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Chapter 5: Organizational Buying Behavior
Chapter Objectives
After reading this chapter, students should understand:
·Key differences between consumer and industrial (business-to-business) marketing
·Market segmentation for marketing to organizations
·Understanding why organizational buyers make decisions
·Understanding the mechanism used by organizations to make purchasing decisions,
or how such decisions are made
·The importance of where and when such purchases are made
Chapter Overview
This chapter compares organizational or industrial buying behavior with consumer
behavior (Chapter 4). Students learn how purchasers in companies or organizations use
different criteria to make buying decisions than do individuals and families.
Chapter Outline and Key Terms
Industrial versus Consumer Marketing
Key Terms:
·Organizational marketing
·Industrial marketing
·Business-to-business (B-to-B) marketing
·Buying center
·Derived demand
·Supply chain
A. Definitions
1. Organizational marketing: Marketing a product or service to another
organization, also called industrial marketing.
2. Industrial marketing: Marketing a product or service to another
organization, also called organizational marketing.
3. Business-to-business (B-to-B) marketing: When a product or service is sold
to an organization.
4. Buying center: A group of individuals collectively involved in a purchase
decision.
5. Supply chain: The organizations involved in the movement of raw materials
and components that are part of a product’s production process.
B. How Industrial Marketing Differs from Consumer Marketing
1. Derived demand: Demand for an industrial product is derived from
underlying consumer demand.
2. Product complexity: Industrial products are more complex than consumer
products.
3. Buyer-Seller interdependence: In industrial settings, the customer depends
on its suppliers for its operation and ultimately its success in terms of
profitability. The seller is part of the supply chain.
4. Buying process complexity: The process is much more complex involving a
variety of people across the organization. Reasons include:
·Some companies have centralized purchasing functions
·Other decentralize purchasing in divisions or product management
·Some products are so technical that both parties must work together to
finalize product specifications.
·Many industrial purchases involve huge sums of money so the
purchasing cycle (length of time) to make a decision is much longer.
Who Are the Customers?
Key Terms:
·Segmentation variables
·Segmentation scheme
·Vertical marketing
·Horizontal marketing
·Buy classes
·Straight rebuys
·Modified rebuys
·New-task purchase
A. Segmentation Variables
1. Segmentation is as important in industrial marketing as it is in marketing of
consumer goods.
2. Industrial marketers can use most of the same behavioral variables as
consumer marketers (Table 4.2 Page 92).
3. One set of industrial descriptor segmentation variables is shown in Table 5.1
Market Segmentation Variables for Business Markets Page 130. These
include:
·Demographic variables: Company size, industry type, geographic
location, and number of employees.
·Operating variables: Dimensions of the customer’s operations such
as technologies they use, how many of services or products they
need.
·Purchasing approach variables: Customers who use a bidding
process, centralized/decentralized purchasing, etc.
·Situational factors: These include the customer’s delivery speed
needs, order size, and particular uses of the product.
·Personal characteristics: Organization’s attitudes toward risk, etc.
4. Segmentation scheme (Tables 5.2 and 5.3 Pages 130 -131)
·Segmenting by market type:
·Vertical marketing: Marketing to specific industries with
products or services tailored to those industries.
·Horizontal marketing: Marketing to different industries with the
same product or service.
·Segmenting by buy classes (Set of descriptor variables used in
industrial marketing segmentation that is based on the newness of
the purchasing situation:
·Straight rebuy: Routine purchases made by an organization from
the same supplier used in the past.
·Modified rebuy: Purchasing situation in which something has
changed since last purchase.
·New-task purchase: Purchasing situation that is unusual or
occurs infrequently in a given organization.
·Illustration: Panasonic (www.panasonic.com) Page 132
·Illustration: HSBC (www.hsbc.com) Page 132
·Segmenting in technology companies,
·Chasm Model Figure 5.1 Page 134
·Illustration: Baan Co. (www.infor.com) Page 136
·Illustration: PayPal (www.paypal.com) Pages 136-137
5. Marketing research implications: Data collection
·Use various types of data collection methods including syndicated or
proprietary research, government research, specialized consulting
firms
·Illustration: Cardboard Boxes and Containers, Page 137 and
Table 5.6 Page 138
6. Marketing research implications: Developing target markets
·Criteria used to determine whether a particular segmentation scheme
is useful are:
·Does segmentation scheme explain differences in the behavioral
variable of interest?
·How many customers are there in the segment?
·What is the segment’s forecasted growth?
·Are there particular environmental factors associated with the
segment that make the segment more or less attractive?
·What is your potential competitive position in the segment?
Why Do Customers Buy?
Key Terms:
·Organizational buying stages
A. Organizations have various stages in their procurement process. These include:
·Identify need
·Determine characteristics
·Establish specifications
·Identify potential sources
·Request proposals
·Evaluate proposals
·Select supplier
·Make post-purchase evaluation
How Do Customers Make Purchase Decisions?
Key Terms
·Buying center
A. Buying center: Different people in organization who are involved in the purchase
decision. Those may be:
·The initiator: Person who first recognizes the need for product or service
·The influencers: People who influence the decision about which supplier
·The decider: Person in the organization who makes the ultimate decision
·The purchaser: Person who actually authorizes payment for the product
·The users: People who actually use the product
B. The buying process:
·Determine the characteristics
·Establish specifications
·Search for and qualify potential suppliers
·Request proposals
·Evaluate proposals and select a supplier
·Performance post-purchase evaluation
C. External and internal influences on purchasing behavior
·Environmental factors: legal, cultural, political, economic, competitive, and
other factors
·Organizational characteristics: size of the company, level of technology, etc.
·Characteristics of the individuals in the group: participants in the decision-
making group can vary by education, motivation, personality, experience,
and degree of risk-taking.
·Characteristics of the group as a whole: size, authority, leadership, and
group structure can influence the choice
Where Do Customers Buy?
A. Channels of distribution
·Sales forces and industrial distributors
·Direct marketing including Internet
When Do Customers Buy?
A. Factors affecting industrial purchasing:
·Customers’ fiscal years: budgets may begin and end on certain yearly cycles
·General economic cycles: purchases may be sensitive to economic fluctuations
B. Analyzing corporate buying behavior:
·Factors affecting industrial purchasing should be taken into account when
developing marketing strategies.
Teaching Tips and Strategies from Barbara S. Faries, MBA
This chapter provides understanding of customer behavior: who buys, why they
buy, how they make purchase decisions, where they purchase, and when they buy in an
organizational or industrial setting (business-to-business).
Key Terms and Concepts Introduced Include:
·Organizational marketing
·Industrial marketing
·Business-to-business (B-to-B) marketing
·Buying center
·Derived demand
·Supply chain
·Segmentation variables
·Segmentation scheme
·Vertical marketing
·Horizontal marketing
·Buy classes
·Straight rebuys
·Modified rebuys
·New-task purchase
·Organizational buying stages
Note: Two recurring themes in this Instructor’s Manual are the first two items:
·Engage students to link work experience to the concepts demonstrated in
the text.
·Instructors are encouraged to link theory to practice by finding current examples
in the consumer environment that demonstrate the key concepts above.
·If your class contains those already working in the field, have them describe how
the concepts in theory match those in the actual workplace.
One of the most important concepts in this chapter is the distinction between
consumer (business-to-consumer) and organizational (business-to-business) marketing.
In this setting, I have students outline how their own companies work with outside vendors
or suppliers both from a marketing standpoint and from a purchasing standpoint. It is
interesting to have them recall the examples they may have used in the Chapter 4
(consumer marketing) versus the organizational marketing.
Using an exercise in which they use their own companies or companies well known
to them can raise their awareness of these concepts and how they are used in “real life.”
Does their company conform to the described concepts? How are they the same or
different?
It is also important for them to understand segmentation in organizational or
business-to-business environments. Choose a company that markets to both consumers and
business organizations. Have the students compare and contrast the differences in ways the
company segments to consumers versus how it segments to businesses. Apple is often a
good company to use since it markets heavily to consumers yet its largest computer
markets are to businesses (graphics, printing industry, government, and education).
A current hot topic is supply chain management. Have the students discuss this
concept in conjunction with their own companies. It is useful to have a discussion on why
supply chain management is important to an organization.
Review Questions
1. Why is the notion of derived demand so important for companies selling products and
services to other organizations? Can you think of an example in which an industrial
company has benefited from changes in end-consumer demand? Or suffered?
2. Go to the Internet site of the US Census at http://www.census.gov/eos/www/naics.
Look at the government documents that provide sales information by SIC (or NAICS)
code. Become familiar with the different levels of specificity of the codes. How useful
are the data for a marketing manager? What are their limitations?
3. Choose an industrial product and try to guess the buying center for customers of that
product. What is the customer behavior for a typical member in each group, expressed
in terms of the basic customer behavior questions (Why? How? Etc.)?
4. Suppose you are hired as a salesperson for a company that sells the product in
question. How do you find out who occupies each buying role in the center? How do
you use the information from question 3 to do your job?
5. Go to a web site for a company selling business-to-business products or services.
Compare this web site to one selling consumer products or services. What are the
differences? To whom is each targeted?
The answers will vary. This is a good way to have the student discern segmentation
6. As noted in an illustration in this chapter, an industry that is in the early stage of the
product life cycle is telematics, which among other things provides information services
to autos via wireless technology. The penetration of such services is limited. Other than
lowering the price, how would you “cross the chasm” to increase the penetration rate
of such services.
Exercises, Activities, and Projects
Purpose: To help students link theory to real life.
To demonstrate the differences of industrial vs. consumer markets.
·Break students in groups and have them go to the Market Segmentation
Variables for Business Markets Table (Table 5.1, Page 130). Have them choose
a business-to-business example of their choice. (They may choose to use their
own companies or a company well known to them.) Have them answer the
questions in the Market Segmentation Variables for Business Markets. Have
them compare and contrast the differences between the Business Market and the
Consumer Market Segmentation Model.
·This can be an in-class exercise or an outside exercise.
