SUB-TOPIC: ORGANIZATION BUYING BEHAVIOR

SUB-TOPIC: ORGANIZATION BUYING BEHAVIOR
Organizations are social constructions, Therefore, “organizations” do not buy things, Individual employees make purchase decisions on the organization’s behalf. Understanding the personal motivations of these individuals, and their influence on different stages of the purchasing process, is essential for marketing success.
 In the consumer market a very large percentage of purchase decisions are made by a single person.  As we discussed in the Consumer Buying Behavior, there are situations in which multiple people may be involved in a consumer purchase decision, such as a child influencing a parent to choose a certain brand of cereal or a husband and wife deciding together to buy a house, but most of the time purchases in consumer markets are individual decisions.  The business market is significantly different.  While single person purchasing is not unusual, especially within a small company, a significant percentage of business buying, especially within larger organizations, requires the input of many people.  In the marketing literature those associated with the purchase decision are known to be part of a Buying Center, which consists of individuals within an organization that perform one or more of the following roles:
(i)   Buyer – responsible for dealing with suppliers and placing orders, for example, purchasing agent
(ii)  Decider – has the power to make the final purchase decision, for example  Chief Executive Officer (CEO)
(iii)              Influencer – has the ability to affect what is ordered such as setting order specifications, foe example, engineers, researchers, product managers, and other user departments in the organization
(iv)              User – those who will actually use the product when it is received, for example office staff
(v)  Initiator – any Buying Center member who is the first to determine that a need exists, for example user departments such as office staff
(vi)              Gatekeeper – anyone who controls access to other Buying Center members, for example administrative assistant
 The meaning of organizational buying center
The organizational buying center are the individuals in the organization that share knowledge and information relevant to the purchase of a particular product or service.
Marketers should know:
- Which individuals to target.
- How and when each should be contacted.
- What kinds of information and appeals each is likely to find most useful and persuasive.
 It is very important for the marketers to first identify who plays what role in the organization buying center.  Once identified the marketer must address the needs of each member, which may differ significantly.  For instance, the Decider, who may be the company president wants to make sure the purchase will not negatively affect the company’s bottom line while the Buyer wants to be assured the product will be delivered on time.  Thus, the way each Buying Center member is approached and marketed to requires careful planning in order to address the unique needs of each member.
When the Decision Marking Unit (DMU) within the organization wants to purchase a certain product or service the following steps are taken inside the buying center:
1. Need or problem recognition
The recognition can start for two reasons. The first reason can be to solve a specific problem of the company. The other reason can be to improve a company’s current operations/performance or to pursue new market opportunities.
2.  Determining product specification
The specification includes the peculiarities (characteristics or quality) that the product/service that is going to be purchased has to contain.
3.  Supplier and product search
This process contains the search for suppliers that can meet a company’s product or service needs. First a supplier that matches with the specifications of the company has to be found. The second condition is that the supplier can satisfy the organizations financial and supply requirements.
4.  Evaluation of proposals and selection of suppliers
The different possible suppliers will be evaluated to assess their capability to perform the work.
5.  Selection of order routine
This starts after the selection of the supplier. It mainly consists of negotiating and agreeing with the supplier about certain details.
6.  Performance feedback and evaluation
Performance and quality of the purchased goods will be evaluated. In this process of making decisions different roles can be given to certain members of the center of the unit depending on the importance of the part of the organization.
 A COMPARISON OF ORGANIZATIONAL VS CONSUMER MARKETS
The following are the crucial differences from a marketing point of view between organizational and consumer markets:
1. The motivations of the buyer: what the organization will do with the product and the benefits it seeks to obtain.
2.The demographics of the market.
3.The nature of the purchasing process and the relationship between buyer and seller.
Purchase motives:
Demand for industrial goods and services is:
- Derived from the demand for consumer goods and services.
- Relatively inelastic.
- More erratic because small increases or decreases in consumer demand can, over time, strongly affect the demand for manufacturing plants and equipment.
- More cyclical.
Market demographics: Organizational buyers, when compared with buyers of consumer goods, are:
(i)   Fewer in number.
(ii) Larger.
(iii) Geographically concentrated.
Purchasing processes and relationships
Organizational markets are characterized by the following:
(i)   Use of professional buying specialists following prescribed procedures.
(ii)  Closer buyer–seller relationships.
(iii)   Presence of multiple buying influences.
(iv) More application to buy on specifications.

Organizational marketers tend to:
   Use direct selling.
   Be heavy users of “high-involvement” media.
Participants in the organizational purchasing process:
   Users
   Influencers
   Gatekeepers
   Buyers
   Deciders
                         
TYPES OF BUYING SITUATIONS
   A straight rebuy
This involves purchasing a common product or service the organization has bought many times before.
   A modified rebuy
This occurs when the organization’s needs remain unchanged, but buying center members are not satisfied with the current product or the supplier.
   New-task buying
This occurs when an organization faces a new and unique need or problem
DIFFERENT KINDS OF GOODS AND SERVICES SOLD AND BOUGHT UNDER B2B
(a) Raw materials
   Purchased primarily by processors and manufacturers, they are inputs for making other products.
   The two types are natural products and farm products
Implications for marketing decision makers:
   The limited supply of most natural products gives producers the power to limit supplies and administer prices.
(b) Natural materials
   Generally bulky and low in unit value –producers try to minimize handling and transportation costs.
   Distribution channels for natural materials tend to have few middlemen.
(c) Agricultural products
   Distribution is a key function.
   There is usually little promotional activity.
(d) Component materials and parts
   Purchased by manufacturers as inputs for making other products.
   Component materials have been processed to some degree before they are sold.
   Component parts are manufactured items assembled as part of another product without further changes in form.
Implications for marketing decision makers
   Most components are bought in large quantities – they are usually sold direct.
   Sellers must ensure a steady, reliable supply, especially when a just-in-time (JIT) management system is used by the buyer.
   Competitive bidding by suppliers can provide some of the cost saving benefits of JIT systems without the time and effort necessary to build close cooperation.
(e) Installations
Buildings and major capital equipment that manufacturers and service producers use.
Implications for marketing decision makers
   Many installations are custom-made.
   Long period of negotiation.
   Firms usually provide many postsale services.
   Promotional emphasis on personal selling.
   High-caliber, well-trained salespeople.
(f) Accessory equipment
   Includes industrial machines and tools that manufacturers, services producers, and governments use to carry out their operations.
   Accessory consists of tools and machines with relatively short lives and small price tags.
Implications for marketing decision makers
   Emphasis on personal selling.
   Advertising, brand name promotions, and company Web sites are also important.
(g) Operating supplies
   They do not become a part of the buyer’s product or service, nor are they used directly in producing it.
   They facilitate the buying organization’s day-to-day operations.
Implications for marketing decision makers
   Wholesale middlemen are typically used to distribute these supplies.
   Price is usually the critical decision variable.

Organizations buy things for one of three reasons:
   To facilitate the production of another product or service,
   For use by the organization’s employees in carrying out its operations, or
   For resale to other customers.