Organizational Buyer Behavior

Part I- BackgroundOrganizational Buyer

Behavior (OBB)

OBB-Agenda

1. What is OBB?

2. Organizational Buying process

3. Organizational Buying model

4. E-procurement in OBB- ariba/econstroi

1. What isOrganizational Buyer Behavior

(OBB)

1.What is OBB ?

What distinguishes business marketing from consumer

goods is the intended use of the product and the

intended consumer.

Hewlett -Packard used to be a B2B marketer until it

introduced laser printers and personal computers.

Sony used to be mainly a B2C until it introduced office automation products.

Consumer Markets and

Organizational Markets

Characteristics of Business Market

Customers

UsersPurchase industrial goods and services to produce other goods and services

OEMs (Original equipment manufacturers)

Purchase to incorporate into other products sold in the business or

ultimate consumer market – When Dell buys microprocessors from Intel it is a OEM

Dealers and distributors

Commercial enterprises that purchase industrial goods for resale

Retailers

Hutt & Speh


Customers

Cross functional teams at P&G

evaluate alternative laptop PC’s and

select IBM

Multiple buying influences rather

than a single decision maker

SAP can maintain customer

relatonships for many years

Enduring Relationships

New home purchases stimulate

demand for appliances, cabinets,

carpeting etc

Derived demand

Consumer buys one unit of software

from Microsoft. A company buys

thousands

Single purchase is far larger

Dell sells to Boing, Universities, and

numerous government/public units

(local, central)

Composed of commercial

enterprises,institutions and

government organizations

ExampleCharacteristic

Hutt & Speh


CustomersDerived demand

Manage requirements tree from original (e.g. car) demand

Fluctuating demand

Monitor demand patterns: interest rate setting by the ECB results in changes in Home construction

Stimulating demand

Programs directed at stimulating the ultimate consumer directly –

Tetra Pack & Intel ( Intel inside) Price sensitivity/demand elasticity

Derived demand elasticity e.g. if digital cameras buyers insensitive to price then manufacturers less sensitive

Global Market perspectiveRelevant unit of analysis is not domestic but regional or global

Hutt & Speh

Nestlé Waters in Portugal:

Consumer and Business Marketer

Nestlé has two lines of Business in the water category in Portugal :

Consumer Business

Selling the brands Aquarel, Castello, Campilho and others via

the food channel and the Horeca channel.

Nestlé Waters Portugal SA: website Nestlé Portugal, accessed Aug

2006

Organizational Business

Selling water coolers to Business customers (and also to consumers according to the company website) under the Selda brand.

Nestlé Waters Direct : website Quem Somos

Supply Chain in the Auto industry-

an example- stable relationships

Hutt & Speh pp 15

Purchasing Function Goals

To adress the needs of business customers the

marketer should understand:

Goals and contribution of the purchasing function

towards the organization objectives

Tradeoffs or clashing objectives of the

purchasing manager: lowest total cost and

quality standard can conflict

Purchasing Function Goals

Supply Chain management : technique for

linking a manufacturer’s operations with those of

all of its strategic suppliers and its key

intermediaries and customers

Keiper-Recaro Group

The Recaro group, a supplier specialized in

seating for several industries,had production

units embedded in the production line of auto

manufacturers, with complete JIT integration :

website .: RECARO :. Acessed august 2006

Purchasing Function Goals –what

are purchasing managers seeking

Strategic Procurement

Purchasing at leading companies create profit

opportunities (e.g. Honda succeded in reducing by 20% the costs of the Honda Accord)

Doing so requires an understanding of Total Cost,

beyond purchase price:

– Supply chain drivers like transportation

– Cost of acquiring and managing

– Quality, reliability and other attributes over the PLC

Total cost of Ownership : e.g. Car cost is Purchase

Price,maintenance & fuel costs and resale value

Decision Making Unit-

characteristics

Who is involved in the buying center:

–User

–Buyer

–Analyzer

–Influencer

–Gatekeepers

–Decider

Hutt & Speh based on Webster & Wind

Decision Making Unit-

characteristicsWho is involved in the buying center:

• Users- may initiate process and determine specifications

• Buyer- formal authority to select supplier and implement all procedures connected with securing the product

• Analyzer- assesses information and alternatives

• Influencer- supply information for the evaluation of alternatives or sets buying specifications

• Gatekeepers- control information to be reviewed by other members of the buying center

• Decider- those who actually make the buying decision,

whether or not they have the formal authority to do so

Hutt & Speh based on Webster & Wind

2. The Organizational Buying Process

2. The Organizational Buying

Process – Major stages-Buyphases

Alternative proposals are evaluated by

purchasing manager and members of the

production department.

5. Aquisition and analysis of proposals

After conferring with production managers a

purchasing manager identifies a set of

alternative suppliers.

4. Supplier Search

Experienced production manager assists

purchasing manager in developing a

detailed description.

3. Product specifications

Production managers from the CoE work

with a purchasing manager to determine

characteristics.

2. General description of need

Managers at SLH&BC need new high

speed packaging equipment to support a

new product launch.

1.Problem Recognition

DescriptionStage


Process – Major stages-Buyphases

After the equipment is installed, purchasing

and production managers evaluate the

performance of the equipment and the

service support provided by the supplier.

8. Performance review

Delivery date is established.7. Selection of order routine

Negotiations with two finalists are

conducted and a supplier is chosen.

6.Supplier selection

DescriptionStage

Hutt & Speh


Process -Buyclasses

Three types of Buying situations :

1. New task

2. Modified rebuy

3. Straight rebuy

organizations that buy professionally and frequently apply different approaches than first timers- so buy situation counts not product !


Process –Buyclasses

1.New task—the problem or need is totally

different from previous experiences.

Significant amount of information is required.

Buyers operate in the extensive problem solving stage.

• Buyers lack well defined criteria.

• Lack strong predispositions toward a solution.

Buying decision approaches : judgmental new tasksituations happens when the level of difficulty is very

high (complexity, unpredictability) – moderate amounts of search and formal evaluation

strategic new task situations are of strategic importance – very high effort involved.



2.Modified rebuy—decision makers feel there are

benefits to be derived by reevaluating

alternatives.

Most likely to occur when displeased with the performance of current supplier.

Buyers operate in the limited problem solving stage.

• Buyers have well defined criteria.

Buying decision approaches : simple modified rebuy or complex modified rebuys where there is a large set of choice alternatives and buyers apply sophisticated analysis techniques – this is suitable for competitive bidding with on line reverse auctions



3. Straight rebuy—the problem or need is a

recurring or continuing situation.

Buyers have experience in the area in question.

Require little or no new information.

Buyers operate in the routine problem solving stage.



Straight rebuy : buying decision approaches

Causal purchases : no information search or analysis, product of low importance to the firm,

transmitting the order

Routine low priority: moderate amount of analysis

OnLine Purchasing

Many organizations have moved routine purchasing activities to employees : travel, personal

computers,spare parts, office supplies (e.g. SLDE e-sourcing initiative)

Buy-side requisitioning software

3. Organizational Buying Model

3. Organizational Buying Model

EnvironmentalForces

OrganizationalForces

GroupForces

IndividualForces

OrganizationalBuying

Behavior

•Economic Outlook:

Domestic & Global

•Pace of Technological

Change

•Global Trade Relations

•Goals, Objectives, and

Strategies

•Organizational Position

of Purchasing

•Roles, relative

influence, and patterns

of interaction of buying

decision participants

•Job function, past

experience, and buying

motives of individual

decision participants

Webster & Wind adapted by Hutt, Speh

Forces shaping OBB

Environmental forces

Economic – derived demand means following consumer

markets e.g. Portugal was the only country in the eu with

negative consumer expectations for the next 12 months – euro barometer 64 Autumn 2005

http://ec.europa.eu/public_opinion/archives/eb/eb64/eb64

_pt_nat.pdf

Technological influences – technology can change the

way an industry operates: EDI and continous replenishment and later RFID becoming musts in FMCG

Forces shaping OBB

Organizational forces

Goals, Strategies and objectives of purchasing

There is an increased trend for purchasing to

become a more strategic actor in the

corporation e.g. Sales & Operations planning

become a way of life to reduce

inventories,slow moving & speed up

launches. E-procurement & EDI to align.

Organizational positioning of Purchasing

Centralizing vs decentralizing

Forces shaping OBB-Group Forces:Buying Center- Medical Supplier

LowModerateModerateLowEngineering

ModerateLowLowLowPurchasing

HighModerateModerateModerateAdministration

LowHighHighLowNursing

HighHighHighHighPhysicians

Selection of suppliers

Identification and evaluation of buying alternatives

Establishment of objectives

Identification of need

Buying Center Participants

Questions: which members take part, what is each members’s relative

Influence, what criteria are important in evaluating .

Study of hospital Buying, cit Hutt & Speh

Forces shaping OBB-Group Forces:Buying Center- Typical influences

USER GATEKEEPERINFLUENCERANALYZERDECIDERBUYER

Need assessment √√ √√

Choice criteria √ √√√√

RFP √√

Supplier evaluation √√√√

Selection √ √√√√√√√

Fulfillment/monitoring √√ √√

√ Influence

√√ Strong Influence

BUYING CENTER ROLES

Sheth, Mittal, Newman 99

Organizational Buyer Behavior

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