ii semester m.com paper 2.6: business marketing as per

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G F G College Magadi Chandraprabha G V Assistant professor of Commerce

II semester M.Com

Paper 2.6: Business Marketing

As per Bangalore university syllabus

Content: Study Material of second half of Module – 1:

Organisational Buying and Buying Behaviour Organisational Buying Decision Process;

Buying Situations;

Buy grid Frame Work;

Buying Centre Roles;

Key Members of Buying Centre.

Models of organizational Buying Behaviour;

The Webster and Wind Model;

The Sheth Model.

By, CHANDRAPRABHA. G.V

M.Com, M.Phil.,

ASSISTANT PROFESSOR OF COMMERCE,

DEPARTMENTOF COMMERCE,

GOVERNMENT FIRST GRADE COLLEGE MAGADI,

RAMNAGAR DIST.

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2.6 BUSINESS MARKETING

Organisational Buying and Buying Behaviour:

Organizational Buying Behaviour is a complex decision-making and communication process

involving selection and procurement of product and services by organizational

buyers.Organizational behavior refers to the buying behavior of organizations that buy

products for business use, resell or to make other products. Organizations consist of

business, industries, retailers, government, and non-government organizations

Characteristics of Organizational Buying:

1. Timing Complexity. ...

2. Technical Complexity. ...

3. Organizational Complexity. ...

4. Individual Factors. ...

5. Organizational Factors. ...

6. Business Environment

Characteristics of Organizational Buying:

B2B purchasing decisions include levels of complexity that are unique to organizations and

the environments in which they operate.

1. Timing Complexity: The organizational decision process frequently spans a long

period of time, which creates a significant lag between the marketer’s initial contact

with the customer and the purchasing decision. In some situations, organizational

buying can move very quickly, but it is more likely to be slow. When personnel

change, go on leave, or get reassigned to other projects, the decision process can

take even longer as new players and new priorities or requirements are

introduced. Since a variety of factors can enter the picture during the longer decision

cycles of B2B transactions, the marketer’s ability to monitor and adjust to these

changes is critical.

2. Technical Complexity: Organizational buying decisions frequently involve a range

of complex technical dimensions. These could be complex technical specifications of

the physical products, or complex technical specifications associated with services,

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timing, and terms of delivery and payment. Purchases need to fit into the broader

supply chain an organization uses to operate and produce its own products, and the

payment schedule needs to align with the organization’s budget and fiscal plans. For

example, a purchasing agent for Volvo automobiles must consider a number of

technical factors before ordering a radio to be installed in a new vehicle model. The

electronic system, the acoustics of the interior, and the shape of the dashboard are

a few of these considerations.

3. Organizational Complexity: Because every organization is unique, it is nearly

impossible to group them into precise categories with regard to dynamics of buying

decisions. Each organization has a characteristic way of functioning, as well as a

personality and unique culture. Each organization has its own business philosophy

that guides its actions in resolving conflicts, handling uncertainty and risk, searching

for solutions, and adapting to change. Marketing and sales staff need to learn about

each customer or prospect and how to work with them to effectively navigate the

product selection process.

4. Unique Factors Influencing B2B Buying Behavior: Because organizations are

made up of individual people, many of the same influencing factors discussed earlier

in this module apply in B2B settings: situational, personal, psychological, and social

factors. At the same time, B2B purchasing decisions are influenced by a variety of

factors that are unique to organizations, the people they employ, and the broader

business environment.

5. Individual Factors: B2B decisions are influenced by characteristics of the individuals

involved in the selection process. A person’s job position, tenure, and level in the

organization may all play a role influencing a purchasing decision. Additionally, a

decision maker’s relationships with peers and managers could lead them to exert

more–or less–influence over the final selection. Individuals’ professional motives,

personal style, and credibility as a colleague, manager, or leader may play a role. To

illustrate, a new department head might want to introduce an updated technology

system to help her organization work more productively. However, her short time in

the role and rivalry from other department heads could slow down a buying decision

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until she has proven her leadership capability and made a strong case for investment

in the new technology.

6. Organizational Factors: Purchasing decisions, especially big-ticket expenditures,

may be influenced by the organization’s strategies, priorities, and performance.

Generally the decision makers and the providers competing for the business must

present a compelling explanation for how the new purchase will help the organization

become more effective at achieving its mission and goals. If a company goes through

a quarter with poor sales performance, for example, the management team might

slow down or halt purchasing decisions until performance improves. As suggested

above, organizational structure plays a central role determining who participates in

the buying process and what that process entails. Internal organizational politics and

culture may also impact who the decision makers are, what power they exert in the

decision, the pace of the buying process, and so forth. An organization’s existing

systems, products, or technology might also influence the buying process when new

purchases need to be compatible with whatever is already in place.

7. Business Environment: B2B purchasing is also influenced by factors in the external

business environment. The health of the economy and the company’s industry may

determine whether an organization chooses to move ahead with a significant

purchase or hold off until economic indicators improve. Competitive pressures can

create a strong sense of urgency around organizational decision making and

purchasing. For instance, if a leading competitor introduces a compelling new product

feature that causes your organization to lose business, managers might be anxious

to move forward with a project or purchase that can help them regain a competitive

edge. When new technology becomes available that can improve products, services,

processes, or efficiency, it can create demand and sales opportunities among

companies that want the new technology in order to compete more effectively.

Government and the regulatory environment can also influence purchasing decisions.

Governmental organizations often have very strict, highly regulated purchasing processes

to prevent corruption, and companies must comply with these regulations in order to win

government contracts and business. Similarly, lawmakers or governmental agencies might

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create new laws and regulations that require organizations to alter how they do business—

or face penalties. In these situations, organizations tend to be highly motivated to do

whatever it takes, including purchasing new products or altering how they operate, in order

to comply.

Organizational Buying Decision Process:

Organizational buying behavior refers to the process of how companies or organizations

buy goods and services. Organizational Buying is not an easy activity as most people think

of it.

Stage 1 – Problem Recognition:

The first stage of the business buying process in which someone in the company recognizes

a problem or need that can be met by acquiring a good or a service.

The purchasing/buying process begins when someone in the company recognises a

problem or need that can be met by acquiring goods or services.

The common events that lead to this phase could be:

i. The company decides to develop a new product and needs new equipment and materials

to produce this product.

ii. It decides to diversify or expand and hence requires a multitude of new suppliers.

iii. Purchasing Manager assesses an opportunity to obtain lower prices or better quality.

iv. A machine breaks down and requires replacement or new parts.

v. Purchased materials turn out to be unsatisfactory and the company searches for another

supplier.

Early emolument in the new task/problem recognition phase offers the marketer an

advantage over competitive suppliers.

Stage 2: Description of the need:

This phase involves determination of the characteristics and quantity of the needed item.

The general characteristics could be reliability, durability, price etc. and the marketer along

with the purchasing manager, engineers and users can describe the needs.

The questions that could be posed are:

i. What performance specifications need to be met?

ii. What types of goods and services should be considered?

iii. What are the application requirements? and

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iv. What quantities would be needed?

The answers to such questions will give the marketer a general description of the need

which will be the input for the next phase.

Stage 3 – Product Specification:

At this stage of the business buying process buying organization decide on the product and

specifies the best technical product characteristics for a needed item.

Obtaining the input from the second phase, the buying organisation has to develop the

technical specifications of the needed items. In this phase, the product is broken down into

items. The items in turn are sorted into standard ones and new ones which need to be

designed.

The specifications for both are listed. As a marketer, he must involve himself and his

technical and financial counterpart to determine the feasibility and also to elaborate the

services they can offer to develop and supply the product. Unless it is a known supplier

many companies do not encourage the supplier participation at this stage. Customer

relationship plays a vital role here.

Here is an example of how the supplier firm can help the buyer firm in this phase.

Toyota Motor Corporation wanted to make a ‘thinking car’ which could learn, memorise and

react to inputs from the human environment. They found Sony Corporation had developed

a mechanical dog displaying these features.

They involved Sony in the design of the car and evolved a ‘pod’ which was displayed at the

35th Tokyo Motor Show. It is yet to be manufactured for the general public. Pod can

exchange information with other vehicles, gauge the drivers’ skill level; understand the

drivers’ mood etc. Instead of a steering wheel, it has a joystick.

Sony Corporation was involved with Toyoto Motor right from the design stage and its inputs

were individual components styling the portable terminal, interior displays, joystick and

development of ECU (Emotional Communication Unit) for expressing emotions.

When LML’s Kanpur facility was designing and developing ‘Freedom’, a 100 cc bike, it

employed the services of several companies for designing and supply of many parts. Sriram

supplied piston, Borg Warner of Germany supplied the cam chain, Daclin designed and

supplied the frame and MRF was called in to develop tyres. The British firm Prodrine

provided the technological inputs for changes in the gear system.

Stage 4: Supplier Search:

This phase pertains to the search for the qualified suppliers among the potential sources.

The marketer has to ensure that he is in the list of potential suppliers. For this to happen, he

has to make periodic visits to all potential companies and create awareness. Brochures have

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to be circulated and advertisements placed in specific media like trade journals. This phase

only involves making a list of qualified suppliers.

Stage 5: Proposal Solicitation:

The lists of qualified suppliers are now further shortened based on some critical factors. For

example, if the buyer is not willing to try any new firm which has not been in the market for

more than three years, it can delist those suppliers. Then the purchasing departments ask

for proposals to be sent by each supplier.

After evaluations, based on the specified criteria, some firms are asked to come over for

formal presentations. The proposal must include product specification, price, delivery period,

payment terms, taxes of experts and duties applicable, transportation cost, cost of transit

insurance and any other relevant cost or free service provided. For purchase of routine

products or services, phases 4 and 5 may occur simultaneously as the buyer may contact

the qualified suppliers to get the latest information on prices and delivery periods.

For technically complex products and services, a lot of time is spent in analysing proposals

in terms of comparison on products services, deliveries and the landed cost.

A leading MNC which manufactures soaps requires the would be suppliers to pass through

three stages: that of a qualified supplier, an approved supplier and a select supplier. To

become qualified, the supplier has to demonstrate technical capabilities, financial health,

cost effectiveness, high quality standards and innovativeness.

A supplier that satisfies these criteria then applies sample lot for approval. Once approved,

the supplier becomes a ‘select supplier’ when it demonstrates high product uniformity,

continuous quality improvement and JIT delivery capabilities.

Stage 6: Supplier Selection:

Each of the supplier’s presentations are rated according to certain evaluation models. The

buying organisation may also attempt to negotiate with its preferred suppliers for better

prices and terms before making a final decision.

Stage 7: Order Routine Specification:

After the suppliers have been selected, the buyer negotiates the final order, listing the

technical specifications, the quantity needed, the expected time of delivery, return policies,

warranties etc. In case of maintenance, repair and operating items, buyers are increasingly

moving towards blanket contracts rather than periodic purchase orders.

Blanket contracting leads to more single sources buying and ordering of more items from

that single source. This system brings the supplier in closer with the buyer and makes it

difficult for out-suppliers to break in unless the buyer becomes dissatisfied with the in-

suppliers’ prices, quality or service.

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SKF India, the Swedish multinational manufacturing bearings in Pune and Bangalore, was

the single source supplier of ball bearings to TVS Motor Company, located at Padi in

Chennai.

Stage 8: Performance Review:

The final phase in the purchasing process consists of a formal or informal review and

feedback regarding product performance as well as vendor performance. The buyer may

contact the end user and ask for their evaluations which are in turn given to the supplier or

he may rate the supplier on several criteria using a weighted score method or the buyer

might also aggregate the cost of poor supplier performance to come up with adjusted costs

of purchase including price.

The performance review might lead to the buyer to continue, improve or drop a supplier. It

is essential for a marketer to have a good relationship and always follow up any customer

complaints as soon as possible. More than the defects and problems faced by the buyers in

the product, it is the attitude of the supplier which is seen more in focus.

Buying Situations:

A buying situation relates to the circumstances surrounding a purchase that can be defined

by the quality of information and experience that the buyer has concerning the products and

vendors available, as well as the effort it will take to make the purchase decision.

Straight rebuy is the situation under which the buyers are engaging in the routine purchase

of standard products from a familiar supplier where you don’t make any modifications from

the most recent order.

A perfect example is ordering some boxes of copier paper, pens and pencils from your office

supplier. It doesn’t take much effort except to confirm the sales order has been satisfied.

Modified rebuy is the situation where the purchaser is going to buy a similar product but

there is a significant difference in the purchase from the previous purchase. The difference

may include a change in the product specifications or a new supplier.

An example may be switching to a different type of software provided by a different vendor.

This buying situation involves more effort because you are going to have to research product

specifications and evaluate vendors, as well as possibly negotiate new contracts.

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Buy Grid Frame Work:

In 1967, the Canadian, American and Israeli marketing researchers, Robinson, Faris and

Wind, introduced the buy grid framework as a generic conceptual model for buying

processes of organisations.

They saw industrial buying not as single events, but as organizational decision making

processes where multiple individuals decide on a purchase. Their framework consists of a

matrix of buy classes and buy phases.

The buy classes are:

1. New Tasks:

The first-time buyer seeks a wide variety of information to explore alternative purchasing

solutions to his organizational problem. The greater the cost or perceived risks related to

the purchase, the greater the need for information and the larger the number of participants

in the buying centre.

2. Modified Rebuy:

The buyer wants to replace a product the organisation uses. The decision making may

involve plans to modify the product specifications, prices, terms or suppliers as when

managers of the company believe that such a change will enhance quality or reduce cost.

In such circumstances, the buying centre proved to require fewer participants and allow for

a quicker decision process than in a new task buyclass.

3. Straight Rebuy:

The buyer routinely reorders a product with no modifications. The buyer retains the supplier

as long as the level of satisfaction with the delivery, quality and price is maintained. New

suppliers are considered only when these conditions change.

The challenge for the new supplier is to offer better conditions or draw the buyer’s attention

to greater benefits than in the current offering.

4. The buy phases are:

Based on field research, Robinson, Faris and Wind divided the buyer purchase process into

eight sequential, distinct but interrelated buyphases:

(i) Recognition of the organizational problem or need.

(ii) Determination of the characteristics of the item and the quantity needed.

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(iii) Description of the characteristics of the item and the quantity needed.

(iv) Search for and qualification of potential sources.

(v) Acquisition and analysis of proposals.

(vi) Evaluation of the proposals and selection of suppliers.

(vii) Selection of an order routine.

(viii) Performance feedback and evaluation.

The most complex buying situations occur in the upper left quadrant of the buy grid matrix

where the largest number of decision makers and buying influences are involved. A new

task that occurs in the problem recognition phase (1) is generally the most difficult for

management.

The buying process can vary from highly formalized to an approximation depending on the

nature of the buying organisation, the size of the deal and the buying situation.

The relationship between the buyer and seller is initiated in phases 1 and 2. Assessing the

buyer’s needs and determining gaps between the current and desired situation is important.

Buyers need assistance in forming realistic perceptions of both the current and the desired

situation.

The relationship needs to be developed during phases 3 to 7. A sales person must be aware

that a buyer not only has functional needs, but psychological, social, knowledge and

situational needs as well.

These components should be addressed in meetings in order to obtain commitment. The

purchase can be a one-time transaction of a repetitive nature. When there are multiple

deliveries, the supplier and buyer must agree on an order routine.

As buyphases are completed, the process of ‘creeping commitment’ occurs and reduces the

likelihood of new suppliers gaining access to the buying situation.

During the performance feedback and evaluation phase, the relationship between the seller

and buyer can develop into a longer term engagement. Buyer loyalty and customer

satisfaction are primarily determined by the sales activities during this last phase.

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Pros of Buy Grid Model:

The major implication of Robinson, Faris and Wind’s research is that industrial buying

behaviour depends more on the buying situation than on the type of product.

The model explains the likely interaction between buyer and seller activities given the

purchase needs of an organisation. It helps sales personnel deliver the correct message at

the right time.

Suppliers need to fill out this matrix for their firm’s specific situation.

For each cell in the matrix (buy situation and buy phase), the following questions must be

answered:

1. Is this combination of situation and phase relevant?

2. Which organisation members influence this purchase decision?

3. What are the used performance indicators?

4. What are the information sources?

The buying side of the model can be used for both consumer and business related buying

processes. It applies to all purchase situations.

The model is based on the observation that buyer’s expectations and behaviour change

according to whether the purchase is new, a modified rebuy or a straight rebuy.

The model can provide the basis for a formal selection process (e.g. request for information

and request for proposal).

The buy grid framework proved its worth to the scientific community as one of the few

industrial marketing models.

Cons of Buy Grid Model:

The organizational buying model focuses mainly on products and not on services.

A shortcoming of the organizational buying approach is the negligence the supplier’s side

and the influence this party wields on the customer’s organizational decision process.

The model neglects the importance of acquisition in sales processes.

5. Buying Centre Roles:

A buying centre is comprised of all those individuals and groups who participate in the buying

decision-making process, who share some common goals and the risks arising from these

decisions.

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Before identifying the individuals and groups involved in the buying decision process, a

marketer must understand the roles of buying centre members. Understanding the buying

centre roles helps industrial marketers to develop an effective promotion strategy.

When a buying centre includes many participants, the industrial/ business marketer will not

have the time or resources to reach all of them. Small sellers could concentrate on reaching

the key buying influences. Large sellers on the other hand go for multi-level in-depth selling

to reach as many buying participants as possible.

It is important to note, that functional responsibilities and job titles are often not true

indicators of the relative influence of buying center members in a purchase decision task.

The buying center is defined as members of the organization having face-to-face contact

with others with respect to the purchase decision and who realize or perceive both an

influence and a responsibility to a purchase decision.

In the tradition of formal organizational theory, the responsibility and authority of the

member’s organizational position creates a formal stake for him/her in purchase decisions

involving his domain.

Also, an individual can become a buying center member by possessing information critical

to the decision. The main role participants are purchasing agents, scientists and managers.

Key Members of Buying Centre:

Within any organization, the buying Centre will vary in the number and type of participants

for different classes of products. But on an average a buying center of an organization has

the following seven members or a group of members who play these roles:

1. Initiators:

Usually the need for a product/item and in turn a supplier arises from the users. But there

can be occasions when the top management, maintenance or the engineering department

or any such recognize or feel the need. These people who “initiate” or start the buying

process are called initiators.

2. Users:

Under this category come users of various products. If they are technically sound like the

R&D, engineering who can also communicate well. They play a vital role in the buying

process. They also act as initiators.

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3. Buyers

They are people who have formal authority to select the supplier and arrange the purchase

terms. They play a very important role in selecting vendors and negotiating and sometimes

help to shape the product specifications.

The major roles or responsibilities of buyers are obtaining proposals or quotes, evaluating

them and selecting the supplier, negotiating the terms and conditions, issuing of purchase

orders, follow up and keeping track of deliveries. Many of these processes are automated

now with the use of computers to save time and money.

4. Influencers:

Technical personnel, experts and consultants and qualified engineers play the role of

influencers by drawing specifications of products. They are, simply put, people in the

organisation who influence the buying decision.

It can also be the top management when the cost involved is high and benefits long term.

Influencers provide information for strategically evaluating alternatives.

5. Deciders:

Among the members, the marketing person must be aware of the deciders in the

organisation and try to reach them and maintain contacts with them. The organisational

formal structure might be deceptive and the decision might not even be taken in the

purchasing department.

Generally, for routine purchases, the purchase executive may be the decider. But for high

value and technically complex products, senior executives are the deciders. People who

decide on product requirements/specifications and the suppliers are deciders.

6. Approvers:

People who authorize the proposed actions of deciders or buyers are approvers. They could

also be personnel from top management or finance department or the users.

7. Gate Keeper:

A gatekeeper is like a filter of information. He is the one the marketer has to pass through

before he reaches the decision makers. Understanding the role of the gatekeeper is critical

in the development of industrial marketing strategies and the salesperson’s approach. They

allow only that information favourable to their opinion to flow to the decision makers.

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By being closest to the action, purchasing managers or those persons involved in a buying

centre may act as gatekeepers. They are the people whom our industrial marketer would

first get in touch with.

Hence, it happens that information is usually routed through them. They have the power to

prevent the sellers or information from reaching members of the buying centre. They could

be at any level and even be the receptionists and telephone operators.

Models of organizational Buying Behaviour;

The Webster and Wind Model;

The Webster and Wind Model of organizational buying behavior is quite a

comprehensive model. It considers four sets of variables which affect the buying-decision

making process in a firm. These are environmental, organizational, buying center, and

individual.

This framework identifies four categories of variables that have an influence on

organizational buying decisions .

Environmental :Any aspect of the external environment that may affect the organization

buying behaviour is embraced under this heading. This includes political, economic, cultural,

legal, technological and physical environments. Competitors’ marketing actions are also

deemed to be in the external environment.

Organizational :There are several organizational factors that affect behaviour. The

company’s goals and objectives set parameters on activity. The organization’s structure and

resources act as constraints on its culture in terms of the type of policies and procedures

that are followed. These all affect buying behaviour.

Interpersonal :The relationships between the individuals in the buying centre are an

important determinant of how decisions are reached. How coalitions are formed and where

loyalties lie within an organization will be dependent on these relationships.

Individual :Attitude to risk, creativity, competitiveness, style of problem solving and locus of

control will all be unique in each individual. The individual’s personal goals, past experience

and training will inform their way of operating. Each individual will influence the DMU’s

decisions to a greater or lesser extent. Each of these categories has two subcategories of

task and non-task related variables. Task related variables are directly related to the buying

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decision being undertaken; non-task related variables are not directly concerned with the

buying decision but nevertheless affect the decisions made (see Figure below).

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The Sheth Model.

Definition: The Howard Sheth Model is an approach for analyzing the combined impact of

the social, psychological and marketing factors on the buying behaviour or preference of the

consumers and the industrial buyers into a logical order of information processing.

John Howard and Jagadish Sheth introduced the Howard Sheth Model in the year 1969.

The concept was published in their book ‘The Theory of Buyer Behaviour’.

Three Levels of Decision-Making in Howard Sheth Model:

The model has described the three significant stages of the buyer’s decision-making or

selection of a particular brand. Let us now discuss each of these in details below

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Extensive Problem Solving

This is the initial stage of decision-making, where the buyer is new to the market. He/she

has no or little information about the brands and has no preference for a particular product

or service. Thus, a consumer is an information seeker at this level, who check out different

brands available in the market, before making a buying decision.

Limited Problem Solving

At this level, the buyer has inadequate or incomplete information about the product, market

or the brands operating in it. Sometimes the buyer is confused among the various

alternatives. Therefore, to make a buying decision, he/she look for a comparative study of

the different brands and the products available in the market.

Routinized Response Behaviour

The habitual response behaviour stage is where the buyer is entirely aware of the products

offered by different brands and the features, pros and cons of each product.

He/she is capable of evaluating and comparing the multiple options available in the market.

Here, the buyer decides in advance, which product is to be purchased.To understand the

Howard Sheth Model, we must have an idea of its arrangement. So, let us have a look at

the design of the model.

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ii semester m.com paper 2.6: business marketing as per

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