Organisational Buyer Behaviour| LGMW01/03
Organisational Buyer Behaviour – Marketing Management
Businesses operate to generate profits and wealth through value creation for its customers – these can be both end users and other businesses. Other organisation groups such as resellers, producers and governmental agencies comprise a huge chunk of the consumer base, generating demand for raw materials, equipment, manpower, products and other services. Since the B2B operations are different from the B2C transactions, it is safe to say that organisational buying behaviour varies from individual buying behaviour .
According to the Business Dictionary, organization buying consists of “people in charge of purchasing products and services for organizations, governments and business. Organizational buyers make buying decisions for their organizations and purchase products and services professionally. This type of buyer tends to be more knowledgeable than normal consumers.”
There are several differences between organisational buyers and end-consumers; they can be broadly categorised as differences in market demand and structure, decision making process, buyer characteristics and buying patterns.
- Market Demand and Structure: The variations in market structure and demand should be recognised by the marketer, as these factors differentiate the organizational buyers from individual consumers.
- Geographical conditions: Organizational buyers tend to be situated in close proximity to one another. Australia’s oil refineries are primarily located in Victoria
- Buyer conditions: The buyers are fewer in number and larger in scope and magnitude or orders and operations
- Market conditions: In case of vertical markets and industries, goods are sold only to those organizations that are related. For example, a cotton textile firm in would be supplied with yarn from a yarn firm and will then supply the textile to clothing manufacturers. Horizontal industries, however, supply to a larger pool of firms
- Demand: Organizational demand is derived from consumer demand – the demand for milk by companies in Victoria increases if there is an increase in demand for ice-creams or cheeses. The demand is also inelastic, and typically remains unaffected by changes in prices in consumer markets.
- Buyer Characteristics: The different nature of buyers also calls out the need for a different perspective on organisational buyers.
- Involvement: Since the purchase will be complex and cash-heavy, several individuals are involved in the purchase decision
- Knowledge: Professional or organisational buyers are usually armed with extensive technical knowledge that will help them with their purchases
- Motivation: Rational factors such as economic standing and business requirements assist in an effective cost-benefit analysis
- Decision Making Process:
- Formality: In organizational transactions, there are several formalities that form a part of a transaction such as proposals, quotations, purchase orders and contracts, and so on
- Complexity: The products and services are more complex that traditional B2C transactions, which give rise to the formalities as previously mentioned
- Negotiations: The very nature of the purchases give way to a longer period between need identification and purchase decision than an individual customer
- Magnitude of orders: Since most of these purchases are in the nature of raw materials, office requirements and industrial needs, the purchase quantity tends to be large
- Intermediaries: B2B transactions usually take place between direct manufacturers and organisational buyers, without the involvement of middle men
- Service: Organisational buyers require and demand service because the purchases have an immense impact on their sales, profits and cost implications.
Organisational Buying Process
The organisational buying process in a lot more process oriented than the purchase decision process of an individual consumer. While several purchase decisions take place subconsciously for the latter, the former takes calculated steps and extensive research before reaching a purchase decision.
Participants in the Buying Process
Since organisational buying is not a simple affair, there are several individuals and groups involved who, directly or indirectly, contribute to the purchase decision.
- Users: These are the people or employees who would be use the products or services. For example, the weavers or mill workers who spin cotton from NSW and Queensland would be the users of cotton bales
- Initiators: These are the persons who would initialise or request the purchase. The head of production at the cotton mill which supplies to the makers of shirts in Victoria would be the initiator
- Influencers: These include people of groups who define specifications. The head of production may consult with the head of stores and materials and also the firm to who they supply, as to what specifications are required
- Buyers: These are employees who undertake the action of buying or completing the purchase transaction
- Gatekeepers: These include liaisons or personnel who control access to the company, and can include the security, receptionist, secretary and so on
- Deciders: People who take decisions regarding the product requirements, vendors, rates and the like fall under this category
- Approvers: Personnel or people who approve the purchase comprise the approvers, and may include the purchase department and finance department personnel
Organisational buyer behaviour varies significantly from individual buyer behaviour. The process of the former is more complex, conscious and detail-oriented than that of the latter, since there are huge cost, volume, sales and profit implications involved in such B2B transactions.
Other articles under blog series of “Marketing Management”
- Marketing environment
- Consumer behavior
- Organisational buyer behavior
- Market segmentation, targeting and positioning
- Branding and product development
- Marketing plan
- Customer relationship management (CRM)
- Consumer buying process
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