Chapter 2:

Organizational
Buying Behavior

Prof Dheeraj Sharma

 CHAPTER TOPICS
Inside and outside forces influence organizational buying. In this
chapter you’ll learn about:

1. The organizational buying process

2. The four main factors that impact organizational buying decisions
3. A model of organizational buying behavior
4. How knowledge of organizational buying enables marketers to make
more informed decisions on product design, pricing and promotion

2
UNDERSTANDING THE DYNAMICS
OF ORGANIZATIONAL BUYING
Market-driven firms sense market trends and work
closely with their customers and vendors. This is
crucial to:

Identify profitable market segments

Locate buying influences within segments
Reach organizational buyers efficiently and
effectively with an offer

Each decision goes through various steps. Skipping a

step can be essential to the decision-making process.
BUYING AS A PROCESS
Buying is a process, not an event

There are various points in the process that are referred to as “Critical
Decision Points” and “Evolving Information Requirements”

It starts with “Problem Recognition”

ORGANIZATIONAL
BUYING PROCESS
2. General
1. Problem 3. Product
Description
Recognition Specifications
of Need

Organizational 5. Acquisition
4. Supplier
Buying and Analysis
Search
Process of Proposals

6. Supplier 7. Selection
8. Performance
Selection of
Review
Order Routine
1. PROBLEM
RECOGNITION
Before anything is bought, most buyers need to be made
aware of a problem.
1. PROBLEM
RECOGNITION
Internally:

A machine breaks down

Someone needs to order an MRO product

Someone recognizes an opportunity that can be captured by

acquiring the product
1. PROBLEM
RECOGNITION
Externally:

More often than not, it is the salesperson who

precipitates the need for a new product

Advertising also can influence purchasing

Many organizations use the Push/Pull Strategy

2. GENERAL
DESCRIPTION OF NEED
Once a need is recognized, the purchasing department
works with the buying group to define what is needed by
asking:

What is the extent of the problem?

What alternatives can solve the problem?
Where can the solution be purchased?

Each small decision ultimately helps define the product

specifications.

Sometimes the supplier is involved if the supplier

 3. PRODUCT
SPECIFICATIONS
Many times the question boils down to:

1. Is it a new task buy?

2. Is it a straight rebuy?
3. Is it a modified rebuy?

Buyers try to be objective and consider many ideas.

Professional sellers try to influence this decision as early as
possible in the buying process—if they can!
 3. PRODUCT
SPECIFICATIONS
This is an important because it often determines how the contract is structured
and the specific wording that it uses.
4. SUPPLIER
Who will be the supplier?
SEARCH
The creating influencer has a lot of say about the choice of supplier.
If a salesperson creates the need, often the specs are written so that
only the salesperson’s organization is able to fulfill the contract.

In established businesses, often only preferred vendors are

considered.
5. ACQUISITION AND
ANALYSIS OF PROPOSALS
This step occurs only when the buying organization lacks
adequate information to make a decision.

Proposals are presented in detail often by a team

engineers, users and purchasing agents. Successful
proposals determine the supplier.

Many times, this step is perfunctory. The buyer may have

already determined the preferred vendor, but legally it
may be necessary to seek other vendor proposals to attain
government contracts.
6. SUPPLIER SELECTION

At this point, negotiation includes not only monies,

but also:
1.Quantities
2.Delivery times
3.Level of service
4.Warranties
5.Payment schedules
6.And a host of final details that determine selection
7. SELECTION OF ORDER
ROUTINE
Once the supplier is selected, the order routines are established
8. PERFORMANCE
REVIEW
After receipt of the product or service, a performance review asks:

1. Did the supplier meet delivery time?

2. Did the product meet the specs?
3. Does the contract have to be modified?
4. Did the vendor live up to expectations?
BUYING PROCESS

Stages in the buying process are not as sequential

as suggested by the model.

Sometimes steps are skipped. For example, on

straight rebuys, buyers choose to purchase almost
immediately.

However, the model represents important aspects

of how companies buy and evaluate business
purchases.
BUYING PROCESS
There other events that influence the buying process, most notably:

1. Economic conditions
2. Competition
3. Basic shifts in the organizational objectives
4. The buying situation
THREE BUYING SITUATIONS

1. New task
2. Straight rebuy
3. Modified rebuy
 There are 2 approaches
to New Task
purchasing:
1. NEW Judgmental Situations
TASK
Strategic Decisions
NEW TASK -
JUDGMENTAL
SITUATIONS
This is the greatest amount of uncertainty because there
is little information or experience to support a decision.

To overcome this, decision-makers conduct outside

research to analyze key aspects of the buying decision.

An example of key questions might include:

 What kind and model of production equipment should we purchase?
 Who are the available suppliers?
 Will they provide the services we need?
NEW TASK -
STRATEGIC DECISIONS
This level of New Task purchasing is the most important
because it concerns long-range planning, larger
investments and increased risk if they are wrong.

An example of strategic questioning might include:

 Should we develop a new product line which demands us to buy new
machinery, retool what we have, and maybe even hire a different type
of employee?
 What should we do?
MARKETING
CONSIDERATION FOR
NEW TASK BUYS
Marketers can gain an edge if they:
1. Initiate problem recognition
2. Get involved very early in the decision-making
process
3. Get involved early in the procurement process
4. Understand the buying organization's behavior
patterns
NEW TASK
MARKETER’S EDGE
If a marketer is already established with an account,
often he or she can leverage that situation into further
business.

This is why present suppliers continue to develop further

business with their customers—they understand their
prospects’ buying philosophy, developing situations and
contacts.

They can also create need since the prospect trusts them.
THREE BUYING SITUATIONS – A
REVIEW

NEW TASK STRAIGHT MODIFIED

REBUY REBUY
 THREE
BUYING
SITUATI Straight rebuy – a problem or need
that is recurring or a continuing
ONS requirement.

2.
STRAIG  Buyers have experience in the area

HT 

Require little or no new information
Buyers operate in routine problem-solving

REBUY stage
BUYING DECISION
APPROACHES

Casual purchases: Involve no information search or analysis.

Routine low priority: Decisions are more important and

involve a moderate amount of analysis.
STRAIGHT REBUY
Routine problem solving situations requiring routine
solutions.

This is the repeat business situation that every major

supplier desires.

MOR: Maintenance, Operation and Repair items fall into

this category as do various services such as travel.
STRAIGHT REBUY

Many companies review this area of Relationships become very important.

business every now and then, but the edge
usually goes to the supplying company.
 MARKE Purchasing departments handle this
TING situation in most cases; the determinant is
who is “IN” and who is “OUT”?
CHALLE
NGES “IN” seller needs to constantly reinforce
their services, meet buying expectations,
TO continue developing relationships and be
responsive to changing needs.
STRAIG
HT “OUT” sellers have a much more difficult
REBUY task.
BUYING COMPANIES RISK
TO CHANGE VENDORS –
STRAIGHT REBUYS
The buying company is usually reluctant to change
because “OUT” sellers are unknown, they are a big risk,
and change is expensive.

The old adage is: “If it ain’t broke, don’t fix it.”
OUT SELLERS IN
STRAIGHT REBUY
To get in, OUT sellers need to convince the buying
organization that:

1. Their current supplier is not doing their job.

2. They are experiencing problems that they were not
aware of earlier.
3. Their purchasing requirements have changed.
4. They should consider other alternatives.
 THREE BUYING
SITUATIONS
3. MODIFIED REBUY
 Modified rebuy—Decision makers feel there is a benefits to
reevaluating alternatives.

 Internal Forces:
 Search for quality improvement
 Cost reductions
MODIFIED REBUY
Buyers feel they can make significant advances if they review their
buying situations on a regular basis.

Often, changes in styles, materials or even alternative solutions

facilitate this review.

Another reason for Modified Rebuy is dissatisfaction with present

supplier.

New supplier was able to find the present supplier’s weaknesses

and offered buyers new alternatives to “fix” their problem(s).
MODIFIED REBUY:
LIMITED PROBLEM SOLVING

When a company has to replace a broken part,

they may bypass the manufacturer and go to a
supplier of comparable upgrades.

Example: Your Epson printer breaks so you

consider an HP printer instead.
BUYING DECISION
APPROACHES
Simple Modified Rebuy: Involves narrow choices
and minimal research.

The major area of consideration is supplier

relationship.

Complex Modified Rebuy: Involves larger items,

more research, extensive specification
development, a competitive bidding process and
long-term relationship development with new
supplier(s).
IN VERSES OUT
SUPPLIERS
IN suppliers need to understand developments within the
buying organization so they can be a part of the
modified rebuy situation. They generally have an edge
unless they are “out of touch” with the buyer.
IN VERSES OUT
SUPPLIERS

OUT suppliers need to create the need and

influence the buying organization to consider other
alternatives. This demands superior
salespersonship.

Selling company needs to offer performance

guarantees, warranties and often additional services
and training.
VESTED INTEREST
Developing a vested interest on the part of both the buyer and seller is
important to perpetuating the business.

Questions:
1. Did the selling organization put in enough effort to show serious
involvement?
2. Is the buying organization trapped in a buying decision, making it
difficult to get out?
 BUSINESS STRATEGY
CONSIDERATIONS

The business marketer must always try to understand the sale from the
buyer’s perspective and do everything to make it easier for the buyer to buy.
BUSINESS STRATEGY
CONSIDERATIONS
Marketers needs to understand:

1. Who are the decision makers?

2. What are their problem(s)?
3. What are their purchasing patterns?
4. What is the importance of their purchase?
5. What is the timing of the purchase?
 FORCES INFLUENCING ORGANIZATIONAL
BUYING BEHAVIOR
 Economic outlook:
domestic & global
 Pace of technological
Environmental
change
A projected change in Forces  Global trade relations
business conditions
can alter buying plans
drastically.  Goals, objectives and
Organizational strategies
 Organizational position
Forces
Organizational of purchasing
Buying
Behavior  Roles, relative
Group influence and patterns
Forces of interaction of buying
decision participants

Job function, past

Individual experience, and buying
Forces motives of individual
decision participants
ENVIRONMENTAL
FORCES - ECONOMIC
INFLUENCES
Changes in the environment such as business conditions,
technological advances or new legislation can affect
buying plans.

Since much of business is driven by derived demand,

business marketers must be sensitive to changes in the
consumer market.

Also, the economy can determine a company’s ability or

willingness to buy. If the economy is bad, companies
often put off purchasing until they see a change.
ECONOMIC
INFLUENCES
Not all companies are affected equally. For example,
high interest rates may affect housing starts but may not
affect food products, medical or transportation services.

Finally, there is an affect from foreign competitors such

as China. They have strong labor saving costs as a
competitive advantage.
 Technology is changing so quickly that
yesterday’s technological advancement is
today’s electronic commodity.
Example: Computers

TECHNOL However, all companies need to stay alert

OGICAL to these changes. For example, Nokia’s
leading position in mobile phones market in
INFLUENC India came crashing down within 2 years
ES because they couldn’t foresee the impact of
Android based devices.

Technological change—especially from the

Internet—is drastically changing the way
companies do business.
 The Internet has leveled the playing field,
allowing competitors the opportunity to
compete in the world’s most technological
advanced countries.
TECHNOL
OGICAL It affects not only entire companies (the
CHANGE printing industry is struggling due to digital
printing and electronic communication), but
also individual careers (An Indian’s edge in
outsourcing market is vanishing quickly
due to the competition from Vietnam,
Poland and other such countries).
 ORGANIZATIONAL FORCES &
GROWING INFLUENCE OF
PURCHASING
As manufacturing has become less important,
purchasing and procurement have become more
important.

Companies are outsourcing many activities such as

manufacturing, marketing, accounting, etc., yet
procurement remains a strong influence resulting in a
shift to more professional procurement positions.
STRATEGIC PRIORITIES
IN PURCHASING
As the purchasing profession grows, so do its goals and
priorities.

Purchasers are more ambitious, resulting in a more

competitive environment. An effective marketing
strategy develops stronger and deeper relationships with
purchasers.

This is the impetus for Relationship Marketing.

STRATEGIC PRIORITIES IN
PURCHASING
Aligning Purchasing Shift from administrative role
with Strategy, to value-creating function that
serves internal stakeholders
Not Just Buyers
and provides competitive edge
in market.

Exploring New Focus on suppliers’

Value Frontiers: capabilities, emphasizing
business outcomes, total
It’s Not Just About
ownership costs, and potential
Price for long-term value creation.
Source: Adapted from Marc Bourde, Charlie Hawker, and Theo Theocharides, “Taking Center Stage: The 2005 Chief
Procurement Officer Survey,” (Somers NY: IBM Global Services, May 2005), pp. 1-14. Accessed at http://www.ibm.com/bcs
on July 1, 2005.
 STRATEGIC PRIORITIES
IN Suppliers
Putting PURCHASING
Inside: Develop fewer and deeper
The Best Value Chain Wins relationships with strategic
suppliers and involve them in
decision- making processes,
ranging from new product
development to cost-reduction
initiatives.

 Pursuing Low-Cost Sources: A Overcome hurdles imposed by

World Worth Exploring geographical differences and
seek out cost-effective
suppliers around globe.
 MARKETING STRATEGIC
CONSIDERATIONS
As Purchasers develop their strategic roles, Marketers respond
by developing strategic alliances to become a part of their
business.

Buyers and Sellers know that “the best value supply chain wins”
the customer…and the profits.

The result is closer relationships with carefully chosen suppliers

who can align their activities with customer needs.

Example: At this time in history, Walmart is one of the best at

accomplishing this activity!
 Procurement Manager’s Toolkit

Total Cost of Ownership

TCO considers the full range of

costs associated with the purchase
and use of a product or service over its
complete life cycle.

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TCO
1. Acquisition costs: selling price and transportation
costs & administrative costs of evaluating suppliers,
expediting orders, and correcting errors in shipments
or delivery.
2. Possession costs: include financing, storage,
inspection, taxes, insurance, and other internal handling
costs.
3. Usage costs: are those associated with ongoing use
of the purchased product such as installation, employee
training, user labor, and field repair, as well as
product replacement and disposal costs.

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VALUE-BASED
SELLING TOOLS
Astute business marketers can pursue value-based
strategies that provide customers with a lower cost-in-
use solution.
Value-based strategies seek to move the selling
proposition from one that centers on current prices and
individual transactions to a longer-term relationship built
on value and lower total cost-in-use.

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SEGMENTING THE
BUY
Various categories of purchases are segmented on the
basis of procurement complexity and the nature of the
effect on corporate performance
Use a segmentation approach to isolate those purchase
categories that have the greatest effect on corporate
revenues

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E-PROCUREMENT
Purchasing managers use the Internet to find new
suppliers, communicate with current suppliers, or place
an order.
E-procurement cut purchasing cycle time in half,
reduced material costs by 14 percent and purchasing
administrative costs by 60 percent, and enhanced the
ability of procurement units to identify new suppliers on
a global scale.

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 REVERSE AUCTIONS
Involves one buyer who invites bids from several prequalified suppliers who face
off in a dynamic, real-time, competitive bidding process.
Reverse auctions are best suited for commodity-type items such as purchasing
materials, diesel fuel, metal parts, chemicals,
and many raw materials

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 A STRATEGIC APPROACH
TO REVERSE AUCTIONS
“Preempt the auction: convince the buyer not to go forward with the auction
because you have a unique value proposition and are not inclined to participate.
Manage the process: influence bid specifications and vendor qualification
criteria.
Walk away: simply refuse to participate

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CENTRALIZED VS.
DECENTRALIZED
PURCHASING
Purchasing is moving away from a transaction-
based support role to a more strategic, executive
level role

One result of this is to centralize purchasing

Centralized purchasing operates differently than

decentralized purchasing
DECENTRALIZED
PURCHASING
Decentralized purchasing allows local branches to purchase what
they need. This results in local control, and for many kinds of
services this makes sense.

Example: Reliance Fresh buys products from local farmers.

MARKETING STRATEGY RESPONSE
The organization of the marketer’s selling strategy
should parallel the organization of
the purchasing function of key accounts.
To avoid disjointed selling activities and internal
conflict in the sales organization, and to serve the
special needs of important customers, many
business marketers have developed key account
management programs.
Develop strategic relationships with a limited
number of customers in order to achieve long-
term, sustained, significant, and measurable
business value for both the customer and the
provider
INDUSTRIAL SALES: HOW TO ASSESS GROUP
FORCES
There are three questions that need to be addressed:

1. Who takes part in the buying process?

2. What is each member’s relative influence in decision?
3. What criteria is important to each member in evaluating
the supplier?

Answering these questions puts the salesperson in a better

position to become the chosen supplier.
 ROLES IN THE BUYING
CENTER
Initiator
Initiator Influencers
Influencers Gatekeepers
Gatekeepers

Decider
Decider Purchaser
Purchaser Users
Users

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 BUYING CENTER ROLES

Initiator Initially perceives a problem and initiates the buying process

to solve it.

Affects the purchasing decision by providing technical

Influencer information or other relevant (internal or external)
information.
Controls the information to be reviewed by members of the
Gatekeeper buying group. (For example, buyer may screen advertising
material and even salespeople.)
Actually makes the buying decision, whether or not they have
Decider formal authority to do so. Could be the owner, an engineer or
even the buyer.
Has formal authority to select and purchase products or
Buyer services and the responsibility to implement and follow all
procurement procedures.

User Actually use the product in question. Can be inconsequential

or major players in the process.
 BUYING CENTER
MEMBERS
Members of the buying center assume different
roles throughout the procurement process.

1. Isolate the personal stakeholders

Clues to help
identify powerful 2. Follow the information flow
buying center 3. Identify the experts
members:
4. Trace the connections to the top
5. Understand purchasing’s role

SOURCE: Adapted from John R. Ronchetto, Michael D. Hutt, and Peter H. Reingen, “Embedded Influence
Patterns in Organizational Buying Systems,’ Journal of Marketing 53 (October 1989), pp. 51-62.
ISOLATING THE BUYING
SITUATION

Since buying is a process and not an event, one

needs to understand who affects the potential sale
and how they affect it.

One method is to isolate the sale. That means to

define the buying situation and to understand
what stage it is in. Effective salespeople create a
need, whereas less effective salespeople become
involved later in the buying process.
STRATEGY TO ISOLATE
THE SALE
Depending upon the product, selling companies
that have new-buy products must:
 Create a need
 Get involved in the early stages of the buying process
STRATEGY TO ISOLATE
THE SALE
For more established type products (MRO), the
strategy should be to:
 Get a foothold
 Start small
 Learn the company
 Offer better deals
 Be ready to offer more as buying/selling opportunities
occur
 CLUES FOR IDENTIFYING
POWERFUL BUYING
1. CENTER MEMBERS
Isolate personal stakeholders. Who has the most to gain and/or lose?

2. Follow the information flow. Influencers are usually the ones who
actually facilitate the exchange.

3. Identify the experts. Experts ask the most questions, exhibit the most
knowledge, and are often the most influential.
CLUES FOR IDENTIFYING
POWERFUL BUYING
CENTER MEMBERS
4. Trace the communication to the top. Who are the decision makers?

5. Make sure you understand purchasing’s role. Often purchasers are

not decision makers, but they may be the bargainers. In repeat
buying situations, they are usually dominant players because of
their specialization.
WHO MAKES THE
DECISION?
Individuals make the decision, not organizations!

Each member has a unique personality, experience and motive, and

are subject to risk and rewards.

Professional marketers understand this and make sure that they learn
to recognize and match to it.
EVALUATIVE CRITERIA

Industrial product users value:

1. Prompt delivery
2. Efficient and effective service

Engineering values:
3. Product quality
4. Standardization
5. Testing

Purchasing values:
 EVALUATIVE
DIFFERENCES
Education: Engineers have a different educational
background than purchasing agents.
Also, various occupations have different
dispositions. For example:
1. Engineers are usually cold, analytical and
suspecting.
2. Salespeople are usually warm, open and optimistic.
MARKETING RESPONSE

By understanding the buying process and the various roles that link the
buying group together, the marketer is in a better position to match with
them by working with the right people and the appropriate sales process.
SELECTIVE
PROCESSES IN
INFORMATION
PROCESSING
 Selective exposure.
 Selective attention.
 Selective perception.
 Selective retention.
SELECTIVE EXPOSURE
Individuals accept communication messages consistent with their
attitudes and beliefs.

This is why buyers will choose to talk to some salespeople and not
to others.
SELECTIVE ATTENTION

People filter out stimuli only to allow certain ones to cognition. For
example, buyers will notice certain ads that can solve a perceived need.
SELECTIVE PERCEPTION
People interpret stimuli in terms of their attitudes and
beliefs.
This explains why buyers may modify or change their
disposition to a salesperson in order to make it more
consistent with their predisposition towards the
company.
They like the company so they may like the
salesperson.
 SELECTIVE RETENTION
People recall information that pertains to their own needs and dispositions.

For example, a buyer may remember information about a certain brand

because it elicits a reaction that is consistent with his/her criteria.
SELECTIVE PROCESS
Each of those selective exposures elicits a reaction that
influences the buyers’ actions.
Since procurement activities often span a great deal of
time, it is imperative for marketers to carefully design and
target their marketing communications.
Salespeople who understand and adjust to buyer
psychological needs are usually more successful than
those who are not cognizant or considerate of those needs.
RISK-REDUCTION
Most people are adverse to risk, especially buyers. Great risk can
mean great loss and buyers can get fired for that.
There are two components to perceived risk. They are…
PERCEIVED RISK
COMPONENTS

1. Uncertainty about decision

outcomes.

2. Magnitude of consequences
associated with making a
wrong selection.
CONFRONTING RISK

The larger the purchase, the more influential

the buying center becomes and can often
include higher ranking members.

There is an extensive outside search to see

what others are doing in similar situations.

Sellers who have a proven track record are

favored.
THANK YOU