Every time a supermarket decides which brand of cooking oil to stock, how many units to order, and which supplier to sign a deal with, a complex set of decisions plays out behind the scenes. These choices are rarely random. They follow patterns that researchers have studied for decades. One of the most influential frameworks for understanding how organisations make purchasing decisions came from Jagdish N. Sheth, whose work helps explain why a retail buyer picks one supplier over another and how much of a product they decide to carry. This framework, commonly called Sheth’s model, applies to both industrial buyers and retail buyers, and it remains a core part of how we understand the buying function today.
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Where Sheth’s model comes from
In 1973, Jagdish N. Sheth published a paper titled A Model of Industrial Buyer Behavior in the Journal of Marketing. The paper pulled together a large body of research on how organisations buy and turned it into a single descriptive model. Until then, there was plenty of data on organisational buyers but very little that managers could actually use. Sheth’s contribution was to organise this knowledge into a clear structure that explained the decision-making process.
The model was an extension of the earlier Howard-Sheth model of consumer behaviour, adapted to the special conditions of organisational buying. Sheth later applied the same thinking specifically to merchandise buying, producing a theory built around four ideas: merchandise requirements, supplier accessibility, choice calculus, and the ad hoc situations that disturb otherwise rational choices. This is why the model is so useful for retail. A retail buyer is, after all, an organisational buyer who purchases goods for resale rather than for personal use.
What the model explains
At its heart, Sheth’s model answers two linked questions. First, what merchandise does a retailer actually need to carry? Second, which supplier should provide it, and on what terms? The model shows that these answers depend on a mix of organisational factors, environmental conditions, and the practical realities of negotiation. The retailer starts with an ideal in mind but often ends up with a different actual choice because of factors outside its control.
Inter-organizational factors: who the retailer is
The first set of influences relates to the nature of the retailer itself. Sheth argued that the kind of business a retailer runs directly shapes what it needs to buy. Four characteristics matter most here.
Retailer size
Size refers to the scale of the business and how it is owned. A small family-run shop operates very differently from a large corporate chain. A family-run store may buy in smaller quantities, rely on personal relationships with suppliers, and make decisions quickly. A corporate retailer like a large supermarket chain buys in bulk, uses formal procurement systems, and negotiates harder on price. Size determines both the volume a retailer can order and the bargaining power it brings to the table.
Type of business
The type of business shapes the merchandise mix. A departmental store carries a wide range across many categories. A hypermarket combines groceries and general merchandise under one roof. A specialty store, by contrast, goes deep into a single category such as footwear or electronics. Each format needs a different assortment, so the buying decisions follow accordingly. A specialty buyer looks for depth and expertise from suppliers, while a departmental store buyer looks for breadth.
Management mentality
Management mentality captures the strategic outlook of the people running the business. A retailer that wants to be a market leader will stock popular, fast-moving products and compete on volume and price. A niche player will deliberately choose distinctive or premium merchandise to serve a smaller, focused group of customers. The same product category can lead to completely different buying choices depending on this mindset.
Location
Location influences demand and therefore the merchandise required. A store in a metro city may sell premium and aspirational products, a semi-metro outlet may balance value and variety, and a store in a smaller town may focus on essentials and value-for-money goods. Buyers must match their assortment to the buying power and preferences of the local market.
Together, these inter-organizational factors feed into what the model calls merchandise requirements – the specific products and supplier attributes the retailer uses to evaluate what it should carry. Research on retailer buying confirms that these requirements are judged against the retailer’s reading of consumer needs and wants.
Supplier accessibility
Knowing what merchandise is needed is only half the story. The retailer then has to find suppliers who can deliver it. This is where supplier accessibility comes in. Sheth defined it as the set of supplier and product options realistically available to satisfy the retailer’s requirements. Three things shape this accessibility.
The first is the supplier’s corporate image. A supplier with a strong reputation for quality and reliability is more likely to be considered. The second is the competitive structure of the supplier’s category. If a category has many capable suppliers, the retailer has more choice and more leverage. If only one or two suppliers dominate, the retailer’s options narrow. The third is the supplier’s relative marketing effort – how actively the supplier promotes itself, supports the retailer, and stays visible. Studies note that the competitive structure of the supplier industry and the corporate image of the supplier firm are central to how accessible a supplier feels to a buyer.
Adhoc situational factors
In an ideal world, a retailer would simply pick the best supplier for each requirement. Sheth was realistic enough to know this rarely happens cleanly. He pointed out that not all buying decisions follow a systematic process. Several ad hoc situational factors can push the actual choice away from the ideal one.
These include the broader business climate, such as whether the economy is in a recessionary or inflationary phase. They include the company’s financial position, since a retailer short on cash may delay orders or choose a supplier offering easier credit. They include the give-and-take of business negotiations, which can shift terms in unexpected ways. And they include market disturbances like sudden shortages or surpluses that force quick, practical decisions. A buyer who ideally wanted Supplier A might end up with Supplier B simply because A could not deliver during a shortage.
Choice calculus and final selection
The point where everything comes together is the choice calculus. This is the set of rules or heuristics a retailer uses to match its merchandise requirements with the suppliers actually available. The calculus decides the number of items to stock for each product type, the quantity to order, the trade terms to agree on, and the profit margins to target.
Sheth described different ways retailers run this calculus. In his work on merchandise buying behaviour, he explained a trade-off approach in which a retailer weighs criteria like price, packaging, and delivery against one another. A supplier with a better price but a weaker delivery schedule might still be chosen if price matters more in that situation. The choice calculus reflects the strategic purchasing policy of the retail establishment.
From this calculus emerges the ideal supplier and product choice. But the final, actual selection is filtered once more through business climate, market disturbances, and the retailer’s financial position. The gap between the ideal and the actual choice is exactly what the situational factors create.
Hansen and Skytte’s revised model (1998)
Sheth’s framework was built for a pre-digital retail world. By the late 1990s, technology had begun to reshape procurement, and the model needed updating. In 1998, Tommy Holm Hansen and Hans Skytte published a review of retailer buying behaviour in The International Review of Retail, Distribution and Consumer Research. They proposed a revised model that kept Sheth’s core logic but added factors relevant to modern retail.
The revised model brought in electronic data interchange, which lets retailers and suppliers exchange order and stock information automatically. It added the buyer’s characteristics, recognising that the individual buyer’s skills and judgement shape decisions. It included information technology more broadly, since systems like point-of-sale terminals, barcode scanning, and electronic data interchange systems now drive purchasing. And it accounted for buying associations – groups of retailers who pool their purchasing power to negotiate better terms.
These additions matter because they change the final choice of merchandise and suppliers, and they also shape the retailer’s wider buying and marketing strategy. The Hansen and Skytte version captures a procurement environment driven by data and connected systems, which is exactly how organised retail operates today through centralised buying and technology-led supply chains.
What do you think? Looking at the retailers you visit most often, can you spot how their size, format, and location shape what they choose to stock? And as data systems and buying groups grow more powerful, do you think the buyer’s individual judgement still matters as much as it did in Sheth’s original model?
References
- https://en.wikipedia.org/wiki/Jagdish_Sheth
- https://journals.sagepub.com/doi/abs/10.1177/002224297303700408
- https://ceopedia.org/index.php/Howard_Sheth_model_of_consumer_behaviour
- https://www.researchgate.net/publication/233514911_Retailer_buying_behaviour_A_review
- https://www.researchgate.net/publication/5092926_Retail_and_wholesale_buying_behaviour_for_two_different_food_products_in_six_Eastern_European_countries
- https://www.jagsheth.com/consumer-behavior/a-model-of-industrial-buyer-behavior/
- https://www.jagsheth.com/consumer-behavior/a-theory-of-merchandise-buying-behavior/
- https://www.tandfonline.com/doi/abs/10.1080/095939698342788
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8134666/
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