Unit V Industrial Buying Behavior Organizational Buyers
Unit V Industrial Buying Behavior Organizational Buyers
2. There is a long time lag between efforts and results- In the process of individual
buying, the time taken between a purchase decision and sales transaction is shorter than
industrial buying. This is due to the extra formalities and procedures that are to be
followed in organisational buying process. For e. g. asking quotations evaluating tenders
preparing bulk orders etc.
4. It is a formal activity- Organisation buying involved the formal contract between the
buyer and the seller. It is a formal activity which requires the buyer to follow rules and
procedures laid down by the organisation regarding the type, quality, quantity, terms of
payment, delivery time, etc. while making a Purchase Decision.
5. It is a multi-person activity- Buying decisions in an organisation are generally taken by
a team of qualified personnel also referred to as buying Centre where each individual
plays different buying roles.
Other characteristics of industrial buying -
• There are few industrial buyers and many individual buyers.
• Organisation buyers usually buy in bulk.
• Role of middle man is reduced as the buyers buy directly in bulk from manufacturers.
• Organisations generally have an inelastic demand
As a major constraint under which a business operates, the external environment impacts nearly
every aspect of a business, including its buying decisions. Here’s a list of the external elements
that affect organizational buying.
a) Economic Conditions: The fluctuations in the money markets and the interest rates have
a major impact on the buying strategies. The interest rates and organizational buying have
an inverse relation; in most cases, an increase in the interest rates may bring about a drop
in the buying.
b) Regulatory Changes: Any changes in the corporate laws, rules and regulations will also
influence how, when and what the organizations buy. There are also regulatory changes
that may affect only a particular industry and accordingly the related organizations will
change their buying patterns to stay in-line with the new regulations.
c) Political Environment: A change of the government or policy has a direct impact on the
economic scenario, and this ultimately translates into a shift in the organizational buying
patterns as well.
d) Social Environment: Societies and cultures are ever evolving, and every business has to
change its practices and procedures to meet up with the societal changes. For instance
with the rise in the number of animal lovers, pure leather suppliers have seen a slump in
their business. The clothing and footwear manufacturers have shifted to artificial leather
suppliers. This points out how the social environment can affect the buying patterns of
organizations.
e) Competition: Today’s business is all about beating competition and staying ahead. So
when an organization's competitors move on to a newer product or service, or if they get
to enjoy a competitive edge because of their suppliers, it's very likely for the organization
to change its trends too and thus its buying pattern will change accordingly.
The external environment is the first of the four major factors that influence organizational
behavior as shown in this diagram which you can click on to enlarge.
2. Internal Organizational Factors
More than the external factors, it’s the internal organizational factors that influence
organizational buying. These internal factors are the:
a) Buying Objectives: The goals and objectives of an organization are major determinants
as to how and what the organization will purchase. An organization that wants to capture
a bigger chunk of the market by selling cheaper stuff is more likely to look for suppliers
who can supply larger quantities at a low price. However, a company whose goal is to
deliver quality products may have a very contrasting buying pattern, and they will focus
more on the quality issues than on the price advantage.
b) Organizational Structure: Hierarchical and management structures vary from one
organization to another. While some organizations have a well established purchase
department, others may assign this job to the HR or Administration department. There are
also organizations where the purchase decisions must be taken collectively by all
concerned departments. The organizations also have well-defined guidelines as to which
purchase decisions can be made by which management level. The internal setup and how
authority and responsibility flow through it, play an important role in the organizational
purchasing.
c) Policies and Procedures: How the purchase order is routed, depends on the
organization's policies. How does the buying procedure begin, who will participate and
who has the ultimate authority to decide on the purchase are all dependent on the policies
and procedures of the organization. Some organizations prefer to invite public bids, while
others may contact only the few suppliers on their list. There are also budgetary policies
that have a say in the purchase decisions, for instance while some organizations may have
a flexible policy to make purchases as and when the need arises, others may have to wait
till the allocation of the annual or biannual budget.
d) Technological Levels: Whenever making new purchases, organizations take into
consideration their current technology. Some purchases are meant to replace the current
technology with a newer version, so their buying decision will be influenced by what
level of technology they currently own. Also, organizations try to ensure that all new
purchases being made are technologically compatible with their existing technology. So,
one way or the other – an organization's existing technology has a major influence on its
future purchases.
e) Manpower Skills: Whether the organization has the skilled manpower to make proper
and optimum use of the new purchases being made, especially equipment and machinery,
is another issue that influences organizational buying.
Since organizational buying decisions are never a one person affair, interpersonal relationships
among the decision makers plays a vital role in this type of buying.
a) Participation and Authority: In organizational buying situations, there are always re-
defined rules as to who can participate in the purchase decision and who is the ultimate
deciding authority.
b) Interpersonal Conflict: Interpersonal conflicts and conflicts of interest amongst the
decision makers often results in delays and changes. Thus, the kind of thinking and the
kind of relationship the decision makers share have a major role to play in corporate
buying.
c) Education and Awareness: The educational background of the decision makers and
their level of awareness have a major bearing on what type of purchases they will make.
d) Risk Taking Ability: If the buying committee constitutes high risk takers, they will not
be averse to the idea of choosing the latest technology or new suppliers. While on the
other hand, decision makers with a low risk taking tolerance are more likely to stick to
proven and tested technology or to well known and well established suppliers.
e) Individual Factors: Individual factors such as age, cultural background and social status,
of the members on the buying team, also influence the buying decisions.
Organizational buying behavior refers to the process of how companies or organizations buy
goods and services. Every organization needs to buy goods or services for running its business
operations and therefore it has to go through a complex problem solving and decision making
process. The behavior that the industrial buyers exhibit while making purchase decisions, is
known as organizational buying behavior and the sequential steps taken by buyers to make a
purchase decision is known as organizational buying process.
People based services: Services can be classified based on the extent of the consumer contact:
People-based services -education, healthcare etc. where high contact is necessary. Equipment
based services - only low customer contact is required for such services: car wash, cinema, and
vending machines.
Services, such as banking, education, medical treatment, and transportation make up the majority
of the economies of the rich nations. They also represent most of the emerging nations’
economies.
Economic history tells us that all developing nations have invariably experienced a shift from
agriculture to industry and then to the service sector as the main stay of the economy.
This shift has also brought about a change in the definition of goods and services themselves. No
longer are goods considered separate from services. Rather, services now increasingly represent
an integral part of the product and this interconnectedness of goods and services is represented
on a goods-services continuum.
The American Marketing Association defines services as - “Activities, benefits and satisfactions
which are offered for sale or are provided in connection with the sale of goods.”
1. Intangibility: Services are intangible and do not have a physical existence. Hence
services cannot be touched, held, tasted or smelt. This is most defining feature of a
service and that which primarily differentiates it from a product. Also, it poses a unique
challenge to those engaged in marketing a service as they need to attach tangible
attributes to an otherwise intangible offering.
Types of Services
1. Core Services: A service that is the primary purpose of the transaction. Eg: a haircut or
the services of lawyer or teacher.
2. Supplementary Services: Services that are rendered as a corollary to the sale of a
tangible product. Eg: Home delivery options offered by restaurants above a minimum bill
value.
Given below are the fundamental differences between physical goods and services:
Goods Services
Tangible Intangible
Homogenous Heterogeneous
Production and distribution are separation Production, distribution and consumption are
from their consumption simultaneous processes
As already discussed, services are inherently intangible, are consumed simultaneously at the time
of their production, cannot be stored, saved or resold once they have been used and service
offerings are unique and cannot be exactly repeated even by the same service provider.
Marketing of services is a relatively new phenomenon in the domain of marketing, having gained
in importance as a discipline only towards the end of the 20th century.
Services marketing first came to the fore in the 1980’s when the debate started on whether
marketing of services was significantly different from that of products so as to be classified
as a separate discipline. Prior to this, services were considered just an aid to the production and
marketing of goods and hence were not deemed as having separate relevance of their own.
The 1980’s however saw a shift in this thinking. As the service sector started to grow in
importance and emerged as a significant employer and contributor to the GDP, academics and
marketing practitioners began to look at the marketing of services in a new light. Empirical
research was conducted which brought to light the specific distinguishing characteristics of
services.
By the mid 1990’s, Services Marketing was firmly entrenched as a significant sub discipline of
marketing with its own empirical research and data and growing significance in the increasingly
service sector dominated economies of the new millennium. New areas of study opened up in the
field and were the subject of extensive empirical research giving rise to concepts such as - the
product-service spectrum, relationship marketing, franchising of services, customer retention etc.
•
Marketing of services
Service firms lagged behind manufacturing companies in the application of marketing principles
till recently. Many service organisations were either small which consider marketing not
necessary or costly or unethical. The service sector has been found contributing substantially to
the development process of any economy. The developments in the service sector and mounting
competition in this field have been forcing service-generating firms to apply modern marketing
principles. It is necessary to adopt marketing strategies by service firms not only for their
survival and growth but also for satisfying the needs and expectations of their customers.
Service marketing is defined as the integrated system of business activities designed to plan,
price, promote and distribute appropriate services for the benefit of existing and potential
consumers to achieve organisational objectives. The perception of services marketing focuses on
selling the services in the best interest of the customers. It is a systematic and coordinated effort
of a service organisation to expand its market by delivering the best possible services. The
objects of services marketing are the achievement of organisational goals like making
profits, establishing leadership, long term survival and growth and the satisfaction of
consumers by rendering excellent services. The concept of services marketing covers the
following aspects:
• selling services profitably to target consumers and prospects
• delivering maximum satisfaction to consumers of services; and
• positioning the service firm in the market.
Given the intangibility of services, marketing them becomes a particularly challenging and yet
extremely important task.
The following facts make it clear that the application of modern- marketing principles by service
generating organisations would pave avenues for qualitative and quantitative transformation: -
1. Increase in the Disposable Income : The disposable income of the people has
been found increasing in recent years. This trend is also visible in developing
countries like India. The increase in income in turn leads to demand for a number
of services and thereby, new opportunities are created in the service sector. The
positive developments in the service sector open new doors for an increase in
disposable income. The moment an increase in the disposable income is found,
the process of demand generation gains a rapid momentum creating more
opportunities for the development of services sector. The intensity of competition
is found at its peak and this necessitates application of marketing principles.
2. Increasing Specialisation: Organisations have now no option but to promote
specialisation since this helps them to be cost effective. The firms prefer to
engage specialists for almost all purposes. Experts and professionals like
consultants; legal advisors, financial experts, technocrats etc. play a decisive role
in managing an organisation. Greater specialisation in management requires the
services of experts and consultants in almost all areas. It is right to mention that
due to growing specialisation, service generating organisations would need a new
culture influenced by corporate culture, and marketing practices can do a lot
towards this end.
3. Changing Lifestyles: With the development of corporate culture and the
emergence of a well established services sector there would be a basic change in
the lifestyles. The busy working environment and increased personal stress and
strain would pave the way for development of innovative personal services like
healthcare, fashion-designing, recreational centres, beauty parlours etc. The
change in lifestyles creates new waves in the demand for specialised services and
marketing can play a vital role in meeting the new aspirations of the consumers.
4. Professional Excellence: Corporate culture makes an advocacy in favour of
performance orientation. The development of human resources would be given
greater importance by all organisations either producing goods or services.
Professional excellence thus would get a new priority and the masses would be
tempted to the professional education. Excellence and professionalism in
knowledge require the development of world-class educational institutions for
almost all disciplines. The services sector would be professionalised in which
only the world-class human resources can get a place. This will lead to greater
efficiency in service organisations. The application of marketing principles along
with this professionalism - will make it easier to achieve the corporate goals.
5. Information Explosion: The inventions and innovations in the field of
communications have been found fuelling information explosion. The tremendous
opportunities generated by communications would influence almost all the sectors
especially service industries like entertainment, advertisement, fashion designs
etc. It is in this context that it is essential to practice the modern marketing
principles so that the marketing information system plays a positive role in
improving the quality of decisions.
6. Sophistication in Market: There is more sophistication in the modern market
where consumer expectations would be greater and more complex in nature.
There would be frequent changes in the hierarchy of needs and requirements of
consumers that result in the changes in the nature of market in terms of products
or services required for that market. These multi-dimensional changes in the
market necessitate the application of modern marketing principles.
5. People: People are a defining factor in a service delivery process, since a service is
inseparable from the person providing it. Thus, a restaurant is known as much for its food
as for the service provided by its staff. The same is true of banks and department stores.
Consequently, customer service training for staff has become a top priority for many
organizations today.
6. Process: The process of service delivery is crucial since it ensures that the same standard
of service is repeatedly delivered to the customers. Therefore, most companies have a
service blue print which provides the details of the service delivery process, often going
down to even defining the service script and the greeting phrases to be used by the
service saff.
7. Physical Evidence: Since services are intangible in nature most service providers strive
to incorporate certain tangible elements into their offering to enhance customer
experience. Thus, there are hair salons that have well designed waiting areas often with
magazines and plush sofas for patrons to read and relax while they await their turn.
Similarly, restaurants invest heavily in their interior design and decorations to offer a
tangible and unique experience to their guests.
CONSUMER COMMUNICATION
Definition and Meaning of Consumer Communication
Communication is defined as the flow of information from a sender to a receiver with the latter
having a proper understanding of it. Marketing communication or consumer communication
may be defined as the flow of information about a product/service offering from a marketer to
the consumer.
This could assume two forms,
i) it could be personal via interpersonal communication between the marketer and the
salesperson or the dealer; or
ii) ii) it could be impersonal via a channel or a media (print, audio-visual etc.).
Marketers make use of his promotion or communication mix, which comprises advertising,
personal selling, sales promotion, publicity and direct marketing to communicate with their
consumers. They inform the consumers, both current and potential about their product/service
offering, as well as any changes brought about in the marketing mix. They try to keep the
consumers well informed about the product/service offering, and the changes that are brought
about.
The consumers also on the other hand, keep themselves informed both through the marketer’s
efforts as well as through the informal interpersonal communication that they have with their
family, friends, peers etc through word-of-mouth. Both the sources, formal (from the marketer),
as well as the informal (through word-of-mouth) have an important role to play in
communication.
COMPONENTS OF THE COMMUNICATION PROCESS
There are three major components of the communication process, viz., sender, receiver and the
media. Apart from these, there are two sub-components, viz., feedback and noise.
The message is encoded by the sender, transmitted via a media, decoded by the receiver, who
then provides a feedback. At every stage, the communication process could get impacted by a
disturbance, which is referred to as “noise”; this noise isn’t essentially a loud sound, but these are
disturbances that could occur within the sender or the media or the receiver.