Organisational Buying Behaviour

Chapter 2
Organisational Buying
Behaviour
Developed by Cool Pictures and MultiMedia Presentations
Copyright 2004 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
2. General
Description
of Need
3. Product
Specifications
4. Supplier
Search
Organizational
Buying Process
5. Acquisition
and Analysis
of Proposals
6. Supplier
Selection
7. Selection
of
Order Routine
8. Performance
Review
1. Problem
Recognition
Buying Decision Approaches

Causal purchasesinvolve no information search or analysis.
Routine low prioritydecisions are more important and

involve a moderate amount of analysis.
The Buygrid Framework for Organizational Buying Situations
With rising competitive pressures

managers are using rigorous cost
modeling approaches to identify
factors that drive the cost of
purchased goods and services.
Three Buying Situations

(slide 1 of 4)
1. New task
2. Modified rebuy
3. Straight rebuy

1. New Task (slide 2 of 4)
New taskthe problem or need is totally

different from previous experiences.
Significant amount of information is required.
Buyers operate in the extensive problem
solving stage.
Buyers lack well defined criteria.
Lack strong predispositions toward a
solution.

2. Modified Rebuy (slide 3 of 4)
Modified rebuydecision makers feel there

are benefits to be derived by reevaluating
alternatives.
Most likely to occur when displeased with
the performance of current supplier.
Buyers operate in the limited problem
solving stage.
Buyers have well defined criteria.

3. Straight rebuy (slide 4 of 4)
Straight rebuythe problem or need is a

recurring or continuing situation.
Buyers have experience in the area in
question.
Require little or no new information.
Buyers operate in the routine problem
solving stage.
Forces Influencing Organizational Buying

Behavior
A projected change in
business conditions
can drastically alter
buying plan.
Organizational
Buying
Behavior
Environmental
Forces
Economic Outlook:
Domestic & Global
Pace of Technological
Change
Global Trade Relations
Organizational
Forces
Goals, Objectives, and

Strategies
Organizational Position
of Purchasing
Group
Forces
Roles, relative
influence, and patterns
of interaction of buying
decision participants
Individual
Forces
Job function, past

experience, and buying
motives of individual
decision participants
Environmental Forces
Economic influence
Nature of industrial demand
Economic conditions that prevail across
regions (emerging speed & rapid growth)
Shift focus from low cost to best cost country
sourcing
Technological influences
Rate of technological change
Increase importance of technical and
engineering personnel
Able to conduct more intense search efforts
Spend less time on the overall search process
Organisational forces
Growing influence of purchasing /
procurement and supply chain management
function
Strategic priorities in procurement
Strategic Priorities in Procurement

Priority
Theme
Actions
Align purchasing with

strategy
Not Just Buyers
Shift from an administrative role to a

value-creating function that serves
internal stakeholders and provides a
competitive edge in the market
Exploring New Value

Frontiers
Its Just Not about

Price
Focus on capabilities of suppliers,

emphasize business outcomes, total
cost ownership and potential for long
term value creation
Putting Suppliers Inside
The Best Value

Chains Wins
Develop few and deeper relationships

with strategic supplies and involve them
in decision making process, ranging
from new product development to cost
reduction initiatives
Pursuing Best Cost

Sources
A World is Worth
Exploring
Overcome hurdles imposed by

geographical differences and seek out
cost-effective suppliers around the
globe.
Procurement Managers Toolkit

Total Cost of Ownership (TCO) an
organisational customer consider 3 types of cost
in a total cost calculations
Acquisition cost (selling px, transport, admin
evaluating suppliers, expediting orders, correcting
errors)
Possession cost (financing, storage, inspection, tax,
insurance, and other internal handling costs)
Usage cost (ongoing used of purchase products
installation, training, labour for repair, replacement,
disposal)
Customer's Total Cost of Ownership

Acquisition Costs
+ Possession Cost
+ Usage Cost
Price
Interest cost
installation cost
Paperwork cost
storage cost
training cost
Transportation cost
quality cost
user labour cost
Expediting cost
taxes and insurance
product longevity
Cost of mistakes in order
shrinkage and obsolescence
replacement costs
Prepurchase product
evaluation costs
general internal handling

cost
disposal costs
= Total Cost in Use
Strategic response: Develop value based sales tools

Marketers can pursue value based strategies with lower cost in solutions, ie
electronic ordering systems
Procurement Managers Toolkit

Segmenting the buy
Classify purchase categories based on procurement
complexity and how they impact corporate revenue
and business risk.
Align procurement approach with relative importance
of the purchase category to corporate performance
Assign a strategic priority to high-impact purchases,
eg: IT products
Apply standard procurement process for low-impact
purchases, eg: office supplies
Segmenting Purchase Categories

1st Point, each firm has a unique portfolio.
2nd Point, more attention on purchases having the greatest impact on
revenue generation or the greatest risk to performance.
Segmenting the Buy
e-Procurement
Purchasing managers use the internet to find
new suppliers, communicate with current
suppliers or place orders
Organisations are embracing online purchasing
technology
Reverse Auctions
Reverse Auctions
Involves one buyer who invites bids from several pre-qualified
supplier who face off in a dynamic, real-time, competitive bidding
process.
Used in automobile, electronics, aerospace and pharmaceutical
industries
Proponents claim can lower cost of procuring by 20%
Purpose:
To purchase commodity products at the lowest possible price
To tempt supplier of differentiated products to sacrifice their
profit margin in the heat of bidding. (If a firms product is not
highly differentiated, participating in an auction is the only
choice)
A strategic approach to reverse auction
To minimize risk of winning unprofitable bid, a careful estimate,

should be made with true incremental cost of supplying the
customer, including the costs associated with special terms and
conditions, as with unique technical, marketing and sales support
If a firm offering provides significant value to customers relative to
competitors
Preempt the auction: convince the buyer not to go forward with
the auction because buyer has a unique value proposition and
should not be inclined to participate
Manage the process: influence bid specifications and vendor
qualification criteria
Walk away: simply refuse to participate
Organisational positioning of purchasing

Key account management to avoid disjoint
activities and internal conflict in the sales
organisation and to serve the special needs of
important customers
A global account management to treat
customers worldwide operations as one
integrated account, with coherent term for
pricing, service and product specifications.
Group Forces
Questions for the Industrial Salesperson
1.Which member takes part in the buying process?
2.What is each members relative influence in the
decision?
3.What criteria is important to members in the
evaluation process?
The Involvement of Buying Center

Participants at Different stages of the
procurement process
Stages of procurement process for a medical supplier
Buying center
participants
Identification of
needs
Establishment
of objectives
Identification
and evaluation
of buying
alternatives
Selection of
suppliers
Physicians
High
High
High
High
Nursing
Low
High
High
Low
Administration Moderate
Moderate
Moderate
High
Engineering
Low
Moderate
Moderate
Low
Purchasing
Low
Low
Low
Moderate
Buying Center Influence

Gatekeepers
Control info to be reviewed by others
Influencers
Affect purchasing decisions by supplying info for
evaluation of alternatives
Deciders
Actually makes the buying decisions
Buyers
Formal authority to buy
Users
Personnel who use the products
Members of the buying center assume different roles

throughout the procurement process.
Clues for
Identifying
Powerful
Buying
Center
Members
Individual Forces
Individuals, not organisations, make buying
decisions. Each member of the buying center
has a unique personality, a particular set of
learned experiences, a specific organisational
function and a perception of how best to achieve
both personal and organisational goals.
Differing Evaluative Criteria

Evaluative criteria
Specifications that organisational buyers use
to compare alternative industrial products and
services
The criteria may conflict
Responsive marketing strategy
Prepare a responsive marketing strategy
Information processing
Selective process:Selective exposure.
Selective attention.
Selective perception.
Selective retention.
Perceived Risk Components

1. Uncertainty about the outcomes
of a decision.
2. The magnitude of
consequences associated with
making the wrong selection.
As risks increases.
Buying centers becomes larger and comprises
of members with high levels of organisational
status and authority
The information search is active and a wide
variety of information sources
Buying centers participants invest in greater
effort and deliberate more carefully
Sellers with proven track record with the firm will
be favoured.

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Chapter 2

Developed by Cool Pictures and MultiMedia Presentations

Developed by Cool Pictures and MultiMedia Presentations

Developed by Cool Pictures and MultiMedia Presentations

Buying Decision Approaches

Routine low prioritydecisions are more important and

Developed by Cool Pictures and MultiMedia Presentations

The Buygrid Framework for Organizational Buying Situations

With rising competitive pressures

Developed by Cool Pictures and MultiMedia Presentations

Three Buying Situations

Developed by Cool Pictures and MultiMedia Presentations

Three Buying Situations

New taskthe problem or need is totally

Developed by Cool Pictures and MultiMedia Presentations

Three Buying Situations

Modified rebuydecision makers feel there

Developed by Cool Pictures and MultiMedia Presentations

Three Buying Situations

Straight rebuythe problem or need is a

Developed by Cool Pictures and MultiMedia Presentations

Forces Influencing Organizational Buying

Developed by Cool Pictures and MultiMedia Presentations

Goals, Objectives, and

Job function, past

Developed by Cool Pictures and MultiMedia Presentations

Developed by Cool Pictures and MultiMedia Presentations

Developed by Cool Pictures and MultiMedia Presentations

Strategic Priorities in Procurement

Align purchasing with

Not Just Buyers

Shift from an administrative role to a

Exploring New Value

Its Just Not about

Focus on capabilities of suppliers,

Putting Suppliers Inside

The Best Value

Develop few and deeper relationships

Pursuing Best Cost

Overcome hurdles imposed by

Developed by Cool Pictures and MultiMedia Presentations

Procurement Managers Toolkit

Customer's Total Cost of Ownership

user labour cost

taxes and insurance

Cost of mistakes in order

shrinkage and obsolescence

general internal handling

= Total Cost in Use

Strategic response: Develop value based sales tools

Developed by Cool Pictures and MultiMedia Presentations

Procurement Managers Toolkit

Developed by Cool Pictures and MultiMedia Presentations

Segmenting Purchase Categories

Segmenting the Buy

Developed by Cool Pictures and MultiMedia Presentations

Developed by Cool Pictures and MultiMedia Presentations

Developed by Cool Pictures and MultiMedia Presentations

A strategic approach to reverse auction

To minimize risk of winning unprofitable bid, a careful estimate,

Developed by Cool Pictures and MultiMedia Presentations

Organisational positioning of purchasing

Developed by Cool Pictures and MultiMedia Presentations