There are three categories of organizational purchasers:
- Institutional Buyers
- Retail Buyers
- Industrial Buyers
These differences give rise to major differences between the three types of buying.
Organizations buy to enable them to provide goods and services that eventually reach final consumers. As has been explained, consumer buying behavior relates to individuals (or families) buying goods and services for their own use. Both organizational and consumer buying behavior involves people, individually and in groups, who are affected by environmental and individual factors.
Organizational buying usually involves group decision making, which is known as the ‘decision making unit’ (DMU) or what Webster and Wind16 referred to as the buying center. In such a group, individuals have different roles in the purchasing process, categorized as:
- Initiators – these people requisition or suggest purchasing a product or service;
- Users – these are people in the organization who use the product. Sometimes they will also be involved in devising product specifications;
- Influencers – influencers affect the buying decision in different ways e.g. they may be technical personnel who have developed product specifications;
- Deciders – deciders make the buying decision (in most cases this is the buyer);
- Buyers – buyers have formal authority to purchase the product;
- Approvers – these people authorize actions of deciders or buyers;
- Gatekeepers – gatekeepers control the flow of information to and from DMU or buying center members e.g. a buyer’s assistant.
One person might play all these roles, or each may be performed by different persons or groups of people.
Another difference in organizational buying is that many products are complex and require specialist knowledge to purchase. Where products have complicated specifications, there is more communication and negotiation between buyers and sellers. After-sales service is important and suppliers are evaluated after purchase. Organizational markets have fewer, larger buyers who tend to be geographically concentrated. Another aspect is the nature of derived demand, where demand for organizational (especially industrial) goods is derived from consumer markets. If demand for end product consumer goods falls this affects the entire supply chain.
Organizational buying decisions can be categorized into buy classes as to how complex they are, similar to low/high involvement decision making in consumer markets. A straight re-buy occurs often, is relatively cheap and usually a matter of routine. If the supplier is an ‘in’ supplier they are on the company’s approved list of suppliers; they have to perform well so they do not get taken off the list. If they are ‘out’ suppliers they must try to get onto the approved list. A modified re-buy is a situation that requires some additional information or evaluation of suppliers. It is usually the case that specifications have been modified since the last purchase. A new task or new buy is the most complex purchase decision, when the company has not bought the product before. Search and evaluation procedures are extensive.