Buyer Identification and Behavior

April 13, 2006

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Do you know who your buyers are? Do you understand why they buy your products or services? Assuming that other factors in making the product available (distribution) and known to the buyer (advertising and promotion) are in effect, influences on the buyer may be catalogued by:

culture
demographics
lifestyle
psychology of wants and needs

If your target buyer is also the end user of your products and services, then demographic, lifestyle, and other target buyer identification and classification are appropriate. However, if intermediate buyers are involved prior to products reaching the end user, other influences may be important.

For example, consumer packaged goods such as food, health, and beauty aids and household products may be initially purchased in large amounts by a master distributor, who sells to local/regional distributors. These local distributors often sell to a wholesale buyer representing a chain of stores. Finally, individual store managers decide to buy and stock the product before the consumer ever has a chance to buy the product.

Other buyer influences may be at work under these circumstances:

Profitability of the item: The higher the margin and dollar profit per item vs. competitive category products, the more likely the trade will accept it, regardless of product quality.
Discount deals available: They can increase margin, volume, and velocity of the item. For example, 10 percent to 25 percent off invoice each quarter for all purchases during the period are typical discounts for grocery and drug retailers.
Advertising and promotion support programs: Multi-media TV, radio, print and PR support, plus heavy consumer couponing, sweepstakes, and contests are typical consumer packaged goods programs that may be run one to four times/year.
Other cash deals: For example, new item "Slotting Fees" are the subject of controversy and frustration for many manufacturers supplying grocery, drug, and mass merchandiser retailers. Slotting fees are cash payments and/or free goods that are not refundable, even if the products are dropped after six months by the retailer. Slotting fees range from a few hundred dollars to over $25,000 per item in some chains.
Free goods available: For example, one case per store is common for new grocery item distribution.
Personal buyer/seller relationships: There will always be personal relationships influencing buying decisions as long as there are people selling to people. That's why you hire good salespeople!
Sales incentive programs: These programs may spur salespeople on to greater productivity and sales of a particular item or offering.

For example, grocery buyers of consumer packaged goods may have strict profit margin guidelines (e.g., minimum 25 percent on discount retail price programs), and minimum discount thresholds that they will accept (e.g., at least 10 percent off invoice). Buyers are also heavily influenced by brand advertising and promotion support programs (e.g., coupons in local newspapers on the promoted brand). For new products, cash payments to the stores for each new item (e.g., $500 to over $25,000 per item) and free case goods on each new item for each store are common for larger chains.

The more exact the identification of your target buyer, the more efficient your marketing programs will be in generating sales from regular or heavy users. For our purposes, we will divide target buyers into two groups:

end users who are the ultimate consumers or users of the product or service
channel buyers who are intermediary buyers between the company and the ultimate consumer/user