12e

Chapter 2
Organizational Buying Behavior

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 Agenda
 9:30-10:45 Ch. 2
 10:45-11:00 Break
 11:00-12:00 Ch 3
 12:00-12:20 Article “What is Strategy”

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 Chapter Outline
 The decision journey organizational buyers follow
in making purchase decisions and the resulting
strategy implications for the business marketer
 The types of buying situations that business
customers confront and the appropriate strategy
response for each
 The individual, group, organizational, and
environmental variables that influence
organizational buying decisions

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 Chapter Outline (continued)
 A model of organizational buying behavior that
integrates these important influences
 How a knowledge of organizational buying
characteristics enables the marketer to make more
informed decisions about product design, pricing,
and promotion strategies

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 Customer Decision Journey
 Marketers need to recognize how digital media
channels have altered the customer decision
process
 Marketers need to focus on driving advocacy
 Advocacy Research on 20,000 consumers across 5
industries indicated that the most important factor
is someone else's advocacy

HOW MANY OF YOU WRITE OR READ PRODUCT

REVIEWS? OR READ REVIEWS ABOUT HOTELS
OR RESTAURANTS?
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Decision Journey Loyalty Loop
 Organizational Buying Process
 Problem recognition
 General description of need
 Product specification
 Supplier search
 Acquisition and analysis of proposals
 Supplier selection
 Selection of order routine
 Performance review
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 Customer-Driven Pull System
Includes:
 Websites, user communities, and Internet search
engines
 New forms of communication
 Mobile and wireless devices
 Expanded and enhanced electronic word-of-mouth
methodologies, including new technologies
 LinkedIn, salesforce.com, Facebook, Twitter, industry-specific
blogs

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 Types of Buying Situations

Modified
New task
rebuy

Straight
rebuy

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 New Task Buying Situation
 Problem or need is different from previous
experiences
 Require extensive information to explore alternative
ways of solving the problem
 Extensive problem solving: Stage of decision-
making that buyers operate in because they lack:
 Well-defined criteria for comparing alternative products and
suppliers

 Examples?

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 2 Buying Decision Approaches For
New Task
 Judgmental new-task situations
 There is little information or experience to support a
decision
 Decision-makers conduct moderate information
search to analyze key aspects of the buying decision
 Questions asked:
 What kind and model of production equipment should we
purchase?
 Who are the available suppliers?
 Will they provide the services we need?
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 2 Buying Decision Approaches
 Strategic new-task decisions
 Involve long-range planning, larger investments, and
increased risk if they are wrong

 Questions asked in strategic decision:

 Should we develop a new product line which demands
us to buy new machinery, retool what we have, and
maybe even hire a different type of employee?
 What should we do?

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 Straight Rebuy
 Problem or need that is recurring or a continuing
requirement
 Requires little or no new information
 Routine problem solving: Organizational buyers
apply well-developed choice criteria to the purchase
decision

 Examples:

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 In and Out Supplier
 Marketing task used for the straight rebuy depends
on whether the marketer is an “in” supplier (on the
list) or an “out” supplier
 In supplier must:
 Reinforce the buyer-seller relationship
 Meet the buying organization’s expectations
 Be responsive to the changing needs of the
organization

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 In and Out Supplier (continued)
 Out supplier must:
 Convince the organization that it can derive significant
benefits from breaking the routine
 Have an understanding of the basic buying needs of
the organization
 Persuade decision makers to re-examine alternative
solutions and revise the preferred list to include the
new supplier

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 Modified Rebuy
 Decision makers feel significant benefits can be
derived by reevaluating alternatives
 Factors that affect reevaluation
 Internal forces - Search for quality improvement and
cost reductions
 External force - Cost, quality, or service improvements
offered by the marketer
 Occurs when the firm is displeased with the
performance of present suppliers

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 2 Types of Modified Rebuy
 Simple modified rebuy
 Involves
 narrow set of choice alternatives
 a moderate amount of information search
 Moderate amount of analysis
 Concentrate on long term relationship potential of
supplier
 Complex modified rebuy
 Involves a large set of choice alternatives
 More info search and analysis

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 Figure 2.2 - Organizational Buying
Behavior

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 Environmental Forces
 Economic influences
 Marketer must be sensitive to the strength of demand in
the ultimate consumer market
 Instead of sourcing all from China because lowest cost, they will
soon be sourcing from a diversified base of suppliers across multiple
regions
 “Best cost” vs low cost
 Eg: Earthquake in Japan interrupted operations

 Technological influences
 Fast pace of environment means info search is important
but also needs to be a short search process (costs for
prolonging)
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 Organizational Forces
 Growing importance of purchasing role
 Chief procurement officer’s (CPO) role has become
more important now
 Delivering cost savings, improving asset utilization,
preserving supplier viability, and procuring materials
in a socially and environmentally responsible way

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 Organizational Forces (continued 1)
 Procurement managers look to explore new areas
where a strategic supplier can add value to the firm’s
product or service offerings
 In designing the iPad, Apple used the same suppliers it had
used for iPhone and iPod Touch.

This Photo by Unknown Author is licensed under CC BY-SA

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 Figure 2.3 - Strategic Priorities

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 Organizational Forces (continued 2)
 3 Tools that Procurement managers use
 Calculating the total cost of ownership of an acquired
good or service
 Deploying e-procurement processes
 Conducting reverse auctions

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 Total Cost of Ownership (TCO)
 Considers the full range of costs associated with the
purchase and use of a product or service over its
complete life cycle
 Acquisition costs: Selling price and transportation
costs, administrative costs of evaluating suppliers,
expediting orders, and correcting errors in shipments
 Possession costs: Financing, storage, inspection,
taxes, insurance, and other internal handling costs
 Usage costs: Associated with ongoing use of the
purchased product
 Installation, employee training, user labor, field repair, and
product replacement and disposal costs

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 E-Procurement and Reverse Auctions

 E-procurement
 Purchasing managers use the Internet to:
 find new suppliers
 communicate with current suppliers
 or place an order
 Reverse auctions
 Involves one buyer who invites bids from several
prequalified suppliers who face off in a dynamic, real-
time, competitive bidding process
 Best suited for commodity-type items

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 Centralized Purchasing
 Purchasing is moving from transaction based to a
more strategic role so companies are centralizing
 Involves separate organizational unit that has
authority for purchases at a regional, divisional, or
headquarters level

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 Group Discussion
 A small manufacturer developed a new high-speed
packaging system that could be appealing to food-
processing firms such as Pillsbury and General Mills.
This new packaging system is more efficient but
priced at 15% higher than competitors’ products.
 Because purchasing managers evaluate the ‘total
cost of ownership’ of major purchases, what selling
points should the business marketer emphasize to
demonstrate the superiority of this new product?

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 Group Forces
 Buying centre
 Consists of individuals who participate in the
purchasing decision and share the goals and risks
arising from the decision
 Plays a vital bridging role in the firm by:
 Connecting key personnel across departments who have a
stake in a particular buying decision
 Facilitating the flow of information and knowledge across
units

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 Buying Center Roles
User Personnel who use the product in question and can be
inconsequential or major players in the process

Gatekeepers Control information to be reviewed by members of the

buying group
Influencers Affect the purchasing decision by providing information
for the evaluation of alternatives or by setting buying
specifications
Deciders Make the buying decision, whether or not they have
formal authority to do so

Buyer Has formal authority to select a supplier and implement

all procedures connected with securing the product

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 Individual Forces
 Differing evaluative criteria
 Evaluative criteria: Specifications that organizational
buyers use to compare alternative industrial products
and services
 May vary from individual to individual

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 Individual Forces (continued 1)
 Selective process
 Selective exposure - Accept communication messages
consistent with existing attitudes and beliefs
 Selective attention - Filter or screen incoming stimuli
to admit only certain ones to cognition
 Selective perception - Interpret stimuli in terms of
existing attitudes and beliefs
 Selective retention - To recall information pertinent to
own needs and dispositions

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 Group Discussion
 The Kraus Toy Company recently decided to develop
a new electronic game. Can an electrical parts
supplier predict the likely composition of the buying
centre at Kraus Toy? What steps could an industrial
salesperson take to influence the composition of the
buying centre?

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 Answer
 An industrial salesperson could understand a buying center’s
composition by examining all the functional areas in the
Kraus Toy Company that will be affected by the purchase of
electrical parts.
 The supplier can begin to identify the individuals in
functional areas who will most likely be involved in the
purchase decision of electrical parts for manufacturing the
new electronic game.
 The salesperson could influence the buying center by
employing sales promotion techniques on the individuals
involved in manufacturing the new product.
 Sales promo techniques would center on the benefits of
purchasing the electric parts from the supplier, thereby
stimulating the supplier to become involved in the buying
center’s purchase decision.

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 Class Activity
 GE Healthcare has developed an e commerce
initiative to support its marketing strategy, which
targets health care organizations on a worldwide
basis.
 Go to http://www.gemedicalsystems.com
 Identify the product and services that the GE unit
offers, and provide a critique of the website and
consider the degree to which it provides access to
the info that a potential buyer might want.

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