Understanding Organizational Buying Behavior

Understanding Organizational Buying Behavior

Anand G Khanna

Organizational buying behavior

• Consumer vs. Organizational buying behavior• Main types of buying situations in B2B• Stages of decision in B2B• Roles in B2B procurement• Influences on organizational behavior• Buying centres

Consumer vs. Organizational buying behavior

• Decisions made by consumers are quite simple• Organizational buying processes are more complicated, there

are several phases and steps• Different buying behavior for different products and target

groups• Simple consumer goods like food and beverages are bought

very spontaneously – influenced by advertising and product presentation

• For premium consumer goods (expensive clothes, computers) – buying behavior is getting more rational – comparison

• Private investment goods – price bargaining

B2B products – organizational procurement starts

• More than one person involved• Buying process follows certain rules• Price comparison, standardisation, tenders,

processes

Main types of buying situations in B2B

• Straigtht rebuy – routine decision, repetitive process (energy, office supplies, raw materials, ), component suppliers for the automotive industry – little or no new information

• Modified rebuy – more complicated but less sophisticated: cars, trucks, computers, consulting – modified rebuys are often treated with less attention

• New task – calls for thorough research – industrial plant – highest level of uncertainty. Strategic new tasks are of extreme strategic and financial importance (Power Plants, Mining,Oil&Gas ,Petrochem ,aircrafts, military equipment, infrastructure) – re-evaluation of alternatives and search for new information and new alternatives

Decision Making Units

• Cross Functional Groups / Teams (User ,Technical , Materials , Finance)

• CF recommend for decision making Authority – predetermined on Value/Project /Application basis

Steps in the Buying Decision Process

1. Problem Recognition2. General Need Description3. Product/Service Specification4. Supplier /Source Search5. RFP/RQP/Tender 6. Bid evaluation& Selection-Contract Award7. Delivery, Commissioning , Implementation8. Evaluate Performance

Preliminary application

• Recognition of a problem (need) and a general solution

• Released by top management = operating department or external consultants

• Result request for an offer addressed to a number of potential suppliers

Tender preparation phase

• Determination of characteristics and quantity of needed items

• Search for and qualification of potential sources• Supplier has to provide an offer• Tries to be incomparable with his competitors• Customer tries to make the offer best comparable

Negotiation phase

• Core selling process• Comprises acquisition and analysis of

proposals, evaluation of proposals and selection of suppliers

Processing phase/warranty/ service phase

• Contains selection of an order routine• Realisation of the transaction along with the

fixation of after sales service tasks

Roles in B2B procurement – buying center concept

• Group of people involved in the buying process – buying center

• Webster/Wind model shows 5 different roles – not institutionalised –Vary from co to co Industry to industry

• This causes problems in identifying and targeting the right people within the decision process

The Buying Center Environment

Internal FactorsNeed of Product ,ServiceTechnology AccountingManagement MarketingLegal Production/Mfg.Finance Service

External Factors

Industry needs and

Orgn buying

behavior

Government

agencies

Independent standards-setting organizations

Various Publics

Buying center

Role keepers have different tasks – not mandatory

• Buyer• User• Initiator• Gatekeeper• Influencer

Buyer

• Formal authority to sign contracts• Member of purchasing department• Influences the vendor selection • Not in technical details• Main criteria: price + terms and conditions of

the contract

User

• Person working with the product• Interested in benefits and unobstructed

function of the product to buy• Large knowhow and preconceived opinion

Influencer

• A person with high technical knowledge and practical experience

definition of minimum requirements on technical or company standards

Gatekeeper or Technical Clearing house ?

• Controls the flow of information within the buying center

• Assistant of decision maker

• Influence by preparing the decision and the relevant documents

Decider

• Right to say yes or no

• He/Group is (are ) the mightiest person

Initiator

• Person who brings new ideas and solutions into the company

Specific Marketing considerations in the B2B Marketing Business

• Long decision taking process• High risk• Complex buying center• The specific competitive situation

Product policy

• Focuses on innovation• Has to care for high flexibility in fulfillment of

Demand • Manufacturing facility and commitment for

deilvery

Price Offering

• Strict bid and tender rules• High transparency• Add value with service offering to achieve a

differentiating position –Bundling of product and services

• Another aspect: financing and sourcing models

Marketing/Sales policy of Seller

• Focus on negotiation phase• Provide excellent people in the selling center• High technical knowledge• Problem solver!• Proving success with comparable tasks• Reference projects!