In this article we will discuss about:- 1. Introduction to Organisational Buying 2. Organizational Buying Decision Process 3. Buying Situations 4. Buy Grid Frame Work 5. Buying Centre Roles.
- Introduction to Organisational Buying
- Organizational Buying Decision Process
- Buying Situations
- Buy Grid Frame Work
- Buying Centre Roles
1. Introduction to Organisational Buying:
Organisation buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate and choose among alternative brands and suppliers. Organisations buy in furtherance of organizational objectives, such as to manufacture and deliver goods and services to members, customers or the community.
Organizational buying is heavily influenced by derived demand, that is, demand for an end product or for a product or service sold by the buyer’s customers. The demand for components by a manufacturer will be dependent on demand coming from their customers, the retailers and wholesalers, who in turn are reacting to demand from their customers, the consumers.
Overall consumer demand may in turn be impacted by economic, social, political and technological factors in the environment.
The organizational buying process is entirely different from the consumer buying process. While buying decisions are made relatively easily and quickly by individual customers, organizational buying involves thorough and deep analysis. Organizations purchase products ranging from highly complex machinery to small components.
In an organization, the purchase decisions are influenced by several individuals and are not made in isolation by an individual. Organizational buyers are more concerned about the price and quality of the product along with the service being provided by the vendor.
Price plays a major role, since the price of the raw materials is the investment from which profits are generated. Thus, price is a major factor which affects the profitability of the firm. Service also plays an important role, because no organization would like to buy goods from a vendor who cannot provide timely and efficient service.
Organisations adopt certain methods for buying products such as checking a sample before the actual purchase. Most organizational purchases involve purchase of products in large lots. So it is not feasible to individually inspect each and every item in the lot.
In such situations, a sample is checked assuming that this sample represents the entire lot. Like the consumer markets, organizational markets also possess certain demand characteristics. The organizational demand for products or services may be inelastic, derived, joint or fluctuating in nature.
Organizational markets normally purchase the goods or services for producing other goods and services, using these as raw materials. There are also resellers, who purchase the products to sell directly to other customers without any modifications.
Apart from producers and resellers, there are also government and institutional customers who buy the goods. Government buys goods for public utility or for use in their departments or for production purposes.
The buying decisions of organizations are influenced by environmental factors, organizational factors, social factors and personal factors. Participants in the organizational buying process play as many as seven different roles, namely those of initiator, influencer, user, decider, approver, buyer and gatekeeper.
Although organizations differ significantly from each other in their purchasing process, the various stages of industrial buying comprise problem recognition, general need recognition, product specification, value analysis, vendor analysis, order routine specification, multiple sourcing and performance review.
Marketers need relevant information about the characteristics of the industries for marketing their goods and services effectively. To search for such information, the prime sources are government and industrial publications. The Standard Industrial Classification is a process where such characteristics of manufacturing, financial and service sectors are depicted in a coded format.
Organization buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate and choose among alternative brands and suppliers.
Organizational buying behavior is the sum total of an organization’s attitudes, preferences, intentions and decisions regarding the buying behavior in the marketplace when purchasing goods for manufacturing or reselling.
Organizational buying behavior refers to the process of how companies or organizations buy goods and services. Organizational Buying is not an easy activity as most people think of it.
Stage-1 – Problem Recognition:
The first stage of the business buying process in which someone in the company recognizes a problem or need that can be met by acquiring a good or a service.
At this stage of business buying Process Company describes the general characteristics and quantity of a needed item.
At this stage of the business buying process buying organization decide on the product and specifies the best technical product characteristics for a needed item.
An approach to cost reduction, in which components are studied carefully to determine if they can be redesigned, standardized or made by less costly methods of production.
At this stage of the business buying process buyer tries to find the best vendors.
The stage of the business buying process in which the buyer invites qualified suppliers to submit proposals.
The stage of the business buying process in which the buyer reviews proposal and selects a supplier or suppliers.
The stage of the business buying process in which the buyer writes the final order with the chosen suppliers, listing the technical specifications, quantity needed, expected time of delivery, return policies and warranties.
The stage of the business buying process in which the buyer rates its satisfaction with suppliers, deciding whether to continue, modifies or drops them.
A buying situation relates to the circumstances surrounding a purchase that can be defined by the quality of information and experience that the buyer has concerning the products and vendors available, as well as the effort it will take to make the purchase decision.
Straight rebuy is the situation under which the buyers are engaging in the routine purchase of standard products from a familiar supplier where you don’t make any modifications from the most recent order.
A perfect example is ordering some boxes of copier paper, pens and pencils from your office supplier. It doesn’t take much effort except to confirm the sales order has been satisfied.
Modified rebuy is the situation where the purchaser is going to buy a similar product but there is a significant difference in the purchase from the previous purchase. The difference may include a change in the product specifications or a new supplier.
An example may be switching to a different type of software provided by a different vendor. This buying situation involves more effort because you are going to have to research product specifications and evaluate vendors, as well as possibly negotiate new contracts.
In 1967, the Canadian, American and Israeli marketing researchers, Robinson, Faris and Wind, introduced the buy grid framework as a generic conceptual model for buying processes of organisations.
They saw industrial buying not as single events, but as organizational decision making processes where multiple individuals decide on a purchase. Their framework consists of a matrix of buyclasses and buyphases.
The buyclasses are:
The first-time buyer seeks a wide variety of information to explore alternative purchasing solutions to his organizational problem. The greater the cost or perceived risks related to the purchase, the greater the need for information and the larger the number of participants in the buying centre.
The buyer wants to replace a product the organisation uses. The decision making may involve plans to modify the product specifications, prices, terms or suppliers as when managers of the company believe that such a change will enhance quality or reduce cost.
In such circumstances, the buying centre proved to require fewer participants and allow for a quicker decision process than in a new task buyclass.
The buyer routinely reorders a product with no modifications. The buyer retains the supplier as long as the level of satisfaction with the delivery, quality and price is maintained. New suppliers are considered only when these conditions change.
The challenge for the new supplier is to offer better conditions or draw the buyer’s attention to greater benefits than in the current offering.
The buyphases are:
Based on field research, Robinson, Faris and Wind divided the buyer purchase process into eight sequential, distinct but interrelated buyphases:
(i) Recognition of the organizational problem or need.
(ii) Determination of the characteristics of the item and the quantity needed.
(iii) Description of the characteristics of the item and the quantity needed.
(iv) Search for and qualification of potential sources.
(v) Acquisition and analysis of proposals.
(vi) Evaluation of the proposals and selection of suppliers.
(vii) Selection of an order routine.
(viii) Performance feedback and evaluation.
The most complex buying situations occur in the upper left quadrant of the buy grid matrix where the largest number of decision makers and buying influences are involved. A new task that occurs in the problem recognition phase (1) is generally the most difficult for management.
The buying process can vary from highly formalized to an approximation depending on the nature of the buying organisation, the size of the deal and the buying situation.
The relationship between the buyer and seller is initiated in phases 1 and 2. Assessing the buyer’s needs and determining gaps between the current and desired situation is important. Buyers need assistance in forming realistic perceptions of both the current and the desired situation.
The relationship needs to be developed during phases 3 to 7. A sales person must be aware that a buyer not only has functional needs, but psychological, social, knowledge and situational needs as well.
These components should be addressed in meetings in order to obtain commitment. The purchase can be a one-time transaction of a repetitive nature. When there are multiple deliveries, the supplier and buyer must agree on an order routine.
As buyphases are completed, the process of ‘creeping commitment’ occurs and reduces the likelihood of new suppliers gaining access to the buying situation.
During the performance feedback and evaluation phase, the relationship between the seller and buyer can develop into a longer term engagement. Buyer loyalty and customer satisfaction are primarily determined by the sales activities during this last phase.
The major implication of Robinson, Faris and Wind’s research is that industrial buying behaviour depends more on the buying situation than on the type of product.
The model explains the likely interaction between buyer and seller activities given the purchase needs of an organisation. It helps sales personnel deliver the correct message at the right time.
Suppliers need to fill out this matrix for their firm’s specific situation.
For each cell in the matrix (buy situation and buy phase), the following questions must be answered:
1. Is this combination of situation and phase relevant?
2. Which organisation members influence this purchase decision?
3. What are the used performance indicators?
4. What are the information sources?
The buying side of the model can be used for both consumer and business related buying processes. It applies to all purchase situations.
The model is based on the observation that buyer’s expectations and behaviour change according to whether the purchase is new, a modified rebuy or a straight rebuy.
The model can provide the basis for a formal selection process (e.g. request for information and request for proposal).
The buy grid framework proved its worth to the scientific community as one of the few industrial marketing models.
The organizational buying model focuses mainly on products and not on services.
A shortcoming of the organizational buying approach is the negligence the supplier’s side and the influence this party wields on the customer’s organizational decision process.
The model neglects the importance of acquisition in sales processes.
A buying centre is comprised of all those individuals and groups who participate in the buying decision-making process, who share some common goals and the risks arising from these decisions.
Before identifying the individuals and groups involved in the buying decision process, a marketer must understand the roles of buying centre members. Understanding the buying centre roles helps industrial marketers to develop an effective promotion strategy.
When a buying centre includes many participants, the industrial/ business marketer will not have the time or resources to reach all of them. Small sellers could concentrate on reaching the key buying influences. Large sellers on the other hand go for multi-level in-depth selling to reach as many buying participants as possible.
It is important to note, that functional responsibilities and job titles are often not true indicators of the relative influence of buying center members in a purchase decision task.
The buying center is defined as members of the organization having face-to-face contact with others with respect to the purchase decision and who realize or perceive both an influence and a responsibility to a purchase decision.
In the tradition of formal organizational theory, the responsibility and authority of the member’s organizational position creates a formal stake for him/her in purchase decisions involving his domain.
Also, an individual can become a buying center member by possessing information critical to the decision. The main role participants are purchasing agents, scientists and managers.
Within any organization, the buying centre will vary in the number and type of participants for different classes of products.
But on an average a buying center of an organization has the following seven members or a group of members who play these roles:
Usually the need for a product/item and in turn a supplier arises from the users. But there can be occasions when the top management, maintenance or the engineering department or any such recognize or feel the need. These people who “initiate” or start the buying process are called initiators.
Under this category come users of various products. If they are technically sound like the R&D, engineering who can also communicate well. They play a vital role in the buying process. They also act as initiators.
They are people who have formal authority to select the supplier and arrange the purchase terms. They play a very important role in selecting vendors and negotiating and sometimes help to shape the product specifications.
The major roles or responsibilities of buyers are obtaining proposals or quotes, evaluating them and selecting the supplier, negotiating the terms and conditions, issuing of purchase orders, follow up and keeping track of deliveries. Many of these processes are automated now with the use of computers to save time and money.
Technical personnel, experts and consultants and qualified engineers play the role of influencers by drawing specifications of products. They are, simply put, people in the organisation who influence the buying decision.
It can also be the top management when the cost involved is high and benefits long term. Influencers provide information for strategically evaluating alternatives.
Among the members, the marketing person must be aware of the deciders in the organisation and try to reach them and maintain contacts with them. The organisational formal structure might be deceptive and the decision might not even be taken in the purchasing department.
Generally, for routine purchases, the purchase executive may be the decider. But for high value and technically complex products, senior executives are the deciders. People who decide on product requirements/specifications and the suppliers are deciders.
People who authorize the proposed actions of deciders or buyers are approvers. They could also be personnel from top management or finance department or the users.
A gatekeeper is like a filter of information. He is the one the marketer has to pass through before he reaches the decision makers. Understanding the role of the gatekeeper is critical in the development of industrial marketing strategies and the salesperson’s approach. They allow only that information favourable to their opinion to flow to the decision makers.
By being closest to the action, purchasing managers or those persons involved in a buying centre may act as gatekeepers. They are the people whom our industrial marketer would first get in touch with.
Hence, it happens that information is usually routed through them. They have the power to prevent the sellers or information from reaching members of the buying centre. They could be at any level and even be the receptionists and telephone operators.