What is Organisational Buying?
Organisational buying refers to the process using which organisations identify the need for buying products and services, evaluate and choose among alternative suppliers and brands before finally placing an order. Organisations buy goods or services for use in business, for resale or for manufacturing other goods or provide services. These organisations may be corporate businesses, governmental organisations, non-governmental organisations, industries and retailers.
Table of Content
- 1 What is Organisational Buying?
- 2 Stages of the Organisational Buying Process
- 3 Comparison of Consumer Buying and Organisational Buying
- 4 Factors Influencing Organisational Buying Behaviour
- 5 Classification of Business Product
- 6 Factors That Impact Organisational Buying Behaviour
- 7 Organisational Behaviour Models
- 8 Sheth Model of Industrial Buying
The buying process is a set of complex events that depends on the organisational structure and the level of experience a firm has in purchasing goods or services. The important factors that are involved in the organisational buying process are:
- Industries and organisations buy products for business use or to produce other products
- Resellers buy products to resell at a profit
- Government buys products for use in offices and development projects or provides service to the general public
- Non-government organisations buy products to provide services to hospitals, educational institutions, religious and social organisations
Organisational buying involves inputs of users, influencers, buyers, deciders and gatekeepers in the organisational buying process. Let’s discuss about them in detail:
- Users: These are the people within the organisation who would actually use goods or services. They prepare product specifications and purchase proposals. They also help in analysing different product or service alternatives
- Influencers: These are the people who influence the buying decision and are also involved in preparing product specifications and analysing different alternatives
- Buyers: These are the people who buy goods or services by selecting the suppliers and deciding the terms and conditions of purchase.
- Decider: The person or persons who take the final decision to buy goods or services from a selected supplier. The supplier (selected by the decider) supplies the goods to the organisation.
- Gatekeeper: The gatekeeper involves technical staff and personal assistants who control the flow of information in the organisation.
Organisational behaviour is influenced by the 4 P’s of the marketing mix namely product, price, place and promotion in addition to other factors such as technological advancements, economic, political and cultural factors. All these factors influence the selection of goods and services. These affect the buyers’ behaviour.
According to Peter D. Bennett, Organisational buying behaviour is the decision-making process by which a buying group establishes the needs for goods and services and identifies, evaluate, and chooses among alternative brand and suppliers.
Stages of the Organisational Buying Process
The organisational buying process starts with identifying the need for goods or services that are required by the organisation. The need can be due to external or internal factors. The internal factors elicit need for buying when the organisation decides to produce new goods for which they need equipment and new goods. The external factors such as exhibitions may also elicit the need for organisational buying.
Once the need for buying is recognised, the buyers must describe their needs in terms of features, quality and quantity of goods.
The third stage of the organisational buying process involves preparation of product specification which is the specific description of goods. The value of goods is analysed by specialised personnel or experts. After studying the needs of goods in the organisation and the performance requirements of the goods, these experts prepare product description or specification.
After fixing product specification, the buyer searches for different suppliers and prepares a list of suppliers. This list is prepared by searching over the Internet and trade directory and asking suggestions from other organisations.
At this stage, the buyer requests suppliers to submit their proposals (Request for Proposal or RFP). Based upon the proposals obtained, the qualified suppliers are further shortlisted based on specific factors. Subsequent to evaluation, some firms are asked to come over for formal presentations. The proposal must include product specification, price, delivery period, payment terms, taxes or duties applicable, cost of transit, insurance and any other associated cost or complimentary service offered.
At this stage, the buyers assess the proposal of suppliers and select one or more suppliers based on their relative merits.
Comparison of Consumer Buying and Organisational Buying
Both the consumer buying process and the organisational buying process have the same objective of satisfying their respective needs and wants. However, there are certain differences between the two. Differentiates between consumer buying and organisational buying:
|Individuals are involved in buying and their buying process is influenced by their society, family and friends.
|A group of people is usually responsible for making the purchases.
|Individual consumers buy goods and services for their personal use or to satisfy their needs. The buying purpose of such consumers is not to earn profit by reselling goods and services.
|The goods and services are bought by the organisation for their business needs. The main objective of organisational buying is to earn profit by using and reselling goods and services.
|The consumers buy small quantities of goods of various kinds and they only purchase the necessary quantity of goods which they require for regular use.
|Organisational buying is done in large quantities. Organisations buy goods in bulk. They must maintain the right level of inventories so that they do not run out of stock. Apart from these, it is always less expensive to make purchases in large-volume.
|Consumer buying is simple and does not require fulfilling any formal contracts with the sellers.
|In organisational buying, there are many formal contracts.
|In consumer buying, the decision of buying is taken by consumers, family or friends.
|Organisational purchasing decision making is a rational process that is influenced by users, influencers, buyers, deciders and gatekeepers.
|In consumer buying, consumers may not have information and knowledge about the market situation, available goods and services, etc.
|In organisational buying, the criteria for purchase are well-defined and organisational buyers do not have many choices available to them. The purchases are evaluated based on specific criteria. Organisational buyers have total knowledge and information of suppliers and the markets
|In consumer buying, consumers buy many kinds of goods to cater to their family’s needs.
|Organisations buy a limited variety of goods needed for conducting the business and manufacturing operations.
|In the consumer buying process, the buying behaviour of individuals is influenced by their age, gender, occupation, income level, education, and more
|In organisational buying, many departments and individuals are involved.
Factors Influencing Organisational Buying Behaviour
There are many factors that affect an organisation’s buying behaviour. All businesses are faced with opportunities and challenges with respect to organisational buying. Every business is also affected by internal and external factors. The internal factors are related to workforce, finance, techniques, materials, types of equipment and machines.
Organisational buying behaviour is also affected (directly or indirectly) by various external factors and institutions over which it does not have any direct control. These external factors include suppliers, consumers, competitors, government, technological, social, economic, political and legal factors. The business environment keeps changing in terms of government policies and regulations, socio-economic factors and other economic factors.
Classification of Business Product
Business products refers to those products and services which companies purchase to manufacture their own products and operate business. Business products are classified into 6 subcategories:
- Installations: These are the major capital items used directly in the production process. These includes conveyor systems, robotics equipment, machine tools, stamping machines, large commercial ovens, and computerised axial tomography scan machines etc.
- Accessory equipment: These are the expensive products which have shorter lives than installations. Some of the accessory equipment are hand tools, computers, desk calculators, and forklifts.
- Raw materials: These products are purchased in the raw state with the objective of processing them into consumer or business products. Some of the example of raw materials are iron ore, crude oil, diamonds, copper, timber, wheat, and leather.
- Component parts and processed materials: The items which are purchased to fit in the final product is called component parts. Processed materials, require additional processing before being placed in the end product.
- Maintenance, Repair and Operating supplies (MRO supplies): MRO supplies are item which are purchased frequently and contribute indirectly for making the final product. MRO supplies consist of computer paper, light bulbs, lubrication oil, cleaning supplies, and office supplies.
- Business services: The services purchased by an organisation to support in the business operation. Examples of business services are financial, marketing research, promotional, legal, lawn care, and janitorial services.
Factors That Impact Organisational Buying Behaviour
Organisational buying is affected by economic factors such as country’s economic structure, systems and procedures, economic policies, and the nature of the country’s economic system, business cycles, capital market, level of demand, etc.
For the success of any business, the organisation needs to understand the factors that affect the buying behaviour, anticipate and forecast prospective market situations and work towards minimising costs and maximising profits. Organisational buying is affected directly or indirectly by various economic factors such as interest rates, taxes, inflation, currency exchange rates, consumer discretionary income, savings rates, consumer confidence levels, unemployment rate, recession and depression.
The political environment of any country influences the organisational buying behaviour to a large extent. A country’s political system decides government’s involvement in business and paves the way for carrying out organisational buying process. The political environment is mainly the structure of the political system, ideologies of the government, nature and extent of bureaucracy. It is also dependent upon a country’s political stability, its foreign policy, defence and military policy.
An organisation must be aware of the legal system of the countries in which they operate. They should also be aware of the legal relationships that exist between countries. Legal factors involve the laws and regulations that govern business organisations.
Organisational buying process is affected by the level of technology, the pace of technology, technology transfer, technological investments, information technology and e-commerce.
Organisational Behaviour Models
Organisational behaviour refers to the study of how people behave within groups or within the organisation. Therefore, it is necessary to analyse the factors that affect the behaviour of people at a particular time or period. Every organisation develops models based on the behaviour of the people to get a better understanding of organisation, its people and their mission and objectives.
Organisational behaviour involves a combination of three approaches namely social learning, behaviourist framework and cognitive frameworks. There are five models of organisational behaviour including autocratic model, custodial model, supportive model, collegial model and systems model. Let us now discuss these models.
The autocratic model is found in autocratic organisations where the management has the authority for controlling employees. The autocratic model depends upon strength, power and formal authority which were very common during the Industrial Revolution and the Factory System. For example, in defense sector, the commanding officer exerts power and authority over the battalion. Soldiers obediently follow his orders.
In such systems, the lower-level employees do not have much control over their work function and their ideas and innovations are normally not accepted since the key decisions are made by the top-level management. In this model, the stakeholders, owners, and the management has business expertise and the average employees with average or low levels of skill needed to be guided and directed.
The problems associated with the autocratic model was that the management team needed to monitor and guide their staff and track their work along with deciding everything involved with the work. In today’s modern-day organisation, this system looks very impractical and inefficient since there are highly paid specialists who are employed in an autocratic system. The autocratic model has a major impact on job satisfaction and employee morale since the employees do not feel valued and part of the organisational team which affects the performance of the employees. This form of behaviour model has become outdated for most modern-day organisations.
The custodial model provides economic security for employees in the form of their wages and other benefits which will help establish motivation and loyalty amongst them. In many countries, organisations provide extra financial packages, health benefits, cars, extra salary, and other luxuries designed as incentives to attract and retain quality people.
According to the custodial model, the organisation improves on its capabilities with a highly skilled workforce, motivated employees, which would give them a competitive advantage in terms of expertise and employee knowledge. The only problem with the custodial model is that it leads to a lower level of motivation for some people who feel ‘trapped’ in the organisation because of the benefits and cannot leave.
For example, a garment factory is an apt example of the custodian model where labour works for security and monetary benefit. If an organisation does well, the employees will avail the benefit. The employees become dependent on the organisation in this model.
The supportive model is not based on authority, incentives or control rather it is aimed at gaining leadership. Its main focus is on motivating employees through the manager-employee relationship. It improves the working environment and the way people are treated daily.
The employees are motivated and they have the intent and value for contributing to the organisation regularly beyond their daily routines. It projects a positive workplace and encourages ideas of people in decision making. For example, in a software making organisation, the manager tends to motivate the staff. The manager strives for a healthy relation with employees.
The collegial model is based on teamwork where everybody in the organisation works together as a team. All individuals actively participate and are encouraged to work together to create a better organisation. The manager’s role is to create a positive and energetic workplace by encouraging teamwork.
The people are encouraged to work together as a team and do not focus on their individual performance. This form of behaviour model is best suited in places where there is a focus on innovation and constant changes of ideas. For example, in a blood donation organisation, all the people associated tend to encourage people to come forward and donate blood for noble cause. All the people in an organisation work integratedly as a unit.
The system model is the most modern and latest compared to all other models where it balances the overall system by analysing the organisational structure and environment. The main objective of this model is to balance individual and organisational goals since they believe that everyone has different goals, talents and potential.
The organisation adds value to its community and customers. In addition, all employees like to work in an environment where there is job security, good remuneration and a positive working environment. For example, an organisation may hold training sessions so that it is able to enhance its employees skills. In doing so, the organisation would benefit from highly skilled workforce and employees will be able to upgrade their skill set.
Sheth Model of Industrial Buying
Sheth Model demonstrates how decisions are made by two or more individuals jointly. In addition, this model also demonstrates the role of psychological aspects while making decisions in the case of industrial buying.
Component 1 relates to the differences among the expectations of individual buyers which are caused by the following factors:
- Individual buyers’ education, role in the organisation, life style, etc.
- Information sources
- Active search
- Perceptual distortion
- Satisfaction with past purchases
Component 2 relates to all variables that determine whether a buying decision is autonomous or joint. This component comprises six variables divided into product specific and company specific factors. The six variables are as follows:
- Product-specific factors
- Time pressure
- Perceived risk
- Type of purchase
- Company-specific factors
- Company size
- Company orientation
- Degree of centralisation
The Sheth Model states that all these six variables decide whether a buying decision is autonomous or joint one. If the size of the organisation is large with a higher degree of decentralisation, it is highly probable that the organisation will have a joint-decision making.
Component 3 relates to the methods of conflict resolution used in the joint decision-making process. The methods include:
If the buyers are in agreement with organisational objectives, the problem-solving and persuasion methods can be used. In case, there is no agreement among buyers with respect to organisational objectives, the method of bargaining takes place. Lastly, in case of conflicts with respect to industrial buying, it is resolved by politicking, which refers to engaging in political activities.
Apart from three components, the Sheth Model of Industrial Buying also suggests that situational factors such as economic conditions, labour disputes, mergers and acquisitions also have an impact on industrial buying. It must be noted that the situational factors affect industrial buying but the model does not explain how these situational factors affect the buying process.