December 3, 2011

Organizational Buying Processes and Buying Behavior

Marketing Management Article Series

Organization buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers.
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Organization buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. (Webster and Wind)


Some of the characteristics of organizational buyers are:

1. Consumer market is a huge market in millions of consumers where organizational buyers are limited in number for most of the products.
2. The purchases are in large quantities.
3. Close relationships and service are required.
4. Demand is derived from the production and sales of buyers.
5. Demand fluctuations are high as purchases from business buyers magnify fluctuation in demand for their products.
6. The organizational buyers are trained professionals in purchasing.
7. Several persons in organization influence purchase.
8. Lot of buying occurs in direct dealing with manufacturers.


Organizational Buying Situations


Straight rebuy
In this buying situation, only purchasing department is involved. Thet get an information from inventory control department or section to reorder the material or item and they seek quotations from vendors in an approved list.
The "in-suppliers" make efforts to maintain product and service quality. The "out-suppliers" have to make efforts to get their name list in the approved vendors' list and for this purpose they have to offer something new or find out any issues of dissatisfaction with current suppliers and promise to provide better service.

Modified rebuy
In this buying situation, there is a modification to the specifications of the product or specifications related to delivery. Executives apart from the purchasing department are involved in the buying decisions. The company is looking for additional suppliers or is ready to modify the approved vendors list based on the technical capabilities and delivery capabilities.

New task buy
In this situation, the buyer is buying the product for the first time. As the cost of the product or consumption value becomes higher, more number of executives are involved in the process. The stages of awareness, interest, evaluation, trial, and adoption will be there for the products of each potential supplier. Only the products which pass all the stages will be on the approved list and price competition will follow subsequently.

Systems buy
Systems buying is a process in which the organization gives a single order to a single organization for supplying a full system. The buying organization knows that no single party is producing all the units in the system. But it wants the system seller to engineer the system, procure the units from various vendors and assemble, fabricate or construct the system.


Participants in the Business Buying Process

Buying Center Concept

Webster and Wind in the model they proposed to describe organizational buying process, identified  the organizational buying process as a team process and called the team or the buying decision-making unit of the organization as buying center. The buying center consists of all persons of the organizations who are involved in the buying process playing one or the other seven roles: Initiators, Users, Influencers, Deciders, Approvers, Buyers, and Gatekeepers.

Users
The persons who use the item. Say for safety gloves the operators.

Initiators
The persons who request the purchase. The safety officer may initiate the request for the purchase.

Influencers
Persons who held define specifications. In this case of safety gloves, the safety officer may himself define specifications. If an industrial engineer is in the organization, he may also be consulted. There can a different gloves for different working situations and industrial engineer may be more aware of specific requirements due to his special nature of work - human effort engineering.

Buyers
They are the person who actually do the buying transaction.

Gatekeepers
They control access to personnel in a company. The receptionist, the secretaries etc.

Deciders
People who decide on product requireements and suppliers. It is the final approval for product specfications and suppliers' list.

Approvers
Persons who approve the purchase. In the case of safety gloves, the personal manager may have the power to approve.



Major Influences on Business Buyers


Environmental factors
Expected demand for the product that the buying organization is selling, expected shortages for the item, expected changes in technology related to the item etc. are the environmental factors that will have an effect.

Organizational factors
Changes in purchasing department organization like centralized purchasing, decentralized purchasing and changes in purchasing practices like  long-term contracts, relationship purchasing, zero-based pricing, vendor-performance evaluation are the organization factors of importance to marketers.

Interpersonal factors
These factors are the relationship between buyers and sales representatives of various competitor companies.

Individual factors
These factors related to the buyer. What sort of ways of interacting and service are appreciated by the buyers and what ways are considered as irritants? Marketers have to understand the reactions of buyers.

Organizational Buying/Purchasing/Procurement Process

Steps in the Process
Problem recognition
General need description
Product specification
Supplier search
Proposal solicitation
Supplier selection
Order routine specification
 Supplier performance review

References

Philip Kotler, Marketing Management, 9th Edition

Marketing Management Online Text Book by Tanner and Raymond - Principles of Marketing


Research Papers


Webster Frederick E. Jr. and Yoram Wind, "A General Model for Understanding Organizational Buying Behavior"
Journal of Marketing, Vol. 36, April 1972, Pp.12-19.
http://marketing.wharton.upenn.edu/documents/research/7215_A_General_Model_for_Understanding.pdf

Wind, Yoram and Frederick Webster Jr., " On the Study of Industrial Buying Behavior:   Current Practices and Future Trends", Industrial Marketing Management, 4(1972), Pp. 411-416
http://marketing.wharton.upenn.edu/documents/research/7202_On_the_Study_of_Industrial.pdf

Sheth, Jagdish, "Organizational Buying Behavior: Past Performance and future expectations", Journal of Business and Industrial Marketing, Vol.11, No.3/4, Vol.11, Pp.7-24
Download link for the paper
http://www.jagsheth.net/docs/Organizational%20Buying%20Behavior%20-%20Past%20Performance%20and%20Future%20Expectations.pdf


Correspondence course materials


IGNOU India course chapter of Consumer behavior
Organizational Buying Behavior: Some Typical Characteristics
http://www.egyankosh.ac.in/bitstream/123456789/35420/1/Unit-3.pdf

London International course material
Chapter on Consumer and Industrial buying behavior

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Article on differentiating and positioning http://nraomtr.blogspot.com/2011/11/marketing-strategy-differentiating-and.html

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Keep your knowledge sharp. Use maximum amount of knowledge in decision making. Refer books before taking critical decisions to ensure that you are considering the big range of options and subjecting them to analytical alternatives available.

For Revision of MBA Course Subjects


Management Theory Review

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1 comment:

  1. Very useful. Thank u for sharing this knowledge.

    ReplyDelete