0 chapter 2organizational buying behavior© 20

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Chapter 2
Organizational Buying Behavior
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12e
The decision journey organizational buyers follow in making
purchase decisions and the resulting strategy implications for
the business marketer
The types of buying situations that business customers confront
and the appropriate strategy response for each
The individual, group, organizational, and environmental
variables that influence organizational buying decisions
2
Chapter Outline
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2
A model of organizational buying behavior that integrates these
important influences
How a knowledge of organizational buying characteristics
enables the marketer to make more informed decisions about
product design, pricing, and promotion strategies
3
Chapter Outline (continued)
0
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3
Marketers need to recognize how digital media channels have
altered the customer decision process
Marketers need to focus on driving advocacy rather than on
media spending
Customer Decision Journey
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Problem recognition
General description of need
Product specification
Supplier search
Acquisition and analysis of proposals
Supplier selection
Selection of order routine
Performance review

4. Organizational Buying Process
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Includes:
Websites, user communities, and Internet search engines
New forms of communication
Mobile and wireless devices
Expanded and enhanced electronic word-of-mouth
methodologies, including new technologies
LinkedIn, salesforce.com, Facebook, Twitter, industry-specific
blogs
Customer-Driven Pull System
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Types of Buying Situations
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New task
Modified rebuy
Straight rebuy

6. Problem or need is different from previous experiences
Require extensive information to explore alternative ways of
solving the problem
Extensive problem solving: Stage of decision-making that
buyers operate in because they lack:
Well-defined criteria for comparing alternative products and
suppliers
Strong predispositions toward a particular solution
New Task Buying Situation
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Judgmental new-task situations
Greatest level of uncertainty exists as there is little information
or experience to support a decision
Decision-makers conduct information search to analyze key

7. aspects of the buying decision
Strategic new-task decisions
Involve long-range planning, larger investments, and increased
risk if they are wrong
Buying Decision Approaches
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Problem or need that is recurring or a continuing requirement
Requires little or no new information
Routine problem solving: Organizational buyers apply well -
developed choice criteria to the purchase decision
Straight Rebuy
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Casual purchases
Involve no information search or analysis
Product or service is of minor importance
Routine low priority approach
Decisions are more important
Involve a moderate amount of analysis
Buying Decision Approaches (continued)
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9. Marketing task appropriate depends on whether the marketer is
an in supplier or an out supplier
In supplier must:
Reinforce the buyer-seller relationship
Meet the buying organization’s expectations
Be responsive to the changing needs of the organization
In and Out Supplier
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Out supplier must:
Convince the organization that it can derive significant benefits
from breaking the routine
Have an understanding of the basic buying needs of the
organization
Persuade decision makers to reexamine alternative solutions

10. Revise the preferred list to include the new supplier
In and Out Supplier (continued)
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Decision makers feel significant benefits can be derived by
reevaluating alternatives
Factors that affect reevaluation
Internal forces - Search for quality improvement and cost
reductions
External force - Cost, quality, or service improvements offered
by the marketer
Occurs when the firm is displeased with the performance of
present suppliers
Modified Rebuy
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Simple modified rebuy
Involves a narrow set of choice alternatives and a moderate
amount of both information search and analysis
Complex modified rebuy
Involves a large set of choice alternatives and poses li ttle
uncertainty
Buying-Decision Approaches
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Figure 2.2 - Organizational Buying Behavior
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Economic influences
Marketer must be sensitive to the strength of demand in the
ultimate consumer market
Best cost approach - Evaluates trade barriers and the inherent
risks of longer supply chains
Technological influences
Fast pace of change implies that distinct benefits are associated
with search effort and the acquired information is time sensitive
Environmental Forces
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Growing influence of purchasing
Companies outsource many activities and, as a result,
procurement remains a strong influence
Ensuing in a shift to more professional procurement positions
Chief procurement officer’s (CPO) role
Delivering cost savings, improving asset utilization, preserving
supplier viability, and procuring materials in a socially and
environmentally responsible way
Organizational Forces
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Strategic priorities in purchasing
Corporate goals and priorities grow as the purchasing
profession grows
Procurement managers give increased emphasis to suppliers’
capabilities
Explore new areas where a strategic supplier can add value to
the firm’s product or service offerings
Organizational Forces (continued 1)
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Figure 2.3 - Strategic Priorities

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Procurement manager’s toolkit
Calculating the total cost of ownership of an acquired good or
service
Deploying e-procurement processes
Conducting reverse auctions
Organizational Forces (continued 2)
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Considers the full range of costs associated with the purchase
and use of a product or service over its complete life cycle
Acquisition costs: Selling price and transportation costs,
administrative costs of evaluating suppliers, expediting orders,
and correcting errors in shipments
Possession costs: Financing, storage, inspection, taxes,
insurance, and other internal handling costs
Total Cost of Ownership (TCO)
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Usage costs: Associated with ongoing use of the purchased
product
Installation, employee training, user labor, field repair, and
product replacement and disposal costs
Total Cost of Ownership (TCO) (continued)

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Provide customers with a lower cost-in-use solution
Seek to move the selling proposition
From one that centers on current prices and individual
transactions to a longer-term relationship built on value and
lower total cost-in-use
24
Value-based Sales Tools
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18. 24
E-procurement
Purchasing managers use the Internet to find new suppliers,
communicate with current suppliers, or place an order
Reverse auctions
Involves one buyer who invites bids from several prequalified
suppliers who face off in a dynamic, real-time, competitive
bidding process
Best suited for commodity-type items
25
E-Procurement and Reverse Auctions
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Preempt the auction
Convince the buyer not to go forward with the auction as the
firm has a unique value proposition and is not inclined to
participate
Manage the process

19. Influence bid specifications and vendor qualification criteria
Walk away
Simply refuse to participate
26
Strategic Approach to Reverse Auctions
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Separate organizational unit that has authority for purchases at a
regional, divisional, or headquarters level
Marketer who is sensitive to organizational influences can:
Accurately map the decision-making process
Isolate buying influentials
Identify salient buying criteria
Target marketing strategy for centralized buyers
Centralized Purchasing
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Enterprise-wide initiative to develop strategic relationships with
a limited number of customers
To achieve long-term, sustained, significant, and measurable
business value for both the customer and the provider
Global account management program
Treats a customer’s worldwide operations as one integrated
account
Key Account Management
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Buying center
Consists of individuals who participate in the purchasing
decision and share the goals and risks arising from the decision
Plays a vital bridging role in the firm by:
Connecting key personnel across departments who have a stake
in a particular buying decision
Facilitating the flow of information and knowledge across units
Group Forces
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Steps involved
Defining the buying situation
Determining whether the firm is in the early or later stages of
the procurement decision-making process
Composition may vary and is not prescribed by the
organizational chart

22. Can be predicted by projecting the effect of the industrial
product on various functional areas in the organization
Group Forces (continued)
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UserPersonnel who use the product in question and can be
inconsequential or major players in the
processGatekeepersControl information to be reviewed by
members of the buying groupInfluencersAffect the purchasing
decision by providing information for the evaluation of
alternatives or by setting buying specificationsDeciders
Make the buying decision, whether or not they have formal
authority to do soBuyer
Has formal authority to select a supplier and implement all
procedures connected with securing the product
Buying Center Roles
0

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Identifying Powerful Buying Center Members
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Isolate the personal stakeholders
Follow the information flow

24. Identify the experts
Trace the connections to the top
Understand purchasing’s role
Differing evaluative criteria
Evaluative criteria: Specifications that organizational buyers
use to compare alternative industrial products and services
Responsive marketing strategy
Prepared by marketer who is sensitive to differences in product
perceptions and evaluative criteria of individual buying center
members
Individual Forces

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Selective process
Selective exposure - Accept communication messages consistent
with existing attitudes and beliefs
Selective attention - Filter or screen incoming stimuli to admit
only certain ones to cognition
Selective perception - Interpret stimuli in terms of existing
attitudes and beliefs
Selective retention - To recall information pertinent to own
needs and dispositions
Individual Forces (continued 1)
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26. Risk-reduction strategies
Perceived risk components
Uncertainty about decision outcomes
Magnitude of consequences associated with making a wrong
selection
Individual decision making occurs in organizational buying for
straight rebuys and for modified rebuys when the perceived risk
is low
Individual Forces (continued 2)
0
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Confronting risk
Buying center becomes larger and comprises members with high
levels of organizational status and authority
Information search is active and a wide variety of information

27. sources are consulted
Buying center members invest greater effort and deliberate more
carefully throughout the purchase process
Sellers who have a proven track record are favored
Individual Forces (continued 3)
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0
Chapter 1
A Business Marketing
Perspective

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12e
The dynamic nature of the business marketing environment and
the basic similarities and differences between consumer-goods
and business marketing
The types of customers in this important market
The underlying factors that influence the demand for industrial
goods
Chapter Outline
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29. The nature of buyer-seller relationships in a product’s supply
chain
A method for classifying products and services for the business
market
Chapter Outline (continued)
0
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Markets for products and services bought by businesses,
government bodies, and institutions for:
Incorporation
Consumption
Use
Resale
Business Markets
0

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Business marketers serve the largest market of all
Dollar volume of the business market greatly exceeds the
consumer market
Single customer can account for an enormous level of
purchasing activity
Known as industrial marketing
Business Marketing
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Factors that distinguish business marketing from consumer
marketing
Nature of the customer
Utility of the product for the customer
Key to successful marketing strategy
To identify unique dimensions of each major business market
and formulate programs that respond to specific characteristics
of each business market sector
Business Marketing (continued)
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Commercial Enterprises

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Manufacturers
Construction companies
Service firms
Transportation companies
Selected professional groups
Resellers

33. Business marketers serve fewer but larger customers than
consumer-products marketers
Customers can be manufacturers of products who in turn target
millions of potential buyers
Geographical concentration indicates that a large potential
volume exists in a given area
Large metropolitan areas are lucrative business markets
Concentration of Customers
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Generate the greatest volume of purchases of any customer
category in the U.S.
E-government initiatives generate a large market opportunity
Government Units

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Formal advertising - Government solicits bids from appropriate
suppliers
Followed when the product is standardized and the
specifications are straightforward
Negotiated contract - Employed when:
Purchased goods and services cannot be differentiated on the
basis of price alone
Few potential suppliers exist
Government Purchasing Strategies
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Similar to governments

35. Institutional purchasing process is constrained by political
considerations and dictated by law
Some institutions are administered by government units while
some are privately operated and managed
Institutional Customers
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Institutions may employ a purchasing agent or a purchasing
department
Group buying - Institutions may join cooperative purchasing
associations to secure purchasing efficiencies
Allows institutions to enjoy lower prices, improved quality,
reduced administrative costs, and greater competition
Institutional Buying

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Benefit by employing a market orientation
Requires proficiency in understanding and satisfying customers
Are market-driven
Business Markets and Consumer-Goods Markets
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Set of values and beliefs that places customers’ interests first
Ability to generate, disseminate, and productively use superior
information about customers and competitors
Coordinated use of interfunctional resources

37. Aspects of Market-Driven Firms
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Distinctive Capabilities
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38. Market sensing capability
Ability to continuously sense change and to anticipate customer
responses
Customer linking
Capability to develop and manage close customer relationships
Marketing expenditures that were considered expenses are
considered investments now
Marketers need to:
Demonstrate return on investment from marketing spending
Deliver strong financial performance
Be more accountable to shareholders
Impact on Business Performance

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Includes the skills required to identify, initiate, develop, and
maintain profitable customer relationships
Helps to meet performance standards
Customer Relationship Management (CRM)
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Customers can determine how, when, and where they want to
acquire information
Customers can access information from Websites, YouTube, and
peers in the business network
Customer Decision Journey

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Through:
Close working partnership
An intimate knowledge of the customer’s operations
Unique value contribution to the customer’s business
Market-driven firms place high priority on customer-linking
capabilities and closely align product decisions with the
customer’s operations
Customer Engagement
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41. system for classroom use.
Firms must:
Clearly communicate the strategy
Select the right customer prospects and match them with the
optimal products and services
Make the strategy relevant by operationalizing the distinctive
features of the value proposition
Aligning Strategy and Sales
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Roles of Marketing Managers
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Instigator
Capitalizes on the close connection to customers, thinks
strategically, and challenges the status quo
Innovator
Takes an active role in shaping the company’s innovation
agenda
Integrator
Links multiple functions to unite organizational members on a
clear strategy path
Implementer
Mobilizes diverse organizational members across the firm

43. Customers compare value elements of a firm’s offering with
those offered by the next best alternative
Captures set of benefits that a supplier offers to advance the
performance of the customer organization
Customer Value Proposition
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Building Blocks of a Successful Value Proposition

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Points of parity
Value elements with the same performance characteristics as the
next best alternative
Points of difference
Value elements that render the supplier’s offering either
superior or inferior to the next best alternative
Nature of markets

45. Market demand
Buyer behavior
Buyer-seller relationships
Environmental influences
Market strategy
Differences in Consumer and Business Marketing
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Derived demand
Demand for industrial products is derived from the ultimate
demand for consumer products
Fluctuating demand
Business marketers carefully monitor fluctuating trends and
patterns in consumer markets
Downturn in the economy creates the opposite result
Characteristics of Business Markets

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with a certain product or service or otherwise on a password-
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Stimulating demand
Business marketers must monitor final consumer markets and
develop a plan that reaches the ultimate consumer directly
Price sensitivity
Responsiveness of the quantity demanded to a change in price
Called demand elasticity
Characteristics of Business Markets (continued)
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Marketers must look beyond the borders of the United States
Growing demand for industrial products in Germany, Japan,
Korea, Brazil, China, and India

47. Global Market Perspective
0
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Intended use determines whether or not a product is a consumer
product or a business product
Business marketing emphasizes personal selling rather than
advertising to reach potential buyers
Business product includes an important service component
Business and Consumer Marketing
0

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28
All marketing activities directed toward establishing,
developing, and maintaining successful exchanges with
customers
Building one-to-one relationships with customers is the core of
business marketing
Relationship Marketing
0
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Figure 1.1 - Key Characteristics of Business Market Customers

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Figure 1.2 - Supply Chain For Automobile Creation
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Technique of linking a manufacturer’s operation with suppliers,

50. key intermediaries, and customers to enhance efficiencies and
effectiveness
Aims to improve the speed, precision, and efficiency of
manufacturing through strong supplier relationships
Achieved through information sharing, joint planning, shared
technology, and shared benefits
Supply Chain Management
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Long-term relationships are built on trust and demonstrated
performance
Strategic partnerships require open lines of communication
between multiple layers of the buying and selling organizations
Managing Relationships in the Supply Chain
0

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Users
Buy industrial products or services to produce other goods or
services that are, in turn, sold in the business or consumer
markets
Original Equipment Manufacturers (OEMs)
Purchase industrial goods to incorporate into other products it
sells in the business or ultimate consumer market
Categories of Commercial Customers
0
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52. Dealers and distributors
Purchase industrial goods for resale to users and OEMs
Distributor accumulates, stores, and sells a large assortment of
goods to industrial users, assuming title to the goods it
purchases
Categories of Commercial Customers (continued)
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Figure 1.3 - Categories of Industrial Goods
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53. duplicated, or posted to a publicly accessible website, in whole
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