Study of organisational buying behaviour

Industrial marketing effectiveness can be achieved by marketers by not only understanding the nature of industrial buying but also by understanding the industrial buying behaviour. Industrial buying behaviour however is a complex process which cannot be explained by single explanatory variable such as price, total cost, reciprocity, or ego enhancement. Any reasonably complete model of industrial buying behaviour must be capable of dealing with the complexity of industrial buying decisions which involve many people (users, deciders, influencers and buyers)are technical in nature, are made over long periods of time, and require complex interaction of personal, interpersonal, organizational and environmental factors in determining buyer response to marketing effort.

Some researchers have contributed to describe the whole area of industrial buying behaviour with different models that they have developed; which not only include the technical aspects but also psychological aspects of many individuals. They have also described the process involved.(Webster & Wind 1972; Sheth 1973).

Industrial Buying Behaviour:

According to Webster (1965), while understanding the industrial buying process, it is essential to study both industrial and individual aspect of decision making. This is because in the end, it is the individual in an organisation which will make decision in buying process.

Prof. Jagdish N Sheth developed the Sheth model in 1973. Sheth explains that all buying decisions do not result from systematic process of decision making. Some ad hoc situational factors also influence the buying decision, for example unpredicted situation like damage to machinery.

Webster and Wind model considers that industrial buying behaviour is influenced by few variables. These variables are divided into four fundamental classes that are- environmental, organizational, interpersonal & buying center and individual. The factors affecting these variables are :

The buying situation

Environmental factors

Organizational factors

Interpersonal factors

Personal factors

Additional influences

The buying situation:

Generally the buying situations are created when someone in an organization come across a problem. This occurs when a difference between the wanted outcome and the actual situation can be solved through some buying action the procedure of solving the problem is regarded as a buying process.

All the activities performed by the individuals in an organization in a buying situation are included in industrial buying behaviour. These are for example, identifying, evaluating and choosing among various different suppliers. All members involving and affecting this process are a part of the buying center.

There are various types of buying situations. The idea is based upon the concept that for a given buyer, while purchasing the same product, individual buying pattern and buying process will differ. It has been found that the relative importance of attributes when choosing a certain supplier changes depending on the different buying situations.

Three buying situations were identified namely, new task, modified rebuy and straight rebuy. These can be described based on following three dimensions:

Newness of the problem to the buying influences and decision makers.

Information requirements of the buying influences and decision makers.

New alternatives given serious consideration by the buying decision makers.

New Task:

Either an internal stimulus or an environmental factor triggers this recognition that lead to the seeking of a new task product. The problem is new from the point of view of the buying influence and is also new compared from other problems in the past. For example, a new line of product or service can stimulate the need for complete new equipments, raw materials etc. In this case, industry may have very little or no relevant experience from past. Therefore, much information is gathered and new (alternative) ways and suppliers need to be considered. Generally, this situation occurs relatively infrequently, innovations are not frequent.

Straight Rebuy:

In any rebuy situation buyer has much relevant experience. And straight rebuy is the most common situation in industrial purchasing. The same solution to the problem that was considered in the past is now considered. Since the industry has the relevant experience in this case, the solution becomes routine. There is a possibility that the quantity of product changes time to time and still it is considered as a straight rebuy. Even changing the suppliers among the list previously approved for the same product is allowed as long as the selection is made from the list only. Even the buyers can believe that there are better offers in the market though there need is satisfied by regular supplier. But in this situation buyers come back to the regular suppliers as the returns devoting the time to search for new suppliers are unsatisfactory.

Modified Rebuy:

This buying situation differs from the straight rebuy as new alternatives of supplier are considered. This does not means that new suppliers are alternative is chosen, just that these are considered. Modified rebuy usually occur from:

Buying decision makers anticipate that cost saving, an improvement in end product or production process can be derived from change of supplier.

The buying organization is partially or fully unsatisfied with quality or service etc.

A change in the buying organizations requirements.

Environment Influences:

According to Webster and Wind model (1972) environmental influences have effect in four different ways:

Availability of Goods and Services: This statement primary reflects the influence of physical, technological and economic factors affecting the availability of goods and services.

General Business Conditions: The main influences here are political and economical effects on business condition, for example national income and unemployment.

Values and Norms: Cultural, legal, social and political are the dominant forces when determining the values and norms of organizational and personal relationships, between a seller and a buyer.

Information about Supplier: the flow of marketing communication from suppliers can vary depending on environmental factors like: physical, technological, economic and cultural influences.

The industrial marketer to other organizations must accurately observe and analyse the environmental factors for each market segments.

Whereas Sheth gives another approach towards environmental influences and starts to explain that industrial buying decisions does not always include just individuals from the buying process. Therefore, for a marketer, it is very much important to understand whether a purchasing decision is made jointly or independently. Sheth gives six main factor on which it can be determined that; if a buying decision will be jointly or individually. The six factors which can be related to the environment of the product or service are listed below:

Product Specific Company Specific Perceived risk Company orientation

Type of purchase Company size

Time Pressure Degree of centralization

Perceived risk includes the uncertainty of making wrong decision. Type of purchase determines whether it is a one – time opportunity or regular purchase and the persons who then have to get involved. Time pressured purchases are more likely to be delegated to one party and hence excludes joint decision. Company orientation relies on the nature that if for example a company is technology based the engineers will have a greater influence on the buying decisions. If the company size and centralization is large the decision making tends to be jointly.

Organizational Influences:

Individual decision makers act differently in an organizational buying decision due to the influences they receive there. Organizational influence has been divided into, and described by the main groups for better understanding. The main groups are buying tasks, organizational structure, buying technology and buying center.

The buying tasks arrive from organizational tasks and goals, such as specified budgets. These differ frequently between the buying situations.

The various dimensions that the organizational structure includes are authority, communication, workflow, status and rewards.

The setting of organizational buying process and the unit which is bought are affected by buying technology. Intra organizational technology is characterized by equipment available in an organization that facilitates the process of buying.

The behaviour of other members of the buying center in an organization contributes with influencing in organizational buying. These members are also affected by the earlier mentioned groups.

Interpersonal Factor and Buying Center:

To understand influences in the process of buying decision, three classes of variables must be identified. The first one is that to recognize different roles between the buying center members. Next is the variables conducted for interaction among individuals in the buying center. Finally, identification of the dimension that makes the group functioning. The salesman who is responsible to contacting the members of buying center is required to take into consideration the above dimensions. The salesman should also be prepared for how each of these members expects him to behave. In conclusion an understanding of the interpersonal relationships in the buying organization is a significant source for the development of marketing strategy.

Sheth gives a description of decision making that is made jointly between individuals in the buying center. It starts with the initiation of decision to buy, which is followed by collecting required information, examining and evaluating available alternative suppliers and negotiation between the parties to jointly make a decision. Sheth states that the assimilation of information, deliberation on it, and the inevitable conflict which most joint decisions involves.

Sheth further discusses that there are at least three departments whose members are connected to the different stages in the buying process. The most usual are employees from the purchasing, manufacturing departments and quality control departments. There are considerable interactions between the persons in the three departments and they are often taking joint decisions. Hence it is important for an industrial marketer to investigate similarities and differences in the psychological world of these persons. The decision makers’ expectations about potential suppliers and brands are an important aspect as well.

Personal Factors- The Individual Participants:

The base of all industrial buying behaviour is the individual behaviour (Webster and Wind, 1972). The individuals in an organization are the one actually analysing, deciding and acting to perform the purchase either in groups or alone. The attributes from industrial buyers will affect their response to the situation and marketing actions towards them from a vendor. Personality, inspiration, perceived role set, reception skills and learning are the primary attributes. The individual determinants and strategies that buyers probably use should be considered by a marketer or potential vendor, if they desire to affect an individual industrial buyer.

Sheth presents how different expectations are aroused among the individual involved in the buying process. These are including the background of individuals, information sources, active search, perceptual distortion and satisfaction with past experiences. These factors ought to be described and if they are to represent the psychological world of the industrial buyer.

Sheth explains the background of individuals is the most significant factor to each of the persons involved in the buying process. The variety in demographical, social, educational and life style backgrounds generate different goals and values between purchasing agents, engineers and managers. To find information of this background factor is relatively easy, in example the educational differences are often closely related to demographic factors. Information sources and active source includes the sources of information each person is exposed to and how much they contribute to the information search. The purchasing agent for example more exposed to commercial sources connected to a particular supplier than an engineer, who often get the information through word of mouth or similar sources. The active search is implied to the persons being responsible for the buying actions. Perceptual distortion declares that each person involved in a buying process attempts to make the objective information consistent with his own prior knowledge. For that reason many different interpretations of the same information may occur. Perceptual distortion is probably the most difficult factor to quantify but the author suggests perceptual mapping technique as a way of measuring judgements between persons. Satisfaction with past phrases explains that persons does not have the same experience with various suppliers and hence the levels of satisfaction differ within each parts involved in the buying process.

Additional Influences:

Thomas and Wind (1980) further discusses additional factor that influence industrial buying behaviour. Inter-organizational factors are regarding the relationships between the buying and selling organizations. The industries marketing variables such as positioning, price or distribution and the marketing strategies of the competitors are also important influences on industrial buying behaviour.

Some authors have stated that the general categories gathered from the original authors consistently have failed to capture all of the concepts, factors and relationships required to predict complex behavioural outcomes. Two factors were added, to complete the original constructs, these were role stress and decision rules and they work in an intra- firm level.

Decision rules are influenced by factors from environmental, organizational, buying and selling characteristics. Decision rules are also expected to change through the stage of the industrial buying process. These rules can be formalized in some organizations, which may include procedures for selecting suppliers. Informal rules based on buyers’ experience and rule of thumb may exist in other organizations.

Role stress can be identified by role ambiguity and/ or conflict in industrial buying behaviour. Role conflict is the incompatibility between purchase expectations. Role ambiguity is the level to which plain information is missing about:

Expectations related with the purchase

Methods for satisfying purchasing expectations

The consequences of role performance.

The influence on role stress comes from factors as environmental, organizational, purchase group and participants characteristics.

Perspective on the Buying Process:

Modelling the industrial buying process has been emphasised by many researchers as it is regarding industrial decision making in procurement process. One of the popular models by Webster is discussed below:

Webster’s Model:

Webster (1965) has given a process model for industrial procurement. As the model given is so ideal and in practice, organizations do not follow the exact phases given in the model. Appling practical approach to this model, it can be explained as four phase process:

Figure 2.1 a model of industrial buying behaviour- practical approach

Problem Recognition: Problem recognition is the identification of a need which can be solved by a purchase. This means that there is a perceived difference between goal and actual performance and is solved either by changing the performance or the goals. Industrial buying should not be viewed upon as a completely objective and rational process but rather as an interaction of the individuals in the organization. Factors that create a buying situation are for e.g. regularly review of vendor performance, new product development or process and value analysis program.

Buying Responsibility: Buying responsibility referrers to the individuals’ responsibilities in the buying organizations and comprises of the technical complexity, its importance to firm, the individuals product specific knowledge and the individuals centrality in the production process. Product variables (product feature, quality, usability etc), important for the users of the product, can come in conflict with the market variables (price, availability, delivery, after sales service etc), interest of the centralised purchasing organization. The influence of product variables will for e.g. increase with higher technical complexity, importance to the firms’ production and decrease as the size of the organization and formal responsibilities of the centralized purchasing organization increases. Another perspective to be taken into consideration is the involvement of the top managements’ influences versus the importance of the operating department. Generally the management influence increases as the monitory value increases and increases as the size of the firm increases and the increase of product variables.

The Search Process: In collecting information about various suppliers, individuals generally follow routine methods. This search process may result in organizations changing their goals. These goals are the choice criteria for choosing suppliers. It is very important to define the criteria which will be the base for evaluation of what is exactly needed and what is offered by the market or available in the market. The very first step in the search process is defining the goals i.e. the criteria. As soon as this step is achieved, the burden of searching information is reduced. Though the information search gives better insight of market offering which in turn facilitates to select better criteria, it is avoided as it takes lots of time.

The Choice Process: organizations have their certain purchasing rules which consist of objectives of purchasing activities, policies and procedure which need to be followed. These rules guide the choice process. The factors which are assumed to be given or are out of control of an organization for example the price of a product or the capacity of the product are called as parameters. Whereas, variables are those factors which are not already decided by the market, which can be controlled by negotiation. These two factors are not far separate from each other as the variable factor may be parametric in some other situation and vice versa. Therefore, this choice process includes three steps where the first one is to making vendor list in the ascending order on the basis of their qualification. Then the second step is comparison of them on the basis of their quality of offering with specification. And the last step is to select appropriate supplier based on various dimension.

Buy phases in the industrial buying decision process:

Industrial buying activities consist of various phases of buying decision making process. The type of buying situation will be a parameter to give importance to various phases. Therefore, the industrial marketer should understand both the various phases of industrial buying process and the type of buying situation. Robinson, Faris, and Wind (1967) developed eight phases of industrial buying decision process. These are also called as process Buyphases. The phases are given below:

Recognition of a problem or need.

Determination of the application or characteristics and quantity of needed product.

Development of specifications or description of needed product.

Search for and qualifications of potential suppliers.

Obtaining and analysing supplier proposals.

Evaluations of proposals and selection of suppliers.

Selection of an order routine.

Performance feedback and post- purchase evaluation.

In industrial markets, the buying decision making process includes above observable sequential stages involving many people in the buying organization. Understanding the various phases of buying decision making is useful to an industrial marketer as it helps in developing an appropriate selling strategy.

Anticipation or Recognition of a Problem (or Need):

This phase consists of recognition of a problem or need which may originate within the firm or may also be recognised by a smart marketer. In case of a new product to be developed, need of buying required material is recognised. And in case of an existing product, when the quality of material supplied by an existing supplier is unsatisfactory, or the material is not available at required time in required quantity, or when damage to the machinery occurs which are bought from existing supplier, the buying organization recognises the problem.

Determination of the Characteristics and Quantity of Needed Product:

Once the problem is recognised within or outside the buying organization, the next phase is to find the solution of the problem. The buying firm will try to answer questions such as: What type of products or services to be considered? What quantity of the product needed? For technical products, the technical departments (R & D, industrial engineering, production, quality control) will suggest the general solution of the needed product. For non- technical goods or services, either the user department or purchase department may suggest products or services, based on experience and also the quantity required to solve the problem. However, the required information is not available internally within the buying organization, outside sources can be used.

Development of Specifications of Needed Product:

After the general solution to the problem is determined in the second phase, the buying organization, in the third stage, develops a precise statement of the specifications or characteristics of the product or service needed. During this phase, the purchase department takes the help of their technical personnel, or if required, outside sources such as suppliers or consultants. Industrial marketers have a great opportunity to get involved at this stage by helping the buying organization to develop product specifications.

Search for and Qualifications of Potential Suppliers:

In this phase, the buying organization searches for acceptable suppliers or vendors. The first step in this stage is to obtain information on all the available suppliers and then, in the second step, decide on the acceptable or qualified suppliers. The search for potential supplier is based on the various sources of information like trade journals, sales calls, word – of – mouth, catalogues, trade – shows, and industrial directories. The qualifications of acceptable suppliers depend on the type of buying organizations, or the buying situation and the decision making members.

Obtaining an Analysis Supplier Proposal:

Once the qualified suppliers are decided, the buying organisation obtains the proposals by sending enquires to the qualified suppliers. A suppliers’ proposal can be in the form of a formal offer, a quotation, or a formal bid, submitted by the supplier to the buying organization. It includes the product specification, price, delivery period, payment terms, taxes and duties applicable, transportation cost, cost of transit insurance, and any other relevant cost or free service provided.

Evaluation of Proposals and Selection of Suppliers:

The buying organization evaluates the proposals of competing suppliers and selects one or more suppliers. Further negotiations may continue with selected suppliers on prices, payment terms, deliveries etc. The decision makers in the buying organization may evaluate each supplier on a set of agreed- upon attributes or factors. For instance, each supplier is evaluated on each attribute by giving weightage to each attribute and using rating scale of 100 percentage points.

Select of an Order Routine:

In this stage, the mechanics of exchange of goods and services between a buyer and a seller is worked out. The activities include: placement of order with the selected suppliers, the quantity to be purchased from each supplier, frequency of order placement by buyers and delivery schedules to be adhered to by the supplier, levels of inventory needed, follow up of actual delivery to ensure it to be as per delivery schedule and the payment terms to be adhered to by the buyer.

Performance Feedback and Post- purchase Evaluation:

In this final phase, a formal or informal interview regarding the performance of each supplier takes place. The user department gives a feedback on whether the purchased item solved the problem or not. If not, the members of decision making unit review their earlier discussion and decide to give a chance to the previously rejected suppliers.

Buying Center:

The buying center is sometimes referred to as the decision making unit or buying group. The buying center contains a body of all the individuals or groups participating in the buying decision process and who have independent objectives and share common risks. There are six roles of buying center members. These are:

Initiators:

Buyers:

Users:

Influencers:

Deciders:

Gatekeepers: