ORGANIZATIONAL BUYING BEHAVIOUR

CHAPTER SUMMARY This chapter introduces the basic theory of organizational buying, an understanding of which is fundamental to business-to-business marketing. It begins by looking at the organizational buying process and a number of models of the process. It then investigates the theory of risk and uncertainty and identifies the key factors that influence behavior. It concludes with a discussion of the role of purchasing which is seen as a key area in the competitiveness of the modern industrial firm. Organization 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. The need for an understanding of the organizational buying process has grown in recent years due to the many competitive challenges presented in business-to-business markets. Since 1980 there have been a number of

key changes in this area, including the growth of outsourcing, the increasing power enjoyed by purchasing departments and the importance given to developing partnerships with suppliers. The factors influencing buyer s purchase decisions can be conveniently divided into following categories: Some of the characteristics of organizational buyers with compare to consumer buyers are: 1. Consumer market is a huge market in millions of consumers where organizational buyers are limited in number for most of the products. 2. The purchases are in large quantities. 3. Close relationships and service are required. 4. Demand is derived from the production and sales of buyers. 5. Demand fluctuations are high as purchases from business buyers magnify fluctuation in demand for their products. 6. The organizational buyers are trained professionals in purchasing. 7. Several persons in organization influence purchase. 8. Lot of buying occurs in direct dealing with manufacturers.

Major Influencers on organizational buyers

Environmental factors: Expected demand for the product that the buying organization is selling, expected shortages for the item, expected changes in technology related to the item etc. are the environmental factors that will have an effect.

Individual factors These factors related to the buyer. What sort of ways of interacting and service are appreciated by the buyers and what ways are considered as irritants? Marketers have to understand the reactions of buyers. Social factors: Group decisions, like it also in the Buying center, pleases, by different factors are affected. Factors of influence are the individual goals and character characteristics, the kind of the guidance of a group, the group structure and external influences (environment, organization). Examples of social factors: Group dynamics, authority,"

Economics Environment: Environmental factors constitute an important determinant of organizational purchasing. This includes economic situation, government policy, competitive development in the industry, technological development and their introduction. For example, if the organizational buyer feels that the government is going to increase tax on industrial buying is likely to increase in the near future, his buying of material will increase as buying will become costly in future due to tax burden. An organization buyer may update his technology if machinery is available at fair rates and interest charges are low. Purchases will be made at lower level, if the recession trends are clearly visible in the economy. An industrial purchaser will be cautions and careful in his buying decisions so that decision will prove appropriate and will not bring loss to the organization. An industrial purchaser will collect information about economic situation in the country and will take appropriate decisions after analyzing such economic information. He has to give special attention to economic environment while taking purchase decision.

Organizational Factors: Changes in purchasing department organization like centralized purchasing, decentralized purchasing and changes in purchasing practices like long-term contracts, relationship purchasing, zero-based pricing, vendor-performance evaluation are the organization factors of importance to marketers. Organizational factors are internal factor affecting buying decision. Every purchasing organization has certain objectives and goals, well accepted producer and system for purchasing, and an appropriate organizational structure. These factors directly and indirectly influence its purchase decision. These characteristic provide clues for determining buying decision. The objectives of an organization influence the types of products it needs and the criteria by which it evaluates supplies. Companies frame their procedures/policies for making purchase decision. Government organization normally uses bidding while making a purchase. Products specifications are well established and suppliers have to submit bids as per the general notice. In the case of other industrial purchasers may have different procedures for purchasing. Suppliers have to note the procedural differences among the organizations as regards purchases procedures and adjust their quotations, etc accordingly. Organizational structure assigns authority and responsibilities for decision making to job positions across a company. Some companies assign authority for purchase decisions to purchase managers while others do not. Informal relations among people (with the organization) in different positions in a purchase organization can affect buying decisions. In many small family owned firms, centralized structures are used. Purchase decisions require the family s consent. This delays the purchase decisions. In decentralized structure, quick decisions are possible at the departmental level. Policies like inventory holding and procedures such as payments or bidding also influence purchase decisions of organizational buyers. Inter-personal factors: These factors are the relationship between buyers and sales representatives of various competitor companies Industrial buying decisions are normally collective and also as per the procedures decided. The buying centre involves several individuals with different formal authority, status and persuasiveness. Buying centre consists of individuals of the organization concerned with purchase decision process. They share the risk arising out of it. They also have a common goal. There is interaction among the members of a buying centre as regards purchases to be made. There is also a possibility of conflict among the members (of a buying centre) in marketing buying decision. The suppliers need to know about such conflicts in order to resolve them so that

the marketing/purchasing programme can be adjusted accordingly. Conflicts among buying centre participants need to be solved promptly so that buying will be done promptly i.e. as per the production schedule prepared. Knowledge of group dynamics helps the marketer to settle conflicts and early release of purchase order. Individual buyer s characteristics/individual factors: In the final analysis, individual factors play an important role in buying decision. The other factors (environmental, organizational, etc.) are important but individuals concerned with purchase decision are equally important. A supplier needs to have complete details of all individuals involved in the purchase decision process. Personal factors/ characteristics include age, education, job position, maturity, etc. as these factors affect individual perception, preference and motivation. Final decisions are based on such factors even when their importance is limited in the decision-making. In the final analysis, individual/officer is responsible for taking buying decision far the organization. The make-up of these individual is a major factor influencing buying decision. The supplier has to consider this factor and adjust his sales personnels accordingly. The industrial buyer may be assertive or may have co-operative attitude. The supplier s representative has to adjust with all types/ categories of industrial buyers in order to finalize purchase deal. Individuals are coined/shaped by complex Combination between personal and organizational goals. Cultural, organizational and social factors affect individuals. Individual factors affect the decision-making process also due to ignorance, like e.g.: over available alternatives, due to information gaps.