Unit 2: Organizational Buying and Buyer Behaviour

Organizational Buyers’ Decision Process

Organizational buying refers to how a business, government, or institution makes purchase decisions.

This process is more formal, logical, and multi-step compared to consumer buying.

Stepwise Model of Organizational Buying Process

A common step-by-step model consists of 8 steps:

Step	Explanation (Simple)
1. Problem Recognition	Organization identifies a need (e.g., machinery breakdown).
2. Need Description	Clear description of what is required (capacity, features).
3. Product Specification	Technical team decides specifications (material, size, performance).
4. Supplier Search	Company searches vendors through internet, tenders, references.
5. Proposal Invitation	Suppliers submit quotations/price bids (RFP/RFQ).
6. Supplier Evaluation & Selection	Comparison of quality, price, delivery, past performance.
7. Order-Routine Specification	Final purchase order, delivery schedule, payment terms.
8. Performance Review	After using the product, buyer evaluates supplier performance.

Process Flow Model of Organizational Buying

The Process Flow Model shows how buying decisions move from first recognition to final evaluation in a flow sequence.

Process Flow Model Stages

1. Awareness – Organization becomes aware of a need.
2. Interest – Decision-makers explore solutions.
3. Evaluation – Technical and commercial evaluations are done.
4. Negotiation – Price, warranty, contract terms are negotiated.
5. Purchase Decision – Formal approval and issuance of purchase order.
6. Implementation – Delivery, installation, usage of the product.
7. Post-Purchase Review – Feedback, satisfaction analysis, vendor rating.

Difference from Stepwise Model:

• Stepwise model focuses on tasks.
• Process Flow Model focuses on movement/stages in decision journey.

Characteristics of Business Markets

Business (B2B) markets are different from consumer markets in several ways.

Characteristic	Explanation
1. Fewer but Larger Buyers	Purchases are made by fewer organizations but in large quantities.
2. Derived Demand	Demand depends on consumer market demand (e.g., tyre demand depends on car demand).
3. Inelastic Demand	Demand does not change much with price changes.
4. Professional Buying	Buyers are trained professionals (engineers, purchase managers).
5. Multiple Influencers	Users, influencers, buyers, deciders all participate in buying.
6. Long-Term Relationships	Businesses prefer stable, long-term suppliers.
7. Complex Decision Making	Technical specifications, cost analysis, compliance are involved.
8. Large Order Values	Orders are often bulk and high value.
9. Geographical Concentration	Industries cluster in certain regions (IT in Bengaluru, textiles in Surat).
10. Formal Procedures	Tenders, quotations, legal contracts are common.

Government as a Customer

The government is one of the largest institutional buyers.
It buys goods and services for public welfare, defence, infrastructure, and administration.

Characteristics of Government Buying

Feature	Description
1. Huge Volume Purchases	Bulk buying of equipment, medicines, infrastructure materials, etc.
2. Formal and Regulated Process	Strict tendering, bidding, and approval systems (e.g., GeM portal).
3. Price Sensitivity	Government often prefers the lowest bid (L1 system).
4. Transparency & Compliance	Purchase involves audit, approval, and legal guidelines.
5. Slow Decision Process	Multiple layers of approval make the process time-consuming.
6. Preference for Reliable Vendors	Government prefers established vendors with strong compliance.
7. Public Accountability	Use of taxpayer money → high scrutiny by media, public, auditors.
8. Long-Term Contracts	Many government deals run for years (e.g., defence procurement).

Short Summary (Quick Revision)

• Organizational buying = formal, multi-step decision making by businesses or institutions.
• Stepwise model = Need → Specification → Search → Evaluation → Order → Review.
• Process flow model = Awareness → Evaluation → Negotiation → Purchase → Review.
• Business markets = few buyers, large orders, professional decisions, derived demand.
• Government = largest buyer, uses tenders, follows rules, slow but stable demand.

Commercial Enterprises within Business Markets

Commercial enterprises are for-profit businesses that operate in B2B markets. They buy goods/services to:

• produce products
• support operations
• resell to other businesses or consumers
• improve productivity and profitability

Types of Commercial Enterprises in Business Markets

Category	Description	Examples
1. Manufacturers/Producers	Convert raw materials into finished goods.	Tata Motors, Asian Paints
2. Wholesalers/Distributors	Buy goods in bulk → resell to retailers.	Metro Cash & Carry
3. Retailers	Sell goods to final consumers.	Reliance Retail, DMart
4. Service Enterprises	Provide services to other businesses or consumers.	Banks, logistics firms, IT companies
5. Construction & Real Estate Firms	Buy raw materials, machinery for projects.	L&T, DLF
6. E-commerce Enterprises	Online marketplaces and digital service platforms.	Amazon, Flipkart
7. Export–Import Houses	Buy and sell across countries.	Export merchants, trade companies
8. Franchises	Operate under a parent company’s brand.	KFC, Domino’s franchise owners

Commercial Customers – Roles and Buying Behavior

A. Roles in Commercial Buying (Buying Center)

Role	Function
Users	Actually use the product (employees, technicians).
Influencers	Provide technical knowledge or recommend suppliers.
Buyers	Handle negotiations, pricing, purchase order.
Deciders	Final authority to approve purchase (managers/owners).
Gatekeepers	Control information flow (receptionist, purchase officer).

B. Characteristics of Commercial Buying Behavior

Behavior	Explanation
Rational & Logical	Decisions based on cost, quality, ROI, efficiency.
Multiple Decision Makers	Many departments involved (finance, operations, tech).
Formal Process	RFP, RFQ, vendor selection, contracts.
Long-term Relationship Focus	Preference for reliable suppliers.
Large Order Sizes	Bulk buying leads to negotiations.
Technical Evaluation	Specs, performance, compatibility checked.
Price and Value Sensitivity	Commercial firms prefer cost-effective options.

Institutional Customers – Roles and Buying Behavior

Institutional customers are non-profit or public service organizations, such as:

• Hospitals
• Schools, colleges, universities
• NGOs
• Religious institutions
• Government bodies

A. Roles in Institutional Buying

Role	Responsibility
Administrators/Management	Decide budgets and approve purchases.
Technical Experts	Recommend equipment (doctors, engineers).
Purchase Committee	Ensures transparency, compares vendors.

B. Buying Behavior of Institutional Customers

Characteristic	Explanation
Budget-Oriented	Limited funds → cost-effective purchases.
Formal & Transparent	Tenders, quotations, committees involved.
Quality & Safety Focused	Medical, educational, and public safety standards.
Less Brand Conscious	Focus on functionality more than brand.
Bulk Buying	Institutions purchase in bulk for entire operations.
Ethical & Compliance Based	Rules, norms, guidelines must be followed.

Case Studies 

Case Study 1: DMart – Commercial Enterprise Buying Behavior

Situation: DMart needed to reduce supply chain costs and maintain low prices for customers.

Buying Behavior:

• Preferred bulk suppliers offering the lowest procurement cost.
• Evaluated vendors based on price, reliability, and delivery performance.
• Long-term contracts with selected suppliers.

Result: DMart operates with one of the lowest cost structures in Indian retail.

Case Study 2: Infosys – B2B Software Purchase

Situation: Infosys needed secure cloud infrastructure.

Buying Behavior

• Technical team evaluated Amazon AWS, Google Cloud, Microsoft Azure.
• Considered performance, data security, scalability, and cost.
• Final decision by IT heads and finance.

Result: Adopted hybrid cloud solutions for improved efficiency.

Case Study 3: Apollo Hospitals – Institutional Buying

Situation: Apollo needed new MRI machines across multiple branches.

Buying Behavior:

• Technical experts (radiologists) specified machine requirements.
• Purchase committee floated a tender.
• Vendors demonstrated technology and provided quotations.
• Decision based on price, warranty, and maintenance support.

Result: Selected a global medical equipment vendor with strong after-sales service.

Case Study 4: Indian Railways – Government Institutional Buyer

Situation: Railways required large quantities of signalling equipment and components.

Buying Behavior:

• Strict tender rules on the Government e-Marketplace (GeM).
• Technical evaluation + financial evaluation process.
• Preference to L1 (lowest bidder) who meets quality standards.

Result: Transparent procurement, reduced cost, faster processing.

Short Revision Notes

• Commercial enterprises = profit-making businesses buying to produce, resell, or operate.
• Commercial buying behavior = rational, technical, formal, multi-person decisions.
• Institutional customers = non-profit/ public-service organizations buying for operations.
• Institutional buying = transparent, tender-based, budget-driven.
• Case studies show real-world buying roles & decisions.