ORGANIZATIONAL BUYING

Definition Organizational buying is the decision making process by which formal organizations establish the need for products and services and identify, evaluate and choose among alternative brands and suppliers.

ORGANIZATIONAL BUYING
What constitutes a business market ? The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others.

ORGANIZATIONAL BUYING
Major industries making up the business market :Agriculture , Mining Manufacturing,Construction Public utilities etc.

ORGANIZATIONAL BUYING
A business market involves
Large amount of money More number of items

ORGANIZATIONAL BUYING
Exercise

Process of producing and selling Refrigerator involves :-

ORGANIZATIONAL BUYING
As you can see, In the above supply chain, each party has to buy many other goods and services

1. Fewer and larger buyers 2. Close supplier and customer

relationship. 3. Professional purchasing 4. Several buying influences 5. Multiple sales calls 6. Derived demand 7. Inelastic demand 8. Fluctuating demand 9. Geographically concentrated buyers. 10.Direct purchasing.
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CHARACTERISTICS OF BUSINESS MARKETS

FEWER BUYERS Business marketers deal with far fewer buyers than consumer marketer because it is a special buying

CHARACTERISTICS OF BUSINESS MARKETS

CLOSE SUPPLIER-CUSTOMER RELATIONSHIP Because of smaller customer base and the importance and power of the larger customers, suppliers are frequently expected to customize their offering into individual business customer needs
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CHARACTERISTICS OF BUSINESS MARKETS

GEOGRAPHICALLY CENTERED BUYERS Demand comes from industries, whose factories are concentrated in industrial estates and specific locations

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CHARACTERISTICS OF BUSINESS MARKETS

DERIVED DEMAND Demand for industrial goods is ultimately derived from the demand for consumer goods.

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CHARACTERISTICS OF BUSINESS MARKETS

INELASTIC DEMAND Total demand for products remains inelastic i.e. it is not much affected by price changes.

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CHARACTERISTICS OF BUSINESS MARKETS

PROFESSIONAL PURCHASING Business goods are purchased by trained purchasing agents who must follow the organizations purchasing polices, constraints and requirements.

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CHARACTERISTICS OF BUSINESS MARKETS

SEVERAL BUYING INFLUENCES
More people influence businessbuying decisions.

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CHARACTERISTICS OF BUSINESS MARKETS

MULTIPLE SALES CALLS Because more people are involved in the selling process, it takes multiple sales calls to win most business orders

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CHARACTERISTICS OF BUSINESS MARKETS

DIRECT PURCHASING Business buyers often buy directly from manufacturers rather than through intermediaries

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CHARACTERISTICS OF BUSINESS MARKETS

RECIPROCITY Business buyers often select suppliers who also buy from them

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CHARACTERISTICS OF BUSINESS MARKETS

LEASING Many industrial buyers lease instead of buy heavy equipment e.g. heavy machinery or trucks

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BUSINESS BUYING SITUATIONS

STRAIGHT REBUY A buying situation in which the purchase department re orders on a routine basis (office supplies, bulk chemicals etc.)

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BUSINESS BUYING SITUATIONS

MODIFIED REBUY A situation in which buyer wants to modify product specifications, prices, delivery requirement or other terms

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BUSINESS BUYING SITUATIONS

NEW TASK A buying situation in which a purchaser buys a product or service for the first time (e.g. office building, new security system etc.).

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BUSINESS BUYING SITUATIONS

BUYING CENTRE
Decision-making unit of a buying organization is called the buying centre

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BUSINESS BUYING SITUATIONS

The buying centre is composed of all those individuals and groups who participate in the purchase decision-making process, who share some common goals and the risks arising from the decisions

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Roles played by decision makers

1. INITIATOR
2. USER 3. INFLUENCER 4. DECIDER 5. APPROVER

6. BUYER
7. GATEKEEPER
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Roles played by decision makers

INITIATOR
Those who request that something be purchased. They may be users or others in the organization

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Roles played by decision makers

USER Those who will use the product or service. In many cases, the users initiate the buying proposal and help define the product requirements

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Roles played by decision makers

INFLUENCER People who influence the buying decision They help define specifications and also provide information for evaluating alternatives.

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Roles played by decision makers

DECIDER
People who decide on product requirements or on suppliers

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Roles played by decision makers

APPROVERS
People who authorize the proposed actions of deciders or buyers

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Roles played by decision makers

BUYERS
People who have a formal authority to select the supplier and arrange the purchase terms.

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Roles played by decision makers

GATEKEEPERS People who have the information or power to prevent sellers from reaching members of the buying centre

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MAJOR INFLUENCES ON BUYING DECISIONS

Business buyers respond to four main influences ENVIRONMENT ORGANISATIONAL INTERPERSONAL INDVIDUAL
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MAJOR INFLUENCES ON BUYING DECISIONS

ENVIRONMENTAL FACTORS Business buyers pay close attention to current and expected economic factors such as level of production, investment, consumer spending and interest rate

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MAJOR INFLUENCES ON BUYING DECISIONS

ORGANIZATIONAL FACTORS Every organization has specific purchasing objective, policies, procedures, organizational structures and systems

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MAJOR INFLUENCES ON BUYING DECISIONS

ORGANISATIONAL FACTORS
Marketers have to keep track of several situations such as :-

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MAJOR INFLUENCES ON BUYING DECISIONS

Purchasing department upgrading Cross functional roles Centralized purchasing Decentralized purchasing of small items Internet purchasing contd.

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MAJOR INFLUENCES ON BUYING DECISIONS

Long term contracts Purchasing performance , evaluation, and buyers professional development Improved supply chain management Lean production

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MAJOR INFLUENCES ON BUYING DECISIONS

INTERPERSONAL & INDIVIDUAL FACTORS Buyers centers usually include several participants with differing interests, authority, status, empathy and persuasiveness

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PURCHASING/PROCUREMENT PROCESS
BUSINESS BUYERS BUY GOODS OR SERVICES TO :MAKE MONEY REDUCE OPERATING COSTS SATISFY SOCIAL OR LEGAL OBLIGATION

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PURCHASING/PROCUREMENT PROCESS
In principle, business buyers seek to obtain the highest benefit package (economic, technical, service and social) in relation to market offerings costs

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COMPANY PURCHASE ORIENTATIONS

BUYING ORIENTATION PROCUREMENT ORIENTATION SUPPLY CHAIN MANAGEMENT ORIENTATION

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COMPANY PURCHASE ORIENTATIONS

BUYING ORIENTATION
Purchase focus is short and tactical Buyers are rewarded on their capability to obtain the lowest price from suppliers

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COMPANY PURCHASE ORIENTATIONS

TACTICS USED BY BUYERS COMMODITIZATION They imply that product is simply a commodity & care only about price

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COMPANY PURCHASE ORIENTATIONS

MULTI SOURCING They use several sources and make them compete for share of the companys purchases

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COMPANY PURCHASE ORIENTATIONS

PROCUREMENT ORIENTATION Buyers seek quality improvement and cost reductions They develop collaborative relationships with major suppliers

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COMPANY PURCHASE ORIENTATIONS

SUPPLY CHAIN MANAGEMENT ORIENTATION
Purchasers role is broadened to become more strategic, value adding operation

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COMPANY PURCHASE ORIENTATIONS

Firm focuses on how to improve the whole value chain from raw materials to end users

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TYPES OF PURCHASING PROCESSES

Purchase process has to deal with
ROUTINE PRODUCTS LEVERAGE PRODUCTS STRATEGIC PRODUCTS BOTTLE NECK PRODUCTS

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TYPES OF PURCHASING PROCESSES

ROUTINE PRODUCTS
Low value and cost to customers and involve little risk Customer will seek lowest price and emphasize routine ordering ( office supplies)

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TYPES OF PURCHASING PROCESSES

LEVERAGE PRODUCTS
High value & involve little cost to customers but risk

Customer will compare market offerings and cost

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TYPES OF PURCHASING PROCESSES

STRATEGIC PRODUCT Products have high value and cost to customer & also involve high risk
Customer will prefer a well-known & trusted supplier & will be willing to pay more than average price

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TYPES OF PURCHASING PROCESSES

BOTTLE NECK PRODUCTS Low value & cost to customer but higher risk Customer will want a supplier who can guarantee a steady supply

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STAGES IN BUYING PROCESS

PROBLEM RECOGNITION GENERAL NEED DESCRIPTION AND PRODUCT SPECIFICATION SUPPLIER SEARCH PROPOSAL SOLICITATION SUPPLIER SELECTION

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STAGES IN BUYING PROCESS

PROBLEM RECOGNITION The buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a good or service

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STAGES IN BUYING PROCESS

GENERAL NEED DESCRIPTION AND PRODUCT SPECIFICATION The buyer determines the needed items general characteristics and required quantity

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STAGES IN BUYING PROCESS

SUPPLIER SEARCH
The buyer tries to identify the most appropriate suppliers

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STAGES IN BUYING PROCESS

PROPOSAL SOLICITATION
The buyer invites qualified suppliers to submit proposals

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STAGES IN BUYING PROCESS

SUPPLIER SELECTION The buying centre specifies desired suppliers attributes and indicate their relative importance.
Suppliers are rated on these attributes and identify the most attractive supplier

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