BM/U1 Topic 6 Organizational Market Environment: Buyer Seller Relationship
Buyers and sellers in mature industrial markets can turn single transactions into long-term beneficial relationships by a deeper understanding of the complex connection between the two.
A “must-do” for the sellers, in particular, is to understand patterns of investment and reward, and effectively manage the process that defines the dynamics of buyer-seller evolution.
The buyer is the person or organization that purchases products from suppliers. A buyer could be a manufacturer purchasing raw materials a customer buying a finished product from a retailer. The relationship between the buyer and seller can be either short term (one off or low commitment purchases) or long term, involving regular purchases based on established agreements.
Both short term and long term buyer and seller relationships have advantages and disadvantages. Short term relations can be useful when a degree of flexibility is required. For example, short term agreements give the buyer the option to switch suppliers for their next purchase.
They can also be beneficial in markets where the prices of materials are volatile and long term commitments are not appropriate. The high level of competition to win short term contracts can also provide opportunities for price discounting and special deals to be done.
However, short term arrangements also have their disadvantages. They generally provide little scope for payment and order flexibility. For example, a new supplier on a short term agreement will want a definite order and prompt payment.
There is no trust built up over time between parties, so building Buyer and Seller Relations the opportunity to share market information is also reduced.
There are many advantages that come as a result of building strong buyer and seller relations over a period of time. There is a greater commitment from both groups which means that you will be better able to rely on them when it comes to orders and payments.
There may also be more scope for discounts after the relationship is established and there may be more flexibility in the timing of payments. Trust between the buyer and seller is developed over time and this may allow for the sharing of information, forecasts, knowledge and customers between the buyer and seller.
However, long term buyer and seller relationships generally involve a high level of commitment and work to maintain. Entering into long term contracts may be involved so it is important to have accurate forecasts about the future performance and needs of both businesses.
Supply chain partnerships can be formed between organizations to provide a level of stability and encourage long term commitment from different parties towards achieving results.
Three critical aspects of supply chain partnerships are: recognizing opportunities that would benefit from a partnership, selecting the right partners and meeting your requirements as a partner.
Generally, most organizations will have a balance of both long term and short term relationships with their buyers and sellers. This balance can provide some of the benefits of both, while also reducing the amount of associated risks potential problems.
Buyer and Sales Representative Interaction:
The most important part of buyer-seller relationship is the interaction between a representative of the buying organization (buyer) and a representative of the selling organization (sales representative or sales representative).
There are many other persons from both the organizations involved in the relationship, but the basic building block of the relationship is based on buyer and sales rep’ interactions. When the buyer and the sales representative meet, the nature of their interactions depend upon their roles, behavior and perceptions.
Buyer’s Perception of Sales Representative:
There are two major perceptions held by buyers of sales representatives. One is the stereotypical description of the sales reps, as “talkative”, “easy going”, “manipulative”, “competitive”, “optimistic”, and “excitable”.
An industrial buyer, who does not have previous experience with a particular sales representative, may respond to the sales representative in terms of the stereotype which he has of sales representative in the general.
The second major perception of the buyer depends on the reputation of the company which a sales representative represents.
Generally, the sales representative of a company with better reputation always gets a more favourable initial response from the industrial purchasers. For example – a sales engineer working with a reputed company like Larsen & Toubro (L&T), often got a positive response from the industrial customers.
However, when the same sales engineer changes the job to a less reputed company, as a sales executive, the response was not encouraging, as he had to wait for a long time before he was called in for discussions.
The Role Played by Industrial Buyer:
An analysis of industrial buyer behaviour indicates that personal needs, interaction in the buying centre, an organizational objectives (or needs) determine the response of a buyer to the selling efforts by a sales rep.
For example – an industrial buyer may be motivated by a personal need for salary increment and promotion in his job, and also by a social or organizational need to satisfy the user department. A buying decision may allow the buyer to satisfy both the sets of needs.
The specific personal and social needs will decide:
(i) Whether the buyer meets with a sales rep,
(ii) Which parts of sales rep’s presentation he listens,
(iii) The influence of sales presentation on his decision to buy.
Conceptual Framework of Buyer Seller Interaction:
Both the style and content of buyer-seller communication are determined by a number of personal, organizational and product-related factors. For example – the personal life styles and backgrounds will often determine the style of communication the buyer or the seller chooses to engage in.
Similarly, organizational training and orientation will also mould the buyer or the seller with respect to the style of communication he is expected to engage in. Finally, the content of communication is likely to be determined by product-related variables such as market motivations, buyer and seller plans and technology or competitive structure of industry.
While it is obvious that any incompatibility with respect to what the buyer wants and what the seller offers in a product or service will be detrimental to consummating a sale, it is more interesting and useful to identify dimensions and sources of content incompatibility.
Based on a recent model of individual choice behavior it is proposed that underlying buyer- seller expectations about a product or service, there lies a five dimensional utility space. The five dimensions represent different types of product-related utilities which the buyer desires and the seller offers to each other.
Each type of utility is briefly described below:
- Functional Utility:
It represents products utility which is strictly limited to its performance and which defines the purpose of its existence and classification as a type of good or service. For example – the functional utility associated with an instant breakfast can be described in terms of taste, convenience, nutrition and calories.
Similarly, the functional utility associated with a passenger car tire can be defined in terms of mileage, blow out protection, traction, handling and ride. The functional utility is often measured in terms of a person’s expectations on a number of product- anchored attributes or evaluative criteria.
It is presumed to be a complex function of positive and negative expectations on multi-attribute profiles. We treat functional utility as one dimension of product utility and ignore for a moment the question of its own dimensionality.
- Social-Organizational Utility:
Sometimes a product or service acquires social-organizational connotations or imageries independent of its performance or functional utility. This is due to its consistent identification with a selective set of socioeconomic, demographic or organizational types.
Such identification with a selective cross-section of household or organizational buyers tends to impute certain utilities or disutility in the product or service producing imagery or a stereotype. For example, cigarettes are often consumed due to their social imagery even though they may be functionally harmful.
Certain products are, therefore, used for their prestige and not so much their performance. The existence of social-organizational utility in a product or service is also prevalent in organizational buyer behavior especially with respect to those products and services which are directly associated with the organization man.
This is not surprising in view of the fact that there exists an organizational stratification of people working in organizations comparable to social stratification of households based on organization structure, hierarchy and power distribution.
- Situational Utility:
It represents a product’s utility which is derived from existence of a set of situations or circumstances. The product or service has no intrinsic or independent utility and will not be offered or bought without the presence of circumstances which create its need.
The situational, utility is often strong among those products or services which are consumed on an ad hoc basis rather than on a continuous basis. For example – the utilization of the services of the priest for marriage ceremony or the lawyer for divorce proceedings tends to be non-repetitive by and large.
Similarly, a housewife may buy a product or service as a gift item due to a very specific situation or occasion such as graduation or marriage. Organizations often tend to use the services of professionals on an ad hoc basis because of a specific project.
Many of the capital expenditure items and highly specialized professional skills have greater degree of situational utility in them. It is extremely important to identify situations and activities which add to the utility of the product or service.
- Emotional Utility:
Sometimes a product or service evokes strong emotive feelings such as respect, anger, fear, love, hate or aesthetics due to its association with some other objects, events, individuals or organizations.
The strong emotive feelings are therefore generalized to the product or service resulting in a different type of utility or disutility. For example – some Jewish buyers tend to refrain from buying German products because of strong emotional feelings they arouse as reminders of the German Nazi movement.
Similarly, many Hindus refrain from eating beef due to strong emotive feelings anchored in religious tenets. While one would expect less prevalence of emotive utility in organizational products or services than in household products or services, this is not borne out by empirical research. Organizations also tend to manifest emotive behavior as is evidenced in international trade and cross-national negotiations.
- Curiosity Utility:
The fifth type of utility often present in both household and organizational products and services is related to novelty, curiosity and exploratory needs among individuals. Based on the assumption man constantly seeks out new, different things due to either satiation with existing behavior or due to boredom inherent in highly repetitive tasks, certain new products or services acquire additional utilities which are not intrinsic to their performance.
These products or services are both offered and sought largely due to their novelty and to satisfy a person’s curiosity arousal. They have a very short life cycle and often degenerate as fads or fashions.
Style of Interpersonal Relationships:
The vast literature on group dynamics and interpersonal relationships in small groups provides an excellent source to discuss the concept of style of interaction. It refers to the format, ritual and mannerism involved in buyer-seller interaction.
While we will rely heavily on research in group dynamics, it is important to keep in mind that the dimensionalities of style of interaction discussed here are common to non-personal interactions such as via telecommunication or postal systems. The style of interaction is presumed to be three dimensional.
The specific dimensions are described below:
- Task-Oriented Style:
This style of interaction is highly goal oriented and purposeful. The individual is most interested in the efficiency with which the task at hand can be performed so as to minimize cost effort and time.
Any activity during the interaction process which is either not task-oriented or inefficient is less tolerated by the individual who prefers the task-oriented style. The buyer or the seller who prefers this style of interaction often tends to be mechanistic in his approach to other people.
- Interaction-Oriented Style:
The buyer or the seller who prefers this style of interaction believes in personalizing and socializing as an essential part of the interaction process. In fact, preference for this style of interaction is often manifested at the loss or ignoring of the task at hand.
The buyer or the seller motivated by the interaction-oriented style is often compulsive in first establishing a personal relationship with the other person and then only getting involved in the specific content of interaction.
- Self-Oriented Style:
This style reflects a person’s preoccupation with himself in an interaction situation. He is more concerned about his own welfare and tends to have less empathy for the other person.
He is often unable to take the other person’s perspective and views all aspects of interaction from his own selfish point of view. The concepts of self-preservation, self-survival and self-emulation tend to dominate this style of interaction.