Business Markets and

Organizational Buying
Behavior

48

17 – Aug – 2004 Business Markets & -1-

Organisational Buying Behaviour
What is a Business
Market?
 The Business Market - all the
organizations that buy goods and
services to use in the production of
other products and services that are
sold, rented, or supplied to others.
 Business markets involve many more
dollars and items than Consumer
markets.

17 – Aug – 2004 Business Markets & -2-

Organisational Buying Behaviour
Business-to-Business
Marketing
 Sales to businesses rather than end-consumers
Example: IBM personal computer
 Business-to-Business
Example: Sale of a personal computer to a
university for use in PC labs
 Consumer Marketing
Example: Sale of a personal computer to a
student for personal use

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Organisational Buying Behaviour
Why Do Organizations Buy?
 Raw Material for the goods produced
 Supplies which help the employees run
the operations of the organisation. Eg:
Stationery
 To sell to the consumers

17 – Aug – 2004 Business Markets & -4-

Organisational Buying Behaviour
17 – Aug – 2004 Business Markets & -5-
Organisational Buying Behaviour
Types of Organizational
Buyers
1. Business Buyers
2. Institutional Buyers
– Low Budgets
– Captive Patrons
3. Government Markets
– Specialized Buying
– Open Bids
– Negotiated Contracts

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Organisational Buying Behaviour
Basic Methods in
Organizational Buying


17 – Aug – 2004 Business Markets & -7-

Organisational Buying Behaviour
 Characteristics of
Business Markets

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Organisational Buying Behaviour
Market Structure and
Demand
 Fewer, larger buyers (large orders)
 Demand derived from consumers
 Price-inelastic demand
 Fluctuating demand

17 – Aug – 2004 Business Markets & -9-

Organisational Buying Behaviour
Nature of the Buying
Unit
 More people involved in the
process
 More professional purchasing effort

17 – Aug – 2004 Business Markets & -10-

Organisational Buying Behaviour
Product / Service
Characteristics
 Frequently technical /complex
 Predominance of semi-finished
goods and raw materials
 Important: delivery time, technical
assistance, post-sale service,
financing assistance

17 – Aug – 2004 Business Markets & -11-

Organisational Buying Behaviour
 Marketing Mix

 Direct selling
 Price is often negotiated
 Advertising is often technical in
nature

17 – Aug – 2004 Business Markets & -12-

Organisational Buying Behaviour
Types of Decisions &
the Decision Process
 More complex decisions
 Process is more formalized
 Buyer and seller are more
dependent on each other
 Build close long-term relationships
with customers

17 – Aug – 2004 Business Markets & -13-

Organisational Buying Behaviour
Differences between
Business-to-Business
and Consumer Buying
Behavior
Business – to – Business Business – to – Consumer
 Many people involved  Fewer people involved
 Many different goals to  Individual-level goals
realize  Less formal process
Formal decision process and  Decision is often implicit,
info. gathering not always ‘rational’
 Decision is explicit, rational  Psychological factors
 Price/cost often most important
important  Generally non-negotiable
 Competitive bidding and prices
negotiations often occur  Mass communications
 Personal selling  Longer distribution channel
 Shorter distribution channel
17 – Aug – 2004 Business Markets & -14-
Organisational Buying Behaviour
Model of Business
Buyer Behavior

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Organisational Buying Behaviour
Major Influences on
Business Buying

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Organisational Buying Behaviour
Stages in the Business
Buying Process
2. General
1. Problem 3. Product
Description
Recognition Specifications
of Need

5. Acquisition
4. Supplier Organizational and Analysis
Search Buying Process of Proposals

7. Selection
6. Supplier 8. Performance
of
Selection Review
Order Routine

17 – Aug – 2004 Business Markets & -17-

Organisational Buying Behaviour
Participants in the
Business Buying
Process:
The Buying Center
 Initiators
 Users
 Influencers
 Deciders
 Buyers
 Gatekeepers

17 – Aug – 2004 Business Markets & -18-

Organisational Buying Behaviour
Types of Buying
Situations

17 – Aug – 2004 Business Markets & -19-

Organisational Buying Behaviour
Straight Rebuy
 Product specifications are not modified
 Small DMU (decision-making unit) - generally one
person
 Low perceived risk
 Routine / automated
 Often based on a minimum acceptable quality
 “In supplier”
 “Out suppliers” find it hard to get a “foot in the door”
 Pray for an “in supplier” to mess up, or requirements
to change

17 – Aug – 2004 Business Markets & -20-

Organisational Buying Behaviour
Modified Rebuy

 Intention to modify specifications, prices,

terms, suppliers, etc.
 More participants than straight rebuy
 A “mini” or “aging” version of new task
 A window of opportunity for “out”
suppliers

17 – Aug – 2004 Business Markets & -21-

Organisational Buying Behaviour
New Task

 Rarest, most glamorous type

 Big DMU - depending on cost and risk
 Lots of people involved, lots of indirect influence
 Gather and weigh lots of information
 Decide on product, suppliers, payment terms,
delivery times etc.
 Slower-than-usual processes
 Opportunity and threat for marketers
 Performance matters a lot (not just price)

17 – Aug – 2004 Business Markets & -22-

Organisational Buying Behaviour
Organizational Buyers Are Problem Solvers

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Organisational Buying Behaviour
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Buyer-Seller Relationships

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Organisational Buying Behaviour
 Buyer-Seller Relationships in Business Markets
Close
Close Relationships
Relationships Relationships
Relationships May
May
May
May Produce
Produce Not
Not Make
Make Sense
Sense
Mutual
Mutual Benefits
Benefits

- Reliable source of - Reduced flexibility

supply - Some purchases are
- Cost reductions BUT too small or infrequent
- Price stability or - Higher risk from
concessions greater purchase
- Reduced uncertainty concentration
- Joint problem solving
- Improved quality

17 – Aug – 2004 Business Markets & -25-

Organisational Buying Behaviour
© 2002 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Prominence of Online Buying in
Organizational Markets

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Organisational Buying Behaviour
Prominent for three major
reasons
I. Technology provides timely supplier information
– product availability
– technical specifications
– application uses
– price
– delivery schedules.
I. Technology substantially reduces buyer order processing
costs.
II. Technology can reduce marketing costs, particularly sales and
advertising expense, and broaden their potential customer
base for many types of products and services.

17 – Aug – 2004 Business Markets & -27-

Organisational Buying Behaviour
e-marketplaces
 Bring together buyers and supplier
organizations.
 Make possible the real-time exchange
of information, money, products, and
services
 B2B exchanges

17 – Aug – 2004 Business Markets & -28-

Organisational Buying Behaviour
Independent e-marketplaces
 Charge a fee for service
 Small business use to expand customer base
 Exist in settings that have one or more of the
following features
– Thousands of geographically dispersed buyers and sellers.
– Volatile prices caused by demand and supply fluctuations.
– Time sensitivity due to perishable offerings and changing
technologies.
– Easily comparable offerings from a variety of suppliers.

17 – Aug – 2004 Business Markets & -29-

Organisational Buying Behaviour
Private exchanges
 Link large companies with their network
of qualified suppliers and customers.
 They are not a neutral third party, but
represent the interests of their owners

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Organisational Buying Behaviour
 Thank You

17 – Aug – 2004 Business Markets & -31-

Organisational Buying Behaviour