CHAPTER

SEVEN

ORGANIZATIONAL MARKETS
AND BUYER BEHAVIOUR

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2000 McGraw-Hill Ryerson Limited

AFTER READING THIS CHAPTER YOU SHOULD

BE ABLE TO:

Distinguish among industrial, reseller, and

government markets.
Recognize key characteristics of
organizational buying that make it different
from consumer buying.
Understand how types of buying situations
influence organizational purchasing.
Recognize similarities and differences in
industrial and reseller purchase behaviour.
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Laser Technology is Bright at Honeywell

Gary Null believes Honeywell, MICRO SWITCH
division, is poised to capture a significant share of
the multi-billion dollar global market for laser
technology and products.
However, successful commercialization of their
innovative laser technology depends on a
coordinated worldwide team of engineers and
marketing and sales professionals.
The key is to show the advantages of VCSEL over
existing technology to a diverse worldwide market.
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2000 McGraw-Hill Ryerson Limited

Business Marketing
Business marketing is the marketing of goods and
services to:
1.

commercial enterprises,

2.

Governments, and

3.

other profit and not for profit organizations,

for use in the creation of goods and services that they

then produce and market to other business customers,
as well as individuals and ultimate consumers.
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2000 McGraw-Hill Ryerson Limited

Organizational Buyers
Organizational buyers are those manufacturers,
wholesalers and retailers, and government agencies
that buy goods and services for their own use or for
resale.
EXAMPLE: Buying computers and telephones for the
firms own use.

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2000 McGraw-Hill Ryerson Limited

North American Industry Classification System (NAICS)

NAICS provides common industry definitions for

Canada, Mexico, and the U.S., which facilitate the
measurement of economic activity in the three
member countries of NAFTA.
NAICS replaced the Standard Industrial
Classification system, a system which had been in
place more than 50 years.
NAICS is consistent with the International Standard
Industrial Classification of All Economic Activities,
published by the United Nations, to facilitate
measurement of global economic activity.
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PP7-1a NAICS breakdown for broadcasting and

telecommunications industries
2 Digit

3 Digit

4 Digit

5 Digit

Industry Subsector

Industry Group

Industry

Broadcasting
Broadcasting and
and
telecommunications
telecommunications

Radio
Radio and
and television
television
broadcasting
broadcasting

Wire
Wire
telecommunication
telecommunication
carriers
carriers

Paging
Paging

Cable
Cable networks
networks and
and
program
distribution
program distribution

Wireless
Wireless
telecommunication
telecommunication
carriers,
carriers, except
except
satellite
paging
satellite paging

Cellular
Cellular and
and other
other
wireless
wireless
telecommunications
telecommunications

Telecommunications
Telecommunications

U.S. National Industry

Telecommunications
Telecommunications
resellers
resellers
Satellite
Satellite
telecommunications
telecommunications
Other
Other
telecommunications
telecommunications

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Concept Check

1.

What are the three main types of

organizational buyers?

2.

What is the North American

Industry Classification System
(NAICS)?

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PP72 Key Characteristics of Organizational Buying Behaviour

Market Characteristics
Demand for industrial products and services
is derived.
Few customers typically exist, and their purchase
orders are large.
Product or Service Characteristics
Products or services are technical in nature and
purchased on the basis of specifications.
There is a predominance of raw and semi-finished
goods purchased.
Heavy emphasis is placed on delivery time, technical
assistance, postal service, and financing assistance.
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(continued)
2000 McGraw-Hill Ryerson Limited

PP72 Key characteristics of Organizational Buying Behaviour

Buying Process Characteristics
Technically qualified and professional buyers exist and
follow established purchasing policies and procedures
Buying objectives and criteria are typically spelled out,
as are procedures for evaluating sellers and products
(services).
Multiple buying influences exist, and multiple parties
participate in purchase decisions.
Reciprocal arrangements exist, and negotiation between
buyers and sellers is commonplace.
Online buying over the Internet is widespread.
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2000 McGraw-Hill Ryerson Limited

PP72 Key Characteristics of Organizational Buying Behaviour

Other Marketing Mix Characteristics
Direct selling to organizational buyers is the rule, and
physical distribution is very important
Advertising and other forms of promotion are technical in
nature.
Price is often negotiated, evaluated as part of broader
seller and product (service) qualities, typically inelastic
owing to derived
demand, and frequently affected by trade and quality
discounts.

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2000 McGraw-Hill Ryerson Limited

Other Organizational Buyer Terminology

Reverse Marketing involves the deliberate effort by
organizational buyers to build relationships that shape
suppliers products, services, and capabilities to fit a
buyers needs and those of its customers.
Reciprocity is an industrial buying practice in which two
organizations agree to purchase each others products
and services.
A supply partnership exists when a buyer and its
supplier adopt mutually beneficial objectives, policies,
and procedures for the purpose of lowering the cost
and/or increasing the value of products and services
delivered to the ultimate consumer.
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Key Organizational Buying Criteria

Quality
Specifications

Price

Technical
Capability

Organizational
Buying Criteria

Warranty/
Claim Policies
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Delivery
Schedules

Past
Performance

Production
Facilities/Capacity

2000 McGraw-Hill Ryerson Limited

Four Questions to Provide Guidance in

Understanding the Buying Centre

1.
2.
3.
4.

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Which individuals are in the buying centre for

the product or service?
What is the relative influence of each member of
of the group.
What are the buying criteria of each member?
How does each member of the group perceive
our firm, our products and services, and our
salespeople?

2000 McGraw-Hill Ryerson Limited

Five Roles in the Buying Centre

Initiator
Initiator

User
User

Decision
Maker
Influencer
Influencer

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Gatekeeper
Gatekeeper

2000 McGraw-Hill Ryerson Limited

PP7-3b Comparing the stages in consumer and organizational

purchases
Stage in the Buying
Decision Process

Consumer Purchase: Portable

CD Player for a student

Organizational Purchase:
Headphones for CD player

Problem recognition

Student doesnt like the sound

Marketing research and sales

of the stereo system now owned

departments observe that

and desires a portable CD

competitors are including

player.

headphones on their models.

The firm decides to include
headphones on their own new
models, which will be
purchased from an outside
supplier.

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2000 McGraw-Hill Ryerson Limited

PP7-3b Comparing the stages in consumer and organizational

purchases
Stage in the Buying
Decision Process
Information search

Consumer Purchase: Portable

CD Player for a student
Student uses past experience,
that of friends, ads, and
Consumer Reports to collect
information and uncover
alternatives.

Alternative evaluation

Alternative portable CD
players are evaluated on the
basis of important attributes
desired in a CD player and
several stores are visited.

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Organizational Purchase:
Headphones for CD player
Design and production
engineers draft specifications
for headphones. The
purchasing department
Identifies suppliers of CD
player headphones.
Purchasing and engineering
personnel visit with suppliers
and assess (1) facilities, (2)
capacity, (3) quality control,
(4) financial status. They drop
any suppliers not satisfactory
on these factors.
2000 McGraw-Hill Ryerson Limited

PP7-4c Comparing the stages in consumer and organizational

purchases

Stage in the Buying

Decision Process
Purchase decision

Postpurchase behaviour

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Consumer Purchase: Portable

Organizational Purchase:
CD Player for a student
Headphones for CD player
A specific brand of portable CD They use (1) quality, (2) price,
player is selected, the price is
(3) delivery, and (4) technical
paid, and the student leaves
capability as key buying
the store.
criteria to select a supplier.
Then they negotiate terms
and award a contract.
Student reevaluates the
They evaluate suppliers
purchase decision, may return
using a formal vendor rating
the portable CD player to the
system and notify supplier if
store if it is unsatisfactory, and
headphones do not meet its
looks for supportive
quality standard. If the
information to justify the
problem is not corrected,
purchase.
they drop the firm as a
future supplier.
2000 McGraw-Hill Ryerson Limited

PP7-4 How the Buying Situation Affects Buying Centre

Behaviour
Buy-Class Situation
Buying Centre Dimension

New Buy

Straight/Modified Rebuy

People involved

Many

Few

Decision Time

Long

Short

Problem definition

Uncertain

Well-defined

Buying objective

Good solution

Low-price supplier

Suppliers considered

New/present

Present

Buying influence

Technical/operating

Purchasing Agent

personnel
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2000 McGraw-Hill Ryerson Limited

Decision time and problem definition

Three Types of Buying Situations

Long/
uncertain

Short/
well defined

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New
buy
Modified
buy
Straight
rebuy
Few

Number of people in buying centre

and number of suppliers considered

Many

2000 McGraw-Hill Ryerson Limited

Concept Check

1.

What one department is almost

always represented by a person in
the buying centre?

2.

What are the three types of

buying situations or buy classes?

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Stages in the Industrial Buying Process

Problem Recognition often involves a make-buy
decision -- an evaluation of whether components and
assemblies will be purchased from outside suppliers
or built by the company itself.
Information Search often involves value analysis -- a
systematic appraisal of the design, quality, and
performance of a product to reduce purchasing
costs.
Alternative Evaluation often involves the generation
of a bidders list -- a list of firms believed to be
qualified to supply a given item.
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Stages in the Industrial Buying Process

Purchase Decision -- The period from supplier
selection to order placement to product delivery can
take several weeks or even months, as negotiations
regarding price, performance and delivery terms will
continue. Additional negotiations may involve
warranties, indemnities, and payment schedules.
Postpurchase Behaviour -- Postpurchase evaluation
occurs in the industrial purchase decision process,
but it is formalized and often more sophisticated.
The performance of the supplier is monitored and
recorded.
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Concept Check
1.

What is a make-buy
decision?

2. What is a bidders list?

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2000 McGraw-Hill Ryerson Limited