Understanding Organizational Buying Behaviour Consumer or Organizational Products

Understanding Organizational Buying Behaviour

Consumer or Organizational Products Why was the product purchased ? Ø For use in the operation of a business or organization. Ø To manufacture other products Ø For resale to others ORGANIZATIONAL PRODUCT Ø For personal or household use CONSUMER PRODUCT

Some Examples of Organizational Buying Ø Ø Ø Ø Paper cups by Mc. Donald's Computer chips by Toshiba Concrete by Local Authorities Oil by Electricity Generators Fertiliser by Farmers Accountancy services by Ltd. Companies TV’s by Comet or Dixons

Characteristics of Organizational Buying Nature and size of customers Complexity of buying Economic and technical choice criteria Buying to specific requirements Organizational Purchases Risks Reciprocal buying Derived demand Negotiations

Decision-making Unit Initiator Buyer Gatekeeper Decider (Decision Maker) User Influencer

Decision-making Unit Buyers Have the authority to execute the contractual arrangements Initiators begin the purchase Process. Deciders (Decision Makers) have the authority to approve the purchase. Users actually use the product. They may be the one who initiates the purchase process and may develop the product specification. Gatekeepers control the flow of information to the buying centre. Purchasing department Staff frequently fill the role but it could be any member of the organization. Influencers supply information and advice. Outsiders such as consultants sometimes perform the role.

Decision-making Unit Implications. 1. Need to identify key actors in buying decisions. 2. Composition and roles played in the decision-making unit have implications for communications – target audience and message.

Buy phases: the organizational decision-making process Recognition of a problem (need) Determination of specification and quantity of needed item Search for and qualification of potential sources Acquisition and analysis of proposals Evaluation of proposals and selection of supplier(s) Selection of an order routine Performance feedback and evaluation

Microsoft creates awareness of its capability to keep employees in touch with one another.

Organizational Decision-making Process Implications. Marketing advantage can be gained by: 1. Influencing need recognition. 2. Involvement in the determination of the characteristics of the needed product.

Choice Criteria Types. Ø Economic. e. g. price, return on investment. Ø Technical. e. g. reliability, delivery. Ø Social (Organizational). e. g. status, office politics. Ø Personal. e. g. personal risk reduction, liking/disliking. In all cases PERCEPTION is critical.

Choice Criteria Implications. 1. Marketing and sales appeals may need to be modified to different members of the decision-making unit. 2. Choice criteria may change over time as circumstances change. Suppliers may need to change their offerings and communications as a result.

Mercedes reduces perceived risk in this advertisement for its trucks. © Daimler AG. Kindly reproduced with the permission of Mercedes–Benz UK Ltd.

Influences on organizational purchasing behaviour Buy class l l l Product type straight re-buy modified re Organizational buyer -buy new task Importance of purchase • product • • constituents product facilities MROs

Time taken for decision Buy Class New Task Modified Rebuy Straight Rebuy No. of people involved in buying centre

New Task Buying The organization makes an initial purchase of an item to be used to perform a new job or to solve a new problem. Often this involves development of specifications for products and suppliers as well as procedures for future purchases. High information requirement from many suppliers. Example: new IT facility.

Modified Rebuy When a new task purchase is changed on repeat purchases. The buyer may require faster delivery, lower prices or modified specifications. Regular suppliers become more competitive and new suppliers may be included in the selection. Moderate amounts of information are required. Example: upgrading office software.

Straight Rebuy The buyer purchases the same products again routinely under approximately the same terms of sale. Suppliers are familiar, have provided satisfactory service in the past and may even have set up automatic re-ordering systems. Little information is required. Example: re-ordering photocopying paper.

Buy Class Implications. 1. New Task. - big gains for those suppliers involved in the decisionmaking process at the start. - many people are involved and the process is long – suppliers need to invest heavily in time to influence all of them. 2. Straight Rebuy. - current suppliers need to build a strong defensible position and maintain it. - potential suppliers need to reduce risk of change for purchaser.

Developments in Purchasing Practice 1. Just-in-time purchasing 2. Centralised purchasing 3. Online purchasing 4. Reverse marketing 5. Leasing 6. System purchasing

Reverse marketing Supplier sells by taking initiative Traditional marketing Supplier Buyer Reverse marketing Buyer takes initiative to persuade supplier to provide

Relationship Marketing Definition. The process of creating, maintaining and enhancing strong relationships with customers and other stakeholders.

Development of buyer–seller relationships in Industrial Markets Pre-relationship stage Evaluation of a new potential supplier Early stage Negotiation of a trial Development stage Contract signed or delivery built up Long term stage Several major purchases or large-scale deliveries have been made Final stage Established patterns of trading in long-term stable markets

Core Reading Core reading to support this topic can be found in Chapter 5 of your recommended text