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,
- service producers
- 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
price. 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
manufacturing operation. 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
household buyers? 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 consumer markets.
- Use goods for further production, operations, or
resale. Household, or final, consumers
purchase products for personal consumption.
- Purchase equipment, raw materials, and
semifinished goods. 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 washing
machines. 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 these. 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 actrully 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 chain.
This makes organizational markets, especially if you
produce some of the small parts at the beginning of the
supply chain, very volatile.
- 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 needs.
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
- Often use multiple suppliers. It is often
desireable 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.
- More likely to require exact specifications.
A household 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
- 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 negotiation. 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,
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 or supplier
- New Task
- not routine
- product needs and specifications researched, vendors
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
- value analysis: a periodic review of the
qualities of the product for the price
- vendor analysis: a periodic review of the
services of the vendor (seller)
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 organizational purchases. This requires
that the marketer is aware of the needs of the various
constituancies involved in making decisions.
Additionally, there can be constituancies in an
organization who do not have decision making authority,
but who nonetheless might have some influence over the
purchase and consumpion 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 typewriters.
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
- 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. Note,
however, 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. A 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? A secretary can be nice or
nasty in passing information in either direction. The
prospective buyer's secretaries can be helpful in
providing names, telephone numbers, and office hours of
key members of a buying center in an organization.
They can also be helpful in passing messages from the
salesperson to members of the organization. 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
initiator. 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!