the buying decision has to be made under a great deal of time pressure or on an emergency basis, it is likely to be delegated to one party rather than decided tly. Company-Specific Factors The three organization-specific factors are company orientation, company size, and degree of centralization. If the company is technology oriented, it is likely to be dominated by the engineering people and the buying decisions will, in essence, be made by them. Similarly, if the company is production oriented, the buying decisions will be made by the production personnel. Second, if the company is a large corporation, decision making will tend to be t. Finally, the greater the degree of centralization, the less likely it is that the decisions will be t. Thus, a privately-owned small company with technology or production orientation will tend

toward autonomous decision making and a large-scale public corporation with considerable decentralization will tend to have greater t decision making. Process of t Decision Making The major thrust of the present model of industrial buying decisions is to investigate the process of t decision making. This includes initiation of the decision to buy, gathering of information, evaluating alternative suppliers, and resolving conflict among the parties who must tly decide. The decision to buy is usually initiated by a continued need of supply or is the outcome of longrange planning. The formal initiation in the first case is typically from the production personnel by way of a requisition slip. The latter usually is a formal recommendation from the planning unit to an ad hoc committee consisting of the purchasing agent, the engineer, and the plant manager. The information-gathering function is typically relegated to the purchasing agent. If the purchase is a repetitive decision for standard items, there is very little information gathering. Usually the purchasing agent s the preferred supplier and orders the items on the requisition slip. However, considerable active search effort is manifested for capital expenditure items, especially those which are entirely new purchase experiences for the organization. The most important aspect of the t decision-making process, however, is the assimilation of information, deliberations on it, and the consequent conflict which most t decisions entail. According to March and Simon, conflict is present when there is a need to decide tly among a group of people who have, at the same time, different goals and perceptions. In view of the fact that the latter is invariably present among the various parties to industrial buying decisions, conflict becomes a common consequence of the t decision-making process; the buying motives and expectations about brands and suppliers are considerably different for the engineer, the , and the purchasing agent, partly due to different educational backgrounds and partly due to company policy of reward for specialized skills and viewpoints. Conflicts and how they can be solved If the inter-party conflict is largely due to disagreements on expectations about the suppliers or their brands, it is likely that the conflict will be resolved in the problem-solving manner. The immediate consequence of this type of conflict is to actively search for more information,

deliberate more on available information, and often to seek out other suppliers not seriously considered before. The additional information is then presented in a problem-solving fashion so that conflict tends to be minimized. If the conflict among the parties is primarily due to disagreement on some specific criteria with which to evaluate suppliers—although there is an agreement on the buying goals or objectives at a more fundamental level—it is likely to be resolved by persuasion. An attempt is made, under this type of resolution, to persuade the dissenting member by pointing out the importance of overall corporate objectives and how his criterion is not likely to attain these objectives. There is no attempt to gather more information. However, there results greater interaction and communication among the parties, and sometimes an outsider is brought in to reconcile the differences. Finally, if the disagreement is not simply with respect to buying goals or objectives but also with respect to style of decision making, the conflict tends to be grave and borders on the mutual dislike of personalities among the individual decision makers. The resolution of this type of conflict is usually by politicking and back-stabbing tactics. Such methods of conflict resolution are common in industrial buying decisions. The reader is referred to the sobering research of Strauss for further discussion. 1 Both bargaining and politicking are nonrational and inefficient methods of conflict resolution; the buying organization suffers from these conflicts. Furthermore, the decision makers find themselves sinking below their professional, managerial role. The decisions are not only delayed but tend to be governed by factors other than achievement of corporate objectives. Critical Role of Situational Factors The model described so far presumes that the choice of a supplier or brand is the outcome of a systematic decision-making process in the organizational setting. However, some of the industrial buying decisions are determined by situational factors and not by any systematic decision-making process. In other words, similar to consumer behavior, the industrial buyers often decide on factors other than rational or realistic criteria.

It is difficult to prepare a list of conditions which determine industrial buyer behavior without decision making. However, a number of situational factors which often intervene between the actual choice and any prior decision-making process can be isolated. These include: temporary economic conditions such as price controls, recession, or foreign trade; internal strikes, walkouts, machine breakdowns, and other production-related events; organizational changes such as merger or acquisition; and changes in the market place, such as promotional efforts, new product introduction, price changes, and so on, in the supplier industries. Implications for Industrial Marketing Research The model of industrial buyer behavior described above suggests the following implications for marketing research. First, in order to explain and predict supplier or brand choice in industrial buyer behavior, it is necessary to conduct research on the psychology of other individuals in the organization in addition to the purchasing agents. It is, perhaps, the unique nature of organizational structure and behavior which leads to a distinct separation of the consumer, the buyer, and the procurement agent, as well as others possibly involved in the decision-making process. In fact, it may not be an exaggeration to suggest that the purchasing agent is often a less critical member of the decision-making process in industrial buyer behavior. Second, it is possible to operationalize and quantify most of the variables included as part of the model. While some are more difficult and indirect, sufficient psychometric skill in marketing research is currently available to quantify the psychology of the individuals.

Third, although considerable research has been done on the demographics of organizations in industrial market research, for example, on the turnover and size of the company, workflows, standard industrial classification, and profit ratios, demographic and life-style information on the individuals involved in industrial buying decisions is also needed. Fourth, a systematic examination of the power positions of various individuals involved in industrial buying decisions is a necessary condition of the model. The sufficient condition is to examine trade-offs among various objectives, both explicit and implicit, in order to create a

satisfied customer. Fifth, it is essential in building any market research information system for industrial goods and services that the process of conflict resolution among the parties and its impact on supplier or brand choice behavior is carefully included and simulated. Finally, it is important to realize that not all industrial decisions are the outcomes of a systematic decision-making process. There are some industrial buying decisions which are based strictly on a set of situational factors for which theorizing or model building will not be relevant or useful. What is needed in these cases is a checklist of empirical observations of the ad hoc events which vitiate the neat relationship between the theory or the model and a specific buying decision.