Understanding Organizational Buying Behavior

1. Understanding Organizational Buying Behavior Anand G Khanna

2. Organizational buying behavior • Consumer vs. Organizational buying behavior • Main types of buying situations in B2B • Stages of decision in B2B • Roles in B2B procurement • Influences on organizational behavior • Buying centres

3. Consumer vs. Organizational buying behavior • Decisions made by consumers are quite simple • Organizational buying processes are more complicated, there are several phases and steps • Different buying behavior for different products and target groups • Simple consumer goods like food and beverages are bought very spontaneously – influenced by advertising and product presentation • For premium consumer goods (expensive clothes, computers) – buying behavior is getting more rational – comparison • Private investment goods – price bargaining

4. B2B products – organizational procurement starts • More than one person involved • Buying process follows certain rules • Price comparison, standardisation, tenders, processes

5. Main types of buying situations in B2B • Straigtht rebuy – routine decision, repetitive process (energy, office supplies, raw materials, ), component suppliers for the automotive industry – little or no new information • Modified rebuy – more complicated but less sophisticated: cars, trucks, computers, consulting – modified rebuys are often treated with less attention • New task – calls for thorough research – industrial plant – highest level of uncertainty. Strategic new tasks are of extreme strategic and financial importance (Power Plants, Mining,Oil&Gas ,Petrochem ,aircrafts, military equipment, infrastructure) – re-evaluation of alternatives and search for new information and new alternatives

6. Decision Making Units • Cross Functional Groups / Teams (User ,Technical , Materials , Finance) • CF recommend for decision making Authority – predetermined on Value/Project /Application basis

7. Steps in the Buying Decision Process • Problem Recognition • General Need Description • Product/Service Specification • Supplier /Source Search • RFP/RQP/Tender • Bid evaluation& Selection-Contract Award • Delivery, Commissioning , Implementation • Evaluate Performance

8. Preliminary application • Recognition of a problem (need) and a general solution • Released by top management = operating department or external consultants • Result  request for an offer addressed to a number of potential suppliers

9. Tender preparation phase • Determination of characteristics and quantity of needed items • Search for and qualification of potential sources • Supplier has to provide an offer • Tries to be incomparable with his competitors • Customer tries to make the offer best comparable

10. Negotiation phase • Core selling process • Comprises acquisition and analysis of proposals, evaluation of proposals and selection of suppliers

11. Processing phase/warranty/ service phase • Contains selection of an order routine • Realisation of the transaction along with the fixation of after sales service tasks

12. Roles in B2B procurement – buying center concept • Group of people involved in the buying process – buying center • Webster/Wind model shows 5 different roles – not institutionalised –Vary from co to co Industry to industry • This causes problems in identifying and targeting the right people within the decision process

13. The Buying Center Environment External Factors Independent standards-setting organizations Industry needs and Orgn buying behavior Internal Factors Need of Product ,Service Technology Accounting Management Marketing Legal Production/Mfg. Finance Service Government agencies Various Publics

14. Buying center Role keepers have different tasks – not mandatory • Buyer • User • Initiator • Gatekeeper • Influencer

15. Buyer • Formal authority to sign contracts • Member of purchasing department • Influences the vendor selection • Not in technical details • Main criteria: price + terms and conditions of the contract

16. User • Person working with the product • Interested in benefits and unobstructed function of the product to buy • Large knowhow and preconceived opinion

17. Influencer • A person with high technical knowledge and practical experience  definition of minimum requirements on technical or company standards

18. Gatekeeper or Technical Clearing house ? • Controls the flow of information within the buying center • Assistant of decision maker • Influence by preparing the decision and the relevant documents

19. Decider • Right to say yes or no • He/Group is (are ) the mightiest person

20. Initiator • Person who brings new ideas and solutions into the company

21. Specific Marketing considerations in the B2B Marketing Business • Long decision taking process • High risk • Complex buying center • The specific competitive situation

22. Product policy • Focuses on innovation • Has to care for high flexibility in fulfillment of Demand • Manufacturing facility and commitment for deilvery

23. Price Offering • Strict bid and tender rules • High transparency • Add value with service offering to achieve a differentiating position –Bundling of product and services • Another aspect: financing and sourcing models

24. Marketing/Sales policy of Seller • Focus on negotiation phase • Provide excellent people in the selling center • High technical knowledge • Problem solver! • Proving success with comparable tasks • Reference projects!