Organizational Buying Behaviour
The goals of organizational buyers and personal consumers are different. Organizational goals are concerned with producing a good or providing a service or reselling an item and all the purchases are made to effectively perform the organizational activities.
The decision-making process by which organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers.
Frederick E. Webster, Jr., and Yoram J. Wind,
Organizational Buying Behaviour, Prentice-Hall, (1972)
Table of Contents
Organizational purchases are described as “rational” or “economic.” Whether for-profit or not-for-profit, organizations are composed of individuals performing various activities, including making purchase decisions, and are influenced by marketing inputs, which appear not to be purely rational or economic.
Identify Organisation Customers
Many consumer purchases are individual. When purchasing a Mars bar a person may make an impulse purchase upon seeing an array of confectionery at a newsagent’s counter.
However, decision-making can also be made by a buying center, such as a household. In this situation, a number of individuals may interact to influence the purchase decision. Each person may assume a role in the decision-making process.
Blackwell, Miniard, and Engel describe five roles. Each may be taken by the husband, wife, children, or other members of the household:
- Initiator: the person who begins the process of considering a purchase. Information may be gathered by this person to help the decision.
- Influencer: the person who attempts to persuade others in the group concerning the outcome of the decision. Influencers typically gather information and attempt to impose their choice criteria on the decision.
- Decider: the individual with the power and/or financial authority to make the ultimate choice regarding which product to buy.
- Buyer: the person who conducts the transaction: who calls the supplier, visits the store, makes the payment, and effects delivery.
- User: the actual consumer/user of the product
The marketing implications of understanding who buys lie within the areas of marketing communications and segmentation. Identifying the roles played within the buying center is a prerequisite for targeting persuasive communications.
As the previous discussion has demonstrated, the person who actually uses or consumes the product may not be the most influential member of the buying center, nor may they be the decision-maker.
Even when they do play the predominant role, communication with other members of the buying center can make sense when their knowledge and opinions may act as persuasive forces during the decision-making process.
The second implication is that the changing role and influences within the family buying center are providing new opportunities to creatively segment hitherto stable markets.
Process of Organisational Buying
Organizational buying can be traced to a single need – solving a problem – and involves decision-making units (also called buying centers). These are composed of individuals within an organization who interact during making a given purchase decision.
The size of the decision-making unit may vary according to how new, complex, and important the purchase decision is; and how centralized, structured, and specialized the organization is Large and relatively more formal organizations usually involve more individuals in a purchase decision than smaller and less formal organizations.
For non-routine decisions, such buying centers are often formed on an ad hoc basis but for routine decisions, these centers are relatively permanent.
H. Brown and R. Brucker note that in the case of more important organizational purchases, individuals from various functional areas and organizational levels take part in decision-making more than in the case of less important purchase decisions.
The decision-making unit can be divided on the basis of functional responsibility and type of the influence. Functional responsibility can include specific functions such as manufacturing, engineering, research and development, purchasing, and general management. Each function evaluates the organizational needs differently and uses different evaluative criteria.
The final purchase decision is largely determined by individual power, expertise, the degree of influence of each functional area in a given decision, how the organization handles group decision conflicts, and the nature of the decision.
Various members of the decision-making unit perform different roles, such as recognizing the problem, information gathering, exerting key influence, decision-making, purchasing, and/or using. For example, a plant manager could play all the roles and the engineers may only gather information.
Decision-making units tend to vary depending on the stage of the product in its life cycle that is considered for purchase. For example, consider an Original Equipment Manufacturer (OEM), which purchases a microprocessor.
In the early stage of the product life cycle, the microprocessor presented a new-task decision that required a large decision-making unit. As the use of microprocessors increased, a modified re-buy decision evolved and required a change in the structure of the decision-making unit.
Finally, when the microprocessor moved into the maturity stage, the decision-making became a low-priority straight re-buy, involving basically the purchase function without the participation of more individuals.
Different Buying Situations Involved in Organisational Buying
The purchase decision continuum for final consumers includes nominal decision-making, limited decision-making, and extended decision-making.
The situation is slightly different in the case of organizations as their purchases involve a larger range of complexity as compared with most individual or household decisions and involve three categories.
Straight Re-buy
It is like making a habitual purchase and involves an automatic choice, as happens when the inventory level reaches a predetermined reorder point. Most organizations maintain an approved vendor list.
These are rather routine purchases to meet continuing and recurring requirements and are usually under similar terms and conditions of purchase. The purchases are of minor importance, involving little uncertainty because satisfaction exists with past products, terms, and services.
The buyer is likely to have limited purchase power such as the purchase of paper for printers and photocopiers. The typical purchase process involves no search for information, no evaluation of alternatives, no consideration given to long-term issues and procedural control is substantial.
Modified Re-buy
These are somewhat important and involve limited decision-making. There is a moderate level of uncertainty as the organization wants to repurchase a product or service but with some minor modifications. There might be limited or many choices.
For example, an ice cream producer might seek lower prices, faster delivery, and higher quality cream from suppliers to meet the changing market conditions.
In case of a modified re-buy, situation competing suppliers may see an opportunity to obtain the company’s business and regular suppliers might become more aggressive and competitive to keep a customer’s business.
P. Doyle, A. G. Woodside, and P. Michell are of the opinion that new tasks and modified re-buy are rather similar but straight re-buys are quite different. The decision may involve a limited information search, usually by speaking to a few vendors, and a moderate evaluation of alternatives that might probably involve one or few people.
New Task
The such purchase involves extended decision-making because the decision is new, and the item is being purchased for the first time to perform a new job or solve a new problem. There is often a serious risk that the product may not perform as it should or that it will be too costly.
New task purchases may involve the development of product specifications, vendor specifications, and procedures for future purchases of the product. In all such purchases, the organizational buyer needs a great deal of information and careful establishment of criteria on which to evaluate the product for purchase.
This kind of purchase is quite significant for the supplier because, if the organizational buyer is satisfied with the new product and supplier’s services, it may develop into a continuing profitable relationship between the supplier and the buyer organization.
Influences on Organisational Buying Behaviour
There are a number of factors that affect the consumer decision-making process and its outcome. These can be classified under three headings:
Buying Situation
Howard and Sheth identified three types of buying situations:
- Extensive problem-solving;
- Limited problem-solving; and
- Automatic response.
When a problem or need is new, the means of solving that problem is expensive and uncertainty is high, a consumer is likely to conduct extensive problem-solving.
This involves a high degree of information search and close examination of alternative solutions. Faced with this kind of buyer, the salesperson can create immense goodwill by providing information and assessing alternatives from the product range in terms of how well their benefits conform to the buyer’s needs.
Limited problem-solving occurs when the consumer has some experience with the product in question and may be inclined to stay loyal to the brand previously purchased.
However, a certain amount of information search and evaluation of a few alternatives occurs as a rudimentary check that the right decision is being made.
A key influence on whether a consumer conducts extensive or limited problem-solving or automatic response is their level of involvement with the purchase. High involvement is associated with important purchases that are of high personal relevance.
When a purchase affects one’s self-image, has a high degree of perceived risk, has social (e.g. status) implications, and has the capacity to give a lot of pleasure, it is likely to be high involvement. When the opposite is the case, the consumer is likely to experience low involvement with the purchase.
Personal Influences
A second group of factors that influences the consumer decision-making process concerns the psychology of the individuals concerned. Relevant concepts include personality, motivation, perception, and learning.
Although personality may explain differences in consumer purchasing, it is extremely difficult for salespeople to judge accurately how extroverted or introverted, conventional or unconventional, a customer is.
Indeed, reliable personality measurement has proved difficult, even for qualified psychologists. Brand personality is the characterization of brands as perceived by consumers. Brands may be characterized as ‘for young people’ (Levis), ‘brash’ (Castlemaine XXXX), or ‘intelligent’ (Guinness).
Major social influences on consumer decision-making include social class, reference groups, culture, and family. The first of these factors, social class, has been regarded as an important determinant of consumer behavior for many years.
Social class in marketing is based upon the occupation of the head of the household or main income earner.
The practical importance of social class is reflected in the fact that respondents in market research surveys are usually classified by their social class, and most advertising media give readership figures broken down by social class groupings.
Reference group acceptability should not be confused with popularity. The salesperson who attempts to sell a car using the theme that ‘it’s very popular’ may conflict with the buyer’s desire to aspire to an ‘exclusive’ reference group, for which a less popular, more individual model may be appropriate.
