Nature of Organisational Buyer Behaviour
Organizations buy buildings, plants, office equipment, furniture, supplies, raw material, packaging material, products for resale, and such services as insurance, financing, consulting and transportation. Most of these organizational purchases are indirectly linked to the economy’s purchases of satisfying consumer demand.
Table of Contents
- 1 Nature of Organisational Buyer Behaviour
- 2 Example of Finacle of Infosys Technologies
- 3 Organizational Consumers
- 4 Organizational Buyer’s Buying Motives
- 5 Organizational Buying Situations
Let us consider consumer’s demand for ice creams, which creates a secondary demand and this, gives rise to many organizational markets like paper cartons, milk and cream, business insurance and distribution services, and so forth.
- Direct Demand: Organisational buyers purchase a larger volume of products and services than individual consumers as their demand is influenced by final consumer demand.
- Derived Demand: The demand for industrial products is called derived demand. There are multiple transactions involved in the buying process between the organizational buyer and the set of suppliers.
The ice cream illustration explains the ‘why’ of such characteristics. Many transactions go on between companies so that a manufacturer can produce the ice cream and get it to where consumers can buy it. Thus, many organizational purchases precede every consumer purchase. Organizational purchases also involve more than one person in the purchase process who plays a significant role in buying.
Business-to-business marketing involves developing an exchange process in which products and services are sold for any use other than personal consumption. The buyer can take any form viz. that of a manufacturer, reseller, government, non-profit institution, or any organization other than an individual consumer. The transaction occurs so that the organization can conduct its business.
Therefore, business markets also include government, and non-profit institutions above conventional markets such as manufacturers, wholesalers, service markets, and retailers. It is easy to classify the business market and consumer markets by answering two questions namely who bought it and why did they buy it.
Organizations buy raw materials, component parts, equipment, consumables, supplies, and services. Manufacturing companies need raw materials, component parts, consumables, and supplies for making finished goods for the consumer markets. Wholesalers and retailers need products and goods for the purpose of re-buy.
Other players also buy products and services to facilitate their performance and business function. Government is one of the key buyers of products and services as are many other institutional buyers like hospitals, and not-for-profit organizations. In the process of making choices, they show different kinds of behavioral patterns.
Buying in organizations is a complex process as it involves many people. The buying agents collect purchase data; market prices and delivery schedules followed by different players and supply them to the purchasing department.
Organizations have a purchasing department, which receives demands from different departments and processes this information for making purchases and procuring products and services for different departments.
So, on the one hand, buyers have to take care of the corporate interest of cost control, and smooth flow of products and services for feeding the production schedules, and, on the other, address the varied demands of different departments. In many instances, the final price is arrived at through a series of negotiations involving a series of people working in diverse departments. Business markets consist of very few buyers.
Example of Finacle of Infosys Technologies
It has got few banks and financial institutions available as its target market. But the demand of software applications for each customer is very high.
- Geographical Concentration and Relatively Few Customers
- Preference for Direct Buying
- Expertise in Buying
- Focus on Relationship Marketing
- Global Competition
Geographical Concentration and Relatively Few Customers
A client like the Bank of Baroda may need to apply the same software across its 500-plus bank branches. Though the number of customers in a business market is few, the demand for each customer is very high. It is also seen that business market customers are geographically concentrated.
For example, the heavy equipment mining machines and earth movers market is on the eastern side of India where the majority of mining and quarry activities are undertaken. The top market for power loom machines is concentrated in areas like Surat in Gujarat and Tirupur in Tamil Nadu.
Preference for Direct Buying
Buyers in business markets prefer to buy directly from manufacturers or producers. This preference comes from the desire to buy large quantities and avoid intermediaries in order to get a better price and save the additional cost of using intermediaries.
Many of these buyers would like to buy from the company directly due to the technical complexity involved in the product. Many of these products are made to order rather than mass-produced and are made as per the specifications of the buyer, so buyers prefer doing a direct transaction with the manufacturer for quality assurance and after-sales service.
Expertise in Buying
Buyers in business markets have adequate expertise in making purchase decisions. Their purchases are more scientific in nature, as they arrive at a purchase decision by evaluating the alternatives, using objective evaluation criteria, and keeping the long-term horizon of a relationship in mind.
There are specialized people in the purchase departments like purchase managers who are responsible for the purchase. If the product is highly technical, then companies use cross-functional teams which include people from purchase as well as other departments like engineering, technical and production.
Focus on Relationship Marketing
Business markets have scope for repeated market transactions. The focus of business market transactions has shifted from the single buyer-seller transaction to overall buyer-seller relationships through relationship marketing programs.
By establishing a strong working relationship between buyer and seller, customers can improve their own distribution process and logistics by integrating their demand requirements with the supplier’s purchase cycles. Many business markets form strategic alliances or informal partnerships with their customers.
Example: Westside, the retail store of Trent Limited integrates its supply chain with its small suppliers spread across the country for better distribution and logistics management.
The business-to-business market is a global marketing activity, as due to the advent of the Internet; buyers can source their requirements from any part of the world. So a business-to-business marketer’s competition may rise from across the industry and across the geographic boundary. It is important to look at the international strategy of buyers to estimate the intensity of competition.
The characteristics of the business market as explained above do not apply to every market.
The list of characteristics is not exhaustive, but it helps in developing a set of guidelines for the purpose of understanding business markets. Business markets have fewer buyers, are concentrated in specific geographic areas, and prefer to deal directly with suppliers, often requiring personal selling.
The complexity of the product, level of technicality involved and expertise of buyers demand a professional sales force with expertise in the selling process, negotiation skills, and also adequate knowledge of the products and services of the company.
Personal consumers are those who buy a product (goods or services) for personal use e.g. toothpaste, clothes, perfumes, etc., or purchase for friends, family, or for gifting purposes whereas organizational customers are those consisting of commercial and non-commercial enterprises. Commercial enterprises include distributors and dealers, original equipment manufacturers, and users or a combination of them.
Commercial enterprises consist of enterprises that purchase organizational products for purposes other than selling to customers. There are different kinds of commercial organizations, namely organizational distributors and dealers, Original Equipment Manufacturers (OEMs), and users.
These organizations take the title and transfer it to another business market buyer or use the product as a part of making products or services for the buyer’s end consumers.
The output of the seller in a business market enters into the business process to another business customer’s business process in the form of capital equipment, raw material, or component parts, which is the output of the second cycle and then goes to the intermediaries and value adding organizations for the final product delivered to end consumers.
So, for a business market seller, the second buyer in the process is the commercial enterprise, which takes the output of the first business process.
Organizational distributors and dealers are such distributors/dealers who purchase industrial goods and resell them in the same form to commercial, institutional, and government bodies. For example, institutional distributor for hospitals sells through a tendering process. The distributor keeps minimum inventory and usually acts as the sole agent for the company.
Original equipment manufacturers are the buyers who purchase industrial goods to incorporate into the products that they produce e.g. Kalyani Brakes which sells brake levers to Maruti Suzuki Limited (MUL) would view MUL as an original equipment manufacturer.
The product of the industrial marketer (Kalyani Brakes) becomes a part of the customer’s (MUL’s) product. For such customers, quality and dependability are important factors.
Users are the firms who purchase industrial products or services to support their manufacturing processes or facilitate the operation of their business in the form of prompt, predictable delivery, quality maintenance, and good service e.g.
Products for output include items such as lathes, drilling machines, and grinding wheels. Products that facilitate business processes like computers, typewriters, and other machines are also sold in business markets.
In contrast to the nature of the usage of OEMs of industrial products, the users do not make them a part of the final product. There can also be overlapping between various categories of customers e.g. forklift manufacturers can also sell metal cutting machines for the business customer and the customer can be both a commercial enterprise and a user customer.
Organizational Buyer’s Buying Motives
Organizational buyers also have different buying motives as they buy products and services either to use in making other goods and services or to use in their own business. As we have classified, there are three types of consumers namely manufacturers, who purchase goods for turning them into finished goods such as cotton, pig iron or steel sheets and all types of raw materials; manufacturers and service organizations
which buy goods for consumption in the operation of their business, such as lighting equipment and furniture and fixtures, fitting in a cinema hall and organizational distributors who buy for resale to organizational consumers. Organizational consumers are concentrated in industrial areas where a large number of industries developed and are located.
Typical organizational buyers are in extractive, processing, construction, transportation, public utilities, services, and distributive industries, governmental institutions, commercial institutions, and specialized service industries like hotels, restaurants, theatres, laundries, dry cleaners, tailoring, and barber shops. So by nature of the business customer’s domain of operations, the motives of firms will differ from one another.
Organizational buying motives, for the most part, are rational and an organization looks for a combination of price, quality, and service in the products it buys. The organizational buyers pursue dual goals, namely to improve their position in the firm through achieving personal goals and self-interest and to further their company’s position in terms of increase in profits, reducing competitor’s threat, and increase in acceptance by society.
|Efficiency||In performance, practicability, and increased capacity|
|Economy||In money, in use, or in time|
|Good Quality||In materials and workmanship|
|Simplicity||In construction, operation, and application|
|Saleability||In increasing the saleability of the user’s product|
|Ease of operation||In easier handling, greater convenience, handiness, or light touch|
|Space saving||In compactness, ease for storage, and holding|
|Obsolescence||In which it needs improvement, replacement, or additions|
|Safety||In providing safety to employees, clients, and customers|
|Cleanliness||In plant, user’s product, or for the workmen|
Besides these, other buying motives include speed, strength, durability, protection from loss, standard product type, low maintenance cost, time-saving, lightweight, greater power, adaptability, purity, adjustability, elasticity, or pliability, and portability.
It is important to note here that all the motives listed above are functional as well as non-functional motives of business buyers. Secondly, since industrial consumption is impersonal and for an economic or business reason, it is understandable those industrial users are motivated chiefly by rational or economic factors as mentioned above.
Organizational Buying Situations
The business buyer has to take many decisions while making a purchase decision. The number of decisions depends on different buying situations.
Three types of buying situations are popular among business buyers:
This type of situation is found when there is repetitive or routine order processing which is given by buyers to long-term suppliers. There can be various reasons for a straight rebuy situation, which include an additional small order to the existing supplier, satisfaction with the present suppliers, and a shortage of ordering time.
This also gives opportunities for our suppliers to step in and even supply the real orders so as to get an entry into the buying organization by offering something new or the same product at a differential cost to take any benefit of dissatisfaction with the current suppliers.
When a company faces a situation of computer stationery shortage, the company orders, in routine, to the old suppliers of computer stationery from an approved list. This kind of order is placed with an approved list of buyers who have a specified quality and service assurance.
This also saves re-ordering time. Very often out-suppliers try to get a small order and then enlarge their order size.
This situation occurs when a buyer wants to modify any purchase, i.e., improvement in product specification, price reduction, or change in terms and conditions. This poses a threat and opportunity to in-suppliers. Out suppliers can take this situation, as a good chance to make an entry by meeting this modified expectation.
For example, a branch bank uses a data server of 100GB capacity and with the new business expanding to the non-retail sector of banking, it needs to modify its order to a higher memory server, let’s say 500GB. The in-suppliers are often under time pressure and incur extra expenses for such modified orders.
They should keep a cushion in their profit or a provision to add the additional costs to their bills for the emerging modified demand. This situation occurs when a buyer wants to modify any purchase, i.e., improvement in product specification, price reduction, or change in terms and conditions. This poses a threat and opportunity to in-suppliers.
Out suppliers can take this situation, as a good chance to make an entry by meeting this modified expectation. For example, a branch bank uses a data server of 100GB capacity and with the new business expanding to the non-retail sector of banking, it needs to modify its order to a higher memory server, let’s say 500GB.
The in-suppliers are often under time pressure and incur extra expenses for such modified orders. They should keep a cushion in their profit or a provision to add the additional costs to their bills for the emerging modified demand.
This is a situation when a new buyer purchases for the first time. The customer perceives a higher risk if the product or service is of high value and demands more technical understanding hence more and more people are involved as participants in the buying center.
They collect more information about the alternatives, their cost structure, and service requirements. In a typical new buying situation, the customers are likely to pass through different stages like awareness, interest, evaluation, trial, and adoption. The effectiveness of various marketing and communication tools will vary from stage to stage.
The salespeople play a major role in making customers move from awareness to the choice stage. The buyer does not have any previous knowledge, information, or data to compare. Naturally, the buyer takes a lot of time to decide about the purchase.
The first supplier becomes the benchmark for the next purchase. The buyer’s advantage of the learning curve is not there.
The buyer is likely to make a few decisions in the re-buy situations and most of the decisions in new buying situations. In a new buying situation, the customer spends maximum time before making a decision by evaluating products and services to finalize delivery schedules, terms and conditions of delivery and payment, order quantities, and a list of selected suppliers.
Different members at the buying center play different roles in the new buying situation and it provides the greatest opportunity for the seller to establish a transaction and initiate a relationship with clients.
Companies use systematic selling and missionary sales force for providing information, which will facilitate buyers’ decision-making. The table illustrates different phases of business buying decisions and the duties of a salesperson in each of the buying situations.
|Buying Decision Phases||NEW TASK||Modified Rebuy||Straight Rebuy|
|Problem recognition||Anticipate problems, and use advertising and creative salespeople to convince buyers of problem-solving capabilities.||In supplier: Maintain quality service standards. Out supplier: Watch for developing trends.||In supplier: Maintain a close relationship with users and buyers. Out supplier: Convince the firm to recognize alternatives.|
|Solution determination||Provide technical|
|In and out supplier: stress capability, reliability, and problem-solving capabilities.||– same –|
|Determining needed item||Provide detailed product/service information to decision-makers.||Same as phase 2.||– same –|
|Searching for and qualifying|
|In supplier: maintain dependability, Out supplier: demonstrate the ability to perform the task.||In supplier: watch for problems. Out supplier: demonstrate the ability to perform the task.||– same –|
|Analysing proposals||Understand details of customer problems/ needs: make timely proposals||Understand details of customer problems/ needs and make timely proposals.||Make timely proposals.|