CHAPTE R

12

ORGANIZATIONAL AND HOUSEHOLD DECISION MAKING

CHAPTER SUMMARY
Many purchasing decisions are made by more than one person. Collective decision making occurs whenever two or more people are involved in evaluating, selecting, or using a product or service. Marketers must be aware of this phenomenon if correct strategy is to be constructed. Organizational buyers are people who make purchase decisions on behalf of a company or other group. Although they are influenced by many of the same factors that affect how they make decisions in their personal lives, organizational buying decisions tend to be more rationally based. They are also likely to involve more financial risk, and as they become more complex, it is probable that a greater number of people will be involved in making them. The amount of cognitive effort that goes into organizational decisions is influenced by internal factors, such as individuals psychological characteristics and by external factors, such as the companys willingness to tolerate risk. One of the most important determinants is the type of purchase being considered: The extent of problem solving required depends on whether the product or service to be procured is simply to be reordered (a straight rebuy), is ordered with minor modifications (modified rebuy), or has never been purchased before or is complex and risky (new task). In organizations and in families, several different roles must be played during the decisionmaking process. These roles include initiator, gatekeeper (who determines the flow of information within the group), influencers, buyers, and users. The modern family is a complicated unit. The family can be extended (several generations) or nuclear (the mother, father, and children). A household is an occupied housing unit. The number and type of U.S. households is changing in many ways, including increasing movement by consumers to southern and western states, delays in getting married and having children, and in the composition of family households, which increasingly are headed by single parents. New perspectives on the family life cycle, which focuses on how peoples needs change as they move through different stages in their lives, are forcing marketers to more seriously consider such consumer segments as divorcees and childless couples when they develop targeting strategies. Families must be understood in terms of their decision-making dynamics. Product involvement, responsibility, and power must all be considered in the family decision-making process. Spouses

197

Chapter 12: Organizational and Household Decision Making in particular have different priorities and exert varying amounts of influence in terms of effort and power. Children are also increasingly influential during a widening range of purchase decisions. Children undergo a process of socialization, whereby they learn how to be consumers. Parents and friends instill some of this knowledge, but a lot of it comes from exposure to mass media and advertising. Because children are in some cases so easily persuaded, the ethical aspects of marketing to them are hotly debated among consumers, academics, and marketing practitioners.

CHAPTER OUTLINE
1. Introduction a. Purchase decisions often involve two or more people who may not have the same level of investment in the outcome, the same tastes and preferences, or the same consumption priorities. b. Collective decision making is where more than one person is involved in the purchasing process for products or services that may be used by multiple consumers. 2. Organizational Decision-Making a. Organizational buyers are people who purchase goods and services on behalf of companies for use in the process of manufacturing, distribution, or resale. 1) These individuals buy from business-to-business marketers, who specialize in meeting the needs of such organizations as corporations, government agencies, hospitals, and retailers. 2) Roughly, $2 trillion worth of products and services changes hands among organizationsmore than is purchased by end consumers. b. The organizational buyers perception of the purchase situation is influenced by a number of factors: 1) Expectations of the supplier. 2) The organizational climate of his/her own company. 3) The buyers assessment of his/her own performance. Organizational Decision-Making Versus Consumer Decision-Making c. Many factors have been identified to distinguish organizational and industrial purchase decisions from consumer decisions (where a product is purchased for personal use). Some of these differences are: 1) Purchase decisions frequently involve many people. 2) Products are often bought according to precise, technical specifications. 3) Impulse buying is rare. 4) Decisions are often of high risk. 5) Dollar volume of purchases is often substantial. 6) There is more emphasis on personal selling than on other types of promotion (especially in B2B relationships). How Do Organizational Buyers Operate? 198

Chapter 12: Organizational and Household Decision Making d. Like end consumers, organizational buyers are influenced by both internal and external stimuli. Cultural factors should also be considered by the organizational buyer. 1) The nature of the item to be purchased is one of the greatest influences on the organizational buyers decision-making process. a) Typically, more complex organizational decisions also tend to be made by a group of people (members of a buying center) who play different roles in the decision. 2) Organizational buying decisions can be divided into three types (which range from the most to the least complex). The classification scheme is called the buyclass theory of purchasing. Dimensions are: a) The level of information that must be gathered prior to making a decision. b) The seriousness of all possible alternatives. c) The buyers familiarity with the purchase. e. Types of decisions include: 1) A straight rebuy is like a habitual decision. This is an automatic decision (as in an inventory reorder). 2) A modified rebuy situation involves limited decision making. This is a repurchase with some minor modifications. 3) A new task involves extensive problem solving. This decision has not been made before and usually involves a team decision f. A number of specific roles are played when a collective decision must be made, either by members of a household or by individuals in an organizational buying center. The roles include: 1) Initiatorthe person with the idea or need. 2) Gatekeeperthe person who controls the flow of information to the group. 3) Influencerthe person who tries to sway the outcome of the decision. 4) Buyerthe one who makes the decision. 5) Userthe person who winds up using the product. B2B E-Commerce g. The Web is radically changing the way organizational buyers learn about and select products for their companies. 1) Business-to-business (B2B) e-commerce refers to Internet interactions between two or more businesses or organizations. 2) In the simplest form of B2B e-commerce, the Internet provides an online catalog of products and services needed by businesses. 3. The Family a. The typical American family is not necessarily one with two parents living with their children at home. Other forms of family units have emerged in the last decade. Defining the Modern Family b. Types of families include:

199

Chapter 12: Organizational and Household Decision Making 1) The extended family was once the most common family unit. It consisted of three generations living together and often included not only the grandparents, but aunts, uncles, and cousins. 2) The nuclear familya mother, father, and one or more childrenbecame the modern family. This, however, is no longer the realistic view of the family. 3) Today, a family household is defined as being at least two people who are related by blood or marriage. c. The overall demographics of the modern family: 1) More than 1 million couples divorce in a typical year. 2) Approximately 20 million children younger than 18 live with just one parent. In 84 percent of these cases, the mother is the primary parent. 3) The average family size is projected to be 2.5 people by 2010. 4) The fertility rate is determined by the number of births per year per 1,000 women of child-bearing age. This rate has climbed in recent years. d. There is a broad shift toward non-family and childless households. 1) Ironically, the traditional extended family is very much a reality. Many adults care for their parents as well as their children. 2) Middle-aged adults have been termed the sandwich generation because they must attend to those older and younger than them in age. 3) Many adults are surprised when children that have left home return to the nest. These boomerang kids seem to keep coming back (primarily because of economic conditions, failed marriages, or live-in failures). e. A familys needs and expenditures are affected by factors such as the number of people (children and adults) in the family, their ages, and whether one, two, or more adults are employed outside the home. 1) Two important factors that determine how a couple spends time and money are whether they have children and whether the woman works. f. Recognizing that family needs and expenditures change over time, the concept of the family life cycle (FLC) has been widely used by marketers. The FLC combines trends in income and family composition with the changes in demands placed on this income. 1) Four variables are important to the FLC. They are: a) Age. b) Marital status. c) The presence or absence of children in the home. d) Ages of children (if any). 2) It is obvious by studying the FLC that marked differences occur in the consumption patterns among the various categories. 4. The Intimate Corporation: Family Decision Making Household Decisions a. There are two basic types of decisions made by families: 1) In a consensual purchase decision, the group agrees on the desired purchase, differing only in terms of how it will be achieved.

200

Chapter 12: Organizational and Household Decision Making 2) In an accommodative purchase decision, group members have different preferences or priorities and cannot agree on a purchase that will satisfy the minimum expectations of all involved. b. Conflict occurs when there is not complete correspondence in family members needs and preferences. Although money is the most common source of conflict between marriage partners, television choices come in a close second. Factors include: 1) Interpersonal needs 2) Product involvement and utility 3) Responsibility 4) Power Sex Roles and Decision-Making Responsibilities c. Who wears the pants in the family? 1) When one family member chooses the product, this is called an autonomic decision. 2) Roper research services sees signs of a shift in marital decision making toward more compromise and turn taking. Syncratic decisions are made jointly. d. Researchers have paid special attention to which spouse plays the role of what has been called the family financial officer (FFO), who keeps track of the familys bills and decides how any surplus funds will be spent. This role changes and shifts over time. e. Four factors appear to determine the degree to which decisions will be made jointly or by one or the other spouse. They are: 1) Sex-role stereotypesmen buy masculine products and females buy feminine products. 2) Spousal resourcesthe spouse who contributes the most has the greater influence. 3) Experiencetime constraints and expertise establishes one decision maker. 4) Socio-economic statusmiddle-class families make more joint decisions. f. Despite recent changes in decision-making responsibilities, women still are primarily responsible for the continuation of the familys kin-network system. They perform the rituals intended to maintain ties among family members. g. The synoptic ideal calls for the husband and wife to take a common view and act as joint decision makers. One common technique for simplifying the decisionmaking process is the use of heuristics. Some frequently observed decision-making patterns include: 1) A couple reaches rather than makes a decision (i.e., focus on salient, objective dimensions rather than more subtle, hard-to-define cues). 2) A couple agrees on a system of task specialization. 3) Concessions based on intensity of each spouses preferences. 5. Children as Decision Makers: Consumers-in-Training

201

Chapter 12: Organizational and Household Decision Making a. Children are recognized as consumers that deserve attention. Children make up three distinct markets: 1) Primary market: Kids spend a lot on their own wants and needs. 2) Influence market: Parental yielding occurs when a parental decision maker is influenced by a childs request and surrenders. This is somewhat dependent on family dynamics. 3) Future market: The Web surfers or those who are taking increased responsibility at home because of working parents. Consumer Socialization b. Consumer socialization is defined as the process by which young people acquire skills, knowledge, and attitudes relevant to their functioning in the marketplace. 1) Parents influence in the socialization process is both direct and indirect. 2) The process begins with infants when they accompany their parents on shopping trips. c. Three dimensions combine to produce different segments of parental styles. 1) Authoritarian parentsrestrictive with negative view about ads. 2) Neglecting parentsdetached from kids and exercise little control. 3) Indulgent parentsless restrictive and want children to learn about buying. d. One of the strongest influences on children is television. It teaches children about cultures values and myths. Television is often called the electronic babysitter. Sex-Role Socialization e. Children pick up on the concept of gender identity at an earlier age than was previously believed (sometimes at age one or two). 1) One function of childs play is to rehearse for adulthood. 2) Often traditional sex roles are stressed in childrens products; the same item might be positioned and designed differently for boys and girls. Cognitive Development f. The ability of children to make mature, adult consumer decisions obviously increases with age (not that grown-ups always make mature decisions). 1) Kids can be segmented by age in terms of their stage of cognitive development, or ability to comprehend concepts of increasing complexity. 2) According to Swiss psychologist Jean Piaget, children pass through different cognitive structure stages. a) Limitedyounger than six, children do not employ storage and retrieval strategies. b) Cuedbetween six and twelve, children employ these strategies when prompted. c) Strategictwelve and older, people spontaneously employ these strategies. Marketing Research and Children g. Despite the buying power, relatively little real data on childrens preferences or influences on spending patterns is available. 1) Children are difficult subjects for research. 2) A particularly helpful type of research with children is product testing.

202

Chapter 12: Organizational and Household Decision Making 3) Because children differ in their abilities to process product-related information, many serious ethical issues are raised when advertisers try to appeal directly to children. 4) Kids cognitive defenses are not yet sufficiently developed to filter out commercial appeals. Today, Web sites are of concern to regulators. 5) Childrens levels of understanding are especially hard to assess, because preschoolers arent very good at verbal responses.

203