Organizational Buyer Behavior

Read this section. The decision-making process that organizations follow to determine their
needs for products and services is known as organization buying. After reading this material,
consider the following review questions: What buying stages do buying centers usually go
through? Why should business buyers collaborate with the companies they buy products from?
Explain how a straight rebuy, new buy, and modified rebuy differ.

Those who supply goods and services to consumer markets are themselves in need of goods and
services to run their business. These organizations-producers, resellers, and government-make up
vast marketing organizations that buy a large variety of products, including equipment, raw
material, and labor and other services. Some organizations sell exclusively to other organizations
and never come into contact with consumer buyers.

Despite the importance of organizational markets, far less research has been conducted on factors
that influence their behavior than on factors that influence consumers. However, we can identify
characteristics that distinguish organizational buying from consumer buying and typical steps in
the organizational buying process.

Characteristics of Organizational Buying

Many elements of the sociocultural environment discussed earlier influence organizational as

well as consumer buying, but some additional forces are salient only in the organizational
setting. In particular, each organization has its own business philosophy that guides its actions in
resolving conflicts, handling uncertainty and risk, searching for solutions, and adapting to
change. For example, Peabody Coal, which is part of a declining industry, relies on a
conservative purchase strategy in an attempt to maintain their status quo.
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Five characteristics mark the organizational buying process:

1. In organizations, many individuals are involved in making buying decisions,

2. The organization al buyer is motivated by both rational and quantitative criteria dominant in
organization al decisions; the decision makers are people, subject to many of the same emotional
criteria used in personal purchases.
3. Organizational buying decisions frequently involve a range of complex technical dimensions.
A purchasing agent for Volvo Automobiles, for example, must consider a number of technical
factors before ordering a radio to go into the new model. The electronic system, the acoustics of
the interior, and the shape of the dashboard are a few of these considerations.

4. The organizational decision process frequently spans a considerable time, creating a

significant lag between the marketer's initial contact with the customer and the purchasing
decision. Since many new factors can enter the picture during this lag time, the marketer's ability
to monitor and adjust to these changes is critical.

5. Organizations cannot be grouped into precise categories. Each organization has a

characteristic way of functioning and a personality.

The first item in this list of characteristics has important implications. Unlike the consumer
buying process, organizational buying involves decision making by groups and enforces rules for
making decisions. These two characteristics greatly complicate the task of under- standing the
buying process. For example, to predict the buying behavior of an organization with certainty, it
is important to know who will take part in the buying process, what criteria each member uses in
evaluating prospective suppliers, and what influence each member has. It is also necessary to
understand something not only about the psychology of the individuals involved but also how
they work as a group. Who makes the decision to buy depends in part on the situation. Three
types of buying situations have been distinguished: the straight rebuy, the modified rebuy, and
the new task.

The straight rebuy is the simplest situation: The company reorders a good or service without any
modifications. The transaction tends to be routine and may be handled totally by the purchasing
department. With the modified rebuy, the buyer is seeking to modify product specifications,
prices, and so on. The purchaser is interested in negotiation, and several participants may take
part in the buying decision. A company faces a new task when it considers buying a product for
the first time. The number of participants and the amount of information sought tend to increase
with the cost and risks associated with the transaction. This situation represents the best
opportunity for the marketer.

Stages in Organizational Buying

The organizational buying process contains eight stages, or key phrases, which are listed in
Figure 4.3. Although these stages parallel those of the consumer buying process, there are
important differences that have a direct bearing on the marketing strategy. The complete process
occurs only in the case of a new task. Even in this situation, however, the process is far more
formal for the industrial buying process than for the consumer buying process.
Most of the information an industrial buyer receives is delivered through direct contacts such as
sales representatives or information packets. It is unlikely that an industrial buyer would use
information provided through a trade ad as the sole basis for making a decision.

1. Problem recognition. The process begins when someone in the organization recognizes a
problem or need that can be met by acquiring a good or service. Problem recognition can occur
as a result of internal or external stimuli. External stimuli can be a presentation by a salesperson,
an ad, or information picked up at a trade show.

2. General need description. Having recognized that a need exists, the buyers must add further
refinement to its description. Working with engineers, users, purchasing agents, and others, the
buyer identifies and prioritizes important product characteristics. Table 4.1 lists several sources
of information. for many industrial customers. Armed with extensive product knowledge, this
individual is capable of addressing virtually all the product-related concerns of a typical
customer. To a lesser extent, trade advertising provides valuable information to smaller or
isolated customers. Noteworthy is the extensive use of direct marketing techniques (for example,
toll-free numbers and information cards) in conjunction with many trade ad s. Finally, public
relations plays a significant role through the placement of stories in various trade journals.

3. Product specification. Technical specifications come next. This is usually the responsibility
of the engineering department. Engineers design several alternatives, depending on the priority
list established earlier.
4. Supplier search. The buyer now tries to identify the most appropriate vendor. The buyer can
examine trade directories, perform a computer search, or phone other companies for
recommendations. Marketers can participate in this stage by contacting possible opinion leaders
and soliciting support or by contacting the buyer directly. Personal selling plays a major role at
this stage.

5. Proposal solicitation. Qualified suppliers are next invited to submit proposals. Some
suppliers send only a catalog or a sales representative. Proposal development is a complex task
that requires extensive research and skilled writing and presentation. In extreme cases, such
proposals are comparable to complete marketing strategies found in the consumer sector.

TABLE 4.1 Industrial Buyer Information Sources

Source Description
Sales personnel representing manufacturers or distributors of the product
Salespeople
in question.

Technical sources Engineering types of personnel internal or external to the subject's firm.
Personnel in buyer's
Peer group references (e.g., other purchasing agents in the subject's firm).
firm
Purchasing agents in
Peer group references external to the buyer 's firm.
other companies
Cooperatives voluntarily joined by business competitors designed to assist
Trade association its members and industry in dealing with mutual problems (e.g., National
Association of Purchasing Management).
Advertising in trade Commercial messages placed by the manufacturer or distributor of the
journals product in question.
Articles in trade Messages relating to the product in question but not under the control of
journals the manufacturer or distributor.
Information pertaining to the values of various sources of supply as
Vendor files
developed and maintained by the buyer's firm.
Buyer guides providing listings of suppliers and other marketing
Trade registers
information (e.g., Thomas' Register).
Specific product and vendor information supplied by the manufacturing or
Product literature
distributing firm.

6. Supplier selection. At this stage, the various proposals are screened and a choice is made. A
significant part of this selection is evaluating the vendor. One study indicated that purchasing
managers felt that the vendor was often more important than the proposal. Purchasing managers
listed the three most important characteristics of the vendor as delivery capability, consistent
quality, and fair price. Another study found that the relative importance of different attributes
varies with the type of buying situations. For example, for routine-order products, delivery,
reliability, price, and supplier reputation are highly important. These factors can serve as appeals
in sales presentations and in trade ads.

7. Order-routine specification. The buyer now writes the final order with the chosen supplier,
listing the technical specifications, the quantity needed, the warranty, and so on.

8. Performance review. In this final stage, the buyer reviews the supplier's performance. This
may be a very simple or a very complex process.

NEWS LINE: THE FUTURE OF THE CONSUMER

Experts say consumers in the new millennium will throw some surprising twists and turns into
the business of target marketing, overturning some of the traditional thinking about what we'll
buy, how we'll live, and where we'll work. ''The 21st century will be the century of the
consumer," says Roger Blackwell, a professor of marketing. "Marketers will have to push their
understanding beyond knowing what people buy to knowing why they buy". The 2010 s will be
the "Linked Decade," defined by a busy, mature, ethnically heterogeneous group of consumers
who are confident in their ability to read any- thing, buy anything, and experience anything.
Several fundamental demographic changes will serve as the under- pinning for this new
consumer mind-set: the aging of the baby boom generation, the increasing importance of
children as consumers, a growing chasm between society's haves and have-nots. and the world's
increasingly diverse population. Given that demographic backdrop. what will be the most
powerful values shaping the consumer mind-set? The following possibilities have been
proposed:

 The Shrinking Day-Harried baby boomers will create a time famine for themselves by
working more hours and committing to more family and community obligations.
 The Connectedness Craze-The urge to connect will pervade all aspects of consumers'
lives and increasingly consumers will turn to the World Wide Web for a sense of
community between buyers and sellers, information suppliers and consumers, and friends
and family.
 The Body vs. Soul Conundrum-Consumers will continue their obsession with fitness and
spirituality, while at the same time consuming record amounts of take-out food. The
Triumph of Individualism-Work, family, and purchase processes will reflect the
consumer's need to be treated as a unique individual.

MARKETING CAPSULE

1. Organizational buyer behavior is different from consumer behavior:

a. Many individuals make the buying decision

b. Behavior is motivated by both rational and emotional factors
c. Decisions include a range of complex technical decisions
d. Lag time exists between contact and actual decision
e. Organizations cannot by grouped into precise categories
2. The following stages are involved in the organizational buying decision:

a. Problem recognition
b. General need description
c. Product specification
d. Supplier's research
e. Proposal solicitation
f. Supplier selection
g. Order-routine specification
h. Performance review

DISCUSSION QUESTIONS

1. How can marketers use the Internet to influence consumer buyer behavior?
Organizational buyer behavior?

2. How has business-to-business (B2B) commerce affected purchasing transactions?

3. What new factors or influences do you foresee impacting consumer buyer behavior?
Organizational buyer behavior?

4. What ethical considerations (if any) do advertisers face when they try to influence buyer
behavior?

The Marketing Mix

Read this section, which will reinforce your understanding of the marketing mix. Select a
company like Starbucks and identify their marketing objectives at the corporate level, which
will include profitability, cost savings, growth, market share improvement, risk containment,
reputation. As a marketer, think about how you will use the marketing mix to achieve these
objectives and turn them into actionable steps. As you read each section of the marketing
mix, identify actions that have been developed by marketers for your selected company.

Once the objectives are established, the marketer must decide how to achieve these
objectives. This produces a set of general strategies that must be refined into actionable and
achievable activities. The marketing mix - product, price, promotion, and distribution -
represents the way in which an organization's broad marketing strategies are translated into
marketing programs for action.

Product. Products (and services) - the primary marketing mix element that satisfied
customer wants and needs - provide the main link between the organization and its
customers. Marketing organizations must be ready to alter products as dictated by changes
in competitive strategies or changes in other elements of the organization's environment.
Many organizations have a vast array of products in their mix. Ideally, each of the products
is profitable. But this is often not the case, so some tough decisions must be made
concerning the length of time an unsuccessful product is kept on the market.

Distribution. The organization's distribution system moves the product to the final
consumer. Because there are many alternatives when selecting a distribution channel,
marketing management must have a clear understanding of the types of distributors, of the
trends influencing those distributors, and of how those distributors are perceived by
customers.

Communication (Promotion). The product's benefits must be communicated to the

distributors and to the final customers. Therefore, the marketing organization must provide
marketing information that is received favorably by distributors and final customers.
Marketing organizations, through promotion, provide information by way of advertising,
sales promotions, salespeople, public relations, and packaging.

Price. Finally, marketers must price their products in such a way that customers believe they
receiving fair value. Price is the primary means by which customers judge the attractiveness
of a product or service. Moreover, price is a reflection of all the activities of an organization.
Finally, price is a competitive tool, in that it is used as a basis for comparison of product and
perceived value across different organizations.

Decisions about the marketing mix variables are interrelated. Each of the marketing mix
variables must be coordinated with the other elements of the marketing program. Consider,
for a moment, a situation in which a firm has two product alternatives (deluxe and
economy), two price alternatives (USD 6 and USD 3), two promotion alternatives (advertising
and couponing), and two distribution alternatives (department stores and specialty stores).
Taken together, the firm has a total of 16 possible marketing mix combinations. Naturally,
some of these appear to be in conflict, such as the "deluxe" product/low price combination.
Nevertheless, the organization must consider many of the possible alternative marketing
programs. The problem is magnified by the existence of competitors. The organization must
find the right combination of product, price, promotion, and distribution so that it can gain
a differential advantage over its competitors. (All the marketing mix elements will be
discussed in more detail in later chapters of this book).

Even a well-designed marketing program that has been through a thorough evaluation of
alternatives will fail if its implementation is poor. Implementation involves such things as
determining where to promote the product, getting the product to the ultimate consumer,
putting a price on the product, and setting a commission rate for the salespeople. Once a
decision is made, a marketing manager must decide how to best implement the terms of
the plan.
Scandinavian Airlines (SAS) provides a good example of an organization that has
successfully implemented their marketing strategy. SAS had good on-time performance, a
good safety record, and many services designed to make flying easier for its customers.
However, these were not enough to improve SAS revenue. Other things had to be done to
attract business-class customers. The approach taken by SAS was largely symbolic in nature.
They put everyone who bought a full-price ticket in "Euroclass," entitling them to use a
special boarding card, an executive waiting lounge, designer steel cutlery, and a small
napkin clip that could be taken as a collector's item. These and other values were provided
at no extra cost to the customer. The approach was very successful; business class
passengers flocked to SAS, since they appreciated the perceived increase in value for the
price of a ticket.