WEEK 6

The Buying Behavior of Organizational Markets

I. Lesson Objectives

As you read and study this chapter, concentrate on the following objectives, and
at the end of the chapter, be able to:

1. Discuss what is the organizational markets;

2. Explain the organizational buying and its characteristics; and
3. Understands what the factors influence organizational buyers are.

II. Read and Learn

The consumer market consisting of individuals and families are not the only
customers marketing firms can serve. There are other types of buyers which may offer
opportunities for the marketer. This type of buyers consists of organizations with buying
behavior that is unique and different from those of the consumers

WHAT ARE ORGANIZATIONAL MARKETS

Organizational markets are those that buy goods for production purposes or for
reselling. They may be, classified into the following categories.

1. industrial markets;
2. reseller markets;
3. government markets; and
4. nonprofit organizations.

Industrial Markets

Organizations that require goods and services for the purpose of producing
goods or services are called industrial markets. The production output of the industrial
firms are sold for profit.
 For example, textile firms that need chemicals for dyeing may be referred to as
part of the industrial market for chemicals. Producers of vegetables may also regard
restaurants and hotels as their industrial market.

Reseller Markets

Reseller markets are organizations that buy goods and services which they later
sell at a profit. Wholesalers and retailers of drugs will qualify as the reseller market of
drug manufacturing companies. For instance, Mercury Drug sells drugs manufactured
by United Laboratories. This makes Mercury Drug a part of the reseller market of United
Laboratories.

Most farmers sell their produce to persons who later sell them to consumers.
These middlemen are the most visible forms of reseller market.

Government Markets

Government agencies that buy products and services for use in the production of
public goods and services are referred to as "government markets". These include the
national, regional, provincial, and municipal governments.

Examples of government markets are the following:

1. the National Food Authority (NFA) which buys palay from farmers;
2. state universities and colleges which buy books, office supplies, and computers from
various manufacturers and dealers; and
3. the Armed Forces which buy in bulk uniforms, insignias, arms, and transport
equipment.

Nonprofit Organizations

Nonprofit organizations are nongovernmental organizations that serve their

customers but do not have profits as organizational goal. Examples of this types of
organizations are the Girl Scouts, the Red Cross, and the Knights of Columbus at the
national level and the Saint Nicholas Catholic Parish of Cabanatuan City at the local
level.
ORGANIZATIONAL BUYING AND ITS CHARACTERISTICS

Organizations and individual consumers differ in many ways including those

related to buying. Although organizations, like consumers, buy to satisfy needs, there
are considerations that the organizations impose on their buyers. In any case, it is very
important for the marketer to be aware of the characteristics of organizational buying.

Organizational buying behavior has unique characteristics regarding the following:

1. demand
2. potential buyers
3. buying objectives
4. buying criteria
5. size of order or purchase
6. buyer-seller interaction
7. the buying center

Demand

The demand for products and services as required by organizations are derived
from the demand for consumer products and services.

For example, the demand for bottles is based on consumer demand tor soft
drinks, wines, sauces, drugs, cosmetics, and others.

The consumer demand tor insurance will be the basis of insurance firms in
buying reinsurance services.

Potential Buyers

Business firms that sell to individual consumers and families are confronted by
thousands of potential buyers. Schools like Virgen Milagrosa University in San Carlos
City and insurance firms like Philippine American Life Insurance Company are
examples of such sellers. Firms that sell to organizations have to deal with only a few
customers. Examples are the producers of selected vegetable crops in Tagaytay who
sell their produce only to selected hotels in Manila.
Buying Objectives

Individuals and families buy products and services to satisfy their respective
needs, physical or otherwise. Organizations, however, buy for the purpose of making
profits and this is done through increasing sales or reducing costs. Resellers, for
instance, anticipate the needs of their customers, and they fill up their stockrooms with
products for resale.

Buying Criteria

Organizations are concerned not only with short-term profits but also with the
attainment of long-term objectives. As such, they use the following criteria when buying
products or services:

1. price
2. ability of the seller to meet the quality specifications required for the item;
3. ability of the seller to meet required delivery schedules;
4. technical capability of the seller;
5. warranties and claim policies in the event of poor performance;
6. past performance of the seller on previous contracts; and
7. production facilities and capacity of the seller.

Size of Order or Purchase

The size of goods purchased by an organization is typically larger than those

purchased by an individual consumer. Usually, the organization sets certain
requirements concerning the size of the order. For instance, when orders are small, the
purchase request of the unit head needing the goods will suffice. When orders are
large, the review and approval of the vice-president or the president may be required.

Buyer-Seller Interaction

Interaction between buyer and seller in consumer buying is different from those
in organizational buying. When the consumer buys small items like bread or a kilo of
nails, he only interacts with the seller for a short period usually during the time of
purchase. This is not so with organizational buying.

The complexity of organizational buying makes it necessary for buyer and seller
interaction, to be more time consuming. A building contractor, for instance, will take
many months to negotiate a construction contract with the government.

The Buying Center

The buying center is a group consisting of several people from different

departments who participate in the decision process of buying. The members share
knowledge of information relevant to the purchase of a product or service.

Depending on the size and nature of the organization, the purchasing decision is
undertaken by either a single person or by a group of persons. Small organizations
usually assign purchasing as one of the functions of the person in charge of
maintenance and supplies. When in need of materials or equipment, the employee will
coordinate with the head of maintenance and supplies who will take the necessary
steps so a purchase can be made. In effect, the purchasing procedure in small
organizations is simple.

Purchasing in big organizations, however, is often formal and more complicated.

Usually, a group called the buying center is formed to make purchasing decisions.
Because of the number of persons involved in organizational buying, it is expected that
there will be times when the "human factor" will intervene in the smooth relationship
between buyer and seller. This is a very important concern for the marketer.

KINDS OF BUYING PROCESSES

The marketer must know which buying process is involved when attempting to
convince an organization to buy from him.

The kinds of buying processes are the following:

1. New-task buying. This happens when the organization has a new need and the
buyer wants a great deal of information. This process takes more time and it
involves the following:
a. setting product specifications;
b. identifying sources of supply; and
c. establishing an order routine for possible future purchases.
2. Straight rebuy. This is a routine repeat purchase. This happens when previous
purchase is satisfactory. As such, the buyer will need little information on new
products and new sources of supply.
3. Modified rebuy. This process is undertaken when the items purchased remain the
same, but the members of the buying center are not satisfied with the products
quality, the price, or the service provided by the supplier.
The buyer in this situation will search for information about alternative
products and suppliers. This will provide an opportunity for other suppliers to do
business with the firm if their products and services are better.

PARTICIPANTS IN ORGANIZATIONAL BUYING PROCESS

The members of buying centers participate in the buying process of

organizations. Each of them performs individual roles indicated as follows:

1. Users. They are the ones who will use the product or service that is the subject of
purchase. The factory welder, for instance, will be the user of the welding machine.
When the need for a welding machine is recognized, the welding unit, most often,
will initiate the purchase request and will also provide information on product
specifications.
2. Influencers. They are persons who influence the buying decision. Technical experts
who give suggestions in terms of specifications are examples of influencers. For
instance, when the installation of a sound system becomes necessary in some
 organizations, the opinion of the buying center member who is an expert in
electronics is highly valued.
3. Deciders. They are persons who make decisions on product requirements and
suppliers. The buyer is the decider in routine buying, while the technical experts are
the deciders in highly technical purchases.
4. Approvers. They are the persons who authorize the proposed actions of deciders or
buyers. Most often, the approver in the case of the decider or buyer is their
respective superior.
5. Buyers. They are persons who are authorized to select the supplier, and arrange
the terms of purchase.
6. Gatekeepers. They are persons who have the power to prevent sellers or
information from reaching members of the buying center. Examples are clerks and
technical personnel - who control the flow of information.

PURCHASE DECISION-MAKING PROCESS IN ORGANIZATIONS

When making purchases, organizations make use of the decision-making

process consisting of the following stages:

1. recognition of a problem or need;

2. search for information about products and suppliers;
3. evaluation and selection of supplier;
4. the purchase; and
5. performance evaluation and feedback.