Transcript Part One - Lingnan University

Chapter Four
Organizational Buyer Behavior
McGraw-Hill/Irwin
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Review of Chapter Three
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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
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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
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Additional: purchasing in government; ethics in purchasing
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Learning Objectives
Focus: how buyers in organizations buy products and services
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Explore a group of theories designed to explain individual
buyer actions within organizations
- Reward-measurement theory
- Behavior choice theory
- Role theory
- Buying determinant theory
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Predict marketing action based on the choice of a particular
buying theory.
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Describe the influence of risk on buyer behavior
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Illustrate how these theories work in concert with partnering
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The Theories of Buyer Motivation
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Reward-Measurement Theory
— The motivation is the benefits
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Behavior Choice Theory
— The motivation is the situation
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Role Theory
— The motivation is the norms/expectations
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Reward-Measurement Theory
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An expectancy theory of organizational buyer motivation
Focuses upon how performance is measured and rewarded
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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
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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
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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
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•
2.
3.
4.
Self-orientation
Company orientation
Evaluate personal relevance
Assesses action alternatives & requirements
Choose behavior strategy
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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 riskaverse 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
• Office Manager
• Controller-sets budget for purchase of new
fax
• Gatekeeper-gathers review from vendors.
• Secretary & Office Manager
• Influencers-view demonstrations narrow
choices
• Office Manager
• Recommender-recommends a particular
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
FRAGMENTED
MANY
FEW
A LITTLE
A LOT
TIME SPENT ON DECISION STAGES
MINIMALLY
FRAGMENTED
DECISION CYCLE TIME INFLUENCE
SIZE OF BUYING CENTER
LARGE
LONGER
DECISION CYCLE A LITTLE
SMALL
A LOT
SHORTER
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
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Gather more information from more sources
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Using loyalty to present suppliers – build trust
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Spread the risk by using more decision makers or
getting more suppliers
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Using Information to Reduce Risks
Commercial
Personal selling
Trade shows
Telemarketing
E-mail
Sales literature
Advertising
Websites
Direct mail
Noncommercial
Word of mouth from
colleagues, consultants,
and coworkers
Trade publications
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 systems
Role expectations
Corporate culture and
intrinsic rewards
Cross-functional
purchasing teams
Policies supporting
vertical and
horizontal
dimensions
Individual factors
Experience: new buy straight
rebuy
Choice of reward-Role orientation
Valence of reward
Probability perceptions
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