4 – Business Markets and Business Buyer Behaviour

Introduction

You learned about the behaviour of individual or retail consumers in the previous unit, and you will learn about the behaviour of business/organizational buyers in this unit. Business purchases are classified as either “rational” or “economic.” Whether for-profit or not-for-profit, organisations are made up of individuals who execute various tasks, including purchasing decisions and are impacted by marketing inputs that do not appear to be solely logical or economic. Every year, large sums of money are spent on business-to-business marketing, which efficiently necessitates a thorough grasp of organisational buying behaviour. Understanding purchase behaviour in the context of organisations necessitates many of the same concepts and skills as understanding consumer or household behaviour. Organizations are larger and more complicated entities that generate preferences, memories, and behaviours based on perceptions, information processing, and experience. An organization’s culture (corporate culture) determines generally stable behaviour patterns across time and settings.

Organizations make selections ranging from routine replacement purchases for frequently purchased commodity goods, such as pencils or paper, to capital expenditures. Conversely, new, complex purchase decisions could involve careful problem definition, extensive internal and external information search, a detailed and often highly technical evaluation process, a negotiated purchase, and an extended use and post-purchase evaluation period.

4.1 Business-to-Business Market: Classification of Business Customer

Organizational buyers come in a variety of shapes and sizes. Farmers, farm owners, warehouse owners, brokers, and others are examples of agricultural purchasers. They buy materials for growing, stockpiling, conserving, and distributing agricultural products. Farmers, for example, require land, seeds, tractors, fertiliser, transportation, etc.

Resellers are wholesalers or retailers who purchase from one organisation and resell to another. Large grocery chains, for example, will sometimes acquire products straight from manufacturers and resell them to end-users. Wholesalers may sell to retailers, who then sell to customers.

Producers also purchase products from sub-manufacturers to complete a finished product. Instead of manufacturing the parts themselves, computer makers frequently buy hard drives, motherboards, casings, displays, keyboards, and other components from other manufacturers and assemble them into a finished product.

Governments make many purchases. For example, the military needs many materials to feed and equip troops. Services supply intangible commodities such as banking, education, airlines, and healthcare, but they also require tangible things such as furniture, clothing, land, paper, computers, and printers.

Finally, non-profit organisations such as charities, trusts, green clubs, and social groups purchase large quantities of food, clothing, furniture, and literature. CRY, for example, would most likely purchase thousands of reams of paper per year to print their cards.

4.1.1 Traders

A trader is a businessman who makes a profit by trading in commodities he did not generate. Traders are classified into two types:

1. A wholesale trader works between the producer and the retail retailer in the supply chain. Some wholesalers organise the movement of goods and do not transport them themselves.
2. A retail dealer or retailer sells goods to customers (including businesses). A shopkeeper is a retailer.

A trader purchases goods from wholesalers and, occasionally, directly from manufacturers. The trader stores the goods as inventory.

4.1.2 Manufacturers

They are frequently referred to as “Original Equipment Manufacturers.” OEM refers to when a commercial enterprise purchases products to incorporate into its final products, such as Intel Pentium CPUs for IBM notebook computers or MRF tyres for Maruti 800 automobiles.

OEMs are often the highest-volume users of goods in an oligopolistic market. Another significant point is that MRF and Intel provide products to customers in the replacement or aftermarket via industrial distributors. For example, if MRF supplies tyres to Maruti, it will be referred to as an OEM parts provider.

Suppliers of parts must fulfil specifications while also ensuring quality, dependability, and just-in-time delivery.

4.1.3 Service Buyers

Companies in the service sector require equipment to provide services. To run its business, a bank would require computers, furniture, fax machines, fixtures, flooring, fans, air conditioners, pens, papers, staplers, etc.

4.1.4 System Buyers

Many corporate buyers prefer to acquire a complete solution to a problem from a single provider, a practice known as Systems Buying. Many businesses purchase whole software packages from a single vendor. For example, some enterprises purchase SCM software, ERP software, supplier relationship software, and so on from several vendors. They are referred to as system purchasers.

4.2 Business Buyer Characteristics

In several significant ways, organisational buyer characteristics differ from end consumers.

1. Group-based Decision-Making: Because many organisational purchases are costly and complex, a group of professionals from engineering, production, finance, purchasing, and even senior management may be involved in making a purchase decision.
2. Technical Knowledge: In industrial, governmental, and institutional organisations, professional buyers, known as purchasing agents, make purchases and are highly educated about products or services. Individual experts referred to as buyers by resellers such as supermarkets, make purchases on their behalf.
3. Rational Motives Dominate: Rational motives often predominate among organisational purchasers because of the technical nature of the transactions involved. Such aspects are typically economic and can be converted into monetary terms to analyse costs and advantages carefully.

For example, quality specifications and consistency, assurance of fast delivery, pricing, terms of credit, warranty, post-sale support, and so on are all objective elements influencing consumer selection.

1. S. Penn, Jr. and Mark Mougel observe that, in addition to rational factors, customers are impacted by emotional reasons, which are frequently difficult for vendors to detect. Understandably, emotional reasons have an impact. Like all humans, organisational purchasers have preferences for or dislike vendor sales representatives. They are also concerned about their job stability, readiness to take chances, and the need to be respected in their workplace, among other things. These critical aspects can generate a range of problems for purchasing agents.

4.3 Purchase and Demand Patterns

4.3.1 Decision Approach and Purchase Patterns

In many aspects, the organisational purchasing approach and purchasing patterns differ from ultimate customers.

1. Formality: Because many organisational purchases are likely complex, with significant technical and financial hazards, purchasing behaviour is significantly more complicated than end consumers. Because of these factors, decision-making is more formal, and proposals, quotation requests, and purchase contracts are frequently used.

      2. Negotiations: In most cases of organisational buying, substantial negotiations take place over a more extended period between buyers and suppliers. Some of the essential reasons for lengthy talks are as follows:

(1) the product’s complexity necessitates those specifications be carefully spelt out and agreed upon;

(2) the order size is usually large, and the purchase price is essential; and

(3) Many people are usually involved in reaching a final purchase decision. According to Paul A. Dion and Peter M. Banting, negotiations are typically a cooperative process between customers and providers.

3. Less Frequent Purchases: Organizations, on average, make fewer purchases than end users. Firms may invest in capital equipment used in the manufacturing process for several years. Similarly, computers, photocopiers, printers, and so on are rarely purchased. Even office supplies that are used daily are acquired at monthly or more extended periods. Raw materials and parts are constantly consumed in manufacturing and replaced regularly. Yet, contracts for selling and supplying these things will likely be long-term agreements established every few years.
4. Reciprocity: An arrangement in which two organisations agree to buy from each other is sometimes used in organisational buying transactions. For example, a computer software manufacturer may purchase computer hardware from the same company that purchases its software and computer supplies.
5. Service: In many cases, organizational products must be tailored to the needs of a specific organizational buyer. Key product support operations include service, installation, technical help, and spare parts.

4.3.2 Market Structure and Demand Pattern

Business-to-business marketers should know numerous distinguishing characteristics connected to market structure and organisational buyer desire.

Geographical Concentration

Organisational buyers are more concentrated in specific geographic areas than individual customers. For example, most IT-related enterprises in India are in the southern states. Similarly, there is a general concentration of specialised sectors in industrial regions designated by practically all Indian states.

Fewer but larger Buyers

The number of organizational buyers is relatively modest compared to individual customers. Organizations place large-scale purchase orders for raw materials and products, for example. The automobile business has only a few manufacturers, yet they spend a lot of money on tyres. These corporations face millions of automobiles in the consumer sector that require tyre replacements. For example, branded computer makers are few and buy significant quantities of Intel or AMD chips. Independent computer assemblers are numerous and purchase only a few processors at a time.

Derived Demand

Organizational demand is derived demand because organisations buy products that will be utilised directly or indirectly in creating goods and services to meet consumer demand. As a result, the demand for goods is generated from the desire for consumer goods. For example, because customers demand computers, branded computer manufacturers require CPUs and other hardware and software to build home computers. If consumer demand for computers falls for any reason, demand for processors and other components from computer makers is also likely to fall.

Inelastic Demand

Many organisational items have inelastic demand. This suggests that an increase or decrease in the price of a product will have little effect on its demand. In the near run, total industry demand for goods and supplies stays generally untouched by price changes, in contrast to consumer demand, which exhibits extraordinary sensitivity to price changes. For example, if the price of computer hard discs falls, their demand will unlikely rise. However, when automobile manufacturers lower the cost of their models, sales increase, and when prices are raised, demand declines.

Joint Demand

In some instances, organisational items can only be utilised with other products. When the sale of one product is contingent on the sale of another, there is joint demand. Companies that manufacture petroleum, for example, require additives such as octane and boron. The corporation doesn’t need the others if it can’t get one of the two items.

Fluctuating Demand

Organizational demand varies significantly compared to consumer demand. Demand from corporate buyers is highly tied to the economic cycle. When the economy slows or reverses, organizational buyers deplete their existing inventory and postpone acquisitions. Corporate purchasers may stockpile significant quantities of raw materials, spare parts, office equipment, and other things when the economy is doing well.

4.4 Factors Influencing Organizational Buyer Behaviour

The following are some of the main types of characteristics that influence organisational buying behaviour:

1. Organisational culture
2. External influences on culture
3. Internal influences on culture
4. Purchase situation

4.4.1 Organisational Culture

Members of an organisation have specific thoughts and attitudes about the organisation and how it functions. According to R. Deshpande and F. E. Webster, Jr., organisational culture (or corporate culture) is similar to lifestyle in that organisations differ significantly in making decisions and handling dangerous challenges, innovation, and change. Organisations’ needs and goals are shaped and reflected in their culture, influencing decision-making.

4.4.2 External Influences on Culture

In the same way that gender, age, education, and income are consumer demographics, firm graphics refers to an organization’s size, activities, aims, location, and industry category.

Large organisations typically employ specialists in many disciplines to handle duties such as purchasing, finance, marketing, production, engineering, and general administration. Still, smaller organisations may rely on only one or two people to handle these responsibilities. Large organisations are often more difficult due to their size, as more people are involved in managing operations, and multiple people are usually engaged in purchasing choices. Supply companies must target various functions with their advertising and sales employees. In the event of a smaller company, the same purchase decision may involve only the owner or manager, in which case a separate medium would be necessary to reach this individual, and one message should be created to cover all of the significant buying considerations.

Organizational activities and objectives are essential aspects that impact their style and behaviour. For example, the Indian Air Force would approach the purchase of fighter aircraft differently than Indian Airlines would approach the purchase of Boeing aircraft for commercial flights.

Commercial, governmental, non-profit, and cooperative aims are the four types of organisational goals. Routine, complex, or technical describe the general nature of managerial tasks. For example, the Indian Railways and the Indian Navy would approach the procurement of train locomotives and submarines differently.

Similarly, non-profit and cooperative organisations’ activities and aims will impact their style and behaviour.

Commercial organisations are expected to make economically sound judgments and operate to maximise economic profits, whether publicly or privately held.

The location of an organisation is also crucial. Regional subcultures influence not just individual lifestyles but also organisational cultures. Even two branch offices of the same company may have different cultures.

For example, the subcultures of West Bengal and Gujarat are likely to impact the culture of a company’s branch offices.

As one enters foreign cultures, location-related cultural distinctions become increasingly important. Firms building branches outside their home nations frequently struggle to manage the local personnel. Marketing to a firm located outside of a firm’s home culture presents more hurdles than selling to consumers within that culture.

The types of people working in a particular organisation are called its composition. Organizational culture influences the behaviours and values of its members, and the people who work in that organisation significantly impact its culture. An organisation with a predominantly young, highly educated, technological workforce will have a significantly different culture than one with elderly, highly educated, but non-technical employees. People in organisations are interdependent and engage with one another to impact each other’s purchasing behaviour. In general, the traits of the firm’s founder and top management staff significantly influence its culture; the overall composition of employees is also an essential component.

Reference groups, such as innovative organisations, also impact purchase behaviour. These industrial market innovators are change agents who draw much of their success from leading change. Other organisations closely monitor their adoption of new products, technologies, services, or manufacturing processes and frequently imitate them. Trade associations, financial analysts, and dealer organisations are examples of reference groups that affect an organization’s decision to acquire or not buy a given product or buy from a specific supplier.

Technology can potentially influence what is purchased and the purchasing process itself. In purchasing, some organisations employ advanced management science techniques such as inventory control and price forecasting models, purchase scheduling charts, and computer applications for finding optimum order numbers. Computer applications for managing and controlling the purchasing process are fast spreading.

4.4.3 Internal Influences on Culture

Internal organisational elements influencing organisational culture include values, perception, learning, motives, and emotions.

These ideals significantly impact the culture of the organisation in question. Some organisations are more formal than others, and some are more open and informal.

For example, IBM is considered severe and formal, whereas Apple is less formal and creative and promotes a more open corporate culture.

These disparities influence purchasing behaviour, and supplier firms must understand these distinctions to best fulfil the concerned organisation’s demands. Some typical corporate values that organisations differ on include:

1. Taking risks is respected and rewarded.
2. Cooperation is less crucial than competition.
3. Hard labour comes first, followed by pleasure.
4. Individual efforts take precedence over group efforts.
5. Any issue can be resolved.
6. Active decision-making is required.
7. Change is welcomed and aggressively sought.
8. Performance takes precedence over rank or status.

These qualities are more likely found in innovative organisations because they value individual contributions, see issues as opportunities, and welcome change. These ideals are typically at the heart of many successful organisations, such as 3M and Apple computers, yet they are unthinkable in any government, including India’s. A bureaucratic structure is more likely to be content with the status quo and to advance at its own pace in all aspects. Values exist in both organisations and individuals within them. The more consistent individuals’ and organisations’ value systems are, the smoother the decision-making process and execution of those decisions are likely to be.

Individual values/objectives must be distinguished from organisational values/objectives. Personal approaches to purchasing decisions on behalf of the organisation may be primarily based exclusively on organisational values/objectives, the decision may be solely based on the individual’s values/objectives, or the decision may be based on a balance of the two. Individual values/objectives and organisational values/objectives may clash in some instances, which may impact purchasing behaviour. Marketers who sell to corporate purchasers must recognise such circumstances and consider how the dispute might be handled.

Organizational perception formation is a complex process. An organisation goes through exposure, attention, and interpretation stages. A buyer organisation creates images of seller organisations based on the seller organization’s products, personnel, and activities. Once developed, such pictures of organisations are difficult to change, and buying organisations base their decisions on images or memories they have formed. According to S. M. Mudambi, P. Doyle, and V. Vong, a supplier organisation must have a solid communications strategy to build and reinforce a desirable corporate image or brand position.

Business buyers like to do business with companies they know, like, and trust. Salespeople are frequently the primary people who assist in developing relationships between members of the organisations involved.

Organizational learning occurs through experience and perception. Positive interactions with supplier organisations by buyer organisations are beneficial and likely to be repeated. Effective purchasing processes and procedures tend to become the concerned organization’s rules and policies. In contrast, negative experiences with supplier organisations lead to learning that precipitates avoidance behaviour and the discarding of ineffective processes and procedures.

Emotions and motives play a more minor role in organisational purchase decisions. However, we must recognise that humans’ psychological needs and feelings influence these purchase decisions, which should not be neglected or underestimated. Those participating in organisational buying decision-making frequently sense significant career danger and suffer self-doubt or cognitive dissonance. Such personal concerns are likely to influence organisational purchasing decisions.

4.4.4 Types of Decision Situations

The complexity and difficulty of a particular buying situation considerably impact the purchase decision process in organisations. Individuals or small groups, on the other hand, make routine judgments with minimal effort since they are seen as less complicated and involve little or no risk. Organizational decisions that are considered complex, entail a high level of risk and have significant ramifications for the organisation are at the other end of the spectrum.

The purchase choice continuum for final consumers encompasses nominal, limited, and extended decision-making. The situation is slightly different for organisations because their purchases are more complex than most individual or household decisions and fall into three categories.

Categories of Organizational Buying Decision

Buying Situation	Level of effort	Risk	Buyers involved
Straight re-buy	Nominal decision-making	Low	Automatic reorder
Modified re-buy	Limited decision-making	Low to moderate	One or a few
New task	Extended decision-making	High	Many

 

1. Straight Re-buy: This recurring purchase involves an automatic choice, such as when the inventory level hits a predetermined reorder point. Most businesses have a list of approved vendors. These are more normal purchases to meet ongoing and recurring needs and are frequently subject to comparable purchasing terms and conditions. The modest purchases involve little uncertainty because previous products, terms, and services have been satisfactory. For example, the buyer may have limited purchasing power when purchasing paper for printers and photocopiers.
2. Modified Re-buy: These are somewhat crucial and require only a minimal amount of decision-making. There is a moderate level of uncertainty because the organisation wants to repurchase a product or service with minor changes. There could be few or many options. An ice cream company may seek lower prices, faster delivery, and higher quality cream from suppliers to accommodate changing market conditions. In the case of a modified re-buy, competitor suppliers may see a chance to get the company’s business, and regular suppliers may become more aggressive and competitive to retain a customer’s business. P. Doyle, A. G. Woodside, and P. Michell believe that while new tasks and modified re-buys are similar, straight re-buys are not.
3. New Task: Because the decision is new, and the item is being purchased for the first time to do a new job or solve a new problem, such purchases need extensive decision-making. There is frequently a considerable danger that the product will not operate as expected or will be prohibitively expensive. Developing product specifications, vendor specifications, and procedures for future product purchases may be included in acquiring a new task. In all such cases, the organisational buyer needs a large quantity of information and the meticulous formulation of criteria for evaluating the product for purchase. For example, purchasing large machinery or an aircraft for goods transportation is typically a new task.

4.5 Organizational Buyer Decision Process

Organizational purchasing may be traced to a single demand – problem-solving – and incorporates decision-making units (buying centres). These are people within a company who interact when making a buying decision. The size of the decision-making unit may differ depending on how new, complex, and critical the purchasing choice is, as well as how centralised, hierarchical, and specialised the organisation is. More extensive, more formal organisations typically include more people in purchasing decisions than smaller, less formal ones. Such buying centres are frequently developed ad hoc for non-routine choices but are relatively permanent for routine decisions.

Organisational Buying Decision Process

Individual authority, knowledge, the degree of influence of each functional area in a particular decision, how the organisation handles group decision conflicts, and the nature of the decision all play a role in the final purchase decision.

The decision-making unit can be segmented based on functional responsibility and influence type. Functional responsibilities include manufacturing, engineering, research and development, purchasing, and general management. Each function evaluates the organisation’s demands differently and employs different evaluative criteria.

Product Life Cycle Stages and the Size of DMU

Product life cycle stages	Types of purchase decision situation	Size of DMU	Key functions affecting the purchase decision
Introduction	New task	Large	Engineering and R&D
Growth	Modified re-buy	Medium	Production and top management
Maturity	Straight re-buy	Small	Purchase function

4.5.1 Problem Recognition

Recognizing a requirement or problem is the first stage of an organisational purchasing decision. Similarly, in the consumer decision-making process, one or more persons notice a significant gap between the desired state and the actual condition of affairs. Problem identification can occur due to various internal or external factors, such as the breakdown of an old packaging machine, adjustments to an existing product, or the development of a new product that requires different packaging equipment. External sources may also provide information about new packaging equipment to the organisation, such as a trade show visit, an advertisement in an industrial journal, or a salesperson’s call from a supplier.

4.5.2 Product Specification

Participants in the decision-making process examine the problem or requirement at this stage and determine what is required to resolve or satisfy it. The using department must establish thorough product requirements and clarify precisely what is needed. Product specifications may include technical characteristics, quality, durability, availability, warranty, and support services, among other things. Users, technical specialists, and financial executives will be involved in developing sophisticated items.

Example: When a paint-spraying machine fails at a two-wheeler vehicle manufacturing factory, engineers, technicians, and machine operators assess the issue and decide on replacement requirements. They finalise specifications for a replacement machine, specifying that it must paint 25 cars per hour, change paint colours quickly, and require only one operator. Finance officials then select the machine’s pricing range.

4.5.3 Product and Vendor Search

At this point, the organisation searches for potential solutions to the problem and organisations that may be qualified to be suitable providers for those solutions. Buying centre members may search corporate files and trade directories for information, contact suppliers, solicit proposals from known suppliers and analyse catalogues and trade magazines to gather information. Sometimes, to establish specifications for complex products, an organisation must start with what products and vendors are currently available, or the corporation may elect to build the product rather than buy it. Generally, search attempts should yield a list of numerous alternative items and vendors.

For example, personnel of a two-wheeler vehicle manufacturer’s purchasing centre hunt for paint-spraying items that fulfil the standards and compile a list of paint-spraying machines accessible from various vendors.

4.5.4 Product and Vendor Evaluation

This step is concerned with the process of evaluating the products on the list as well as the sellers. The purchasing centre evaluates to identify which products (if any) match the standards. Various vendors are also reviewed using characteristics such as pricing, shipping, service, warranty, and credit. In our two-wheeler auto manufacturing example, personnel of the purchasing centre evaluate the paint-spraying machines in the consideration set based on the evaluating criteria specified by the engineers and technicians. Members also assess the vendors of these products to ascertain their ability to sell and provide after-sales service. The buying centre may consider some of the typical qualities below for each seller to select the best candidate.

1. The vendor’s overall reputation
2. Financing arrangements
3. The vendor’s flexibility in reacting to the needs of the buying organisation
4. Previous experience with the vendor in similar scenarios
5. Provided technical service
6. Belief in the sales personnel
7. Ordering convenience
8. Product reliability data
9. Price
10. Technical specs
11. Product operation or use ease
12. Product preferences of the primary user
13. Training support provided by the vendor
14. Training time is required.
15. The delivery date is guaranteed.
16. Ease of maintenance
17. Expected post-purchase vendor service

4.5.5 Product and Vendor Selection

The information acquired during the evaluation stage is used to finalise the product to be purchased and the seller from whom the purchase will be made. At this point, the decision-makers and buyers from the buying centre of a two-wheeler vehicle manufacturer eventually decide to purchase a specific brand of paint spraying equipment from XYZ vendor because the product and the supplier meet the stated evaluation criteria. In industrial marketplaces, terms and conditions such as payments, delivery deadlines, guarantees, and so on are both complex and crucial.

4.5.6 Performance Evaluation

The last stage of the purchase selection process involves reviewing the product and the vendor’s performance. Assessments of organisational purchases are more formal than evaluations of home purchases. This step is critical because it provides input so the buying organisation and the vendor can work better together. Management personnel from various departments may regularly rate the vendor’s performance based on criteria such as product quality, delivery, and post-supply service. According to K Smith, the service provided by the seller during and after the sale is an essential component of post-purchase evaluation. Unhappy organisational customers, like dissatisfied household purchasers, may switch vendors and/or engage in unfavourable word-of-mouth communications. According to S. W. Hansen, J. E. Swan, and I. L. Powers, providers strive to minimise discontent and encourage those dissatisfied to complain only to them.

4.6 Organizational Buying Roles

An industrial marketer’s primary responsibility is to identify persons who are involved in the purchasing decision-making process. These decision-making units are referred to as buying centres. A purchasing centre can be an individual, a department, or a group of individuals from various departments within a company. The purchasing centre has common aims, including sharing the risks associated with the purchase decision. It’s common to find buying centres with groups of 15 to 20 people. These informal, cross-departmental decision-making units aim to acquire, import, and process pertinent information. Buying centres serve seven functions.

Initiators: These are the persons who make a purchase request. They could be users or people in the workplace.

Users: They use the products, which starts the purchasing process. They provide information about a product’s performance, such as a worker’s.

Influencers: Individuals within the organisation who affect decision-making by offering information on purchasing criteria, such as R&D professionals and consultants outside the organisation.

Deciders: Organizational individuals with decision-making power make a purchase decision, such as engineers choosing specs or a vice-president (finance) approving the purchase.

Gatekeepers: Employees with the authority to restrict sellers or information from reaching members of buying centres, such as purchasing agents, receptionists, secretaries, and telephone operators.

Approvers: Individuals within an organisation who approve the suggested activities of deciders or purchasers.

Buyers: These individuals have formal authority to pick suppliers and negotiate buying conditions. Buyers assist in product specifications, supplier selection, and purchase negotiations, including senior personnel in the purchasing department. Example:

Buyer Center Roles

Initiator: ABC Ltd.’s Vice President suggests installing CCTV cameras in the sales, purchase, and store departments.

Influencer: The head of the sales, purchase, and stores department significantly impacts who gets shortlisted and what kind of CCTV cameras the organisation needs to install.

Gatekeepers: The sales, buying, and store managers assess the issue and narrow the list of suitable vendors and models.

Decider: The Vice President and some other management members select the best vendor and model.

Purchaser: The purchasing manager negotiates the terms and conditions, price, and warranties before placing the order.

User: The vice president and other top executives will use it to monitor employees’ sales, purchasing, and retail activity.