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Chapter 04 - Business, Government and Institutional Buying
Chapter 4
Business, Government and Institutional Buying
High-Level Chapter Outline
I. Categories of Organizational Buyers
A. Producers
B. Intermediaries
C. Government Agencies
D. Other Institutions
II. The Organizational Buying Process
III. Purchase-Type Influences on Organizational Buying
A. Straight Rebuy
B. Modified Rebuy
C. New Task Purchase
IV. Structural Influences on Organizational Buying
A. Purchasing Roles
B. Organization-Specific Factors
C. Purchasing Policies and Procedures
V. Behavioral Influences on Organizational Buying
A. Personal Motivations
B. Role Perceptions
VI. Stages in the Organizational Buying Process
A. Organizational Need
B. Vendor Analysis
C. Purchase Activities
D. Postpurchase Evaluation
Detailed Chapter Outline
I. Categories of Organizational Buyers
Organizational buyers can be classified into four categories: producers, intermediaries,
government agencies, and other institutions.
Taken collectively, marketing to these organizations is called business-to-business or B2B
marketing.
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Chapter 04 - Business, Government and Institutional Buying
Business-to-business marketing has become a topic of increasing interest because it is the major
area where Internet marketing has been done profitably.
A. Producers
These organizational buyers consist of businesses that buy goods and services in order to
produce other goods and services for sale.
Producers are engaged in many different industries, ranging from agriculture to
manufacturing, from construction to finance.
Together they constitute the largest segment of organizational buyers.
Producers of goods tend to be larger and more geographically concentrated than producers of
services.
B. Intermediaries
Marketing intermediaries or resellers purchase products to resell at a profit.
Intermediaries also purchase products and services to run their own business, such as office
supplies and maintenance services.
C. Government Agencies
In the United States, government agencies operate at the federal, state, and local levels.
There are over 86,000 governmental agencies in this country that purchase machinery,
equipment, facilities, supplies and services.
Marketing to government agencies can be complex since they often have strict purchasing
policies and regulations.
D. Other Institutions
Besides businesses and government agencies, marketers also sell products and services to a
variety of other institutions such as hospitals, museums, universities, nursing homes, and
churches.
II. The Organizational Buying Process
Regardless of the type of organization, a buying process is needed to ensure that products and
services are purchased and received in a timely and efficient manner.
Figure 4.1 presents a model of organizational buying that represents some of the common
influences and stages in the process.
III. Purchase-Type Influences on Organizational Buying
A major consideration that affects the organizational buying process is the complexity of the
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Chapter 04 - Business, Government and Institutional Buying
purchase that is to be made.
Three types of organizational purchase based on their degree of complexity include the straight
rebuy, modified rebuy, and new task purchase.
A. Straight Rebuy
The simplest and most common type of purchase is called straight rebuy. It involves routinely
reordering from the same supplier a product that has been purchased in the past.
Organizations use a straight rebuy when they are experienced at buying the product, have an
ongoing need for it, and have regular suppliers of it.
Straight rebuys are common among organizations that practice just-in-time inventory which is
a system of replenishing parts or goods for resale just before they are needed.
To retain customers who use straight rebuys, the marketer needs to maintain high-quality
products and reliable service so that the customers will continue to be satisfied with their
purchases.
B. Modified Rebuy
When some aspects of the buying situation are unfamiliar, the organization will use a
modified rebuy.
Organizational buyers follow this approach rather than a straight rebuy when a routine
purchase changes in some way.
Marketers seek to win new organizational customers by giving them reasons to change from a
straight rebuy to a modified rebuy in which the marketer’s products are considered.
C. New Task Purchase
New task purchase involves an extensive search for information and a formal decision
process.
They are most often used for big-ticket items.
This is the type of purchase decision that is most likely to involve joint decision making
because many kinds of expertise are required to make the best decision.
Figure 4.2 offers some suggestions for reaching organizational buyers for the three types of
purchases.
IV. Structural Influences on Organizational Buying
The term structural influences refers to the design of the organizational environment and how it
affects the purchasing process.
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Chapter 04 - Business, Government and Institutional Buying
The three important structural influences on organizational buying are purchasing roles,
organization-specific factors, and purchasing policies and procedures.
A. Purchasing Roles
It is common in organizational buying for purchases to be made cross-functionally with
representatives from different functional departments playing various roles in the process.
Taken collectively, these are called the buying center and include the following roles:
oInitiators—who start the purchasing process by recognizing a need or problem in the
organization.
oUsers—who are the people in the organization who actually use the product.
oInfluencers—who affect the buying decision, usually by helping define the
specifications for what is needed.
oBuyers—who have the formal authority and responsibility to select the supplier and
negotiate the terms of the contract.
oDeciders—who have the formal or informal power to select or approve the supplier that
receives the contract.
oGatekeepers—who control the flow of information in the buying center.
When several persons are involved in the organizational purchase decision, marketers may
need to use a variety of means to reach each individual or group.
B. Organization-Specific Factors
Three primary organization-specific factors influence the purchase process: orientation, size,
and degree of centralization.
oIn the terms of orientation, the dominant function in an organization may control
purchasing decisions.
oThe size of the organization may influence the purchasing process.
oThe degree of centralization of an organization influences whether decisions are made
individually or jointly with others.
C. Purchasing Policies and Procedures
Organizations typically develop a number of policies and procedures for various types of
purchases.
A current trend in many organizations is sole sourcing, in which all of a particular type of
product is purchased from a single supplier.
Sole sourcing has become more popular because organizational buyers have become more
concerned with quality and timely delivery and less likely to purchase only on the basis of
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Chapter 04 - Business, Government and Institutional Buying
price.
It is advantageous for suppliers because it provides them with predictable and profitable
demand and allows them to build long-term relationships with organizational buyers.
The use of sole sourcing also simplifies the buying process and can make what were formerly
modified rebuys into simpler straight rebuys.
V. Behavioral Influences on Organizational Buying
A. Personal Motivations
Organizational buyers are subject to the same personal motives or motivational forces as other
individuals.
Although buyers may emphasize nonpersonal motives in their buying activities, it has been
found that organizational buyers often are influenced by such personal factors as friendship,
professional pride, fear and uncertainty, trust, and personal ambitions in their buying
activities.
Marketers should understand the relative strength of personal gain versus risk-reducing
motives and emphasize the more important motives when dealing with buyers.
In examining buyer motivations, it is necessary to consider both personal and nonpersonal
motivational forces and to recognize that the relative importance of each is not a fixed
quantity.
B. Role Perceptions
A final factor that influences organizational buyers is their own perception of their role.
The manner in which individuals behave depends on their perception of their role, their
commitment to what they believe is expected of their role, the “maturity” of the role type, and
the extent to which the institution is committed to the role type.
Different buyers will have different degrees of commitment to their buying role, which will
cause variations in role behavior from one buyer to the next.
Organizations can be divided in to three groups based on differences in degree of employee
commitment. These groups include innovative, adaptive, and lethargic firms:
oIn an innovative firm, individuals approach their occupational roles with a weak
commitment to expected norms of behavior.
oIn an adaptive organization, there is a moderate commitment.
oIn a lethargic organization, individuals express a strong commitment to traditionally
accepted behavior and behave accordingly.
Buyers’ perception of their role may differ from the perception of their role held by others in
the organization. This difference can result in variance in perception of the actual purchase
responsibility held by the buyer.
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Chapter 04 - Business, Government and Institutional Buying
VI. Stages in the Organizational Buying Process
As with consumer buying, most organizational purchases are made in response to a particular need
or problem.
The organizational buying process can be analyzed as a series of four stages: organizational need,
vendor analysis, purchase activities, and postpurchase evaluation.
A. Organizational Need
Organizations have many needs for products and services to help them survive and meet their
objectives.
Recognizing these needs, and a willingness and ability to meet them, often results in
organizational purchases.
For straight rebuys, the purchase process may involve little more than a phone call or a few
clicks on a computer to order products and arrange payment and delivery. For modified rebuys
or new task purchases, the process may be much more complex.
B. Vendor Analysis
Organizational buyers often use vendor analysis to evaluate possible suppliers.
A vendor analysis is the process by which organizational buyers rate each potential supplier
on various performance measures such as product quality, on-time delivery, price, payment
terms, and use of modern technology.
Figure 4.3 presents a sample vendor analysis form that lists a number of purchase criteria and
the weights one organization used to compare potential suppliers.
A formal vendor analysis can be used for at least three purposes.
oIt can be used to develop a list of approved vendors, all of which provide acceptable
levels of products and services.
oA vendor analysis could be used to compare competing vendors; the buyers then select
the best one on the basis of the ratings.
oA vendor analysis can be done both before and after purchases to compare performance
on evaluation criteria and evaluate the process of vendor selection.
C. Purchase Activities
Straight rebuys may involve a quick online order to an approved vendor or sole-source
supplier.
The complexity of the product or service, the number of suppliers available, the importance of
the product to the buying organization, and pricing all influence the number of purchase
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Chapter 04 - Business, Government and Institutional Buying
activities to be performed and their difficulty.
D. Postpurchase Evaluation
Organizational buyers must evaluate both the vendors and the products they purchase to
determine whether the products are acceptable for future purchases or whether other sources
of supply should be found.
One problem in judging the acceptability of suppliers and products is that different functional
area may have different evaluation criteria.
Figure 4.4 presents several functional areas of a manufacturing company and their common
concerns in purchasing.
These concerns should be considered both prior to purchasing from a particular supplier and
after purchasing to ensure that every area’s needs are being met as well as possible.
KEY TERMS
Business-to-business (B2B) marketing: Marketing products and services to producers, intermediaries,
government agencies, and other institutions rather than to consumers.
Buyers: In buying centers, the persons who have formal authority and responsibility to select the
supplier and negotiate the terms of the contract.
Buying center: An organizational group formed from different departments which has the responsibility
to evaluate and select products for purchase. Different members of the group may play different roles in
the process.
Deciders: In a buying center, individuals who have the formal and informal power to select or approve
the supplier that receives the contract. For routinely purchased products, the decider is likely to be the
buyer but for more complex products, the decider could come from R&D, engineering, or quality
control.
Gatekeepers: The people who control the flow of information to a buying center.
Influencers: In buying centers, the people who affect the buying decision usually by helping define the
specifications for what is needed.
Initiators: In buying centers, the people who start the buying process by recognizing a need or a
problem in the organization.
Modified rebuy: A type of organizational purchase that involves the consideration of a limited number
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Chapter 04 - Business, Government and Institutional Buying
of alternatives before making a selection.
NAICS: The North American Industry Classification System which provides information about the
number of establishments, sales volume, and number of employees in each industry broken down by
geographic area.
New task purchase: A type of organizational purchase that involves an extensive search for information
and a formal decision process.
Sole sourcing: Organizational purchasing in which all of a type of product are obtained from a single
supplier.
Straight rebuy: A type of organizational purchase that involves routinely reordering a product from the
same supplier that it had been purchased from in the past.
Users: In a buying center, the people in the organization that actually use the product to be purchased.
Vendor analysis: The process by which organizational buyers rate each potential supplier on various
performance measures such as product quality, on-time delivery, price, payment terms, and use of
modern technology.
ADDITIONAL RESOURCES
Anderson, James C., James A. Narus, and Das Narayandas. Business Marketing Management. 3rd ed.
Upper Saddle River, NJ: Prentice Hall, 2009.
Brennan, Ross; Louise E. Canning, and Raymond McDowell. Business-to-Business Marketing.
Thousand Oaks, CA: Sage, 2007.
Dwyer, F. Robert, and John F. Tanner. Business Marketing. 4th ed. Burr Ridge, IL: McGraw-Hill/Irwin,
2009.
Hutt, Michael D., and Thomas W. Speh. Business Marketing Management: B2B. 11th ed. Mason,
OH: Thomson South-Western, 2013.
Vitale Robert, Waldemar Pfoertsch, and Joseph Giglierano. Business to Business Marketing. Upper
Saddle River NJ: Prentice Hall, 2011.
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