Unit 4 – Organisational/Industrial Market

The business market is made up of those firms who purchase inventory or other assets from
suppliers in order to generate income. The firm may purchase raw materials to be used in
the production system or non-current assets in the case of a manufacturer. Alternatively,
reseller purchase finished goods which are resold to maximise profits. In the case of service
providers, the firm may purchase inventory or other assets in order to generate profits from
service providers.

The Industrial Buying Decision Behaviour

Business buyers face many decisions when making a purchase. The number of decisions
depend on the buying situation. The following are the three types of buying decision
behaviours:

1. Straight Rebuy Buying Behaviour:

This is a buying decision behaviour which is entirely based on previous orders; thus,
a routine-based decision is affected. There is low involvement in the purchase
decision and a low risk factor, since the order is based on past decisions. The
purchasing department is often responsible in formalising the order. In-suppliers
have the greatest opportunity to be confirmed as suppliers for the business provided
that business customers satisfaction is enhanced. Out-suppliers initially try to get a
small order and eventually build on it overtime.

2. Modified Rebuy Buying Behaviour:

This is a buying decision behaviour were some changes to the previous order are
being effected thus ensuring that there is more involvement in the purchase decision
and a superior risk factor. In-suppliers face challenges of out-suppliers who may be
able to offer the modifications requested by business customers.

3. New Tasks Buying Behaviour:

This buying behaviour concerns new orders were there are no past experiences.
Thus, there is high involvement in the purchase decision due to augmented risk
factor. Out-suppliers face the greatest opportunity to win the new order.

The Industrial Decision-Making Unit (DMU)

The industrial DMU or buying centre is made up of individuals who participate in the
purchase decision-making process with respect to choice of suppliers, type of inventory and
other assets to purchase. This is made up of seven distinct roles, each role carrying specific
objectives.
1. Initiators:
This role involves members who present the idea or who request that a new order is
affected. This role may involve any of the department concerns.

2. Users:
This involves people whose role is to utilise the inventory or other assets for marketing
purposes. In the case of manufacturers, users concern the production department due
to their expertise in the manufacturing processes, whereas in the case of resellers users
would be the sales department due to their contacts with final customers.

3. Buyers:
This concerns the purchasing department. Through their contacts, expertise and
negotiation skills purchasing department officials are often able to acquire convenient
prices, quality specifications, purchasing terms as well as delivery conditions.

4. Influencers:
This comprises those departments who give an input to the decision making through
their proficiency. This may include the marketing department, finance department,
research and development department, HR department, among others.

5. Deciders:
These are those individuals who take a final decision with regards to choice of suppliers,
type of inventory or other assets to purchase. This would often comprise higher
management.

6. Approvers:
Before the final decision is realised and implemented it is imperative to consult the
board of directors whose role is to evaluate approval.

7. Gatekeepers:
It is important to control the flow of information in and out of the enterprise.
Gatekeepers ensure that purchase decisions are taken in the best interest of the
organisation ensuring that there is no conflict of interest among members of the DMU.
Thus, the organisation must monitor the DMU’s behaviour, setting clear standards in
order to ensure that members of the DMU are not bias in anyway by suppliers, thus
tarnishing their professionalism, the firm’s financial performance and its reputation.

Influences on Business Buyers

Business buyers are subject to several influences when making buying decisions. The
following are the most relevant influences:
 1. Environmental Influences:
This comprises several important influences such as political and legislative
influences (local and foreign government influences through tax reforms and policies
set), economic factors (economic developments in a country would stimulate
demand for inventory or other assets), technological development (advances in
technology would influence the firm to purchase latest technology equipment and
design up to date inventory), socio-cultural trends (changes in people’s lifestyle
patterns command organisational purchase behaviour). Furthermore, it is important
to monitor competitors offers and environment awareness (sustainable marketing
strategy).

2. Purchasing System (Organisational Considerations):

Each buying organisation has specific objectives, policies, standards and systems.
This may take the form of a centralised purchasing system or a decentralised
purchasing system. A centralised purchasing system would ensure closer monitoring
of purchasing systems were decisions are taken by higher management. However,
this purchasing system may trigger job demotivation among assertive members of
staff and bureaucracy may lead to delays in decision making. In the case of a
decentralised purchasing system, delegation of authority is enhanced and lower
management levels are empowered to take decisions especially routine decisions.
This consideration ensures a speedy resolution as well as job motivation. Higher
management levels may then concentrate on major strategic decisions.

3. Inter-personal Influences:
The buying centre usually includes several participants with deferring interests,
authority, status, and persuasiveness. Information about the personalities and
teamwork abilities would be beneficial to the business marketer.

4. Personal Influences (Individual Influences):

Each participant within the buying process has personal motivations, perceptions
and preferences. Thus, it is important to understand the contribution that each
individual may provide to the organisation in order to ensure that decisions yield the
best result. These influences are determined by the influence’s determination, role
within the firm, personality, attitude towards risk, income and culture.

Organisational Buyer Process

This process is made up of eight distinct stages which the business buyer passes through
when purchasing inventory or other assets.

1. Problem/Need Recognition:
This stage evaluates the recognition to effect a new order. This may arise through
intrinsic stimulus (the DMU recognises the need to affect an order) and extrinsic
 stimulus (drive triggered by suppliers’ promotional efforts, other companies’
recommendations and online feedback).

2. General Need Description:

This stage evaluates the buying decision behaviour thus analysing whether the order is a
straight rebuy, a modified rebuy or a new task.

3. Product Specifications:
This stage outlines the major order recommendations with respect to pricing, quality
conditions, payment and delivery terms.

4. Supplier/s Search:
This stage enables the DMU to collect information about the possible suppliers who may
provide the firm with the inventory or other assets requested. Information may be
gathered following participation in international business firms, online search and other
companies’ recommendations.

5. Proposal Solicitation:
This stage enables the DMU to analyse the short-listed suppliers. The qualified suppliers
are often invited to submit written proposals and hold formal presentations. The aim is
to scrutinise the short-listed suppliers offers.

6. Supplier/s Selection:
Following intensive evaluation of qualified suppliers, the DMU selects that/those
supplier/s which best fit the organisation request.

7. Order-Routine Specifications:
Before the order is affected it is important to go through the order specifications with
the selected suppliers in order to tie up any loose ends and to ensure that suppliers are
aware of the requested order conditions.

8. Performance Review:
This stage enables the business buyer to verify the outcome of the purchase order. This
may be affected by internal and external review considerations. Internal review is
undertaken by the DMU immediately after the order is delivered. The DMU evaluates
whether in-suppliers have met the pre-agreed product specifications. External review is
a more elaborate process were the firm evaluates feedback collected from final
customers. The aim is to determine customer satisfaction and market share success.
Performance review enables the enterprise to decide whether to continue with present
suppliers and current orders or whether modifications become necessary. As a last
resort the organisation may consider dropping its current suppliers or changing it
purchase order completely.
The Industrial Market:
This market is made up of non-profit organisations (NPOs) and non-governmental
organisations (NGOs). The priority of these organisations is not to maximise profits but to
provide a service to the community. Examples include workers union, band clubs, social
groups as well as important institutions such as Selqa, Caritas, Appogg, prisons, University of
Malta, etc. NPOs and NGOs are often characterised by limited budgets and captive
audiences, thus, the DMU would often opt for the cheaper suppliers thus promoting
efficiency. Bureaucracy may lead to delays in decisions especially when a centralised
purchasing system is adopted.

The Government Market:

The government is considered to be the largest business buyer. Government spending is of
paramount importance to the economy of the country due to investment of the company,
creation employment and standard of living influences. Government spending should be
under public review and scrutiny in order to verify that funds are being spent for good
cause. Government departments must be account to the general publics by publishing
expenditure reports in parliament. It is important to note that there often much paperwork
involved when government expenditure is affected and suppliers may complain about much
bureaucracy. Delays in payment are not uncommon and suppliers may often have to wait
until the Treasury decides to realise the payment. This may lead to inconveniences
particularly due to the fact that investment costs and running costs have to be financed
from internal funding. Gatekeepers are particularly important since they would often have
to scrutinise the DMU’s evaluation of suppliers in order to ensure that conflict of interest
does not materialise. This may also lead to corruption were suppliers are selected in
accordance with politician’s personal interests. It is also important to note that government
projects may be partly or totally financed by the EU, thus the government is expected to be
accountable providing the necessary documentation in order to seek the EU’s commission
approval.

E-Procurement:
During the past few years advances in IT have changed the way firms communicate with
their suppliers as well as with fellow business customers. Online purchasing, often known as
e-procurement, has grown rapidly. Firms now find it easier to communicate with their
suppliers by utilising suppliers’ websites or other business trading sites where business
buyers may post their buying needs and invite bids, negotiating terms and placing orders.
Business buyers may also participate in online forums seeking recommendations about in
and out suppliers. Furthermore, business buyers may also communicate with their suppliers
and eventually process their orders.