Organisational buying behaviour
Another name for organisational buying behaviour is business buying behaviour. Organisational buying behaviour is a process that businesses go through to purchase all the products and services needed for their operations. It is the behaviour that organizations have while purchasing products or services that they may purchase for resale, reproduction, or the organization’s operations.
Organisational/Business/Industrial buyers are the entities (individuals, manufacturers, producers or other organisations), involved in buying goods and services to produce new goods and services. These buyers sell, rent or supply the produced goods and services to others. The process of determining needs for buying products and services and selecting the most suitable supplier or brand from available alternatives through identifying and evaluating them is called organisational buying, business buying or industrial buying. The buying approaches are different for different businesses or organizations. However, the sellers try to identify and explore common buying methods and processes to develop suitable marketing as well as targeting strategies.
Understanding the phenomena and characteristics of industrial buying behaviour is crucial for organisational marketers to develop suitable target marketing strategies to attract organisational buyers. This involves exploring the buying situations, the process of buying for making buying decisions, the way different members of the organisation affect these buying decisions, the criteria used in making such decisions, etc. Purchase managers need to communicate with different people in the organisation having a variety of responsibilities, to design criteria. Generally, normal consumers are dispersed in a geographical area, whereas organisational buyers are a group of individuals who exhibit similar yet derived demand. Therefore, it is very challenging to understand organisational buying behaviour as a group of decision-makers are associated with it.
Organisational buying behaviour characteristics
The nature of industrial buying behaviour is given below:
1) Formal Activity: The technical complexities of industrial buying have high monetary values, but still it has to follow all the formal procedures of the organisation. The organisation adheres to certain policies even in times of emergency and suppliers must know these policies. All the decisions made during industrial buying take the form of a contract, where the parties to the contract are suppliers and buyers.
2) Multiperson Buying Activity: Industrial buying behaviour is a very complex process because it involves interactions among people, e.g., the buying process of industries or organisations such as hospitals, government organisations, educational institutions, etc. The people who participate in these buying decisions may be from many departments like, production, purchase, design, maintenance, etc., and these people may also have different educational qualifications such as engineers, business graduates, etc. Other than that, these people may also be from different hierarchical levels in the organisation ranging from front-line staff to senior-level managers. The people involved in the buying situation may also adopt different roles in the buying process. This concept of varied roles in the buying process is known as the ‘Buying Centre’.
3) Longer Time Lag between Efforts and Results: Since industrial buying behaviour is complex and involves the interaction of many people, they take a comparatively longer time than individual buying. Thus there is a great time lag between the initiation of the marketing effort and the actual buying taking place. The marketer needs to have a good idea of the time lag in getting the response from the customers; otherwise, he may end up doing impractical planning.
4) Uniqueness of Organisations: Several commonalities exist in the industrial buying processes, yet no two organisations possess the same behaviour and make the same decisions. This is because there is a wide divergence concerning the buying situations, resources, capabilities of the organisations, the suppliers and their relationships, etc. Hence, it is very important to consider every organisational buyer as a separate entity in the process of industrial selling.
5) Rational yet Emotional Activity: Industrial buying is a formalised process with very clear rules and procedures, yet it cannot be said that it is an unemotional or a rational process. The reason behind this is the entities that carry out the industrial buying i.e., human beings. Therefore, human characteristics can also impact the activities of industrial buying, such as buying raw materials, commodities, standard products, components, etc.
Decision Approach and Purchase Patterns
Organisational buying behaviour differs from individual consumer buying behaviour in many ways. These are as follows:
1) Less Frequent Purchases: The frequency of purchase in organisational buying is lesser than in the individual buying process. An organisation which buys capital goods typically uses it for a considerable time. Similarly, other items that are bought like computer hardware, photocopying machines etc., are also purchased once a month. The raw material that is consumed in the production process is used continuously but the purchase is usually made on an annual contract. These are negotiated once and are in motion for a certain period.
2) Reciprocity: Organisations often get into a reciprocal agreement with each other. For example, an organisation that makes software may have a reciprocal agreement with a company that is in the computer hardware trade. This results in an agreement which is mutually beneficial for both types of organisations.
3) Formality: The buying behaviour of organisations is typically much more complex. The process is much more technical and the degree of financial risk is also much higher. As a result, the buying process is very formal. There is much more documentation, tendering and quotation involved in an industrial buying process.
4) Negotiations: The process of buying also involves protracted negotiations between the buyers and sellers.
Some of the main reasons for negotiating are given below:
i) Since the product that is being bought is very complicated, the specifications and details are very important.
ii) The ticket size of the order is large and the price also plays a very important role in the buying process.
iii) The number of parties that are involved in a buying process is also many. In the opinion of Paul Dion and Peter Banting, there is a certain degree of cooperation that is shown in the negotiation process between the purchasing and the selling entity.
5) Service: Organisational buying also often requires the provision of add-on services like free installation. demonstration, after-sales services, etc.
Market Structure and Pattern of Demand
Organisational buying behaviour also differs from individual buying behaviour in terms of the nature and spread of the demand. The main points of difference are given as follows:
i) Geographical Concentration: In contrast to individual buyers, organisational buyers tend to be concentrated in a smaller geography. For example, the Indian IT industry is dominated by the Southern states. Hence, most of the buying of the IT industry happens in these states.
ii) Fewer but Larger Buyers: In terms of the number of buyers, individual buyers are typically huge in number. Organisational buyers are typically much fewer in number. Organisations may be fewer in number but the amount of orders placed by them is huge. In the automobile industry, there are only a few manufacturers. However, these manufacturers place orders for a huge number of tyres. In the same consumer buying context, organisations have millions of customers who will need components like tyres. Similarly, there are very few players in the computer manufacturing industry but these companies require Intel or AMD processors in huge numbers.
iii) Derived Demand: The demand in organisational buying is a derived demand. This is because organisations demand products which are used in the manufacture of products for consumer buying. For example, a branded computer is bought by a consumer. However, a computer can be manufactured from hardware like keyboards, monitors etc., and also software. The demand for these components is a function of consumer demand. If the consumer demand falls, then the demand for these other products will also reduce.
iv) Demand is Inelastic: The demand for organisational products is also largely not influenced by price. The increase or decrease in the price of the product does not significantly impact the demand for the product. This is in stark contrast to consumer demand which is severely impacted by any price volatility.
v) Joint Demand: Organisational products can also be complementary. In other words, they can be used along with other products. This leads to a certain joint demand where the demand for one product increases the demand for the other product as well.
For example, the petroleum industry also requires additives in the form of octane and boron. An increase in the demand for petroleum will also increase the demand for these additives.
vi) Fluctuating Demand: Organisational demand can be quite volatile, unlike consumer demand which is quite stable. In many ways, the demand for organisational products is a direct function of the state of the economy. In a state of growth, the demand for organisational products tends to go up whereas the reverse happens when the economy is not doing so well.
Objectives of Organisational Buying Behaviour
The industrial buying process is handled by the procurement unit. This department is governed by the overall strategy of the organisation and also by the specific rules which the department has laid down for itself.
Organisational buying has the following key objectives:
1) Non-Task Objectives: These objectives should be used by the procurement department of a company to achieve the task-related objectives. Transparent and non-discriminatory policies, answerability of management, and proficiency in the process of procurement are some examples of non-task objectives
The procurement process should not favour any particular supplier or a group of suppliers. It should also not be biased towards any supplier and should conduct the entire process fairly and equitably. The efficiency of the procurement unit affects the efficiency of the whole organisation. Hence, the procurement department should function effectively by acquiring the required resources of the best possible quality in the stipulated time. This also helps in building the brand image of the company for example. successful brands like Maruti differentiate themselves in the marketplace through their efficient and transparent procurement policies.
2) Objectives: The task-based objectives of the procurement department are determined to achieve the following specific objectives of the organisation:
i) Cost: Keeping control over the cost of acquisition is one of the important facets of the procurement process. This can be done by ensuring that the procurement of the right product of the right quality, in the right quantity is done at the right time, and from the right source. In this process, the procurement department identifies the suppliers who meet their standards and then negotiates the rate at which the raw material will be supplied. In this manner, the procurement team delivers the maximum value to the company.
ii) Quality: The next important task for the procurement unit is to control the quality. This can be ensured by supervising that the manufacturing of products is done by using the best quality raw materials. The quality specifications are usually set by the end-user or the production department, while the procurement department makes sure that these standards are being met. The procurement department also undertakes value analysis of all the alternatives so that the best among them can be selected such that the quality of the end product is not compromised in any case.
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