Chapter Four

Organizational Buyer Behavior

McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
 Review of Chapter Three
• Three most important elements of the purchasing
department’s function are to: quantity, quality and low cost

• Two types of purchasing philosophies: adversarial purchasing

philosophy and partnership purchasing

• Two methods to evaluate suppliers: buy-grid model and

multiattribute decision making

• Trends in purchasing: reducing purchasing cost; developing

strategic relationships; internet makes centralization easier to
accomplish; outsourcing activities; developing cross-functional teams;
increasing professionalism

• Additional: purchasing in government; ethics in purchasing

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 Learning Objectives
Focus: how buyers in organizations buy products and services
• Explore a group of theories designed to explain individual
buyer actions within organizations
- Reward-measurement theory
- Behavior choice theory
- Role theory
- Buying determinant theory

• Predict marketing action based on the choice of a particular

buying theory.
• Describe the influence of risk on buyer behavior
• Illustrate how these theories work in concert with partnering

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 The Theories of Buyer Motivation

• Reward-Measurement Theory
— The motivation is the benefits
• Behavior Choice Theory
— The motivation is the situation

• Role Theory
— The motivation is the norms/expectations

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 Reward-Measurement Theory
• An expectancy theory of organizational buyer motivation
• Focuses upon how performance is measured and rewarded
- Buyers are motivated by both intrinsic rewards & extrinsic rewards;
probability times valence determines the individual level of motivation
- Intrinsic rewards: buyers give themselves (e.g., feeling of satisfaction)
- Extrinsic rewards: bestowed by one’s organization (e.g., salary,
promotion)
- Each individual ranks potential rewards according to the valence
(importance) to them and estimates the likelihood (possibility) of a variety
of possible actions delivering those payoffs
- The results determine the level of motivation
- Finally, the individual considers their own self-efficacy (ability to carry
out particular strategies

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 R-M Theory - Valence

• What is valence? Why must valence be considered in

addition to the rewards themselves?

Valence is the degree of importance or value attached to a

reward.

An individual may be interested in a variety of rewards.

BUT, they are unlikely to be equally important to him/her.

Obviously, those rewards of greatest importance should

receive more emphasis.

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 R-M Theory - Probability
• What is perceived probability? How does perceived
probability of success impact motivation?

Perceived probability is the perception that effort on a

particular set of tasks will lead to accomplishment of
performance outcomes that will, in turn, lead to desired
rewards.

The RM model says that probability times valence

determine the individual level of motivation. That means a
person will be more highly motivated to take actions and/or
seek outcomes that they perceive as attainable means to
achieve desirable goals.

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 Buyer Behavior Choice Theory
Buyers go through a choice process to arrive at decisions of how
they will buy, as opposed to the choice process of what will
be bought (modeled as part of the buy-grid model).

1. Identify situation
• Self-orientation
• Company orientation
2. Evaluate personal relevance
3. Assesses action alternatives & requirements
4. Choose behavior strategy
• Offensive strategies
• Defensive strategies

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 Identify Situation
Self-orientation – the degree to which the individual works to achieve
personal benefits
Company orientation – the degree to which the individual works to
achieve benefit for the company

How can an organization motivate self-oriented individuals to

engage in company-oriented behavior?
The key is to demonstrate a strong linkage between behaviors that benefit the
firm and the achievement of personal benefits.
Self-orientation and company orientation operate independently, so one
purchase situation could result in both high self-orientation and high
company orientation.
For example, exhibit strong managerial skills & be crucial to the company

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 Evaluate Personal Relevance
In this stage, the buyer examines the reward structures (including
formal reward system and informal and social reward
system), associated with the purchase situation.

For example, a buyer might evaluate if it is an opportunity to

show off decision-making skills, how about the opportunity
to get promotions, management recognition.

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Assess Action Alternatives & Requirements

In this stage, the buyer look at:

− The amount of control over the task
− Are there any choices in what the buyer can and can’t do?
− Company policies and procedures that may limit the choice
of buying activities

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 Choose Behavior Strategy
There are two types of strategies – Defensive or offensive
The difference between offensive & defensive strategies
Offensive strategies designed to maximize gain;
Defensive strategies designed to minimize loss
Which is most likely to be favored by the organization?
Purchasing agent? the individual?
Organizations typically favor “maximizing” profit;
Purchasing agents tend to favor more conservative, less risky, and more likely
to be achieved strategies that minimize losses to the firm & themselves;
Employees choose alternatives that will be “acceptable” o the firm & which
carry an “acceptable” level of risk for themselves. Most people are risk-
averse and will try to minimize losses as a means of ensuring their
continued employment. This may lead to less risky (& less profitable)
choices unless the firm empowers greater risk-taking.

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 Role Theory
People behave within a set of norms or expectations of others
due to the role in which they have been placed.
Autonomous - when a person makes a purchase decision alone for an
organization
Buying center or decision-making unit (DMU) – when more than
one person is involved, the group of participants in the company is
called DMU
Roles in buying center – Initiator, controller, gatekeeper, influencer,
decision maker…
Dimensions of buying centers – Time, Vertical, Horizontal,
Formalization…

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 Roles in Buying Center
Role theory defines the roles people take when involved in purchase:
Initiator – starts the purchase process by recognizing the need
Controller – controls or sets the budget for the purchase
Gatekeepers – control information into and out of the buying group or
between members of the group
Influencers – are those individuals who seek to affect the decision maker’s
final decision through recommendations of which vendors to include or
which products are bested suited to solve the organization’s needs.
Influencers can also affect the evaluation of the organization’s needs
Decision makers – the person(s) who make the final purchase decision.

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How a fax machine is purchased in a company

PERSON ROLE

• Secretary • Initiator-reports that fax keeps breaking

down
• Vice President • Controller-sets budget for purchase of new
fax
• Office Manager • Gatekeeper-gathers review from vendors.
• Influencers-view demonstrations narrow
• Secretary & Office Manager choices

• Recommender-recommends a particular
• Office Manager product to decision maker

• Vice president of operations • Decision Maker – Selects fax to purchase

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 Dimensions of buying centers
Time Dimensions
• Time is highly fragmented: Many participants for short time participation

• Time is not fragmented: Same people stay through entire process

Vertical Dimensions
• How many layers of management are involved in decision-making

Horizontal Dimensions
• How many departments are involved in decision-making

Formalization Dimensions
• Purchasing tasks and roles are guided and enforced by written procedures
and policies

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 Time Fragmentation Influences
Seller’s Marketing Efforts

INVOLVEMENT INFLUENCE

NUMBER OF DECISION MAKERS

HIGHLY MANY FEW MINIMALLY

FRAGMENTED A LITTLE A LOT FRAGMENTED
TIME SPENT ON DECISION STAGES

DECISION CYCLE TIME INFLUENCE

SIZE OF BUYING CENTER

LONGER LARGE SMALL SHORTER
DECISION CYCLE A LITTLE A LOT DECISION CYCLE
EXPERIENCE OF DECISION MAKERS

Sales objective is to move to the right on the continuum

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 Types of Risks to Overcome
1. Financial Risk (Economic Risk)
– Potential for lost revenue with faulty product

2. Performance Risk

– The risk that selected products will break or not perform as required

3. Social Risk (Ego Risk)

– The disapproval of an important reference group inside or outside of the firm

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 Three Approaches to Reducing Risks

• Gather more information from more sources

• Using loyalty to present suppliers – build trust

• Spread the risk by using more decision makers or

getting more suppliers

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 Using Information to Reduce Risks

Personal selling Sales literature

Trade shows Advertising
Commercial
Telemarketing Websites
E-mail Direct mail

Word of mouth from

colleagues,
Noncommercial Trade publications
consultants, and
coworkers

Personal Impersonal

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Buying Determinants Theory

Environmental factors

Market factors

Organizational
factors
Individual
factors

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EXPANDED BUYING DETERMINANTS THEORY

Environmental factors
Market factors
Organizational Factors
Extrinsic reward Policies supporting
systems vertical and
Role expectations horizontal
Corporate culture and dimensions
intrinsic rewards
Cross-functional
purchasing teams
Individual factors
Experience: new buy straight rebuy
Choice of reward-Role orientation
Valence of reward
Probability perceptions
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