Organizational Buying Behavior

Organizational Buying: How is it different?; Why is it different?
Structure of markets: Fewer buyers; larger buyers; geographically concentrated

Characteristics of organizational buyers:

Tend to be experts in the field for which they are buying.
Are more likely than consumers to follow a rational buying model.
Are very concerned with the use functions of the products being purchased.
- performance specifications
- compatibility with existing systems
- total life-cycle costs

Demand for Goods and Services by Organizations: The concept of derived demand (as opposed to primary demand); The relatively inelastic nature of industrial demand

Buying Center

The buying center is a conceptual center, not a physical one and consists of all people involved in any of the following roles for any given purchase. Different people may fill more than one role, and may fill different roles for different purchases.

Roles in the buying center

Initiator
Decider
Influencer
Purchaser (Buyer)
Gatekeeper
User

Quirks of Buying centers

Hidden Agenda
Real motives vs. legitimate motives
Unequal power of members

Types of organizational purchases Straight Rebuy -- Routine

Modified Rebuy -- important but small changes

New Task -- greatest opportunity for new vendors to develop new customers

RFP -- Request for proposal -- general problem specified to vendors
RFQ -- Request for quotation -- careful specifications given to vendors

Resellers - - wholesalers and retailers

Agents for their customers
Assortment is crucial

Types of Purchase decisions for resellers: Must buy vs. might buy

Might buy

New item --- fit with existing lines and customers

Old item --- look at terms

Must buy

Best Vendor --- reliability

Better terms --- pricing issues

Marketing Mix items peculiar to Resellers

Co-op Advertising
Pre-ticketing
Stockless purchasing (often on blanket contract)
Automatic reordering systems
Point of purchase advertising
Special prices
Return and exchange priveledges (for reseller)
Allowances for markdowns
Provision of in store Demos or samples (Costco on Saturdays)

Government as special case organizational buyer: Red tape; Supposed to insure accountability to public; Non-economic criteria; e.g. small business; minority business
Government procedures: Open Bid
Specifications are set
Low bidder gets deal; Negotiated contract
  cost plus
  fixed price
  fixed price plus incentive

The SIC/NAICS industry codes
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