MF 1063

Principles of Marketing

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 Lecture 3

Organizational Buying
Behavior

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B to B Market VS B to C Markets
Business-to-business (B2B) describes
commerce transactions between businesses,
such as between a manufacturer and a
wholesaler, or between a wholesaler and a
retailer.

“ Organizational buying is the decision- making

process by which formal organizations establish
the need for purchased products and services
and identify, evaluate, and choose among
alternative brands and supplies”

(Frederick Webster Jr. and Yoram Wind)

B to C Markets: Business or transactions
 B to B Markets( Central Bank Classification)
Agriculture Finance
Forestry Insurance
Fisheries Distribution
Mining Services
Manufacturing
Construction
Transportation
Communication
Public Utilities
Banking
Value Chain Analysis-Michael Porter 1985
 Value chain of Pair of Shoes
Manufacturing Plant
Raw Material
Suppliers Manufacturing Plant

Wholesaler

C S
C S
S
Retailer

C S

Value Added
C
S Supplier Final

C Customer
 Characteristics of B to B Market
1. Fewer larger buyers
2. Close supplier-customer relationships
3. Professional purchasing
4. Multiple buying influences
5. Multiple sales calls
6. Derived demand
7. Inelastic demand
8. Fluctuating demand
9. Geographically concentrated buyers
10. Direct purchasing
 Fewer; larger buyers
S C
OEM- Original
Equipment
Manufacturers
• Goodyear
• MRF
• Apollo
• JK
• Bridgestone
Close supplier-Customer relationships

• Small Customer Base

• Large customers
• Important customers
• Customer power is
high

Suppliers must……
 Customized products
 Individual Attention
 Closer relationship(CRM-Customer Relationship
Management)
 Professional purchasing
Have to use “ Personal Selling Strategy”

Have to use many buying instruments such

as;
1. Request for quotations
2. Proposals
3. Purchase contracts

Business marketers must provide greater

technical information about their product and its
advantage over competitors’ products.
 Multiple buying influences(DMU)
A group of people involved in the decision making process
is called decision making unit(DMU).

Eg: Purchasing a Photocopy Machine

1. Initiator: Person who request to buy some product( Clerk)

2. User: Person who consume the product( Office Staff)
3. Influencer: Influence by providing guidance; advices and
recommendations(Accountant)
4. Buyer: Person who negotiates and facilitates the purchase.
(Purchase Manager)
5. Deciders: Person who decide on product requirements or on
suppliers (CEO-Chief Executive Officer)
6. Approver: who authorized the proposed action.( Financial
Manager)
7. Gate keeper: The person who control the flow of information
from supplier to other members of DMU.(Receptionist)
 Multiple sales calls
Establishin
g
Relationshi
p

Need
Deliver
Recognitio
and
n
evaluate

Close the Formulate

sale Solutions

 In the case of capital equipment sales for large

project, it may take many attempts to fund a project
, and the sales cycle-between quoting a job and
delivering the product.
 Derived Demand
The demand for business goods ultimately
derived from the demand for consumer
goods.
 Inelastic Demand
• The situation in which the supply and
demand for a good are unaffected when the
price of that good or service changes. As,
1. Producers can not find
satisfactory substitutes
in the short run.

2. Producers can not make

quick changes in
production methods.
 Fluctuating Demand
The demand for business goods and services
tends to be more volatile than the demand
for consumer goods and service.

• Acceleration effect

100
%

20
%

Demand for Demand for Industrial goods(Have to set up

consumer goods almost a new plant to provide increased
 Geographically concentrated buyers
OEMs ( Original Equipment Manufactures)
locate their plants Geographically near by
Toyota Corporation.( Facilitate JIT-Just In Time system)
 Direct purchasing
•Business buyers often buy directly from
manufacturers rather than through
intermediaries, especially items that are
technically complex or expensive such as
mainframes or aircraft.
 B to B Buying Situations
The buying situation depends on,

Complexity of the problem being solved

Newness of the buying requirement
Number of People involved
Time required

Three types of B 2 B buying situations are,

1. Straight re-buy
2. Modified re-buy
3. New task
 Straight re-buy
The purchasing department reorders supplies
on a routine basis and chooses from suppliers
on an approved list.
1.Manufactur Supplier List(pool of
ing Suppliers)
Plant request
raw materials
1. ABC company limited
2. JCK holdings pvt ltd
2.Request
for
3. CP samsons company
Purchasing quotations 4. Y and Y brothers
Department 5. Peter Appuhami and
3.Receiving sons
4.Evaluatin
quotations 6. VV karunarathna Pvt Ltd
g 7. Patirathna Suppliers
quotations
and
selecting
supplier

VV karunarathna Pvt
Ltd
 Modified re-buy
Selecting from Common pool of suppliers.

But ; buyers add some changes and

additional regulations.
The buyer wants to modify;

1. Product specifications
2. Prices
3. Delivery requirement and
4. other terms
 New task
A purchaser buys a product or service for the
first time.
Characteristics are;
1. High cost( Limited bargaining power)
2. Greater risk
3. High Involvement
4. Need bulk information
5. Large number of participants(DMU)
6. Longer the time to a decision

Process pass through several stages:

Awareness Interest Evaluation Trial Adoption
 Organizational
Problem
Buying Process
recognition 1. Initiator: Person who request
to buy some product( Clerk)
General need 2. User: Person who consume
description the product(Office Staff)
Product 3. Influencer: Influence
providing guidance; advices
by

specification and
recommendations(Accountant)
Supplier search 4. Buyer: Person who negotiates
and facilitates the purchase.
Proposal (Purchase Manager)
5. Deciders: Person who decide
solicitation on product requirements or
Supplier on suppliers (CEO-Chief Executive
selection Officer)
6. Approver: who authorized
Order routine the proposed action.( Financial
specification Manager)
Performance 7. Gate keeper: The person who
control the flow of information
review
Problem Recognition
Problem recognition can be triggered by
internal or external stimuli.
Internal stimuli
E.g : Need for a new product , due to
difficulties faced by the Academic staff.
External stimuli
E.g : Idea from a trade show or advertising

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 General Need Description
Buyer determines the needed item’s general
characteristics and required quantity.
Marketers can help by describing how their
products meet or exceed the buyer’s needs
Eg :
General need description of a laptop

• Easy to connect projectors

• Memory/ Capacity
• User Friendly
• Lite
• Features such as remote
control
• Sound

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 Product Specification
Buying organization develops item’s technical
specifications( Product Specifications)
Eg : ASUS Taichi 21 Convertible
Ultrabook Specifications
Hardware
Operating System
• Intel Core i7 3517U Processor or Intel
Core i5 3317U RAM: DDR3 1600 MHz • Windows 8 Pro
SDRAM, On Board Memory 4 GB • Windows 8
• Display: 11.6 Inches” 16:9 Full HD
(1920×1080) Storage
• Graphic: Integrated Intel HD Graphics
4000 • SATA III SSD
• WiFi: Integrated 802.11 a/b/g/n • 128GB (Option)
• Built-in Bluetooth V4.0 • 256GB (Option)
• COMBO audio jack
• USB 3.0 port(s) (2)
Camera
• Docking Connector • HD Web Camera
• 35 Whrs Polymer Battery
• Dimensions: 30.66 x 19.93 x 1.74 cm
Supplier Search
Buyer identify the most appropriate suppliers
Sources: Trade directories, contacts with
other companies, trade advertisements, trade
shows, & internet.

Proposal Solicitation
Buyer invites qualified suppliers to submit
proposals
Invite suppliers to make formal presentations
after evaluating proposals.

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Supplier Selection
Buying centers use supplier evaluation model

The choice of attributes for selecting suppliers

varies with the type of buying situation
e.g.
 Routine-order products:

Delivery reliability, price & supplier reputation

 Procedural-problem products (Photo Copy machine):
Technical service, supplier flexibility, & product
reliability

Break down
frequently
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Order-Routine Specification
Long term contracts with suppliers to ensure
steady flow of materials

Marketers set up extranets with important

customers to facilitate & lower cost of
transactions

Continuous replenishment programs

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Performance Review
Buyer reviews the performance of supplier:
 Buyer contacts the end users & ask their
evaluation
 Buyer rate the supplier on several criteria
 Buyer aggregate the costs of poor performance
of the supplier

Evaluation results lead the buyer to continue,

modify or end supplier relationship.

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Discussion Theme
Business marketers have several characteristics that
contrast sharply with those of consumer markets.

Review Questions
List down the characteristics of business
market.
Explain three buying situations in industrial
market.
Identify the members in the buying center.
Discuss the major influences on industrial
buying behavior.
Explain the organizational buying process. 30