Choice criteria, an aspect of industrial buyer behavior, refers to the criteria used by members of the DMU to evaluate supplier proposals.
These criteria are likely to be determined by the performance criteria used to evaluate the members themselves. Thus purchasing managers who are judged by the extent to which they reduce purchase expenditure are likely to be more cost conscious than production engineers, who are evaluated in terms of the technical efficiency of the production process they design.
As with consumers, organizational buyingOpens in new window is characterized by technical, economic, social (organizational) and personal criteria. Key considerations may be, for plant and equipment, return on investment, while for materials and components parts they may be cost savings, together with delivery reliability, quality and technical assistance.
Because of the high costs associated with production downtime, a key concern of many purchasing departments is the long-run development of the organization’s supply system.
Personal factors may also be important, particularly when supplier’s product offerings are essentially similar. In this situation the final decision may rest upon the relative liking for the supplier’s salesperson.
The Xerox advertisement illustrates the importance of economic (pennies a page), technical (products to fit every need) and personal (risk reduction through the offer of a guarantee) choice criteria.
Customer’s choice criteria can change in different regions of the world. For example, Xerox is generally known as a company that provides solutions for creating documents.
In the West, when choosing a printer, a consumer considers the print quality and how easy the machine is to network and update. In eastern Europe other choice criteria prevail. Networking and servicing are not issues that are considered very much, rather value for money is the key.
The consumer attitude is: ‘I can buy a Xerox, or I can buy a Canon and a car.’ The marketing task for Xerox is to reduce the consumer’s price sensitivity by stressing its reliability, quality after-sales service, wide range of suppliers and medium to long-term value for money.
What are the range of motives that key players in organizations use to compare supplier offerings?
Economic considerations play a part because commercial firms have profit objectives and work within budgetary constraints.
Emotional factors should not be ignored, however, as decisions are made by people who do not suddenly lose their personalities, personal likes and dislikes and prejudices simply because they are at work. Let us examine a number of important technical and economic motives (quality, price and life-cycle costs, and continuity of supply) and then some organizational and personal factors (perceived risk, office politics, and personal liking/disliking).
The emergence of total quality management as a key aspect of organizational life reflects the importance of quality in evaluating supplier’s products and services.
Many buying organizations are unwilling to trade quality for price. For example, the success of Intel was not based on price but reliable, ever-faster microprocessors for PCs and servers.
In particular, buyers are looking for consistency of product or service quality so that end products (e.g. motor cars) are reliable, inspection costs are reduced and production processes run smoothly. They are installing just-in-time delivery systems, which rely upon incoming supplies being quality guaranteed.
Price and Life-cycle Costs
For materials and components of similar specification and quality, price becomes a key consideration. For standard items such as ball-bearings, price may be critical to making a sale given that a number of suppliers can meet delivery and specification requirements.
The power of large buying organizations also means that they have the power to squeeze suppliers for tighter terms. For example, Marks & Spencer, in its drive to reduce costs, demanded a 10 per cent cut in all suppliers’ prices.
Tesco, the UK supermarket chain, also demanded price cuts from 12 suppliers including Unilever after it found that they were giving better terms to Hit—a Polish supermarket chain with 12 stores—which Tesco had recently bought. However, it should not be forgotten that price is only one component of cost for many buying organizations.
Increasingly buyers take into account “life-cycle costs”, which may include productivity savings, maintenance costs and residual values as well as initial purchase price when evaluating products. Marketers can use life-cycle costs analysis to break into an account. By calculating life-cycle costs with a buyer, new perceptions of value may be achieved.
Continuity of Supply
Another major cost to a company is disruption of a production run. Delays of this kind can mean costly machine downtime and even lost sales. Continuity of supply is, therefore, a prime consideration in many purchase situations.
Companies that perform badly on this criterion lose out even if the price is competitive because a small percentage price edge does not compare with the costs of unreliable delivery.
Supplier companies that can guarantee deliveries and realize their promises can achieve a significant differential advantage in the marketplace. Organizational customers are demanding close relationships with accredited suppliers that can guarantee reliable supply, perhaps on a just-in-time basis.
Perceived risk can come in two forms: functional risk such as uncertainty with respect to product or supplier performance, and psychological risk such as criticism from work colleagues. This latter risk—fear of upsetting the boss, losing status, being ridiculed by others in the department, or, indeed, losing one’s job—can play a determining role in purchase decisions.
Buyers often reduce uncertainty by gathering information about competing suppliers, checking the opinions of important others in the buying company, buying only from familiar and/or reputable suppliers and by spreading risk through multiple sourcing. Mercedes reduces perceived risk by communicating its reputation, built over more than 100 years, which results in trucks that can be trusted.
Political factions within the buying company may also influence the outcome of a purchase decision. Interdepartmental conflict may manifest itself in the formation of competing camps over the purchase of a product or service. Because department X favors supplier 1, department Y automatically favors supplier 2. The outcome not only has purchasing implications but also political implications for the departments and individuals concerned.
A buyer may personally like one salesperson more than another and this may influence supplier choice, particularly when competing products are very similar.
Even when supplier selection is on the basis of competitive bidding, it is known for purchasers to help salespeople they like to be competitive. Obviously perception is important in all organizational purchases as how someone behaves depends upon the perception of the situation. One buyer may perceive a salesperson as being honest, truthful and likeable while another may not. As with consumer behaviorOpens in new window, three selective processes may be at work on buyers.
- Selective attention: only certain information sources may be sought.
- Selective distortion: information from those sources may be distorted.
- Selective retention: only some information may be remembered.
In general, people tend to distort, avoid and forget messages that are substantially different to their existing beliefs and attitudes.
The implications of understanding the content of the decision are that appeals may need to change when communicating to different DMU members: discussion with a production engineer may centre on the technical superiority of the product offering, while much more emphasis on cost factors may prove effective when talking to the purchasing officer.
Orange, the mobile phone operator, recognized the need to change communication when talking to different members of the DMU in business-to-business markets. When talking to information technologists Orange talks technology because that is what they expect. However, for non-technical people, such as accountants and users of the equipment, the message is kept much simpler and focuses on how more effective phone use can boost productivity.
Furthermore, the criteria used by buying organizations change over time as circumstances change. Price may be relatively unimportant to a company when trying to solve a highly visible technical problem, and the order will be placed with the supplier that provides the necessary technical assistance. Later, after the problem has been solved and other suppliers become qualified, price may be of crucial significance.