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  • 1. Marketing Management Unit 2 Scanning Marketing Opportunities Chapter 7 - Buyer Behavior Lesson 21 - Factors Influencing Organizational Buyer BehaviorIntroduction:In the previous lesson we have studied the behaviour of the buyer who buys for the final consump-tion. In this lesson now, we shall discuss the buying behaviour of a buyer who purchases for anypurpose other than personal consumption i.e. resellers, retailers etc. As they are buying with the aimof profit and not for personal use the marketer needs to have different strategies for these types ofconsumers. So let us look at what are the factors and environmental influences which play a majorrole and how they effect their buying behavior.Organizational consumers purchase goods and services for further production, use in operations, orresale to others. Organizational consumers are manufacturers, wholesalers, retailers, and govern-ment and other nonprofit institutions. When firms deal with organizational consumers, they engage inindustrial marketing.Two trends in industrial marketing merit special attention.1. The use of the Internet in business-to-business marketing impacts significantly on the way con- sumers deal with their suppliers. It fosters closer relationships, better communications, quicker transaction times, cost efficiencies, barter exchanges, and greater flexibility.2. Outsourcing occurs when one company provides services for another that could also be or usually have been done in-house by the client firm.a. Global outsourcing accounts for $200 billion in annual revenues.b. The functions most commonly contracted out are information technology, transportation management, media management, human resources, and finance.For example, think about the large number of business transactions involved in the production andsale of a single set of Goodyear tires. Various suppliers sell Goodyear the rubber, steel, equipment,and other goods that it needs to produce the tires. Goodyear then sells the finished tires to retailers,who in turn sell them to consumers. Thus, many sets of business purchases were made for only oneset of consumer purchases. In addition, Goodyear sells tires as original equipment to manufacturerswho install them on new vehicles, and as replacement tires to companies that maintain their ownfleets of company cars, trucks, buses, or other vehicles.Characteristics of Business marketsIn some ways, business markets are similar to consumer markets. Both involve people who assumebuying roles and make purchase decisions to satisfy needs. However, business markets differ inmany ways from consumer markets. The main differences are discussed below, are in marketstructure and demand, the nature of the buying unit, and the types of decisions and the deci-sion process involved.182 © Copy Right : Rai University 16.101G
  • 2. Marketing ManagementThe business marketer normally deals with far fewer but far larger buyers than the consumermarketer does. For example, when Goodyear sells replacement tires to final consumers, its potentialmarket includes the owners of the millions of cars currently in use in the United States. But Goodyear’sfate in the business market depends on getting orders from one of only a handful of large automakers.Even in large business markets, a few buyers often account for most of the purchasing.Business markets are also more geographically concentrated. More than half the nation’s busi-ness buyers are concentrated in eight states: California, New York, Ohio, Illinois, Michigan, Texas,Pennsylvania, and New Jersey. Further, business demand is derived demand—it ultimately derivesfrom the demand for consumer goods. General Motors buys steel because consumers buy cars. Ifconsumer demand for cars drops, so will the demand for steel and all the other products used to makecars. Therefore, business marketers sometimes promote their products directly to final consumers toincrease business demand.Differences of business markets and consumer marketsDifferences From Final Consumers Due To The Nature Of PurchasesA. Organizational consumers purchase capital equipment, raw materials, semifinished goods, and other products for use in further production or operations or for resale to others, whereas final consumers usually acquire the finished items for personal, family, or household use.B. Organizational consumers are likely to require exact product specifications. Final consumers more often buy on the basis of description, style, and color.C. Organizational consumers often use multiple-buying responsibility, in which two or more employ- ees formally participate in complex or expensive purchase decisions. Final consumers employ it less frequently and less formally.D. Organizational consumers apply value analysis, by which they compare costs versus benefits of alternative materials, components, designs, or processes in order to reduce the cost/benefit ratio of purchases. In vendor analysis, organizational consumers assess the strengths and weaknesses of suppliers for such factors as merchandise quality, customer service, reliability, and price. Figures 9-3 and 9-4 illustrate value analysis and vendor analysis.E. Organizational consumers often lease equipment. U.S. firms spend $250 billion annually. The worldwide use of commercial leasing is rising rapidly.F. Organizational consumers more frequently employ competitive bidding and negotiation.Differences From Final Consumers Due To The NatureOf The MarketA. Derived demand occurs for organizational consumers because the quantity of items they pur- chase is often based on the anticipated demand of their final consumers for specific finished goods and services; therefore, organizational consumers are less sensitive to price changes. As long as final consumers are willing to pay higher prices, organizational consumers will not object to price increases. Figure 9-5 illustrates derived demand.B. Demand is volatile due to the accelerator principle, whereby final consumer demand affects many levels of organizational consumers.C. There are fewer organizational consumers than final consumers.D. Organizational consumers tend to be geographically concentrated.E. Buying specialists are often used.F. Distribution channels are shorter.G. Organizational consumers may require special relationships consisting of consultations as new products are devised, extra customer services (such as extended warran- ties, a liberal return policy, and free credit), and close communications with vendors.H. Systems selling and reciprocity are tactics used in industrial marketing.16.101G © Copy Right : Rai University 183
  • 3. Marketing Management1. In systems selling, a combination of goods and services is provided to a buyer by one vendor.2. Reciprocity is a procedure by which organizational consumers select suppliers that agree to purchase goods and services, as well as sell them.G. Organizational consumers can make items themselves if suppliers are unavailable or unaccept- able.Differences Based On A Global PerspectiveA. As with final consumers, there are many distinctions among organizational consumers around the world; and sellers must understand and respond to them.B. Companies doing business in foreign markets must know how to deal with organizational con- sumers in those markets.C. Nations’ cultures have a large impact on the way their organizational consumers negotiate and reach decisions. An illustration is provided.D. Foreign nations’ stage of economic development has a major affect on the types of goods and services bought by organizational consumers there.E. Companies need to adapt their strategies to address the characteristics and needs of customers in foreign countries.F. With the new technology available, there are more opportunities to market to foreign organiza- tional consumers than ever before. The Internet, E-mail, fax machines, satellite TV, and video conferencing all facilitate buyer-seller communications.Activity:Think of some examples for joint demand products and discuss.Factors In Organizational Buyer BehaviorOrganizational consumer behavior depends on Buying objectives Buying structure, and Purchase constraints.Buying ObjectivesA. Organizational buyers have these several distinct objectives in purchasing goods and services1. Availability of items—buyer is able to obtain items throughout the year or whenever necessary.2. Seller reliability—based on fairness to organizational consumers in allocating items in high de- mand.3. Consistency of quality—being able to purchase items of proper quality on a regular basis.4. Delivery goals—minimized and stabilized length of time from order placement to delivery.5. Price considerations—involve purchase prices and the flexibility of payment terms.6. Customer service—seller’s ability to meet special requests, answer questions, address problems, and so on. See Figure 9-9.B. Price is only one of several considerations for organizational consumers. Usually, availability, quality, service, and so on is more important. Manufacturers stress quality standards and may want a variety of suppliers. Wholesalers and retailers are interested in salability and exclusive buying arrangements (to limit competition). Government consumers frequently set exact specifi- cations. Nonprofit consumers focus on price availability and reliability.Buying StructureA. Buying structure refers to the level of formality and specialization used in the purchase process.B. A firm’s buying structure depends on an organization’s size, resources, diversity, and format.C. Manufacturers and wholesalers often have purchasing agents.184 © Copy Right : Rai University 16.101G
  • 4. Marketing ManagementConstraints On PurchasesA. The major constraint on purchase behavior is derived demand.B. Availability, ability to pay, financing availability, and risk are other constraints.C. Government consumers are constrained by the budgeting process.Activity:Describe the role of a sales person in the business-to-business purchase process. Points to remember:16.101G © Copy Right : Rai University 185