Week 1: Organisational Buying

Question 1

Describe the organisational buyer process

Answer 1

1. Problem recognition
2. General description of need
   - determine characteristics needed (eg. new packaging system)
3. Product specification
   - develop detailed and precise description of needed equipment
4. Supplier search
   - identify a range of potential suppliers
   - long time on this when product has strong bearing on organisational performance
5. Acquisition and analysis of proposals
   - evaluate alternate proposals (4&5 simultaneous when ordering standardised/low info items)
6. Supplier selection
   - negotiations and choose
7. Selection of order routine
   - delivery date established
8. Performance review
   - after installation, evaluate performance (equipment and service support)
   - may continue, modify or cancel agreement

Question 2

Explain the 3 kinds of organisational buying; their details, buying decisions approaches and strategy guidelines

Answer 2

NEW TASK

• *Details
• problem different to previous experience (extensive problem solving)
• lack of well-defined purchase criteria
• task is new to organisation so new info required
• uncertainty and risk
• current and favoured suppliers initiate purchase process

** Buying decision approaches
= Judgemental new task
- greatest level of uncertainty (technically complex or hard to evaluate alternatives)
- uncertain about model, brand, level of quality and price to pay
- moderate info search, moderate use of evaluation
= Strategy new task
- purchasing decisions of extreme importance financially and strategically
- if buyer perceives rapid pace of technological change surrounding decision, search effort increased over short time frame

• *Strategy guidelines
• Differential advantage by active participation in procurement process
• gather info on problems facing buying organisation, isolate requirements and offer solutions
• competitive advantage if can supply other items

STRAIGHT REBUY

• *Details
• most common (routine problem solving)
• high knowledge and experience of product/suppliers
• info needs and uncertainty lower
• current suppliers have advantage
• buyer-seller r’ship important

** Buying decision approaches
= Casual
- no info search, product of minor importance
= Routine low-priority
- somewhat more important, moderate analysis
- look at alternative manufacturing to check for technological advancements
- repurchased from supplier originally selected

**Strategy guidelines
- routinely select supplier from a list of approved vendors
- made simpler through e-procurement systems
(in supplier -> reinforce relationship, meet expectations and be responsive to changing needs
out supplier -> convince organisation it can derive significant benefits from breaking routine)

MODIFIED REBUY

• *Details
• some change in buying process (limited problem solving)
• some benefit in re-evaluating methods
• different stages of buying process

** Buying decision approaches
- strong emphasis strategic objectives and long-term needs
= Simple modified rebuy
- narrow set of alternatives and moderate amount of info search/analysis
- concentrate on long term relationship potential
= Complex modified rebuy
- large set of choice alternatives and pose little uncertainty
- importance of decision means active info search, needs sophisticated analysis and careful long-term need consideration

• *Strategy guidelines
• in supplier -> make every effort to understand/satisfy procurement need and move decision makers into straight rebuy (reexamine alternatives, ask why and act immediately to remedy problems)
• out supplier -> hold organisation in modified rebuy status long enough for buyer to evaluate alternate offering and offer performance guarantees

Question 3

Identify the key roles adopted by the buying centre

Answer 3

= individuals who participate in the purchasing decision and share goals and risks arising from the decision (evolves due to information requirements)

**INITIATOR
B - perceives a problem, initiates buying process to solve it
S - aims to initiate, wants to close buyers, existing supplier has advantage

**INFLUENCER
B - affect purchasing decision (provide technical info or other relevant info)
S - needs to identify/communicate with these people

**GATEKEEPER
B - controls info to be reviewed by members of buying group
S - needs to ensure marketing communication gets to all members of buying centre

** DECIDER
B - actually makes buying decision (whether or not authority to do so)
S - marketing communications need to influence all decision markers

** PURCHASER
B - formal authority to purchase products, responsibility to implement/follow all procurement procedures
S - must ensure buying/selling protocols, liaise with buyer

Question 4

Identify strategy decisions sellers can use to identify and influence the members of a buying centre

Answer 4

• • isolate personal stakeholders
• more influence exerted by those with important personal stake
• • follow info flow
• influential members of buying centre are central to info flow that surrounds the decision, direct info towards
• *identify experts
• expert power determines influence

** trace connections to the top

• • understand purchasing department role
• purchasing is dominant in repetitive buying situations due to technical expertise, knowledge and relationships

Question 5

How do organisations reduce risk

Answer 5

• increase size of buying centre and include people with high levels of organisational status and authority
• info search is active and wide variety of info sources consulted
• as process unfolds, personal info sources are more important (people who have made similar purchases)
• buying centre participants invest greater effort and more careful during purchase process
• sellers with proven track record are favoured
• product quality and after sales service rated highly

Question 6

Explain why organisational buyers are reluctant to change suppliers
and what drives value in these relationships

Answer 6

Organisational buyers invest heavily in their relationship with suppliers
- money, people, training, equipment, processes
Changing suppliers means they face switching costs (have to start many of these aspects again), so payback has to be substantial enough to justify

Suppliers of routinely purchased products offer three sources of value creation:

• core offerings
• sourcing process (bring materials)
• customer level of operation

Question 7

Explain the factors influencing organisational buyer behaviour

Answer 7

• environmental forces
  o economic outlook; domestic and global
  o pace of technological changes
  o global trade relations
  o Economical, political, legal and technological influences
  Run the risk of trade barriers, longer supply chains
• organisational forces
  o goals, objectives and strategies
  o organisational position of purchasing
  -group forces
  o roles, relative influence and patterns of interaction of buying decision participants
• individual forces
  o job function, past experience, and buying motives of individual decision participants