Chapter-7

Organizational Buying Behavior

8.1

How does the Indian Industry Buy?

Following factors (ranked according to their importance) in decision making: Continuous and Reliable Product Performance Guaranteed Delivery Technology fit Price Service Company Sales force It is important to note that competition, technology, complexity in customers environment, are constantly changing the customers value set.
8.2

Hierarchy of Customer Value

The threshold level values need fulfillment at the most basic level, before the marketer is even considered as probable supplier. Desired values reflects the customers desire for the supplier to augment his offer while, the unanticipated values imply values which even the customers are not consciously aware of. Customers always try to satisfy their anticipated values before climbing up the hierarchy. To satisfy these values, firms reengineer their products and processes,perform to customer defined standards,offer attractive incentives to the decision makers and create a brand image. This concept is based on the assumption that the customer service needs occur at any time of the day and industrial buyer expects it to be attend immediately. Satisfaction of desired values creates a delighted customer, but it is the unanticipated value satisfaction which bonds the customer to the organization.
8.3

Unanticipated Values

Desired Values Anticipated Values

Hierarchy of Customer Values

8.4

Value Maximization Process

Corporate Process

PRODUCT
Customer Values

SERVICE Service standards Service penalty Extended service technologisation of service process Service providers performance review and reward processes Presale guidance Technology Empowerment of Customer personnel Location of service outlet Empowerment of customer personnel Spare part management 8.5

Performance guarantee Consistency performance

Six sigma Brand and corporate image Supply chain management Internal linkages Purchasing information Real time distribution

Convenience in : * Selection * Availability

use Training

disposal

Elimination/upgrades

Economical price

Cost driver elimination

Valuation of existing equipment door step disposal Annual maintenance contract Regularity of service calls Newsletters and other customer communication media Customer empowerment Information technology Minimize/eliminate service moments Innovation
8.6

Desired Values Information in industry practices Zero down time

Product applications

Six sigma

Assistance in cost leadership/differentiated leadership Unanticipated values

Cost driver elimination R&d Innovation

Organizational Buyer v/s Household Buyer

Differentiating factors Buying Motives Organizational customers motive are more
rational than psychological vis--vis household customers. Household buyers buy for their own consumption in comparison to organizational.The latter buys to add value to the product which is then sold to another customer. Organizational buyers demand is a derived demand,demand of the product is based on end customers demand. Organizational customers buying motives are more rational.

Size of the buyer Organizational buyers are less in number

than household buyers but they purchase in bulk. The annual purchase budget runs into lakhs, where as in household buying purchases generally never exceed a few thousand rupees.
8.7

Organizational Buyer v/s Household Buyer

Risk in Purchases Risk in purchases are much higher than in
household purchases.

Concentration of Buyers- Organizational buyers are generally

more concentrated in the same geographical area,as opposed to household buyers spread all over the country. In B2B marketing a more focused marketing strategy with an emphasis on personal selling is used as opposed to consumer marketing where trade channels and mass communication become important pillars of marketing strategy. Organizational purchase decisions are joint Since risks and costs involved in organizational purchases are high,decisions are jointly taken & involve several individuals. Adherence to Specifications- Organizational buyers want their suppliers to strictly adhere to specification laid down by them as compared to household buyer.
8.8

8.9

Organizational Customer
Who constitutes an Organizational Customer- Term refers not only to business firms but government,retail institutions,other service institutions like universities,colleges, financial firms like banks and social organizations. What is sold to an Organizational Customer ? Can be categorized into 3 major groups Capital goods like plant and machinery and office products Spare parts and components Consumables like raw materials,packaging material,lubricants etc Costs and risks involved are highest in a and b types of products. Consumables are repeat purchases at regular intervals. Spare parts are not brought at regular intervals and ordered only when minimum re-order level has been reached in the store. Consumables are generally purchased following an expansion, diversification or upgrading decision.

a) b) c)

8.10

BUYING CENTRE : CONSISTS OF INDIVIDUALS ( Referred to as Decision Making Units - DMU) who:

Participate in decision making. Have a common goal. Share risks arising out of the decision.
8.11

Roles in Buying Centre

Actual User Define product &service requirements Only goal: Uninterrupted Operations Influencer Opinion valued by the Decision-maker Decision maker

Decider

Considerations: Both technical & commercial

On-time delivery-Key consideration Facilitate the flow of information
8.12

Buyer

Gatekeeper

DMU in buying Centre-Expectations from a Vendor

Expectat ions from Vendor DMU Actual User Influenc er Decider Buyer Gatekee per Pdt Consiste Guarant After Perform ncy in ee and sales ance Product Warrant service quality eies Vendor Image Price Delivery Este and schedule payment s terms

v v v -

v v v -

v v v -

v v v -

v v v v -

v -

v v v -

v v v v v

Note: : v connotes expectations.

8.13

DECISION-MAKING PROCESS STAGES IN Decision Making

Need Recognition Product specification Laying down qualifications for potential vendors Inviting proposals from qualified vendors Evaluating the proposals Selecting the vendor Determination of order size and placement of order Review and feedback
8.14

BUYING SITUATIONS

1. Straight rebuy
2. Modified rebuy 3. New Task

Characterised by vendor loyalty

When customer needs get modified/new supplier in the industry. When customer does not have a decision criteria, does not know who the suppliers are & commercial terms.
8.15

Organizational Buyer Behaviour Environmental Factors

(a) Level of demand (b) Economic outlook (c) Rate of interest (d) Technological change (e) Political and regulatory development (f) Competition

Influences on Buying decisions

Individual

(a) Age (b) Education (c) Income (d) Attitude towards risk taking (e) Personality (f) Job position

Organisational Buyer
Organisational Variables (a) Objectives and goals (b) Organisational policies (c) Procedures (d) Organisational structures (e) Systems

Interpersonal (a) Authority (b) Status (c) Empathy (d) Persuasiveness

8.16

How Internet is impacting organisational buyers?

Most industrial buyers in India use internet for sourcing information only the future B2B actions (Business to Business or industrial marketing) are likely to be more net driven To the buyer, it offers transparency at the following levels.
Price Transparency Availability Suppliers other Product and services
8.17