Understanding the Terrain: Markets and Purchasing Behaviour
Organizational Market Behaviour
Business (organizational) purchasing behaviour is the decisions and acts people undertake to buy products or services for organizational use.
As we introduced at the beginning of this chapter, organizational markets consist of businesses, governments, and institutions that purchase goods and services for use in their operations or to resell to others. We typically refer to organizational markets as business-to-business (B2B), where both the seller and the buyer are organizations.
Who Are B2B Buyers?
In the B2B (business-to-business) context, buyers are organizations or entities that purchase goods or services for various purposes such as production, resale, or operational needs. Below is a detailed look at who B2B buyers are and the dynamics involved in their purchasing behaviour.
Types of B2B Buyers
B2B buyers include:
- Producers: These are companies that purchase goods and services to transform them into other products. This category includes manufacturers and service providers. For example, a car manufacturer buying steel and components to produce vehicles is a producer.
- Resellers: These entities buy goods and services produced by other companies and sell them without significant modification. This group includes wholesalers, brokers, and retailers like Walmart and Target.
- Government: As one of the largest purchasers, government entities buy a wide range of goods and services to support their operations. This includes everything from office supplies to complex defense systems.
- Institutions: Nonprofit organizations, such as hospitals, churches, and educational institutions, fall into this category. They purchase goods and services to support their missions and operations.
Characteristics of B2B Buyers
B2B buyers have the following characteristics:
- Multiple Decision-Makers: Depending on the size and complexity of an organization, there can be a wide range of participants in the organizational buying process. B2B purchases often involve a group of decision-makers, including procurement managers, department heads, and executives. This group effort ensures that the purchase meets various organizational needs.
- Emphasis on Relationships: B2B buyers value long-term relationships with suppliers. Trust and reliability are critical, as these relationships often involve repeated transactions and ongoing service needs.
- Informed Decision-Making: B2B buyers are typically well-informed and conduct extensive research before making purchasing decisions. They evaluate potential suppliers based on product quality, pricing, reliability, and long-term value.
Examples
Participants in the Organizational Buying Process
Scenario: The Starlight Hotel Group, a luxury hotel chain with properties across North America, is looking to upgrade its property management system (PMS) to improve operational efficiency and enhance guest experiences.
| Participant Role | Definition | Scenario |
|---|---|---|
| Initiators | These individuals recognize the need for a product or service and initiate the buying process. For example, a department manager might identify the need for new software to improve efficiency. | The director of operations, Sarah, recognizes that the current PMS is outdated and unable to meet the growing demands of the hotel chain. She initiates the process by bringing this to the attention of senior management. |
| Users | Users are the people who will directly use the product or service. Their feedback and requirements are crucial in shaping the purchase decision. For instance, employees who will use new computers or software systems may provide input to ensure the solution meets their needs. | Front desk staff, housekeeping managers, and reservation agents who will use the system daily provide input on features they need, such as real-time room status updates, integrated guest profiles, and mobile check-in capabilities. |
| Influencers | Influencers provide information and recommendations that affect the buying decision. They often have expertise or authority in specific areas, such as technical specifications or financial considerations. For example, technical experts might advise on the specifications of a product. | The IT manager, Michael, provides technical specifications and compatibility requirements. The guest experience manager, Emma, emphasizes the need for features that can personalize guest interactions. |
| Deciders | Deciders have the authority to approve or reject the purchase. They are often senior executives or managers who make the final decision based on input from other participants. A CEO or senior executive might authorize the budget and approve the final purchase. | The chief operating officer (COO), James, has the final say on which PMS to purchase based on recommendations and alignment with the company’s strategic goals. |
| Buyers | Buyers are responsible for negotiating terms, handling transactions, and managing supplier relationships. They play a key role in the purchasing process, often working within the procurement department. | The procurement manager, Lisa, is responsible for negotiating terms with potential PMS vendors, managing the RFP (request for proposals) process, and finalizing the purchase agreement. |
| Gatekeepers | Gatekeepers control the flow of information and access within the buying process. They can influence which information reaches the decision-makers. Administrative assistants or purchasing staff often serve as gatekeepers. | The executive assistant to the COO, David, controls the flow of information to James, ensuring only the most relevant and critical information reaches him. |
| Approvers | Approvers authorize the proposed actions of deciders or buyers. They may be personnel from top management or finance departments who ensure the purchase aligns with organizational goals and budgets | The chief financial officer, Alex, reviews and approves the budget allocation for the new PMS, ensuring it aligns with the company’s financial strategy. |
The B2B Buying Process
The organizational buying process typically involves eight key stages:
- Problem Recognition: The organization identifies a need or problem that requires purchasing a product or service.
- General Need Description: The organization develops a general description of the need, specifying basic requirements and desired characteristics.
- Product Specification: More detailed technical specifications, performance criteria, and features are defined.
- Supplier Search: The organization searches for and identifies potential suppliers that can meet their needs.
- Proposal Solicitation: Selected suppliers are invited to submit proposals or bids outlining how they can meet the organization’s requirements.
- Supplier Selection: Proposals are evaluated, and a supplier is chosen based on criteria like price, quality, delivery capabilities, and overall fit.
- Order-Routine Specification: Detailed order instructions are provided, including quantity, delivery terms, and payment terms.
- Performance Review: After purchase and delivery, the supplier’s performance is evaluated to inform future buying decisions.
This process is typically more formal and complex for organizational buying compared to consumer purchasing. It often involves multiple decision makers and more extensive information gathering, especially for new purchases. The level of complexity can vary depending on whether it is a new purchase, modified rebuy, or straight rebuy.
The examples below illustrate the key differences between B2B buying and consumer buying processes. B2B buying, especially for new purchases, tends to be more complex and involve more stages, while routine purchases in both B2B and consumer contexts are simpler. The B2B process often involves multiple decision-makers and focuses on building long-term supplier relationships, whereas consumer buying is typically more individualistic and can be more impulsive.
Examples
Comparing B2B and Consumer Buying
| B2B Buying (Restaurant): Purchasing New Commercial Kitchen Equipment (e.g., Industrial Oven) |
Consumer Buying: Buying a New Car |
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| B2B Buying (Restaurant): Ordering Fresh Produce |
Consumer Buying: Buying Groceries |
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| B2B Buying (Restaurant) | Consumer Buying |
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Major Factors Influencing B2B Purchasing Decisions[1]
Understanding the major factors influencing B2B purchasing decisions is essential for businesses aiming to navigate the complexities of organizational buying behaviour. These decisions are shaped by a combination of external environmental conditions, organizational priorities, interpersonal dynamics, and individual preferences — reflecting the multifaceted nature of B2B transactions.
Environmental Factors
Environmental factors include external influences such as the level of primary demand (derived demand), economic conditions, regulatory changes, industry trends, and competitive pressures. For example, a strong economy might encourage more spending, while regulatory requirements could limit purchasing options.
Examples
Derived Demand in Organizational Purchase Behaviour
Derived demand is a concept in economics that refers to the demand for a good or service that results from the demand for another good or service. In the context of organizational purchase behaviour, derived demand plays a crucial role in understanding the buying decisions of businesses.
Definition: Derived demand is the demand for a product or service that is driven by the demand for another product or service.
Example: A company that manufactures cars demands steel from a supplier. The demand for steel is derived from the demand for cars. If the demand for cars increases, the demand for steel also increases.
Importance in Organizational Purchase Behaviour in the Context of a Hotel: Derived demand in a B2B context refers to the demand for goods or services that arises from the demand for another product or service. In the accommodation sector, derived demand can be seen in various ways, particularly when hotels purchase goods and services from other businesses to support their operations and meet the needs of their guests.
Example: Hotel Linen Supply
- Primary Demand: The primary demand in this context is the demand for hotel accommodations. When guests book rooms, they expect clean and comfortable bedding and towels as part of their stay.
- Derived Demand: The demand for hotel linen supplies — such as sheets, pillowcases, towels, and bathrobes — is derived from the demand for hotel rooms. As more guests book rooms, the hotel needs to purchase more linens to ensure each room is adequately stocked
- B2B Relationship: Hotels typically establish B2B relationships with linen suppliers to fulfill this demand. The suppliers provide the necessary linens, which the hotel uses to meet the expectations of its guests. The demand for linens is directly linked to the hotel’s occupancy rates and guest turnover.
- Impact on Suppliers: Linen suppliers must anticipate the demand for their products based on the hotel’s occupancy trends and seasonal variations. High occupancy rates during peak tourist seasons can lead to increased orders for linens, while lower occupancy rates may result in reduced demand.
Organizational Factors
Organizational factors include the internal dynamics of a company, such as its goals, policies, and resources. The company’s mission, hierarchy, and decision-making processes also play a role in how purchases are evaluated and approved.
Interpersonal Factors
Interpersonal factors are the relationships and dynamics among individuals involved in the buying process. Trust, communication, and influence among decision-makers can impact the selection of suppliers and products. Interpersonal factors can also include the influence of key stakeholders or gatekeepers within the organization.
Individual Factors
Individual factors are the personal preferences, experiences, and motivations of individuals involved in the buying process. These factors might include the buyer’s previous experiences with a supplier or their personal preferences for certain brands or products.
B2B Influences on Small Organizations Versus Large Organizations
| Aspect | Smaller Organizations | Larger Organizations |
|---|---|---|
| Decision-Making Process | Streamlined, fewer individuals, quicker decisions. | Complex, formal processes, longer timelines. |
| Buying Centre Composition | Roles may overlap, individuals wear multiple hats. | Distinct separation of roles in the buying centre. |
| Influence of Individual Factors | Stronger influence from personal relationships and preferences. | Emphasis on formal criteria and organizational policies. |
| Risk Tolerance | More risk-averse due to limited resources. | Higher risk tolerance due to greater resources. |
| Supplier Relationships | Rely on long-term, personal relationships with suppliers. | Formalized supplier evaluation processes, leverage size for terms. |
| Information Search and Evaluation | Rely on word-of-mouth and personal networks. | Conduct thorough research, access industry reports. |
| Budget Considerations | Typically tighter budgets, cost is critical. | Larger budgets, may prioritize long-term value. |
| Innovation Adoption | Agile in adopting new technologies, dependent on key decision-maker. | Formal processes for evaluating and adopting innovations. |
Examples
B2B Examples in Tourism and Hospitality Contexts
Amusement Park Equipment: Businesses operating amusement parks may purchase equipment such as roller coasters, water slides, and other attractions from manufacturers or specialized suppliers.
Golf Course Maintenance Equipment: Golf courses often need specialized equipment for maintenance, such as lawn mowers, irrigation systems, and turf care products.
Outdoor Furniture for Resorts: Resorts and hotels in leisure destinations purchase outdoor furniture for their pool areas, patios, and other recreational spaces.
Food and Beverage Supplies: Restaurants, hotels, and other hospitality businesses purchase food and beverage supplies. This includes perishable items, non-perishables, and beverages from wholesalers or distributors.
Cruise Ship Entertainment Services: Cruise ships secure entertainment services for their passengers. This can include hiring performers, booking acts, and acquiring entertainment technology from specialized providers.
Media Attributions
- Figure 1: “B2B” by EpicTop10.com (2019), via Flickr, is used under a CC BY 2.0 license.
- Figure 2: “Woman Holding a Stack of White Towels on Bed” by cottonbro studio (2021), via Pexels, is used under the Pexels license.
- Grewal, R., Lilien, G.L., Bharadwaj, S., Jindal, P., Kayande, U., Lusch, R. F., Mantrala, M., Palmatier, R. W., Rindfleisch, A., Scheer, L. K., Spekman, R., & Sridhar, S. (2015). Business-to-business buying: Challenges and opportunities. Customer Needs and Solutions, 2, 193–208. https://doi.org/10.1007/s40547-015-0040-5 ↵
The demand for a product or service that results from the demand for another product or service.
A group of individuals within an organization who are involved in making purchasing decisions for the company.
