CHAPTER TWO

MARKETING ENVIRONMENTS
2.1. Definition of Marketing Environment

Marketing environment refers to the actors and forces that affect the
company’s ability to develop and maintain successful transactions and
relationships with its target customers.

Marketing does not occur in a vacuum. The marketing environment consists

of external forces that directly and/or indirectly impact the organization.
Changes in the environment create opportunities and threats for the
organizations.To track these external forces a company uses environmental
scanning. Continual monitoring of what is going on. Environmental scanning
collects information about external forces. It is conducted through the
Marketing Information System.

Environmental analysis determines environmental changes and predicts

future changes in the environment the marketing manager should be able to
determine possible threats and opportunities from the changing
environment.

2.2. Internal and External Elements of Marketing

Environments
Businesses’ marketing environment is classified into two broad categories.
The first is internal environment. The second is external environment.

Internal environment

Internal environment refers to factors essentially emanated from the

organizations own territory and thus a company can have full control over
such factors. For e.g. a company can exercise control over its resources,
activities of different departments such as marketing, production, finance
etc. For e.g. suppose that a company is contemplating of adding additional
product, before rushing to decision, the company should determine whether
existing production facilities and expertise can be used or not, if there are
sufficient financial rssource, etc. Generally, internal environment is
abounded by the company’s resources, activities etc. So, this environment is
the basic source of the organization’s strength and weakness. For instance,
workforce of a given company could be more efficient than that of the other
company. In this case, the company’s workforce is acting as a source of
strength for the company. On the other hand, a company may operate with
old machineries and production techniques that makes it lag behind its
competitors in producing attractive products to customers. (Source of
weakness).

External Environment

External environment refers to the actors and forces outside of the

company that affect the organization’s ability to develop and maintain
successful relationship with its target market. As these factors are stem from
the external forces, they may provide the organization with
immenseopportunities that may pave a way for better success or threats
that may endanger the organization’s existence. Hence, an organization
should constantly scan the different opportunities or threats being shaped
by external environment and in this regard the marketers are the most
responsible for scanning the tendency of such actors as they are responsible
for dealing with the organization’s market. This eventually enables them to
revise and adapt marketing strategies to meet new challenges and
opportunities in the market place. This environmental scanning involves
three basic steps: - gathering information about a company’s external
environment, analyzing it and forecasting the impact of whatever trends the
analysis suggests.This environmental level can be done at two levels as
there are two levels of external factors i.e. at macro level and at micro level.

Macro level environmental forces: these are factors springing from

demographic, economic, political, cultural, physical and technological forces.
They are said macro because they affect all the companies operating in a
given market. As they are overall factors and external, they are largely
uncontrollable by a given company. But this by no means that a company’s
success depend on a mere chance rather companies should systematically
asses these forces and shape their activities in light with the environment’s
trend. Apart from this, all these forces are inter related to eachother. Hence,
a change in one of these factors is likely to cause a change in one or more of
the others. Additionally, all they are dynamic in nature, that is, they are
subject to change at an alarmic rate. Now, lets have a look at of them one by
one in detail.
Demographic environment: demography is the study of human
population in terms of size, density, location, age, gender, race, occupation
etc. This environment is of major concern to marketers because it essentially
involves people and people constitute markets. In the first place, the
explossive growth of population has great implication for companies.
Primarly population growth results in the increase in human needs that must
be fullfilled, hence we can think of it in terms of the opportunity it may have,
but it does not mean growing market unless, otherwise the growth of
population is backed up by sufficient purchasing power. On the other hand,
if the population growth presses too hard against the available food supply
and resources, costs will shoot up and hence profit marigins will be
depressed.In addition to this, national demographic factors which vary from
country to country, also have significant impact on marketing. For e.g. in one
country the number of youngesters may be far greater than that of seniors,
this may tell to the marketers what possible behaviors are dominant in the
market, which group represents the most influence etc. Likewise, in a
country, where the proportion of litrate is so small, advertising through
megazines may not be fruitfull as it doesnot make the message reach to the
maximum number of customers. Similarly, the household pattern
composition may also have implication. For e.g. traditionally, household
consists of husband, wive and children. No matter how, we can have a lot
other kind of households such as only mother and children, father and
children and only wife and husband (which is being accustomed recently).
Each of these groups may represent different kind of market segments as
each group may have different buying behavior based on the selected
characteristic. Generally, marketers should look into all these aspects on
continous basis to learn if any of these demographic factors are changing in
such a way that they are capable enough to pose threats or create
opportunities to the organization.

Economic environment: people alone do not represent markets. They

must have the ability and willingness to buy. Individuals purchasing power is
a function of different interacting forces in the so called economic
environment. When we say economic environment, we are referring to
factors that directly affect customers purchasing and spending pattern.
Among the factors affecting customers purchasing and spending pattern,
level of the economy and income distribution are the most important. As far
as the level of economy concerns, some countries have subsistent
economy:- they consume most of their own agricultural and industrial out
put. Hence, such economies represent a less attractive opportunity. At the
other extrem are industrial economies, which constitute rich markets for
many goods and services. Apart from this, the income distribution in a
country may have a lot with customers purchasing power and spending
pattern. Suppose that in a given country, much of the income goes to a
verry small part of the population leaving the mass with a very insignificant
portion of the income. This obviously tells that much of the purchasing
power is confined in the hands of fews and hence, major part of the society
does not represent attractive market as it has limited purchasing power.

The other force, in this regard, is the over all situation of the economy:
booming and depression. An economy is said to be booming if the economic
situation of a country go on improving due to the additional employment
opportunity in an economy, additional income, more investment etc.
Contrary to this, an economy is said to be on depression if the economical
situation in a country keeps on aggravating from time to time such as
increased unemployment, decrease in investment, decrease in income etc.
Both these two kinds of situations have their own impact on the purchasing
power and psychology of individuals. In a booming economy, individuals
income is improving. This eventually results in higher purchasing power.
Apart from this, in such economies, individuals will have the confidence to
spend what they have now thinking that they will have no problem in terms
of secured income in the future. Hence, booming economy represents
additional opportunity. Unlike this, depression has negative impact on
customers. In the first place, due to the many negative factors such as
unemployment, decrease in investment etc, individuals income will go on
declining and this in turn result in the shrink of purchasing power.
Additionally, individuals will have no confidence to sacrifice their current
resource for their current need thinking that the future is more aggravated
than it is now. Hence, this represents a threat.

Apart from all these, the so called inflation and deflation are the other
important forces. Inflation is a rise in the prices of goods and services. Hence
the purchasing power of a currency declines.( when prices rise at a faster
rate than personal income, consumers buying power declines). This as well
affect consumers psychology and purchasing power and there by marketing
program of a company. For e.g. high inflation obviously results in a decrease
consumption as it makes purchasing power decline. Likewise, it may
psychologically force consumers to overspend today for fear that prices will
be higher tomorrow. Apart from this, sever inflation is a real challenge for a
company as it make managing prices of final products and inputs difficult. In
the same way, extereme deflation (when the purchasing power of currency
raises at an alarmicrate :oppossite of deflation) may have implication to
organizations in different ways.In particular, it is very difficult for firms to
raise prices because of consumer resistance. Hence, their only option will be
to concentrate on as to how cost of products can be decreased, otherwise,
profit will evaporate.

In addition to all these factors, consumers expenditures are highly affected

by savings, debt and credit availability and interest rate. Hence, marketers
must pay careful attention to major changes in all these factors.

Technological environment: it is one of the most dramatic force shaping

people’s lives. It has a tremendous impact on life-styles, consumption
patterns and economic well being. You can think of the many technological
breakthroughs that are expanding our horizon as we progress into the
future. It is realy hard to grasp each and every aspect in this regard.
Technology can affect companies in different ways:

 By starting new industries such as computer, robot etc

 By radically altering or virtually destroying existing industries as it paves
the way for improved products, innovative products etc. E.g. emergence
of television over radios, computers on type writer machine industries
etc.
Apart from this, technology has affected marketing activities extensively.
The breakthrough in communication now permite people and organizations
to transact from almost any location at any time of the day.

We should also keep in mind that technology is a mixed blessing in some

ways. A new technology may improve our lifein one way while creates
environmental and societal challenges and problems on the other. E.g.
automobile industry has made life great but blamed for polluting the
environment. And, in fact, technology is expected to solve some of the
problems for which it is being criticized. E.g. air pollution through
environmentally adaptive products.

Socio-cultural environment: it is made up of institutions and other forces

that affect a society’s basic values, perceptions, preferences and behaviors.
The society, in which people live, shapes their basic beliefes, values and
norms. They absorb a world view that defines their relationship to
themselves, to others, to nature etc. People in every society hold many core
beliefs and values that tend to exist for a long. For e.g. many Ethiopians
believe in patriotism, in getting married, in giving to the poor, not eating
pork etc. These are cultures that passed down from parents to children and
of course are being reinforced by different institutions such as churches,
businesss, government etc. Obviously if there are cultures that work against
a company’s marketing activities, the company will be at the odd but if the
culture commonsurates with the company’s marketing activities, it will be
verry conducive. Hence, companies need to assess if there are any culture
operating against or with the company’s marketing activities and there by
should devise ways as to how they can cope up with the challenges being
pose by that culture or as to how they can make the best use of the
opportunity. In addition to this, marketers should continously look if there
are any cultural shifts and if there, whether they are adaptive (conducive) to
the organization or not. As we all know, culture is not something that
standstill always as it is. Rather it is subject to change owing to various
reasons for e.g. in Ethiopian culture, it was housewife who is responsible for
dealing with the many things involved in a family such as taking care of
child, homemaking etc. But as time passed, it came to be evidents that this
culture is changing and hence to day specially in urban areas the role of a
husband and wife is deviating from its traditional position. This eventaully
may have implication on traditional buying pattern of households. Additional,
children are being given more attention in terms of their interest todaythan
that of what traditionally accustomed before. Likewise, in urban areas an
increasing number of femels are becomming office workers and such women
are seeking for better balance between work and familiy. This is essentially
changing their attitude towards shopping etc. In such a way, we can think of
the differnt kind of changes happenning to our culture begining from
changing the existing upto the creation of new cultures. Generally, in such
constantly changing cultures, companies should respond on timely basis as
the culture changes otherwise their activities will be obsolated with the
obsolated culture or the cultural changes may endanger their sucess in one
way or another or they may over look the new opportunities coming along
with cultural changes etc.

Natural Environment: it refers to the physical environment with in which

the company operates. It involves natural resources that are needed as an
input by companies or that are affected by activities of companies. The
change in this environment may have greater implication on the activity of
marketers.

In the first place, this environment is the source of different kind of

resources the company may need. In this regard, the first kind of resources
are what we call infinite resources such as water and air but today pollusion
of such resources has become a major issue and challenge for companies.
Likewise, the so called finite but renewable (recoverables) such as food,
forest etc should also be exploited in economical and reasonable manner
that they can be recovered otherwise if they are used extremly, it will be
diffiicult to recover them back and this as we know will have impact on
companies in different ways begining from degradation of environment up to
shortage of resources. In the same way, the so called finite but non
renewable such as petroleum, coal and various minerals pose a verrygreate
challenge for companies. Firms making products that require such materials
as an input will face large cost increase, even if the materials remain
available .

Apart from all these, the activities of companies may cause problems to the
environment such as pollution. Hence, the government and the society at
large may make movements against such companies for the dangers they
are causing to the environment. This in turn may compell companies to put
their large sum of money to take care the physical environment and further
it may compel them to look for improved products that are friendly to the
environment for e.g. car producing companies are doing their best to create
cars that minimizes the pollution of environment.

Generally, marketer should look into all these aspects if there are any
tendencies posing a challenge or creating a chance for the company.

Political and legal Environment: this consists of laws, governmental

agencies and pressure groups. In the first place, countries will have their
own legislation aimed at protecting companies from unfair competition,
protecting consumers from unfair business practices and/or to protect the
society’s interest from unbridled business behavior. Hence, marketers must
have a good knowledge of the major laws protecting competition, consumers
and society. Additionally, new framework of laws might be introduced as it
becomes necessary and this newly created may affect the organization’s
activity positively or negatively in addition to the exisiting ones. Apart from
all this, the government may have its own regulations and priorities and the
initiation it give may change over time for different kind of businesses. In
addition to this, there might be some influential groups that are capable
enough to influence the legislationbody and the government to introduce
new laws or take actions. Hence, marketers need to look into all this aspects
on continous basis to identify the possible threats being posed on the
company or opportunities coming along with the changes of these factors.

Micro environmental forces:these are factors that are specific only for
the company under consideration. They are not the same for all companies
operating in a given market (economy). For. E.g. the competitors of a
company may be different from another company engaged in some othe un
related business. As well, a company’s suppliers might be differnt from one
company to the other. In the same way, customers (markets) the firm serves
might be different in accordance with the company’s business. Generally, all
the aspects mentioned above are things that can change from one company
to the other. They are not the same for all companies like macro factors. As
they are external to the company, still these forces are uncontrollable by a
company but are not that much difficult to influence like macro factors. For
e.g. a company may not control the activity of its competitors but can
systematically affect its activity. Likewise, a company may not exert control
 over its suppliers but still may have the bargaining power to influence their
activity. Now let’s have a look at the main factors one by one;

1. Suppliers: Suppliers are specific to the company. i.e. suppliers of a

company in one industry are/may be different from the other company
engaged in other industry and even for companies engaged in the same
industry, suppliers might be different from one company to the other. They
can affect an organization’s activity in so many ways. For e.g. if the supplier
can not deliver the materials on timely basis, it will be difficult for the
company to deliver the product for customers in areas where they are in
need of on timely basis. In the same way, if suppliers fail to meet quality
requirments, it will be difficult for the company to come up with supperior
quality products. Likewise, if suppliers increase the price of the materials
they are delivering, it may enforce the company to raise prices of its final
products etc. In return a company may have some bargaining power to
affect suppliers activity. E.g. a company may inforce suppliers to meet some
quality requirment, may inforce them to decrease price etc. Hence, it is of
paramount importance to contenously monitor the activities of suppliers in
terms of their their materials quality, dependability, etc. This is so because if
a supplier stops delivering abruptly, it may threat the company’s business.
In the same way, if the number of suppliers go on raising, it can be
considered as opportunity for the company as it will make getting in puts
less difficult.
2. Marketing intermediaries: these are all those parties that are involved in
delivering the company’s products to the market from where they are
produced and that are involved in the exchange process with the company’s
target market in one way or another such as retailers, physical distribution
companies (transportation and warehousing companies), marketing service
companies such as advertising companies, marketing research companies
etc and financial intermediaries such as banks and insurances. Obviously, in
one way or another, these may have posetive and/or negative impact on a
company. So, its so important to follow up any changes in such an
atomspher so that the company can prepare the things it may encounter in
advance.
3. Competitors: A company’s competitive environment is a major influence on
its marketing activities. A company is rarely stands alone in its effert to
serve a given customer market. There will always be a host of competitors.
Hence, a company should identify, monitor and outmaneuvered to capture
and maintain customer loyality. A comapny generally face three types of
competition;
 Brand competition: comes from marketers of directly similar products e.g.
coca and pepsi.
 Substitute products: products from other categories but can substitute
the company’s products e.g. video producing companies and theaters
compete for entertainment need(recreational need). May be Jucies, Ambo
weha, Highland spring, Coca etc appeal for satisfying the same need
refreshment drink.
 In the third, more general type of competition, every company is a rival
as all strive to get the limited buying power of buyers.
Customers: Customers’companies’targetting might be different from
one company to the other even in one industry and if the industry
with in which the companies are operating is different, obviously
their direct customers will also be different. And, as we said it in
market oriented approach, the justification for an organizations
existence is the decision of customers to purchase. Hence, every
activity of the organization should revolve arround the needs and
specification of customers in today’s competitive environment. As
we all know, in today’s world it sometimes seems that change is the
only constant thing. Hence, what customers are interested today
may be outdated by tomorrow. Thus, companies should keep on
improving themselves with the changing environment of their
customers. That means if the interest of customers starts to shift, in
the same way the company should adjust it self in accordance with
that change. To this end, it is compulsory for companies to
continuously scan their customers and adjust themselves
accordingly
 CHAPTER THREE

BUYING BEHAVIOR
3.1. Consumer buying behavior

Consumer buying behavior means the behavior consumers exhibit when searching for
information about product to buy, evaluate one brand against another, and when they are using
and exposing the product after using it.

In addition to a company’s marketing mix and factors present in the external environment, a
buyer is also influenced by personal characteristics and the process by which he/she makes
decisions. A buyer’s cultural characteristics, including values, perceptions, preferences, and
behavior learned through family or other key institutions, is the most fundamental determinant of
a person’s wants and behavior. Consumer markets and consumer buying behavior have to be
understood before sound marketing plans can be developed.

The consumer market buys goods and services for personal consumption. It is the ultimate
market in the organization of economic activities. In analyzing a consumer market, one needs to
know the occupants, the objects, and the buyers’ objectives, organization, operations, occasions
and outlets.

The buyer’s behavior is influenced by four major factors: cultural (culture, subculture, and social
class), social (reference groups, family, and roles and statuses), personal (age and life cycle state,
occupation, economic circumstances, lifestyle, and personality and self-concept), and
psychological (motivation, perception, learning, and beliefs and attitudes). All of these provide
clues as to how to reach and serve buyers more effectively.

Before planning its marketing, a company needs to identify its target consumers and their
decision processes. Although many buying decisions involve only one decision maker, some
decisions may involve several participants, who play such roles as initiator, influencer, decider,
buyer, and user. The marketer’s job is to identify the other buying participants, their buying
criteria, and their influence on the buyer. The marketing program should be designed to appeal to
and reach the other key participants as well as the buyer.

The amount of buying deliberateness and the number of buying participants increase with the
complexity of the buying situation.

Marketers must plan differently for four types of consumer buying behavior: complex buying
behavior, dissonance-reducing buying behavior, habitual buying behavior, and variety-seeking
buying behavior. These four types are based on whether the consumer has high or low
involvement in the purchase and whether there are many or few significant differences among
the brands.

In complex buying behavior, the buyer goes through a decision process consisting of need
recognition, information search, and evaluation of alternatives, purchase decision, and post
purchase behavior. The marketer’s job is to understand and develop an effective and efficient
program for the target market.

3.1.1. The buyers decision process

The final consumer’s decision process is the way in which people gather and assess information
and make choices among alternative goods, services, organizations, people, places, and ideas. It
consists of the process itself and factors affecting the process.

The decision process consists of five basic stages (the next six sections). Factors affecting the
process are a consumer’s demographic, social, and psychological characteristics. Sometimes, all
six stages in the process are used; other times, only a few steps are utilized. At any point in the
process, it may be ended.

1. Need recognition: normally any purchase decision begins with the recognition of needs or
problem. The need may be triggered by internal stimuli such as hunger, thirst or sex. For e.g.
before thinking about purchasing something to eat a person first should be hungered. It may
also be triggered by external stimuli for e.g. a person passes a restaurant and smell nice food
that stimulates his hunger. In this case, the stimuli are external. At this stage, the marketer
 should research consumers to find out what kinds of needs or problems are associated with
the product, what factors brought them about, and how they led the consumer to this
particular product. Then they can develop marketing strategies that that trigger consumers’
interest.
2. Information Search: Information search involves listing alternatives that will solve the
problem at hand and a determination of the characteristics of each. Search can be internal
and/or external. As risk increases; the amount of information sought also increases. Once the
information search is completed, it must be determined whether the shortage or unfulfilled
desire can be satisfied by any alternative. The internet has become a major source for
consumer shopping information.
3. Evaluation of Alternatives: The alternatives are evaluated on the basis of the consumer’s criteria
and the relative importance of these criteria. They are then ranked and a choice made. Generally,
marketers should study buyers to find out how they actually evaluate brand alternatives. If they
know what evaluative process go on, marketers can take steps to influence the buyer’s decision.
4. Purchase Decision: The purchase act involves the exchange of money or a promise to pay
for a product, or support in return of ownership of a specific goods, the performance of a
specific and so on. Purchase decisions remaining at this stage center on
 The place of purchase
 Terms
 Availability

If the above elements are acceptable, a consumer will make a purchase.

5. Post-purchase Behavior: Frequently, the consumer engages in post-purchase behavior.

Buying one item may lead to the purchase of another. Re-evaluation of the purchase occurs
when the consumer rates the alternative selected against performances standards. Cognitive
dissonance, doubt that a correct purchase decision has been made, can be reduced by follow-
up calls, extended warranties, and post-purchase advertisement.

3.1.2. Major factors influencing buying behavior

- Demographic, social, and psychological factors affect consumer decision-making

 - By understanding how these factors affect decision making, a firm can fine-tune its
strategies to cater to the target market.

There are various factors affecting consumers buying behavior. These include:

1. Cultural Factors:

Cultural factors a significant impact on customer behavior. Culture is the most basic cause of a
person’s wants and behavior. Growing up, children learn basic values, perception and wants
from the family and other important groups. Marketers are always trying to spot “cultural shifts”
which might point to new products that might be wanted by customers or to increased demand.
For example, the cultural shift towards greater concern about health and fitness has created
opportunities (and now industries) servicing customers who wish to buy:

 Low calorie foods

 Health club memberships
 Exercise equipment
 Activity or health-related holidays etc.

Similarly the increased desire for “leisure time” has resulted in increased demand for
convenience products and services such as microwave ovens, ready meals and direct marketing
service businesses such as telephone banking and insurance.

Each culture contains “subcultures” – groups of people with share values. Sub-cultures can
include nationalities, religions, racial groups, or groups of people sharing the same geographical
location. Sometimes a subculture will create a substantial and distinctive market segment of its
won. For example, the “youth culture’ or “club culture” has quite distinct values and buying
characteristics from the much older “gray generation”.

Similarly, differences in social class can create customer groups. In fact, the official six social
classes in the UK are widely used to profile and predict different customer behavior. In the UK’s
socioeconomic classification scheme, social class is not just determined by income. It is
measured as a combination of occupation, income, education, wealth and other variables.

2. Social Factors:
A customer’s buying behavior is also influenced by social factors, such as the groups to which
the customer belongs and social status. In a group, several individuals may interact to influence
the purchase decision. The typical roles in such a group decision can be summarized as follows:

Reference Groups:- As a consumer, your decision to purchase and use certain products and
services, is influenced not only by psychological factors, your personality and life-style, but also
by the people around you with whom you interact and the various social groups to which you
belong. The groups with whom you interact directly or indirectly influence your purchase
decisions and thus their study is of great importance to the marketer.

Family: The family, as a unit, is an important of all these groups and we shall discuss it in detail.
The family is an important consumer for many products which are purchased for consumption by
all family members. It is a source of major influence on the individual members’ buying
behavior. We can identify two families which shape an individual’s consumption behavior. One
is the family of orientation that is the family in which you are born and consists of your parents,
brothers and sisters. It is from parents that we imbibe most of our values, attitudes, beliefs and
purchase behavior patterns. Long after an individual has ceased to live with his parents, their
influence of the sub-conscious mind still continues to be great. In our country, where children
continue to live with parents even after attain adulthood, the latter’s influence is extremely
important. The other kind of family is family of procreation (namely one's spouse and children),
which has a more direct influence on specific purchase decision.

Roles: An individual may participate in many groups. His position within each group can be
defined in terms of the activities he is expected to perform. You are probably a manager, and
when in your work situation you play that role. However, at home you play the role of spouse
and parent. Thus in different social positions you play different roles. Each of these roles
influences your purchase decisions.

Status: Status is often measured by the degree of influence an individual exerts in the behavior
and attitude of others. People buy and use products that reflect their status. The managing
director of a company may drive a Mercedes to communicate his status in society.

3. Personal Factors:
Age and life cycle stage: Like the social class the human life cycle can have a significant impact
on consumer behavior. The life cycle is an orderly series of stages in which consumer attitude
and behavioral tendencies evolve and occur because of developing maturity, experiences,
income, and status. Marketers often define their target market in terms of the consumers’ present
lifecycle stage. The concept of lifecycle as applied to marketing will be discussed in more
details.

Occupation and Income: Today people are very concerned about their image and the status in
the society, which is a direct outcome of their material prosperity. The profession or the
occupation a person is in again has an impact on the products they consume. The status of a
person is projected through various symbols like the dress, accessories and possessions.

Life Style: Our life styles are reflected in our personalities and self-concepts, same is the case
with any consumer. We need to know what a life-style is made of. It is a person’s mode of living
as identified by his or her activities, interest and opinions. There is a method of measuring a
consumer’s lifestyle. This method is called as the psychographics-which is the analysis
technique used to measure consumer lifestyles-people activities, interest and opinions. Then
based upon the combinations of these dimensions, consumers are classified. Unlike personality
typologies, which are difficult to describe measure lifestyle analysis has proven valuable in
segmenting and targeting consumers according to their lifestyle classification.

Personality: Personality is the sum total of an individual’s enduring internal psychological traits
that make him or her unique. Self-confidence, dominance, autonomy, sociability, defensiveness,
adaptability, and emotional stability are selected personality traits. People who have self-
confidence have different purchasing behavior than people who have no self-confidence.

4. Psychological Factors:

Motivation: Motivation involves the positive or negative needs, goals, and desires that impel a
person to or away from certain actions. By appealing to motives (reasons for behavior), a
marketer can generate motivation. Economic and emotional motives are possible. Each person
has distinct motives for purchases; these change by situation and over time.
Consumer Needs and Motivations: We all have needs we consume different goods and
services with the expectation that they will help fulfill these needs. When a need is sufficiently
pressing, it directs the person to seek its satisfaction. It is known as motive. All our needs can be
classified into two categories – primary and secondary. Primary needs or motives are the
physiological needs, which we are born with, such as the need for air, water, food, clothing,
shelter and sex. The secondary needs are our acquired needs, which we have developed in
response to the individuals’ psychological make-up and his relationship with other members of
the society.

The secondary needs many include the need for power, prestige, esteem, affection, learning,
status etc. clothing is a primary need for all of us. But the need for three piece tweed suit, or
bananas brocade sari or silk kimonos are expressions of our acquired needs. The man wearing a
three-piece tweed suit may be seeking to fulfill his status need or his ego need by impressing his
friends and family.

All human needs can be classified in to five hierarchical categories and this hierarchy is
universally applicable. The theory of hierarchy of needs can be ranked in order of importance
from the low biological needs to the higher level psychological needs. Each level of need is
fulfilled, people keep moving on the next higher level of need

3.2. Organizational buying behavior

Business market is the collection of buyers who are buying products and services for resale
purpose, or for using it in day to day operation or to use it to make another product. Let us see
the difference between consumer market and business market.

3.2.1. Characteristics of business market

a. Organizational consumers purchase capital equipment, raw materials, semi-finished
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
employees formally participate in complex or expensive purchase decisions. Final
consumers employ it less frequently and less formally.
d. Organizational consumers more frequently employ competitive bidding and negotiation.

3.2.2. Organizational Buying situations

There are three major types of buying situations. At one extreme is the straight re-buy, which is a
fairly routine decision. At the other extreme is the new task, which may call for thorough
research. In the middle is the modified re-buy, which requires some research.

In a straight re-buy, the buyer reorders something without any modifications. It is usually
handled on a routine basis by the purchasing department. Based past buying satisfaction, the
buyer simply chooses. They often propose automatic reordering systems so that the purchasing
agent will save reordering time. “Out” suppliers try to offer something new or exploit
dissatisfaction so that the buyer will consider them.

In a modified re-buy, the buyer wants to modify product specifications, prices, terms, or
suppliers. The modified re-buy usually involves more decision participants than does the straight
re-buy. The in suppliers may become nervous and feel pressured to put their best foot forward to
protect an account. Out suppliers may see the modified re-buy situation as an opportunity to
make a better offer and gain new business.

A company buying a product or service for the first time faces a new-task situation. In such
cases, the greater the cost or risk, the larger the number of decision participants and the greater
their efforts to collect information will be. The new -task situation is the marketer’s greatest
opportunity and challenge. The marketer not only tires to reach as many key buying influences as
possible but also provides help and information.

The buyer makes the fewest decisions in the straight re-buy and the most in the new-task
decision. In the new-task situation, the buyer must decide on product specifications, suppliers,
price limits, payment terms, order quantities, delivery times, and service terms. The order of this
decision varies with each situation, and different decision participants influence each choice.
Many business buyers prefer to buy a packaged solution to a problem from a single seller.
Instead of buying and putting all the components together, the buyer may ask sellers to supply
the components and assemble the package or system. The sale often goes to the firm that
provides the most complete system meeting the customer’s needs. Thus, systems selling are
often a key business marketing strategy for winning and holding accounts.

Sellers increasingly have recognized that buyers like this method and have adopted systems
selling as a marketing too. Systems selling are a two-step process. First, the supplier sells a group
of interlocking products. For example, the supplier sells not only glue, but also applicators and
dryers. Second, the supplier sells a system of production, inventory control, distribution, and
other services to meet the buyer’s need for a smooth-running operation.

Systems selling are a key business marketing strategy for winning and holding accounts. The
contract often goes to the firm that provides the most complete solution to the customer’s needs.
For example, the Indonesian government requested bids to build a cement factory near Jakarta.
An American firm’s proposal included choosing the site, designing the cement factory, hiring the
construction crews, assembling the materials and equipment, and turning the finished factory
over to the Indonesian government. A Japanese firm’s proposal included all of these services,
plus hiring and training workers to run the factory, exporting the cement through their trading
companies, and using the cement to build some needed roads and new office buildings in Jakarta.
Although the Japanese firm’s proposal cost more, it won the contract. Clearly, the Japanese
viewed the problem not as just building a cement factory (the narrow view of systems selling)
but or running it in a way that would contribute to the country’s economy. They took the
broadest view of the customer’s needs. This is true systems selling.

3.2.3. Decision making process in organizational buying

Figure 6.3 lists the eight stages of the business buying process. Buyers who face a new-task
buying situation usually go through all stages of the buying process. Buyers making modified or
straight re-buys may skip some of the stages. We will examine these steps for the typical new-
task buying situation.
 Problem General need Product Supplier
recognition description Specification search

Supplier Order-routine Performance

Proposal review
solicitation selection specification

Problem Recognition

The buying process beings when someone in the company recognizes a problem or need that can
be met by acquiring a specific product or service. Problem recognition can result from internal
or external stimuli. Internally, the company may decide to launch a new product that requires
new production equipment and materials. Or a machine may break down and need new parts.
Perhaps a purchasing manager is unhappy with a current supplier’s product quality, service, or
prices. Externally, the buyer may get some new ideas at a trade show, see an ad, or receive a call
from a salesperson who offers a better product or a lower price. In fact, in their advertising,
business marketers often alert customers to potential problems and then show how their products
provide solutions.

General Need Description

Having recognized a need, the buyer next prepares a general need description that describes the
characteristics and quantity of the needed item. For standard items, this process presents few
problems. For complex items, however, the buyer may have to work with others – engineers,
users, consultants – to define the item. The team may want to rank the importance of reliability,
durability, price, and other attributes desired in the item. In this phase, the alert business
marketer can help the buyers define their needs and provide information about the value of
different product characteristics.

Product Specification

The buying organization next develops the item’s technical product specifications, often with
the help of a value analysis engineering team. Value analysis is an approach to cost reduction in
which components are studied carefully to determine if they can be redesigned, standardized, or
made by less costly methods of production. The team decides on the best product characteristics
and specifies them accordingly. Sellers, too, can use value analysis as a tool to help secure a new
account. By showing buyers a better way to make an object, outside sellers can turn straight
re-buy situations into new-task situations that give them a chance to obtain new business.

Supplier Search

The buyer now conducts a supplier search to find the best vendors. The buyers can compile a
small list of qualified suppliers by reviewing trade directories, doing a computer search, or
phoning other companies for recommendations. today, more and more companies are turning to
the internet to find suppliers. For marketers, this has leveled the playing field – the Internet gives
smaller suppliers many of the same advantages as larger competitors.

The newer the buying task, and the more complex and costly the item, the greater the amount of
time the buyer will spend searching for suppliers. The supplier’s task is to get listed in major
directories and build a good reputation in the marketplace. Salespeople should watch for
companies in the process of searching for suppliers and make certain that their firm is
considered.

Proposal Solicitation

In the proposal solicitation stages of the business buying process, the buyer invites qualified
suppliers to submit proposals. In response, some suppliers will spend only a catalog or a
salesperson. However, when the item is complex or expensive, the buyer will usually require
detailed written proposals or formal presentations from each potential supplier.

Business marketers must be skilled in researching, writing, and presenting proposals in response
to buyer proposal solicitations. Proposals should be marketing documents, not just technical
documents. Presentations should inspire confidence and should make the marketer’s company
stand out from the competition.
Supplier Selection

The members of the buying center now review the proposals and select a supplier or suppliers.
During supplier selection, the buying center often will draw up a list of the desired supplier
attributes and their relative importance. In one survey, purchasing executives listed the following
attributes as most important in influencing the relationship between supplier and customer;
quality products and services, on-time delivery, ethical corporate behavior, honest
communication, and competitive prices. Other important factors include repair and servicing
capabilities, technical aid and advice, geographic location, performance history, and reputation.
The members of the buying center will rate suppliers against these attributes and identify the best
suppliers.

Buyers may attempt to negotiate with preferred suppliers for better prices and terms before
making the final selections. In the end, they may select a single supplier or a few suppliers. Many
buyers prefer multiple sources of supplies to avoid being totally dependent on one supplier and
to allow comparisons of prices and performance of several suppliers over time. Today’s supplier
developments managers want to develop a full network of supplier partners that can help the
company bring more value to its customers.

Order-Routine Specification

The buyer now prepares an order-routine specification. It includes the final order with the chosen
supplier or suppliers and lists items such as technical specifications, quantity needed, expected
time of delivery, return policies, and warranties. In the case of maintenance, repair, and operating
items, buyers may use blanket contracts rather than periodic purchase orders. A blanket contract
creates a long-term relationship in which the supplier promises to resupply the buyer as needed
at agreed prices for a set time period. A blanket order eliminates the expensive process of
renegotiating a purchase each time that stock is required. It also allows buyers to write more, but
smaller, purchase orders, resulting in lower inventory levels and carrying costs.

Blanket contracting leads to more single-source buying and buying more items from that source.
This practice locks the supplier in tighter with the buyer and makes it difficult for other suppliers
to break in unless the buyer becomes dissatisfied with prices or service.
Performance Review

In this stage, the buyer reviews supplier performance. The buyer may contract users and ask
them to rate their satisfaction. The performance review may lead the buyer to continue, modify,
or drop the arrangement. The seller’s job is to monitor the same factors used by the buyer to
make sure that the seller is giving the expected satisfaction.

We have described the stages that typically would occur in a new-task buying situation. The
eight-stage model provides a simple view of the business buying-decision process. The actual
process is usually much more complex. In the modified re-buy or straight re-buy situation, some
of these stages would be compressed or bypassed. Each organization buys in its own way, and
each buying situation has unique requirements.

Different buying center participants may be involved at different stages of the process. Although
certain buying-process steps usually do occur, buyers do not always follow them in the same
order, and they may add other steps. Often, buyers will repeat certain stages of the process.
Finally, a customer relationship might involve many different types of purchases ongoing at a
given time, all in different stages of the buying process. The seller must manage the total
customer relationship, not just individual purchases.

3.2.4. Factors influencing organizational buying Decision

Business buyers are subject to many influences when they make their buying decisions. Some
marketers assume that the major influences are economic. They think buyers will favor the
supplier who offers the lowest price or the best product or the most service. They concentrate on
offering strong economic benefits to buyers. However, business buyers actually respond to both
economic and personal factors. Far from being cold, calculating, and impersonal, business buyers
are human and social as well. They react to both reason and emotion.

Environmental Factors

Business buyers are influenced heavily by factors in the current and expected economic
environment, such as the level of primary demand, the economic outlook, and the cost of money.
As economic uncertainty rises, business buyers cut back on new investments and attempt to
reduce their inventories.
An increasingly important environmental factor is shortages in key materials. Many companies
now are more willing to buy and hold larger inventories of scarce materials to ensure adequate
supply. Business buyers also are affected by technological, political, and competitive
developments in the environment. Culture and customs can strongly influence business buyer
reactions to the marketer’s behavior and strategies, especially in the international marketing
environment. The business marketer must watch these factors, determine how they will affect the
buyer, and try to turn these challenges into opportunities.

Organizational Factors
Each buying organization has its own objectives, policies, procedures, structure, and systems,
and the business marketer must understand these factors well. Questions such as these arise:
How many people are involved in the buying decision? Who are they? What are their evaluative
criteria? What are the company’s policies and limits on its buyers?

Interpersonal Factors
The buying center usually includes many participants who influence each other, so interpersonal
factors also influence the business buying process. However, it is often difficult to assess such
interpersonal factors and group dynamics. Managers do not wear labels that identify them as
important or unimportant buying center participants, and powerful influencers are often buried
behind the scenes. Nor does the highest-ranking buying center participant always have the most
influence. Participants may influence the buying decision because they control rewards and
punishments, are well liked, have special expertise, or have a special relationship with other
important participants. Interpersonal factors are often very subtle. Whenever possible, business
marketers must try to understand these factors and design strategies that take them into account.

Individual Factors
Each participant in the business buying-decision process brings in personal motives, perceptions,
and preferences. These individual factors are affected by personal characteristics such as age,
income, education, professional identification, personality, and attitudes toward risk. Also,
buyers have different buying styles. Some may be technical types who make in-depth analyses of
competitive proposals before choosing a supplier. Other buyers may be intuitive negotiators who
are adept at pitting the sellers against one another for the best deal.