Organisational Buying Behaviour. Week - 3

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Ashlyn Mathews
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1 Organisational Buying Behaviour Week - 3

2 Learning Objectives: At the end of this session students will be able to: List and explain the six personal influences and four social influences on the consumer decision making process. Identify the characteristics of organisational buying. Understand the decision making processes that organisations go through when making a purchase. Identify the main types of organisational products and services.

3 Organisational Buying Behaviour Concept: Organisational buying is the purchase of products and services for use in an organisation's business activities and not for personal consumption.

4 Organisational Buying Behaviour Types: Industrial markets are those companies that buy products and services to help them produce other goods and services and involve the purchase of raw materials, components and machinery. Re-seller markets are those organisations that buy products and services to resell and would include retailers. Government markets are government agencies that buy products and services to help them carry out their activities; these would include for example, purchases for local authorities and the armed forces. Institutional markets are largely non-profit organisations that buy products and services to help them carry out their own activities; these would include for example, libraries, museums, universities, and charitable organisations.

5 Characteristics of Organisational Buying Behaviour Jobber (2004) identifies a number of characteristics of organisational buying: Nature and size of customers: The number of customers in organisational markets will be small. For example, in the industrial market of motor car tyres, suppliers would sell to a small number of large car manufacturers. Complexity of buying: Organisational purchases, especially if they involve large sums of money and are new to the organisation involve many people from different levels of the company. For example, if an expensive piece of machinery is to bought for a Hospital such as a scanner then the Chief Executive, Clinical Director, Radiologist, and purchasing managers may all influence the decision. Economic and technical choice criteria: Organisational buying is often made on economic and technical criteria, because organisational buyers have to justify their decisions to other members of the organisation.

6 Contd Risks: Because of the degree of risk in industrial markets sometimes contracts are drawn up before the product is made, for example, in the manufacture of aircraft or ocean going liners. Buying to specific requirements: In some organisational markets product/service specifications are developed detailing customer requirements and suppliers are asked to design their products/services to meet them, for example, computer system software for government departments. Negotiations: Because of the size and complexity of organisational buying and the existence of professional buyers and sellers, negotiation is often important. For example, a supermarket in negotiation with a manufacturer may exert a great deal of pressure to achieve a lower price and also negotiate advertising support because of their buying power.

7 The Organizational Decision-Making Process Recognition of a problem (need) Determination of specification and quantity of needed item Search for and qualification of potential sources Acquisition and analysis of proposals Evaluation of proposals and selection of supplier(s) Selection of an order routine Performance feedback and evaluation 6

8 Stages in the Organisational Decision- Making Process : Recognition of a problem (need): An organisation may recognise that they have need, for example, a malfunctioning piece of equipment leads to the decision to buy new plant or a salesperson identifies a new material that can be used to produce a superior product. Determination of specification and quantity of needed item: If the marketer can influence the specification at this stage then they can give their company an advantage by. Search for and qualification of potential sources: For cheaper and frequently purchased items the search stage could be very limited. Where an item is expensive then the search may be extensive. Acquisition and analysis of proposals: The buyer finds a number of companies it considers qualified to supply the product, invites proposals and analyses them.

9 Evaluation of proposals and selection of suppliers: The proposal will be evaluated in light of the choice criteria considered to be important by each Decision Making Unit (DMU) member. The outcome is the selection of a supplier. Selection of an order routine: The details of delivery and payment are agreed, usually by the purchasing manager. Performance feedback and evaluation: This can be a formal process or informal through conversation.

10 Types of Organizational Products and Services: Major equipment: includes such capital goods as large or expensive machines, mainframe computers. Accessory equipment: goods, such as portable tools and office equipment, that are less expensive and shorter- lived than major equipment. Raw materials: are unprocessed extractive or agricultural products, such as corn, vegetables. Extensive users generally buy huge quantities of raw materials because there is often a large number of relatively small sellers of raw materials, none can greatly influence price or supply. Component parts: are either finished items ready for assembly or products that need very little processing before becoming part of some other product.

11 Processed materials: are product used directly in manufacturing other products, example plastic. Suppliers: are consumable items that do not become part of the finale product, examples pencils and papers. Business services: expense items that do not become part of a final product, example advertising and legal management consulting.

So, for a Parker fountain pen, the product analysis would be: Figure 1: Product analysis

So, for a Parker fountain pen, the product analysis would be: Core Benefit Writing implement for communication Real Product A physical fountain pen Enhanced Product Brand identity, (Parker), guarantee