Factors That Influence Organizational Buying Decisions
written by: Sidharth Thakur•edited by: Ginny Edwards•updated: 7/30/2011
If your organization is a B to B organization, you must consider the factors that influence organizational buying decisions, when developing your marketing plans and sales strategies. To know more about these factors, keep reading.
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Organizational buying is much more complex than consumer buying, and thus deserves to be studied separately. The entwined interpersonal relationships and the multiple communication processes between the organizational members, involved in the buying decision process, are some of the major contributors to this complexity. The list of affecting factors isn’t limited to these; there are many more important determinants. Let’s take a look at what factors influence organizational buyers and their buying behavior. But before that we’d just like to divert your attention to why organizational buying is so different.
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Unique Features of Organizational Buying
Organizational buying is mostly a multi-person activity, and that’s true for more than 90% of the organizational buying. Decisions for some of the bigger purchases may have participants from a range of departments and from different management levels. Think about the purchase of new software – it may require a collective decision made by end users and people from the IT, finance and administration departments.
When organizations make purchases there is always a meticulous formal process that precedes the actual purchasing.
Organizational buying decisions are never made at the spur of a moment. The buying decision making is stretched and this drag can even be a year long, when it comes to critical purchases.
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External Environmental Factors
As a major constraint under which a business operates, the external environment impacts nearly every aspect of a business, including its buying decisions. Here’s a list of the external elements that affect organizational buying.
Economic Conditions: The fluctuations in the money markets and the interest rates have a major impact on the buying strategies. The interest rates and organizational buying have an inverse relation; in most cases, an increase in the interest rates may bring about a drop in the buying.
Regulatory Changes: Any changes in the corporate laws, rules and regulations will also influence how, when and what the organizations buy. There are also regulatory changes that may affect only a particular industry and accordingly the related organizations will change their buying patterns to stay in-line with the new regulations.
Political Environment: A change of the government or policy has a direct impact on the economic scenario, and this ultimately translates into a shift in the organizational buying patterns as well.
Social Environment: Societies and cultures are ever evolving, and every business has to change its practices and procedures to meet up with the societal changes. For instance with the rise in the number of animal lovers, pure leather suppliers have seen a slump in their business. The clothing and footwear manufacturers have shifted to artificial leather suppliers. This points out how the social environment can affect the buying patterns of organizations.
Competition: Today’s business is all about beating competition and staying ahead. So when an organization's competitors move on to a newer product or service, or if they get to enjoy a competitive edge because of their suppliers, it's very likely for the organization to change its trends too and thus its buying pattern will change accordingly.
The external environment is the first of the four major factors that influence organizational behavior as shown in this diagram which you can click on to enlarge.
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Internal Organizational Factors
More than the external factors, it’s the internal organizational factors that influence organizational buying. These internal factors are the:
Organization's Goals and Objectives: The goals and objectives of an organization are major determinants as to how and what the organization will purchase. An organization that wants to capture a bigger chunk of the market by selling cheaper stuff is more likely to look for suppliers who can supply larger quantities at a low price. However, a company whose goal is to deliver quality products may have a very contrasting buying pattern, and they will focus more on the quality issues than on the price advantage.
Organizational Structure: Hierarchical and management structures vary from one organization to another. While some organizations have a well established purchase department, others may assign this job to the HR or Administration department. There are also organizations where the purchase decisions must be taken collectively by all concerned departments. The organizations also have well-defined guidelines as to which purchase decisions can be made by which management level. The internal setup and how authority and responsibility flow through it, play an important role in the organizational purchasing.
Policies and Procedures: How the purchase order is routed, depends on the organization's policies. How does the buying procedure begin, who will participate and who has the ultimate authority to decide on the purchase are all dependent on the policies and procedures of the organization. Some organizations prefer to invite public bids, while others may contact only the few suppliers on their list. There are also budgetary policies that have a say in the purchase decisions, for instance while some organizations may have a flexible policy to make purchases as and when the need arises, others may have to wait till the allocation of the annual or biannual budget.
Technological Levels: Whenever making new purchases, organizations take into consideration their current technology. Some purchases are meant to replace the current technology with a newer version, so their buying decision will be influenced by what level of technology they currently own. Also, organizations try to ensure that all new purchases being made are technologically compatible with their existing technology. So, one way or the other – an organization's existing technology has a major influence on its future purchases.
Manpower Skills: Whether the organization has the skilled manpower to make proper and optimum use of the new purchases being made, especially equipment and machinery, is another issue that influences organizational buying.
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Interpersonal and Individual Factors
Since organizational buying decisions are never a one person affair, interpersonal relationships among the decision makers plays a vital role in this type of buying.
Participation and Authority: In organizational buying situations, there are always re-defined rules as to who can participate in the purchase decision and who is the ultimate deciding authority.
Interpersonal Conflict:Interpersonal conflicts and conflicts of interest amongst the decision makers often results in delays and changes. Thus, the kind of thinking and the kind of relationship the decision makers share have a major role to play in corporate buying.
Education and Awareness: The educational background of the decision makers and their level of awareness have a major bearing on what type of purchases they will make.
Risk Taking Ability: If the buying committee constitutes high risk takers, they will not be averse to the idea of choosing the latest technology or new suppliers. While on the other hand, decision makers with a low risk taking tolerance are more likely to stick to proven and tested technology or to well known and well established suppliers.
Individual Factors: Individual factors such as age, cultural background and social status, of the members on the buying team, also influence the buying decisions.
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In this final section we’ll take a look at some of the situational factors that can influence organizational buyers.
Time Factor: Sometimes, organizations don’t have all the time to follow the detailed buying procedure. If the organization needs a replacement for equipment that broke down suddenly, it may decide to place its order with some existing supplier or a supplier that is at close proximity.
Current Financial Situation: If the organization is crunched for cash, it may decide to place its order with one of its existing supplier who offers extended credit. Also, if the organization cannot spare out enough money for a certain purchase, it may opt for a readily available cheaper version that fits into its budget.
Availability: Some buying decisions can wait while others cannot, thus if the supplier cannot make available the exact product by the desired date, the organizational buyers may shift to a new supplier or to a more readily available alternative.
Special Offers: Special offers being given by a supplier may also be one of the situational factors affecting the buying decision.
As a supplier, now that you know what factors influence organizational buyers, you can work up your business to business sales strategies to manipulate organizational buying activities and thus procure more orders for your supply business.