The Internet´s influences on industrial buying behavior in small and medium sized enterprises

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MASTER’S THESIS

Luis Dalmau Bayle

The Internet’s Influences

on Industrial Buying Behavior in Small and Medium Sized Enterprises

MASTER OF SCIENCE PROGRAMME Department of Business Administration and Social Science

Division of Industrial Marketing

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Acknowledgements

This study was written during the first semester of 2003 and it represents the final thesis of my degree of Industrial Engineering in the speciality of Management. After five years studying in Barcelona, the end of my studies arrives here, in Luleå Tekniska Universitet, where I have been studying as an exchange student and I would like to thank the following people.

First of all I would like to thank my supervisor Lars Bäckström, for great help and support while writing this thesis. I would also like to thank Josep Suñé at Chapa Perforada S.A., Xavier Vázquez at Liberduplex S.A. and Joan Bosch at FISA Iberica Productos S.L. who very helpfully provided me valuable information about the companies and kindly helped me in my research.

I also would like to mention all my friends I have met here in Luleå, who have been very important for making these months unforgettable, and giving me a strong support.

Finally, on a personal level, I would also thank my parents for giving me the possibility of finishing my degree abroad and for their support. I am also grateful to all my friends of Barcelona, who convinced me of the convenience of coming here.

Luleå, June 2003 Luis Dalmau Bayle

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Abstract

The understanding of the behaviour of organizations when buying is of paramount importance to the industrial marketer. Since the explosion of the use of the Internet, things are changing rapidly, not only in everyday life but also in the companies’

behaviour.

Then, this study’s purpose is to see how the companies are adapting to improve their business using the Internet.

The study is carried in the area of Industrial Marketing specifically in the field of Industrial Buying Behaviour. The objective of this work is to investigate and find how the Industrial Buying Behaviour and its components has changed due to the introduction of the Internet.

To carry on the study I focused on Small and Medium Enterprises (SME’s) from my country of origin, Catalonia; with a study of three companies I could investigate how everything was changing.

The Buying Process seems to have not many significant changes due to the introduction of the Internet, since all the steps taken previously are still present. The most important difference is that this new source of information has replaced in most cases the traditional ways of finding new suppliers.

In the Buying Center the roles have not changed but it seems to be more influencers since more people have access to the information, and the gatekeeper is losing importance since all the information is on the Internet. Regarding to the factors affecting the Buying Process, the most significant factors are still price, quality and technical capability. The factors for selecting a supplier are the same but geographical location is losing importance since the introduction of the Internet because many far away suppliers are found, that can compete with local ones in order to reduce costs.

Moreover, although the managers state that the Internet availability is not a factor for selecting a supplier, in some cases a supplier has been preferred due to this reason.

To sum up, some changes can be seen but it is still early to see how everything will be established when the companies adapt the Internet at all levels, it will be interesting to carry a similar study in some years from now.

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INDEX

INDEX ... 3

LIST OF TABLES AND FIGURES... 6

1 INTRODUCTION... 9

1.1 Background...10

1.1.1 Industrial Buying Behaviour ...10

1.1.2 The Internet and the World Wide Web ...12

1.1.3 Small and Medium-Sized Enterprises (SME’s) ...13

1.1.4 Other Concepts...14

1.2 Problem Area...16

2. LITERATURE REVIEW... 17

2.1 Industrial Buying Behaviour...17

2.1.1 The Buying Process...17

2.1.2 The Buying Center ...20

2.1.3 Other Factors Affecting the Buying Process and the Buying Center...22

2.1.4 Selection criteria...23

3 FRAME OF REFERENCE... 26

4 METHODOLOGY... 28

4.1 Research Approach ...28

4.2 Research Strategy...29

4.3 Sample Selection...29

4.4 Data Collection. ...30

4.5 Data analysis. ...32

4.6 Quality Standards: Validity and Reliability. ...32

4.7 Summary. ...33

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5 DATA PRESENTATION... 34

5.1 Introduction ...34

5.2 Case One: Chapa Perforada S.A. ...34

5.2.1 General information about the company. ...34

5.2.2 General information about the purchasing area ...35

5.2.3 Internet use in Chapa Perforada S.A. ...35

5.2.4 Products studied. ...36

5.2.6 Buying Center ...38

5.2.7 Factors affecting the Buying Process ...39

5.3 Case Two: Liberduplex S.A. ...41

5.3.1 General information about Liberduplex S.A...41

5.3.3 Internet use in Liberduplex S.A. ...42

5.4 Case three: FISA Iberica Productos S.L. ...47

5.4.1 General information about the company...47

5.4.3 Internet use in FISA Iberica Productos S.L. ...48

6 DATA ANALYSIS... 52

6.2 Within-case analysis: Chapa Perforada S.A...52

6.2.1 RQ1: How can the Buying Process be described under the influence of the Internet in Chapa Perforada S.A. case?...52

6.2.2 RQ2: How can the Buying Center be described under the influence of the Internet in the Chapa Perforada S.A. case...54

6.2.3 RQ3: Which are the most significant factors affecting a Buying Process and Buying Center in SME’s when the Internet appeared? ...55

6.3 Within-case analysis: Liberduplex S.A. ...57

6.3.1 RQ1: How can the Buying Process be described under the influence of the Internet in Liberduplex S.A. case? ...57

6.3.2 RQ2: How can the Buying Center be described under the influence of the Internet in Liberduplex S.A. case...59

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6.3.3 RQ3: Which are the most significant factors affecting a Buying Process and

Buying Center in SME’s when the Internet appeared? ...60

6.4 Within-case analysis: FISA Iberica Productos S.L. ...61

6.4.1 RQ1: How can the Buying Process be described under the influence of the Internet in FISA Iberica Productos S.L. case? ...61

6.4.2 RQ2: How can the Buying Center be described under the influence of the Internet in FISA Iberica Productos S.L. case? ...63

6.4.3 RQ3: Which are the most significant factors affecting a Buying Process and Buying Center in FISA Iberica Productos S.L. when the Internet appeared?...63

6.5 Cross-case Analysis ...65

6.5.2 The Buying Center ...65

6.5.3 Factors affecting the Buying Process and the Buying Center...66

7 CONCLUSIONS... 67

7.2 Overall Conclusions ...67

7.2.1 RQ1: How can the Buying Process in SME’s be described under the influence of the Internet? ...67

7.2.2 RQ2: How can the Buying Center in SME’s be described under the influence of the Internet?...68

7.2.3 RQ3: Which are the most significant factors affecting a Buying Process and Buying Center in SME’s concerning the purchase when the Internet appeared? ...68

7.3 Implications for Managers. ...69

7.4 Suggestions for further research...69

LIST OF REFERENCES... 70

APPENDICES... 75

APPENDIX A: SME DEFINITIONS ... 75

APPENDIX B: GLOSSARY ... 79

APPENDIX C: INTERVIEW GUIDE ... 87

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LIST OF TABLES AND FIGURES

TABLE 2.1 THE BUYGRID ANALYTIC FRAMEWORK FOR INDUSTRIAL BUYING SITUATIONS……..…18

TABLE 2.2 DICKSON’S VENDOR SELECTION CRITERIA………...24

TABLE 2.4 DISTINGUISH CHARACTERISTICS OF BUYING SITUATIONS………..20

TABLE 4.1 RELEVANT SITUATIONS FOR DIFFERENT RESEARCH STRATEGIES, YIN (1994) P.6……….29

TABLE 4.2 SIX SOURCES OF EVIDENCE: STRENGTHS AND WEAKNESS, YIN (1994) P.80……….31

FIGURE 4.3 LINE OF THINKING OF THE RESEARCH METHODOLOGY………..33

FIGURE 5.1 CHAPA PERFORADA S.A ORGANIZATIONAL CHART.……….…35

TABLE 5.1 USE OF INTERNET IN CHAPA PERFORADA S.A. ……….…36

TABLE 5.2 INTERNET INFLUENCE IN THE DIFFERENT BUYCLASSES OF CHAPA PERFORADA S.A…..36

TABLE 5.3 STEPS IN THE BUYING PROCESS OF A NEW TASK PURCHASE IN CHAPA PERFORADA S.A………..37

TABLE 5.4 STEPS IN THE BUYING PROCESS OF A STRAIGHT-REBUY PURCHASE IN CHAPA PERFORADA S.A.……….... 38

TABLE 5.5 STEPS IN THE BUYING PROCESS OF A MODIFIED-REBUY PURCHASE IN CHAPA PERFORADA S.A………..38

TABLE 5.6 PEOPLE INVOLVED AND THEIR GRADE OF INVOLVEMENT IN THE BUYING CENTER IN CHAPA PERFORADA S.A...………...38

TABLE 5.7 ROLES IN THE BUYING CENTER IN CHAPA PERFORADA S.A……….39

TABLE 5.8 DIMENSIONS OF THE BUYING CENTER IN CHAPA PERFORADA S.A……….………...39

TABLE 5.9 FACTORS AFFECTING THE BUYING PROCESS AND THE BUYING CENTER FOR CHAPA PERFORADA S.A………..40

FIGURE 5.2 LIBERDUPLEX S.A ORGANIZATIONAL CHART.………42

TABLE 5.10 USE OF INTERNET IN LIBERDUPLEX S.A………43

TABLE 5.11 INTERNET INFLUENCE IN THE BUYCLASSES IN LIBERDUPLEX S.A………...43

TABLE 5.12 STEPS IN THE BUYING PROCESS OF A NEW-TASK PURCHASE IN LIBERDUPLEX S.A……44

TABLE 5.13 STEPS IN THE BUYING PROCESS OF A STRAIGHT-REBUY PURCHASE IN LIBERDUPLEX S.A….……….…44

TABLE 5.14 STEPS IN THE BUYING PROCESS OF A MODIFIED-REBUY PURCHASE IN LIBERDUPLEX S.A………..44

TABLE 5.15 PEOPLE INVOLVED AND GRADE OF INVOLVEMENT IN THE BUYING CENTER IN LIBERDUPLEX S.A………..45

TABLE 5.16 ROLES IN THE BUYING CENTER IN LIBERDUPLEX S.A………..45

TABLE 5.17 DIMENSIONS OF THE BUYING CENTER OF LIBERDUPLEX S.A………45

TABLE 5.18 FACTORS AFFECTING THE BUYING PROCESS AND THE BUYING CENTER FOR LIBERDUPLEX S.A………..46

FIGURE 5.3 FISA IBERICA PRODUCTOS S.L ORGANIZATIONAL CHART….………..47

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TABLE 5.19 USE OF INTERNET IN THE PURCHASING DEPARTMENT IN FISA IBERICA

PRODUCTOS S.L………..48

TABLE 5.20 INTERNET INFLUENCE IN THE DIFFERENT BUYCLASSES IN FISA IBERICA

TABLE 5.21 STEPS OF THE BUYING PROCESS IN A NEW TASK PURCHASE IN FISA IBERICA

TABLE 5.22 STEPS OF THE BUYING PROCESS IN A STRAIGHT-REBUY PURCHASE IN FISA

IBERICA PRODUCTOS S.L………...………..49

TABLE 5.23 STEPS OF THE BUYING PROCESS IN A MODIFIED-REBUY PURCHASE IN FISA

IBERICA PRODUCTOS S.L……….50

TABLE 5.24 PEOPLE INVOLVED AND GRADE OF INVOLVEMENT IN THE BUYING CENTER

IN FISA IBERICA PRODUCTOS S.L………..50 TABLE 5.25 ROLES OF THE BUYING CENTER IN FISA IBERICA PRODUCTOS S.L………...50 TABLE 5.26 DIMENSIONS OF THE BUYING CENTER IN FISA IBERICA PRODUCTOS S.L………...51

TABLE 5.27 FACTORS AFFECTING THE BUYING PROCESS AND THE BUYING CENTER FOR

FISA IBERICA PRODUCTOS S.L………51

TABLE 6.1 COMPARISON OF THE BUYPHASES BETWEEN THE BUYGRID MODEL AND

CHAPA PERFORADA S.A. BUYPHASES IN A NEW TASK PURCHASE...………..52

CHAPA PERFORADA S.A. BUYPHASES IN A STRAIGHT REBUY PURCHASE...…...………..53

CHAPA PERFORADA S.A. BUYPHASES IN A MODIFIED REBUY PURCHASE..………..53

TABLE 6.4.1 ROLES OF THE BUYING CENTER IN CHAPA PERFORADA S.A IN A

NEW TASK PURCHASE………….……….54

STRAIGHT REBUY PURCHASE………...……….54

MODIFIED REBUY PURCHASE……...……….55

TABLE 6.5 FACTORS AFFECTING THE BUYING CENTER AND THE BUYING PROCESS FOR

CHAPA PERFORADA S.A………...56

LIBERDUPLEX S.A. BUYPHASES IN A NEW TASK PURCHASE..……….……….57

LIBERDUPLEX S.A. BUYPHASES IN A STRAIGHT REBUY PURCHASE………...……...….58

LIBERDUPLEX S.A. BUYPHASES IN A MODIFIED REBUY PURCHASE..……….58

TABLE 6.9.1 ROLES OF THE BUYING CENTER IN LIBERDUPLEX S.A IN A NEW

TASK PURCHASE……….………...…59

TABLE 6.9.2 ROLES OF THE BUYING CENTER IN LIBERDUPLEX S.A IN A STRAIGHT

REBUY PURCHASE………….……….………...…59

TABLE 6.9.3 ROLES OF THE BUYING CENTER IN LIBERDUPLEX S.A IN A MODIFIED

REBUY PURCHASE…….……….………...…59 TABLE 6.10 FACTORS AFFECTING THE BUYING CENTER AND THE BUYING PROCESS FOR

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FISA IBERICA PRODUCTOS S.L. BUYPHASES IN THE NEW TASK PURCHASE…...………..61

FISA IBERICA PRODUCTOS S.L. BUYPHASES IN THE STRAIGHT REBUY PURCHASE………...62

FISA IBERICA PRODUCTOS S.L. BUYPHASES IN THE MODIFIED REBUY PURCHASE………...62 TABLE 6.14 ROLES OF THE BUYING CENTER IN FISA IBERICA PRODUCTOS S.L………...63 TABLE 6.15 FACTORS AFFECTING THE BUYING CENTER AND THE BUYING PROCESS FOR

FISA IBERICA PRODUCTOS S.L………64

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1 Introduction

Nowadays Internet e-commerce is reshaping many Business Markets (Irwin, 2002). The Internet has grown phenomenally since 1995, when an estimated 20 million people were online (Godin, 1995). In fact, current estimates of total worldwide Internet users are 391 million (Nielsen Net Ratings, 2002), 445.9 million (CyberAtlas, 2002), and 605,6 million (NUA, Sept 2002) and it is predicted that one billion will be online by 2005 (NUA, 2002).

As it is getting bigger and bigger phenomena worldwide, the Internet can act as an avenue to reach new and global markets, and promises to revolutionize the dynamics of international commerce as it removes many barriers to communications with customers and employees, by eliminating the obstacles created by geography, time zones, and location (Quelch &Klein, 1996).

Online purchasing is not a minority purchasing anymore, and year by year it is increasing the number of online transactions, due to the intangible nature of the Internet, a precise estimate is not available for the amounts being spent online (www.epaynews.com). According to Forrester Research (2000), business-to business (B2B) online revenues will swell to $1.3 trillion over the next three years, while business-to-consumer (B2C) e-commerce revenues will reach only about $108 billion.

An industrial marketer needs to withstand the environments many surprises and shocks, according to Brierty, Eckles & Reader (1998), one of the most important factors affecting the organization environment are the new technologies, not only the new technologies era has changed way of life of people, but also has changed organizations behavior, this is the reason why I found interesting to study how these changes are happening and affecting industrial purchasing.

With regards to the discussion above, this thesis will be about the effects of the Internet on industrial buying behaviour.

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1.1 Background

Industrial Buying Behaviour is the field of industrial marketing that handle how industrial goods and services are bought by industrial organizations, this is a complex decision making and communication process. The process proceeds over a period of time and involves several members of the organization and relationships with other organizations and institutions (Webster and Wind, 1972).

Certain social changes have already begun: companies recognize the existence of a digital market with the appearance of the 'digital home' and the 'digital SME'. The introduction of these new technologies in small and medium-sized enterprises (hereafter SME’s) processes must be favored, since they are essential for modern day efficient management (Gomez, 2002).

This study will be concentrated in SME’s due to two reasons, first of all, because all the companies are changing the traditional means of doing businesses due to emerging technologies (Ratnasingam, 2000) and secondly, because in Spain the 99% of enterprises are under the terms of SME and almost 80% of worker population works for this companies (5dias.com).

1.1.1 Industrial Buying Behaviour

Before relating this behaviour to the Internet some terms must be understood.

Understanding complex industrial process requires a framework for the analysis of the phases of the buying “decision process” and of the various buying situations. A definition of the Buying Process could be:

Wind and Thomas (1980, p.242) stated “From the time at which a need arises for a product or service, to the purchase decision and its subsequent evaluation, a complex myriad of activities can take place”. It is therefore a “process” in which separate steps, stages, and or phases may be identified.

Another important term to understand is the Buying Center; Robinson, Faris and Wind (1967, p101) were the first who used this term and referred it to all those members of an organization who become involved in the Buying Process for a particular product or service.

There are important factors affecting the Buying Center and Buying Process, some of those are:

- Buying situation: new task, straight rebuy or modified rebuy

- Personal Factors: buyer’s personality, perceived role set, motivation...

- Interpersonal Factors: different roles existing in a Buying Center (users, buyers, influencers, deciders, gatekeepers)

- Organizational Factors: task, structure, technology, people

- Inter-organizational Factors: task-oriented objective, price, services, quality assurance of supply

- Environmental Factors: physical, technological, economic, political, legal and cultural

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Weber et al. (1991) consider the selection of suppliers to be the most important part of the buying process; selection is a process, which involves careful consideration of a number of factors, all of which will affect the definition of a quality resource for the service.

When the Internet appears, the “traditional” supplier selection criteria could change. In this line, only when a potential supplier is “located” and “registered” could be a supplier of the firm. Even these potential suppliers could give more information or in an easier way about a product needed or a service than a supplier who is working now for the firm (DESIRE, 1998).

The key factors in the supplier selection process using the Internet facilities are generic:

the users, the information resources, and the service or product given itself. The framework of the list takes all of these factors into account, according DESIRE ¹, by suggesting five main types of quality selection criteria:

1. Scope Criteria: (Considering the Users) Scope criteria will be defined at the inception of the service and will be the 'first filter' through which potential resources pass through.

2. Content Criteria: (Evaluating the Content)  Content, form and process criteria  need only be applied to resources 3. Form Criteria: (Evaluating the Medium)  that fall within the scope. These

 criteria involve an evaluation of 4. Process Criteria: (Evaluating the System)  the resource itself.

5. Collection Management Criteria: (Considering the Service) Collection management criteria will take account of the coverage of the current collection, and may cause the other criteria to be changed or modified as the collection grows.

Quality selection criteria will therefore be defined with the specific service and its users in mind, as well as the nature of the information resources. The quality selection criteria for a specific service can be created by using this framework. Within each of the five areas the criteria most appropriate for the service should be decided, defined and continually reviewed. As is said in the project DESIRE (1998), the framework also helps to structure the actual process of selection.

The framework accounts for the different stages at which decisions about quality need to be made. Like traditional library collections, Internet collections involve selection, maintenance and de-selection. This framework, in conjunction with the quality model, suggests that services need to apply quality selection criteria to resources at all three of these stages, and that many resources will need to be evaluated more than once, if the integrity of the collection is to be maintained. (DESIRE, 1998)

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1.1.2 The Internet and the World Wide Web

Two significant events in the history of the Internet happened in 1989. The ARPANET was decommissioned and the World Wide Web (also referred to as the WWW or Web) was created at the European Laboratory for Particle Physics (CERN). By 1992, the Internet was so large that, despite opposition from many of the Internet’s users, commercial activities were finally allowed to intrude (Sterne, 1995). The first web browser to offer the entire hypertext package, Mosaic, was released to the public in 1993 (Ibid: 172).

The World Wide Web is one of the many methods for traveling on the Internet. The key advantage is that the WWW has the ability to display information in multimedia format, including videos, and animation. Therefore, the Web is the Internet medium in which

"creative talents are at their best" (Mathiesen, 1995:258).

In addition, the Web uses hypertext links that allow users to jump to related topics within and between documents, and incorporates most aspects of other Internet services such as Electronic mail, File Transfer Protocol, Telnet, and Mailing Lists. For these reasons the Web "has become more popular than non-Web functions, [attracting]

millions of users" (Gonyea & Gonyea, 1996:2).

In order to assess the impact of electronic commerce on business-to-business dealings, it is necessary to first start with the already well-established literature on buyer behaviour.

Starting in the late sixties (Strauss 1962), (Robinson, Farris and Wind 1967), organizational buyer behaviour has been dissected and analysed in great detail. One of the main thrusts of the more recent work has been to examine the impact of information on the buying process. Duncan and Moriarty (1997) discuss the relationship between the notions of exchange, communication and technology setting the stage for more detailed investigation in the future. Earlier work (Larson 1994) indicated that there was a strong relationship between information flow and business performance.

When this work is held up beside the recent trend toward electronic commerce, it begs the question of the impact of WWW on communications. If increased communication sparks increased performance, then a communication revolution should revolutionize performance. Interestingly enough, there are also counter arguments to the likely impact of the WWW on performance. (Dawes, Lee and Dowling 1998) suggests that information will have an impact on performance only when there is a differential in the amount of information available to various firms. This implies that the WWW might well be a zero sum game.

However, others (e.g., Lilien et al. 1998) suggest that any increase in information, and more importantly, information use, will result in a net gain of overall efficiency allowing all participants to prosper. Clearly there is confusion as to the impact of information on businesses. To make matters worse, the type of industrial purchase is also likely to moderate the informational impact with Duncan and Moriarty (1998) suggesting that technology based information improvements would help mainly transactional purchases.

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Specifically, Electronic Data Interchange systems have three immediate effects on the performance of a business: (1) faster transmission (2) greater accuracy of data interchanges (3) more complete information about the transactions (Stern and Kaufmann 1985).

To stay competitive in today’s automated e-business world, companies must collaborate with suppliers, integrate new systems and participate in private and public exchanges (DESIRE, 1998). In addition, several researchers argue that the Web will reduce the competitive advantage of scale economies in many industries and makes it easy for small marketers to compete worldwide on the same level as their larger counterparts (Bennet, 1998; Hamill, 1997; Quelch & Klein, 1996…)

The Internet has increasingly become an essential part of the corporate network computing environment, a tool for allowing geographically disparate groups to convene, and a powerful channel for the distribution of goods and services both between businesses and to consumers (fitzerald.com).

"So-called Old Economy companies, such as banks, retailers and old-style telecommunications firms (the bricks), have spent the past year or two beefing up their New Economy assets (the clicks). And now, they are confronting the next hurdle: getting the market to recognize the value of their Internet operations, wireless-phone operations or venture-capital investments."

The Wall Street Journal, February 9, 2000

But companies still have to manufacture parts, meet payrolls, and keep the parking lot clean. A company with product quality issues will still have those issues, no matter how much automation gets thrown at it. Customer relationship management is a classic example—top managers were willing to invest millions of dollars in these systems, while under-funding training and retention for customer contact personnel. Banks tried to turn tellers into sales representatives, for example, by throwing CRM-like workstations at them, without providing appropriate incentives and training (fitzerald.com).

1.1.3 Small and Medium-Sized Enterprises (SME’s)

A Small and Medium-Sized Company as is reported in the COMMISSION RECOMMENDATION of 3 April 1996 (see appendix) has to fulfil the following conditions:

- Have no more than 250 workers

- The turnover must be inferior of 40 millions of euros or the general balance can not be more than 27 millions of euros

- Other societies cannot own more than 25% of the company, if those societies do not fulfil the former statements, excepting special cases.

In Spain, in the 2001 the number of SME’s with internet connection was the 63,5%, and being the prediction for the year 2005 about 90%. Now as seen in the introduction has risen to 80%. In both situations the comment is the same, the percent of SME’s that are

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situation should be corrected immediately, because, nowadays, is not reasonable to skip an access to an information that is increasing in quality and quantity day by day (Pedro Gómez, 2001).

I will focus my study in SME’s from Catalonia, that is the most industrialised region of Spain, because having 15% of the population of Spain; Catalonia carries with the 25%

of the industries of Spain (INE: Contabilidad Regional de España, 1998).

Then, for this study I will chose SME’s settled in Catalonia, the most industrialised zone in Spain, and where I am from, where I can obtain contacts with the companies easily.

1.1.4 Other Concepts.

Portal: E-Marketplace

Portal e-marketplace is a web site, which acts as a gateway into (all or a part of) the content provided by their clients. The intent is to build a community of loyal customers around the content, by offering attractive value-added services including relevant retail offerings, chat rooms, and high-level medical or product advice (www.sun.com).

The dot-com era.

The burst of the dot-com bubble created widespread economic uncertainty, which also left many people wondering whether the Internet's potential as a key business technology had been wildly exaggerated. According to Don Tapscott, an international best-selling author and expert on business strategy and organizational transformation, belief in the power of the Internet was never wrong, only misplaced. Instead of building Web sites to attract eyeballs, companies should have been using the Internet to build deeper relationships with customers and partners by communicating and collaborating in new ways. (Redmond, 2003.www.microsoft.com)

As the Internet quickly evolves from a publishing medium to a programmable platform for distributed computing, it is changing the way companies do business and creating a dazzling array of new opportunities. But knowing the best way to use this powerful technology to seize those opportunities isn't always easy (ibid.).

EDI

Electronic Data Interchange (EDI) may be most easily understood as the replacement of paper-based purchase orders with electronic equivalents. It is actually much broader in its application than the procurement process, and its impacts are far greater than mere automation. EDI offers the prospect of easy and cheap communication of structured information throughout the corporate community, and is capable of facilitating much closer integration among hitherto remote organisations (Roger Clarke, Xamax Consultancy Pty Ltd, 98).

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E-commerce

E-commerce is the means of selling goods on the Internet, using web pages. This involves much the same processes as selling goods elsewhere, but in a digital format.

Presentation, placement, display, stocking, selling and payment are all familiar concepts, e-commerce demands that all this be done on screen, and as an automated process.

E-commerce is only the definition of a mechanical process. E-business is the art and science of bringing that process to the attention of the right people, and persuading them to take it. Without e-business, e-commerce is like a car with no petrol or with no road (www.web-design-uk.biz, 2002).

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1.2 Problem Area.

In the previous sections I presented the background of this study, the importance of understanding IBB in marketing activities and some of the problems that have to be clarified before starting this study.

Industrial Buying Behaviour has been the focus of many studies conducted since mid sixties, for example, Robinson, Faris and Wind, 1967, in order to help the organizations to understand the environment within which they operate. This fact is stated by Baptista and Forsberg (1997) as they emphasize the importance of understanding the behaviour of the organizations when buying. And one of the most important factors of this environment is the Internet.

As it has been said, the Information Society is beginning and is advancing decisively.

The Internet is not only a concept that is in vogue; it is an essential element which must be incorporated into work processes given its growing use, since it enables the improvement of business productivity and competitiveness. This is especially applicable to SME’s, which constitute the base percentage of the productive network.

Hence, the understanding of firm’s organizational buying can be difficult to attain, as it may involve many different participants in a multi-stage process, where different factors are determinant for the purchasing decisions. The aim of this thesis is to study how organizations in particular are affected by Internet in their buying process.

According to the said above this thesis will deal with the research problem formulated as:

How can the IBB of SME’s be described under the influence of the Internet?

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2. Literature Review

In this chapter I review earlier studies in my research purpose area. The aim of this chapter is provide the relevant literature in the field of IBB and Internet, as well as a frame of reference.

2.1 Industrial Buying Behaviour.

First I introduce the buying process and the supplier selection criteria. Then I describe the buyclasses. In the subsequent section I review the dimensions and the roles in the buying center. The chapter ends with a summary in which I conceptualise my research questions, relating them to previously written literature.

2.1.1 The Buying Process

In the following sections I review studies that are related to the buying process. The emphasis is set on the buygrid framework elaborated by Robinson et al. (1967) due to the acceptance of the model; it is also commonly referred to in IBB literature (Moriarty, 1983; Ghingold, 1986).

Buying is not an event, buying can be seen as a process where separate steps, stages and/or phases can be identified. “From the time at which a need arises for a product or service, to the purchase decision and its subsequent evaluation, a complex myriad of activities can take place” (Wind and Thomas, 1980, p. 242).

As Baptista & Forsberg (1997) said, Cyert, Simon and Throw (1956) are seen as one of the pioneers’ attempts to understand the sequential nature of the buying process. They performed a qualitative approach were they documented an originally unprogrammed decision process. Cyert et al. (1956) described the decision-making as three processes:

1) common processes, 2) communication processes and 3) problem-solving processes.

Webster (1965) developed a four-elements model to describe the buying process: “1) problem recognition, 2) organisational assignment of buyer responsibility, 3) search procedures for identifying product offerings and establishing selection criteria, 4) choice procedures for evaluating and selecting among alternatives” (quoted from Johnston, 1981, p. 42).

Two years later, Robinson et al. (1967) introduced the buygrid framework. Haas (1995, p. 174) states: ”Of all the models of organizational buying behaviour that have been developed, the buygrid has been the most enduring”. The buygrid framework provides a frame of reference where the purchasing situations are designed to be general enough to apply to all purchases (Robinson et al., 1967). The framework for analysis of industrial buying situations combines eight buyphases with three types of buying situations (buyclasses) and is presented in table 2.1.

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Weber et al. (1991) consider the selection of suppliers to be the most important part of the buying process selection is a process that involves careful consideration of a number of factors, all of which will affect the definition of a quality resource for the service.

The key factors in the selection process of an Internet subject gateway are generic: the users, the information resources, and the service itself.

A description of the eight buy phases in the buygrid framework by Robinson et al.

(1967) of the table presented above is:

• Phase one consists of two parts, the recognition of a problem and awareness that the solution may take the form of filling the need with a purchase.

• In phase two the decision makers that are involved must in a specific way determine how the problem is to be solved. The buying influences seek answers to questions such as: “What application requirements must be met? What type of goods and services should be considered? In what quantities?”

• The third phase is in the beginning an extension of the previous phase. The phase entails a translation of the need into a solution, which can be communicated to others.

• Phase four is related to the qualification of suppliers. The criteria for qualifying suppliers varies with the buying organisation, the buying situation and the influences involved. The alternative sources are at this stage screened and evaluated.

• Phase five may in standardised procurements just involve checking a catalogue or telephoning the supplier in order to obtain information about prices and deliveries. In more complex situations the interaction may involve a series of counter-proposals and new offers with activities extending over many months.

• In phase six the offers from potential vendors are weighted and analysed. During this phase the supplier is selected when the buying organisation approves a proposal and rejects the others.

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• Phase seven begins when an order is given to a vendor. However, the procurement is not completed until the item actually is delivered and accepted for use. The order routine involves internal and external activities.

• Phase eight includes questions such as how well the product solved the problem and how well the vendor performed. The feedback is of high importance if future procurement problems are to be handled more effectively. (Ibid.)

These eight buyphases all explain how the buying process proceeds, but the buyphases are closely interrelated. In practice, according to Robinson et al. (1967), it may be difficult “and probably pointless” to derive every single phase and specify where it starts and ends.

The buying situation has long been recognised as vital in IBB (Robinson et al., 1967;

Webster and Wind, 1972a). The eight buyphases described previously in the buygrid framework can be combined with three basic buyclasses: 1) new task, 2) modified rebuy and 3) straight rebuy.

The buyclasses in Robinson et al. (1967) can be described as follows:

- New Task: The new task refers to requirements or problems that have not arisen before. An internal stimulus or an environmental factor may trigger the recognition of a requirement or a problem (ibid.). This type of buying situation requires extensive information and extensive evaluation of alternatives (Dholakia and Johnson, 1993).

New tasks occur infrequently but are of high importance because the purchase sets a pattern for the more routine purchases that will follow (Robinson et al., 1967).

Industrial buyers regard new tasks as important and associate them with high risk (Dholakia and Johnson, 1993). New task is the most complex buyclass because of the large number of decision makers and buying influences that are involved (Mawson and Fearne, 1999).

- Straight Rebuy: The straight rebuy situation is the most common in industrial purchasing (Robinson et al., 1967). “The straight rebuy purchases describe the buying situation where the purchasing department reorders on a routine basis” (Zinszer, 1996, p. 588). Most of the purchases are made on a routine basis no further information requirements and little effort in general (Dholakia and Johnson, 1993). In this buyclass a

“list” of acceptable suppliers exists, suppliers not on the list are not considered (ibid.).

In a straight rebuy there may occur some variations from time to time in the quantity, physical or chemical properties, delivery time, method of shipment or the price, so long as these changes does not entail a re-evaluation of the purchasing alternatives nor cause any changes in the procurement process and patterns (Robinson et al., 1967, p. 29).

- Modified Rebuy: “The modified rebuy involves a somewhat familiar purchase with some new information requirements and some further evaluation of alternatives”

(Dholakia and Johnson, 1993, p. 284). The purchase can be an “upgraded straight rebuy” or a previously new task that has become more regular (Anderson, Chu and Weitz, 1987). The modified rebuy does not necessarily infer that the buyer will change either the item purchased or its source (Robinson et al., 1967). The result may be that the buyer purchases the same item from the same source. The distinctive element is the re-evaluation of alternatives, often of new ones (ibid.).

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(Robinson et al., 1967). Table 2.4 shows how these characterising features influence each basic type of buying situation.

Even though the buygrid framework is the most widely accepted model within the research area of the buying process, it is not without criticism. The criticism is primarily focused on the handling of the buyclasses. Choffray and Lilien (1978) and Johnston (1981) state that the buygrid oversimplifies a complex phenomenon, overstates the role of newness in the process and neglects important issues such as the importance of the acquisition. Bellizzi and McVey (1983) concluded that the buyclasses might be useful when explaining the general importance of a purchasing decision; they should not be used to infer other buyer behaviour concepts such as the influence on purchases.

Another study by Ghingold (1986) found that the buygrid better represents the purchases of some products than it does for others. As for example it was concluded that the process was quite representative for an informational process system but less representative for the purchase of replacement office furniture. There exist some criticism towards the buygrid, but the framework is still useful for the understanding of the buying process (Haas, 1995).

2.1.2 The Buying Center

There is an extensive agreement that industrial buying involves multiple participants (Wind and Thomas, 1980). Cyert et al. (1956) were the first to emphasise the multipersonal involvement in industrial buying. The term “buying center” was first used by Robinson et al. (1967, p. 101), they defined the buying center as “The individuals who are related directly to the purchasing process, whether users, buying influences, decision makers, or actual purchasers […]”.

2.1.2.1 Dimensions of the Buying Center

Even though the concept of buying center is widely accepted (Spekman and Stern, 1979), little is known about the dimensions of the buying center (Wind and Thomas, 1980). Wind and Thomas (1980) found that the dimensions of the buying center vary by organisation, even within an organisation and by buying situation.

Grönhaug (1975) came to the conclusion that the size of the buying center was influenced by perceived product importance, degree of routine in the purchase and the resources available to carry out the purchase.

Wind (1978) conducted an empirical study including 171 manufacturing companies regarding the purchase of a scientific and technical information system. The findings concerning the composition of the buying center are presented underneath:

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−The multiperson nature of the purchasing decision was clearly evident.

−The responsibility for the buying decision is shared among two or more positions, which increases the complexity of the process.

−The findings showed a low involvement by the research librarian and a high involvement of the purchasing agent.

−Differences were found due to company size. As the size of the organisation increases from small (0-99 employees) to medium sized or large (100-999 and over 1000 employees respectively), the responsibility shifts down in the organisation.

Johnston and Bonoma (1981) hypothesised that five dimensions of the buying center could be specified and measured:

−Vertical involvement refers to the number of the organisation’s authority hierarchy exerting influence and communications within the buying center. They defined six levels of authority: Ownership (board of directors), Top management (CEO, President, Executive, Vice President), Policy level management (functional vice presidents, general managers), Upper level operating management (directors, managers), Lower level operating management (supervisors, product managers) and Production work / clerical employees.

−Lateral involvement represents the number of separate departments, divisions, or firm functional areas involved in the purchase decision.

−Extensivity is characterised by the total number of individuals involved in the buying communication network.

−Connectedness corresponds to the degree to which the members of the buying center are linked with each other by direct communications concerning the purchase.

−Centrality denotes the degree of centralisation of the purchasing manager in the buying communication network.

2.1.2.2 Roles in the Buying Center

Webster and Wind (1972a) came to the conclusion that only a subset of the organisational actors are involved in a buying situation. Further, they proposed five roles performed by buying center members, Wind (1978) found that the importance of the different organisational roles varies by the buyphase and the size of the organisation is an important factor.

Bonoma (1982) added one role (initiator) to the five roles described by Webster and Wind (1972a), which gave this set of six roles, resulting:

1. Initiators: recognises the company’s need and its logically more active in the beginning of the buying process

2. Deciders: they make the actual buying decisions and are able to do so due to their formal or informal authority within the buying organization. It is difficult to identify them, but usually are the higher officers with their formal authority and the engineers with their role as product specification deciders

3. Influencers: who influence the decision process, may have origin from inside or outside the company, and can be technical people (engineers) as well as

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4. Users: who use the product, sometimes they initiate the process to the occurrence of a usage need, and in some cases they are only consulted by the other members of the buying center.

5. Buyers: who have the formal authority in the selection of suppliers and implementation of procedures involving purchasing. Their major role is negotiating the purchases made by the organization, they execute the purchase decided by the deciders, and sometimes they coincide like high-level officers.

6. Gatekeepers: who control the flow of information into the buying center. The understanding of the role of the gatekeeper is crucial in the business marketing strategy since they can filter the information and hence, stands between the information source and its destination. The one sorting the mail, as well as the sales person steering information to the right person are both taking the role as a gatekeeper.

Several individuals may have the same role, e.g. there may be several influencers. Also, one individual may occupy more than one role, e.g. the purchasing agent can be both buyer and gatekeeper. (Ibid.)

Möller (1993) performed a study of two product cases of different complexities and distinguished three groups of the decision-making unit (DMU) participants:

−Executors: those who carry through the processes and are the execution specialists.

−Determinators: potential users and existing users who also decide what to do.

−Gatekeeper: this role is found to be played by more or less all categories involved.

2.1.3 Other Factors Affecting the Buying Process and the Buying Center

It is important for the marketer to know when, how and why buyers make their choices.

The last mentioned targets the influences on the buying center and the buying process.

The marketer needs to understand what influences are involved and how they are likely to impact the decision process (Kauffman 1996). These influencing factors can be divided into different groups, helping the marketer understand and structure the influences. I will explain the four traditional groups categorized by Webster and Wind (1972), according to a study made according to a study made by Kotler (2000) in order to be more update with my study. The four most traditional groups are:

- Individual factors. This factors deal with personal point of view, concerns personal motivations, perceptions, and maybe most of them, the perceived risk.

These factors are influenced by individual’s age, income, education, job, position, personality and attitude (Kotler, 2000). All these influence the expectations of the buying.

- Interpersonal/social factors. Group membership and member’s influence have received most research attention to all factors influencing the organizational choice processes. These factors arise since different members of the buying center have different interests, authority, empathy and persuasiveness, and therefore influence the group structure in different ways (Kauffman 1996).

- Organizational factors. Are those influencing the buying organization, such as purchasing objectives, policies, procedures, systems and structures of the buying organization (Kotler, 2000)

- Environmental factors. Are those factors outside the organization that the organization does not have direct influence on them. These include economic

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factors, such as level and type of demand, economic outlook and interest rate.

Other factors involved are technological change, political and regulatory developments, competitive developments and social responsibility (Kotler, 2000).

Another recent tentative to bring clarity into the area was made by Wind and Thomas (1980) who identified two sets of factors influencing the buying process and the composition of the buying center. These are 1) the different buyclasses and 2) idiosyncratic personal, interpersonal, organisational and environmental conditions.

As the first set of factors has already been revised in the section about the buying process, I will here concentrate on the second set of factors, as they are extremely important determinants of IBB (Wind and Thomas, 1980). More precisely and in accordance with my research questions, I will concentrate only on the environmental influences.

According to Wind and Thomas (1980) the environmental influences are difficult to assess and problematic to measure. They influence the buying process by providing information but also constraints and opportunities. These influences include physical (geographic, climate, and/or ecological), technological, economic, political, legal, and cultural factors. The units exerting these influences consists of various organisations such as business firms (e.g. suppliers competitors, and customers) trade unions, trade associations, and professional groups (ibid.).

Environmental factors determine values and norms in buyer-seller interaction as well as between competitors. They also influence the flow of information entering an organisation. It is considered crucial to understand the impact of technological change in order to make appropriate strategic decisions. Therefore, due to the importance of studying environmental factors, overlooking them can become very dangerous (ibid.).

An example of technological change is the development of telecommunications that during the late 1950s brought electronic computers and transistors (Pawar and Driva, 2000). In the 1960s the first modems were launched and the first data network (telex and packet switching) came online in the 1970s (ibid.).

2.1.4 Selection criteria

Weber et al. (1991) consider the selection of suppliers to be the most important part of the buying process selection is a process that involves careful consideration of a number of factors, all of which will affect the definition of a quality resource for the service.

The aim of buy phase number six in the buygrid framework is to determine the optimal supplier who offers the best all-around package of a product (Gregory, 1986). The vendor selection has long been recognised as important and has been a central focus for much of the industrial marketing research over the past three decades (Patton, 1996).

“The selection of component suppliers has long been regarded as one of the most important functions to be performed by a purchasing department”(Weber et al. 1991, p.2).

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When the decision of purchasing a product is taken, the members of the buying center establish a set of evaluation criteria that can be used when comparing potential suppliers (Gregory, 1986).

Dickson (1966) performed a study based on a questionnaire that was sent out to 273 purchasing agents and managers in the United States and Canada. In this study Dickson distinguished 23 selection criteria, the top ten criteria were:

TABLE 2.2 DICKSON’S VENDOR SELECTION CRITERIA

Rank Factor 1 Quality 2 Delivery

3 Performance history

4 Warranties and claim policies 5 Production facilities and capacity 6 Price

7 Technical capacity

8 Financial position

9 Procedural compliance

10 Communication system

There are many similarities between Dickson and other studies, Deng and Wortzel in 1995, found that the most important criteria were price and product quality, followed by on-time delivery. Brand name and location of the supplier were of little importance in the supplier selection decision (Deng and Wortzel, 1995). Patton (1996) concluded that vendor selection decisions tend to vary considerably according to the specific situation in which the decision must be made.

Traditional models are based mostly in “inertia” knowledge of suppliers who are working for the firm, especially for raw materials or regular products but even for investment purchases or one-time purchases. Price is important but not only gives a warranty of best 'value for money'. In order to establish a suitable definition for the phrase 'value for money', it is necessary to examine the issues of 'value' and 'money' (or cost) as well as another important intangible, namely 'risk'. (ARMSCORP, 1997)

Price is set where demand intersects supply, in theory, but reality has proven to be a lot messier. Almost any factor can influence the price of a good or service, ranging from a salesperson's negotiating prowess to space availability in certain shipping lanes (ibid.).

For sellers, there are untold negative consequences to pricing mistakes: money left on the table, for example, when customers might have been willing to pay more; or erosion of market share when prospects reject offerings that are priced too high (ibid).

All potential local and foreign suppliers of defence related goods and services should apply for registration where the acquisition of such goods and services. Such goods and services may include full-scale design and development, manufacture, installation, integration, logistical support or maintenance work on equipment already in service, or intended for service (DESIRE, 1998).

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When Internet appears the “traditional” selection criteria could change. In this line, only when a potential supplier is “located” and “registered” could be a supplier of the firm.

Even these potential supplier could give more information or in an easier way about a product needed or a service than a supplier who is working now for the firm (DESIRE, 1998).

Some issues in this information to select suppliers are:

• Determine the right number of suppliers for a given part, service, or commodity

• Consolidate spend and supplier data located in multiple sources

• Determine whether to make or buy a part

• Capture and analyse supplier performance metrics

• Model or algorithm to transform, categorize, and classify information

• Identify areas for potential purchasing savings

• Understand future purchasing requirements

• Capture approved vendor lists

Then, the key factors in the selection process of an Internet subject gateway are generic:

the users, the information resources, and the service or product given itself.

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3 Frame of Reference

In the previous chapters, I presented an overview of the literature related to the research problem:

The research problem will lead to research questions, which this report will answer.

According to this, the research problem can be divided into the following research questions:

How can the Buying Process in SME’s be described under the influence of the Internet?

How can the Buying Center in SME’s be described under the influence of the Internet?

Which are the most significant factors affecting a Buying Process and Buying Center in SME’s when the Internet appeared?

This formulation of the research questions lead me to use as a frame of reference, theoretical models that allow me to analyse issues related to concepts such as:

- The IBB

- The structure and roles of the buying center

- The factors affecting the buying center and the buying process such as delivery, price, capability of the suppliers...

Due to the existence of theoretical overlaps between models, not all the presented models will be used. Consequently, the models have been selected to cover the information needed according to the following criteria:

- It is easy to operationalise

- It has been recognised in other studies (Validation)

- Can provide the information needed for answering the research questions.

In order to answer this first research question I have chosen the buygrid analytic framework for industrial buying situations (Robinson, Faris and Wind, 1967).

This model is general enough to be applied to all procurements and is therefore selected, providing at the same time a deeper insight to my research question number one.

Furthermore, the present model has been used in a lot of research studies in IBB, which validates the model. Another reason for selecting the model is the easiness to operationalise the different buyphases. From this model I have selected:

- The buyclasses classification (New Task, Modified rebuy and Straight rebuy) - The description of the buying process in the form of the buyphases

How can the IBB of SME’s be described under the influence of the Internet?

How can the Buying Process in SME’s be described under the influence of the Internet?