Dr. S. Borna

MBA 671MBA 671

ObjectivesObjectivesObjectivesObjectives

How Business & Consumer Markets DifferHow Business & Consumer Markets Differ Organizational Buying SituationsOrganizational Buying Situations Participants in the Business Buying Participants in the Business Buying

ProcessProcess Major Influences on Organizational BuyersMajor Influences on Organizational Buyers Business Buyer Decision MakingBusiness Buyer Decision Making Institutional & Government BuyingInstitutional & Government Buying

Organizational Organizational BuyersBuyers

ManufacturesManufactures

RetailersRetailersBanking, Finance andBanking, Finance andInsuranceInsurance

ConstructionConstruction

WholesalersWholesalers

Farms, Forestry,Farms, Forestry,FisheriesFisheries

CommunicationsCommunications

Mining and Mineral Mining and Mineral OperationsOperations

ServiceService

Governmental Governmental unitsunits

BUSINESS ORGANIZATIONSBUSINESS ORGANIZATIONS

Industrial Buying -a Industrial Buying -a definitiondefinition

Industrial buying refers to the Industrial buying refers to the buying activities of buying activities of organizations that purchase organizations that purchase products and services for products and services for

further production, for use infurther production, for use in

operation, and for resale . operation, and for resale .

A Micro View of Organizational A Micro View of Organizational Buying BehaviorBuying Behavior

Decision-making process Decision-making process that organizations go that organizations go through when deciding through when deciding what to buy.what to buy.

A Macro View of Organizational A Macro View of Organizational Buying BehaviorBuying Behavior

1.1. Classification of Classification of

organizational customersorganizational customers

and their characteristics.and their characteristics.

2. 2. Classification of goods Classification of goods and services purchasedand services purchased by organizational by organizational customers and customers and

marketing considerations marketing considerations involved in selling them.involved in selling them.

Differences between organizational Differences between organizational and consumer marketsand consumer markets

Derived demandDerived demandRelatively inelastic demandRelatively inelastic demandMore erratic More erratic More cyclicalMore cyclical

Demand characteristicsDemand characteristics

Buyer- Seller RelationshipsBuyer- Seller Relationships

Use of professional buying Use of professional buying specialists following specialists following prescribed proceduresprescribed procedures

Close buyer-seller Close buyer-seller relationshipsrelationships

Presence of multiple buying Presence of multiple buying influencesinfluences

Business vs. Consumer Business vs. Consumer MarketsMarkets

Business vs. Consumer Business vs. Consumer MarketsMarkets

Fewer buyersFewer buyers Larger buyersLarger buyers Close supplier-customer relationshipClose supplier-customer relationship Geographically concentratedGeographically concentrated Derived demandDerived demand Inelastic demandInelastic demand Fluctuating demandFluctuating demand

Business vs. Consumer Business vs. Consumer MarketsMarkets

Business vs. Consumer Business vs. Consumer MarketsMarkets

Professional purchasing Professional purchasing Several buying influencesSeveral buying influences Multiple sales callsMultiple sales calls Direct purchasingDirect purchasing ReciprocityReciprocity LeasingLeasing

Buying Decisions Made ByBuying Decisions Made ByBusiness OrganizationsBusiness Organizations

• Straight RebuyStraight Rebuy• Modified RebuyModified Rebuy• New TaskNew Task

Participants in the Business Participants in the Business Buying ProcessBuying Process

Participants in the Business Participants in the Business Buying ProcessBuying Process

Gatekeepers

Initiators

Buyers

Influencers

Deciders

Users

Approvers

Who makes organizational Who makes organizational purchase decisions? purchase decisions?

who is the decision-making unit?who is the decision-making unit?

buying centerbuying centerindividualindividual

Key Questions to AskKey Questions to Ask

1. Which individuals in the 1. Which individuals in the

buying center are buying center are

responsible for my responsible for my

products?products?

2. What is the relative 2. What is the relative

influence of each member influence of each member

in this group?in this group?

3. What are the decision 3. What are the decision

criteria of each member?criteria of each member?

Key QuestionsKey Questions

Major Influences on Industrial Major Influences on Industrial Buying BehaviorBuying Behavior

Major Influences on Industrial Major Influences on Industrial Buying BehaviorBuying Behavior

•Level ofdemand

•Economicoutlook

•Interest rate•Rate of techno-logical change

•Political andregulatorydevelopments

•Competitivedevelopments

•Social responsi-bility concerns

Environmental

•Objectives

•Policies

•Procedures

•Organizationalstructures

•Systems

Organizational

•Interests

•Authority

•Status

•Empathy

•Persuasive-ness

Interpersonal

•Age•Income•Education•Job position•Personality•Risk attitudes•Culture

Individual

BusinessBuyer

Major Factors influencingMajor Factors influencing Business BuyersBusiness Buyers

• EconomicEconomic• EnvironmentalEnvironmental• OrganizationalOrganizational• InterpersonalInterpersonal• PersonalPersonal

Organizational Factors:Organizational Factors:

Organizational orientation Organizational orientation centralization, policies, centralization, policies, procedures, decentralized procedures, decentralized purchasing of small itemspurchasing of small items

etc.etc.

InterpersonalInterpersonalFactorsFactors

(Note: buying center and(Note: buying center and type of group dynamicstype of group dynamics taking place during the buying decision process)taking place during the buying decision process) authority, status, interestsauthority, status, interests of group members.of group members.

Individual Factors:Individual Factors:Education, Age, Cultural BackgroundEducation, Age, Cultural Background

individualbuyersneeds

companiesneeds

job securityjob security

moneymoney overlap in needsoverlap in needs

growthgrowth

innovationinnovation

Examples of Individual & Org. Examples of Individual & Org. GoalsGoals

Personal Goals:Personal Goals:

Wants a feel of power, seeks personal Wants a feel of power, seeks personal pleasure, desires job security, wants pleasure, desires job security, wants respect.respect.

Organizational Goals:Organizational Goals:

Control costs, few breakdowns of Control costs, few breakdowns of products, cost within budget limit.products, cost within budget limit.

Organizational Purchase Organizational Purchase Decision-Decision-MakingMaking Process Process

Problem RecognitionProblem Recognition

General Need DescriptionGeneral Need Description

Product SpecificationProduct Specification

Supplier SearchSupplier Search

Proposal SolicitationProposal Solicitation

Supplier SelectionSupplier Selection

Order Routine SpecificationOrder Routine Specification

Performance ReviewPerformance ReviewPostPost

PurchasePurchase

PurchasePurchase

InfoInfoSearch/Search/

EvalEval

NeedNeedRecognitionRecognition

(Bu

y Ph

ases)(B

uy P

hases)

Buy classesBuy classes

New taskNew task ModifiedModifiedRebuyRebuy

StraightStraightRebuyRebuy

bbuuyypphhaasseess

1.Need Recog.1.Need Recog.2.Need Desc.2.Need Desc.3.Product Spec.3.Product Spec.4.Supplier Search4.Supplier Search5.Proposal Soli.5.Proposal Soli.6.Supplier selec.6.Supplier selec.7.Order routine 7.Order routine specificationspecification8. Performance 8. Performance ReviewReview

Yes Maybe NoYes Maybe NoYes Maybe NoYes Maybe NoYes Yes YesYes Yes YesYes Maybe NoYes Maybe NoYes Maybe NoYes Maybe NoYes Maybe NoYes Maybe Noyes Maybe Noyes Maybe No

Yes Yes YesYes Yes Yes

Combining buy phases with buy classesCombining buy phases with buy classes

ReviewReviewReviewReview

How Business & Consumer Markets DifferHow Business & Consumer Markets Differ Organizational Buying SituationsOrganizational Buying Situations Participants in the Business Buying Participants in the Business Buying

ProcessProcess Major Influences on Organizational BuyersMajor Influences on Organizational Buyers Business Buyer Decision MakingBusiness Buyer Decision Making Institutional & Government BuyingInstitutional & Government Buying