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:

1. define organisational buying;
2. state the characteristics of organisational buyers;
3. distinguish between consumer buying and organisational buying;
4. list the external environmental factors that influence organisational buying;
5. explain the internal organisational factors that influence organisational buying;
6. describe the interpersonal and individual factors that affect buying decisions in an organisation.

What are the characteristics of organisational buyers?

Organisational buyers are businesses and other formal organisations that buy goods and services for use in their operations, not for personal use.

1. Few buyers: the consumer market has millions of buyers, but organisational buyers are limited in number for most products.
2. Large quantities: purchases are made in bulk.
3. Close relationships: buyer and seller need close contact and good after-sales service.
4. Derived demand: demand comes from the production and sales of the buyers’ own products.
5. High demand fluctuations: purchases by business buyers magnify the fluctuation in demand for their products.
6. Trained professionals: organisational buyers are trained in purchasing.
7. Many influencers: several persons in the organisation influence a purchase.
8. Direct dealing: a lot of buying takes place directly with the manufacturer.

What is the difference between consumer buying and organisational buying?

• Consumer buying: buying of goods and services by individuals and households for personal use.
• Organisational buying: buying by formal organisations for use in running the business, as defined above.

What factors influence organisational buying behaviour?

There are three groups of factors that influence organisational buying behaviour: external environmental factors, internal organisational factors, and interpersonal and individual factors.

• Complexity: organisational buying is more complex than consumer buying, so it is studied separately.
• Main cause of complexity: interwoven interpersonal relationships and multiple communication processes among the members involved in the decision.

What are the external environmental factors?

External environmental factors are the outside conditions that limit how a business operates, including its buying decisions. There are five of them.

• Economic conditions: fluctuations in the money markets and interest rates affect buying strategies.
  • Interest rates and organisational buying have an inverse relation.
  • In most cases, a rise in interest rates may bring a drop in buying.
• Regulatory changes: changes in corporate laws, rules and regulations influence how, when and what organisations buy.
  • Some changes affect only one industry.
  • Organisations in that industry change their buying patterns to stay in line with the new rules.
• Political environment: a change of government or policy directly affects the economic situation, and this shifts organisational buying patterns.
• Social environment: societies and cultures keep changing, and businesses must change their practices to meet up.
  • Example: as the number of animal lovers rises, pure leather suppliers see a slump in business.
  • Clothing and footwear manufacturers then shift to artificial leather suppliers.
• Competition: businesses try to beat competitors and stay ahead.
  • If competitors move to a newer product or gain an edge through their suppliers, the organisation is likely to change its trend.
  • Its buying pattern then changes accordingly.

What are the internal organisational factors?

Internal organisational factors are conditions inside the organisation that shape what and how it buys. There are five of them.

• Goals and objectives: these decide how and what the organisation buys.
  • A firm that wants a bigger market share by selling cheaper products looks for suppliers who can supply large quantities at a low price.
  • A firm whose goal is quality focuses more on quality than on price.
• Organisational structure: hierarchy and management structures vary between organisations.
  • Some have a well-established purchase department.
  • Others give the job to the HR or Administration department.
  • In some, all the departments concerned must decide together.
  • Guidelines state which purchases can be decided at which management level.
  • How authority and responsibility flow also plays an important role.
• Policies and procedures: these decide how a purchase order is routed.
  • They decide how buying begins, who takes part and who has final authority.
  • Some organisations invite public bids, while others contact only a few suppliers on their list.
  • Budgetary policy also matters: some buy as the need arises, while others wait for the annual or biennial budget.
• Technological levels: the technology the organisation already owns affects new purchases.
  • Some purchases replace current technology with a newer version.
  • New purchases must be compatible with existing technology.
• Manpower skills: the organisation considers whether it has skilled staff to make proper use of new purchases, especially equipment and machinery.

What are the interpersonal and individual factors?

Interpersonal and individual factors are the relationships and personal traits of the people who make the buying decision. There are five of them.

• Participation and authority: there are predefined rules on who can take part in the decision and who has the final say.
• Interpersonal conflict: conflicts and conflicts of interest among decision-makers often cause delays and changes.
  • The kind of relationship the decision-makers share therefore affects corporate buying.
• Education and awareness: the educational background and awareness of the decision-makers affect the type of purchases they make.
• Risk-taking ability: the risk attitude of the buying committee affects its choices.
  • High risk-takers are willing to choose the latest technology or new suppliers.
  • Low risk-takers stick to proven technology and well-known, established suppliers.
• Individual factors: the age, cultural background and social status of the buying team members also influence 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

Explain any three internal organisational factors that influence organisational buying, giving one example for each.