Session 1: Understanding Organisational

Buying behaviour

1. Business Markets
2. Business Buyer Behavior
3. Institutional and Government Markets
1. Business Markets
 Business Markets
• Business buying process is the process where
business buyers determine which products and
services are needed to purchase and then find,
evaluate, and choose among alternative brands.
• Business markets differ from consumer markets in:
– Market structure and demand
– Nature of the buying unit
– Types of decisions & the decision-making process
 Business Markets

Market Structure and Demand

• Fewer and larger buyers

• Geographic concentration
• Derived demand – It ultimately derives from the
demand of consumer goods
– Inelastic demand (not affected much by price
changes)
– Fluctuating demand (change more & more
quickly)
 Example: Derived Demand Simplified
You make headlamp assemblies for autos – Auto company’s demand for
headlamp is affected by the consumers’ demand for cars.

Consumers want
more cars Automobile
Need more of
manufacturers need
your company’s
more components
headlamp
and steel
assemblies

Consumers stop
buying cars Automobile
manufacturers stop You can’t sell
making cars headlamp
assemblies
Business Markets
Nature of the Buying Unit
• A business purchase involves more decision
participants (buying center or DMU) & a more
professional purchasing effort.

• Many companies upgrade purchasing functions to

“supply management” or “supplier development”
Business Markets
Types of Decisions & the Decision Process
• Business buyers usually face more complex buying
decisions
• More formalized
• Buyer and seller dependency

• Supplier development - the systematic

development of networks of supplier-partners to
ensure an appropriate and dependable supply of
products and materials that they will use in making
their own products or resell.
2. Business Buyer Behavior
Business Buyer Behavior
• Business buyer behavior refers to
– the buying behavior of the organizations that buy
goods and services for use in production of other
products and services that are sold, rented, or
supplied to others; for facilitating their daily
operations.

– Also included are retailing and wholesaling firms that

acquire goods to resell or rent to others for profit.
Model of Business Buyer Behavior
Product Marketing and Economic
Other Stimuli
Price Technological
Place Political
Promotion Cultural

The Buying Organization

Organizational The Buying Center
Interpersonal
Influences and Individual
Buying Decision
Process
Influences

Product or Service Delivery Terms

Choice Buyer’s Response and Times
Supplier Choice Service Terms
Order Quantities Payment
 Participants in the Business Buying
Process: The Buying Center

Gatekeepers Users

Buying
Deciders Center Influencers

Buyers
Business Buyer Behavior
Participants in the Business Buying Process

• Users are those that will use the product or service.

• Influencers help define specifications and provide
information for evaluating alternatives.
• Buyers have formal authority to select the supplier and
arrange terms of purchase.
• Deciders have formal or informal power to select and
approve final suppliers.
• Gatekeepers control the flow of information.
Stages in the Business
Buying Process
Problem Recognition

General Need Description

Product Specification

Supplier Search

Proposal Solicitation

Supplier Selection

Order Routine Specification

Performance Review
 Webster and Wind Model of
organizational buying behavior

Source: R.E. Webster, Jr and Y Wind, journal of Marketing, 36, pp 12-17, April, 1972.
 Sheth model of Organizational Buying

Sheth, J. N. (1973). A model of industrial buyer behavior. Journal of Marketing, 37(4), 50-56.
Sheth, J. N. (1973). A model of industrial buyer behavior. Journal of Marketing, 37(4), 50-56.
Business Buyer Behavior
Buyer Responses to Marketing Stimuli

• Product or service choice

• Supplier choice
• Order quantities
• Delivery
• Service
• Payment terms
Business Buyer Behavior
Black box of business buying

Marketers must understand what happens within the

organization to turn stimuli into purchase
responses.
• Major Types of Buying Situations
• Participants in the Business Buying Process
• Major Influences on Business Buyers
• The Business Buying Process
• E-Procurement
Business Buyer Behavior
Organizational Buying Process
Business Buyer Behavior
Problem recognition occurs when someone in the
company recognizes a problem or need.
• Internal stimuli
• Need for new product or production equipment
• External stimuli
• Idea from a trade show or advertising
Business Buyer Behavior
The Buying Process

General need description describes the characteristics and

quantity of the needed item.
Product specification describes the technical criteria.
• Value analysis is an approach to cost reduction where
components are studied to determined if they can be
redesigned, standardized, or made with less costly
methods of production.
Business Buyer Behavior
The Buying Process

Supplier search involves compiling a list of qualified

suppliers.

Proposal solicitation is the process of requesting

proposals from qualified suppliers.
Business Buyer Behavior
The Buying Process

Supplier selection is the process when the buying

center creates a list of desired supplier attributes
and negotiates with preferred suppliers for
favorable terms and conditions.
Order-routine specifications is the final order with the
chosen supplier and lists all of the specifications
and terms of the purchase.
Business Buyer Behavior
The Buying Process

Performance review involves a critique of supplier

performance to the purchase terms.
Business Buyer Behavior
Major Types of Buying Situations

• Systems selling involves the purchase of a packaged

solution from a single seller.
• Two-step process of selling:
• Interlocking products
• System of production, inventory control, distribution,
and other services to meet the buyer’s need for a
smooth-running operation
Business Buyer Behavior
Participants in the Business Buying Process

• The buying center is all of the individuals and units

that play a role in the purchase decision-making
process:
• Users
• Influencers
• Buyers
• Deciders
• Gatekeepers
Business Buyer Behavior
Participants in the Business Buying Process

The buying center provides a major challenge:

• Who participates in the process
• Their relative authority
• What evaluation criteria each participant uses
• Informal participants
Business Buyer Behavior
Major Types of Buying Situations

• Straight rebuy
• Modified rebuy
• New task
Three Buying Situations

1. New task
2. Modified rebuy
3. Straight rebuy
 Three Buying Situations
1. New Task

• New task—the 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.
 Three Buying Situations
2. Modified Rebuy

• Modified rebuy—decision 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.
 Three Buying Situations
3. Straight rebuy

• Straight rebuy—the 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.
 Buying Decision Approaches

Causal purchases…involve no information search or analysis.

Routine low priority…decisions are more important and

involve a moderate amount of analysis.
KAM and other sales approaches
Buygrid Framework: Major Stages (Buyphases) of the Industrial Buying Process in Relation
to Major Buying Situations (Buyclasses), Robinson & Associates,based on purchasing
dynamics of packaging machine in Japan, 20 people including production manager &
staff,new product committee,company laboratory,marketing department,took decision in
121 days
Buyclasses

New Modified Straight

Task Rebuy Rebuy

1. Problem recognition Yes Maybe Yes

2. General need description Yes Maybe No

3. Product specification Yes Yes No

Buyphases 4. Supplier search Yes Maybe No

5. Proposal solicitation Yes Maybe No

6. Supplier selection Yes Maybe No

7. Order-routine specification Yes Maybe No

8. Performance review Yes Yes Yes

 An Example of Vendor (Supplier) Analysis

Attributes Rating Scale

Importance Poor Fair Good Excellent

Weights (1) (2) (3) (4)
Price .30 x

Supplier reputation .20 x

Product reliability .30 x

Service reliability .10 x

Supplier Flexibility .10 x

Total score: .30(4) + .20(3) + .30(4) + .10(2) + .10(3) = 3.5

Business Buyer Behavior
E-Procurement and Buying on the Internet

75% of business buyers indicated that they use the

Internet to make at least some of their purchases.

Online purchasing
• Company buying sites
• Extranets
• Enables individual employees to buy online while the
company retains control of the purchasing process.

The Buy-Side Requisitioning Process

Business Buyer Behavior
E-Procurement and Buying on the Internet

Advantages
• Access to new suppliers
• Lowers costs
• Speed in order processing and delivery
• Share information
• Sales track
• Service and support
Business Buyer Behavior
E-Procurement and Buying on the Internet

Disadvantages
• Can erode relationships as buyers search for new
suppliers
• Lack of security
 Business Buyer Behavior
– E-Procurement

Much online purchasing takes place through online

auctions and e-market-places:

• An intranet is an internal corporate computer

network that uses Internet technology to link
company departments, employees, and databases

• An extranet allows outsiders to the organization

to access its intranet

• A private exchange links invited groups of

suppliers and partners over the Web
 Business Buyer Behavior
- E-Procurement
Security
• Authentication - making sure only authorized
individuals are allowed to access a site

• Firewalls - combination of hardware and software

that ensures only authorized individuals gain
entry

• Encryption - scrambling a message so that only

another individual has the right “key” for
deciphering it
 3. Business buyer markets

• Industrial and Government

markets
Institutional and Government Markets
Institutional markets consist of schools, hospitals,
nursing homes, prisons and other institutions that
provide goods and services to people in their care.

• Characteristics
• Low budgets
• “Captive” audience
Institutional and Government Markets
• Government markets tend to favor domestic suppliers
and require suppliers to submit bids and normally
award to the lowest bidder
• Carefully monitored by outside publics – require
considerable paperwork
• Affected by similar environmental factors
• Good credit
• Non-economic factors – tend to favor
• Minority suppliers
• Depressed suppliers
• Small businesses