Organizational

Buying & Buying

Behavior
Module 2

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 Purchasing
 Buying vs Purchase
 Purchasing is a strategic weapon.
 Purchasingat a better price than competition is a
competitive advantage.
 Strategic purchasing can add to both lowering the price &
delivering the benefits.
 Purchasing provides appropriate levels of supplies of right
product or service.
 Provides correct quality.
 Helps in direct & indirect impact on pricing like inventory
cost, lower inspection cost, lower production
stops/losses.
 Makes the process easier and the life of all employees
smoother.
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 Purchasing Philosophy
 Adversarial Purchasing Philosophy /traditional
purchasing philosophy has several vendors for
each product.
 Partnership Purchasing or preferred supplier
system seeks to maximizes the benefits of
collaboration between buyer and few
suppliers.
 Single sourcing ( In case of partnering, there
is investment by sellers inline with demands
of buyers)

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Steps in Buying Process
• Recognition of need
1&2 • Definition of product type need

• Development of detailed specs

3&4 • Search for qualified suppliers

• Acquisition and analysis of proposals

5&6 • Evaluation of proposals /suppliers

• Selection of order procedures

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• Evaluation of product performance
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Buy-Grid Model
 The Buy –grid model is a version of theory
developed as general model of rational
organizational decision making process.
 Buy Grid model has two parts :
 1) Buy-phase model
 2) Buy-class ( New Buy , Straight rebuys
& Modified Re Buys)

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Recent Trends in Purchasing
 Trimming Purchasing Costs
 Using the web
 Outsourcing (incl Early Supplier
Involvement)
 Stronger relationship with sellers
 Cross functional teams
 Professionalism in Purchasing
 Global sourcing

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Wipro’s Case let
 Wipro is doing information technology
consulting and support , among other
activities, for companies across the globe.
Vivek Ramamurthy was making a call to Ian
McHaggle, chairman of McHaggle & Co. in
Glasgow, Scotland. McHaggle wants Wipro
team to move to Glasgow , near to their
office for on-site support and planning.
Ramamurthy thought it would be less
expensive to hire 100 Glasgow locals .
McHaggle nearly exploded . “If I wanted
that way, why would I come to you”? He
said.
 There is a tension in make-or-buy and
outsourcing .Describe the tension or conflict
& how would you reply to McHaggle.
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SRI International
 Akshay Menon, Head SRI’s Dallas operations
was reviewing proposals from three
companies for a new scanner . The company
has been has been awarded a large govt.
contract to scan and electronically store the
paper files.
 Menon knows they require 3 to 5 new
scanners .
 Margie, the production manager had
obtained 3 proposals at Menon’s request .
One for 5 moderate speed scanners , one for
3 high speed scanners and one for 3
moderate speed & 1 high speed scanners.
 She believes that more no. of scanners
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means greater flexibility.

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SRI ( Contd)
 George ,CFO, wanted to buy three high speed
scanners as high cost would be offset by
fewer operators ad there would problems in
hiring ,retaining operators. Besides that cost
of servicing three scanners will be lower.
 Gloria, HR Manager , agreed that local
employment market made hiring more
difficult. She is not concerned with what is
bought but she knows that it is tough to hire
new employees. She told Menon that high
speed scanners were too unreliable and
there are paper jams problems .Since
operators pay was tied up to productivity,
they don’t want high speed scanners.

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Example : Internet based
 The United Technologies want to buy “lots” of
buying
industrial items for its Carrier & Otis divisions.
 64 prescreened vendors will enter their bids from their
home operations via secured network.
 The auction will last for full day.
 “Where else could you get this many players in such a
short time ?’’
 In 10 minutes time the price of a particular item has
fallen 14% less than what the current price is .
 Free Market Inc. ,the auction company has organised
this effort for United Technologies.



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Example : Internet based
 It became very clear that pricing in the event is
buying ….
being driven by a foreign player who has never
done business with the company before.
 The on-line bids are only a small part of the
buying process.
 The buyer has to check out the capabilities of any
new supplier and make sure that switching makes
sense.
 While United Technologies is hoping to narrow its
supplier base to a smaller group of the most
competent players , price is only one factor in
evaluating the value of the suppliers relationship.
 The low bidder does not necessarily win.
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Consumer Buying Behaviour
Classical five stage consumer behaviour
decision process :
1. Need recognition
2. Information search
3. Exhaustion of alternatives
4. Purchase Decision
5. Post purchase Behaviour

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Organization Buying
 Organization buying involves more
buyers-more decision makers or
contributors.
 Committees (the buying center are
involved, with professionals in each
discipline(stakeholders) making
decisions that are driven by their
particular needs.
 Different types of decisions are often
occurring simultaneously in the process
, spread throughout the buying
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organization.
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Process Flow Model
• Problem definition
• Solution definition
DEFINITION • Product specification
STAGE

• Solution provider search

SELECTION • Acquire solution provider
STAGE

• Customize as needed
DELIVER • Install /Test/ Train
SOLUTION

• Operate solution
• Reach & result
END GAME • Evaluate outcomes
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Organization Buyer Behavior
 Reward – Measurement Theory
 Behavior Choice Theory
 Role theory

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 Reward-Measurement Theory
 RM Theory says that buyers are motivated both extrinsic
rewards as well intrinsic rewards.
 Understanding how buyers’ performance is measured and
how buyers are rewarded can help marketers in promoting
their products.
 The theory faces contradictions when the company’s reward
systems are not clearly tied to making purchases.

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Reward Measurement theory
 Motivation = Valence X Probability
 Motivation is suppose office manager wants to buy the
lowest price fax possible and is willing to shop around
(effort)
 Valence means effort will be made because he can get a
raise
 Probability is if he can negotiate a discount . Which he
estimates is likely.
 If I do this, I will get a reward.

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Behavior Choice Theory
Behavior Choice theory states that buyers go thru choice process how
they will buy rather than choice process of what will be bought.

Self orientation and company orientation operate independently

and the comparative degree of intensity will decide the purchase
action.

Second level of the choice process is to evaluate personal relevance

. (Formal reward system, informal/social reward ,intrinsic reward.

The third stage is buyer assess action alternatives and requirements .

In this stage buyer looks at the amount of control over the task.

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Role Theory
 Role theory is applied to a no. of social
situation like family , friends,
organizational buying .
 It suggests that people behave within a
set of norms or expectations of others
due to the role in which they have been
placed .
 Usually in an organization , there are
more than one person involved in buying
center or decision making unit(DMU).
 The role theory helps us to understand
how the participants interact because it
defines the role people take when
involved in purchases.
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Roles in Buying Center

 Initiator starts the purchase process by recognizing the

needs .
 There are controllers who controls or sets the budget.
 The purchasing agent is the person who actually makes
the purchase.
 Influencers are those individuals who seek to affect the
decision maker’s final thru recommendation to include
which vendors or which products that good for
organization.
 Many a times users are the part of buying center and
play the role of influencers.
 There are gatekeepers who control information into and
out of the buying group or between members of the
group.

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 Time Dimension of Buying
Center
In a buying center , the people come and go.
This feature is called time dimension.
 There are people like Senior Mgmt, Logistics,
Manufacturing, Engineering, Purchasing, R&D ,
Finance, Marketing etc.
 If the same people continue for long , the
buying center is not fragmented.
 Otherwise it is known as time-fragmented
purchase.
 There are other dimension like vertical,
horizontal or formalization.
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When Buying Centers Occur
In some organization i.e. Government, buying
center exist because of organizational policy.
Also when risk involved with buying process are
high, the buying center exists.
There can be financial risk , performance risk,
social risk/ego risk.
To tackle such risks, buyers should gather more
info, remain loyal to existing suppliers, spread
risk to other members of the firm or among
suppliers.
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Sources of Information for
Buying Center

PERSONAL IMPERSONAL

COMMERCIAL Personal selling Sales Literature

Trade Shows Advertising
Telemarketing Websites
E mail Direct Mail

NON Word of mouth from Trade publications

COMMERCIAL colleagues, coworkers

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Buying Determinants Theory

 The theory describes buying behavior due to combined

effect of 1) Environment Factors, 2) Market Factors 3)
Organizational Factors 4) Individual Factors
 Individual Factors : Demographics, Psychographics ,
Selective process
 Selective exposure, Selective perception, Selective
Attention, Selective retention

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Other Factors
 Organizational Factors: Size,
Culture, Power distribution, policy,
corporate experience, reward-
measurement
 Market Factors: Number , size of
competitors
 Environmental Factors : These go
beyond market factors , i.e.
Economy, technology, political
factors, social factors,
governmental actions.
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