Buy-Grid model Essay
An important job of the purchasing agent is to evaluate potential suppliers and their offerings. The effects of purchasing on a firm’s competitive ability are great, so companies pay close attention to how they evaluate suppliers. Marketers must also understand the process, for them the ones being evaluated. Understand the process is like understand the rules of any games; if you don’t know how to score, you are unlikely to win.
The buy-grid model is a version of a theory developed as a general model of rational organization decision making, explain how companies make decisions about, for example, where to locate a plant or make a purchase. The buy grid model has two parts: the buy-phase model and the buy class.
The buy-phase model in a management class as the rational or extensive problem solving model or in consumer behavior as high-involvement model. Buy -phase model suggests that people go through a series of steps (or phrases) when making a decision, beginning with problem recognition. Then they search for alternatives, evaluate alternatives, and select a solution, which are them implemented and evaluated.
For example, when an organization needs new office space, crowded conditions help force recognition of the need. The next step is to define the type of product needed: Does the organization want to build a new office building, add on to an existing building, or simply find a larger place to rent or buy? As the organization continues to examine its needs, detailed specifications such as the size and number of offices are created. If the decision in the second step was to build on, an architect would help create specifications drawing plans.
Then suppliers would be contracted, included those recommended by architect. Step 5, acquisition and analysis of proposals, involves receiving and reviewing bids from each contractor. The architect and the executives would meet, evaluate the proposals, and select a contractor (step 6). Step 7 involves the creations of a contract specifying when the building will be completed, what it will look like, and when the payment will be made. Evaluation begins as the project begins, but continues well after the organization moves in.
As observers of buying behavior quickly realized, many organizational purchase decisions do not involve that much work or include each and every step every time. A second element, the buy-class, was added, resulting in the grid. Buy-class refers to the type of buying decision, based on the experience of the buyer with a purchase of a particular product or service.
Organizational researchers realized that once a decision was made, products were bought automatically over and over; recognizing a problem simply mean recognizing that the company is low in an item and needs to order more. The complete process was used only for new buys, products or services never purchased before. Automatic purchasing described what happen with straight rebuys, and only two steps were required. These steps are need recognition and placing an order.
At other times, however, a product or service would be bought again but not automatically. When a company was contemplating a rebuy but wanted to shop around, the process will be included most or perhaps all of the steps – hence the term modified re-buys. In this instance, the process may involve need recognition, an evaluation of suppliers, and a decision – a process that can be similar to a new buy. The difference is not in the number of steps but in the amount and type of information that must be collected before a purchase can be made. Modified rebuys can also be similar to straight re-buys or new buys, depending on the specific of the situation.
In a new buy, the buyer has no experience with the product or service and must be educated about the product or service to make a purchase. In a modified re-buy, the buyer has purchased the product or service before. There, the buyer will not spend time on education about the product itself, but the various vendors and their offerings as the buyer shops around. The buy grid model, therefore describe how purchasing practices vary along a continuum depending on the buyer’s experience in buying that particular product or service.
Value analysis is one situation that can turn a straight rebuy into a modified rebuy. When a company is closely evaluating a particular part, one question that is asked is if the part is available elsewhere for less. As the answer is sought to this question, out-suppliers (those suppliers who products are not considered in a straight re rebuy) are given the opportunity to earn business. In-suppliers (those suppliers whose products are ordered automatically in a straight rebuy) must prove value or create new value by redesigning their offerings. Thus, the purchase moves from being a straight rebuy to a modified rebuy.
Buy-Grid and Marketing Practice
The theory suggests that more information is needed by the buyer to make a new buy than when making a modified rebuy, and almost no information is needed for a straight rebuy. To use this model, a company would look at the degree to which a market is buying a product for the first time. If most of the market is buying the product for the first time, method of communication such as personal selling may be used in order to provide the most information. Advertising would contain a lot of detailed copy that described the benefits and how the product worked. Over-time, as the market grows more familiar with the product, less educational methods of communicating may be used, such as catalogs.
Another marketing implication is thatan in-supplier would like purchases of its products to be straight rebuys. Annual contracts are one method of creating straight rebuys. For example, Xerox offers its customers an annual supply contract. Each time a department is low in copier supplies, the purchasing department orders automatically from Xerox, perhaps using EDI. Out-suppliers would be locked out until the next time the contract comes up for review.
Recently, research has found that marketers who get involved early in the decision process are more likely to be successful. In part, this higher probability of success is due to greater understanding of the buyer’s needs, an opportunity to help shape those needs, and a better understanding of the process. The lower probability of success when starting later in the process is also due to the fact that buyers become committed to a course of action over the process of making the decision, and that course often leans towards alternatives presented early in the process.
When buyers don’t have experience, marketing strategies can provide buyers with the information they need to make a decision. Marketers consider how buyers use that information to be very important.