Organizational Buying Behaviour

Purchasing
THE OBJECTIVES OF PURCHASING
1. PROVIDE APPROPRIATE LEVELS OF SUPPLY

+
2. THE APPROPRIATE LEVEL OF QUALITY

+
3. THE LOWEST TOTAL COST
WHAT COMPANIES REALLY PAY
FOR OWNERSHIP
• Cost of ownership goes beyond the price paid
for a product

• TOTAL COST OF
OWNERSHIP = PRODUCT PRICE
+ DELIVERY
+ INSTALLATION
+ MAINTENANCE / REPAIR
+ POWER COSTS
+ SUPPLY COSTS
+ OPERATING COSTS
+ FINANCING
 Steps in the Business Buying
Process
1. Recognizing the need
2. Developing product specifications
3. Soliciting bids from potential suppliers
4. Making the purchase decision
5. Selection of order routine
6. Issuing the contract
7. Inspecting delivered goods for quality
8. Evaluating vendor performance
 MAKE-OR-BUY DECISION
ANALYSIS
RISK ASSESSMENT
FINANCIAL RISKS
Resource Allocation
Investment of Resources
Accurate Cost Analysis
Legal Issues
MANUFACTURING RISKS
Reliability
Expertise
Equipment
Patent Protection
MARKETING RISKS
Customer Impact
Supplier Impact
POLITICAL RISKS
Management commitment/
willingness to partner
Turf Battles
Internal Strife

ACCEPTABLE RISK UNACCEPTABLE RISK

Buy the Products, Retain Production and
Components or Services Provide Services
THREE BUYING SITUATIONS

1. New task
2. Modified rebuy
3. Straight rebuy
 Examples of Products Purchased
Using the Buy-Class
Straight Modified New
Rebuy Rebuy Buy
Office Vehicles Consulting Installations
Supplies Services

Pure Complete
Electrical
routine Components negotiation
Electricity Computer Moon Shot
Gas/Water Systems Insurance
Bulk
Chemicals
 Three Buying Situations
1. New Task (slide 2 of 4)
• 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 (slide 3 of 4)
• 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 (slide 4 of 4)
• 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.
 Buygrid Analysis Framework

New Modified Straight

Buy Rebuy Rebuy
Need Recognition
Develop Product Specifications Complexity of
Buying Situation
Solicit Bids
Make Purchase Decision
Issue the Contract
Inspect Goods for Quality
Evaluate Vendor Performance
 Buygrid Analysis Framework

New Modified Straight

Buy Rebuy Rebuy
Need Recognition
Develop Product Specifications Creeping
Commitment
Solicit Bids
Make Purchase Decision
Issue the Contract
Inspect Goods for Quality
Evaluate Vendor Performance
The Buygrid Framework for Organizational Buying Situations

With rising competitive pressures

managers are using rigorous cost
modeling approaches to identify
factors that drive the cost of
purchased goods and services.
 Multi-Attribute Theory
• Product offerings are bundles of attributes.
• Attributes provide benefits.
• Benefits satisfy needs.
• Buyers differ in their needs, therefore
• Buyers differ in the importance they place
upon various attributes.
• Some buyers seek to maximize the set of
attributes.
• Others seek to satisfy most important
attributes first.
 Role Theory
• The differing roles people play (in business,
society, or life in general) have differing norms
and expectations.
• Examines how people interact in the Buying
Center (more than one person is involved in the
purchasing decision.)
• In many cases, the buying center is an informal,
complex, changing group.
• In other cases, it is a formal part of the
organization (such as cross-functional teams)
 Forces Influencing Organizational Buying
Behavior
•Economic Outlook:
A projected change in Domestic & Global
business conditions
Environmental •Pace of Technological
can drastically alter Change
buying plan. Forces
•Global Trade Relations

•Goals, Objectives, and

Organizational Strategies
Forces •Organizational Position
Organizational of Purchasing
Buying
Behavior •Roles, relative
Group influence, and patterns
Forces of interaction of buying
decision participants

•Job function, past

Individual experience, and buying
Forces motives of individual
decision participants
 Questions for the Industrial Salesperson

1. Which member takes part in the buying

process?
2. What is each members relative influence in the
decision?
3. What criteria is important to members in the
evaluation process?
 The Buying Center

• Consists of those individuals

–who participate in the purchasing
decision and
–who share the goals and risks
arising from the decision
• Average buying center includes
more than 4 persons per
purchase
 Roles of Buying Center Members
• User
– Will use product in question; minimal - major influence
• Gatekeeper
– Tight controller of information flow to other buying
center members; can open/close gate for salespeople.
• Influencer
– Provides information to other members for evaluating
alternative products or sets purchasing specifications;
can operate within/outside buying center.
• Decider
– Makes buying decision; often difficult to ID.
• Buyer
– Assigned formal authority to select vendors and
complete purchasing transaction.
 The Influence of Gatekeepers

The Gatekeeper
 Buying Center Dimensions

• Time
– Time fragmentation: length of time people
are in the buying center.
– Limits members’ influence
– Can lengthen decision making time due to
inexperience
• Vertical
– Layers of management involved
• Horizontal
– Number of departments involved
Clues for Identifying Powerful Buying Center
Members

• Isolate the personal

stakeholders
• Follow the information flow
• Identify the experts
• Trace the connections to the top
• Understand purchasing’s role
Members of the buying center assume different roles
throughout the procurement process.

Clues for
Identifying
Powerful
Buying
Center
Members
 Individual Forces

• Evaluative criteria
– education, training, experience
• Information Processing
– selective exposure, attention,
perception, and retention
• Risk-Reduction Preferences
– level of uncertainty about outcomes
– magnitude of consequences associated
with incorrect choice
Perceived Risk Components

1. Uncertainty about the outcomes

of a decision.
2. The magnitude of
consequences associated with
making the wrong selection.
 Impact of Increasing Levels of
Perceived Risk
• Buying center becomes larger
• Higher level managers become involved
• Information search more active
• Wider variety of info sources accessed
• Buying center members exert more effort
• Sellers with proven track records tend to be
more favored
• Product quality & after-sale service tend to
become more important than price
Major Elements of Organizational Buying Behavior

The behavior of
organizational buyers
is influenced by
environmental,
organizational, group,
and individual factors.
PURCHASING PARTNERSHIPS ARE
MADE WITH VENDORS WHO
PROVIDE:
• High-purchase-volume materials, components or
strategic products

• Information and training for effective product use

• Services requiring specialized knowledge for cost

reductions and/or performance

• Materials unavailable elsewhere

 Quotations and Contracts

• RFQ: Request for Quotation

• RFP: Request for Proposal
• Boilerplate:
– Standard legal clauses (fine print) on
RFQs, your bid, and the customer’s
order.
– May contain terms of sale that
contradict terms on your bid, and often
contain penalties for nonperformance.
Organizational buyer behaviour is
different from consumer behaviour

1. Many individuals make the buying decision

2. Behaviour is motivated by both rational and
emotional factors
3. Decisions include a range of complex technical
decisions
4. Lag time exists between contact and actual
decision
5. Organizations cannot be grouped into precise
categories