consumer behaviour

Chapter 4
Organisational Buying Behaviour

Chapter Overview

The nature of decision making for the business market is different to that of the consumer market. In addition, purchase decision making in large organisations is different to that of smaller companies. One of the key differences links back to the reason companies buy in the first place—to satisfy their own consumer demand.

The types of business purchase decisions include new task, modified rebuy and straight rebuy. Each of these situations influences the process involved in making a purchase decision.

The business market is comprised of a diverse range of organisations from the public and private sectors—and includes agriculture, government, resellers, manufacturers and non-profit groups.

There are multiple roles in the buying centre of an organisation—including gatekeepers, deciders, users, influencers and buyers. Marketers need to consider each of these roles when targeting a B2B customer.

Two trends having a big impact on the B2B market include the growing importance of customer relationship management (CRM) and the ever-increasing impact of technology and the Internet.

LEARNING OBJECTIVES

After reading this chapter, students should be able to:

·  Understand the nature and types of business markets

·  Outline the influences on business market buying behaviour and demand

·  Summarise the steps in the business buying decision process

·  Discuss the types of business buying decisions

·  Understand the role and influence of the buying centre on purchases

·  Discuss the use of relationship marketing in business markets

·  Discuss the role of the Internet in business-to-business (B2B) marketing

CHAPTER TOPICS

  1. What is the business market?

·  The scope of the business market

·  Case in point 4.1—BankWest targets business with pizza delivery

·  Case in point 4.2—Product focus combats lower price

  1. The nature of business markets

·  Comparison of business and consumer markets

  1. Purchase decision making in business markets
  2. Types of buying situations
  3. Business market demand

·  Organisational buying criteria

  1. Buying motives
  2. Multiple buying influences

·  Case in point 4.3—Defining the system of needs in an industrial market

  1. Relationship marketing in business markets

·  Trends in organisational buying

  1. Using the Internet in B2B marketing

·  Case in point 4.4—Key measurement programs for a customer satisfaction system in a B2B market.

·  Case in point 4.5—Decision makers get online

LECTURE OUTLINE

Encourage discussion to introduce the subject:

Have you ever bought anything for a company before? What types of products or services do you think they buy? Is someone in your company responsible for the purchasing function? Does your company have a preferred supplier for regular items like inputs into manufacturing, stationery, packaging and advertising? How did the company choose this supplier? How does your company buy something really BIG, like new premises or a new supplier for a regular item?

These types of questions will be answered throughout this chapter. Separate attention is warranted on the business purchase decision process because there are significant differences between how a business buys (and what they buy) and how a consumer buys.

1. What is the business market?

The business market consists of all organisations that purchase goods and services. It is important to note that the business market includes ALL organisations, including hospitals, schools, charities, agricultural enterprises and government departments. The business market is often referred to as the B2B market.

The business market is comprised of 1.3 million businesses in Australia—5500 public sector and 1.25 million private sector enterprises.

The business market is complex and can involve many organisations. The text addresses the process of making a man’s shirt, and many of the tasks involved with production. Raw materials, equipment, packaging, market research, promotional materials and administrative supplies are all areas that need to have purchasing processes in place.

The scope of the business market

Consider the types of industries in detail. This section breaks down the business market industry by industry.

Industry / Examples of businesses / Examples of B2B purchases
Farm / Orchards
Vineyards
Livestock / Livestock and animal products—e.g. Pfizer
Tractors and heavy farming equipment—e.g. Kubota
Mining / Coal mining
Gas exploration
Hydroelectricity / Large mining machinery, equipment and parts—e.g. Tsubaki
Construction / Commercial developments
Private developments—
e.g. Masterton / Labour hire—e.g. electrical contractors
Supplies for building industry—sand, bricks (e.g. PGH), Gyprock, Colourbond roofing.
Equipment for building—concrete mixers, ladders, tools of trade.
Safety equipment
Manufacturing / Clothing and textiles
Food processing
Cars and other road vehicles / Production machinery
Raw materials
Packaging supplies
Safety equipment
Transport / Fleet management
Public transport—buses, trains
Taxis
Forklifts and bulk transportation
Airports and aircraft / Vehicles
Maintenance
Forklift and pallet supplies
Shipping and handling facilities
Storage warehouses
Wholesale and retail trade / Wholesalers and agents
Supermarkets
Westfields
Direct marketers—e.g. Ezibuy / Market research
Supply of merchandise
Finance, insurance, real estate / Banks
Insurance providers—e.g. Medibank, NRMA, business agents
Commerical real estate, private real estate, auctioneers. / Market research
Administrative supplies
Labour hire
Business consultancy
Couriers and fleet management
Government / National, state and local (LGA) levels / Contractors
Research
Administrative supplies
Business consultancy
Couriers and fleet management
Non-profit organisaitons / Charities—e.g. World Vision
Churches
Community groups—
e.g. Greenpeace
Council-run child care centres
Special-interest clubs and associations / Rental and purchase of premises
Supplies for running, like communion cups
Stationery
Finance
Photocopiers
Mail delivery

The examples in each column are not exhaustive.

Case in point 4.1—BankWest targets business with pizza delivery

BankWest has been innovative by delivering pizzas to prospective new businesses to raise awareness and enhance favourable attitudes towards their brand. The target is small to medium-sized businesses who are not satisfied with their current financial provider. Results of the campaign were encouraging, given their innovative approach to attract the attention of these customers.

Can students provide further examples on how companies can attract the attention of other business customers?

Case in point 4.2—Product focus combats lower price

This case offers some insight into selling into the farm market in Australia.

International pressure from low-priced suppliers caused Hi-Fert to rethink their strategy. Instead of competing in a price war, which they could never win, Hi-Fert differentiated their offering with a focus on product performance and innovation.

The aim of this case study is to demonstrate that business buyers do not focus on price alone. Creativity and planned marketing strategies are as essential in the B2B market as they are in the consumer market. Understanding the buyers is paramount to success in the marketplace.

2. The nature of business markets

Business market sales volume surpasses consumer market sales.

However, organisational buyers have different needs and buying patterns across different buying situations. For example, a sales rep servicing the soft drink account for take-away food bars will visit accounts briefly, but regularly, to maintain orders. For the sale or lease of a new promotion fridge, more sales effort and time will be required.

Business users are organisations that buy goods and services for any of the following purposes:

·  To make other goods and services businesses must buy inputs. This can include:

-  raw materials e.g. sugar

-  partly-finished products e.g. engines or tyres

-  finished products to include in a process e.g. fleet cars for government department.

·  To resell to other businesses users or consumers

-  retailers and wholesalers such as supermarkets and Repco.

·  To conduct the organisation’s operations

-  Don’t form part of the finished product or service. E.g. stationery, accounting software, cleaning services, couriers.

Comparison of business and consumer markets

Table 4.1 in the text (p. 98) provides a comparison of organisational and consumer buyers.

Key differences relate to motives for buying, knowledge of the product and market, buying skill, how they buy in terms of finance, purchase decision and formalising of purchase, and the criteria they use to select between alternatives.

3. Purchase decision making in business markets

There are many similarities between the consumer and business buying processes. They key difference is that it usually takes much longer for organisations (with new task purchases). Other factors that influence the decision making process in business markets include:

·  Buying is often a group process

·  Buying is less frequent and in larger quantities

·  The negotiation period is usually longer

·  Customer service is often a main requirement

·  Consistency of quality and supply are important

These differences depend on a few factors, such as type of purchase or buying situation, and the size of the business. A company in the SOHO (small office, home office) market will not make many bulk purchases compared to a company that has higher turnover and more staff.

4. Types of buying situations

Consumers are faced with different types of buying situations depending on their involvement in the decision, the perceived risk and the financial commitment. Their buying situations include extensive search, limited search and routinised or habitual behaviour.

The three types of buying in business markets are:

New task buying—a completely new purchase for an organisation. For example, air conditioning for a school that hasn’t had it before, or new factory complex.

Modified rebuy—an organisation has made a similar purchase before but needs to have changes made on product or service specifications or a change of supplier. For example, an upgrade in manufacturing equipment or new cash registers.

Straight rebuy—routine purchases where items have been purchased many times. Could also be part of a contract to supply stationery or tea/coffee ingredients.

5. Business market demand

Business market demand can be affected by similar factors as the consumer market, such as interest rates, economic cycle, social trend and marketing communications. But in addition, there are three key aspects of business market demand that marketers need to understand:

·  Demand is derived, which means that the demand for business goods is based on the demand for consumer goods. E.g. demand for rubber by Michelin is based on the demand for new tyres by consumers. Trends in the market, such as: healthy but busy lifestyles, changing structure of households, the changing workforce, population structure in terms of ethnicity, age, gender; should all be closely monitored by business to determine opportunities and threats.

·  Demand is relatively inelastic and won’t be as affected by changes in price as consumer markets. For example, if the price of lamb goes up because of the drought, then Greek restaurants will need to pay more for the meals they serve. Sometimes a business may increase their final price, if a certain ingredient of their product has gone up in cost. Another example to use here is fluctuating exchange rates.

·  Demand is widely fluctuating compared to consumer markets. This is linked to businesses buying in bulk and less often, whereas consumers buy smaller amounts on a more regular basis.

Organisational buying criteria

It is important to note that typically business buyers are better informed. Particularly in large organisations, business purchasing is handled by a specialist buyer or buying centre.

Most B2B marketers place great emphasis on personal selling, so sellers are able to make sure their buyers are well informed, and can have any technical inquiries answered promptly.

Table 4.2 refers to key buying criteria and motives. The key criteria to raise include:

·  Price

·  Product

·  Service

·  Buying method and style.

Refer to the Interactive Class Exercise for ideas on how to encourage input from students.

6. Buying motives

Buying motives are assumed to be rational, but we mustn’t forget that human beings are still making the purchase decisions. Some of the ‘rational’ motives used by businesses in the purchase process include:

·  Cost and profit-related benefits

·  Ongoing promotional support

·  Service support

·  Ability to generate store traffic

·  Improvements in productivity.

Interpersonal relationships still play a role in the personal selling process.

Table 4.3 (p. 103) provides a good example, on how the motives for buyers of dog food can vary between different types of business buyers and consumers.

7. Multiple buying influences

A buying centre is the group of individuals in the company who are involved in purchase decision making.

The roles that exist in a buying centre include the following:

·  Users are those who actually use the product

·  Influencers have a direct or indirect influence over what is purchased

·  Deciders make the actual buying decision, but don’t necessarily write the cheque.

·  Gatekeepers influence the buying decision by controlling the flow of information

·  Buyers select the supplier and negotiate supply agreement and terms.

Someone can play multiple roles in the buying centre.

Case in point 4.3—Defining the system of needs in an industrial market

This case considers the importance of determining needs through a decision maker’s eyes. If this is done properly a B2B marketer can determine:

·  what product characteristics create value for consumers

·  how to effectively communicate that value to prospects

·  the chance the respondent will buy.

Understanding the buyers in a market is central to marketing.

Effective market segmentation using appropriate variables for the industry is a good starting point, since ‘value’, drivers and general buying characteristics are integral to the process. It is also important to understand all the players in the purchase decision chain or buying centre. Their roles, interests and influence should be considered here. One clear point raised in the case was that ‘product use’ was not always the best way to approach defining customer needs in B2B markets.

An example used in the case study was an electronic controller for air compressors.


8. Relationship marketing in business markets

Relationship marketing involves all marketing activities directed toward establishing, developing and maintaining successful exchanges with customers. In the context of this chapter, the customer is the business buyer.

Table 4.4 (p. 109) highlights the importance of strategic relationships with business buyers and trends in organisational buying.

Marketers need to concentrate their efforts on delivering superior value. Companies need to develop a ‘value proposition’ to develop a position in the marketplace that utilises their strengths.