LESSON 2: ORGANIZATIONAL BUYING

2.2. What is Consumer Behaviour?

Introduction
Let us try to define Consumer behaviour
In this chapter we shall discuss some of the basic issues
Mental and physical activities undertaken by household
of consumer behaviour. We shall outline the major
and business customers that result in decisions and
influences, which shape an individual’s consumer
actions to pay for, purchase and use products and
behavour and preferences. The specific process of
services
decision-making involved in consumer behavour is also
An important part of the marketing process is to
discussed here. In this chapter we will address the
understand why a customer or buyer makes a purchase.
question of business markets and how they differ from
Without such an understanding, businesses find it hard to
consumer markets. Buyer behaviour is a huge subject and
respond to the customer’s needs and wants.
it is only possible in this course to provide a brief
For a marketing manager, the challenge is to understand
introduction to the key issues. For the purposes of this
how customers might respond to the different elements
session, we’ll therefore concentrate primarily upon
of the marketing mix that are presented to them. If
consumer behaviour, and then conclude by highlighting
management can understand these customer responses
some of the similarities and differences between this and
better than the competition, then it is a potentially
organizational buyer behaviour (or business-tobusiness
significant source of competitive advantage.
purchasing).
Consumer Buying Behavior refers to the buying behavior
Your Objectives
of the ultimate consumer. A firm needs to analyze buying
After studying this lesson you should be able to:
behavior for:
• Identify and explain the different kinds of consuming
• Buyers’ reactions to a firms marketing strategy has a
identities
great impact on the firm’s success.
• Elaborate the different customer roles
• The marketing concept stresses that a firm should
• Identify the main issues in organizational buying
create a marketing mix (MM) that satisfies (gives utility
• Differentiate organizational buying from consumer
to) customers, therefore need to analyze the what,
buying We often use the term Consumer to describe two
where, when and how consumers buy.
different kinds of consuming entities: the personal
All this time we have been carrying out our discussion
consumer and the organizational consumer. The
about consumer behaviour without properly defining
personal consumer is one who buys goods and services
what or who is a consumer. So who is a consumer? Let us
for his or her own use, for the use of the household, or as
now define a consumer.
a gift for a friend. The organizational consumers include
A customer is a person in either a household or an
profit and not-for-profit business, government agencies,
organizational unit who plays a role in the completion of
and institutions, all of which must buy products,
a transaction with a marketer or an entity
equipment, and services in order to run their
Who then is a Consumer?
organizations. Before going into the details of
For example, you as a customer purchasing a burger at a
organizational buying, let us try to understand the basics
restaurant versus the restaurant purchasing the burger
of buyer behaviour, i.e., why study consumers? And who
meat, bun and condiments to prepare the hamburger for
is our customer (consumer)?
sale Can you bring out the difference between the terms
1. Buyer Behaviour
consumer, buyer, and customer?
1.1 Why Study Customers?
Customer Roles
Before actually studying Consumer behaviour, let us
A customer plays different roles
answer the question of why to study this discipline at all?
• User – the person who actually consumes or uses the
In other words, we will explore and scope and
product and receives the benefits –E.g. in the example of
importance of Consumer behaviour.
burger, the person who actually eats the burger
Effective marketing must begin with “a thorough
• Payer – the person who finances the purchase –E.g. the
understanding of how and why customers behave as they
person who provides the money to pay for the burger
do” (Merenski, 1998). Specifically, in order to tailor
• Buyer - the person who participates in acquiring the
solutions to customers’ particular needs and desires, the
product
marketer requires a grounded knowledge of buyer
–E.g. the person who orders and/or actually hands over
motivations and decision-making processes, together
the money for the hamburger
with all those environmental factors which may exert
In certain cases one and the same person could play all
influence upon them. Put another way, the marketer is
these three roles or it could be other way around also;
seeking to address three basic questions:
i.e., different people could play different roles.
• Why does the customer want to buy a particular
product or service?
• How will he or she decide which option to purchase?
• What factors may influence this decision?
 For example
Going out for dinner for you may be extensive decision
making (for someone that does not go out often at all),
but limited decision making for someone else. The reason
for the dinner, whether it is a birthday celebration, or a
meal with a couple of friends will also determine the
extent of the decision-making.
2. Organizational Buying vs. Consumer Buying
Marketing theory traditionally splits analysis of buyer or
customer behaviour into two broad groups for analysis –
Consumer Buyers and Organizational Buyers
Consumer buyers are those who purchase items for their
personal consumption
Organizational buyers are those who purchase items on
behalf of their business or organization.
In contrast to consumers, organizational buyers
represent those “buying goods and services on behalf of
an organization for the purpose of the furtherance of
organizational objectives” (Lancaster, 1999). Before
highlighting some of the differences between the two,
however, it is important to caution you against over
stressing the differences. For instance, you may come
across some authors who argue that buying goods on
behalf of one’s employers makes buyers more caution
and rational than when purchasing consumer goods
privately. However, on closer examination of the
evidence, we see that the differences are almost
exclusively related to price and very small anyway. So,
please be aware that there can be differences, but they
are by no means always universal – a single employee
feeling poorly motivated towards his/her job on one day,
for example, may well be far less cautious than on other
days when all is well in the workplace! The most obvious
difference between consumer and organizational buying
is that the underlying motivation is different; i.e. personal
consumption versus business usage. There are other
contrasts, however. Let us now identify these!
Setting for Buying: For consumers, the buying unit is
within the household, whereas for the organizational
buyer, the setting is within the firm. This means as an
industrial marketer targeting the organizational buyer,
you must take account of factors such as buying
procedures, levels of authority, and so on, factors not
relevant in consumer marketing.
Technical/Commercial Knowledge: You will see that
usually, the organizational purchaser will be a trained
professional, more knowledgeable than the average
consumer purchaser. This can often necessitate a
Businesses now spend considerable sums trying to learn completely different sales approach.
about what makes “customers tick”. The questions they Contact with Buyers/Distribution Channels: You will find
try to understand are: that organizational markets are usually more
• Why consumers make the purchases that they make? geographically concentrated than consumer markets.
• What factors influence consumer purchases? Factors such as proximity to available labor, raw
• The changing factors in our society. materials, and transportation facilities often dictate an
The purchase of the same product does not always elicit industry’s location. In addition, compared to consumer
the same Buying Behavior. Product can shift from one markets, there can be far fewer potential customers.
category to the next. Taken together, these variables mean that you, as an
industrial marketer must normally maintain far more • Other non-business
direct and personal contact with his or her potential Lets take the example of a telephone; think about the
clients. hundreds of components that are used in producing it.
Number of Decision-Makers: Normally in consumer Each one of those component parts had to be sold to the
purchasing, the number of people involved in the telephone manufacturer. The part had to be designed
decisionmaking process can be very small; i.e. an such that it met the needs of the buyer, it had to be
individual, a couple, a family, etc. In organizational promoted in a way to make the buyer aware that it was
buying, however, a great many people can be involved in available, it had to be distributed at the times and in the
the purchasing process. This can mean differences in quantities that the buyer needed, and all of this had to be
both the number of people marketing communications done in such a way that the part could be produced and
must attempt to convince and that quite different delivered at a competitive price. There are hundreds of
decisions might emerge as a result of group dynamics parts, wires, screws, glues, paints, and such that are
than might initially be anticipated on the basis of marketed before the telephone is itself finally produced,
individual discussions. marketed, and sold to a final household consumer.
Derived Demand: Organizational buyers often This manufacturer must also purchase supplies that are
continually adjust their buying decisions on the basis of not part of the product but are used in running the
projected sales figures, buying more units when forecast
manufacturing operation. It must purchase computers,
sales are higher. The result can be a sort of “pendulum
printer and photocopier paper, desks and chairs, services
effect”, with a knock-on effect throughout the buying
chain as each chain member adjusts its buying patterns to mow the lawn, etc. How is it that this manufacturer
accordingly. Reciprocal Demand: Sometimes, a buyer can makes buying decisions that are similar in nature to
also be a seller at the same time. A software company household buyers? How is it that this manufacturer
producing a package for an insurance company, for makes buying decisions that are different in nature from
instance, might also purchase its insurance services from those of household buyers?
what is effectively one of its own customers. Both
companies want to sell to each other, affecting each
other’s eventual buying decisions to a varying degree. As
we can see, there are subtle differences between
consumer and organizational forms of buying
3.1 Purchase Objectives
What do organizations purchase for?
Organizational consumers purchase for:
• Further production,
• Usage in operating the organization, and/or
• Resale to other consumers 3.2 Differences In Organizational Markets
Whereas, We know that Organizational markets are different in
Final (or ultimate) consumers normally purchase for: nature from household consumer markets. Let us see
• Personal how they are different!
, • Family, or • Use goods for further production, operations, or
• Household use resale. Household, or final, consumers purchase products
3.2 Industrial/organizational markets for personal consumption.
Let us now look at the various participants and types of • Purchase equipment, raw materials, and semi-
players in the Industrial markets: finished goods. Household purchasers almost always
• Producer purchase finished goods for personal consumption.
• Manufacturers • Demand is derived from that of final consumers. If
• Service producers you own a machine shop that makes bushings that are
• Reseller used in washing machine motors, then the demand for
• Wholesalers your products (bushings) is derived from final consumer
• Retailers demand for washing machines. If the economy is poor,
• Government and demand for washing machines is down, then so too
• Federal will be the demand for washing machine motors and for
• State the bearings that are used in them.
• County • Multiplier effect / accelerator principle: However,
• Local there will probably not be a one to one correspondence
• Institutional between these. If retailers find that demand for washing
• Charitable machines is declining, they might be conservative in
• Educational placing new orders with wholesalers, perhaps ordering
• Community 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, • Often lease equipment and space. As a household
ordering slightly less than what they actually believe consumer, you would probably prefer to own your own
demand to be. Manufacturers, seeing their orders car, furniture, and home. These are things that represent
decline, might order slightly fewer motors, and the motor personal expression, status, and wealth. Your objectives
manufacturers might conservatively order slightly fewer as a business manager, however, are very different. You
bushings than they actually expect to need. Demand for might prefer to lease public warehouse space to provide
your bushings might experience wider swings, either up the flexibility to change locations when the market
or down, than the changes in demand at the final demands, to lease trucks so that you can leave the
consumer end of the supply chain. This makes problems of maintenance and disposition to someone
organizational markets, especially if you produce some of else, etc. • More frequently employ competitive bidding
the small parts at the beginning of the supply chain, very and negotiation. Household consumers (especially those
volatile. of us in urban settings) are more likely to accept as final a
• Can make items themselves. Competition in price that is placed on a product in a retail setting or to
organizational markets comes not only from suppliers of accept a price that is given to us by a service provider. As
similar goods and services, but can come from buying a business manager, your employer is more likely to
organization itself. If it is not happy with the supplier’s require that you accept, say, three bids for a service or to
goods, services, or delivery, then it can choose to make negotiate various terms and conditions associated with
those products itself. product specifications, delivery, and price.
3.4 Differences in Organizational Transactions Types of I/O Purchases
• Buying specialists are often used. It is usually seen that • Straight Rebuy
organizations often employ people who are professional • Routine purchase
purchasing agents. Just as sales agents are professional • Associated with frequently purchased items
specialists at finding organizations that need the products • Modified Rebuy
that their employer produces, purchasing agents are • Routine purchase
specialists are professional specialists at finding what • Frequent purchase, but buyer does review product
their employer needs. Whatever stereotypes you might specifications or supplier
have from experiences with salespeople in consumer • New Task
sales, any negative stereotypes of salesperson behavior • Not routine
probably would not be appropriate in dealing with • Product needs and specifications researched, vendors
professional buyers. evaluated
• Often use multiple buying responsibilities
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 using 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 by Fig 1.5 Types of Buying Situations
someone in the purchasing department, and the final If we have to take an example of a straight rebuy
authorization made by the company president. situation, it could be the purchase of photocopy paper
• Often use multiple suppliers. It is often desirable to for a large organization. Once a relationship is established
have a long-term relationship with more than one with a supplier who appears to be providing good
supplier, even if a second supplier has higher prices for products at good terms and prices, there is no need to re-
otherwise similar terms and conditions. If problems in negotiate the terms and conditions every time more
quality or delivery are experienced with a supplier, supplies of paper are needed. The purchase of a large,
production can still be maintained if the second supplier expensive crane, however, would require more than a
can be used to replace the first. The ideals of a cozy, good relationship between a purchasing agent and a
trusting relationship that has been promised with salesperson.
strategic alliances in the popular business literature does In a straight rebuy situation, the buyer is likely to
not always work if it leaves one party vulnerable as a sole periodically apply value analysis and vendor analysis.
supplier or buyer. • Value analysis: a periodic review of the qualities of the
• More likely to require exact specifications. A product for the price
household purchaser might select a particular model of • Vendor analysis: a periodic review of the services of
desktop computer for no other reason than it has a the vendor (seller)
pleasing color. An organizational purchaser is more likely An annual value analysis of the paper in the above
to set specifications regarding processor speed, memory, example might show that the product performs well, but
hard drive size, and such before taking bids on price. a vendor analysis might show that the vendor is often
 late in deliveries and often delivers the wrong assortment direction. The prospective buyer’s secretaries can be helpful in
of products. In this situation, the purchasing agent might providing names, telephone numbers, and office hours of key
search for a new supplier of the same brand of paper. members of a buying center in an organization. They can also
Buying Center be helpful in passing messages from the salesperson to
Recall that there are often multiple decision makers involved in members of the organization. A gatekeeper could include
organizational purchases. This requires that the marketer is anyone in the organization who can control the flow of
aware of the needs of the various constituencies involved in information.
making decisions. Additionally, there can be constituencies in Some books use the term Decision Making Unit to describe the
an organization who do not have decision-making authority, notion of the buying center, and some additionally include the
but who nonetheless might have some influence over the entity of initiator. An initiator would be a person who initiates
purchase and consumption process. the idea or a purchase.
• Users: If you are a secretary, you might have had the Note that the idea of the Buying Center is conceptual - there is
experience of arriving to work one day to find a new typewriter no such department in any organization
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 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. 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, and 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