Understanding Organizational Buying Behaviour

Jobber chap. 5

Consumer or Organizational Products

Why was the product purchased ?
For use in the operation of a For personal or business or organization. household use To manufacture other products For resale to others

Organizational PRODUCT

CONSUMER PRODUCT

Some Examples of Organizational Buying

Paper cups by McDonald's Computer chips by Toshiba Concrete by Local Authorities Oil by Electricity Generators Fertiliser by Farmers Accountancy services by Ltd. Companies TVs by Comet or Dixons

Characteristics of Organizational Buying

Nature and size of customers Economic and technical choice criteria Complexity of buying Buying to specific requirements Organizational Purchases Reciprocal buying

Risks

Derived demand

Negotiations

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

User
Decider

Influencer

Decision-making Unit
Buyers choose suppliers and negotiate purchase terms often reducing the actual purchase to a clerical task.
Initiators begin the purchase Process.

Users actually use the product. They may be the one who initiates the purchase process and may develop the product specification.

Deciders (Decision Makers) have the authority to approve the purchase.

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.

Deciders have the authority to select the supplier or model.

Influencers supply information and advice. Outsiders such as consultants sometimes perform the role.

Decision-making Unit
Implications.
Need to identify key actors in buying decisions. 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

Hitachi

Hitachi reinforces the benefits of its ecofriendly railtechnology by featuring its benefits for passengers in this advert.

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.

Types.
Economic.

Choice Criteria

e.g. price, return on investment.

Technical.
e.g. reliability, delivery.

Social (Organizational).
e.g. status, office politics.

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.

Influences on organizational purchasing behaviour

Buy class

Product type

straight re-buy modified re-buy new task

Organizational buyer

product constituents product facilities MROs

Importance of purchase

Buy Class
Time taken for decision
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 decision-making 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. 1. Just-in-time purchasing. 2. 2. Centralised purchasing. 3. 3. Online purchasing. 4. 4. Reverse marketing. 5. 5. Leasing.

Reverse marketing
Supplier sells by taking initiative

Traditional marketing
Supplier Reverse marketing Buyer

Buyer takes initiative to persuade supplier to provide

Relationship Marketing - CRM

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

Relationship Marketing
Centers On:

Establishing, Developing, and Maintaining Successful exchanges with customers.

Transactional Exchange
Centers on timely exchange of basic products for highly competitive market prices.

Collaborative Exchange
Features close information, social, and operational linkages, as well as mutual commitments.

Types of Relationships
Buyer-seller relationships positioned on a continuum with transactional exchange and collaborative exchange serving as end points.
The Relationship Spectrum

Buyers and sellers craft different types of relationships in response to: a) market conditions and b) characteristics of the purchase situation.
Spectrum of Buyer-Seller Relationships

Managing Relationship Portfolio

Mix of relationships based on customers. Collaborative Customers build relationships with trust and commitment. Transactional Customers focus efforts on purchasing staff and offer attractive benefits.

Customer Profitability

High
Passive Product is Crucial Good Supplier Match Costly to Service, but Pay Top Dollar

Net Margin Realized

Price Sensitive but Few Special Demands

Aggressive Leverage Their Buying Power Low Price and Lots of Customized Features

Low Low Cost-to-Serve

SOURCE: From Manage Customers for Profits (Not Just Sales) by B.P. Shapiro et al., September -October 1987, p. 104, Harvard Business Review.

High

Customer Relationship Management

A Continuing Dialogue with Customers, Across all their Contact and Access Points, with Personalized Treatment of the Most Valuable Customers, To Ensure Customer Retention and Effectiveness of Marketing Initiatives.

Learning to Retain Customers

Provide superior value to ensure high satisfaction. Nurture trust and mutual commitment.

BASF

BASF illustrate its commitment to having close relations with its customers in order to improve performance.

Development of buyerseller 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