3B ORGANIZATIONAL BUYER BEHAVIOR LECTURE by xiangpeng

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									Organizational Buyer Behavior
         Organizational Buyer Behavior



How different is it from ultimate consumer behavior?




Hardly                                         A great
at all                                         deal
Business markets are said to be different than
ultimate consumer markets in several ways:
    •  Fewer buyers
    •  Larger buyers
    •  Geographically concentrated buyers
    •  Derived demand
    •  Fluctuating demand
    •  Price Inelastic demand
    •  Close supplier-customer relationship
    •  Many negotiated & formalized contracts for
          large purchases
    • Deciders are often influenced by org. &
      personal factors
Business markets are said to be different than
ultimate consumer markets in several ways:
    • Fewer buyers
    • Larger buyers
    • Geographically concentrated buyers
    • Derived demand
    • Fluctuating demand
    • Price Inelastic demand
    • Close supplier-customer relationship
    • Many negotiated & formalized contracts for
         large purchases
    • Deciders are often influenced by org. &
     personal factors
Business markets are said to be different than
ultimate consumer markets in several ways:
    • Fewer buyers
    • Larger buyers
    • Geographically concentrated buyers
    • Derived demand
    • Fluctuating demand
    • Price Inelastic demand
    • Close supplier-customer relationship
    • Many negotiated & formalized contracts for
         large purchases
    • Deciders are often influenced by org. &
         personal factors
        Presently - U.S. resident population
                is about 309 million
        With about 123 million households

According to U.S. economic census there are:
Construction firms                   656,448
Manufacturing firms                  362,829
Mining firms                          19,985
Retail Trade firms                 1,118,447
Transportation & Warehousing firms 178 ,025
Wholesale Trade firms                453,470
            Total                    2,789,204
Even at the total of all these, the ultimate consumer
market is:

123,000,000/ 2,789,204  44 times the total size of
all firms in these industrial sectors.
Business markets are said to be different than
ultimate consumer markets in several ways:
• Fewer buyers
• Larger buyers
• Geographically concentrated buyers
• Derived demand
• Fluctuating demand
• Price Inelastic demand
• Close supplier-customer relationship
• Many negotiated & formalized contracts for
      large purchases
• Deciders are often influenced by org. &
      personal factors
Business markets are said to be different than
ultimate consumer markets in several ways:
• Fewer buyers
• Larger buyers
• Geographically concentrated buyers
• Derived demand
• Fluctuating demand
• Price Inelastic demand
• Close supplier-customer relationship
• Many negotiated & formalized contracts for
      large purchases
• Deciders are often influenced by org. &
      personal factors
           Price Elasticity

A measure of the sensitivity of quantity
demanded to changes in price


It is actually associated with consideration
of various long term price options – not
temporary price changes
Some Factors Affecting Price Elasticity

   Availability of Substitutes

              Price relative to
             Purchasing Power

                    Product Durability


                          Product’s Other Uses
Let’s Look Again at the Demand Curve



  P




                              Q
     Which Demand Curve is
    More Price Elastic – A or B?
P

                          A


                      Q
P

                  B

                      Q
     Which Demand Curve is
    More Price Elastic – A or B?
P

                         A


                     Q
P

                         B

                     Q
       The Measure of Price Elasticity


Price
                 % Change in Quantity Demanded
Elasticity   =
of Demand             % Change in Price
Arc Measure of Price Elasticity:
                       Q               P
            e=
                   Q1 + Q2             P1 + P2
                      2                   2


 Point Measure of Price Elasticity:
                   P        dQ
            e=          x
                   Q        dP

                   Range of e:        0  e  

   The price elasticity coefficient is always negative.
      Therefore, we usually just refer to its absolute value
       Elasticity of Demand Conditions
            Where TR = Total Revenue



Price-Change     Inelastic    Unitary     Elastic
  Situation      0e1         e=1       1< e  

                             TR stays
If Price          TR                     TR
                              same

                              TR stays   TR
If Price          TR
                               same
Elasticity Coefficients of Some Goods
    Salt                          0.1
    Airline Travel (short run)    0.1
    Gasoline (short run)          0.2
    Gasoline (long run)           0.7
    Coffee                        0.25
    Movies                         0.9
    Restaurant meals               2.3
    Cars (short run)             1.2 – 1.5
    Cars (long run)                0.2
    Foreign travel (long run)      4.0
   A Few Issues Regarding the Use of
      Price Elasticity to Set Price

• It does not account for competitors’ responses
• It is measured in sales revenue, not profits
• It fails to consider product line effects
• Be careful about elasticity at the product versus
      the brand level
    Business markets are said to be different than
    ultimate consumer markets in several ways:

• Fewer buyers
• Larger buyers
• Geographically concentrated buyers
• Derived demand
• Fluctuating demand
• Inelastic demand
• Close supplier-customer relationship
• Many negotiated & formalized contracts for
      large purchases
• Deciders are often influenced by org. & personal factors
                               Buy Classes

                                         Very Unique
                                         Situation for
                     New Task Buying     the Firm
Extent of Involved
Decision Making




                                               Some Unique and
                                               Some Standard
                                               Buying
                        Modified Rebuy         Characteristics



                         Very Routine
                         Purchases       Straight Rebuy
                    The Buy Phases

   Need          Problem Recognition
Recognition    General Need Description

   Info          Product Specification
  Search/          Supplier Search
   Eval
                 Proposal Solicitation

                  Supplier Selection
  Purchase
              Order Routine Specification
  Post
Purchase         Performance Review
The Buy Grid Framework
                              Buy Classes
                        New   Modified   Straight Rebuy
Problem Recognition     Yes   Possibly       No
Need description        Yes   Possibly       No
Product Specification   Yes   Yes           Yes
Vendor Search           Yes   Possibly       No
Proposal Request        Yes   Possibly       No
Supplier Selection      Yes   Possibly       No
Selection of Order      Yes   Possibly       No
Feedback & Review       Yes   Yes            Yes
  Potential Participants in the
 Organizational Buying Process


               Users
Initiators                Influencers

             Gatekeepers
 Buyers                    Deciders

              Approvers
          The Buying Center . . .


. . . members of the organization who play any
        of the roles shown in the last slide


We must be concerned about recognizing the
“formal” and “informal” influences within the
organization
                 Implications
 Understanding how organizational buying works
 Implications for suppliers relevant to new product
     development
 Marketing and Personal Selling implications
 Other ?

								
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