4

Organizational Buyer Behavior

Presented:

Ms. Evangeline B. Reyes, MAE

Professor

McGraw-Hill/Irwin

Copyright 2006 The McGraw-Hill Companies, Inc. All rights reserved.

OBJECTIVES
Explain, using the most prominent theories of organizational buyer behavior, how individual needs may override or influence the rational decision-making process. Predict marketing action based on the choice of a particular buying theory. Describe the influence of risk on buyer behavior. Illustrate how these theories work in concert with partnering.

SELLING BUSINESS TO BUSINESS SUCCESSFULLY. UNDERSTANDING WHAT MAKES BUYERS BUY

THE THEORIES OF BUYER MOTIVATION

REWARD-MEASUREMENT (RM) THEORY THINK: BENEFITS BEHAVIOR CHOICE THEORY THINK: SITUATION

ROLE THEORY THINK: NORMS / EXPECTATIONS

REWARD-MEASUREMENT (RM) THEORY

An expectancy theory of organizational buyer motivation. Buyers are motivated by both

intrinsic rewards (rewards they give themselves e.g. feelings of satisfaction) and; extrinsic rewards (rewards given by the organization (e.g. salary, promotion)

REWARD-MEASUREMENT THEORY
Valence degree of importance or value attached to a reward ((e.g. the important reward is raise extrinsic reward). Perceived probability the perception that effort on a particular set of tasks will lead to accomplishment of performance outcome that will lead to the desired reward. Motivation the amount of effort that the buyer is willing to expend to engage in the set of tasks.

MATHEMATICAL EQUATION

Motivation = Valence x Probability

MARKETING AND REWARD-MEASUREMENT THEORY

(Performance measurement) Marketers understand what features are important and how to promote their products. (Valence) able to predict the amount of effort expended by the buyer on tasks involving information search, number of bids requested, and other purchase activities Might also understand which products might be purchased in a given situation.

BEHAVIOR CHOICE REWARD

Behavior choice theory the buyer go through a choice process to arrive at decisions of how they will buy. Orientation the degree to which the individual works for personal benefits; Company orientation - the degree to which the individual works to achieve benefit for the company.

BEHAVIOR CHOICE MODEL

1.

Identify situation
degree of company orientation degree of personal orientation

2.

Evaluate personal relevance

formal reward system informal and social reward system intrinsic rewards

3.

4.

Assess action alternatives and requirements Choose behavior strategy

4. 5.

Defensive: process -oriented, minimized threats Offensive: results-oriented, maximize gain

ROLE PLAY
People behave within a set of norms or expectations of others due to the role in which they have been placed. Autonomous when a person makes a purchase decision alone for an organization Buying center when more than one person is involved in purchase decision

BUYING CENTER ROLES

PERSON ROLE

SECRETARY VICE PRESIDENT OFFICE MANAGER SECRETARY & OFFICE MANAGER OFFICE MANAGER VICE PRESIDENT OF OPERATIONS

Initiator-reports that fax keeps breaking down

Controller-sets budget for purchase of new fax

Gatekeeper-gathers review from vendors.

Influencers-view demonstrations narrow choices

Recommender-recommends a particular product to decision maker

Decision Maker Selects fax to purchase

DIMENSIONS OF BUYING CENTERS

TIME DIMENSIONS

TIME IS HIGHLY FRAGMENTED: Many participants for short time participation TIME IS NOT FRAGMENTED: Same people stay through entire process

VERTICAL DIMENSIONS

How many layers of management are involved in decisionmaking How many departments are involved in decision-making

HORIZONTAL DIMENSIONS

FORMALIZATION DIMENSION

Purchasing tasks and roles are guided and enforced by written procedures and policies

TIME FRAGMENTATION INFLUENCES SELLERS MARKETING EFFORTS

INVOLVEMENT INFLUENCE NUMBER OF DECISION MAKERS HIGHLY FRAGMENTED MANY FEW MINIMALLY FRAGMENTED

A LITTLE A LOT TIME SPENT ON DECISION STAGES DECISION CYCLE TIME INFLUENCE SIZE OF BUYING CENTER

LONGER LARGE DECISION CYCLE A LITTLE

SMALL A LOT

SHORTER DECISION CYCLE

EXPERIENCE OF DECISION MAKERS Sales objective is to move to the right on the continuum

RECOGNIZING THE BUYERS DILEMMA: RISK

THERE ARE THREE KINDS OF RISK TO OVERCOME

FINANCIAL RISK

POTENTIAL FOR LOST REVENUE WITH FAULTY PRODUCT

PERFORMANCE RISK

PRODUCT WONT PERFORM AS INTENDED

SOCIAL RISK

THE PURCHASE WILL NOT MEET APPROVAL OF A REFERENCE GROUP

OVERCOMING RISK

THREE OPTIONS BUYERS USE TO REDUCE RISK

GATHER MORE INFORMATION FROM MORE SOURCES USING LOYALTY TO PRESENT SUPPLIERS BUILD TRUST SPREAD THE RISK BY USING MORE DECISION MAKERS OR GETTING MORE SUPPLIERS

USING INFORMATION TO REDUCE RISK

Personal selling Trade shows Telemarketing E-mail Sales literature Advertising Websites Direct mail

Commercial

Noncommercial

Word of mouth from colleagues, consultants, and coworkers

Personal

Trade publications

Impersonal

BUYING DETERMINANTS THEORY

Environmental factors
Market factors Organizational factors

Individual factors

EXPANDED BUYING DETERMINANTS THEORY

Environmental factors Market factors
Organizational Factors

Extrinsic reward systems Role expectations Corporate culture and intrinsic rewards Cross-functional purchasing teams

Policies supporting vertical and horizontal dimensions

Individual factors Experience: new buy straight rebuy Choice of reward-Role orientation Valence of reward Probability perceptions

ANNOUNCEMENT

Next meeting Mr. Raymund Tan and his group will do a video presentation of their interview with the University purchasing office. God bless you all