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INDUSTRIAL BUYER BEHAVIOUR. 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. INDUSTRIAL BUYER BEHAVIOUR. The Industrial Buying Process

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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





  • 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


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

- producers and manufacturers- trade industries (wholesalers and retailers)- governments

3 types

of industrial markets

Page 161

producers and manufacturersThose who transform goods and services, through production, into other goods and services

manufacturing firms (eg. Auto parts, computers)


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

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

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

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


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


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

industrial market features
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


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

naics north american industry classification system
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


NAICSNorth American Industry Classification System

Industrial Market Demand

1. Derived Demand

2. Joint Demand

3. Inventory Adjustments

4. Demand Variability


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


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


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


Industrial Market Demand

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

page 166


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


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


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


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
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

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

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

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


Buying Centre Roles

1. Users

2. Gatekeepers

3. Influencers

4. Deciders

5. Buyers

Page 171


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


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


A Model of the Industrial Buying Process

Delineation of Suppliers

- collect information on potential suppliers


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


A Model of the Industrial Buying Process


- usually done in trade magazines and newsletters


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


A Model of the Industrial Buying Process

  • Word of Mouth
  • Personal and interpersonal influences
  • Review of Internal Proposals

Page 173

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 !

Government buying of products and services is 52% of Canada’s GDP

therefore selling to the government is important business

Government Markets

Page 174


price quotations from potential suppliers


Specific descriptions of the items

in many situations, this information is extremely detailed

Government Markets

Page 174

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