ORGANIZATIONAL BUYING BEHAVIOR
ORGANIZATIONAL BUYING vs. CONSUMER BUYING
Organizational consumers purchase for:
- further production,
- usage in operating the organization, and/or
- resale to other consumers
Final (or ultimate) consumers purchase for:
- family, or
- household use
What is the difference between the terms consumer, buyer,
business to business marketing
- produce tangible products for resale to other consumers
- service producers
- produce intangible products
- buy or handle merchandise for resale to org’l. users, retailers, and
- buy or handle merchandise or services for sale to final consumers
- other non-business
Think about the hundreds of components that are used in
producing, say, a telephone.
Each one of those component
parts had to be sold to the telephone manufacturer.
The part had to be designed such that it met the needs of the
buyer, it had to be promoted in a way to make the buyer
aware that it was available, it had to be distributed at
the times and in the quantities that the buyer needed,
and all of this had to be done in such a way that the
part could be produced and delivered at a competitive
There are hundreds of parts, wires, screws, glues,
paints, and such that are marketed before the telephone is
itself finally produced, marketed, and sold to a final
This manufacturer must also purchase supplies that are
not part of the product but are used in running the
It must purchase computers,
printer and photocopier paper, desks and chairs, services
to mow the lawn, etc.
How is it that this manufacturer
makes buying decisions that are similar in nature to
How is it that this manufacturer makes
buying decisions that are different in nature from those of
DIFFERENCES IN ORGANIZATIONAL MARKETS
Organizational markets are different in nature from household
- Use goods for further production, operations, or
Household, or final, consumers purchase
products for personal consumption.
- Purchase equipment, raw materials, and semifinished
Household purchasers almost always purchase finished
goods for personal consumption.
- Demand is derived from that of final consumers.
If you own a machine shop that makes bushings that are used in
washing machine motors, then the demand for your products
(bushings) is derived from final consumer demand for
If the economy is poor, and demand for washing
machines is down, then so too will be the demand for washing
machine motors and for the bearings that are used in them.
- multiplier effect / accelerator principle: However,
there will probably not be a one to one correspondence between
If retailers find that demand for washing machines is
declining, they might be conservative in placing new orders with
wholesalers, perhaps ordering slightly less than what they actually
believe demand to be.
Wholesalers, in seeing their orders decline,
might also be conservative in placing orders to manufacturers,
ordering slightly less than what they actually believe demand to be.
Manufacturers, seeing their orders decline, might order slightly
fewer motors, and the motor manufacturers might conservatively order
slightly fewer bushings than they actually expect to need. Demand
for your bushings might experience wider swings, either up or down,
than the changes in demand at the final consumer end of the supply
This makes organizational markets, especially if you produce
some of the small parts at the beginning of the supply chain, very
- Can make items themselves.
Competition in organizational markets comes not only from suppliers of similar
goods and services, but can come from buying organization itself.
If it is not happy with the suppliers goods, services, or delivery, then it can
choose to make those products itself.
DIFFERENCES IN ORGANIZATIONAL TRANSACTIONS
- Buying specialists are often used. Organizations often
employ people who are professional purchasing agents.
Just as sales agents are professional specialists at finding organizations
that need the products that their employer produces, purchasing agents
are specialists are professional specialists at finding what their employer
Whatever stereotypes you might have from experiences with salespeople
in consumer sales, any negative stereotypes of salesperson behavior probably
would not be appropriate in dealing with professional buyers.
- Often use multiple buying responsibility.
A household purchaser is often the sole decision maker.
Making a sale to an organization, however, often requires selling to several
entities within the buying center.
For example, you might be the user of a desktop computer at work, but the
decision as to what specifications were needed might have been set by someone
in the computer department, the decision to buy might have been made by your
department manager, bids taken buy taken by someone in the purchasing
department, and the final authorization made by the company president.
- Often use multiple suppliers.
It is often desirable to have
a long term relationship with more than one supplier, even if a second
supplier has higher prices for otherwise similar terms and conditions.
If problems in quality or delivery are experienced with a supplier,
production can still be maintained if the second supplier can be used
to replace the first.
The ideals of a cozy, trusting relationship
that has been promised with strategic alliances in the
popular business literature does not always work if it leaves one
party vulnerable as a sole supplier or buyer.
We also can see reciprocity, whereby if one organization is a
supplier for another organization, it might be expected to also be using
products made by its customer.
- More likely to require exact specifications.
purchaser might select a particular model of desktop computer for no
other reason than it has a pleasing color.
An organizational purchaser
is more likely to set specifications regarding processor speed, memory,
hard drive size, and such before taking bids on price.
- Often lease equipment and space.
As a household consumer,
you would probably prefer to own your own car, furniture, and home.
These are things that represent personal expression, status, and wealth.
Your objectives as a business manager, however, are very different.
You might prefer to lease public warehouse space to provide the flexibility
to change locations when the market demands, to lease trucks so that you
can leave the problems of maintenance and disposition to someone else, etc.
- More frequently employ competitive bidding and
Household consumers (especially those of us in
North America) are more likely to accept as final a price that is placed
on a product in a retail setting or to accept a price that is given to
us by a service provider.
As a business manager, your employer is more
likely to require that you accept, say, three bids for a service or to
negotiate various terms and conditions associated with product specifications,
delivery, and price.
TYPES OF I/O PURCHASES
- Straight Rebuy
- routine purchase
- associated with frequently purchased items
- Modified Rebuy
- routine purchase
- frequent purchase, but buyer does review product specifications
- New Task
- not routine
- product needs and specifications researched, vendors evaluated
An example of a straight rebuy situation would be the purchase of
photocopy paper for a large organization.
Once a relationship is
established with a supplier who appears to be providing good products
at good terms and prices, there is no need to re-negotiate the terms
and conditions every time more supplies of paper are needed.
The purchase of a large, expensive crane, however, would require more
than a good relationship between a purchasing agent and a salesperson.
In a straight rebuy situation, the buyer is likely to periodically
apply value analysis and vendor analysis.
- value analysis: a periodic review of the qualities of the
product for the price
- vendor analysis: a periodic review of the services of the
An annual value analysis of the paper in the above example might show
that the product performs well, but a vendor analysis might show that
the vendor is often late in deliveries and often delivers the wrong
assortment of products.
In this situation, the purchasing agent might
search for a new supplier of the same brand of paper.
Recall that there are often multiple decision makers involved in
This requires that the marketer is aware
of the needs of the various constituencies involved in making decisions.
Additionally, there can be constituencies in an organization who do not
have decision making authority, but who nonetheless might have some
influence over the purchase and consumption process.
- Users: If you are a secretary, you might have had the experience
of arriving to work one day to find a new typewriter on your desk, whether
or not you even wanted it.
A salesperson would not call on you if you had
no influence over what product was purchased.
However, if you and your
co-workers submit numerous complaints about missing or problematic features
of the new replacements, the salesperson might be faced with a very expensive
customer service problem to solve.
A user is the end consumer of a product.
- Influencers: Perhaps in this case, the office manager was consulted
with regard to features or specifications to set in the purchase of new
Although the office manager might have no decision making authority
with regard to the purchase, whatever specifications that s/he requests could
be used without change in making the purchase.
A salesperson might need to be aware of these influencers - a special trick is
to get the influencer to write a specification list that happens to match the
seller's product features!
An influencer is someone who has influence over what is purchased.
- Deciders: In this case, some middle manager, ignorant of the needs
of secretaries, might have made the decision as to when and what to purchase.
The point of this statement is that the marketer or seller must be aware of
how it is that decisions are made and often must focus some or all efforts
at whomever it is that makes decisions in the organization.
that decision making authority does not necessarily mean that this person
exerts any influence on what is purchased.
The company president might be
the only person who signs all purchase requisitions, and therefore has ultimate
decision authority, but might otherwise merely sign some requisitions without
question or involvement.
A decider is someone who ultimately has authority
if or what to purchase.
- Buyers: The final purchase transaction might be left to a purchasing
agent who otherwise has no involvement in decision making.
A sales agent for
an office equipment supply house might help an organization to decide what
brand of typewriters would be best, but that organization could then allow
the purchasing agent to find the best deal on that brand, and the best deal
with regard to price might come from a competing office supply house.
responsibility of salespeople, then, is often to maintain good, trusting,
long term relationships with the purchasing agents in prospective buying
organizations, whether or not they have purchased in the past.
A buyer is
someone who arranges the transaction.
- Gatekeepers: Why do salespeople often give secretaries little
gifts of chocolates or flowers or an occasional free lunch?
can be nice or nasty in passing information in either direction.
buyer's secretaries can be helpful in providing names, telephone numbers, and
office hours of key members of a buying center in an organization.
also be helpful in passing messages from the salesperson to members of the
A gatekeeper could include anyone in the organization who
can control the flow of information.
Some books use the term Decision Making Unit to describe the
notion of the buying center, and some additionally include the entity of
An initiator would be a person who initiates the
idea or a purchase.
Note that the idea of the Buying Center is conceptual - there is no such
department in any organization!
edited 27 JUN 05