Organizational buying behaviour - Marketing Management

There are three categories of organizational purchasers:

  1. institutional buyers (e.g. buyers in the police service, fire service and public authority);
  2. retail buyers;
  3. industrial buyers.

These differences give rise to major differences between the three types of buying.

Organizations buy to enable them to provide goods and services that eventually reach final consumers. As has been explained, consumer buying behaviour relates to individuals (or families) buying goods and services for their own use. Both organizational and consumer buying behavior involves people, individually and in groups, who are affected by environmental and individual factors.

Organizational buying usually involves group decision making, which is known as the ‘decisionmaking unit’ (DMU) or what Webster and Wind16 referred to as the buying centre. In such a group, individuals have different roles in the purchasing process, categorized as:

  1. Initiators – these people requisition or suggest purchasing a product or service;
  2. Users – these are people in the organization who use the product. Sometimes they will also be involved in devising product specifications;
  3. Influencers – influencers affect the buying decision in different ways e.g. they may be technical personnel who have developed product specifications;
  4. Deciders – deciders make the buying decision (in most cases this is the buyer);
  5. Buyers – buyers have formal authority to purchase the product;
  6. Approvers – these people authorize actions of deciders or buyers;
  7. Gatekeepers – gatekeepers control the flow of information to and from DMU or buying centre members e.g. a buyer’s assistant or a telephonist.

One person might play all these roles, or each may be performed by different persons or groups of people.

Another difference in organizational buying is that many products are complex and require specialist knowledge to purchase. Where products have complicated specifications, there is more communication and negotiation between buyers and sellers. After-sales service is important and suppliers are evaluated after purchase. Organizational markets have fewer, larger buyers who tend to be geographically concentrated. Another aspect is the nature of derived demand, where demand for organizational (especially industrial) goods is derived from consumer markets. If demand for end product consumer goods falls this affects the entire supply chain.

Organizational buying decisions can be categorized into buy classes as to how complex they are, similar to low/high involvement decision making in consumer markets. A straight re-buy occurs often, is relatively cheap and usually a matter of routine. If the supplier is an ‘in’ supplier they are on the company’s approved list of suppliers; they have to perform well so they do not get taken off the list. If they are ‘out’ suppliers they must try to get onto the approved list. A modified re-buy is a situation that requires some additional information or evaluation of suppliers. It is usually the case that specifications have been modified since the last purchase. A new task or new buy is the most complex purchase decision, when the company has not bought the product before. Search and evaluation procedures are extensive.

The process of organizational buying

The process involved in organizational buying has many similarities to consumer buying. Both go through a form of need recognition, search, evaluation, choice and post-purchase evaluation.

the specific buy phases organizations go through when buying. Need recognition occurs when the company has a need that can be fulfilled by the purchase of a product. Need can be stimulated internally from within the organization or through external means (e.g. if a salesperson visits with a new product). The company will then draw up general specifications. This can be done in consultation with the prospective seller, so more detailed specifications can be assimilated. Value Analysis (VA) (sometimes called Value Management) is a technique that evolved from Value Engineering that was first used in General Electric, USA during the Second World War. It can be used to reduce the costs of components in the production process by a team approach that critically examines the function and specification of each part in every component and sub-component. The team typically consists of people from design, manufacturing, marketing and purchasing, so different views can be incorporated e.g. if the manufacture of a particular product has tight specifications, this can be costly in terms of precision engineering components that must be produced; however, if marketing states that customers do not need such precisely engineered component parts, then the specification can be lowered with potential cost savings.

Organizational buying process

Organizational buying process

In the search stage of the organizational buying process, buyers use many information sources.They may advertise for tenders, investigate trade journals or directories, speak to salespeople, look at their own records or visit trade shows.

Marketing implications for suppliers include achieving a good reputation in the marketplace, attending trade shows, advertising and trying to identify prospective customers. By so doing the company can be considered early in the decision process and may even be involved in the formulation of specifications.

Evaluation may be systematic, involving some form of supplier evaluation technique. These can be detailed, covering quality, price, delivery and after-sales service. The buying centre will evaluate proposals and alternative product offerings and decide on the most suitable purchase choice. At this stage there may be further negotiations to alter the price on certain product specifications. The buying centre may choose to have a number of suppliers to protect it from being too dependent on one supplier. The selection stage may also incorporate some form of reordering system and the evaluation of the product after purchase, and such a procedure is often formalized.

Time spent, resources committed and whether all stages are passed through depends on the type of product bought. A ‘new task’ product means that all stages will probably be passed through. A straight re-buy will be a relatively quick process, missing a number of stages, and this type of purchasing is now often accessed by routine computerized buying. The people involved in the decision-making process can change over time, and it is important for the marketer to be aware of how marketing tactics can be modified because of this.

Members of the buying centre or DMU are influenced by both rational and emotional factors in their decision making. Marketers should be aware of different influences on the buying centre, although emotional factors are much more difficult to predict and interpret. Rational motives include price, service, quality and reliable delivery, whereas emotional motives include personal friendships between sellers and buyers and perceived risks of purchasing. Other influences on organizational buyers are now examined.

Influences on organizational buying

In consumer buying behaviour we discussed environmental and individual factors that influence purchasing behaviour. In organizational buying there is a more complex environment adapted from Hutt and Speh’s model.17 Environmental forces on buyer behaviour include economic, legal, political, cultural, physical and technological factors, so general economic trends in the commercial arena in which the buying organization is located are important, as are specific economic trends in areas in which it trades (due to derived demand). When evaluating economic trends, the marketer should take a global perspective as world trade expands. The political and legal environment includes government spending, taxation and import and export controls, which should be evaluated for their influence on buying decisions. As global markets develop it is easy to disregard cultural differences, yet there are many different cultural climates and they should be addressed individually. Physical influences involve the geographical location of the organization and a changing technological environment also influences buying decisions. Marketers must also take account of group force purchasing influences:

  1. Who is involved in the buying decision?
  2. What influence does each member have?
  3. How does each member of the buying centre evaluate alternative products?

The type of information that is needed on group forces only becomes available when close contact is maintained with the buyer. This reinforces the role of the salesperson in the buying decision process. Members of the DMU are distinguished by the roles that each member carries out. Organizational forces, such as the organizational culture of the business, also have an effect on the buying decision. For instance, when marketing to an organization that has a highly centralized structure, including the buying function, this needs a different marketing approach to companies that have a decentralized structure.

It might be assumed that organizational buying has little to do with individual forces. In any buying centre, individuals make buying decisions, not the organization. Different members of the buying centre may evaluate products using different criteria, which complicates the issue for the organizational marketer. Individuals try to reduce the level of risk they are exposed to in the purchase decision by using multiple sources or using an extensive information search. These factors have been developed into a comprehensive model of organizational buying behaviour by Webster and Wind.

There have been a number of trends over recent years within organizational purchasing that have implications for marketing management:

  1. Purchasing is now more specialized and professional.
  2. There is more centralized purchasing.
  3. Computerized purchasing has increased.
  4. There are new philosophies of purchasing, e.g. ‘just-in-time’, zero defects and materials management.
  5. Supplier capability and performance analysis have improved.
  6. Use of e-commerce purchasing and supply has increased.

Influences on organizational buying

Influences on organizational buying

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