Factors determining organizational buying decisions

Factors determining organizational buying decisions (determinants)

1.      Environment factors: Environmental factors constitute an important determinant of organizational purchasing. They consist of economic, technological, political-legal and social responsibility factor.

I. Economic Influences: Economic dimensions such as economic growth, employment, price stability, income, and resources influenced the overall economic condition. Industrial demand is derived from the ultimate consumer. So the marketer should focus on the demand on the ultimate consumer market and the ultimate consumers demand is fluctuated by the change of the overall economic condition.

II. Political and Legal influence: Political and legal environment has a great impact on the organizational buying behavior. Tariff and trade agreement, government funding programs and government view towards business and social service activities are included in political environment.Legal environment includes the business related legislation in federal state and local government. By changing these factors the demand of the consumer can be increased or decreased.

III. Technological Influences: The level of technology and the pace of technological change greatly affect organizational buying behavior. 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.

IV. Social responsibility factors: social responsibility refers to pursuit of goals that are good for society. Organizational buying should protect environment and meet community needs. Buying of domestic products should be preferred.

2.      Organizational factors: every organization has buying objectives, policies, procedures, and structures that affect buying

I.                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

II.              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.

III.           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

3.      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.

I.                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.

II.               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.

III.            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.

IV.               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.

V.                 Individual Factors: Individual factors such as age, cultural background and social status, of the members on the buying team, also influence the buying decisions.

4.      Situational Factors: In this final section we’ll take a look at some of the situational factors that can influence organizational buyers.

I.                    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.

II.                  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.

III.                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