Organizational Buying Behavior
It is also known as Industrial Buying behavior. Organization buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. Organizational buying is heavily influenced by derived demand, that is, demand for an end product or for a product or service sold by the buyer’s customers. The demand for components by a manufacturer will be dependent on demand coming from their customers, the retailers and wholesalers, who in turn are reacting to demand from their customers, the consumers. A good portion of organizational buying is controlled or constrained by the economic situation. Components, ingredients and supplies must fit with the conversion process and with the economic objectives of the final outcome. Organizational buying is not entirely predictable or entirely rational. Consumer market is a huge market in millions of consumers where organizational buyers are limited in number for most of the products.
Characteristics of organizational buyers are
- The purchases are in large quantities.
- Close relationships and service are required.
- Demand is derived from the production and sales of buyers.
- The organizational buyers are trained professionals in purchasing.
- Several persons in organization influence purchase.
- Lot of buying occurs in direct dealing with manufacturers.
Organizational Buying/Purchasing/Procurement Process
- Stage 1: Problem recognition: Problem can be identified from either internal stimuli or external stimuli.
- Internal Stimuli like Company would like to launch new product hence it searches for the suppliers who can supply the material and equipment’s required for the new product.
- External stimuli like trade show, conference also helps the company to identify the problem.
- Stage 2: Need description: After finalizing the problem, companies will define need description. The need description includes.
- For the complex products team assessment is required.
- The required items are assessed on the basis of reliability, durability, price, and other attributes needed in the item.
- Stage 3: Product specification: Organizations develop detailed product specification with value analysis. In the value Analysis Company analyses the components and their production process. Here emphasis is given to find the alternative methods of producing the components and finding the optimum method that suits the company.
- Stage 4: Supplier search: The buyer now tries to identify the most appropriate suppliers. The supplier’s task is to get listed in major business directories, develop a strong advertising and promotion program, and build a good reputation in the Marketplace. Suppliers who lack the required production capacity or suffer from a poor reputation will be rejected
- Stage 5: Proposal solicitation: The buyer will now invite qualified suppliers to submit proposals. Some suppliers will send only a catalogue or a sales representative. Where the item is complex or expensive, the buyer requires a detailed written proposal from each qualified supplier. The buyer will invite qualified suppliers to make formal presentations. Thus, business marketers must be skilled in researching, writing and presenting proposals.
- Stage 6: Supplier selection: This stage is also known as vendor selection. During this stage companies will prepare the checklist. Weight ages are assigned against each checklist point and evaluated. Some of the important attributes those commonly found in the vendor evaluations are - Quality, Delivery, Communication, Competitive prices, Servicing and Reputation
- Stage 7: Order routine specifications: The buyer now negotiates the final order with the chosen supplier(s), listing the technical specifications The quantity needed, the expected time of delivery, return policies, warranties and so on. In case of MRO items (Maintenance, Repair and Operating items), buyers are increasingly moving towards blanket contracts rather than periodic purchase orders.
- Stage 8: Performance review: In this stage organization review the performance of the suppliers. This will help it to decide whether to continue with existing suppliers or should search for the new vendor. These eight stages are very much essential for new task but not necessary for straight re-buy or modified re-buy. To know which stages are important in the new task, a straight re-buy or modified re-buy we will study Buy grid Model.
Buying roles in the Industrial marketing
Business buying process, the number of people involved in the decision making is more in the Industrial marketing. Therefore, may business organizations constitute the buying centre or buying committee.
The characteristics of buying centre are listed below
- Several individuals can occupy a given role (e.g., many users / influencers) and one individual can occupy multiple roles.
- The buying centre may include people outside the organization such as government officials, consultants, and technical advisors and other members of the marketing channel.
- Different members of the buying centre have different influences, for e.g., the engineering department may be concerned with actual performance of the product, whereas production may be more interested in ease of use and reliability of Supply
- Members of buying centre have different personal motivations, perceptions and Preferences which in turn are dependent on age, income, education, job position, personality, attitudes towards risk and culture.
Factors that influence on business buyers
- Supply conditions: raw materials required should be matched with the demand condition of the company. If there is an Irregular or seasonal demand exists then company should adjust their supplies. Any shortage of the raw materials will Force the company to go out of the company.
- Political and Legal environment: the unstable government will have unpredictable policies. Any change in the Government policy will have direct or indirect impact on the company.
- Competitive environment: Business buying is very complex. The numbers of buyers are very few. Any technology Change adopted by the competitor should be carefully observed. If the company not able to identify the competitors Move Survival will become difficult.
- Culture and customs: Every country has its own culture and customs. Why one should not sell beef products in India, in Same way business buying is also influenced by the culture and customs
- Organizational policies and procedures: Companies’ policies like centralization versus decentralization of buying and selling will have direct impact on the company’s production.
- Organization structure and systems: Lesser the hierarchy more will be the flexibility in the organization. Companies with a greater number of hierarchies will have plenty of problems to be addressed.
- Interpersonal factors: business buying will have different outcome on the basis of authority, status, empathy and Persuasiveness that customer and organization posses
- Individual factors: Age, education, job position, Personality risk attitudes of individual will determine the buying Behavior of Each role and in turn these changes will have direct impact on the organization buying.
