Chapter Three: Understanding the Market/Buying Behavior

3. INTRODUCTION
Managers in an organization spend a great deal of time thinking about customers. They want to
know who their customers are, what they think and how they feel, and why customers buy their
product rather than competitors’. It is not surprising that owners themselves do not know exactly
what motivates their buying. But management needs to put top priority on understanding
customers and what makes them tick.

Thus, understanding buyer’s behavior is an essential but difficult task – the company must
carefully produce its product and its image to match buyer needs and desires. But buyers are
moved by a complex set of deep and subtle motivations. Buyer behavior springs from deeply
held values and attitudes, from what they think of themselves and what they want others to think
of them, from rationality and common sense, and from whimsy and impulse responses.

One of the basic issue marketers need to understand is the question of why do customers
buy products for? There are so many reasons why customers purchase products. Of course,
learning about the why of customers buying behavior is not easy as the answers are often
located deep within the consumer's head. However, we can at least site some of the possible
reasons for purchasing like: to solve specific problems, to prevent a problem from
occurring, for symbolic purpose, because of persuasion or even from a habit.
Knowledge about which market to serve is still another input for a marketer to serve
their customers accordingly. Basically, there are two types of markets to address. They are
consumer markets and organizational markets. We will look in to each type of markets
later in this chapter.

3.1 What is a market?

Traditionally, a market is the place where buyers and sellers gathered to exchange their goods.
In a modern marketing however, a market consists of all the potential customers sharing a
particular need or want who might be willing and able to engage in an exchange to satisfy their
needs and wants. It is the set of actual and potential buyers of a given product. These
buyers share a particular need and want that can be satisfied through exchange relationships.
Basically, Marketing means managing markets to bring about profitable customer relationships.

All modern economies are abounding in markets. Essentially, manufactures go to resource

markets (raw-material markets, labor markets, money marketers and so on), buy resources and
turn them into goods and services and sell the finished products to intermediaries, who sell them
to consumers. Consumers sell their labor, for which they receive money, and with which they

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pay for the goods and services they buy. The government uses tax revenues to buy goods from
resources, manufacturer and intermediary markets and uses these goods and services to provide
public services. Each nation’s economy and the whole world economy consist of complex
interacting sets of markets that are linked through exchange process.

3.2. Consumer Markets and Buying Behavior

How do you define a consumer market? What are the benefits to study the buying behavior of
consumers?

A consumer market consists of buyers who buy products for personal consumption . It
consists of a set of individuals or groups who actually use the purchased goods and
services for direct consumption to satisfy their needs and wants. The study of a consumer
market is therefore concerned with responding to the behavior of consumers to select,
buy, use and dispose of goods and services or experiences. It gives a marketer clues as to,

 Decide product features

 Price patterns and

 Marketing channel decisions.

3.2.1 Consumer Buying Behavior

A consumer buying behavior refers to the buying behavior of final consumer, individuals and
households who buy goods and services for personal consumption. It is all of these final
consumers that make up the consumer market. Consumers around the world vary tremendously
in age, income, educational level, and tastes. Therefore, marketers need to satisfy consumer
needs. And in order to do this, they need to understand the consumers or buyers behavior.
What is important here is that if customers are satisfied:

 they will buy more of a company’s products

 they advocate or talk favorably about the company and its products

 they may advice the company for improvement

 they give little attention to other companies and their goods

 They may buy new products of the company.

Consumers or buyers behavior involves the activities of people engaged when selecting,
purchasing and using products so as to satisfy the needs or desires. It also involves the study of:

 Who makes up the market

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  Possible reasons for purchasing

 What kind of buying decisions are made

 What are the key processes in purchasing

 What influences the buying decision

3.2.2 Model of Consumer buying Behavior

The model is used as the starting point for a marketer to study the behavior of buyers. It
functions as a stimulus-response reactions as to why buyers accept some products and reject
others. Consumers make many buying decisions every day. Most large companies research
consumer buying decisions in great detail to answer the questions about what consumers buy,
where they buy, how and how much they buy, when they buy and why they buy. Marketers can
study actual consumer purchases to find out what they buy, where, and how much. But learning
about the whys of consumer buyer behavior is not so easy – the answers are often locked deep
within the consumer’s head. To that end, the analysis of such consumer buying behavior
models provides the marketer with an understanding of the dark recesses of the consumer’s
mind/Black Box/.Penetrating the dark recesses of the consumer’s mind is not, of course, an easy
task. Often, consumers themselves don’t know exactly what influences their purchases. “Ninety-
five percent of the thought, emotion, and learning [that drive our purchases] occur in the
unconscious mind – that is without our awareness,” notes one consumer behavior expert.

The central question in marketing is: how do consumers respond to various marketing efforts the
company might use? As stated earlier, the starting point is the stimulus response model of buyer
behavior shown in the figure below. This figure shows that marketing and other stimuli enter the
consumer’s “black box” and produce certain responses. Marketers must figure out what is in the
buyer’s black box.

Marketing stimuli consist of the four P’s: Product, price, place and promotion. Other stimuli
include major forces and events in the buyer’s environment: economic, technological’ political
and cultural. All these inputs enter the buyer’s black box, where they are turned in to a set of
observable buyer responses: product choice, brand choice, dealer choice, purchase timing, and
purchase amount.

The marketer wants to understand how the stimuli are changed in to responses inside the
consumer’s black box, which has two parts. First, the buyer’s characteristics influences how he
or she perceives and reacts to the stimuli. Second, the buyer’s decision process itself affects the
buyer’s behavior.

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 Model of Consumer Buying Behavior

3.2. 3 Types of Consumer Buying Decision Behaviors

3.2.3.1 Complex Buying Behavior

What types of buying decision behavior does the consumer experience?

This buying decision behavior refers to a behavior in situations characterized by high

consumer involvement in a purchase and significant perceived differences among brands.
Consumers undertake complex buying behavior when they are highly involved in a
purchase and perceive significant differences among brands. consumers may be highly
involved when the product is expensive, infrequent, or risky purchase or highly self-
expressive. Typically, the consumer has much to learn about the product category as to a
personal computer buyer may not know what attributes to consider.

Such type of buyers will pass through a learning process, first developing belief about the
product, then attitudes and then a thoughtful purchase choice. Marketers of high
involvement products must understand the information gathering behavior of high
involvement consumers. They need to help buyers learn about product class attributes
and their relative importance. They need to differentiate their brand’s features, perhaps by
describing the brand’s benefits using effective media.

3.2. 3. 2 Dissonances Reducing Buying Behavior

This type of buying behavior occurs when consumers are highly involved with an expensive,
infrequent, or risky purchase, but see little difference among brands. For example, a consumer
buying carpeting may face a high-involvement decision because carpeting is expensive and self-

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expressive. Yet buyers may consider most carpet brands in a given price range to be the same.
In this case, because perceived brand differences are not large, buyers may shop around to learn
what is available, but buy relatively quickly. They may respond primarily to a good price or
purchase convenience. After the purchase, consumer might experience post-purchase dissonance
(after sale discomfort) when they notice certain disadvantage of the purchased carpet or hear
favorable things about brands not purchased. To counteract such dissonance, marketer’s after-
sale communications should provide evidence and support to help consumers feel good about
their brand choices.

3.2.3.3 Habitual Buying Behavior

Habitual buying behavior occurs under conditions of low consumer involvement and little
significant brand differences. In such cases, consumers do not pass through the usual
belief-attitude-behavior sequence. Consumers do not search extensively for information
about the brands, evaluate brand characteristics, and make weighty decisions about which
brands to buy. In such situations , consumers do not form strong attitudes toward a
brand; they select a brand because it is familiar. Because they are not highly involved with
the product, consumers may not evaluate the choice even after purchase. Thus, the
buying process involves brand beliefs formed by passive learning, followed by purchase
behavior. Examples are a purchase for sugar and salt. Marketers use price and sales promotion
to stimulate product trial for such types of buying behavior.

3.2.3.4 Variety Seeking Buying Behavior

Consumers undertake variety-seeking buying behavior in situations characterized by low
consumer involvement, but significant perceived brand differences. In such cases, brand
switching occurs for the sake of variety rather than because of dissatisfaction. But, they may
undertake a lot of brand switching. For example, when buying cookies, a consumer may hold
some beliefs choose a cookie brand without much evaluations, then evaluate that brand
during consumption. The next time, the consumer might pick another brand out of
boredom or simply to try something different.

In such product categories, the marketing strategy may differ for the market leader and
minor brands. The market leader will try to encourage habitual buying behavior by
dominating shelf-space, keeping shelves fully stocked and running frequent reminder
advertising. Challenger firms will encourage variety seeking by offering lower prices,
special deals, coupons, free samples and advertising that presents reasons for trying
something new.

3.2.4 The Buying Decision process

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 Could you explain the different stages the buyer undergoes before arriving buying decisions?

The consumer passes through five stages: need recognition, information search, and evaluation
of alternatives, purchase decision, and post purchase behavior in the buying decision process.
Clearly the buying process starts long before actual purchase and continues long after. Marketers
need to focus on the entire buying process rather than on just the purchase decision. Consumers
pass through all the five stages with every purchase. But in more routine purchases, they often
skip or reverse some of the stages. However, we use the model in the figure below because it
shows all the considerations that arise when a consumer faces new and complex purchase
situations.

Need Information Evaluation of Purchase Post Purchase

Recognition Search Alternatives
The Buying Decision processDecision Behavior

3.2.4.1 Need Recognition

The buying process starts with need recognition where the buyer recognizes a problem or need.
The buyer senses his/her actual state and some desired state. The need can be triggered by
internal stimuli when one of the person’s normal needs, hunger, thirst, sex – rises to a level high
enough to become a drive. A need can also be triggered by external stimuli. At this stage the
marketer should research consumers to find out what kinds of needs or problems arise, what
brought them about, and how they led the consumer to this particular product.

3.2.4.2 Information Search

An aroused consumer may or may not search for more information. If the consumer's drive is
strong and a satisfying product is near at hand, the consumer is likely to buy it then. If not the
consumer may not store the need in memory or undertake an information search related to the
need.The consumer can obtain information from any of several sources:

- Personal Source: family, friends, neighbors, acquaintances.

- Commercial Sources: advertising, salespersons, dealers, packages, displays

- Public Sources: mass media, consumer-rating organizations.

As more information is obtained, the consumers' awareness and knowledge of the available
brands and features increase. A company must design a marketing mix to make prospects aware
of and knowledgeable about its brand. Consumers should be asked how they first heard about the
brand, what information they received, and what importance they placed on different information
sources.

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3.2.4.3Evaluation of Alternatives
How does the consumer choose among the alternative brands? The marketer needs to know
about alternative evaluation that is, how the consumer processes information to arrive at brand
choices.

Certain basic concepts help explain consumer evaluation process:

i) We assume that each consumer sees a product as a bundle of product

attributes. They pay the most attention to those attributes connected with their
needs.

ii) The consumer will attach different degrees of importance to different

attributes according to his/her needs and wants.

iii) The consumer is likely to develop a set of brand beliefs about where each
brand stands to each attribute. The set of beliefs held about a particular brand
is known as the brand image.

iv) The consumer's expected total product satisfaction will vary with levels of
different attributes.

v) The consumer arrives at attitudes towards the different brands through some
evaluation procedure.

Marketers should study buyers to find out how they actually evaluate brand alternatives.

3.2.4.4 Purchase Decisions

In the evaluation stage, the consumer ranks brands and forms purchase intentions. Generally,
the consumer’s purchase decision will be to buy the most preferred brand , but two
factors can come between the purchase intention and the purchase decision. the first
factor is the attitude of others. If someone important to you thinks that you should buy
the lowest priced car, then the chances of your buying more expensive car will be
reduced. The second factor is unexpected situational factors. The consumer may form a
purchase intention based on factors such as expected income, expected price, and
expected product benefits. However, unexpected events may change the purchase intention.
For example, the economy may take turn for the worse, a close competitor may reduce
price or a friend might report being disappointed in your preferred car. Thus preferences
and even purchase intentions do not always result in actual purchase choice.

3.2.4.5 Post Purchase Decisions

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The marketer's job doesn't end when the product is bought. After purchasing the product, the
consumer will be satisfied or dissatisfied and will engage in post purchase behavior of interest to
the marketer. The negative feeling that may occur after a commitment purchase has been made is
called cognitive dissonance. What determines whether the buyer is satisfied or dissatisfied with a
purchase? The answer lies in the relationship between the consumer's expectations and the
product's perceived performance.

If the product falls short of expectations, the consumer is disappointed, if it meets expectations,
the consumer is satisfied, if product's performance exceeds expectations, the consumer is
delighted.

3.2.5 Major Factors Influencing Consumer’s Buying Behavior

What factors influence consumer’s buying behavior?

Consumer purchases are influenced strongly by culture, social groups, personal and
psychological characteristics. For the most part marketers cannot control such factors, but they
must take them into account.

3.2.5.1 Cultural Factors

Culture and Sub-Culture

Cultural factors exert the broadest and deepest influence on consumer behavior. The marketer
needs to understand the role played by the buyer's culture, sub-culture and social class. It is the
most basic cause of a person's wants and behavior. Human behavior is largely learned. Growing
up in a society, a child learns basic values, perceptions wants and behaviors from the family and
other important institutions. Every group or society has a culture, and cultural influences on
buying behavior may vary greatly from country to country. Failure to adjust to these differences
can result in ineffective marketing or embarrassing mistakes. Hence marketers are always trying
to spot cultural shifts in order to imagine new products that might be wanted.

Each culture contains smaller sub-cultures, or groups of people with shared value systems based
on common life experiences and situations. Subcultures include nationalities religions, racial
groups, and geographic regions. Many subcultures make up important market segments, and
marketers often design products and marketing programs tailored to their needs.

Social Class

Almost every society has some form of social class structure. Social classes are society's
relatively permanent and ordered divisions whose members share similar values, interests, and
behaviors. Social class is not determined by a single factor, such as income, but is measured as a
combination of occupation income, education, wealth and other variables. In some social
systems, members of different classes are reared for certain roles and can't change their social

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position. Marketers are interested in social class because people within a given social class tend
to exhibit similar buying behavior. Social class should distinct product and brand preferences in
areas such as clothing, home furnishings, leisure activity and automobiles.

3.2.5.2 Social Factors

A consumer buying behavior is also influenced by social factors, such as consumer's small
groups, family and social roles and status. Because these social factors can strongly affect
consumer responses, companies must take them in to account when designing their marketing
strategies.

Groups

A person's behavior is influenced by many small groups. Groups which have a direct influence
and to which a person belongs are called membership groups. Some are primary groups with
whom there is regular but informal interaction such as family, friends, neighbors and co-workers.
Some are secondary groups, which are more formal and have less regular interaction. These
include organizations like religious groups, professional associations and trade unions.

Reference groups are groups that serve as direct (face to face) or indirect points of comparison or
reference in forming a person’s attitudes or behavior. People often are influenced by reference
groups to which they don't belong. For example, an aspiration group is one to which the
individual wishes to be a member of or whishes to be identified with such as a professional
society.

Marketers try to identify the reference groups of their target market. Reference groups influence
a person in at least three ways. They expose a person to new behaviors and lifestyles. They
influence the person's attitudes and self-concept because he/she wants to "fit in". They also
create pressures to conform that may affect the person's product and brand choices.

The importance of group influence varies across products and brands, but it tends to be strongest
for conspicuous purchases. A product or brand can be conspicuous for one of two reasons. First,
it may be noticeable because the buyer is one of few people who own it. Second, a product can
be conspicuous because the buyer consumes it in public where others can see it.

Manufacturers of products and brands subject to strong group influence must figure out how to
reach the opinion leaders in the relevant reference groups. Opinion leaders are people with in a
reference group who, because of special skills knowledge, personality or other characteristics,
exert influence on others. Opinion leaders are found in all strata of society and one person may
be an opinion leader in certain product areas and an opinion follower in others. Marketers try to
identify the personal characteristics of opinion leaders for their products, determine what media
they use, and direct messages at them.

Family

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 Family members can strongly influence buyer behavior. We can distinguish between two
families in the buyer's life. The buyer's parents make up the family of orientation. Parents
provide a person with an orientation toward religion, politics, and economics and a sense of
personal ambition, self-worth, and love. Even if the buyer no longer interacts very much with
parents, they can still significantly influence the buyer's behavior. In countries where parents
continue to live with their children their influence can be crucial.

The families of procreation – the buyer's spouse and children have a more direct influence on
everyday buying behavior. This family is the most important consumer buying organization in
society, and it has been researched extensively. Marketers are interested in the roles and relative
influence of the husband, wife and children on the purchase of a large variety of products and
services.

Roles and Status

A person belongs to many groups – family, clubs, and organizations. The person's position in
each group can be defined in terms of both role and status. For instance, a person plays the role
of a child with his/her parents. In his/her family, he/she plays the role of marketing manager. A
role consists of the activities people are expected to perform according to the persons around
them. Each of a person's roles will influence some of his/her buying behavior.

Each role carries a status reflecting the general esteem given to it by society. People often choose
products that show their status in society. For example, the role of marketing manager has more
status in our society than the role of a child. As a marketing manager, a person will buy the kind
of clothing that reflects his/her role and status.

3.2.5.3 Personal Factors

A buyer's decisions are influenced by personal characteristics such as the buyer's age and life-
cycle stage, occupation, economic situation, lifestyles, and personality and self-concept.

Age and Lifecycle Stage

People change the goods and services they buy over their life times. Tastes in food, clothes,
furniture and recreation are often age related. Buying is also shaped by the stage of the family
life cycle – the stages through which families might pass as they mature overtime. Marketers
often define their target markets in terms of life cycle stage and develop appropriate products and
marketing plans for each stage.

Occupation

A person's occupation affects the goods and services bought. Blue-collar

workers tend to buy more work clothes, where as white –collar workers buy more suits and ties.
Marketers try to identify the occupational groups that have an above – average interest in their
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products and services. A company can even specialize in making products needed by a given
occupational group. For example, computer software companies will design different products
for marketing managers, accountants, engineers, lawyers and doctors.

Economic Situation

A person's economic situation will affect product choice. A person can consider buying an
expensive product (brand) if he/she has enough spendable income, savings, or borrowing power.
Marketers of income sensitive goods closely watch trends in personal income, savings and
interest rates. If economic indicators point to a recession, marketers can take steps to redesign,
reposition, and re-price their products.

Life Style

People coming from the same subculture, social class, and occupation may have quite different
lifestyle. Lifestyle is a person's pattern of living as expressed in his/her activities, interest and
opinions. Lifestyle captures something more than the person's social class or personality. It
profiles a person's whole pattern of acting and interacting in the world.

Life style classifications are by no means universal – they can vary significantly from country to
country. The lifestyle concept, when used carefully can help the marketer understand changing
consumer values how they affect buying behavior.

Personality and Self-Concept

Each person's distinct personality influences his/her buying behavior. Personality refers to the
unique psychological characteristics that lead to relatively consistent and lasting responses to
one's own environment. Personality is usually described in terms of traits such as self-
confidence, dominance, sociability, autonomy, defensiveness, adaptability and aggressiveness.
Personality can be useful in analyzing consumer behavior for certain product or brand choices.

Many marketers use a concept related to personality – a person's self-concept (also called self
image). The basic self-concept premise is that people's possessions contribute to and reflect their
identities; that is, "We are what we have". Thus, in order to understand consumer behavior, the
marketer must first understand the relationship between consumer self -concept and possessions.

3.2.5.4 Psychological Factors

A person's buying choices are further influenced by four major psychological factors:
Motivation, Perception, Learning, Beliefs and attitudes.

Motivation

A person has many needs at any given time. Some are biological, arising from states of tension
such as hunger, thirst or discomfort. Others are psychological, arising from the need for

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recognition, esteem or belongingness. Most of these needs will not be strong enough to motivate
the person to act at a given point in time. A need becomes a motive when it is aroused to a
sufficient level of intensity. A motive (drive) is a need that is sufficiently pressing to direct the
person to seek satisfaction. Psychologists have developed theories of human motivation. One
of the popular human motivation theories is that of Abram Maslow’s need hierarchy
theory. The theory sought to explain why people are driven by particular need at particular time.
Why does one person spend much time and energy on personal safety and another on gaining the
esteem of others? Maslow's answer is that human needs are arranged in hierarchy from the most
pressing to the least pressing. In order of importance, they are physiological needs, safety needs,
social needs, esteem needs, and self-actualization needs.

The theory further explains that a person tries to satisfy the most important need first. When that
important need is satisfied, it will stop being a motivator and the person will then try to satisfy
the next most important need. For instance, a starving man will not take an interest in the latest
happenings in the art world, or in how he/she is seen or esteemed by others, nor even in whether
he is breathing clean air. But as each important need is satisfied, the next most important need
will come in to play.

Perception:

A motivated person is ready to act. How the person acts is influenced by his/her perception of the
situation. Two people with the same motivation and in the same situation may act quite
differently because they perceive the situation differently.

Why do people perceive the same situation differently? All of us learn by the flow of information
through our five senses: sight, hearing, smell, touch and taste. However, each of us receives,
organizes, and interprets this sensory information in an individual way. Perception is the process
by which people select, organize and interpret information to form meaningful picture of the
world. People can form different perceptions of the same stimulus because of three perceptual
processes: selective attention, selective distortion and selective retention.

Selective Attention: the tendency for people to screen out most of the information to which they
are exposed. People are exposed to a great amount of stimuli every day. For example, the
average person may be exposed to a lot of ads a day. And it is impossible for a person to pay
attention to all these stimuli. Thus, marketers have to work especially hard to attract the
consumer's attention. Their message will be lost on most people who are not in the market for the
product. Moreover, even people who are in the market may not notice the message unless it
stands out from the surrounding sea of other ads.

Selective Distortion: it describes the tendency of people to adapt information to personal

meanings. In other words, noted stimuli do not always come across in the intended way. Each
person fits incoming information into un-existing mind-set. People tend to interpret information
in a way that will support what they already believe. Thus, marketers must try to understand the

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mindsets of consumers and how these will affect interpretations of advertising and sales
information.

Selective Retention: people also will forget much that they learn. They tend to retain information
that supports their attitudes and beliefs. Because of selective retention, a person is likely to
remember good points made about a particular product, which he/she is familiar, and forget good
points made about competing products.

Because of selective exposure, distortion and retention marketers have to work hard to get their
messages through. This fact explains why marketers use so much drama and repetition in
sending messages to their market.

Learning

When people act, they learn. Learning describes changes in an individual's behavior arising from
experience. Learning theorists say that most human behavior is learned. Learning occurs through
the interplay of drives, stimuli, responses and reinforcement.

The practical significance of learning theory for marketers is that they can build up demand for a
product by associating it with strong drives, using motivating cues, and providing positive
reinforcement.

Beliefs and Attitudes

Through doing and learning, people acquire their beliefs and attitudes. These, in turn, influence
their buying behavior. A belief is a descriptive thought that a person has about something.
Marketers are interested in the beliefs that people formulate about specific products and services,
because their beliefs make up product and brand images that affect buying behavior. If some of
the beliefs are wrong and prevent purchase, the marketer will want to launch a campaign to
correct them.

People have attitudes regarding religion, politics, clothes, music, food and almost everything
else. An attitude describes a person's relatively consistent evaluations, feelings and tendencies
toward an object or idea. Attitudes put people into a frame of mind of liking or disliking things,
of moving toward or away from them.

Attitudes are difficult to change. A person's attitudes fit into a pattern, and to change one attitude
may require difficult adjustments in many others. Thus, a company should usually try to fit its
products into existing attitudes rather than try to change attitudes. Of course, there are
expectations in which the great cost of trying to change attitudes may pay off.

We can now appreciate the many individual characteristics and forces acting on consumer
behavior. The consumer's choice results from the complex interplay of cultural, social, personal,
and psychological factors. Although many of these factors cannot be influenced by the marketer,

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they can be useful in identifying interested buyers and in shaping products and appeals to better
serve their needs.

3.3 Organizational Markets and Buying Behavior

What do organizational markets consist of? What behavior do they experience before
arriving at a buying decision?

The business market consists of all the organizations that acquire goods and services used in the
production of other products or services that are sold, rented or supplied to others. The major
industries making up the business market are agricultural, forestry and fisheries, mining,
manufacturing, construction, transportation, communication, public utilities, banking, finance
and insurance distribution and services. More birr and items are involved in sales to business
buyers than to consumers. Consider the process of producing and selling a simple pair of shoes.
Hide dealers must sell hides to tanners, who sell leather to shoe manufactures, who sell shoes to
wholesalers, who sell shoes to retailers, who finally sell them to consumers. Each party in the
supply chain also has to buy many other goods and services.

Business markets serve the largest market of all. The dollar volume of goods and services
purchased in the business market significantly exceeds that of the household consumer
market. In a business market , a single customer can account for an enormous level of
purchasing activity and incorporates all forms of government, commercial and institutional
buyers which buy goods and services for incorporation in to other goods, for
consumption, or for resale purposes

3.3.1 The Organizational Buying Behavior

The organizational buying behavior refers to the buying behavior of the organizations that
buy goods and services for use in the production of other products and services or for
the purpose of reselling or renting them to others at profit . It also includes the behavior
of retailing and wholesaling firms that acquire goods for the purpose of reselling or
renting them to others at profit.

In the business buying process, business buyers determine which products and services
their organizations need to purchase and then find , evaluate and choose among alternative
suppliers and brands. At the most basic level, marketers want to know how business
buyers will respond to various marketing stimuli. Marketing and other stimuli affect the
buying organization and produce certain buyer behavior. As with consumer buying the
marketing stimuli for business buying consist of the four P’s: product, price, place and
promotion. Other stimuli include major forces in the environment: economic, technological,
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political-legal and cultural. These stimuli enter the organization and are turned in to buyer
responses: product or service choice, supplier choice, order quantity and delivery and
payment terms. Accordingly, in order to design good marketing mix strategies, the
marketer need to understand what happens within the organizations to turn stimuli in to
purchase responses.

3.3.2 Organizational Buying Situation

The business buyer faces many decisions in making a purchase. The number of decisions
depends on the type of buying situation. Robinson distinguishes three types of business buying
situations: Straight re-buy, modified re-buy and new task

1. Straight Re-buy

The straight re-buy is a buying situation in which the purchasing department re-orders on a
routine basis (e.g. office supplies, bulk chemicals). The buyer chooses from suppliers on an
"approved list". These suppliers make an effort to maintain product and service quality. They
often propose automatic reordering systems so that the purchasing agent will save reordering
time. The out-suppliers attempt to offer something new or to exploit dissatisfaction with a
current supplier. Out-suppliers try to get a small order and then enlarge their purchase share over
time.

2. Modified Re-buy

The modified re-buy is a situation, in which the buyer wants to modify product specifications,
prices, delivery requirements or other related items. The modified re-buy usually involves
additional decision participant on both sides. The in-suppliers become nervous and have to
protect the account. The out-suppliers see an opportunity to propose a better offer to gain some
business.

3. New Task Buying

It is a buying situation in which a purchaser buys a product or service for the first time (example
could be office building, new security system). The greater the risk or the cost, the larger the
number of decision participants and the greater their information gathering and therefore the
longer the time to decision completion.

New-task buying passes through several stages; awareness creation, interest development,
evaluation and adoption. Communication tools effectiveness varies at each stage; sales people
have their greatest impact at the interest stage; and technical sources are the most important
during the evaluation stage.

The business buyer makes the fewest decisions in the straight re-buy situation and the most in the
new task situation. In the new task buying situations, the buyer has to determine product

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specification, price limits, delivery terms and times, service terms, payment terms, order
quantities, acceptable suppliers and the selected suppliers. Different decision participants
influence each decision and the order varies in which these decisions are made. The new task
situation is the marketer’s greatest opportunity and challenge the marketer tries to reach as many
key buying influencers as possible and provide helpful information and assistance. Because of
the complicated selling involved in the new task, many companies use a missionary sales force
consisting of their best sales people.

2.3.3 Participants in the Business Buying Process

Could you list the participants involved in a business buying?

Who does the buying of thousands of birr worth of goods and services needed by business
organizations? Purchasing agents are influential in straight re-buy and modified re-buy
situations, whereas other department personnel are more influential in new-buy situations.
Engineering personnel usually have major influence in selecting product components and
purchasing agents dominate in selecting suppliers.

Webster and Wind call the decision-making unit of a buying organization the buying center. The
buying center is composed of all those individuals and groups who participate in the purchasing
decision making process, who share some common goals and the risks arising from the
decisions. The buying center includes all members of the organization who play any of the six
roles in the purchase decision process.

Initiators: those who request that something need to be purchased; these may be users or others
in the organization.

Users: those who will use the product or service. In many cases the users initiate the buying
proposal and help define the product requirements.

Deciders: people who decide on product requirements or on suppliers. They have formal
authority to select or approve the final suppliers.

Buyers: people who have formal authority to select the supplier and arrange the purchase terms.
Buyers may help shape product specifications, but they play their major role in selecting vendors
and negotiating. In more complex purchases, the buyer might include high level managers
participating in the negotiations.

Influencers---People in the organization’s buying center who affect the buyingdecision by

defining specifications, providing information for evaluating alternatives. Technician personnel
are particularly important influencers.

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Gate keepers: people who have the power to prevent sellers or information from reaching
members of the buying center. For example, purchasing agents, receptionists, and telephone
operators may prevent sales persons from contacting users or deciders.

The average number of people involved in a buying decision ranges from about three (for
services and items used in day-to-day operations) to almost five (for such high-ticket purchases
as construction work and machinery). There is also a trend toward team based buying. To target
their efforts properly, business marketers have to figure out: who are the major decision
participants? What decisions do they influence? What their level of influence is and What
evaluation criteria do they use?

When a buying center includes many participants, the business marketer will not have the time or
resources to reach all of them. Small sellers concentrate on reaching the key buying influencers.
Large sellers go for multilevel in-depth selling to reach as many participants as possible. Their
salespeople virtually live with their high volume customers. Companies will have to rely more
heavily on their communications program to reach hidden buying influences and keep their
current customers close.

2.3.4Major Influences on a Business Buying

What factors influence business buyers to arrive at buying decisions?

Business buyers respond to many influences when they make their decisions. When suppliers'
offerings are similar, business buyers can satisfy the purchasing requirements with any supplier,
and they place more weight in the personal treatment they receive. Where supplier offerings
differ substantially, business buyers are more accountable for their choices and pay more
attention to economic factors. Business buyers respond to four main influences: environmental,
organizational, interpersonal and individual factors.

a. Environmental Factors

Business buyers pay close attention to current and expected economic factors, such as the level
of production investment, consumer spending and the interest rate. In a recession, business
buyers reduce their investment in plant equipment and inventories. Business marketers can do
little to stimulate total demand in this environment. They can only fight harder to increase or
maintain their share of demand.

Companies that fear a shortage of key materials are willing to buy and hold large inventories.
They will sign long-term contracts with suppliers to ensure a steady flow of materials. Business
buyers actively monitor technological, political regulatory and competitive developments. For
example, environmental concerns cause changes in business buyer behavior. A printing firm
might favor paper suppliers that carry a wide selection of recycled papers or ink vendors who use
environmentally safe ink.

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 b. Organizational Factors

Every organization has specific purchasing objectives, policies, procedures, organizational

structures and systems. Business marketers need to be aware of the following organizational
trends in the purchasing area:

Purchasing department: purchasing departments in the past occupied in a low position in the
management hierarchy, in spite of managing often more than half of the company’s costs. A
typical firm spends about 60 percent of its net sales on purchased goods and services.

However, recent competitive pressures have led many companies to upgrade their purchasing
departments and elevate their administrators to vice presidential level.

Cross – functional roles: in recent survey, most purchasing professionals described their job as
less clerical, more strategic, technical, team oriented and involving more responsibility than
before. Purchasing is doing more cross functional work than it did in the past.

Centralized purchasing: in multidivisional companies, most purchasing is carried out by separate

divisions because of their differing needs. Some companies, however have started to recentralize
their purchasing. Headquarters identifies materials purchased by several divisions and buys them
centrally, thereby gaining more purchasing clout.

The individual divisions can buy from another source if they can get better deal, but in
general, centralized purchasing produces substantial savings. For the business marketer, this
development means dealing with fewer and higher level buyers. The company uses a
national account sales group to deal with large corporate buyers.

Decentralized purchasing of small – ticket items: at the same time, companies are decentralizing
some purchasing operations by empowering employees to purchase small – ticket items. This has
come about through different systems such as credit – card systems

Internet purchasing: - though not developed well in Ethiopia, in more advanced nations by the
millennium, business to business buying on the web is increasing tremendously. The move to
internet purchasing has far – reached implications of suppliers and will, no doubt, change the
shape of purchasing for years to come.

Long – Term Contracts: Business buyers are increasingly initiating or accepting long-term
contracts with reliable suppliers that are close to their plants and provide high quality items.

Lean Production: Many manufacturers have moved toward a new way of manufacturing called
lean production, which enables them to produce a greater variety of high quality products at
lower cost, in less time, using less labor. Among the elements of this new system are just – in –
time (JIT) production, strict quality control, frequent and reliable delivery from suppliers,

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suppliers locating closer to major customer, computerized purchasing systems, stable production
schedules made available to suppliers, and single sourcing with early supplier involvement.

c. Interpersonal Factors

Buying centers usually include several participants with differing interests, authority, status,
empathy and persuasiveness. The business marketer is not likely to know what kind of group
dynamics takes place during the buying decision process, although whatever information he or
she can discover about personalities and interpersonal factors would be useful. Managers do
not wear labels that identify them as important or unimportant buying centre participants
and powerful influencers are often buried behind the scene. Nor does the highest ranking
buying center participants always have the rewards and punishments, are well liked, have
special expertise or have a special relationship with other important participants.
Interpersonal factors are often very subtle. Whenever possible, business marketers must try
to understand these factors and design strategies that take them in to account.

d. Individual Factors

Each buyer carries personal motivations, perceptions and preferences as influenced by the
buyer’s age, income, education, job position, personality, attitudes towards risk, and culture.
Buyers definitely exhibit different buying styles. There are “keep – it – simple” buyers, “own –
experts” buyers, “want – the – best” buyers, and “want – everything – done” buyers. Some
younger, highly educated buyers are computer experts who conduct rigorous analyses of
competitive proposals before choosing a supplier. Other buyers are “toughies” from the old
school and pit the competing sellers against one another.

3.3.5 The Business Buying Process

What stages do business buyers undergo to arrive at buying decisions?

Business buyers buy goods and services to make money or to reduce operating costs or to satisfy
social or legal obligations. A steel company will add another finance if it sees a chance to make
more money. It will computerize its accounting system to reduce the cost of doing business. It
will add pollution – control equipment to meet legal requirements. In principle, business buyers
seek to obtain the benefit package (economic, technical, service and social) in relation to a
market offering’s costs. A business buyer’s incentive to purchase will be greater; the greater the
ratio of perceived benefits to costs, the greater the perceived value.

The marketers’ task is to set an offering that delivers superior customer value to the target
buyers. Many firms have moved to a procurement orientation in which they simultaneously seek
quality improvements and cost reductions.

Rather than forcing lower supplier prices to achieve cost reductions, procurement – oriented
buyers develop more collaborative relationships with a smaller number of suppliers and seek

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saving through better management of acquisition, conversion, and disposal costs. They work
closely with their suppliers in early supplier involvement program on materials handling,
inventory levels, just – in – time management, and even product co-design. Procurement buyers
focus their efforts on negotiating long-term contracts with major suppliers to ensure the timely
flow of materials. Their goal is to establish win – win relationships with suppliers and to share
any savings equitably. Within the firm, the procurement people work closely with the
manufacturing group on materials requirement planning to make sure that supplies arrive on
time.

A supply management orientation involves a further broadening of purchasing role where

purchasing is less of a department and more of strategic value – adding operation. The firm
focuses on how to improve the whole value chain from raw materials to end-users. Whichever
orientations followed, business buyers follow certain stages in their buying process which
are called buy phases as stated hereunder.

1. Problem Recognition

The buying process beings when someone in the company recognizes a problem or need that can
be met by acquiring a good or service. The recognition can be triggered by internal or external
stimuli. Internally, the most common events leading to problem recognition are the following:

 The company decides to develop a new product and needs new equipment and materials

 A machine breaks down and requires new parts

 Purchased material turns out to be unsatisfactory, and the company searches for another
supplier.

 A purchasing manager senses an opportunity to obtain lower prices or better quality.

Externally, the buyer may get new ideas at a trade show, see advertising or receive a call from
sales representatives who offers a better product or a lower price. Business marketers can
stimulate problem recognition by direct mail; telemarketing and calling on prospects.

2. General Need Description

Here the buyer determines the needed item’s general characteristics and required quantity. For
standard items, this is not very involved process. For complex items, the buyer will work with
others-engineers, users and soon to define the needed characteristics. These may include
reliability, durability, price or other attributes. Business marketers can assist buyers by
describing how their products would meet the buyer’s needs. The need can be initiated by many
reasons: utilizations of new opportunities by solving the existing problem, internal or
external forces that necessitate the need for a new product or dissatisfaction with the
existing product .

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 3. Product Specification

The buying organization now develops the items technical specifications. Often, the company
will assign a product value-analysis (PVA) engineering team to the project. Product value
analysis is an approach to cost reduction in which components are carefully studied to determine
if they can be redesigned or standardized or made by cheaper methods of production.

4. Supplier Search

The buyer now tries to identify the most appropriate suppliers. The buyer can examine trade
directories, do a computer search, phone order companies for recommendations, watch trade
advertisements, and attend trade shows. However, these days the most likely place to look is on
the internet. For suppliers, this means that the playing field is leveled. Smaller suppliers have the
same advantages as larger ones and are listed in the same on-line catalogs for a nominal fee.

The supplier's task is to get listed in major on-line catalogs or services, develop a strong
advertising and promotion program, and build a good reputation in the market place. Suppliers
who lack the required production capacity or suffer from a poor reputation will be rejected.
Those who qualify may be visited by the buyer’s agents, who will examine the suppliers
manufacturing facilities and meet their personnel. After evaluating each company, the buyer will
end up with a short list of qualified suppliers.

5. Proposal Solicitation

The buyer will now invite qualified suppliers to submit proposals. Where the item is complex or
expensive the buyer will require a detailed written proposal from each qualified supplier. After
evaluating the proposals, the buyer will invite a few suppliers to make formal presentations.

Business marketers must thus be skilled in researching, writing and presenting proposals. Their
written proposals should be marketing documents, not just technical documents. Their oral
presentations should inspire confidence, positioning their company’s capabilities and resources
so that they stand out from the competition.

6. Supplier Selection

Before selecting a supplier, the buying center will specify desired supplier attributes and indicate
their relative importance. It will then rate suppliers on these attributes and identifies the most
active suppliers. Buying centers often use a supplier evaluation models to arrive at a better
selection capabilities

In practice, business buyers use a variety of methods to assess supplier value. Business marketers
need to do a better job of understanding how business buyers arrive at their valuations. They
usually made formal researches to make analysis of customer value and tend to use other
methods to produce a more accurate picture of customer perceived value.

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 7. Order Routine Specification

After selecting the suppliers, the buyer negotiates the final order, listing the technical
specifications, the quality needed, the expected time of delivery, return policies, warranties and
so on. In the case of maintenance, repair and operating items, buyers are moving toward blanket
contracts rather than periodic purchase orders. A blanket contract establishes a long-term
relationship in which the supplier promises to resupply the buyer as needed at agreed-upon prices
over a specified period of time. Because the stock is held by the seller, blanket contracts are
sometimes called stock-less purchase plans. The buyer’s computer automatically sends an order
to the seller when stock is needed. Blanket contracting leads to more single source buying and
ordering of more items from that single source. This system locks suppliers in tighter with the
buyer and makes it difficult for out-suppliers to break in unless the buyer becomes dissatisfied
with the in-supplier’s price, quality, or service.

8. Performance Review

The buyer periodically reviews the performance of the chosen supplier(s). Three methods are
commonly used. The buyer may contact the end users and ask for their evaluations or the buyer
may rate the supplier on several criteria using a weighted score method. The third method is to
aggregate the cost of poor supplier performance to come up with adjusted costs of purchase,
including price. The performance review may lead the buyer to continue, modify or end the
relationship with the supplier. The supplier should monitor the same variables that are monitored
by the product buyers and end users.

3.3.6. Business markets Versus Consumer Markets

Business markets have several characteristics that contrast sharply with consumer markets.

Fewer buyers: the business marketer normally deals with far fewer buyers than the consumer
marketer does. For example Addis Tire Share Company sales largely depends on getting an order
from very few and large government transportation companies like 'Anbessa' City Bus Service
and Walya Inter -City Bus Service Enterprise.

Large buyers: a few large buyers do most of the purchasing in such industries as aircraft engines
and defense weapons.

Close supplier - Customer relationship: because of the smaller customer base and the importance
and power of the larger customers, suppliers are frequently expected to customize their offerings
to individual business customer needs. Sometimes the buyers require the sellers to change their
practices and performance. Nowadays in modern business, relationships between customers and
suppliers have been changing from downright adversarial to close and chummy, (Good
Friendship).

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Geographically concentrated buyers: a very large group of business buyers in Ethiopia are
concentrated in major cities: Kombolcha, Addis Ababa, Nazareth, Bahir dar, Dire Dawa,
Awassa, and Mekele. The geographical concentration of producers helps to reduce selling costs.
At the same time, business marketers need to monitor regional shifts of certain industries.

Derived demand: the demand for business goods is ultimately derived from the demand for
consumer goods. For this reason, the business marketer must closely monitor the buying patterns
of ultimate consumers.

Inelastic demand: the total demand for many business goods and services is inelastic, that is, not
much affected by price changes. Shoe Manufacturers are not going to buy much more leather if
price of leather falls. Nor are they going to buy much less leather if the price rises unless they
can find satisfactory substitutes. Demand is especially inelastic in the short run because
producers cannot make quick changes in production methods. Demand is also inelastic for
business goods that represent a small percentage of the item's total cost.

Fluctuating demand: the demand for business goods and services tends to be more volatile than
the demand for consumer goods and services. A given percentage increase in consumer demand
can lead to a much larger percentage increase in the demand for plant and equipment necessary
to produce the additional output. Researches indicate that sometimes a rise of about 10 percent in
consumer demand can cause as much as a 20 percent rise in business demand for products in the
next period.

Professional Purchasing: business goods are purchased by trained purchasing agents, who must
follow the organization's purchasing policies, constraints, and requirements. many of the buying
instruments – for example – requests for quotations, proposals and purchase contracts – are not
typically found in consumer buying.

Several buying influence: more people typically influence business-buying decisions. Buying
committees consisting of technical experts and even senior management are common in the
purchase of major goods. Business marketers have to send well-trained sales – representatives
and often sales teams to deal with the well – trained buyers.

Multiple sales calls: because more people are involved in the selling process, it takes multiple
sales calls to win most business orders and the sales cycle can take years. A study showed that it
takes more than four calls to close an average industrial sale. In the case of capital equipment
sales for large projects, it may take multiple attempts to fund a project, and the sales cycle-
between quoting a job and delivering the product – is often measured in a number of days.

Direct purchasing: business buyers often buy directly from manufacturers rather than through
intermediaries, especially items that are technically complex or expensive (such as large
computers or aircraft).

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Reciprocity: business buyers often select suppliers who also buy from them. An example would
be a paper manufacturer that buys chemicals from a chemical company that buys a considerable
amount of its paper.

Leasing: many industrial buyers lease instead of buy heavy equipment like machinery and
trucks. The lessee gains a number of advantages: conserving capital, getting the latest product,
receiving better service and gaining some tax advantages. The lessor often ends up with a larger
net income and the chance to sell customers who could not afford outright purchase.

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