Buyer Behaviour by Geoff Lancaster©
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1 Importance of understanding customer motives
The task of marketing is to identify consumers’ needs and wants accurately, then to develop products and services that will satisfy them. For marketing to be successful, it is not sufficient to merely discover what customers require, but to find out why it is required. Only by gaining a deep and comprehensive understanding of buyer behaviour can marketing’s goals be realised. Such an understanding of buyer behaviour works to the mutual advantage of the consumer and marketer, allowing the marketer to become better equipped to satisfy the consumer’s needs efficiently and establish a loyal group of customers with positive attitudes towards the company’s products.
Consumer behaviour can be formally defined as: the acts of individuals directly involved in obtaining and using economic goods and services, including the decision processes that precede and determine these acts. The underlying concepts of this chapter form a system in which the individual consumer is the core, surrounded by an immediate and a wider environment that influences his or her goals. These goals are ultimately satisfied by passing through a number of problem-solving stages leading to purchase decisions. The study and practice of marketing draws on a great many sources that contribute theory, information, inspiration and advice. In the past, the main input to the theory of consumer behaviour has come from psychology. More recently, the interdisciplinary importance of consumer behaviour has increased such that sociology, anthropology, economics and mathematics also contribute to the science relating to this subject.
2 Social and cultural influences
Culture is ‘learned’ behaviour that has been passed down over time, reinforced in our daily lives through the family unit and through educational and religious institutions. Cultural influences, therefore, are powerful ones and if a company does not understand the culture in which a particular market operates, it cannot hope to develop products and market them successfully in that market.
It is important to recognise that culture, although immensely powerful, is not fixed forever. Changes in culture tend to be slow and are not fully assimilated until a generation or more has passed. An example of this is the custom of marriage, which has been openly challenged in the UK over the past twenty years. When couples first began to set up home together and raise families outside marriage, society, for the most part, adopted an attitude of condemnation, whereas today there is a much more relaxed attitude to those who choose to ignore the convention.
The twentieth century has witnessed significant cultural changes, for example, changing attitudes towards work and pleasure. It is no longer accepted that work should be difficult or injurious to mind or body, and many employers make great efforts to ensure that the work-place is as pleasant an environment as possible, realising that this probably increases productivity. Employees now more frequently regard work as a means to earn the money to spend on goods or services that give them pleasure, and not just to pay for the necessities of life. The shortened working week, paid holidays and labour-saving devices in the home have all led to increased leisure time that influences how, when and what the consumer buys. Another major cultural change in this century is the changing role of women in society. Increased independence and economic power have not only changed the lives of women, but have also influenced society’s and women’s own perception of their socio-economic role.
In most Western societies today, when considering culture, we must also consider subcultures. Immigrant communities have become large enough in many countries to form a significant proportion of the population of that country, and marketers must consider them because of their interactive influence on society and because, in some cases, they constitute individual market segments for certain product areas. Subcultures can also exist within the same racial groups sharing common nationality. Their bases may be geographical, religious or linguistic differences and marketers must recognise these differences and should regard them as providing opportunities rather than posing problems.
3 Specific social influences
3.1 Social class
This is the most prominent social influence. Traditionally, one of the chief determinants of social class was income. Since pay structures have altered a great deal in terms of the lower C2, D and E categories moving more towards levels previously enjoyed by the higher A, B and C1 categories over the past thirty years or so, classification of consumers on the basis of ‘life style’ is becoming more meaningful today. Income aside, social class is an indicator of life style and its existence exerts a strong influence on individual consumers and their behaviour. There is evidence to suggest that whatever income level a consumer reaches during his or her lifetime, basic attitudes and preferences do not change radically. As consumers, we usually identify with a particular class or group, but often it is not the actual social class that is revealing, but that which the consumer aspires to. Income and/or education allows young people to ‘cross’ social class barriers and adopt life styles which are different from those of their parents. They will tend to absorb the influences of the group to which they aspire and gradually reject the life styles of their parents and relations. It can thus be seen that occupation is a strong determinant towards an individual’s behavioural patterns, which includes buyer behaviour.
When studying social class, the marketer should make decisions on the basis of information revealed by objectively designed research, without any preconceptions or associations with inferiority or superiority in ‘lower’ or ‘higher’ social groupings. This is the only way that changes in behaviour can be identified.
3.2 Reference groups
This can be described as group of people whose standards of conduct mould an individual’s dispositions, beliefs and values. This group can be small or large. Reference groups can range from the immediate family to the place of work. They can also be found in a person’s social life. An individual is unlikely to deviate too far from the behavioural norms laid down by the members of a club or hobby group. Reference group theory does not state that individualism cannot exist within a group, but it does suggest that even rigid independent thinkers will at least be aware of what is considered ‘normal’ within a group.
In a small group like the family the advice and opinions of those who are regarded as knowledgeable will be highly regarded. Such people are termed ‘opinion leaders’. Extraneous to groups influences might also be at work in opinion forming, and here there is the existence of opinion leaders who are outside of the immediate group. Their opinions are taken up by ‘opinion followers’. In the case of a number of products, a deliberate direct appeal is made to the so-called ‘snob appeal’. This is done by using a marketing strategy of making a company’s products acceptable to opinion leaders, or famous personalities (who are paid for their endorsement) in the hope that other sectors of the population will follow them.
The family is perhaps the strongest reference group for most people because of its intimacy and relative permanence. Strong associations means that individuals within this group will influence each other.
The family life cycle traditionally contains six stages, although more recently different divisions have been quoted. These divisions are:
- Unmarried Here, financial commitments and family responsibilities tend to be low, with disposable income being high. These younger unmarried consumers tend to be more leisure-orientated and more fashion conscious. This segment thus comprises a very important market for many new and innovative products.
- Young newly married couples - no children This group focuses its expenditure on those items considered necessary for setting up home.
- Young married couples with children Outlay here is children-orientated, and there is little surplus cash for luxury items. Although they are receptive to new product ideas, this group sees economy as being the over-riding factor when making purchases.
- Older married couples still with children at home Disposable income will probably have increased, often with both parents working and children being relatively independent. In some cases children may be working and the parents are able to engage increasingly in leisure activities often in the form of more than the ‘standard’ annual holiday. Consumer durables, including major items of furniture, are often replaced at this stage. Such purchases are often made with different motivations to the original motivations of strict functionality and economy that was necessary at an earlier life cycle stage.
- Older married couples with no children living in the home Here, disposable income can be quite high. However, tastes are likely to be firmly rooted reflected in unchanging purchasing patterns. Thus marketers will have difficulty when attempting to change predispositions, so the best policy will be through attempts to refine and add value rather than to introduce new concepts and ideas.
- Older retired couples and single people At this stage, most consumer durables have been purchased although occasional replacements will be required. Purchasing is low and patterns of purchasing are conservative and predictable. This group of consumers is increasing rapidly. Such people tend to be less reliant solely on the ‘State pension’, many having subscribed to occupational pensions from former employers, which boosts the State pension. This allows this group to lead more active lives and the tourist industry now actively targets this particular market segment.
In the past the tendency was for clearer demarcations of purchasing responsibility in terms which partner was responsible for which purchases. Nowadays, this distinction is far less clear cut as family roles have tended to merge in terms of women taking on traditionally viewed male roles and vice versa. Marketers should, therefore, engage in research before determining whom to target for their marketing efforts.
3.3 Individual buyer behaviour
As well as being influenced by the outside environment, people also have their own individual beliefs. It is important that we should know what these are in order that we can better understand how individuals respond to marketing efforts. Individuals are different in terms of how they look, their education, their feelings and their responses to marketing efforts. Some will behave predictably and others less predictably according to an individual’s personality. The individual consumer absorbs information and develops attitudes and perceptions. In marketing terms, this will affect an individual’s needs as well as determining how to satisfy them. The task of marketing is to identify patterns of behaviour which are predictable under given conditions, which will increase the marketer’s ability to satisfy customer needs, which is at the very base of marketing. In order to more fully understand this concept we shall concentrate on five psychological concepts which are recognised as being very important when attempting to understand buyer behaviour:
- personality and self concept
This means how we think other people see us, and how we see ourselves. As individuals we might wish to create a picture of ourselves that is acceptable to our reference group. This is communicated to the outside world by our individual behaviour. Marketers are interested in this behaviour as it relates to our purchase and consumption of goods. The sum of this behaviour is an individual self-statement and is a non-verbal form of communication. This self image is expressed in a way which relates to our inner selves and this promotes acceptance within a group. Direct advertising appeals to the self image are now being made through behavioural segmentation.
‘Self’ is influenced by social interaction and people make purchases that are consistent with their self concept in order to protect and enhance it. The constant process of re-evaluating and modifying the self concept results from a changing environment and changing personal situations.
Personality is the principal component of the self concept. It has a strong effect upon buyer behaviour. Many purchase decisions are likely to reflect personality, and marketers must consider personality when making marketing appeals. Psychological theory suggests that we are born with instinctive desires which cannot be satisfied in a socially acceptable manner and are thus repressed. The task of marketing in this context is to appeal to inner needs, whilst, at the same time, providing products which enable them to be satisfied in a socially acceptable way.
An early thinker insofar as motivation is concerned was the psychologist, Sigmund Freud who lived between 1856 and 1939. His theories have been criticised since, but as a theorist, his theories are of fundamental value. He was responsible for identifying three levels of consciousness:
- The conscious which includes all sensations and experiences of which we are aware;
- The pre-conscious which includes the memories and thoughts which we have stored from our experiences and we can bring to mind when we wish;
- The unconscious that is the major driving force behind our behaviour and this includes our wishes and desires of which we are not always aware.
Within these levels of consciousness there are mental forces at work attempting to reconcile our instincts with the social world in which we live and these are not always in accord so we experience emotional difficulties. Freud’s term for these are:
- The ‘Id’ which is the reservoir for all our physiological and sensual instincts. It is selfish and seeks instant gratification regardless of social consequences;
- The ‘superego’ which develops as we grow and learn from family, friends, teachers and other influences. It functions as our internal representation of the values and morals of the society in which we have grown up. It is a potent force and comes into conflict with the demands made by our id for the gratification of what might be anti-social desires;
- The ‘ego’ which attempts to resolve the conflict between the id and the superego and tries to redirect our id impulses into socially and morally acceptable modes of expression.
Marketers are interested in motivation when it relates to purchasing behaviour. This behaviour relates to the motive for wishing to possess the goods or services in question, and it has been termed ‘goal-related behaviour’. For a motive to exist there must be a corresponding need. Motives like hunger, thirst, warmth and shelter are physiological. Others, like approval, success and prestige are psychological. Motives like staying alive are instinctive whilst motives like cleanliness, tidiness and proficiency are motives that are learned during life. We can also discern between rational and emotional motives. Most purchasing decisions are a composite of such motives, quite often a deciding factor might be price which is of course more of an economic restriction than a motive. It can, therefore, be seen that a number of motives might be at play when making a purchasing decision - some motives stronger than others - and the final decision might be a compromise solution.
In 1954 the psychologist Abraham Maslow put forward his classic ‘hierarchy of needs’ which is shown in Figure 1. This hierarchy is now central to much thinking in buyer behaviour.
Respect and self-esteem
Social needs - recognition and belonging
Safety needs - protection and security
Physiological needs - hunger, thirst and shelter
Figure 1 Hierarchy of needs (from A.H.Maslow)
Physiological needs are concerned with self preservation and these are the basic needs of life involving those elements required to sustain and advance the human race. Safety needs relate to protection against danger and deprivation. Once the more basic needs have been satisfied behaviour is influenced by the need for belonging, association and acceptance by others. In many texts the next two needs are put together, but here we have separated respect and self esteem in terms of confidence, competence and knowledge and have then placed achievement in terms of qualifications and recognition above this. The final need is what Maslow termed ‘self actualisation’ which means self-fulfilment in terms of becoming all that one is capable of being and one has reached the pinnacle of personal potential.
It is argued that when more basic needs like hunger and thirst have been satisfied, then individuals will move towards satisfying higher order needs towards the apex of the pyramid and look increasingly for satisfactions that will increase status and social acceptability. When the apex of the pyramid has been reached and other satisfactions have been achieved the prime motivation is then one of acquiring products and accomplishing activities that allow self expression. This can be in the form of hobbies, particularly collecting, which may have been desired for a long time, but have been neglected until the lower order needs have been satisfied. It is of course not possible to formulate marketing strategies on the hierarchy theory on its own. Its real value is that it suggests that marketers should understand and direct their effort at the specific needs of their customers, wherever the goods one is attempting to promote is in the hierarchy.
Maslow was not the only theorist to focus upon human needs as the motivating force behind human behaviour. McGregor argued that two sets of theories motivate people and these he labelled Theory X and Theory Y. Such motivations apply principally to the place of work, but the workplace is where attitudes and opinions are accumulated, so its relevance to marketing is in an indirect sense. Under Theory X certain assumptions are made:
- people have an inherent dislike for work and will avoid it if possible;
- because of this, they must be coerced, controlled, directed and threatened with punishment in order to complete their work satisfactorily;
- people like to be directed and don’t crave responsibility. They have little ambition and want security.
Under Theory Y he makes an alternative set of assumptions:
- people are not naturally passive or resistant to organisational needs. They have become so as the result of experience in organisations;
- motivation and the capacity to develop and assume responsibility are all present and it is management’s responsibility to develop these characteristics;
- it is management’s responsibility to organise production towards economic ends, but it is their task to arrange conditions and methods of operation so that people can achieve their own goals best by directing their own efforts towards organisational objectives;
- if the right conditions prevail, individuals will not only accept responsibility. They will actively seek it;
- most of the population is capable of imagination, ingenuity and creativity in problem solving within an organisation;
- industrialisation has meant that such capabilities are under-utilised.
There are thus two ways in which human behaviour can be interpreted, depending upon whether the observer assumes Theory X or Theory Y. What McGregor argued was that management by control (Theory X) was based on an inaccurate set of negative assumptions and that organisations would work more effectively if ‘management by objectives’ (MBO) or Theory Y, was applied.
Frederick Herzberg also contributed to motivation theory through his ‘Motivation-hygiene’ theory. He believed that performance is at its pinnacle when people are satisfied with their jobs as long as the necessary resources are provided to carry out this work effectively. Satisfaction with work and personal happiness do not necessarily work in harmony, but when they are and when the person is stretched to the limits of his or her ability then there may be a feeling of ‘self actualisation’ (see Figure 1). Whilst this feeling might be more evident in recreational or home situations, it is less common in the workplace because of the conditions and deadlines imposed in an occupational situation. According to Herzberg, self actualisation depends on what he terms ‘motivators’ and these he distinguishes from another set of factors termed ‘hygiene factors’. Motivators can positively contribute to satisfaction at work, whereas hygiene factors cannot promote satisfaction, but they can prevent dissatisfaction. He uses the medical analogy to describe hygiene factors and cited the case of unhygienic conditions as being a source of infection that may make a person unhealthy. In an organisation, hygiene factors are:
- financial reward;
- working conditions;
- company policy;
- status and relationships with colleagues.
Similarly, in an organisation motivators are:
- recognition for achievement;
- opportunities for advancement;
- the job itself.
It can be seen that motivating factors are those that are part of the job whereas hygiene factors are more concerned with the job environment
Unlike motivation that requires a reaction to a stimulus, perception relates to the meaning that is assigned to that stimulus. As marketers we are interested in how buyers perceive and react to products in relation to such matters as quality, aesthetics, price and image, since products not only exist in practical terms, but also how they are perceived by consumers in relation to need satisfaction. This perception by the buyer is affected by the nature of the product itself, by the circumstances of the individual buyer, and by the buyer’s innate situation in terms of how ready they are to make the purchase in terms of needing it at a particular point in time. It is, or course, necessary that the product or service (i.e. the stimulus) receives the attention of the potential buyer. Buyers have numerous stimuli competing for their attention, so marketers must make their stimuli as interesting and attractive as possible because potential buyers only act on information that is retained, and this is the foundation of how the product or service is communicated together with the choice of media. There is of course no certainty that perception of a product or service will be as the marketer expected, even though the marketer has successfully alerted the consumer to a particular offering through successful manipulation of the marketing mix. Consumers might be influenced by many kinds of illogical motives as well as the practical ones presented to them by the marketer. These might be favourable or unfavourable preconceptions from personal experience, from peer group or family advice, or from other psychological motives, all combining to alter and shape the final perception and indeed the ultimate buying decision.
Our strongest basic attitudes are implanted in our formative years and these come largely from the influence of our close family group and other social interaction. More refined attitudes develop later. In marketing terms, the sum total of our attitudes can be regarded as a set of cognitions that a potential buyer has in relation to a potential purchase or a purchasing environment. This is why certain stores or companies go out of their way to engender favourable attitudes and it is why manufacturers seek to induce loyalty towards their particular brand or product. Once this attitude has been established in the mind of the consumer, it might be difficult to alter. Even a minor dissatisfaction can cause a fundamental shift in disposition. This process can work for and against a manufacturer or retail establishment, an a method of attempting to change attitude is through promotional appeals and through a programme of public relations.
Experience precedes learning and this can alter perceptions and attitudes. It also intensifies a shift in behaviour, so when a buyer perceives that certain products are more favourable than others within his or her reference group, repeat purchases are made to promote this acceptability. Every time a satisfactory purchase is made, the consumer becomes less likely to depart from this purchasing behaviour The result is brand loyalty, and the ultimate success of marketing is in terms of customers making repeat purchases or becoming ‘brand loyal’.
In the context of marketing, learning is a result of information received through advertising or other publicity or through some reference group or other. In order to have an effect on motives or attitudes, marketing effort should associate the product with positive drives and reinforcing messages.
A fundamental aim of marketers is to bring about satisfaction for their customers, and this is cardinal to the concept of marketing. Having looked at some of the issues that make up consumer behaviour, we can now look at the consumer’s central goal. Because they are continually occupied in the quest for satisfaction, competitive offerings will always have potential appeal. Firms must seek continuous improvement to the products or services and the levels of support they provide. This is a matter of balancing costs and potential profit with customer demands, as ‘total satisfaction’, except in a minority of cases, is an unrealistically expensive goal.
4 Models of consumer behaviour
Now that we have examined the psychological factors that influence consumer buyer behaviour we are now in a position to examine some consumer behaviour models. The aim is to bring together our present understanding by presenting a series of models that endeavour to explain the purchase decision process in relation to pertinent variables.
4.1 The buyer/decision process
Different buying tasks present different levels of complexity to the purchaser. The ‘AIDA’ model that is presented in Figure 2 considers the steps leading to a purchase in the form of a sequential problem-solving process:
Figure 2 AIDA Model of buying behaviour
This classical model was first promoted by E.K.Strong in 1925 and it is still useful today because it is easy to apply as it describes the activities involved in the buyer decision process. Products and services vary in the complexity of decision making involved in their acquisition. The purchase of a new shower unit, for instance, is more complicated than the purchase of a tube of shower gel.
Robinson, Faris and Wind in 1967 put forward a model that viewed purchasing as a problem. This is shown in Figure 3 and it describes the activities involved in the purchasing process:
Evaluation of alternatives
Figure 3 The buyer/decision model
An individual needs a particular product. Information will be sought from a variety of sources including family and friends (called ‘word of mouth’) from advertising, from catalogues, from visits to retail establishments, and from many other sources. The more complex the product, the greater will tend to be this information search. The task of marketing is to ensure that the company’s products receive high exposure during this ‘information search’ period and that the best points of the product are emphasised during the ‘evaluation of alternatives’ phase. This will put the company’s product in the best light prior to the ‘purchase decision’, because even then the consumer is still susceptible to further influences in relating to making the correct choice. Marketers must also be aware of ‘post-purchase behaviour’ because this can affect repeat business and forward looking companies attach as much importance to after-sales service as they do to making the initial sale. This reduces the degree of dissatisfaction (or dissonance) in the case of genuine complaints. One method that is now practised for sales of major items like new motor cars is where companies follow up a sale by some form of communication by letter or telephone with their customers. This builds confidence in the mind of the customer in having made the ‘correct’ purchasing decision. The terminology that has been attached to this kind of after-sales follow-up is ‘customer care’.
A knowledge of how the buyer/decision process works is critical to the success of marketing strategy. For simple products, the task of marketing is to direct the purchasing routine in favour of the company’s products, perhaps through an effective mass advertising campaign. For more complicated purchases, the more important it is that customers are helped in their problem-solving process and that reassure is provided to show that their choice has been a wise one.
4.2 The adoption process
The buyer/decision model (Figure 3) was not specifically designed for new products and its substance was concerned with search and problem solving. The model shown in Figure 4 was avanced by Everett Rogers, and it relates to new products. It begins with awareness. Marketers must first create awareness and then assist customers through subsequent stages of the process. Consumers cannot begin to consider a new product or service as a solution to need-related problems without this awareness. Successful innovative products should attempt to be problem-solving as far as the customer is concerned.
Figure 4 The adoption process
Awareness can come about as a result of the marketing effort of the company or simply by ‘word of mouth’ communication. If the product has potential interest and appeal, then potential purchasers will seek further information. Consumers then evaluate the new product against existing products, and then make an initial adoption by obtaining a trial sample, which might be a free sample or a ‘trial’ purchase. The adoption stage is when a decision is made whether to use the product (in the case of a fast moving consumer good on a repeat purchase basis). Post adoption confirmation is when the product has been adopted and the consumer is seeking reassurance about the wisdom of the purchase. After a major purchase, dissonance (termed cognitive dissonance) is present in the sign of unease that what was thought to be value for money at the time of purchase may not, after all, turn out to be true value. Such dissonance should be countered by the provision of some kind of follow-up - either written or through the telephone.
A more detailed model is suggested in figure 5 that develops the adoption process. A series of inputs feed into the knowledge base. The ‘self’ input includes the psychological notions of perception, attitudes, motivation and learning. Similar to other inputs, they set the scene for knowledge to be interpreted into a favourable situation of awareness. Figure 5 also shows that persuasion governs the rate of adoption that is affected by relative advantage, compatibility, complexity, trial opportunity and observability. The model also allows for review after the decision stage, and here consumers can be sensitive to the influence of external information sources from promotional appeals and from such influences as reference groups.
SELF CONTINUED ADOPTION
FAMILY REFERENCE ADOPTION
GROUPS DISCONTINUANCE C
KNOWLEDGE PERSUASION DECISION N R T
F M I
CULTURAL MARKETING LATER ADOPTION A O
FACTORS REJECTION N
SOCIAL CONTINUED REJECTION
FACTORS relative advantage
Figure 5 New product purchasing decision process
It can be seen that various inputs contribute to knowledge, ranging from personal factors to company marketing activity. Persuasion is an important phase and here a number of factors which are functions of the product itself can lead to the decision whether or not to purchase the new product or service in question. The decision means adoption or rejection. If it is adoption, then good experience can lead to its continued adoption, but if the experience of the product or service is bad then it will be discontinued. Conversely, rejection might be the decision and this might be followed by continued rejection, or later adoption, perhaps, in the latter case, through hearing good experience of reference group members who have purchased. Continued adoption and later adoption need confirmation in order to continue the repeat purchase pattern.
It is important that we look at innovator categories insofar as purchasing behaviour is concerned because consumers, as individuals, can be more, or less, receptive to new product or service ideas.
The process of the diffusion of innovations proposes that certain groups of consumers will take on new ideas more quickly than other groups and they tend to influence later consumer groups. These group have particular common features.
- Innovators are the first small segment to take on new product ideas and they are likely to be younger people, from well-educated, relatively affluent backgrounds and having a high social status. They are more probably unprejudiced, discerning people whose understanding of the new product has been more objectively ascertained than through salespeople or company promotional material.
- Early adopters, possess some of the characteristics of innovators, but they are more part of ‘local’ systems, acting as opinion leaders within their specific group.
- Early majority adopters tend to be above average in terms of social class and rely upon company promotional efforts for data. Opinion leaders of the early adopter category will tend to be their biggest inspiration.
- Late majority adopters tend to adopt the product or service because it has become generally accepted by earlier groups.
- Laggards make up the final group. They tend to be more careful and older and of a lower socio-economic standing.
Clearly, adopter categories will tend to differ depending upon the new product or service being marketed.
4.3 Hierarchy of effects
Lavidge and Steiner produced a ‘hierarchy of effects’ model of purchasing behaviour in 1961. The model starts at the awareness stage, but it could be argued that there is a stage prior to this which is when the potential purchaser is completely unaware of the product or service offering, and it is through marketing communication that such awareness is made known. The model is described in Figure 6:
Figure 6 The Innovation/Adoption model
5 Organisational buying behaviour
The term ‘organisational buying’ reflects purchasing in three different buying situations as shown in Figure 7:
Industrial buying Buying for resale Institutional buying
Figure 7 Elements of organisational buying
Industrial buying and organisation buying tend to be used interchangeably in the literature, but as we can see, industrial buying is really a subset of organisational buying. The process of organisational buying behaviour differs from consumer buying in that the psychological and emotional considerations attached to the latter should not apply here. However, organisational buyers are human, so clearly some ‘emotion’ might be involved, but generally it can be said that commercial considerations are of prime significance when arriving at purchasing decisions.
The principal similarity between consumer and organisational purchasing is that they both represent a need satisfying process. This need reflects itself in buying behaviour, and this is why it is important that marketers understand purchasing motives in order to target their marketing efforts effectively in a way that satisfies these needs.
It can be seen that organisational purchasers have to work with more stringent purchasing constraints, because they have the commercial and budgetary interests of their respective organisations to serve. They also have logistical factors like delivery schedules to maintain. There is little opportunity for ‘impulse’ purchasing in which everyday consumers can indulge. As purchasing professionals they should have a great deal of technical and commercial knowledge about their prospective purchases.
5.1 Models of organisational buying
In figure 8 we propose a model of the organisational purchasing decision process. It is, perhaps, more precise in its application than the models that were suggested for consumer buying behaviour as items for purchase require a more business-like description through a formal specification at the ‘need description’ and ‘product specification’ stages. Likely suppliers tend to be more rigorously vetted prior to a first order being placed, and it is not uncommon for purchasing and other executives to visit the supplying company beforehand, in order to ascertain whether or not the supplying company measures up to quality, financial and other reliability criteria. The purchase routine specification will instruct the supplying company in relation to quantities to be delivered at specific dates through a delivery schedule if the entire order is not all needed at once.
Purchasing routine specification
Figure 8 The organisational purchasing decision process
Having said that organisational purchasing is more ‘scientific’ than consumer goods purchasing, individual organisational purchasers are of course subjected to the marketing actions and efforts of their current and potential suppliers. Reference groups also exist within organisational situations, and there can be influences from outside of the purchasing department, which is dealt with later in this chapter. It should also be noted that individual buyers have discrete psychological attributes which can also influence decision making.
Figure 9 shows a more refined model that was developed by Yoram Wind in 1978.
He contended that it is critical for marketers to locate powerful buyers, because they tend to have more direct say in purchasing decisions at the negotiation stage. This does not ultimately mean those who are most important within the organisation at which the marketing approach is being directed. Buyers of relatively low status may be able to impede a purchase for a variety of reasons. Five power bases have been identified in this respect:
- Reward Ability to provide monetary, social, political, or psychological rewards to others for compliance.
- Coercive Ability to withhold monetary payments or other punishments for non-compliance.
- Attraction Ability to elicit compliance from others because they like you.
- Expert Ability to elicit compliance because of actual or reputed technical expertise.
- Status Compliance from the ability derived from a legitimate position of power in a company.
Identification of needs
Search for alternatives
Set purchase and usage criteria
Evaluate specific alternatives
Figure 9 Wind’s organisational purchasing model
5.2 Organisational and consumer purchasing compared
How do purchasers in organisational buying situations differ from consumer buyers in their purchasing decision making processes?
- Rationality of purchasing motives
- Derived demand especially in industrial buying situations, where demand is dependent upon purchases further down the supply chain and this creates demand further up the chain
- Small numbers of individual buyers
- Large number of influences on individual buyers
- Often multi-person purchasing decision-making unit
- Suppliers are sometimes in active competition with each other
- Industrial customers may have more power
- Many products are pre-specified by the buyer’s organisation
- Commercial relationships between buyers and sellers is often long term
- Unequal purchasing power of customers
- Distribution is more direct
- Higher value of purchases
- There is sometimes a geographical concentration of purchasers
- Company policies, for instance in relation to suppliers being ‘listed’ for a particular quality standard, may act as a constraint on the buyer
- Possible ‘reciprocal’ purchasing arrangements, in that certain markets may be closed off because of a mutual trading agreement
- A sale is often preceded by lengthy negotiation
- Relationships between buyers and sellers tend to be more long term, rather than depending on a single commercial transaction
5.3 The structured nature of organisational purchasing
Each time a consumer makes a purchase from a retailer, a derived demand is created for a series of materials and components which make up the final product. Added to this is an elaborate chain of supply from companies who buy and sell ancillary products like packaging materials, machinery and maintenance equipment. So that companies can control this steady flow of goods and services, they must organise their purchasing activities so that they have:
- A constant supply of goods and services of the requisite quality as and when required
- A system which monitors supplier performance in terms of the above
- A system of review of existing suppliers and potential suppliers
The larger the organisation, the more structured the methods of buying should be. There should be an established procedure for each of the steps outlined in Figure 8. Purchasing will tend to be more critical in flow production situations than in a jobbing works. Even a minor delivery or quality problem could cause substantial losses in terms of lost production and loss of customer goodwill. Organisational purchasers tend to be far more demanding than consumer purchasers because of the implications just outlined, so the notion of ‘customer care’, which is dealt with in more detail later in the text, has profound significance in modern marketing.
5.4 Organisational buying situations
Three major types of organisational buying situation have been identified, together with the problems surrounding each, as shown in Figure 10:
- continuing or recurrent item or commodity
- involves little purchasing effort
- routinely dealt with within current purchasing arrangements
- suppliers are already known
- represents much of purchasing activity in many companies
- past experience has established a reliable supply pattern
- difficult for new suppliers to enter the market
- continuing need but at an expanded (or decreased) level
- minor changes to product specification needing additional information
- change of regular supplier for some reason
- possibly due to some outside event (e.g. shortage of material)
- companies who are not already supplying sometimes attempt to convert straight rebuy into modified rebuy
- internal circumstances (e.g. new buyer) might want to look for cost reductions or better service or better quality
- sometimes develops from new buy or new task
- unfamiliar or new product or new specification
- extensive need description
- supplier search
- challenging purchasing task as no past experience to draw upon
- infrequent occurrence
- sets the pattern for more routine straight rebuy and modified rebuy situations later
- creative marketers will anticipate this event and will make appropriate marketing appeals
Figure 10 Organisational Buying Situations
From the viewpoint of suppliers’ marketing departments, each of these purchasing situations suggests a different marketing mix. This is in order to fit the particular circumstances, depending upon whether the company is an ‘in’ supplier currently supplying, or an ‘out’ supplier seeking to become an ‘in’ supplier.
5.5 The Decision Making Unit (DMU)
The scope and roles of organisational buyers vary widely according to the type of service or commodity being purchased and whether purchasing is a centralised or decentralised function. Large retail chains now tend to centralise their purchasing in order to employ specialist buyers who can negotiate keen terms and conditions. Some companies employ buyers who have only superficial knowledge of the products offered and handle only the commercial aspects of the sale. Whatever the buying structure, organisational salespersons know that the buyer is not always the final decision-maker.
The predominant difference between consumer and organisational buying is that organisational buying often involves group decision-making. In 1972 Frederick E Webster (Jr) proposed that there were distinct roles in the purchasing process, sometimes taken up by different individuals, and sometimes the same individuals combining some of these roles as shown in Figure 11. He termed this idea the notion of the ‘buying centre’ or the decision making unit (DMU).
Gatekeepers control the flow of information to and from the people who buy (e.g. the buyer’s secretary or an assistant buyer).
Users are individuals who work with, or use the product. Depending upon how purchasing decisions are made, they are sometimes involved in product specification.
Deciders are people who make the buying decision. In many cases this is the buyer, but on some occasions it can be the specifier or in a tightly budgeted situation the accountant.
Buyers have authority to sign orders and make the purchase. They may also help to shape the specification, but their principal role is in supplier negotiation and selection.
Influencers can affect the buying decision in different ways (e.g. technical people may have helped in a major or minor way to develop the product specification).
Figure 11 The Decision Making Unit (DMU) or Buying Centre
5.6 Future developments in organisational purchasing
Nowadays manufacturing companies (especially those operating flow line production) are moving towards holding less stocks of components and raw materials. In some manufacturing situations, stockholding is theoretically non-existent. This is termed ‘just-in-time’ management, or ‘lean manufacturing’. It requires delivery and of goods exactly when required with zero defects. Should defects occur, the company’s production will soon be stopped, so reliability of supply is of prime importance. In such situations, relationships tend to be long term and it is just as common for buyers to visit sellers as it is for sellers to visit buyers (the traditional pattern). The idea of buyers sourcing sellers is termed ‘reverse marketing’ (as opposed to ‘traditional marketing’ when the seller meets buyers). The term used to describe these longer term relationships is ‘relationship marketing’.
It is important to recognise that just as consumer goods’ buyers are responsive to the actions of sellers, industrial buyers are individuals who possess personalities. The personal impression that the buyer or a member of the DMU has of a company’s image, as well as the personal accord that the salesperson can achieve, can profoundly influence the purchasing decision. This human factor also extends to individual relationships which the buyer might have with colleagues within the selling organisation. As we move towards longer term relationships, so this trend will increase and the notion of ‘customer care’ will become increasingly important. Companies have ‘personalities’ which is an amalgam of attitudes and policies reflected in the way outside people view the organisation.
Although factors have been identified that are common to consumer and organisational buying behaviour, it is emphasised that the two markets should be approached differently. The requirements of consumers are established and the marketing response is communicated mainly through the mass media and direct response marketing methods like ‘individualised personal mailings’ from a mailing list. In organisational markets, buyers and sellers also communicate through the mass media, but to a lesser extent as they also rely upon personal interaction. Organisational buyers tend to work to obtain satisfaction in relation to the company’s commercial needs. Much consumer behaviour has a psychological foundation. Although organisational purchasers have an explicit rationale for their actions, this does not imply that they are inflexible to receiving psychological influences. Marketers should not overlook the psychological factors that drive industrial customers. Nowhere is this more important than in a market where products or services on offer are broadly similar. It is here that organisational marketers must attempt to modify their marketing advances to serve specific idiosyncratic needs and requirements.