organization buying behavior

©2003 Prentice Hall, Inc. Copyright © 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved.Developed by Cool Pictures and MultiMedia Presentations

©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 2 in Chapter 7

ObjectivesObjectives

Understand the nature of the business market and how it differs from the consumer market.

Learn how institutions and government agencies buy.

Identify the different buying situations faced by organizational buyers.

Identify the participants in the business buying process and the various influences impacting business buying decisions.

Understand how business buyers make their decisions.


Organizational BuyingOrganizational Buying

Organizational buying is:

“the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers.”



Compared to Consumer Markets, Business Markets have . . .

– Fewer buyers

– Larger buyers

– Geographically concentrated buyers

– Close relationships with their supplier-customers



Fluctuating demand

Derived demand

Inelastic demand

Professional purchasing

Multiple sales calls

Direct purchasing

Geographical Concentrated Buyer

Other Business Market Characteristics



The Business Market Includes For-Profit Companies and Four Specialized Groups:



Buying Situations

Straight rebuy

Modified rebuy

New task

Routine reorders from approved vendor list

Low involvement, minimal time commitment

Example: copier paper



Buying Situations

Straight rebuy

Modified rebuy

New task

Specifications, prices, delivery terms or other aspects require modification

Moderate level of involvement and time commitment

Example: desktop computers



Buying Situations

Straight rebuy

Modified rebuy

New task

Purchasing a product or service for the first time

High level of involvement and time commitment; multiple influences

Example: selecting a web site design firm or consultant


Participants in Business BuyingParticipants in Business Buying

Initiators

Users

Influencers

Deciders

Approvers

Buyers

Buying center members fill one or more roles in the purchase decision process:

Gatekeepers


Inf luences on Business Influences on Business BuyersBuyers

Major Influences

Environmental

Organizational

Interpersonal

Individual

Demand level

Economic outlook

Technological change

Politics/regulations

Competition

Concerns for social responsibility



Major Influences

Environmental

Organizational

Interpersonal

Individual

Objectives

Policies

Procedures

Organizational structures

Systems



Major Influences

Environmental

Organizational

Interpersonal

Individual

Interests

Authority

Status

Empathy

Persuasiveness



Major Influences

Environmental

Organizational

Interpersonal

Individual

Age

Income

Education

Job position

Personality

Risk attitudes

Culture


Purchasing/Procurement ProcessPurchasing/Procurement Process

Problem recognition

General need description

Product specification

Supplier search

Proposal solicitation

Supplier selection

Order-routine specification

Performance review

Eight Buyphases of Industrial Buying

Problem recognition

Marketer stimulates problem recognition byDirect mail, telemarketing, calling on prospects

Internal stimuli – new product developmentfor which parts are needed, breakdown ofequipment, existing suppliers unsatisfactory

Buyer attends a trade showPurchase Manager senses an opportunity toget lower prices or better quality

General need descriptionand product specification

Standard items – go as per internal records oras per specs laid out in ISI documents

Complex items – collaborate with engineers,users; else sit with marketer’s applicationengineers who do consultative selling and work out specs and likely price

Certain buying organizations attach a PVA orproduct value analysis team to the projectwho will conduct extensive analysis to arriveat specs that will lead to minimum cost

Supplier Search

Identify suppliers- trade directories, hunt online catalogs for suppliers- trade shows- trade advertisements- Internet search – Websites have two types of e-hubs

Vertical hubs centered on industries-plastics, steel, paper

Functional hubs centered on logisticsmedia buying, advertising

-Direct extranet links to major suppliers (WalMart – P&G)

-Buying alliances to get best price.Coca-Cola, Sara Lee, Kraft, PepsiCo, GilletteP&G, have joined to form alliance – Transora

-Company buying sites – Firms like GE have theirown site where it places Requests for Proposal,negotiate terms, place orders

Proposal Solicitation

Invite suppliers to make detailed proposals

Set up quality standards if any e.g ISO 9000 orISI etc.

Large technology systems need a detailedTechno-Commercial proposal. The technicalquote will be cleared first and after that onlyqualified technical bidders will be called forcommercial negotiation

Buyers can invite suppliers to make presentations.

Supplier Selection

A supplier rating list is made by some companiesbased on relative importance given to a select setof attributes.

For routine order products the factors are : price,supplier reputation, delivery .

For procedural problem products such as copiers theimportant attributes are : technical service, supplierflexibility, reliability and price

For political problem products such as choice of a set of computers the factors are price, reputation, reliability and flexibility

One way to encounter price factor from supplier sideis to talk of total cost of product or life cycle cost.

Order routinespecification

Buyers negotiate the final order with the selected suppliers, and details the tech. specs., the quantitythe delivery time, return policies, warranties etc.

For maintenance and repair items , firms are moving towards a blanket contract that establishes a long runrelation. Such contracts are called stockless purchase plans as the stock is held by the supplier

Long run contracts are also agreed upon in case of shortage raw materials / inputs so that there is a steady flow of material. In many cases the supplierlocates his factory near the buyer for bringing downinventory and transport costs.

Vendor managed inventory is when the responsibility rests with the vendor for maintaining inventory

Important parameters to see are OT – deliver on timeIF – in full, NE – No error

Performance Review

Three methods of review

1 Ask for evaluation from buyers2 Buyer rates supplier on weighted score

method3. Based on drawbacks of performance the

buyer may come up with adjusted cost of purchase including price

4. Managers are rewarded for good buyingperformance

Institutional and Government Markets

1. Institutional Markets are – schools, colleges, universities, hospitals, nursing homes.

2. Institutions normally ask for lowest price given a minimum quality3. In government organizations the normal process is bidding with the

order going to the lowest bidder(s)4. Negotiated contracts are applicable where the project is complex and

risky.5. Governments tend to favor domestic suppliers6. Government decisions are subject to review, so there is lot of paperwork

in contracting7. Director General of Supplies and Disposals is the central purchasing unit of

Indian Government.

©2003 Prentice Hall, Inc.

THANK YOU ,

To accompany A Framework for Marketing Management, 2nd Edition Slide 24 in Chapter 7