Organizational Buying Behavior

Organizational Buying Behavior

Organizational Buying Behaviour is a complex decision-making and communication process involving the selection and procurement of products and services by organizational buyers. Individuals, organizations, or government agencies that make a purchase decision regarding raw materials, products and services, components, or finished goods are known as organization buyers.

Consumers – purchase products for personal consumption
Industrial Buyers – Purchase products on behalf of their business or organization

Since the organizational buyers or industrial buyers are motivated or influenced more by profit objectives and less by personal motives, therefore it is empirical to understand the buying behavior of organizational buyers and formulate marketing strategies for organization buyers that are different from strategies for regular consumers.
Usually, the buying decisions in an organization are taken by the Buying center which may consist of the top management or the members of the procurement committee or any other department.

Nature / Characteristics of organizational buying behavior

Every organization is unique – As different organizations have different organizational structures, organization cultures, values, objectives, and resources. Therefore they also have a unique set of needs, demands and exhibit unique buying behavior.
There is a long time lag between efforts and results – In the process of individual buying, the time taken between a purchase decision and sales transaction is shorter than industrial buying. This is due to the extra formalities and procedures that are to be followed in the organizational buying process. For e.g. asking quotations, evaluating tenders, preparing bulk orders, etc.
It is rational as well as emotional activity – Due to the presence of human beings in the purchase process, it gives rise to the emotional element involved in buying. An industrial buyer may select the quantity and quality of a product on the basis of specified organization norms but may choose dealer on the basis of his personal or political affiliation or past experience with the dealer.
It is a formal activity – Organization buying involves a formal contract between the buyer and seller. It is a formal activity that requires the buyer to follow rules and procedures laid down by the organization regarding the type, quality, quantity, terms of payment, delivery time, etc. while making a purchase decision.
It is a multi-person activity – Buying decisions in an organization are generally taken by a team of qualified personnel also referred to as
buying center where each individual plays different buying roles.

Other characteristics of organization buying:

• There are few industrial buyers and many individual buyers.
• Organization buyers usually buy in bulk.
• The role of middlemen is reduced as the buyers buy directly in bulk from manufacturers.
• Organizations generally have an inelastic demand.

There are three categories of organizational purchasers:

1. institutional buyers (e.g. buyers in the police service, fire service, and public authority);
2. retail buyers;
3. industrial buyers.

These differences give rise to major differences between the three types of buying.

Organizations buy to enable them to provide goods and services that eventually reach final consumers. As has been explained, consumer buying behavior relates to individuals (or families) buying goods and services for their own use. Both organizational and consumer buying behavior involves people, individually and in groups, who are affected by environmental and individual factors.

Organizational buying usually involves group decision making, which is known as the ‘decisionmaking unit’ (DMU) or what Webster and Wind16 referred to as the buying center. In such a group, individuals have different roles in the purchasing process, categorized as:

1. Initiators – these people requisition or suggest purchasing a product or service;
2. Users – these are people in the organization who use the product. Sometimes they will also be involved in devising product specifications;
3. Influencers – influencers affect the buying decision in different ways e.g. they may be technical personnel who have developed product specifications;
4. Deciders – deciders make the buying decision (in most cases this is the buyer);
5. Buyers – buyers have formal authority to purchase the product;
6. Approvers – these people authorize actions of deciders or buyers;
7. Gatekeepers – gatekeepers control the flow of information to and from DMU or buying center members e.g. a buyer’s assistant or a telephonist.

One person might play all these roles, or each may be performed by different persons or groups of people.

Another difference in organizational buying is that many products are complex and require specialist knowledge to purchase. Where products have complicated specifications, there is more communication and negotiation between buyers and sellers. After-sales service is important and suppliers are evaluated after purchase. Organizational markets have fewer, larger buyers who tend to be geographically concentrated. Another aspect is the nature of derived demand, where demand for organizational (especially industrial) goods is derived from consumer markets. If the demand for end-product consumer goods falls this affects the entire supply chain.

Organizational buying decisions can be categorized into buy classes as to how complex they are, similar to low/high involvement decision making in consumer markets. A straight re-buy occurs often, is relatively cheap, and usually a matter of routine. If the supplier is an ‘in’ supplier they are on the company’s approved list of suppliers; they have to perform well so they do not get taken off the list. If they are ‘out’ suppliers they must try to get onto the approved list. A modified re-buy is a situation that requires some additional information or evaluation of suppliers. It is usually the case that specifications have been modified since the last purchase. A new task or new buy is the most complex purchase decision when the company has not bought the product before. The search and evaluation procedures are extensive.