Organizational Buying Behaviour – SS1 Marketing Lesson Note (Second Term)

Organisational buying is the decision-making process by which formal organisations establish the need for purchased products and services, and identify, evaluate and choose among alternative brands and suppliers.

Behavioural objectives

By the end of the lesson, students should be able to:

• define organisational buying;
• state the characteristics of organisational buyers;
• list the external environmental factors that influence organisational buying;
• explain the internal organisational factors that influence organisational buying;
• describe the interpersonal and individual factors that affect buying decisions in an organisation.

What are the characteristics of organisational buyers?

1. The consumer market is a huge market of millions of consumers, while organisational buyers are limited in number for most products.
2. The purchases are in large quantities.
3. Close relationships and service are required.
4. Demand is derived from the production and sales of the buyers.
5. Demand fluctuations are high, because purchases by business buyers magnify the fluctuation in demand for their products.
6. Organisational buyers are trained professionals in purchasing.
7. Several persons in the organisation influence a purchase.
8. A lot of buying occurs in direct dealing with the manufacturer.

What factors influence organisational buying behaviour?

Organisational buying is much more complex than consumer buying and so deserves to be studied separately. The interwoven interpersonal relationships and the multiple communication processes between the members involved in the buying decision are some of the major causes of this complexity. Other factors also matter. They fall into three groups: external environmental factors, internal organisational factors, and interpersonal and individual factors.

External environmental factors

The external environment is a major constraint under which a business operates. It affects nearly every aspect of a business, including its buying decisions. The external elements that affect organisational buying are:

• Economic conditions: Fluctuations in the money markets and in interest rates have a major impact on buying strategies. Interest rates and organisational buying have an inverse relation: in most cases, an increase in interest rates may bring about a drop in buying.
• Regulatory changes: Any change in corporate laws, rules and regulations influences how, when and what organisations buy. Some regulatory changes affect only a particular industry, and the related organisations will change their buying patterns to stay in line with the new regulations.
• Political environment: A change of government or policy has a direct impact on the economic situation. This ultimately shifts organisational buying patterns as well.
• Social environment: Societies and cultures keep changing, and every business has to change its practices and procedures to meet up with societal changes. For instance, with the rise in the number of animal lovers, pure leather suppliers have seen a slump in their business, and clothing and footwear manufacturers have shifted to artificial leather suppliers. This shows how the social environment can affect the buying patterns of organisations.
• Competition: Today’s business is about beating competition and staying ahead. When an organisation’s competitors move on to a newer product or service, or gain a competitive edge because of their suppliers, the organisation is likely to change its trend, and its buying pattern will change accordingly.

Internal organisational factors

Internal organisational factors also have a strong influence on organisational buying. They are:

• Organisation’s goals and objectives: These are major determinants of how and what the organisation will purchase. An organisation that wants to capture a bigger share of the market by selling cheaper products is more likely to look for suppliers who can supply larger quantities at a low price. A company whose goal is to deliver quality products may have a very different buying pattern, and will focus more on quality than on price advantage.
• Organisational structure: Hierarchical and management structures vary from one organisation to another. Some organisations have a well-established purchase department, while others assign this job to the HR or Administration department. In some organisations, purchase decisions must be taken collectively by all the departments concerned. Organisations also have well-defined guidelines on which purchase decisions can be made and by which management level. The internal set-up, and how authority and responsibility flow through it, play an important role in organisational purchasing.
• Policies and procedures: How a purchase order is routed depends on the organisation’s policies. How the buying procedure begins, who takes part and who has the final authority to decide on the purchase all depend on these policies and procedures. Some organisations invite public bids, while others contact only a few suppliers on their list. Budgetary policies also have a say in purchase decisions. For instance, some organisations have a flexible policy and purchase as and when the need arises, while others have to wait for the allocation of the annual or biennial budget.
• Technological levels: Whenever new purchases are made, organisations take their current technology into consideration. Some purchases are meant to replace the current technology with a newer version, so the buying decision is influenced by the level of technology the organisation already owns. Organisations also try to ensure that new purchases are technologically compatible with their existing technology. In one way or another, an organisation’s existing technology has a major influence on its future purchases.
• Manpower skills: Whether the organisation has the skilled manpower to make proper and optimum use of the new purchases, especially equipment and machinery, is another issue that influences organisational buying.

Interpersonal and individual factors

Organisational buying decisions are never a one-person affair, so interpersonal relationships with the decision-makers play a vital role in the type of buying. The factors are:

• Participation and authority: In organisational buying situations, there are always predefined rules on who can participate in the purchase decision and who is the final deciding authority.
• Interpersonal conflict: Interpersonal conflicts and conflicts of interest among the decision-makers often result in delays and changes. The kind of thinking and the kind of relationship the decision-makers share therefore have a major role to play in corporate buying.
• Education and awareness: The educational background of the decision-makers and their level of awareness have a major bearing on the type of purchases they will make.
• Risk-taking ability: If the buying committee is made up of high-risk takers, they will not be averse to choosing the latest technology or new suppliers. Decision-makers with low risk-taking tolerance are more likely to stick to proven and tested technology, or to well-known and well-established suppliers.
• Individual factors: Age, cultural background and social status of the members of the buying team also influence buying decisions.

Evaluation

1. Define organisational buying.
2. State five characteristics of organisational buyers.
3. List the five external environmental factors that influence organisational buying.
4. Explain how interest rates affect organisational buying.
5. Explain how the risk-taking ability of a buying committee affects its choice of suppliers.

Assignment

1. Explain any three internal organisational factors that influence organisational buying.
2. With an example, explain how the social environment can change the buying pattern of an organisation.