Marketing to organisations is different to marketing to consumers. Repeat: MARKETING TO ORGANISATIONS IS DIFFERENT TO MARKETING TO BUSINESSES.
The reason is simple, when selling to consumers you are predominantly selling to individuals. When selling to organisations; such as businesses, local authorities and government departments; you will likely be selling to a group of people operating within strictly defined protocols.
When I worked in local government, I was a client facing enforcement and advice professional. I didn’t do much purchasing (the exception being equipment for legal metrology equipment and laboratory services). For big purchases, such as IT equipment, and routine purchases, such as stationery, my employer had a central purchasing unit staffed by professional buyers.
Even within the purchasing activities I had responsibility for, I had to operate within tight policies. I had to get a minimum of two quotes for any purchase unless I could show an exceptional reason for not doing so (e.g. only one laboratory could do the required testing). I also had to show ‘best value’ that the products and services I was procuring could give more ‘bang for their buck’ than the rejected alternatives.
In organisations there are four types of purchase:
- Routine Order Products: These are regular, low risk purchases like stationery.
- Procedural Problem Products: These purchases affect the way work is carried out e.g. buying new software. Often these will involve training beyond the purchase of the product or service.
- Performance Problem Products: These purchases improve the users requirements and expectations. For example buying new machinery which is more productive and less likely to require maintenance. A major issue is the compatibility of the purchased product with existing equipment.
- Political Problem Products: These are purchases which take resources away from other parts of the organisation. For example, a business may face a choice between purchasing a new packaging system and a new computerised order tracking system. The businesses delivery team manager will be put out if the ordering system is not purchased. The businesses operations manager will be put out if the new packaging machinery is not bought. So the choice of purchase may result in destructive office politics.
The latter category of purchase above is common when businesses are making big strategic purchases which are of high value and which directly affect the future of a business. Whereas routine purchases may be delegated to an individual member of staff; major purchases are usually made by a group, a ‘decision-making unit’ or DMU.
Members of a decision-making unit will often take up the following roles:
- Initiator: This is the individual who initiates the purchasing process and proposes a purchasing solution to solve a particular problem. It could be a departmental manager or in organisations using systems such as Kaizen or TQM, an individual employee or group of employees.
- User(s): Those who will actually use the product purchased. This may or not be the initiator.
- Buyer: A professional negotiator who carries out the process of the purchase. For complicated or expensive products or services these negotiations may take significant time and there may be significant lead times before the purchased product is delivered.
- Influencer: These members of the DMU may have little or no impact on the process of buying but may have a major impact on the decision to purchase. This could be the company’s accountant or union representatives within the organisation.
- Decider: The person who has the final say on the purchase. This could be the company owner or in a local authority, a vote by councillors.
- Gatekeeper: This person controls the flow of information to the DMU. The personal assistants of senior managers are a good example as they often control who the senior manager talks to and meets as they control his diary.
Political tensions often build in a decision-making unit. This can be for the following reasons:
- Individual self-interest; a particular manager may see a purchase choice as a route to personal advancement or reward.
- Operational needs of particular departments: Organisations have limited resources and often choices need to be made as to what to purchase when. If a purchase negatively affects other parts of an organisation, or limits its expectations, tensions can arise.
- Professional Pride: Individuals have professional pride and if a purchasing decision dents that pride, tensions grow. I have worked in an organisation that treated my profession with contempt. It was a hugely frustrating experience and guess what, I left.
- Different incentives and reward expectations: If an operations manager receives his bonus based on the productivity of his plant, and the failure to purchase equipment which improves that productivity occurs; you may find that the manager becomes obstructive.
As organisational buying is more complex than consumer purchasing, academics have tried to build frameworks which map the process and develop logical processes.
The Webster Webb framework sets four variables which influence the purchasing decision:
- Environmental: This is effectively PESTEL analysis and issues such as the actions of competitors. If the macro-political situation is confused or complicated, firms may be less willing to make major purchases. Brexit Britain is one such environment, where some firms are actively divesting from the market and others are holding back on major purchases due to market uncertainty. It is also noticeable that UK productivity has been weak for some time.
- Organisational: Purchases are directly affected by an organisations goals, the organisation’s culture and policies and procedures. If a firms goal is, like Lloyd’s bank, ‘to be the best for customers’, it is likely that purchases which improve the customer experience will be prioritised. If the organisation has a traditional top-down management structure, the views and personalities of those at the top will strongly affect purchasing decisions.
- Interpersonal: The relationships between individuals and the buying centre may affect purchasing decisions. For example, in the 1970s in the UK, it would be a difficult task to make purchase which significantly cut the number of employees in a firm. There would be significant resistance from unions and purchases may postponed or not made as a result of how they would affect the union’s members. That was a world where there were major strikes over minor demarcation issues, the most ridiculous was at the BBC where studios were shut down because of a dispute over who was responsible for the Play School clock (the scenery shifters said it was scenery and therefore their responsibility but because it contained electrical components the BBC electricians believed it was their responsibility).
- Individual: Different DMU members will have different attitudes to risk, they will have different personal goals, they will have different experience, they will have different education and training.
The Sheith Framework has similar elements to the Webster-Webb framework. However, it places an emphasis on the psychology of the purchasing process. it states that there are four factors to organisational buying:
- The experience of DMU members
- Factors inherent in the buying process
- The character of the decision-making process
- Situational factors
The expectations of DMU members may differ as a result of their functionality. A firm’s chief engineer will have different expectations to those of the firm’s finance director. This means sales presentation and literature could be subject to perceptual distortion.
Factors in the decision-making process include perceived risk of the purchase, time pressures, the type of purchase or the organisations orientation i.e. is the organisation pursuing an aggressive or a defensive strategy. If a firm needs a particular piece of equipment to meet a tight deadline, then it may make fewer procedural checks before making that purchase. other factors include organisational size. A routine purchase for a large company may be a major purchase for a small company.
The level of decentralisation may affect purchasing decisions. As stated earlier, I used to work for a council that had a central purchasing unit which undertook all the purchasing negotiations. But I have also worked in an organisation where many purchasing decisions were delegated to individual managers and members of staff.
The process of purchasing may affect the buying process. For example, where purchasing decisions are to be made jointly, there may be more room for conflict than where purchasing decisions are made by individuals
There are four types of organisational conflict:
- Bargaining, and
Problem-solving and Persuasion are seen as rational sources of conflict. Bargaining and Politicking are seen as irrational sources of conflict. But bargaining and politicking are common in organisations. Who hasn’t been in an organisation without office politics or experienced those office politics becoming toxic?
Situational factors affect purchasing decisions e.g. long lead times for delivery, industrial relations at potential suppliers, takeovers and mergers, financial issues, production breakdowns and tax changes. For example, McDonald’s in the UK stopped using Heinz tomato ketchup when Heinz headhunted one of their senior managers. This ‘poaching’ of the manager was seen as a significant breakdown in the relationship between the two companies.