Influences on Buying Decisions
Though the method of buying and reasons for buying among business consumers is different from individual consumers, there are various factors that influence organizational buying decisions. Organizational purchase decisions are influenced by the firm’s external and internal variables.
There are four major variables influencing business buyers’ decisions namely, environmental variables, organizational variables, interpersonal variables, and individual variables.
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Variables of Influencing Business Buyer’s Decisions
Among the various environmental variables, the influence of the state of the economy and other economic factors including government policy is the most important variable in organizational buyer behavior. The demand of the business market is derived from demand; all those factors affecting the individual consumers also indirectly influence business markets.
The ultimate demand for products and goods comes from the demands in consumer markets and if there is a fluctuation in the consumer market demand, it is likely to affect the derived demand of the business market also.
The direct influence on business markets comes from the changes in the economic factors in a market. The Indian economy has started looking attractive and many multinational and international service providers and manufacturers have entered into the Indian market, increasing the attractiveness and structure of the market.
In order to attract foreign investment and motivate businesses for further investment, government changes interest rates for lending as well as deposits, which helps in facilitating the business market growth and benefiting the investors.
The regulatory environment of the post-independence period controlled the growth of business markets through licensing and quota restrictions. Liberalization and lowering of entry barriers have helped in free market competition and an increase in demand for industrial goods and services across the nations.
The technological environment also influences the business markets. It not only influences by lowering of the cost structure of firms but also develops alternative models of business. The advent and usage of the Internet in e-commerce have helped many business markets to unlock value, which was not possible in the past.
Applications of SAP, ERP, and other packages have also contributed to an efficient system of logistics and distribution management between suppliers and business customers.
Overall demand patterns for industrial goods and services are in an upward swing in the Indian market due to the interplay of macro forces like competition, changes in the regulatory environment, technological changes, and quantum jumps in overall demand for products and services.
Concerns for society and the environment have also given opportunities for new industries to boom and some of the traditional businesses to further their investments to make themselves more socially and environmentally friendly. The recent success of a company like Suzlon Technology is an example of how socially and environmentally concerned companies can create new business opportunities across the globe.
Internal variables like the culture and environment of an enterprise affect buying decisions. Every organization follows systems and procedures for business buying. These systems and procedures have developed over a period of time reflecting the culture, policies and practices, processes, structures, and objectives of the enterprise.
A business marketer needs to understand these influences while making transactions, as they are most likely to have a direct influence on the purchase process.
If one gives a glance at the business process reengineering in most of the large organizations in the ’80s and ’90s, it is interesting to observe that purchasing department has taken a strategic role in achieving the goals of the enterprise not only by taking strategic long-term decisions on cost management but also developing long term relationships with vendors and suppliers leading to lowering of inventory cost, smooth flow of raw materials with minimal bottlenecks.
It has also secured a higher level of information integration through the application of information technology and sharing of valuable information among the supply chain networks for organizations. These steps have brought attractive results for business buyers both at the top level as well as bottom levels.
Purchasing is more of a cross-functional issue these days due to the involvement of people across different departments. A decision to buy is more strategic and team-oriented and involves more responsibility. Cross-functional orientation makes purchasing an enterprise orientation rather than a departmental initiative.
This has led purchasing to be a centralized function in the corporate rather than a distributive function in multi-division and multi-location companies. Now companies are globally sourcing raw materials for their business operations in different parts of the world.
It provides substantial savings and convenience to companies. Location or job-specific, low-value purchases, are now handled at the local level through decentralized purchasing. This is possible by empowering employees to purchase these small ticket items.
Another revolution in organizational practices is in the form of purchases made over the Internet. Many of the suppliers have an online presence and many of the firms have started dealing with online customers and transactions are happening on the Internet.
The success of e-commerce is seen more in the B2B context than in a B2C context across the globe. Both buyers and suppliers have developed web platforms and e-agents for transactions over the Internet. Though the security of the transaction is a concern, the trend is moving more towards online buying for many business houses like Walmart and K-mart.
Companies are also going in favor of long-term contracts than a piecemeal basis for benefit of both the supplier, who is assured of a future flow of revenue, and also the buyer who is assured of regular supply of raw materials, smooth flow of goods, and services without interruptions and also with proper raw material cost control on a long run basis.
The members of buying center as well as the purchase manager’s performance will be evaluated on the basis of preset goals for people in the department e.g. reduction in costs in certain percentages, improvements in raw material and other supply qualities, and linking it with the incentive schemes and professional development programs of the company.
The marketer needs to know who exerts the maximum authority and who would be able to persuade others to agree with his viewpoint. Knowledge of group dynamics helps the marketer evolve his strategy for selling to the buying center.
Buying center is a collection of different kinds of participants with different attitude levels and power dynamics among each other. The roles, responsibilities, and hierarchies within the buying center also influence the decision process. Each buyer has his personal motivation and interpersonal relationships with others in the buying center.
Even though there are several individual, organizational factors and environmental variables affecting the buyer’s decisions, in the end, it is a human decision involving individuals who matter most. People carry their motivations, perceptions, market knowledge, and preferences while making purchase decisions.
Decision-making is also influenced by demographic variables like age, income, occupation, position in the company, and perception of risk involved in decision-making. These factors have a direct bearing on organizational buyers’ decisions. It is therefore important that the business marketer be aware of all these buying influences and develop his sales and marketing pitch accordingly.