Organisational Buying Process Case Study

Marketing Management



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<< Chapter 5

Organizational Markets and Organizational Buying Behavior : Chapter 6

SUMMARY: The organizational buying process is entirely different from the consumer buying process. While buying decisions are made relatively easily and quickly by individual customers, organisational buying involves thorough and deep analysis. Organizations purchase products ranging from highly complex machinery to small components.

In an organization, the purchase decisions are influenced by several individuals and are not made in isolation by an individual. Organizational buyers are more concerned about the price and quality of the product along with the service being provided by the vendor. Price plays a major role, since the price of the raw materials is the investment from which profits are generated. Thus, price is a major factor which affects the profitability of the firm. Service also plays an important role, because no organization would like to buy goods from a vendor who cannot provide timely and efficient service.

Organizations adopt certain methods for buying products such as checking a sample before the actual purchase. Most organizational purchases involve purchase of products in large lots. So it is not feasible to individually inspect each and every item in the lot. In such situations, a sample is checked assuming that this sample represents the entire lot. Like the consumer markets, organizational markets also possess certain demand characteristics. The organizational demand for products or services may be inelastic, derived, joint or fluctuating in nature. Organizational markets normally purchase the goods or services for producing other goods and services, using these as raw materials. There are also resellers, who purchase the products to sell directly to other customers without any modifications. Apart from producers and resellers, there are also government and institutional customers who buy the goods. Government buys goods for public utility or for use in their departments or for production purposes.

The buying decisions of organizations are influenced by environmental factors, organizational factors, social factors and personal factors. Participants in the organizational buying process play as many as seven different roles, namely those of initiator, influencer, user, decider, approver, buyer and gatekeeper. Although organizations differ significantly from each other in their purchasing process, the various stages of industrial buying comprise problem recognition, general need recognition, product specification, value analysis, vendor analysis, order routine specification, multiple sourcing and performance review. Marketers need relevant information about the characteristics of the industries for marketing their goods and services effectively. To search for such information, the prime sources are government and industrial publications. The Standard Industrial Classification is a process where such characteristics of manufacturing, financial and service sectors are depicted in a coded format.

Organizational Markets and Organizational Buying Behavior - An overview

The Concept of Organizational Buying

Differences between Organizational Markets and Consumer Markets
Organizational Markets in India
Dimensions of Organizational Buying

The Classification of Organizational Markets
Producer Markets
Reseller Markets
Government Markets
Institutional Markets
Factors Influencing Organizational Buying
Environmental Factors
Organizational Factors
Social Factors
Personal Factors

Participants in Organizational Buying

Procurement Process

Supply Management Orientation
Stages of Buying
Problem Recognition
General Need Recognition
Product Specification
Searching for Potential Suppliers
Value Analysis
Vendor Analysis
Order Routine Specification
Multiple Sourcing
Performance Review
Using Standard Industrial Classification Codes

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Demand Issues : Chapter 4

Procurement is a function that is gaining in importance. Managements have realized that a good procurement department helps in the growth of the company and increases the profits considerably. The procurement function has both task-oriented objectives and non-task objectives, and is usually governed by a clearly articulated purchase policy.

The buying decision process starts with identifying the buying needs, followed by identifying the product characteristics. At this point, the buyer takes a 'make or buy decision'. If the decision is to buy, then the buying process continues with the search for vendors followed by qualifying them. The vendors are then requested to send in their proposals and quotations relating to the purchase requirement.

While evaluating the quotations, the buyer may revisit the 'make or buy decision' if the vendor quotations do not meet requirements. If a particular vendor's quotations are up to the buyer's expectations, then the contract is awarded to the vendors. Payment and delivery terms are finalized and an order routine is mutually agreed upon.

The vendors are also regularly monitored for their performance. A firm purchases goods under three situations. In a new task, the firm buys a totally new product or an existing product for the first time. This involves extensive information and supplier search. The second situation is straight re-buy. Here the firm purchases the same material from the same supplier without any alterations in the contract.

And the last situation is modified re-buy. It involves modifications in the form of change in supplier, change in terms of the contract, etc. A buying center involves people from across the departments of the firm to make the buying decisions for the firm. The buying center is influenced by the individual and group factors. Hence the decisions taken by the buying center will bear these influences.

Value analysis is used in the firm to assess the value of the product to be purchased and consequently to take 'make or buy' decisions. It helps the firm to reduce unnecessary costs in the purchase of the product or materials. Vendor evaluation helps in choosing the right vendor. Vendor rating is performed to appraise vendors from time to time with respect to the products supplied and services rendered; it is done on the parameters of price, quality, delivery, and service.

There are different factors that influence organizational buying behavior such as environmental factors, organizational factors, group factors, and individual factors. The different models of organizational buying behavior discuss these factors with differing levels of attention being given to each. They include the Sheth model, Webster and Wind model, and the Anderson and Chambers Reward/Measurement Model.

Chapter 4 : Overview

The Procurement Function
Objectives of the Procurement Function
Purchase Policy

The Buying Decision Process
Need Recognition
Product Characteristics
Searching for and Qualifying Potential Suppliers
Soliciting and Analyzing Proposals
Making the Purchase Decision
Selecting the Order Routine
Evaluating Vendor Performance

Types of Buying Situations
New Task
Straight Re-buy
Modified Re-buy
Buy-Grid Model

Profile of Business Buyers
Buying Center
Buying Committee

Value Analysis
Functions of Value Analysis
Activities of Value Analysis

Vendor Analysis
Criteria for Evaluating Potential Vendors
Vendor Rating

Models of Organizational Buying Behavior
Factors Influencing Organizational Buyer Behavior
The Sheth Model
The Webster and Wind Model
The Anderson and Chambers Reward/Measurement Model

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