Unit 4: Organizational Buying Process LH 8

Organizational Buying; Nature and Purpose of organizational Buying, influences on

Organizational Buyer Behavior: Environmental, Organizational factors, Interpersonal factors,
Individual factors. Organizational Buying Situations, Organizational Buyers’ Decision Process.

4.1. Organizational Buying;

4.2. Nature and Purpose of organizational Buying,
4.3. influences on Organizational Buyer Behavior:
4.3.1. Environmental,
4.3.2. Organizational factors,
4.3.3. Interpersonal factors,
4.3.4. Individual factors.
4.4. Organizational Buying Situations,
4.5. Organizational Buyers’ Decision Process.

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Unit 4: Organizational Buying Process

Organizational Buying; Nature and Purpose of organizational Buying, influences on

Organizational Buyer Behavior: Environmental, Organizational factors, Interpersonal factors,
Individual factors. Organizational Buying Situations, Organizational Buyers’ Decision Process.

4.1. Organizational Buying;

What is Organizational Buying?

Organizational Buying

Every profit-oriented firm is always interested in making sure that they do everything possible to maximize
the profit from the particular venture they engage in. They, therefore, go an extra mile to evaluate some
business processes and make informed decisions to ensure that they get the best deals.

This is essentially what organization buying revolves around. It is the process that formal institutions use
in establishing the essence for making a purchase of products or services by identifying, assessing and
selecting the ideal alternative to the available brands and suppliers.

In a typical organization, there are those people that are involved directly or indirectly in the organizational
buying process. All these people are referred to as the buying center. This center is always different bearing
in mind that it involves people with different and unique abilities and perspectives.

Ideally, it is also possible that not everyone is going to make the

decisions revolving around organizational buying, but it should
be noted that they can still be regarded as part of the purchasing
process due to the influence that they could be having in the
process.

The supplier must be able to produce quality products or offer

quality service to the organization. Any compromise on the
quality can adversely affect the organizational performance and
subsequently causing undesirable business dealings.

Nevertheless, globalization has made it possible for many suppliers and brands to be able to produce some
similar products that target a particular market. This is the reason why it is of great importance to ensure
that a thorough research is carried out to help in making good organizational buying choices.
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 4.2. Nature and Purpose of organizational Buying,

Three factors of organizational buying: Organizational Buying depends on

1. Buying objectives
2. Buying structure, and
3. Purchase constraints.

1) Buying objectives in Organizational buying

Before making a purchasing decision, it is imperative to understand and evaluate the main reasons for doing
so. Primarily, you need to determine the motive for buying that particular product. It is also necessary to
ensure that you understand the effect of making that purchase and at the same time how the product will be
beneficial to various operations of the organization.

The reliability of the supplier in ensuring that you get the product consistently throughout the year or
duration that you need is also important because it shows that the firm will hardly encounter unnecessary
inconveniences that would interrupt its production.

2) Buying structure in Organizational buying

Any organizational buying has to follow a particular structure that has been stipulated within the guiding
principles of the firm. A protocol has to be followed accordingly to make sure that all the concerned parties
are involved in making the decision. You have to ensure that all the relevant procedures have been followed
when making such purchases. This will be helpful in ensuring that a correct decision was made way before
undertaking the process of buying the particular product or service hence making it easy to make a follow
up if there is a need for doing so.

There are also some manufacturers who prefer to deal with agents who help them in purchasing the
products. In most cases, they prefer organizations to use these agents when in need of making transactions
that are revolving around purchasing of products.

3) Purchase constraints in Organizational buying

This is the other aspect that affects the process or organizational buying. Mostly, several elements are
always considered before making any purchase for the organization. Some of these items may hinder the
efficiency of buying the products and would subsequently require further intervention for it to be realized.
For instance, inadequate finances or availability of the product at that particular time would be among some
of the purchase constraints that are usually common.
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Nonetheless, the government budgeting process is also a hindrance to the consumers who prefer making a
purchase based on government funding because it may take longer than expected for funds to be approved.

Nature of Industrial/Organizational Buying:

Nature of Organizational Buying

1. It involves many persons in decision making which may be from a range of departments or from
different management levels.
2. It is a systematic and a pre-planned process.
3. Stretched decisions are taken.
4. Purchase for large volume is done.
5. It is a complex process.
6. Organizational buyers are trained professionals in purchasing.

Purpose behind Purchase Decision

The purpose or objective may be classified into two broad categories, which are

1. Task oriented objectives: The organization mainly strive to achieve task-oriented objectives such as
payment of evaluated price, obtaining multiple services from supplier, getting best quality of product
with assurance of uninterrupted supply.
2. Non-task objectives: The buying center members may have different personal objectives like power,
promotion, job security, prestige, recognition, etc. These members sometimes enter into purchase
agreement for achieving some mutual benefits. Non-task objectives are also important however task
objectives must be prioritized over them.

4.3. Influences on Organizational Buyer Behavior:

4.3.1. Environmental,
4.3.2. Organizational factors,
4.3.3. Interpersonal factors,
4.3.4. Individual factors.

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FACTORS INFLUENCING ORGANISTAIONAL BUYING

The factors influencing buyer’s purchase decisions can be conveniently divided into following categories:

1. Economics Environment: Environmental factors constitute an important determinant of

organizational purchasing. This includes economic situation, government policy, competitive
development in the industry, technological development and their introduction. For example, if the
organizational buyer feels that the government is going to increase tax on industrial buying is likely to
increase in the near future, his buying of material will increase as buying will become costly in future
due to tax burden. An organization buyer may update his technology if machinery is available at fair
rates and interest charges are low. Purchases will be made at lower level, if the recession trends are
clearly visible in the economy. An industrial purchaser will be cautions and careful in his buying
decisions so that decision will prove appropriate and will not bring loss to the organization. An
industrial purchaser will collect information about economic situation in the country and will take
appropriate decisions after analyzing such economic information. He has to give special attention to
economic environment while taking purchase decision.

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2. Organizational Factors: Organizational factors are internal factor affecting buying decision. Every
purchasing organization has certain objectives and goals, well accepted producer and system for
purchasing, and an appropriate organizational structure. These factors directly and indirectly influence
its purchase decision. These characteristics provide clues for determining buying decision. The
objectives of an organization influence the types of products it needs and the criteria by which it
evaluates supplies. Companies frames their procedures/policies for making purchase decision.
Government organization normally use bidding while making a purchase. Products specifications are
well established and suppliers have to submit bids as per the general notice. In the case of other
industrial purchasers may have different procedures for purchasing. Suppliers have to note the
procedural differences among the organizations as regards purchases procedures and adjust their
quotations, according structure assigns authority and responsibilities for decision making to job
positions across a company. Some companies assign authority for purchase decisions to purchase
managers while others do not. Informal relations among people (with the organization) in different
positions in a purchase organization can affect buying decisions. In many small family owned firms,
centralized structures are used. Purchase decisions require the family’s consent. This delays the
purchase decisions. In decentralized structure, quick decision is possible at the departmental level.
Policies like inventory holding and procedures such as payments or bidding also influence purchase
decisions of organizational buyers.
3. Inter-personal factors: Industrial buying decisions are normally collective and also as per the
procedures decided. The buying center involves several individuals with different formal authority,
status and persuasiveness. Buying center consists of individuals of the organization concerned with
purchase decision process. They share the risk arising out of it. They also have a common goal. There
is interaction among the members of a buying center as regards purchases to be made. There is also a
possibility of conflict among the members (of a buying center) in marketing buying decision. The
suppliers need to know about such conflicts in order to resolve them so that the marketing/purchasing
program can be adjusted accordingly. Conflicts among buying center participants need to be solved
promptly so that buying will be done promptly i.e. as per the production schedule prepared. A
knowledge of group dynamics helps the marketer to settle conflicts and early release of purchase order.
4. Individual buyers characteristics/individual factors: In the final analysis, individual factors play an
important role in buying decision. The other factors (environmental, organizational, etc.) are important
but individuals concerned with purchase decision are equally important. A supplier needs to have
complete details of all individuals involved in the purchase decision process. Personal factors/
characteristics include age, education, job position, maturity, etc. as these factors affect individual
perception, preference and motivation. Final decision is based on such factors even when their
importance is limited in the decision-making. In the final analysis, individual/officer are responsible
for taking buying decision far the organization. The make-up of these individual is a major factor

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 influencing buying decision. The supplier has to consider this factor and adjust his sales personnel's
accordingly. The industrial buyer may be assertive or may have co-operative attitude. The supplier’s
representative has to adjust with all types/ categories of industrial buyers in order to finalize purchase
deal.

4.4. Organizational Buying Situations,

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.
(Webster and Wind)

Straight rebuy

This situation is similar to repeat buying situations of consumer/household buying; in this buying situation,
only purchasing department is involved. They get information from inventory control department or section
to reorder the material or item and they seek quotations from vendors in an approved list. In this the buyer
keeps on placing the order on routine basis without changing any product specifications

The “in-suppliers” make efforts to maintain product and service quality. The “out-suppliers” have to make
efforts to get their name list in the approved vendors’ list and for this purpose they have to offer something
new or find out any issues of dissatisfaction with current suppliers and promise to provide better service.

Some typical characteristics of the routine buying situations are:

1. Routine purchasing procedures exist,

2. The buying alternatives are known, but a formal or informal list of `approved’ suppliers are available.
3. A supplier, not on list, is not considered.
4. Decision on each separate transaction is made by the purchasing department.
5. Buyers have relevant buying experience and require little new information

Modified rebuy

In a modified re-buy situation, a buyer may change the product specifications or may even change to a
substitute product for economic and performance considerations. Executives apart from the purchasing
department are involved in the buying decisions. The company is looking for additional suppliers or is
ready to modify the approved vendors list based on the technical capabilities and delivery capabilities.

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In this situation, some familiarity with either product or its performance expectations does exist. Some
characteristics of the modified re-buy situations are:

1. A regular requirement for the type of product exists.

2. The buying alternatives are known, but sufficient change has occurred to require some alteration to the
normal supply procedure.
3. Change may be stimulated by external events, e.g. inputs from supplying companies.
4. Change may be stimulated by internal events, e.g., new buying influences, value analysis,
reorganization

New task buys

In this situation, the buyer is buying the product for the first time. As the cost of the product or consumption
value becomes higher, more number of executives are involved in the process. The stages of awareness,
interest, evaluation, trial, and adoption will be there for the products of each potential supplier. Only the
products which pass all the stages will be on the approved list and price competition will follow
subsequently.

Some of the characteristics, for `new task’ situations are:

1. Need for the product has not arisen previously.

2. Little or no past buying experience is available to assist in the purchasing decision.
3. Members of the buying unit require a great deal of information.
4. Alternative ways of meeting the need are likely to be under review.
5. The situation occurs infrequently, but the decisions taken may set a pattern for more routine purchases
subsequently.
6. Opportunities exist at an early stage in the decision process for external (marketing) inputs to have an
influence on the final decision made.

Systems buy

A system buying is a process in which the organization gives a single order to a single organization for
supplying a full system. The buying organization knows that no single party is producing all the units in
the system. But it wants the system seller to engineer the system, procure the units from various vendors
and assemble, fabricate or construct the system.

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 4.5. Organizational Buyers’ Decision Process.

The Organizational Buying Process

Making B2B Buying Decisions

The organizational buying process contains eight

stages, which are listed in the figure below. 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. In virtually all situations, the organizational
buying process is more formal than the consumer
buying process.

It is also worth noting that B2B buying decisions tend

to be more information-intensive than consumer
buying decisions. As the marketing opportunity
progresses, buyers seek detailed information to guide
their choices. It is unlikely that a B2B buyer—in
contrast to a consumer—would ever make a final
buying decision based solely on the information they
see in a standard advertisement. The organization
buying process stages are described below.

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. Internal
stimuli can be a business problem or need that surfaces through internal operations or the actions of
managers or employees. External stimuli can be a presentation by a salesperson, an ad, information picked
up at a trade show, or a new competitive development.

General Need Description

Once they recognize that a need exists, the buyers must describe it thoroughly to make sure that everyone
understands both the need and the nature of solution the organization should seek. Working with engineers,
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users, purchasing agents, and others, the buyer identifies and prioritizes important product characteristics.
Armed with knowledge, this buyer understands virtually all the product-related concerns of a typical
customer.

From a marketing strategy perspective, there is opportunity to influence purchasing decisions at this stage
by providing information about the nature of the solution you can provide to address the the organization’s
problems. Trade advertising can help potential customers become aware of what you offer. Web sites,
content marketing, and direct marketing techniques like toll-free numbers and online sales support are all
useful ways to build awareness and help potential customers understand what you offer and why it is worth
exploring. Public relations may play a significant role by placing stories about your successful customers
and innovative achievements in various trade journals. (Note that the AirCanada video you just watched is
an example of this. The video was created by IBM and is offered as one of many “IBM client stories.”)

Product Specification

Technical specifications come next in the process. This

is usually the responsibility of the engineering
department. Engineers design several alternatives, with
detailed specifications about what the organization
requires. These specifications align with the priority
list established earlier.

Supplier Search

The buyer now tries to identify the most appropriate

supplier (also called the vendor). The buyer conducts a
standard search to identify which providers offer what
they need, and which ones have a reputation for good
quality, good partnership, and good value for the
money. This step virtually always involves using the
Internet to research providers and sift through product Six of the mirror segments for NASA’s James Webb
Space Telescope. The mirrors were built by Ball
and company reviews. Buyers may consult trade Aerospace & Technologies Corp., Boulder, Colorado
directories and publications, look at published case studies (written or video), seek out guidance from
opinion leaders, and contact peers or colleagues from other companies for recommendations.

Marketers can participate in this stage by maintaining well-designed Web sites with useful information and
case studies, working with opinion leaders to make advantageous information available, using content
marketing strategies to make credible information available in sources the buyer is likely to consult, and
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publishing case studies about customers using your products successfully. Consultative selling (also called
personal selling) plays a major role as marketers or sales personnel learn more about the organization’s
goals, priorities, and product specifications and provide helpful information to the buyer about the offerings
under consideration.

Proposal Solicitation

During the next stage of the process, qualified suppliers are invited to submit proposals. Depending on the
nature of the purchase, some suppliers send only a catalog or a sales representative. More complex
purchases typically require submission of a detailed proposal outlining what the provider can offer to
address the buyer’s needs, along with product specifications, timing, and pricing. Proposal development
requires extensive research, skilled writing, and presentation. For very large, complex purchasing decisions,
such as the solution sale described above, the delivery of a proposal could be comparable to a complete
marketing strategy targeting an individual customer. Organizations that respond to many proposals typically
have a dedicated proposal-writing team working closely with sales and marketing personnel to deliver
compelling, well-crafted proposals.

Supplier Selection

At this stage, the buyer screens the proposals and makes a choice. A significant part of this selection
involves evaluating the vendors under consideration. The selection process involves thorough review of the
proposals submitted, as well as consideration of vendor capabilities, reputation, customer references,
warranties, and so on. Proposals may be scored by different decision makers using a common set of criteria.
Often the selection process narrows down vendors to a short list of highest-scoring proposals. Then the
short-listed vendors are invited to meet with the buyer(s) virtually or in person to discuss the proposal and
address any questions, concerns, or gaps. At this stage, the buy may attempt to negotiate final, advantageous
terms with each of the short-listed vendors. Negotiation points may cover product quantity, specifications,
pricing, timing, delivery, and other terms of sale. Ultimately the decision makers finalize their selection and
communicate it internally and to the vendors who submitted proposals.

Consultative selling and related marketing support are important during this stage. While there may be
procurement rules limiting contact with buyers during the selection process, it can be helpful to check in
periodically with key contacts and offer any additional information that may be helpful during the selection
process. This phase is an opportunity for companies to demonstrate their responsiveness to buyers and their
needs. Being attentive during this stage can set a positive tone for how you will conduct future business.

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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. At this stage, the supplier typically works closely with the buyer
to manage inventories and deliver on agreement terms.

Performance Review

In this final stage, the buyer reviews the supplier’s performance and provides feedback. This may be a very
simple or a very complex process, and it may be initiated by either party, or both. The performance review
may lead to changes in how the organizations work together to improve efficiency, quality, customer
satisfaction, or other aspects of the relationship.

From a marketing perspective this stage provides essential information about how well the product is
meeting customer needs and how to improve delivery in order to strengthen customer satisfaction and brand
loyalty. Happy, successful customers may be great candidates for published case studies, testimonials, and
references for future customers. Dissatisfied customers provide an excellent opportunity to learn what isn’t
working, demonstrate your responsiveness, and improve.

Procurement Processes for Routine Purchases

As noted above, the complete eight-stage buying process describe here applies to new tasks, which typically
require more complex, involved purchasing decisions. For rebuys and routine purchases, organizations use
abridged versions of the process. Some stages may be bypassed completely when a supplier has already
been selected.
Organizations may also use e-procurement processes, in which an approved supplier has been selected to
provide a variety of standard goods at pre-negotiated prices. For example, an organization may negotiate
an e-procurement agreement with Staples that allows employees to order office supplies directly from the
company using an approval workflow in the ordering system. These systems help simplify the buying
process for routine purchases, while still allowing appropriate levels of approvals and cost controls for the
buyer.

Check Your Understanding

Answer the question(s) below to see how well you understand the topics covered in this outcome. This short
quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or
(2) move on to the next section.

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