Republic of the Philippines

CAVITE STATE UNIVERSITY

Imus City Campus
Cavite Civic Center, Palico IV, Imus City Cavite
(046) 471-6607 / (046) 471-6770 / (046) 686-2349
www.cvsu.edu.ph

CHAPTER 4
BUSINESS, GOVERNMENT, AND INSTITUTIONAL BUYING

Submitted by:
Vicente, Bernie Jr R.
Bassig, Clea Bianca
Tepace, Rose Ann Joy
Santos, Renz Gerald R.

BSBM – MKTG3B

Submitted to:
MRS. DE GRANO
 CATEGORIES OF ORGANIZATIONAL BUYER

Organizational buyers can be classified in many ways. These include Producers,

Intermediaries, Government Agencies and other institutions. Taken collectively, marketing
to these organization is called business-to-business or B2B Marketing. Business-to-business
marketing has become a topic of increasing interest because it is the major area where internet
marketing has been done profitably.

People in charge of purchasing products and services for organizations, governments and
business. Organizational buyers make buying decisions for their organizations and purchase
products and services professionally. This type of buyer tends to be more knowledgeable than
normal consumers

Producers

These organizational buyers consist of business that buy goods and services in order to produce
other goods and services for sale. Producers are engaged in many different industries, ranging
from agriculture to manufacturing, from construction to finance. Together they constitute the
largest segment of organizational buyers. Producers of goods tend to be larger and more
geographically concentrated than producers of services.

Intermediaries

Marketing intermediaries or resellers purchase products to resell at a profit. This includes a number
of types of resellers such as wholesalers (Grainger) and retailers (Walmart) that buy products from
manufacturers and distribute them to consumers and other organizational buyers. Intermediaries
also purchase products and services to run their own businesses, such as supplies and maintenance
services.
Government Agencies

In the United States, government agencies operate at the federal, state, and local levels; there are
over 86,000 governmental agencies in this country that purchase machinery, equipment, facilities,
supplies, and services. Government agencies account for trillions of dollars’ worth of buying, and
over half of this amount represents purchases by the federal government, making it the world’s
biggest customer. The government of other countries also are huge customers for marketers.
Marketing to government agencies can be complex since they often have strict purchasing policies
and regulations.

Other Institution

Besides businesses and government agencies, marketers also sell products and services to a variety
of other institution, such as hospitals, museums, universities, nursing homes, and churches. Many
of these are nonprofit organizations that purchase products and services t maintain their operations
and serve their clientele.

PURCHASE-TYPE INFLUENCES ON ORGANIZATIONAL BUYING

 A major consideration that affects the organizational buying process is the complexity f the
purchase that is to be made. Three types of organizational purchase based on their degree of
complexity include the straight rebuy, modified rebuy, and new task purchase.

Straight Buy

The process that occurs when a consumer makes another purchase of the identical goods in the
identical amount under the identical terms from the identical supplier. Consumers that often
engage in a straight re-buy of a product are an attractive target group for the marketing efforts of
a manufacturing business

In a straight rebuy, the suppliers make an effort to maintain product and service quality and
automate reordering systems to save time. For a supplier to break into this system and capture
more market, he has to offer something new or exploit dissatisfaction with a current supplier. He
can get a small order and then enlarge their purchase share over time.

Modified Rebuy

Modified Rebuy is a buying situation in which an individual or organization purchase goods that
have been purchased previously but changes either the supplier or some other elements of the
previous order. In this the buyer wants to modify product specifications, terms, prices, suppliers.

In this case the “in supplier” has to protect his account whereas the “out supplier” sees it as a better
offer and gain some business. A modified rebuy is less critical and consumes less time. A new
product introduction from the earlier version always creates a modified rebuy situation.

New Task Purchase

New task purchase is the one purchase decision that has not been done previously by the business
as they didnot have the need for a new product / task. The new purchase is different from re-
purchase as a new purchase will require a lot of evaluation from the buyer both for the product
they intend to purchase and the vendor that the want to purchase from. New task purchase are
usually done by a company when a need is recognized within the organization. This need may
come internally from the firm or may have come from externally (e.g. Clients).

After the need is recognized the company tries to evaluate several products that can satisfy this
need and also looks for consultants/Vendors that can provide solutions for the need. During this
process a company will look at several vendors and evaluate them for their capabilities to serve
the product/service. After the initial qualification check the company asks all the eligible
suppliers/Vendors to submit their bids (also called the Tendering process).

After evaluation of the Bids the firm may decide to purchase the Product/service from any of the
Vendor which suits its needs best. Many companies usually go for the lowest price bids when there
is no difference in the product of different supplier and the purchase decision is made.

After the purchase decision the companies usually re-evaluate their purchases and then decide
about the future purchases of similar product.

STRUCTURAL INFLUENCES ON ORGANIZATIONAL BUYING

The term structural influences refers to the design of the organizational environment and how it
affects the purchasing process. Three important structural influences on organizational buying are
purchasing roles, organization-specific factors, and purchasing policies and procedures.

Purchasing Roles

It is common in organizational buying purchases to be made cross-functionally with

representatives from different functional departments playing various roles in the process. Taken
collectively, these are called buying center and include the following roles:

1. Initiators – the one who starts the purchasing process by recognizing need or problem in
the organization.
2. Users – they are the people in the organization who actually use the product.
3. Influencers – the one who affect the buying decision, usually by helping define the
specifications for what is needed.
4. Buyers – the one who have the formal authority and responsibility to select the suppler and
negotiate the terms of the contract.
 5. Deciders- the one who have the formal or informal power to select or approve the supplier
that receives the contract.
6. Gatekeepers – the one who controls the flow of information in the buying center.
Purchasing personnel, technical experts, and assistants can all keep marketers and their
information from reaching people performing the other four roles.

Organization-Specific Factors
Three primary organization-specific factors influence the purchasing process, orientation,
size and degree of centralization. First, in terms of orientation, the dominant function in an
organization may control purchasing decisions. For example, if the organization is technology
oriented it is likely to be dominated by engineering personnel who will make buying decisions.
Second, the size of the organization mat influence the purchasing process. If the
organization is large, it will likely have a high degree of joint decision making for other than
straight rebuys.
Finally, the degree of centralization of an organizations influence whether decisions are
made individually or jointly with others. Organizations that are the highly centralized are less
likely to have joint decisions making. Thus, a privately owned small company with technology
or production orientations will tend toward autonomous decision making.

Purchasing Policies and Procedures

Organizations typically develop of a number of policies and procedures for various type
of purchases. These policies and procedures are designed to ensure that the appropriate products
and services are purchased efficiently and that the responsibility for buying is assigned
appropriately.
A current trend in many organizations is sole sourcing in which all of a particular type of
product is purchased from a single supplier. Sole sourcing has become more popular because
organizational buyer have become more concerned with quality and timely delivery and less
likely to purchase only of the basis of price. Soul sourcing is advantageous for supplier because
it provides them with predictable and profitable demand and allows them to build long-term
relationships with organizational buyers.
Of course, many organizational purchase are more complicated and require policies and
procedures to direct buying process. In many cases, organizations will develop a list of approved
vendors from which buyers have authorization to purchase particular product. The buyer’s
responsibility is to select the vendor that will provide the appropriate levels of quality and
service at the lowest cost.
For large one-time projects, such as the construction of a building, organizations may
seek competitive bids for part or all of the project. The development of policies and procedures
for handling such purchases is usually complex and involves a number criteria and committees.

BEHAVIORAL INFLUENCE ON ORGANIZATIONAL BUYING

Organizational buyers are influenced by a variety of psychological and social factors. We

will discuss two of these, personal motivations and role perceptions.

Personal Motivations
Organizational buyer are, of course subject to the same personal motives or motivational
forces as other individuals. Although these buyer may emphasize non-personal motives in their
buying activities, it has been found that organizational buyers often are influenced by such
personal factors as friendship, professional pride, fear and uncertainly (risk), trust, and personal
ambitions in their buying activities.

Twenty Potential Decisions Facing Organizational Buyers

1. Is the need or problem pressing enough that it must acted on now? If not, how long can
action be deferred?
2. What types of products or services could conceivably be used to solve our need or
problem?
3. Should we make the item ourselves?
4. Must a new product be designed, or has a vendor already developed an acceptable
product?
5. Should a value analysis be performed?
6. What is the highest price we can afford to pay?
7. What trade-offs are we prepared to make between price and other product/vendor
attributes?
8. Which information sources will we rely on?
 9. How many vendors should be considered?
10. Which attributes will be stressed in evaluating vendors?
11. Should bids be solicited
12. Should the item leased or purchased outright?
13. How far can a given vendor be pushed in negotiations? On what issues will that vendor
bend the most?
14. How much inventory should a vendor be willing to keep on hand?
15. Should we split our order among several vendors?
16. Is a long-term contract in our interest?
17. What contractual guarantees will we require?
18. How shall we establish our order routine?
19. After the purchase, how will vendor performance be evaluated?
20. How will we deal with inadequate product or vendor performance?

For example, professional pride often expresses itself through efforts to attain status in
the firm. One way to achieve this might to be initiate or influence the purchase of goods that will
demonstrate a buyer value to organization. If new materials, equipment, or components result in
cost savings or increased profits. Thus in examining buyer motivations, it is necessary to
consider both personal and non-personal motivational forces and recognize that the relative
importance of each is not fixed quantity.

Role Perceptions
A final that influences organizational buyers is their own perceptions of their role. The
manner in which individuals behave depends on their perception of their role, their commitment
to what they believe is expected of their role, the “Maturity” of the role type and the extent to
which the institution is committed to the role type.
Code of Ethics for organizational Buyers

1. Avoid the intent and appearance of unethical or compromising practice in relationships,

actions and communications.
2. Demonstrate loyalty to the employer by diligently following the lawful instruction of the
employer, using reasonable care and only authority granted.
3. Refrain from any private or professional business activity that would create a conflict
between personal interest and the interest of the employer.
4. Refrain from soliciting or accepting money, loans, credits, or prejudicial discounts and
the acceptance of gifts, entertainment, favors, or services.
5. Handle confidential or proprietary information belonging to employers or suppliers with
due care and proper consideration of ethical and legal ramifications and government
regulations.
6. Promote positive supplier relationships through courtesy and impartiality throughout all
phases of purchasing cycle.
7. Refrain from reciprocal agreements that restrain competitions.
8. Know and obey the letter and spirit of laws governing the purchasing function and remain
alert to the legal ramifications of purchasing decisions.
9. Encourage all segments of society to participate by demonstrating support for small,
disadvantaged, and minority-owned business.
10. Discourage purchasing involvement in employer-sponsored programs of personal
purchases that are not business related.
11. Enhance the proficiency and stature of the purchasing profession by acquiring and
maintaining current technical knowledge and the highest standards of ethical behavior.
12. Conduct international purchasing in accordance with the laws, customs, and practices of
foreign countries, consistent with U.S laws, your organizations policies and these ethical
standards and guidelines.

Different buyers will have different degrees of commitment to their buying role, which will
cause variations in role behavior from one buyer to the next. By commitment we mean
 willingness to perform their job in the manner expected by the organizations. For example,
some buyers seek to take charge in their role as buyer and have little commitment to
company expectations. The implication for marketers is that such buyer expert, even demand
that they be kept constantly advised of all new developments to enable them to more
effectively shape their own role.

Organizational can be divided into three groups based on difference in degree of employee
commitment. These groups include innovative, adaptive, and lethargic firms. In an
innovative firms, individual approach their occupational roles with a weak commitment is
not expected norms of behavior. In and adaptive organizations there is a moderate
commitment. In a lethargic organizations individuals express a strong commitment to
traditionally accepted behavior and behave accordingly.

STAGES IN THE ORGANIZATIONAL BUYING PROCESS

Organizational Need
Organization have many needs for products and services to help them survive and meet
their objectives. For example, a manufacturer may need to purchase new machinery to increase
its productions capacity and meet demand; a retailer may need to purchase services from
marketing research firm to better understand market.

Vendor Analysis
Organizational buyers must search or locate and evaluate vendors of products and
services to meet their needs. Searching for and locating vendors is often easy since they
frequently make sales calls on organization that might need their products. Vendors also
advertise in trade magazines or on the internet and have displays at industry trade shows to
increase their visibility to organizational buyers.

Purchase Activities

Straight rebuys may involve a quick order to an approved vendor or sole-source supplier.
However, other types of organizational purchases can involve long time periods with extensive
negotiations on price and terms and formal contracts stating quality, delivery, and service criteria.
 The importance if the product to the buying organizations, and pricing all influence the
number of purchase activities to be performed and their difficulty. For example, an Air-line buying
a fleet of jumbo jets or a car rental agency buying a fleet of cars may take months or years to
negotiate and make purchases. While such buyers may have considerable leverage in negotiating,
it should be remembered that these organization need the products just as badly as the sellers need
to sell them.

Post Purchase Evaluation

Organizational buyers must evaluate both the vendors and the products they purchase to
determine whether the products are acceptable for future purchases or whether other sources of
supply should be found. A comparison of the performance of the vendor and products with the
criteria listed on the prior vendor analysis can be useful for the purpose. If the purchase process
goes smoothly and products meet price quality criteria, then the vendor may be put on the approved
list or perhaps further negotiations can be made to sole-source with the supplier.