Organizational Buying Behaviour

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Organizational Buying BehaviourContents1. Objectives 2. 1 Introduction 3. 2 The organizational-buying-behaviour process 4. 2.1 Buying decision phases 5. 2.2 The buying centre 6. 2.3 Decisions at each phase of the buying process 7. 2.4 A global model 8. Bringing multiple buying influences together 9. 3 Risk and uncertaintythe driving forces of organizational buying behaviour 10. 3.1 The importance of the risk factor in organizational buying behaviour 11. 3.2 A typology of risks 12. 4 Factors influencing organizational buying behaviour 13. 4.1 Types of buying situations and situational factors 14. Who buys the notepaper? 15. 4.2 Geographic factors/cultural factors 16. 4.3 Time factors 17. Box 7.3 The project-buying process 18. Box 7.4 The project buying behaviour 19. Changes in the US OBB 20. 5 Purchasing strategy 21. 5.1 Development of the purchasing strategy 22. 5.3 The nature of the relationship developed with suppliers 23. 5.4 Organizing the buying activities 24. 5.5 Procedures established to work with suppliers 25. Box 7.5 Alpha 26. A tougher game of musical chairs 27. 6 The future 28. 7 Summary 29. Further reading 30. Discussion questions 31. Mini Case: Internet Supplies Ltd. 32. Discussion question

Section: Understanding and Assessing Buyer Behaviour Objectives The objectives of this chapter are: 1. 2. 3. 4. to describe the organizational buring process and some models of this process; to identify the main influences on organizational buying behaviour; to distinguish the factors influencing organizational buying behaviour; to consider the role of the purchasing function in modern organizations.

1 Introduction FACED with the challenges presented by competition, the business practices of industrial firms have developed a great deal since 1980. The intervening period of time has seen many changes, among which the following have been of particular importance: the growth of outsourcing, the increasing power enjoyed by purchasing departments within companies, and the importance given to developing partnerships with suppliers. These three factors are sufficient to point out how important it is for a company to understand the decision-making process of industrial organizations in order to define and undertake the relevant marketing actions. 2 The organizational-buying-behaviour process BUSINESS-TO-BUSINESS marketing is based on the understanding of organizational buying behaviour. Researchers and experts have invested a great deal of effort in this study and they have tried and developed an organizational-buying-behaviour model with the intention of structuring marketing approach. As early as the end of the 1960s and the beginning of the 1970s, various models were developed in the USA (Robinson et al. 1967; Webster and Wind 1972; Sheth 1973). They are at the core of the founding models of organizational buying behaviour. They usually include the various phases of the buying process, the members involved, and the decisions made in each phase. These founding models are explained in detail in many marketing textbooks, but their relevance seems to have decreased over time (Cova and Salle 1992). We have, therefore, chosen to refer to them briefly and to point out the recent developments of the organizational buying behaviour. 2.1 Buying decision phases The founding models (of the 1970s) vary in complexity, but they are nevertheless similar in that they break down the buying process into the five following main phases:

need recognition; specifications definition; search for suppliers; proposals evaluation; supplier selection.

However, these phases no longer seem to express exactly how rich and complex the organizational buying behaviour process has become. The innovations and changes brought by other models developed in the 1980s and 1990s need to be taken into account. The supplier choice model developed by Woodside and Vyas (1987), based on an analysis of six American factories' buying behaviour with regard to raw materials and components, breaks down the buying process into five updated phases:

preparation of the request for quotations (RFQJ; search for potential suppliers; evaluation and selection of approved vendors for bidding products;

analysis of quotes received; evaluation and selection of supplier(s).

This model adds the phase, Evaluation and selection of approved vendors for bidding products, which leads to the setting-up of the approved vendors' list. This phase has been the focus of many researchers' attention during the 1990s. Thus Jackson and Pride (1986), with a sample of 333 buyers members of the US National Association of Purchasing Management (NAPM), showed that a majority (63.4 per cent) used a bidders' list (also called an approved vendors' list, an approved bidders' list, or an accepted producers' list). Descriptive research both in the USA and in Europe shows that the search for suppliers leads to the development of a shortlist of suitable sources, from which a quotation should be requested. The Matbuy model (Mller 1986), with a sample of six Finnish computer firms, is based on a survey of the process of selecting components suppliers. It includes the eight following phases:

purchase initiation; evaluation criteria development; information search; supplier definition for RFQ; evaluation of quotations; negotiation; supplier choice; choice implementation.

This model confirms the first phases of the buying process suggested by the supplier choice model and introduces the fourth phase, supplier definition for RFQ, which results in the creation of the accepted producers' list. Additionally, it introduces the phase negotiation with the selected suppliers after an evaluation of their proposal. By emphasizing that the final selection is not based solely on the submitted proposals but involves negotiating with one or more tenderers, the Matbuy model confirms Dale and Powley's study (1985). Four out of the five British firms they studied negotiated all the proposals received; the fifth one, a public-sector firm, based its choice only on the written proposals. Likewise, a study based on a sample of fiftyeight buyers, members of the Compagnie des Dirigeants d'Approvisionnements et Acheteurs de France (the Company of Purchasing Managers and Buyers of France), showed that many of them (84 per cent) negotiated after receiving the tenders (Cova and Salle 1992). The founding models developed in the 1970s can be compared with the updated ones of the 1980s on the basis of their breaking-up the buying process into various phases (Box 7.1). 2.2 The buying centre Industrial marketers have long been aware that some buying decisions are not made by the purchasing agent alone but occur with the involvement of other members of the customer's organization. Industrial sellers are sometimes informed when such instances occur, or it may become obvious from the actions of the purchasing agent. Often, however, the problem is in knowing when such decisions will be the result of group consensus, the make-up of the group,

and whom to target within the group to maximize the effectiveness of the offer (see Insert). The understanding of such group-procurement decisions is the study of buying centres. The buying centre consists of those people in the organization who are involved either directly or indirectly in the buying process. In the founding models, the roles of the members of the buying centre are those of user, buyer influencer, decider, and gatekeeper (Webster and Wind 1972).

Users are defined as members of the organization who use the purchased products and services. Buyers are those with formal responsibility and authority for contracting with suppliers. Influencers are those who influence the decision process directly or indirectly by providing information and criteria to evaluate alternative buying options. Deciders are those with authority to choose among alternative buying options. Gatekeepers are those who control the flow of information and materials into the buying centre.

Some researchers, however, now add the role of initiators to the previously mentioned ones. The initiator does not always belong to the buying organization, since the organization may not be aware that it has a problem or may be unsure of how to solve it. Companies often rely on the technical knowledge of their suppliers, and, when this is the case, a member of the supplier's organization may initiate the buying process by pointing out a current problem. This is often the case in project activities. The supplier creates the concept of the project, carries out the feasibility study, gathers the financing package, and identifies the actor that will later become its customer. All this takes place over an extended period of time and includes various actors in a logic of involvement. The project then clearly becomes a technical and social construct initiated by the supplier and raising the interest of the various parties involved inside and outside the buying centre. The buying centre for projects can, therefore, often include participants from outside the organization such as consultants, engineering firms, government officials, etc., that make up a network of actors around the buying organization. Typically though, participants in the buying process, regardless of their role (user, buyer, influencer, decider, gatekeeper, or initiator), perform their activities as employees of the buying organization. Their actions will therefore be evaluated, and part of all their formal compensation will depend on the outcome of this evaluation process. Purchasing activities are also likely to account for at least some of the informal rewards of the buying-centre participants (Anderson and Chambers 1985). The fact that each individual (especially when they come from different organizational levels) may be evaluated and rewarded according to different p