Organizational Buying Versus Consumer Buying, Essay Example

Companies and individuals have different needs when making purchases. Organizational buying differs from consumer buying in matters such as product demand, advertising, pricing, order size, buying criteria, and relationships between buyers and sellers. Because of the differences, research is necessary for the benefit of companies, suppliers, and ultimately consumers. Issues are complex in both arenas, though it was established by Wind & Webster in 1972 that industrial buying behavior is more complicated than that of household behavior.

Suppliers advertise differently to organizations as opposed to consumers. A larger number and demographic are targeted when advertising to consumers as organizational buying. Consumer buying is often influence by price, availability, and personal taste. Consumer purchases create this derived demand, which influences organizational buying patterns.

Purchase sizes are larger in organizational buying as opposed to consumer buying. Companies need to have an available supply of products and keeping a large inventory saves both time and money. Since the purchases by organizations are made at a high volume, “the dollar value of a single purchase made by an organization often runs into thousands or millions of dollars”(Kerin, Hartley & Rudelius, 2010). To regulate these purchases, organizational buyers usually require competitive bids from at least three potential suppliers when an order is priced above a specific amount. If the price of the order is exceptionally high, approval may be required from the company president or vice president (Kerin, Hartley & Rudelius, 2010). Online buying is another way for organizations to purchase a large volume for a reduced price. Buying products and services online saves time and money by allowing buyers to compare prices, track deliveries, and evaluate customer reviews.

Companies buy products and services to help them achieve their objectives. Depending on the company, objectives may vary. Businesses usually desire to increase profit by reducing cost and increasing revenue. Government and non-profit companies are geared to meet the needs of the groups served. Kerin, Hartley, and Rudelius (2010)note the current trend is to increase diversity by targeting minority groups. Another popular agenda is to promote environmentally-friendly products and services which encourage social responsibility(Drumwright, 1992). A modern example is the production and distribution of hybrid automobiles.

Specific criteria help buyers make purchases. The most common organizational buying criteria are “(1) price, (2) ability to meet the quality specifications required for the item, (3) the ability to meet required delivery schedules, (4) technical capability, (5) warranties and claim policies in the event of poor performance, (6) past performance on previous contracts, and (7) production facilties and capacity” (Kerin, Hartley & Rudelius, 2010). The product or service is valued if the suppliers meet or exceed these criteria. Organization buyers will often supplement buying criteria with ISO 9000 standards certification, or the “standards for registration and certification of a manufacture’s quality management and the assurance system based on an on-site audit of practices and procedures” (Kerin, Hartley & Rudelius, 2010). Organizational buying also involves reverse marketing, when the suppliers help buyers transform their criteria into specific requirements.

Long-term relationships are often formed between buyers and suppliers. Reciprocity is an arrangement which occurs when two organizations agree to purchase the other’s services and products. Even though this practice may restrict the free market, this may be an unintentional result of businesses trying to assist one another as opposed to more devious intentions. Another practice resulting from the formation of relationships is when a supply partnership develops and buyers and suppliers share the same objectives, policies, and procedures to lower costs and increase the value of products and services. When this occurs, consumers, organizations, and suppliers are benefit.

Relationships among consumers, organizations, and suppliers are interdependent. Behaviors, patterns, and procedures of consumers, organizations, and suppliers exert a strong influence on one another. Individuals and companies have needs, but by understanding the interaction between them, suppliers can make sure both benefit by producing high quality products and services at the most competitive prices.

References

Drumwright, M. (1992). Socially responsible organizational buying. Marketing Science Institute, 92-132. Retrieved from http://www.msi.org/reports/sociallyresponsibleorganizationalbuying/

Kerin, R., Hartley, S., & Rudelius, W. (2010). Marketing. (10 ed.). New York: McGraw-Hill.

Wind, Y., & Webster, F. (1972). On the study of industrial buying behavior: Current practices and future trends. Industrial Marketing Management, 4, 411-416.