MARKETING STRATEGIES: Organisational buyer behaviour

Organisational buying is very similar to individual buyer behaviour with some contextual differences. Organisations buy in furtherance of organisational objectives, such as to manufacture and deliver goods and services to members, customers or the community.

Purchases are ingredients, components or supplies in the conversion process, for administrative or operational use or for rental or resale. Organisations serve a marketplace and are driven by the needs of their customers, whatever form they take.

The differences between organizational and individual buying processes are shown in the following table:

Many large organisational purchases involve consultative selling, that is where the buyer and vendor work together to define the problem, identify a solution and work together throughout a long process of implementation and support. Because of the relationship issues which occur in a long association, trust, integrity, empathy and engagement become important factors to consider in the buying decision.

Organisational buying is heavily influenced by derived demand, that is, demand for an end product or for a product or service sold by the buyer’s customers. The demand for components by a manufacturer will be dependent on demand coming from their customers, the retailers and wholesalers, who in turn are reacting to demand from their customers, the consumers. Overall consumer demand may in turn be impacted by economic, social, political and technological factors in the environment.

Organisational buying is often referred to as group buying where a number of individuals or groups undertake different roles in the buying process. Often the buying process will involve highly technical issues which will require the input of technical experts. At the same time, major purchases will involve economic considerations such as financing, return on investment, maintenance costs, life cycle consideration and so on. Different groups or individuals may play one or more of the following roles:

• Users: these are the people who will directly use or consume or require the product or service in order to undertake their operational duties.
• Influencers: these are individuals or groups who help specify the requirements or provide information to help evaluate the alternatives. People who provide technical input are usually in this group.
• Buyers: these individuals and groups have the formal authority to select vendors and undertake the actual purchase transaction. They may take a major role in the negotiations on price and conditions of supply.
• Deciders: These individuals have formal or informal authority to select the final supplier. May be the same as Buyers in routine purchases.
• Gatekeepers: These individuals informally or formally control the flow of information or access to other groups involved in the buying process.

This structure is not just limited to organizations, we can see similar patterns in family situations where the user, decision-maker and influencer are different members of the family. Similar elements may exist in peer groups where different peer group members have influence on the buyer behaviour.

A problem with working in a B2B environment for many vendors is the difficulty of establishing the members of the different groups and the level of their formal and informal involvement. A further problem lies in the manner in which the problem or solution specifications are arrived at. If developed too early and with little input from the vendor, they could be excluded if they solved the problem in a way different from that required through the specification. Another problem may exist where one vendor has a special relationship with some of the buying groups and is able to bias the specifications towards their solution.

Buying patterns in habitual purchases and frequent low risk purchases where little evaluation is required, follow similar processes as for individuals. These tend to use routine procurement practices with little involvement from the vendors prior to the buy decision.

Complex, large or infrequent and perceived risky decisions are similar to personal buy decisions but as we can see, usually involve many more participants and are usually much more formal in process. Organisational decisions are also capable of being of very large scale and can involve purchases in the many millions of dollars, take many months if not years to transact and can make or break careers and fortunes. Perceived risk can be very high and encompass many actors.

These complex transactions are often in situations where the specification or the problem and/or the solution is problematic. In environments where problems are dynamic and interact with a developing and changing society and economy and where solutions evolve with knowledge and technology, the specifications themselves evolve. Often the buyer needs the active support of the vendor to understand the problem or to understand the state of possible solutions.

Solutions themselves may adapt to the problem definition as it is uncovered. Often it takes the active support of the vendor to uncover the requirements, especially where the vendor has much greater knowledge of the problem environment. Thus, it is not unusual for a deep relationship to develop between buyer and vendor as the project evolves. Trust, integrity, empathy and openness often become key characteristics of the final decision process.

A good portion of organisational buying is controlled or constrained by the economic situation. Components, ingredients and supplies must fit with the conversion process and with the economic objectives of the final outcome. Some decisions are constrained by mandated decision rules which limit the scope of the decision making power of the actors, especially prevalent in government procurement.

Organisational buying is not entirely predictable or entirely rational. Individuals who specify requirements or provide technical input, those who search for information and others who undertake evaluations will still be influenced by their own past experiences, knowledge and training. If a rigorous process of information search and evaluation is not undertaken or if there is time pressure to make a decision, then not all vendors will be considered or fully evaluated.

In a complex one-off buying situation, an organisation proceeds through a series of steps to arrive at the buying process itself. Externally or internally some trigger kicks off the process. At this point, some part of the organization defines the issues and seeks permission to do something about it. Some individual or department is then given responsibility to investigate and recommend action. A budget needs to be assigned and the process of establishing the need and investigating possible solutions commenced. This process can be complex where multiple organisational units are involved and where organisational change is involved.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia. A series of free eBooks for entrepreneurs and angel and VC investors can be found at his site here.