Understanding Organizational Buying

BehaviourJobber chap. 5

Consumer or Organizational Products

Why was the product purchased ?

For personal or household use

For use in the operation of a business or organization.

To manufacture other products

For resale to others

OrganizationalPRODUCT

CONSUMER

PRODUCT

Some Examples of Organizational Buying

Paper cups by McDonald'sComputer chips by ToshibaConcrete by Local AuthoritiesOil by Electricity GeneratorsFertiliser by FarmersAccountancy services by Ltd. CompaniesTV’s by Comet or Dixons

Characteristics of Organizational Buying

Derived demand Negotiations

Risks Reciprocalbuying

Nature and size of customers

Complexity of buying

Economic

and technical choice

criteria

Buying to specific

requirementsOrganizational

Purchases

Decision-making Unit

Buyer

Decider(Decision

Maker)

User

Gatekeeper

Influencer

Decider

Initiator

Decision-making Unit

Buyers

choose suppliers

and negotiate purchase

terms often reducing

the actual purchase

to a clerical task.

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.

Deciders

(Decision Makers)

have the authority

to approve

the purchase.

Influencers

supply information

and advice. Outsiders

such as consultants

sometimes perform

the role.

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.

Initiators

begin the purchase

Process.

Initiators

begin the purchase

Process.

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 eco-friendly rail-technology 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.

Choice CriteriaTypes.Economic.

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 CriteriaImplications.

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

straight re-buy

modified re-buy

new task

Buy class

Organizational buyer

product constituents

product facilities

MROs

Product type

Importance of purchase

Buy ClassT

ime

take

n f

or

dec

isio

n

No. of people involved in buying centre

Straight Rebuy

NewTask

ModifiedRebuy

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 ClassImplications:

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 Buyer

Supplier sells by taking initiative

Buyer takes initiative to persuade supplier to provide

Traditional marketing

Reverse marketing

Relationship Marketing - CRM

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

Relationship MarketingCenters 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

Low

Net

Mar

gin

Rea

lized

Cost-to-Serve

Passive• Product is Crucial• Good Supplier Match

Costly to Service,but Pay TopDollar

Price Sensitive butFew SpecialDemands

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

Profits

Losses

Low High

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

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 buyer–seller relationships in Industrial

MarketsPre-relationship stage

Evaluation of a new potential supplier

Early stageNegotiation of a trial

Development stageContract signed or delivery built up

Long term stageSeveral major purchases or large-scale deliveries have been made

Final stageEstablished patterns of trading in long-term stable markets