B2B Consumer behavior
Introduction
For almost the entirety of the course, we have been speaking about B2C consumer behavior. Interestingly, this is precisely the angle that almost every textbook of consumer behavior also takes. There is hardly any input on how businesses behave when they consume. I am positive that you will be learning a lot of that in the upcoming B2B marketing course, however, for those of you who will not be taking up the course, I felt that it was necessary to touch upon this important topic.
In the typical consumer decision making process that starts from need recognition and moves on to information search, evaluation, choice, purchase, and the post purchase. The same applies in the B2B context as well. But then, the way it plays out can be markedly different. Before we begin with that, let’s try and understand the two contexts when businesses make purchases. First, businesses look at making purchases of inputs that they need to make their final product. For instance, Dell would want chips from Intel. TTK Prestige would want Aluminum from Hindalco. The list can keep expanding. I’m sure you get the point. Second, businesses buy products and services that they need in architecting the processes required to make their output. For instance, computers to manage payroll. CCTV cameras to ensure security, and so on and so forth. Typically, the first type of purchases go through a similar consumer decision making process. The second set, usually is bought through some sort of auto purchase mechanism. (Imagine making purchases of white board markers and running through the same process for good humour). However, during the first iteration of the auto purchase mode, a regular decision making process ought to have transpired. Having said that, let’s discuss some of the critical changes between businesses and regular consumers.
The Differences
Businesses are able to understand the need much more accurately when compared to consumers (you have to remember that these statements are made from a general perspective. There are obviously going to be cases when the needs are felt by regular consumers very accurately). They are also able to perform a much more thorough information search. The evaluation too is likely to be stricter and very objective. After the purchase, there is also going to be a likely after sales agreement or annual maintenance contract to ensure the optimal performance of anything that is purchased. The disposal of the products too may have to comply with the law of the land and therefore, firms may be required to invest resources in “responsible disposal”.
Given the criticality involved in B2B purchases, there typically is also a much larger decision-making unit (DMU) that is involved in the purchase process. Typically, the DMU comprises the following parties:
Initiator: This is the person who identifies a need or problem and starts the buying process by suggesting the purchase of a product or service to address it.
User: These are individuals or groups who will directly use the product or service being purchased. Their input is crucial because they can provide feedback on the specific requirements and potential challenges with different solutions.
Influencer: This person or group provides information and advice that helps shape the decision. They might have specialist knowledge about the product or service, the market, or the problem being addressed.
Decider: This individual or group has the authority to make the final purchasing decision. In some organizations, this could be a senior manager, director, or even the CEO.
Buyer: This is the person who has the responsibility to arrange the purchase. They negotiate terms, handle logistics, and complete the transaction. They are concerned with getting the best value and ensuring that the purchasing process runs smoothly.
Gatekeeper: This individual or group controls the flow of information to other members of the DMU. For example, a personal assistant might filter which sales calls or meetings are accepted. Gatekeepers can significantly influence the buying process by controlling which suppliers are considered or by prioritizing certain types of information.
Approver: Especially in larger organizations or for significant purchases, there might be someone (often from the finance department) who needs to approve the expenditure. They ensure that the purchase aligns with budgets and financial guidelines.
Now, I would not be doing justice to the topic if I do not take a few moments to discuss the nature of the selling team as well. Just as the buying process is flush with interesting characters, the selling team is also likely to have a salesperson, a research and development person, a cost accountant, and a few others who can aid the decision-making unit to come to an informed conclusion. This selling unit often exercises a lot of creativity and is able to engineer solutions that are best suited for the customer. Customer orientation in true spirit.
The interesting bits- Politics
There is a constant tussle that always exists between the various DMU constituents. This only shows that multiple parties may want to have a say in the decision-making process, each bringing their unique perspectives, priorities, and concerns. While the initiator might prioritize addressing a pressing need or problem, the buyer may be focused on cost-effectiveness and the overall value. The influencer, with their knowledge, might bring up potential future implications of the decision, and the gatekeeper could introduce an entirely different set of criteria based on the information they deem relevant.
This dynamic interplay between DMU members can often lead to longer decision-making timelines in B2B scenarios, compared to B2C. It's not just about individual preferences; it's about aligning various functional objectives and ensuring the final decision serves the broader organizational goals. Negotiations, trade-offs, and compromise become common features of this process.
Moreover, in the B2B realm, the stakes are typically higher. A wrong decision could potentially cost company millions, lead to significant operational setbacks, or even harm the company's reputation. This is why B2B purchasing often involves extensive documentation, due diligence, and sometimes even third-party evaluations or audits.
To further complicate matters, relationships play a significant role in B2B purchases. Often, businesses prefer to work with companies they have a history with or those that come recommended by trusted partners. It's not just about the product or service in question; it's about the reliability, trustworthiness, and track record of the vendor. In some cases, the quality of the relationship can outweigh other considerations.
This brings us to a very interesting topic - Transaction cost theory.
Transaction Cost Theory (TCT)
Transaction Cost Theory, primarily associated with economist Oliver Williamson, is a concept in economics and organizational theory that deals with the costs (more on that in just a bit) associated with making an exchange or a decision. Some of you may have come across this in one of your advanced OB courses. At the core of this theory is an attempt to answer the question “why do firms exist”. And the answer is simple, “to minimize transaction costs”. What are these costs, you ask? These costs can be broadly categorized into:
- Search and Information Costs: The costs associated with determining that the required good is available on the market, who has the lowest price, etc.
- Bargaining and Decision Costs: The costs required to come to an acceptable agreement with the other party, drawing up an appropriate contract, etc.
- Policing and Enforcement Costs: The costs of making sure the other party sticks to the terms of the contract and taking appropriate action (often through the legal system) if this turns out not to be the case.
In simple words, the theory posits that companies will organize their structures in ways that minimize these transaction costs. For instance, if transacting on the open market is more expensive due to high search or enforcement costs, a firm might decide to produce the good or service in-house (vertical integration) to avoid these costs. In essence, Transaction Cost Theory provides a rationale for the existence of institutions and the boundaries of firms. It underscores the notion that firms exist because they can reduce the costs of transactions compared to market transactions under certain conditions.
This is where you need to link up and grasp a very critical idea. B2B salespeople are those that facilitate the reduction in transaction costs. In other words, B2B sales people serve as their client’s spokesperson in the organization and as the organization’s representative to all their clients. The job is therefore doubly challenging. It brings out the best in people. Those that appear transactional will soon perish in B2B sales. But then, those that build bridges and add value to both their organization and their clients are bound to shine.
Conclusion
In wrapping up our exploration into the multifaceted world of B2B consumer behavior, it's evident that the dynamics of business-to-business interactions present unique complexities, especially when juxtaposed against the more commonly discussed B2C realm. The intertwined roles within a Decision Making Unit, the emphasis on reducing transaction costs, and the indelible importance of relationship-building all underscore the intricate nature of B2B transactions.
The spotlight on B2B salespeople, who stand at this crossroads, balancing the needs of their organization with those of their clients, further amplifies the critical role they play. In a sense, they are the unsung heroes who bridge gaps, forge connections, and ultimately, make B2B commerce function seamlessly.
For learners and practitioners alike, understanding these nuances is very critical. As the lines between B2C and B2B continue to blur in the evolving digital age (Note: technology has vastly changed the playing field now), appreciating the inherent intricacies of B2B processes is essential for anyone looking to excel in the broader marketing domain. After all, the realm of business purchasing is not just about transactions; it's about relationships, strategy, and as I like to keep saying, architecting value.
