B2B Purchasing Decisions
Overview
Provided by: Lumen Learning. License: CC BY: Attribution
Outcome: B2B Purchasing Decisions
What you’ll learn to do: explain the B2B buying process and factors influencing B2B purchasing decisions
Up to this point, our discussion about decision making has focused on individual consumers (B2C). Next we will shift attention to the decision making of businesses and other organizations when they are considering what to buy (B2B). While many of the same principles apply in business-to-business purchasing decisions, there are important differences that warrant discussion.
The specific things you’ll learn in this section include:
- Explain the B2B purchasing decision process
- Describe factors influencing B2B purchasing decisions
- Differentiate between B2C and B2B purchasing decisions
Learning Activities
The learning activities for this section include the following:
- Reading: Organizational Buying Process
- Video: Complexities of a B2B Solution Sale
- Reading: The Organizational Buying Process
Licenses and Attributions
CC licensed content, Original
- Outcome: B2B Purchasing Decisions. Provided by: Lumen Learning. License: CC BY: Attribution
Reading: Organizational Buyer Behavior
Individual consumers are not the only buyers in a market. Companies and other organizations also need goods and services to operate, run their businesses, and produce the offerings they provide to one another and to consumers. These organizations, which include producers, resellers, government and nonprofit groups, buy a huge variety of products including equipment, raw materials, finished goods, labor, and other services. Some organizations sell exclusively to other organizations and never come into contact with consumer buyers.
B2B markets have their own patterns of behavior and decision-making dynamics that are important to understand for two major reasons. First, when you are a member of an organization, it’s helpful to appreciate how and why organization buying decisions are different from the decisions you make as an individual consumer. Second, many marketing roles focus on B2B rather than B2C marketing, or they may be a combination of the two. If you have opportunities to work in B2B marketing, you need to recognize how the decision-making process differs in order to create effective marketing for B2B customers and target segments.
Who Are the Organizational Buyers?
Unlike the consumer buying process, multiple individuals are usually involved in making B2B buying decisions. A purchasing agent or procurement team (also called a buying center) may also be involved to help move the decision through the organization’s decision process and to negotiate advantageous terms of sale.
Organizations define and enforce rules for making buying decisions with purchasing policies, processes, and systems designed to ensure the right people have oversight and final approval of these decisions. Typically, more levels of consideration, review, and approval are required for more expensive purchases.
For anyone involved in B2B marketing or selling, it is important to know:
- Who will take part in the buying process?
- What criteria does each person use to evaluate prospective suppliers?
- What level of influence does each member of the process have?
- What interpersonal, psychological, or other factors about the decision team might influence this buying process?
- How well do the individuals work together as a group?
- Who makes the final decision to buy?
Because every organization is unique, the answers to these questions will be different for every organization and every sale. Marketers should understand their target segments well enough to identify commonalities where they exist and then create effective marketing to address the common roles and decision makers identified.
For example, a technology company selling a travel- and expense-management system should expect decision makers from several departments to be involved in the purchasing decision: the HR department (to ensure the system is user-friendly for employees and compatible with company travel policies), the accounting department (to ensure the system is a good complement to the company’s accounting and finance systems), and the IT department (to ensure the system is compatible with the other systems and technologies the company uses). Marketers should focus first on managers in the group most responsible for travel and expense policy—typically the HR department. As the company generates serious interest and leads, marketing and sales staff should take the time to learn about decision dynamics within each organization considering the system. Marketing and sales support activities can focus on getting each of the essential decision makers acquainted with the product and then convincing them to make it their final selection.
B2B Buying Situations
Who makes the buying decision depends, in part, on the situation. Common types of buying situations include the straight rebuy, the modified rebuy, and the new task.
The straight rebuy is the simplest situation: the organization reorders a good or service without any modifications. These transactions are usually routine and may be handled entirely by the purchasing department because the initial selection of the product and supplier already took place. With the modified rebuy, the buyer wants to reorder a product but with some modification to the product specifications, prices, or other aspects of the order. In this situation, a purchasing agent may be involved in negotiating the terms for the new order, and several other participants who will use the product may participate in the buying decision.
The buying situation is a new task when an organization considers buying a product for the first time. The number of participants and the amount of information sought tend to increase with the cost and risks associated with the transaction. For marketers, the new task is the best opportunity for winning new business because there is no need to displace another supplier (which would be the case for the rebuy situations).
For sales opportunities that are new tasks, there may be an opportunity for a solution sale (sometimes called system selling). In these opportunities, the buyer may be interested in a provider that offers a complete package or solution for the business problem, rather than individual components that address separate aspects of the problem. Providers win these opportunities by being the company that has both the vision and the capability to provide combination of products, technologies, and services that address the problem–and to make everything work together smoothly. Solution sales are particularly common in the technology industry.
Characteristics of Organizational Buying
B2B purchasing decisions include levels of complexity that are unique to organizations and the environments in which they operate.
Timing Complexity
The organizational decision process frequently spans a long period of time, which creates a significant lag between the marketer’s initial contact with the customer and the purchasing decision. In some situations, organizational buying can move very quickly, but it is more likely to be slow. When personnel change, go on leave, or get reassigned to other projects, the decision process can take even longer as new players and new priorities or requirements are introduced. Since a variety of factors can enter the picture during the longer decision cycles of B2B transactions, the marketer’s ability to monitor and adjust to these changes is critical.
Technical Complexity
Organizational buying decisions frequently involve a range of complex technical dimensions. These could be complex technical specifications of the physical products, or complex technical specifications associated with services, timing, and terms of delivery and payment. Purchases need to fit into the broader supply chain an organization uses to operate and produce its own products, and the payment schedule needs to align with the organization’s budget and fiscal plans. For example, a purchasing agent for Volvo automobiles must consider a number of technical factors before ordering a radio to be installed in a new vehicle model. The electronic system, the acoustics of the interior, and the shape of the dashboard are a few of these considerations.
Organizational Complexity
Because every organization is unique, it is nearly impossible to group them into precise categories with regard to dynamics of buying decisions. Each organization has a characteristic way of functioning, as well as a personality and unique culture. Each organization has its own business philosophy that guides its actions in resolving conflicts, handling uncertainty and risk, searching for solutions, and adapting to change. Marketing and sales staff need to learn about each customer or prospect and how to work with them to effectively navigate the product selection process.
Unique Factors Influencing B2B Buying Behavior
Because organizations are made up of individual people, many of the same influencing factors discussed earlier in this module apply in B2B settings: situational, personal, psychological, and social factors. At the same time, B2B purchasing decisions are influenced by a variety of factors that are unique to organizations, the people they employ, and the broader business environment.
Individual Factors
B2B decisions are influenced by characteristics of the individuals involved in the selection process. A person’s job position, tenure, and level in the organization may all play a role influencing a purchasing decision. Additionally, a decision maker’s relationships with peers and managers could lead them to exert more–or less–influence over the final selection. Individuals’ professional motives, personal style, and credibility as a colleague, manager, or leader may play a role. To illustrate, a new department head might want to introduce an updated technology system to help her organization work more productively. However, her short time in the role and rivalry from other department heads could slow down a buying decision until she has proven her leadership capability and made a strong case for investment in the new technology.
Organizational Factors
Purchasing decisions, especially big-ticket expenditures, may be influenced by the organization’s strategies, priorities, and performance. Generally the decision makers and the providers competing for the business must present a compelling explanation for how the new purchase will help the organization become more effective at achieving its mission and goals. If a company goes through a quarter with poor sales performance, for example, the management team might slow down or halt purchasing decisions until performance improves. As suggested above, organizational structure plays a central role determining who participates in the buying process and what that process entails. Internal organizational politics and culture may also impact who the decision makers are, what power they exert in the decision, the pace of the buying process, and so forth. An organization’s existing systems, products, or technology might also influence the buying process when new purchases need to be compatible with whatever is already in place.
Business Environment
B2B purchasing is also influenced by factors in the external business environment. The health of the economy and the company’s industry may determine whether an organization chooses to move ahead with a significant purchase or hold off until economic indicators improve. Competitive pressures can create a strong sense of urgency around organizational decision making and purchasing. For instance, if a leading competitor introduces a compelling new product feature that causes your organization to lose business, managers might be anxious to move forward with a project or purchase that can help them regain a competitive edge. When new technology becomes available that can improve products, services, processes, or efficiency, it can create demand and sales opportunities among companies that want the new technology in order to compete more effectively.
Government and the regulatory environment can also influence purchasing decisions. Governmental organizations often have very strict, highly regulated purchasing processes to prevent corruption, and companies must comply with these regulations in order to win government contracts and business. Similarly, lawmakers or governmental agencies might create new laws and regulations that require organizations to alter how they do business—or face penalties. In these situations, organizations tend to be highly motivated to do whatever it takes, including purchasing new products or altering how they operate, in order to comply.
Licenses and Attributions
CC licensed content, Original
- Revision and adaptation. Provided by: Lumen Learning. License: CC BY: Attribution
CC licensed content, Shared previously
- Chapter 4: Understanding Buyer Behavior, from Introducing Marketing. Authored by: John Burnett. Provided by: Global Text. Located at: http://solr.bccampus.ca:8001/bcc/file/ddbe3343-9796-4801-a0cb-7af7b02e3191/1/Core%20Concepts%20of%20Marketing.pdf. License: CC BY: Attribution
- Business Meeting. Authored by: thetaxhaven. Located at: https://www.flickr.com/photos/83532250@N06/7650804342/. License: CC BY: Attribution
CC licensed content, Specific attribution
- Untitled. Authored by: StartupStockPhotos. Provided by: Pixabay. Located at: https://pixabay.com/photos/entrepreneur-startup-start-up-man-593358/. License: CC0: No Rights Reserved. License Terms: Pixabay License
Reading: The Organizational Buying Process
Making B2B Buying Decisions
The organizational buying process contains eight stages, which are listed in the figure below. Although these stages parallel those of the consumer buying process, there are important differences that have a direct bearing on the marketing strategy. The complete process occurs only in the case of a new task. In virtually all situations, the organizational buying process is more formal than the consumer buying process.
It is also worth noting that B2B buying decisions tend to be more information-intensive than consumer buying decisions. As the marketing opportunity progresses, buyers seek detailed information to guide their choices. It is unlikely that a B2B buyer—in contrast to a consumer—would ever make a final buying decision based solely on the information they see in a standard advertisement.
The organization buying process stages are described below.
Problem Recognition
The process begins when someone in the organization recognizes a problem or need that can be met by acquiring a good or service. Problem recognition can occur as a result of internal or external stimuli. Internal stimuli can be a business problem or need that surfaces through internal operations or the actions of managers or employees. External stimuli can be a presentation by a salesperson, an ad, information picked up at a trade show, or a new competitive development.
General Need Description
Once they recognize that a need exists, the buyers must describe it thoroughly to make sure that everyone understands both the need and the nature of solution the organization should seek. Working with engineers, users, purchasing agents, and others, the buyer identifies and prioritizes important product characteristics. Armed with knowledge, this buyer understands virtually all the product-related concerns of a typical customer.
From a marketing strategy perspective, there is opportunity to influence purchasing decisions at this stage by providing information about the nature of the solution you can provide to address the the organization’s problems. Trade advertising can help potential customers become aware of what you offer. Web sites, content marketing, and direct marketing techniques like toll-free numbers and online sales support are all useful ways to build awareness and help potential customers understand what you offer and why it is worth exploring. Public relations may play a significant role by placing stories about your successful customers and innovative achievements in various trade journals. (Note that the AirCanada video you just watched is an example of this. The video was created by IBM and is offered as one of many “IBM client stories.”)
Product Specification
Technical specifications come next in the process. This is usually the responsibility of the engineering department. Engineers design several alternatives, with detailed specifications about what the organization requires. These specifications align with the priority list established earlier.
Supplier Search
Six of the mirror segments for NASA’s James Webb Space Telescope. The mirrors were built by Ball Aerospace & Technologies Corp., Boulder, Colorado
The buyer now tries to identify the most appropriate supplier (also called the vendor). The buyer conducts a standard search to identify which providers offer what they need, and which ones have a reputation for good quality, good partnership, and good value for the money. This step virtually always involves using the Internet to research providers and sift through product and company reviews. Buyers may consult trade directories and publications, look at published case studies (written or video), seek out guidance from opinion leaders, and contact peers or colleagues from other companies for recommendations.
Marketers can participate in this stage by maintaining well-designed Web sites with useful information and case studies, working with opinion leaders to make advantageous information available, using content marketing strategies to make credible information available in sources the buyer is likely to consult, and publishing case studies about customers using your products successfully. Consultative selling (also called personal selling) plays a major role as marketers or sales personnel learn more about the organization’s goals, priorities, and product specifications and provide helpful information to the buyer about the offerings under consideration.
Proposal Solicitation
During the next stage of the process, qualified suppliers are invited to submit proposals. Depending on the nature of the purchase, some suppliers send only a catalog or a sales representative. More complex purchases typically require submission of a detailed proposal outlining what the provider can offer to address the buyer’s needs, along with product specifications, timing, and pricing. Proposal development requires extensive research, skilled writing, and presentation. For very large, complex purchasing decisions, such as the solution sale described above, the delivery of a proposal could be comparable to a complete marketing strategy targeting an individual customer. Organizations that respond to many proposals typically have a dedicated proposal-writing team working closely with sales and marketing personnel to deliver compelling, well-crafted proposals.
Supplier Selection
At this stage, the buyer screens the proposals and makes a choice. A significant part of this selection involves evaluating the vendors under consideration. The selection process involves thorough review of the proposals submitted, as well as consideration of vendor capabilities, reputation, customer references, warranties, and so on. Proposals may be scored by different decision makers using a common set of criteria. Often the selection process narrows down vendors to a short list of highest-scoring proposals. Then the short-listed vendors are invited to meet with the buyer(s) virtually or in person to discuss the proposal and address any questions, concerns, or gaps. At this stage, the buyer may attempt to negotiate final, advantageous terms with each of the short-listed vendors. Negotiation points may cover product quantity, specifications, pricing, timing, delivery, and other terms of sale. Ultimately the decision makers finalize their selection and communicate it internally and to the vendors who submitted proposals.
Consultative selling and related marketing support are important during this stage. While there may be procurement rules limiting contact with buyers during the selection process, it can be helpful to check in periodically with key contacts and offer any additional information that may be helpful during the selection process. This phase is an opportunity for companies to demonstrate their responsiveness to buyers and their needs. Being attentive during this stage can set a positive tone for how you will conduct future business.
Order-Routine Specification
The buyer now writes the final order with the chosen supplier, listing the technical specifications, the quantity needed, the warranty, and so on. At this stage, the supplier typically works closely with the buyer to manage inventories and deliver on agreement terms.
Performance Review
In this final stage, the buyer reviews the supplier’s performance and provides feedback. This may be a very simple or a very complex process, and it may be initiated by either party, or both. The performance review may lead to changes in how the organizations work together to improve efficiency, quality, customer satisfaction, or other aspects of the relationship.
From a marketing perspective this stage provides essential information about how well the product is meeting customer needs and how to improve delivery in order to strengthen customer satisfaction and brand loyalty. Happy, successful customers may be great candidates for published case studies, testimonials, and references for future customers. Dissatisfied customers provide an excellent opportunity to learn what isn’t working, demonstrate your responsiveness, and improve.
Procurement Processes for Routine Purchases
As noted above, the complete eight-stage buying process describe here applies to new tasks, which typically require more complex, involved purchasing decisions. For rebuys and routine purchases, organizations use abridged versions of the process. Some stages may be bypassed completely when a supplier has already been selected.
Organizations may also use e-procurement processes, in which an approved supplier has been selected to provide a variety of standard goods at pre-negotiated prices. For example, an organization may negotiate an e-procurement agreement with Staples that allows employees to order office supplies directly from the company using an approval workflow in the ordering system. These systems help simplify the buying process for routine purchases, while still allowing appropriate levels of approvals and cost controls for the buyer.
Licenses and Attributions
CC licensed content, Original
- Revision and Adaptation . Authored by: Lumen Learning. License: CC BY: Attribution
CC licensed content, Shared previously
- Chapter 4: Understanding Buyer Behavior, from Introducing Marketing. Authored by: John Burnett. Provided by: Global Text. Located at: http://solr.bccampus.ca:8001/bcc/file/ddbe3343-9796-4801-a0cb-7af7b02e3191/1/Core%20Concepts%20of%20Marketing.pdf. License: CC BY: Attribution
- Primary Mirror Segment Cryogenic Testing. Authored by: NASA's James Webb Space Telescope. Located at: https://www.flickr.com/photos/nasawebbtelescope/5637974497/. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives
Self Check: B2B Purchasing Decisions
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
Licenses and Attributions
CC licensed content, Original
- Self Check: B2B Purchasing Decisions. Provided by: Lumen Learning. License: CC BY: Attribution