Journal of Marketing and Management, 1 (1), 1-20, November 2010 1 Factors Affecting Industrial Goods Buying Decision Making

in a Manufacturing Company PhD Venture Electronics Pte. Ltd., Malaysia sallaudin@venture.sg PhD Universiti Teknologi Malaysia, Malaysia m-abakar@utm.my
Nik Maheran N. Muhammad, DBA Abu Bakar Abd Hamid , Sallaudin Hassan ,

Universiti Teknologi MARA, Kelantan nmaheran@kelantan.uitm.edu.my

N M Naziman Na Rah man, PhD

Universiti Teknologi MARA, Kelantan Naziman925@kelantan.uitm.edu.my

ABSTRACT: The main aim of this research is to determine the factors affecting industrial good buying
decision-making in a manufacturing company. Specifically, this research is conducted to analyze the significant factors affecting the products purchased and supplier selection, the marketing strategies of the suppliers and the influencers involved in product buying decision-making. The study also intends to assess the satisfaction levels of the manufacturing company on their current products and suppliers. The analysis is carried out based on new task buying and modified re-buy situations. The respondents consist of engineers with vast experiences in industrial good buying. Data is collected based on a set of self-reporting questionnaire developed and analyzed using the Statistical Package for Social Sciences (SPSS) software. One sample T-Test was used to perform mean score analysis for each of the variables while the analysis of variance (ANOVA) was used to identify a significant difference within the variables. The results from the present study indicate that in product selection, the most significant item for both new task buying and modified re-buy situations are product performance, while product test run availability is the most significant item in supplier selection for both buying situations. The most significant marketing strategies in a new task buying situation on the other hand comprise of product demonstration and test run availability, while the ability of sales representative to convince engineers of the more value provided by a new product or service is the most significant marketing strategy in a modified re-buy situation. The engineering team is dominating the influencers role both in product and supplier selection in the two buying situations. There appears to be a high satisfaction level among the respondents in terms of the current products purchased and towards their current suppliers. As such, there is a low intention to change the current products used and their suppliers. Keywords: Industrial goods, purchasing decision making, industrial buyers, supplier selection, industrial marketing strategies,

Journal of Marketing and Management, 1 (1), 1-20, November 2010 2 INTRODUCTION There is no doubt that the industrial sector has been contributing significantly to the economic growth of Malaysia. This is evident from the Industrial Prod uction Index (IPI) of the country which rose from 136.3 in 2006 to 144.2 in 2007. As of July 2008, the IPI rose 1.8% year-on-year, after a 2.2% increase in June 2008. The cumulative growth for the period of January to July 2008 was 4.2% over the correspond ing period in 2007. The Manufacturing Index in July 2008 was 1.5% higher compared with the same month in 2007 (Department of Statistics Malaysia, 2008). In line with this growth, the industrial marketing and industrial goods purchasing activities are projected to become increasingly important to support the overall business activities of the sector. In general terms, industrial marketing refers to the marketing of goods and services to the commercial enterprises which include the manufacturing firms and other non-profit institutions. In turn, these firms reproduce the goods and services for resale to other industrial customers and/or buyers. Among the largest yet significant industrial customers and/or buyers come from the manufacturing sector. These customers and/or buyers buy large volumes of materials such as steel, plastics and aluminium, and component parts such as motors, semiconductor, computers, and packaging. In addition, the industrial customers and/or buyers also acquire capital equipments such as machine tools, forklift trucks and laboratory measuring instrument (Corey, 1991). The industrial customers and/or buyers are responsible for bringing in buying items at the right quality, quantity, time, price, from the right source and deliver them at the right place. In this regard, one aspect in the industrial goods buying decision process that is gaining importance is the selection of suppliers since most firms have been spending considerable amount of their revenues on purchasing (Cebi and Bayraktar, 2003). In fact, Hou and Su (2007) insist that selecting appropriate suppliers is a fundamental issue to fulfill the development strategy of manufacturers. In this respect, a number of supplier selection factors such as their size, geographical locations, technical support, flexibility, and buyer-seller relationships are among the important criteria that warrant significant attention on the part of the industrial purchasers. At the same time, the decisions made on products purchased and supplier selection are very much affected by the industrial marketing strategies of the suppliers. Price, product performance, promotion, and distribution are important elements, which directly impact on the industrial purchasing decision- making process. The marketing strategies must be aligned with the buying situation and buying phase so as to attract buyers to start the interaction and therefore opening up the selling opportunity. The decision making process of industrial goods purchasing is therefore more complicated than often compared to the consumer decision- making process. Evaluating and selecting the best offers provided by various suppliers is a complex problem that takes into account tangible and intangible criteria (Kirytopoulos et al., 2008). It usually requires careful consideration from the decision making unit (DMU) or buying centers within the purchasing organization as any mistake may result in revenue loss due to poor product performance from production disruption (Zenz, 1987). Specifically, the DMU plays a major role in providing information and analyzing the suppliers of product types, which will subsequently influence purchasing decision making on the part of the firm. The unit may comprise of a number of personnel from different departments within the same firm in which some of them may possess the ability to dominate the decision making process. Besides the identification of the key internal influencers, this study also considers two types of influencers external to the purchasing organization, i.e. customers and competitors which have received very little research attention to date. Further, it is vital to identify the satisfaction level of the purchasing firms towards the products purchased and the performance of current suppliers.

Journal of Marketing and Management, 1 (1), 1-20, November 2010 3 This is because the satisfaction level closely relates to the degree of intention to change a current product and/or supplier to a new one. Unfortunately, only a handful of studies have examined the levels of satisfaction and intention to change product and/or supplier from the perspective of the various factors affecting industrial good purchasing decision making process. As such, this research intends to reveal in detail on the issues related to the industrial goods purchasing decision making process. This covers factors influencing products and supplier selection, the marketing strategies of the suppliers, the influencers within and outside the purchasing firms, the satisfaction levels of the current products purchased as well as with the current suppliers, and subsequently the intention level to change them. In other words, this research intends to achieve the following research objectives: 1. To examine the factors influencing the products purchased and selection of suppliers; 2. To identify the marketing strategies utilized by the suppliers which affect the decision of the industrial goods purchased; 3. To determine the key influencers of products purchased and supplier selection; and 4. To assess the levels of satisfaction and the intention to change the current products and suppliers. To achieve the above objectives, this research focuses on one contract manufacturing company (CMC) based in the state of Johor, Malaysia. The industrial goods in this research refer to the capital equipments such as machinery, test and measurement equipment, and maintenance tools bought for use in the operations of the CMC. The respondents comprise of engineers who have vast experiences in capital equipment purchasing. This study focuses on non-routine buying, which consists of new task and modified re-buy situations in the company surveyed, rather than on the regular buying situations which are handled by the purchasing department. Based upon the statistical results obtained from 52 engineers, only the most significant item under each variable is determined and analyzed. The rest of the paper is organized as follows. The next section reviews literature relevant to the current study. This is followed by describing the methodology used to conduct the analysis. The empirical results are then presented. The subsequent section discusses the findings and their implications. The final section deals with the research limitations and explores avenues for future research.

LITERATURE REVIEW Industrial goods buying process According to Webster (1991), industrial goods and services can be categorized in a variety of ways. A typical scheme involves construction, heavy equipment, light equipment, components and subassemblies, raw materials, process materials, maintenance, repair and operating supplies, and service. Heavy equipment involves large machineries such as machine tools, turbines, supercomputers, locomotives, tugs and barges, and earth- moving equipments. The industrial customers consist of manufacturing and processing firms (including food, chemical, and petroleum processor) and distributors who purchase goods and resell to other industrial and institutional users (Webster, 1991). Related to this definition, there is a close link between the terminologies of industrial customer and industrial buyer. Industrial buyers purchase goods and services for some tangible, productive, and commercially significant purpose such as the case of the manufacturing industry (Chisnall, 1989).

Journal of Marketing and Management, 1 (1), 1-20, November 2010 4

Besides purchasing materials, the industrial customers and/or buyers also purchase capital equipments (Corey, 1991). However, capital equipment purchasing is complicated by the fact that some products differ among suppliers. Typically each supplier has its own specifications and each product may have slightly different characteristics e ven in performing the same function. Every organization has its purchasing objectives, which are commonly expressed as buying the right items in the right quantity at the right place for delivery at the right time and place. This definition, albeit simple, is rather useful for the identification of the major dimensions of the buyers problems, product specifications and quality, amount of purchase, price, and delivery. A major function of the procurement unit is to provide continuity in operations by ensuring that the purchased goods and services are available when and where needed. Product quality is another objective of purchasing where quality must be consistent with the specifications developed during the purchasing planning process. The right pricing is another important objective after availability and quality. The objective of the purchasing unit is to develop and receive the necessary services accompanying the purchase of goods such as technical support, application assistance, repair, and maintenance. Another important objective is to develop favorable long term relationships and new sources of supply in order to guarantee the continued availability of goods and services (Webster, 1991).

Buy Classes: Buying Situation According to Reeder et al. (1991), there are three buying situations. The first one is being the new task buying situation. In such a situation, the problem or need is considerably different from the past experience where problem recognition may be triggered by internal or external factors. For instance, the firms decision to add a new product line may necessitate the purchase of a new equipment, part or material. A change in customers requirements may also necessitate the purchase of new machinery in order to meet the changing need. In this situation, the decision makers lack of experience and product knowledge to make comparisons among alternative products and suppliers and they therefore enter into an extensive problem-solving activity. They must obtain a variety of information from various sources to explore alternative solutions adequately before a purchase can be made. In this study, it is posited that the engineering team will be deeply involved in such a situation to purchase new capital equipments. They will be playing a major role in defining specifications and identifying potential vendors before making the final selection. The second buying situation is modified re-buy. Decision makers enter into this situation when they feel that significant benefits such as quality impro vements, enhanced supply and/or cost reduction may be derived at from reevaluating alternatives. More often that not, this situation occurs when the firm is displeased with the performance of its current suppliers which induce such situation to take place. Although well-defined criteria can be used in making such a purchase decision, there is uncertainty on which supplier can best fill the specific needs at the lowest possible switching costs (Primo et al., 2007). In such instances, buyers will attempt to seek additional information. According to Jobber and Lancaster (2000), modified re-buys often involve engineers, production managers, and purchasing officers with little involvement from the top management. Straight re-buy is the third and also the most common buying situation. When purchases are continuing or recurring, usually little or no information is required and that routine response is the normal buying pattern. Organizational buyers usually have a set of well-developed criteria that have been used and refined over time. As long as the delivery is

Journal of Marketing and Management, 1 (1), 1-20, November 2010 5 prompt, quality consistent, and price is reasonably competitive, a firm is unlikely to reevaluate alternatives and switch suppliers. Quayle (2001) arrived at an interesting finding where the main factors a ffecting the switching of suppliers include continuity of supply, importance of achieving price reduction, and importance of security of supply. Items such as lead time, item price, stimulation of competition, market protection, and purchasing power are fo und to be not significant.

Factors Affecting the Purchasing of Industrial Goods There are many factors affecting the selection of products to be purchased. In general, they can be classified into several main factors such as the product itself, price, promotion, and place. For years, price has been used as a key determining factor in determining the purchase of goods. To some extent, the notion is supported by Sallauddins (1999) study. He found that price is the most significant factor, followed by p roduct, promotion, and location. However, studies by Fernandez (1995) and Reeder et al. (1991) refute this claim. Out of the nine factors surveyed, five factors such as performance, long lasting, reparability, service, and warranty topped the pricing factor. A recent study by Donna and Ramaseshan (2007) on supplier performance confirmed this finding where the influence of price on repurchase intention is insignificant. Supplier Selection Factors Prior literature suggests that supplier selection appears to be the most significant variable as it helps in achieving high quality products and customer satisfaction (Gonzalez et al., 2004). It is therefore not uncommon for the industrial customers and/or buyers to evaluate the ability of their suppliers in terms of the delivery of satisfactory quality, quantity, delivery, price, and service objectives which will in turn govern their decisions on supplier selection. According to Leender and Fearon (1991), some of the more important supplier attributes related to these prime purchasing objectives include past history, facilities and technical strengths, financial status, organization and management, reputation, systems, procedural compliance, communication, labor relations, and location. Besides, buyer-seller relationship has been identified a key factor in the assessment and selection of suppliers especially in the manufacturing sector (Szwejczewski et al., 2005). This is because the success of the relationship has been found to directly and positively affect buyer performance (Kannan and Tan, 2006) in terms of enhanced product quality, better coordination with, and close involvement of suppliers (Jiao et al., 2008; Lau and Goh, 2005). Close relationship with suppliers involves commitment and trust over and extended period of time, characterized by high levels of information exchange, trust, risk, cooperation and/or adaptation, and rewards between the two parties (Deeter-Schmelz and Kennedy, 2004; Herbig and OHara, 1994). Buyer-seller interdependence is therefore a hallmark of industrial marketing, particularly in terms of the products used for the operations of industrial customers. A number of studies have singled out product quality, service capabilities, payment facilities and relationship commitment as some o f the most important criteria (Donna and Ramaseshan, 2007; Hsu et al., 2006; Pressey et al., 2007).

Decision Making Units and Multiple Buying Influencers

Journal of Marketing and Management, 1 (1), 1-20, November 2010 6 In organizational buying, the buyer or purchasing officer is often not the only person who influences the decision or who actually has the authority to make the ultimate decision. According to Reeder et al. (1991), the purchasing managers must coordinate with numerous people with diverse organizational responsibilities who apply different criteria when making purchase decisions. The decisions are usually made by a DMU which comprise of a few personnel from different departments such as engineering, purchasing, production, and research and development. The roles played by these personnel within a DMU can be very substantial in that they influence the purchasing decisions. Among these personnel, however, there exists a fraction of key influencers who are capable of swaying other influencers, either knowingly or unknowingly. Hough and Ashley (1992) provide a good example where the engineering department of an automobile manufacturer specified the length of forklift trucks. While the users at the plant preferred another brand which was less costly, the purchasing department was mandated to buy according to the specifications established by the engineering department. In this case, the purchasing decision is attributed to the authority, knowledge, and/or information possessed by the key influencers. As such, the ability to identify key buying influencers and sell them the right product attributes is vital to a good marketing strategy (Reeder et al., 1991).

Custome r Satisfaction Whether a customer is satisfied after a purchase depends on the offers performance in relation to the buyers expectations. According to Kotler (1997), satisfaction is a persons feelings of pleasure or disappointment resulting from comparing a products perceived performance (or outcome) in relation to customers expectations. If the performance falls short of expectation, the customer is dissatisfied. If the performance matches the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted. It is interesting to note that customers who are just satisfied still find it easy to switch when a better offer comes along. However, customers who are highly satisfied are much less ready to switch to either new product or supplier. High satisfaction or delight creates an emotional affinity with the brand, not just a ratio nal preference, which resulting in high customer loyalty.

RESEARCH METHODOLOGY Research Instrument Considering the nature of this research and drawing upon prior literature, a set of selfreporting questionnaire was developed for data collection. The questionnaire consists of three parts. Part one consists of four sections. Section one contains 38 items related to the factors influencing product purchased and supplier selection divided equally in both the new buy and modified re-buy situations. The questions on product purchased include product performance, product reliability, long warranty period, product availability, product safety, user friendly, brand, additional packaging, product outlook, and price. The items on supplier selection comprise of long term business relationship, established suppliers company, excellent after sales service, high negotiation flexibility, high degree of contactability, product test run availability, established local suppliers, customer recommendation, and to be on par with competitor.

Journal of Marketing and Management, 1 (1), 1-20, November 2010 7 Section two consists of questions capturing the respondents perception on the marketing strategies pursued by the suppliers of industrial goods for both the new-task buying and modified re-buy situations. The 6 items on new-task buying situation include ability to anticipate potential problem, problem solving capacity, impressive products or service, maintain dependability, understanding details of customers problems and/or needs, and the availability of product demonstration and trial run. Five items were identified under the modified re-buy situations. They include the ability of the new suppliers to (1) demonstrate impressive potential improvement study at the current product or process through using new equipment; (2) demonstrate impressive general capability, reliability, and problem solving skills; (3) provide better detail of products, production, and service information; (4) establish better relationship with the decision makers; and (5) convince that the new product or service is able to provide more value such as better quality and significant cost saving. Section three comprises of a series of statements aimed at the identification of the most significant influencers in both the new-task buying and modified re-buy situations in terms of the products purchased and supplier selection. The influencers included in this study are the engineering team, quality assurance (QA) team, purchasing team, production team, and research and development team. On top of that, external influe ncers such as customers and competitors are included in the study. Section four measures the levels of satisfaction of the current products and/or suppliers and the intention to change the current products and/or suppliers. The 5 statements on the current products purchased include product function meets specifications, product supports production productivity, product reliability, price, and safety. Items such as relationship, contactable, delivery performance, after sales services, and promotion package are used to measure the satisfaction level with the current suppliers. Two items are included at the end of this section to measure the intention level of the respondents to change or upgrade the product bought, and to choose new suppliers for new products. All the questions in the four sections utilized a five-point Likert scale which ranges from 1=very low to 5=very high with 3 scaled as moderate. Part two consists of 3 openended questions soliciting suggestions from respondents on areas that can be improved in the industrial purchasing goods of the company, what the current suppliers must do to maintain and improve the business with the company, and general comments, if any, from the respondents. Part three captures the respondents demographic information such as gender, length of service, position, and categories or types of products purchased. To establish face validity, the questionnaire was piloted on 10 engineers working in the manufacturing sector prior to mass distribution. The majority of respondents reported that the questionnaire was easily understandable and required only 20 to 25 minutes to complete. Minor changes were incorporated to the final design of the questionnaire based upon the feedback received.

Population and Sampling This study focuses on Venture Technocom System Pte. Ltd. (popularly known as Venture), a CMC located in the state of Johor, Malaysia. Headquartered in Singapore, Venture is a leading global electronics services provider. Founded in 1984, the group comprises about 40 companies with global clusters in South East Asia, North Asia, America, and Europe, and employs more than 17,000 people worldwide. In 2007, the group achieved sales of USD2.65 billion with annual earnings crossing the USD264 million level for the firs t time. Top Fortune 500 companies such as Agilent Technologies, HP, IBM, Intermec, as well as other

Journal of Marketing and Management, 1 (1), 1-20, November 2010 8 multinational companies have chosen Venture as their strategic partner for their long term manufacturing needs. These partnerships bear testimony of Venture s relentless pursuit of manufacturing and engineering excellence, continuous innovation, and absolute commitment to quality and delivery, thus meeting todays customer satisfaction. Ventures quality system meets the requirements of international standard s such as ISO 9001:2000, ISO 13485, QS 9000, TS 16949, and the FDA Regulation 21 CFR 820. In addition, Ventures certification in ISO 14001:2004 and the ODS (Ozone-Depleting Substances) Scheme is complemented by its expertise in process re-engineering and materials resourcing, which places it in a favorable position to help customers meet RoHS (Restriction of Hazardous Substance) and other international environmental protection standards. The careful selection of the company allows meaningful results to be generated and therefore permits the findings to be benchmarked by other manufacturing companies. In this research, the population comprise of all the staff currently employed by Venture. However, the sample is restricted to engineers working in the 5 departments indicated earlier who have vast experiences in capital equipment purchasing. This is due to the important roles played by engineers in industrial goods purchasing decision making as described in the literature section (Jobber and Lancaster, 2000). There are 10 departments within Venture which manages its respective projects and/or customers (e.g. Avago, Coherent, Philip Medical, Leica, HP (PCA), HP (top level), Agilent, Trimble, Emulex, and OCE) with a total 60 engineers. About 52 of them agreed to take part in the survey. Demographic Characte ristics The majority of them are male (44 or 84.6%). This is not surprising, looking at the nature of the profession. The majority of them have worked for Venture for more than five years (51.9%), followed by those between 2 to 5 years (34.6%). Only 7 or 13.5% of them have worked for Venture for less than 2 years. Most of them are test engineers (42.3%), followed by product/process engineers (26.9%), equipment engineers (17.3%) and QA engineers (13.5%). It is apparent that all of them have been involved in the purchasing of capital equipments such as test and measuring equipment (59.6%), maintenance tools (23.1%), and machineries (15.4%) for the company. Only an engineer is involved in the purchasing of other capital equipments (1.9%) not listed in the questionnaire.

Assessing Reliability To ensure that the items constructed in the questionnaire is reliable, Cronbachs alpha was calculated by using the Statistical Package for Social Sciences (SPSS). A rule of thumb is that 0.60 is the lower level of acceptability for the alpha scores (Nunnally, 1978). Since the reliability coefficient values for all the constructs shown in Table 1 are greater than the guideline of 0.60, the scales are of acceptable reliability and can therefore be applied for further analysis.

Table 1: Reliability Coefficient Results of the Constructs

Journal of Marketing and Management, 1 (1), 1-20, November 2010 9

Constructs Factors influencing product purchased and supplier selection Marketing strategies of suppliers Influencers Satisfaction level on current product purchased and supplier selection Cronbachs Al pha 0.89 0.78 0.92 0.75

Data Analysis Method The SPSS is used as the main tool for data analysis. One sample T-test is used to compare and rank the items within each of the variables (product and supplier selection, marketing strategies, and influencers) based on the mean scores in order to determine which item has the highest mean score. The mean score is divided into three categories; low, moderate and high. A mean score of between 1.00 and 2.33 is categorized as low; 2.34 to 3.67 is categorized as moderate while 3.68 to 5.00 is categorized as high. In this study, only the most significant items with the highest mean scores will be analyzed. In addition to the mean comparison analysis, one-way ANOVA is used to analyze whether there is any significant difference in the mean scores among the different characteristics or groups of respondents with the most significant items identified by the TTest analyses. Specifically, it is used to achieve the first and forth research objectives, i.e. to test length of service, and position against the variable of product purchased and supplier selection in the two situations, i.e. new and modified re-buy in order to identify the most significant group according to the highest ranked items based on the one sample T-Test results. Similarly, length of service is tested to determine the most significant group in terms of levels of satisfaction and the degree of intention to change the product purchased and supplier selection in the two buying situations based on the highest ranked items as derived from the T-Test analyses. The study concludes that there is a statistically significant difference among the groups if the sigma value is equal or less tha n 0.05.

RESULTS Research Objective 1: Significant Factors Affecting Product and Supplier Selection The results in Table 2 indicates that product performance has been ranked the highest while price has been ranked the lowest in both the new task and modified re-buy situations. Eight items have been categorized as highly ranked, except for product outlook which is ranked as moderate and price ranked as low. The ANOVA analysis carried out on length of services and position against product performance shows that there is no significant difference in means for both the buying situations. The results are as displayed in Table 3. Table 2: Mean Scores for the Items Measuring Product Selection in both New-Task Buying and Modified Re-Buy Situations

Journal of Marketing and Management, 1 (1), 1-20, November 2010 10

Rank Items New-task buying Mean 4.77 4.19 4.15 4.10 4.10 3.98 3.87 3.75 2.37 2.19 3.75 Rank Items Modi fied rebuy situation Mean 4.83 4.15 4.10 4.08 4.00 3.98 3.85 3.85 2.38 2.19 3.74

1 Product performance 2 Product reliability 3 Long warranty period 4 Product availability 5 Product safety 6 User-friendly 7 Established brand name 8 Additional package 9 Product outlook 10 Lower price Average score

1 Product performance 2 Product reliability 3 Product availability 4 Long warranty period 5 User friendly 6 Product safety 7 Established brand name 8 Additional package 9 Product outlook 10 Lower price Average score

Table 3: ANOVA Results between Product Performance and Length of Services and Position
Items/Situations Product performance New-task buying situation Demographic Items Length of Service Less than 2 years Between 2 to 5 years More than 5 years Position QA Engineer Product/Process Engineer Test Engineer Equip ment Engineer Modified re -buy situation Length of Service Less than 2 years Between 2 to 5 years More than 5 years Position Test Engineer Product/Process Engineer Equip ment Engineer QA Engineer Mean Sig.

4.86 4.78 4.74

0.814

5.00 4.86 4.73 4.56

0.161

5.00 4.89 4.74

0.161

4.73 5.00 4.67 5.00

0.055

In term of supplier selection, product test run availability is found to be the most important factor in both the buying situations. All the items are categorized as highly ranked except for customer recommendation which has been ranked as moderate and competitors factor (to be on par with competitors) has been ranked as low. The results are as presented in Table 4. The ANOVA analysis was carried out between length of service and position, and product test run availability for both the buying situations. No significant difference was found on new task buying situation, but length of service is found to be significantly different with product test run availability for the modified re-buy situation between engineers who have worked between 2 to 5 years and more than 5 years. The mean score suggests that engineers who have worked for more than 5 years tend to evaluate product test run availability in a modified re-buy situation higher than those who have worked between 2 to 5 years. Table 5 shows the results.

Journal of Marketing and Management, 1 (1), 1-20, November 2010 11 Table 4: Mean Scores for the Items Measuring Supplier Selection in both New-Task Buying and Modified Re-Buy Situations
Rank Items New-task buying Mean 4.83 4.49 4.29 4.21 4.19 4.06 3.83 2.96 2.31 3.91 Rank Items Modi fied re-buy situation Mean 4.85 4.52 4.31 4.23 4.15 4.06 3.90 2.92 2.23 3.91

1 Product test run availability 2 Long-term business relationship 3 High degree of contact ability 4 High negotiation flexibility 5 Excellent after sales service 6 Established suppliers co mpany 7 Established local suppliers 8 Customer reco mmendation 9 Co mpetitors factor Average score

1 Product test run availability 2 Long-term business relationship 3 High degree of contact ability 4 High negotiation flexibility 5 Excellent after sales service 6 Established suppliers co mpany 7 Established local suppliers 8 Customer reco mmendation 9 Co mpetitors factor Average score

Table 5: ANOVA Results between Product Test Run Availability and Length of services and Position
Items/Situations Product test run avail ability New-task buying situation Demographic Items Length of Service Less than 2 years Between 2 to 5 years More than 5 years Position Equip ment Engineer QA Engineer Test Engineer Product/Process Engineer Modified re -buy situation Length of Service Less than 2 years More than 5 years Between 2 to 5 years Position QA Engineer Product/Process Engineer Equip ment Engineer Test Engineer * Significance level at 0.05 Mean Sig.

5.00 4.85 4.72

0.506

4.89 4.86 4.82 4.79

0.976

5.00 4.96 4.61

0.044*

5.00 4.93 4.89 4.73

0.515

Research Objective 2: Significant Marketing Strategies The mean scores in Table 6 show that the highest ranked marketing strategy for the new task buy situation is product demonstration while in the modified re-buy situation, the ability of sales representative to convince their customers that a new product or service is able to provide more value is the highest ranked marketing strategy. In both the situations, all the 11 items are ranked as high by the respondents. Table 6: Mean Scores for the Items Measuring Marketing Strategies in both New-Task Buying and Modified Re-Buy Situations

Journal of Marketing and Management, 1 (1), 1-20, November 2010 12

Rank

Items

New-task buying Mean 4.83

Rank

Items

Product demonstration and trial run is availab le Understand the details of customers problems and/or needs Impressive products or services Problem solving capability

4.49

3 4

4.29 4.21

3 4

Maintain dependability

4.19

Able to convince that the new product or service is able to provide mo re value Providing better detail of products, production, and service informat ion Establish better relationship with the decision makers Impressive general capability, reliability, and problem solving skills Impressive potential improvements through using new equip ments

Modi fied re-buy situation Mean 4.85

4.52

4.31 4.23

4.15

Ability to anticipate potential problem Average score

4.06 4.35 Average score 4.41

Research Objective 3: Significant Influencers for Products Purchased and Supplier Selection Tables 7 and 8 show that the engineering team is the most important influencer in both the new task and modified re-buy situations for the products purchased and supplier selection. The other influencers are either ranked as moderate or low. Table 7: Mean Scores for the Types of Influencers for Products Purchased in both New-Task Buying and Modified Re-Buy Situations
Rank Departments New-task buying Mean 4.92 3.08 2.90 2.52 2.08 2.04 1.96 2.78 Rank Departments Modi fied re-buy situation Mean 4.79 3.08 2.94 2.50 2.08 1.87 1.85 2.73

1 Engineering 2 Customer 3 Quality Assurance 4 Purchasing 5 Co mpetitor 6 Production 7 Research and Development Average score

1 Engineering 2 Production 3 Co mpetitor 4 Purchasing 5 Research and Development 6 Customer 7 Quality Assurance Average score

Table 8: Mean Scores for the Types of Influencers for Supplier Selection in both New-Task Buying and Modified Re-Buy Situations

Journal of Marketing and Management, 1 (1), 1-20, November 2010 13

Rank Departments New-task buying Mean 4.79 2.87 2.75 2.69 2.06 1.87 1.77 2.68 Rank Departments Modi fied re-buy situation Mean 4.83 2.83 2.79 2.62 2.08 1.87 1.79 2.69

1 Engineering 2 Customer 3 Quality Assurance 4 Purchasing 5 Co mpetitor 6 Research and Development 7 Production Average score

1 Engineering 2 Customer 3 Quality Assurance 4 Purchasing 5 Co mpetitor 6 Research and Development 7 Production Average score

Research Objective 4: Satisfaction Level on the Current Products Purchased and Supplier Selection The results show that the satisfaction level of the respondents is high, judging from the mean score of 4.13. Taking a closer look, Table 9 indicates that the most important factor contributing to the satisfaction level is that the product function meets the specifications, while safety has been ranked as the lowest factor. Nevertheless, all the items are ranked as high by the respondents. Table 9: Mean Scores of Factors Affecting Satisfaction Level on the Current Product Purchased
Rank Items 1 Product functions in meeting specificat ions 2 Product supports production productivity 3 Product reliability 4 Price 5 Product safety Average score Mean 4.25 4.19 4.10 4.04 3.88 4.09

The results also show that the respondents satisfaction level on their current suppliers is considered high, with a mean score of 3.98. Table 10 demonstrates that the most important factor is relationship and the least important factor is promotion package. Similarly, the respondents ranked all the items as high. Table 10: Mean Scores of Factors Affecting Satisfaction Level on the Current Supplier
Rank Items 1 Relationship 2 Contact ability 3 Delivery and distribution 4 After sales service (technical support) 5 Pro motion package Average score Mean 4.52 4.13 4.12 4.08 3.81 4.13

The ANOVA results in Table 11 reveal that there is no significant difference among the different groups of length of service on the satisfaction level with the products purchased. However, significant difference is found with regards to suppliers performance among the engineers who have served Venture between 2 to 5 years and more than 5 years. The mean score suggests that engineers who have worked for more than 5 years tend to be more

Journal of Marketing and Management, 1 (1), 1-20, November 2010 14 satisfied with the performance of suppliers compared to those who have worked between 2 to 5 years. Table 11: ANOVA Results between Satisfaction Levels with Products Purchased and Supplier Selection and Length of Services
Items Satisfaction levels on product purchased Demographic Items Length of Service Less than 2 years Between 2 to 5 years More than 5 years Length of Service More than 5 years Between 2 to 5 years Less than 2 years Mean 4.28 4.19 3.57 Sig. 0.103

Satisfaction levels with current suppliers

4.15 4.06 3.14

0.001*

* Significance level at 0.05

Finally, in terms of the degree of intention to change the current products and suppliers, the respective mean scores of 1.92 and 2.15 suggest that the respondents have low intention to switch current products and/or suppliers. DISCUSSION AND IMPLICATIONS The first research objective, which is to examine the factors influencing the products purchased and the selection of suppliers, has been achieved. Table 2 shows that product performance has been identified as the most significant factor; while price has been ranked the least for both new task and modified re-buy situations. This is consistent with Fernandez (1995) where product performance is the most important item. This finding is not unexpected, looking at the emphasis given by the surveyed company (Venture) to product performance and quality. The engineers understand that it is only through focusing on performance that guarantees them high productivity and quality which eventually result in higher profitability for Venture. This seems to be a common understand ing and/or goals among the engineers across different lengths of service and position. This explains why no significant difference is found between the demographic factors and product performance (Table 3). Price receives the lowest ranking among the ten factors. The finding seems to make sense as the engineers view industrial goods as being purchased for long-term purpose. Lower priced products usually come with lower specifications and therefore, in order to avoid incurring additional costs later on such as cost of repair of machines due to breakdown, the company is willing to spend for better equipments that would also guarantee better quality of products produced. This may also serve as a reason why product performance has been rated the highest. The finding is in line with prior studies where price is not the most important factor in product selection (Fernandez, 1995; Reeder et al., 1991). As such, it can be concluded that price may be an important consideration in the purchase of consumer goods but not to the industrial goods. As shown in Table 4, product test run availability has been identified as the most significant factor in supplier selection in both the buying situations. This is probably because the engineers need to conduct an evaluation especially on product performance before justifying the purchase. Relationship has been ranked second highest after product test run availability. The finding is in contrast with prior literature which states that relationship with supplier is an important factor (Donna and Ramasheshan, 2007; Jobber and Lancaster, 2000;

Journal of Marketing and Management, 1 (1), 1-20, November 2010 15 Zenz, 1987). However, the mean scores for relationship for both the buying situations are very close to product test run availability, suggesting that both the factors are considered very important criteria in the selection of suppliers. Through the results in Table 5, the study discovers that engineers who have worked for more than 5 years view product test run availability as the most important factor in a modified re-buy situation. As opined by Primo et al. (2007), although well-defined criteria can be used in making such a purchase decision, there is uncertainty on which supplier can best fill the specific needs at the lowest possible switching costs. As such, experienced buyers know very well aspects of additional information to be sought, and this include the availability of product test run so that significant benefits of reevaluating alternatives can be attained. These buyers would usually have accumulated valuable experience through their tenure of service. The second research objective deals with the identification of the marketing strategies utilized by the suppliers which affect the decisions of the industrial goods purchased. In this respect, Table 6 shows that product demonstration is perceived as the most important marketing strategy by the engineers in new buying situations. This is not difficult to understand as the problem or need is novel and the engineers lack of experience and product knowledge. They must obtain a variety of information from various sources before a purchase can be made. In this case, product demonstration is seen as very important because it allows the potential buyer to see, touch and try the product for the product evaluation process. In fact, Jobber and Lancaster (2000) has rightfully remark that detailed information alone without convincing explanation and demonstration does not work in industrial marketing. The results also draw the attention of suppliers for having knowledgeable and skilled salespersons with the ability to convince the engineers that a new product or service is able to provide more value. This is consistent with the findings of Deeter-Schmelz and Kennedy (2004) who suggest that traditional information sources, including suppliers salespeople are more useful than even the information provided by the Internet. This makes sense as decision makers usually enter into this situation when they feel that the current supplier no longer able to provide significant benefits to the purchasing organization. While the purchasing company may already possessed a well-defined criteria for making purchase decisions, uncertainty still exists and in many occasions, information is sought from various sources. As such, salespeople who are able to convince the purchasing organization with facts through face-toface interactions may win the contract. The third objective is to determine the influencers of products purchased and supplier selection. As shown in Tables 7 and 8, the engineering team has been identified as the key influencers in both the products purchased and supplier selection. The findings is consistent with Corey (1991) where engineers play the biggest role in industrial good purchasing because of their significant involvement in defining the specifications, identifying potential suppliers as well as in making final decisions on the selection of vendors. This study also discovers an interesting finding where customers could be a major influencer to the products purchased by the manufacturer and its selection of suppliers, especially in a new task buying situation. This is not uncommon in the contract manufacturing business model whereby customers frequently intervene in the product selection of the CMCs business as they prefer manufacturers to use recommended products that are recognized by the client organizations. This is deemed a new contribution of this study as Reeder et al. (1991) do not include customers as a possible influencer to supplier selection. This implies that customers are a new emerging group that warrants significant attention. In modified re-buy situation, the production team plays a very important role after the engineering team. This is logical as the production team is the user of the products purchased.

Journal of Marketing and Management, 1 (1), 1-20, November 2010 16 They are able to compare the current products used with their experience in using prior products and provide feedback. The finding implies that the production team can also become a major influencer in the upgrade or change of product purchased due to their experience and role as users. The forth objective assesses the satisfaction and the degree of intention to change current products and suppliers. The mean scores suggest that the satisfaction level of the respondents towards the current products and their suppliers is high. The low rating given to pricing (Table 9) confirms the earlier findings that pricing is not a top priority in the selection of products to be purchased. In measuring suppliers performance (Table 10), relationship has been identified as the most important indicator of satisfaction. Thus, the notion that relationship with buyer and seller highly contributes to purchaser satisfaction is supported. In fact, Jobber and Lancaster (2000) insist that close relationship with supplier is very important as it will guarantee the reliability of supplies. The findings shown in Table 11 reinforce the results presented in Table 5 where engineers with longer tenure, particularly those who have worked for more than 5 years, are able to provide better judgment on the performance of suppliers. This will have implications to the purchasing organization in terms of selection of senior engineers in providing a more conclusive evaluation on the suppliers. The high satisfaction level has resulted in the low intention to change the current products and suppliers. It can thus be concluded that the engineers are satisfied with the current products and suppliers and have no intention to switch. This can be because of their satisfaction with the product functions which meet their specifications and that they have built close relationship with the suppliers. As elucidated by Kotler (1997), high customer satisfaction results in higher loyalty to the products and the suppliers who provide them. The good relationship that both parties are enjoying has prevented the engineers from taking risks to deal with new suppliers and therefore, they will not be significantly affected by the marketing activities of the competitors. Further, as found earlier, the engineers prefer to focus on optimizing the process to improve product performance and productivity. This study has the following implications for the manufacturing companies and suppliers. This study focuses solely on the engineers and therefore it is not surprising if they view themselves as the most significant influencer in the firm due to the authority, knowledge and information they possess. Future studies should consider respondents from other departments such as QA, purchasing, production, research and development. Nevertheless, the study results convey a clear message that it is imperative for manufacturing companies in general to listen to customers, particularly the CMC. The manufacturing companies ought to strike a balance between their preferred choice of products and/or suppliers and the recommendations given by customers. Additionally, input from the production team cannot be ignored especially in the modified re-buy situation. Being the users of the products purchased, the production team is able to provide accurate feedback which guarantees that all the important criteria are met. In addition, this study provides a comprehensive list of factors influencing products purchased and supplier selection which can be of great value to the manufacturing companies. Many researchers have arrived at the same conclusion that using the right strategy for supplier selection and management will ensure the right suppliers who will adequately support the manufacturer in achieving high quality products to meet the needs and satisfaction of customers (Gonzalez et al., 2004; Ndubisi et al., 2005). Specifically, the results of this study allow manufacturing companies to concentrate on the most important factors, particularly those which scored above the average mean, when it comes to selecting their suppliers and to develop the right expectations for the products purchased.

Journal of Marketing and Management, 1 (1), 1-20, November 2010 17 Notwithstanding the focus and applicability of the findings to purchasing organizations, the study may also provide useful guide to consumer goods decision making process although in different degrees of importance. Sellers must concentrate on the appropriate marketing mix by assigning weighs to each of the corresponding marketing strategies. Some of the product and service selection factors may dominate consumers decisions on purchasing intentions, such as product performance, reliability, warranty, availability, safety, user- friendly, brand name, packaging, reparability, and the like which are delivered in satisfactory quality level (Kotler, 1997). Similarly, some of the supplier selection factors may influence the perception of consumers towards the sellers and therefore their purchasing choices. This includes reputation, location, buyer-seller relationship and the like. Albeit the differences in preference among industrial and consumer goods buying decision process, the objective is still the same, which is to ensure that the product and/or service performance matches or exceeds expectations so as to develop consumer satisfaction and loyalty, and therefore repurchasing intentions. In addition to the statistical findings, the open-ended questions have generated a number of useful recommendations for the surveyed company and other organizations to consider. It is timely for the manufacturing companies to review the current format of industrial product purchasing justification with the aim to overcome the non-uniformity of practice. A proper format allows review by other relevant departments so as to ensure that all the criteria are met. This helps to promote a better review by the management pr ior to arriving at a final decision. In addition, it is also imperative to think of establishing a centralized industrial goods purchasing system, probably through the implementation of enterprise resource planning (ERP) software systems. Such a system helps in ensuring that all the quotations from the same and/or different suppliers are well coordinated in order to effectively track the transactions (Emiliani et al., 2005). Within the centralized industrial goods purchasing system, consolidation of suppliers contacts is vital. This would help the engineers in reducing the sourcing time as well as assisting the purchasing department in reducing cost. From the perspective of suppliers, it is of critical importance that they realign their marketing strategies based on the findings obtained. It is obvious that competing based on price is less relevant in the context of industrial goods purchasing. Instead, value prepositions based on long-term orientation must be emphasized. Customers are looking for products that are able to meet their expectations and specifications. One way to convince the industrial buyers, such as the engineers in this case is by holding product demonstrations and test run availability. By providing engineers with the opportunity to touch, feel, and try the product, this will increase the probability of the product being purchased and the supplier being selected. In addition, constant communication by means of close interaction and regular visits by suppliers is also imperative in developing and maintaining a good relationship with the manufacturing companies (Ambrose et al., 2008). Pressey et al. (2007) emphasize that the suppliers must realign their competitive strategy and organizational with the buying firm in order to determine the success of the relationship. This encompasses the sharing of information such as the latest product available in the market, sharing of risks possibly in terms of joint investments, design and development and trial runs, and by sharing the rewards gained such as profit, goodwill, and reputation. More importantly, suppliers must attempt to develop trust with the purchasing organization. Ryu et al. (2008) provide empirical evidence that the manufacturers perception of a suppliers trustworthy behavior weakens t he justification for a higher degree of control and reduces the discontent of suppliers performance. The potential gains from such relationship can be astronomical and can in fact

Journal of Marketing and Management, 1 (1), 1-20, November 2010 18 be extended to generating customers trust and commitment, and ultimately leading to their satisfaction and loyalty (Moliner et al., 2007). This study also provides an impetus for the suppliers to reconsider their recruitment and selection processes of salespersons to ensure that only those with the appropriate skills, abilities, and knowledge are hired. They must be constantly sent for training in both hard and soft areas. Hard areas encompass the technical aspects of the equipments they sell so as to enhance their technical knowledge, while soft areas include sales techniques and emotional intelligence required to develop their communication and interpersonal skills which have been proven to influence sales performance (Deeter-Schmelz and Sojka, 2003).

CONCLUSION This study has successfully achieved all the four research objectives in analyzing the industrial goods purchasing behavior of a selected CMC and the marketing strategies of the suppliers based on new task buy and modified re-buy situations. It adds weight to the argument that an understanding of the factors may guide efforts of the purchasing organizations towards the identification of appropriate suppliers. The suppliers, on the other hand, will be able to determine the preferences of the purchasing organizations and hence use the right marketing strategies targeted at the right influencers to boost the sales of their goods and services. The findings reported in this study need to be interpreted with caution due to limitations that warrant further research. This study focuses only on a single company which limits the levels of external validity and reliability to analytical generalization (Forslund et al., 2009). A comparison between the CMCs in Malaysia and across geographical boundaries may yield different results. It is also possible for future studies to consid er multinational companies (MNCs) and even government linked companies (GLCs). This is in view of the fact that many progressive organizations are now developing proactive supplier-based strategies in order to integrate key suppliers into their processes and systems (Cormican and Cunningham, 2007). Additionally, this study considers two buying situations in the buy classes model (new task and modified re-buy) without directly referring to the straight re-buy buying situation and that only the most significant items are analyzed. In order to generate a holistic picture, future studies should consider comparing the purchasing behaviors in new buy, re-buy and straight re-buy situations across different types of companies and departments using a more rigorous statistical analyses across all the items so that all the issues highlighted above can be appropriately addressed.

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