Organisational Buying Process

1 January 2017

Loginova Olga Organizational buying behavior in Business tourism market Case Holiday Club Resorts Oy 50 pages, 1 appendix Saimaa University of Applied Sciences, Lappeenranta Business Administration, Degree Programme in International Business Bachelor’s Thesis 2011 Instructor: Ville Lehto The purpose of this Bachelor’s thesis is to provide understanding of the organizational buying behavior in Russian companies in context of business tourism market. This includes describing the general model of the process, identifying people, responsible for decision making and analyzing factors, that influence their decisions.

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Another objective is to give recommendations to the case company about how to reach right people in Russian organizations with their message. In the theoretical part of the study the main issues are related to the general principles of organizational buying behavior and main concepts of the topic. When conducting this research both Russian and English sources are used. The most related topics of the literature are «Organizational Buying behavior», «Business-to-business marketing» and «Industrial marketing», presented by Philip Kotler, Frederick E.

Webster Jr. and Yoram Wind and Kovalev A. I Empirical part is based on a case study and describes the organizational buying process on example of 3 Russian companies, which were chosen according to the criteria of location, size and industry. The data for case study is gathered by conducting an interview with members of buying centers within these companies. Implementation of theory to the practice faced some difficulties such as misunderstanding of the topic and unwillingness of companies to provide full information.

Business markets mostly concerns producer and reseller markets (Vitale et al, 2010, p. 131) Generally, business markets consist of fewer, but larger customers than consumer markets and are involved in purchases of significantly large value having complex economic, technical and financial considerations. Business markets also differ from consumer markets in such aspects as: sales volumes, marketing structure and demand, nature of products and most relevant for this thesis – types of decision and decision process (Ibid).

Organization buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers (Webster & Wind, 1996). The nature of the buyer decision process in a business-tobusiness environment differs from the consumer ones, that is why understanding of organizational buying behavior is essential– it helps to develop the right approach to corporate clients and establish strong bonds between «sellers» and «buyers». 4 1. 1 Background of the research

Organizational buying behavior is an extensive concept as it depends on many factors. However, understanding the organizational buying process is a key prerequisite for the development of business marketing strategy. With knowledge of the customer firm’s decision making process and buying behavior, market managers are in a far better position to develop marketing strategies, build win-win relationship with customers and influence purchasing decisions successfully. The case company – Holiday Club Resorts Oy is one of Europe’s largest vacation enterprises.

The company’s specialization is holiday centers, spa hotels and time share apartments. Holiday Club operates both on consumer and business markets as their customers are different companies and organizations as well as representatives of public sector. This research is done to support the new project of the company – Saimaa Gardens – large tourist and leisure time resort in Finland that will be opened in Autumn 2011. New holiday center will provide large facilities for conferences, business meetings and corporate parties (Holiday Club Oy 2010).

While Finland and Russia are neighboring countries with well-developed connections in tourism area, Holiday Club’s officials are willing to attract Russian corporate clients. This thesis is a part of a bigger project, that consists of two studies. The first one is devoted to Russian outbound tourism and gives understanding of «What organizational clients want? », the second one answers the question «How organizations buy? ». The whole project is carried out by two students.

Alena Tsyvinskaja is responsible for the first part, called «Russian outbound MICE tourism – demand and concept», while this study is accomplished by Olga Loginova. The purpose of this study is to find out reasons and factors which affect the buying decisions and choice of leisure service provider. The research is aimed to analyze buying behavior process in Russian organizations and provide 5 possibilities for Saimaa Gardens to fulfill corporate requirements and reach their target market successfully. 1. 2 Research problem and objectives

The main objective of this thesis is to give understanding of organizational buying process in Russian companies and provide recommendations to Saimaa Garden, how to reach right people with their message. For this purpose few Russian companies will be targeted as potential customers. Each organization has buying center – a group of people, who are responsible for buying decisions. (Webster & Wind,1996). The research will be based on direct communication with these people in order to understand their roles and identify factors that affect their decisions.

Main research problem consists of 3 parts: -find members of the buying center -analyze their roles and decision making process -describe an organizational buying process in general In the final outcome, Holiday Club will benefit from thesis in several ways. Firstly, this project will give an understanding of organizational buying behavior in Russian companies. Secondly it will provide a framework that will help to affect decision making process in a most efficient way. And finally, as research involves communication with companies, it will give a good opportunity to find first corporate customers.

In general, possession of such knowledge will facilitate entering a new market for Holiday Club. 1. 3 Theoretical framework The theoretical framework of this thesis includes theories about nature of organizational buying in general and decision making process particularly. Theories, concerning organizational buying and decision making process gives an overall understanding of how organizational purchasing is executed, how 6 decisions are made and which factors influence them. Organizational buyers decision process model gives a clear guidelines how decision is made step by step.

And Buying center’s analyses provide ideas for the practical part about how to recognize people, responsible for decision taking and to define roles and motives of those people. When conducting this research both Russian and English sources were used. The most related topics of the literature are «Organizational Buying behavior », «Business-to-business marketing» and «Industrial marketing». In theoretical part of the study information from Philip Kotler’s «Marketing management», «A general model for understanding organizational buying behavior», written by Frederick E. Webster Jr. nd Yoram Wind and book of Russian author Kovalev A. I. «Industrial Marketing» was used. The full list of sources provided at the end of the study. 1. 4 Research context 1. 4. 1 Business tourism As this study is devoted to business tourism, it is appropriate to give a small overview of this topic. In recent times more and more organizations have gone global, business connections have become international and economic activities are spread all over the world. As it’s commonly known, successful business is impossible without contacts, technologies and information exchanging, gaining new partners and customers.

Due to the rapid growth of business contacts with foreign partners, business tourism is seen as an important niche market, and is one of the fastest growing sectors of the tourism industry. This segment of the tourism industry has also been referred to as Meetings, Incentives, Conventions and Exhibitions (MICE). The concept of MICE stands for corporate outbound tourism, aiming to bring people together for a particular entertaining or business purpose. (Business Travel Worldwide 2011. ) 7 In general, MICE encompasses the following activities: ? ? ? ? ? Meetings and conferences Exhibitions and trade fares Incentive travel Corporate events Outdoor events Individual corporate travel (Ibid) According to the statistics, provided by RBTA (Russian Business Travel Association,2010), in share correlation the structure of MICE travelling has the following form: 71% for individual travelling, 16% for participation in conferences and congresses, 11% for visiting exhibitions and approximately 2-3% for incentive travel. Business travelling may peruse different aims and according to «Business Travel Worldwide» (2011) some of them are: ? ? ? ? ?

Establishing partner relations, negotiating the contracts, concluding deals Visiting and taking part in the exhibitions Participating in congresses, conferences and seminars Trainings, professional development trips Incentive trips (trips, usually granted as a reward for employee’s outstanding performance) According to Business Tourism Partnership (2010) principal characteristics of business tourism include the following: • it is at the high quality, high yield end of the tourism spectrum • business tourism is year-round, peaking in Spring and Autumn but still with high levels of activity in the Summer and Winter months • it is resilient, being much less affected by economic downturns or by disasters than leisure tourism and other sectors of the national economy 8 • business tourism stimulates future inward investment as business people see the attractions of a destination while travelling on business or to attend a conference, exhibition or incentive, and then return to establish business operations there. According to Swarbrooke and Horner (2001), the participants of business tourism market can be divided into 3 groups: Consumers: Individuals Companies Associations Intermediaries: Travel

Agencies Exhibition companies Event management companies and others Suppliers: Transport operators Accommodation operators Incentive travel venues Specialist services Figure 1 Participants of business tourism market. The figure represents the simplified scheme of business tourism market. In the reality the process might look different, including several intermediaries or ,vice versa, the link of intermediaries might be excluded as consumers are willing to arrange their business trips on their own. 1. 4. 2 MICE in Russia Although the thesis topic doesn’t cover business tourism market analysis, several words should be said about MICE market in Russia. Russia is a country where business tourism in general is actively developing now. However, the concept of MICE is still rather new for Russian companies.

The reasons for this might be the insufficient development of corporate culture in general and small amount of international business contacts. Anyway, Russian corporate travel has not the same level as «ancestors» of business tourism – USA and European countries. 9 In general, MICE tourism in Russia can be characterized by following features (RBTA 2010): ? ? ? ? Outbound tourism is prevailing (most Russian companies prefer travel abroad rather than within the country) Problem such as lack of qualified agencies still exist. The demand for MICE services is fluctuating and not stable Incentive tourism is significantly less popular comparing with other parts of MICE 1. 4. 3 Case company profile Holiday Club Resorts Oy is one of Europe’s largest vacation ownership enterprises.

It was established in 1986 and in the beginning it focused primarily on the vacation ownership business, purchasing hotels on the territory of Finland (Holiday Club Oy 2010) The company has been buying hotels and resorts as well as building their own holiday homes and spa centers. The growth of Holiday Club vacation ownership system continued and by 2007 Holiday Club expanded to Sweden (Ibib. ) By 2009, after several successful acquisitions Holiday Club becomes the leading vacation ownership enterprise in Europe. At 2010 a building of new resort – Saimaa Gardens was started (Ibid. ) In overall Holiday Club Resorts Oy owns holiday homes in 26 destinations in Finland, a holiday destination in Calahonda, Spain, as well as Holiday Club Are and Ekerum Golf and Resorts (Oland) holiday destinations in Sweden.

Holiday Club’s 6 spa hotels in Finland have belonged to the S-Group’s subsidiary, Sokotel, since April 2006, and they operate under the name Holiday Club Spa Hotels. The chain comprises Holiday Club Caribia in Turku, Katinkulta in Vuokatti, Tropiikki in Kuusamo, Eden in Oulu, Saariselka and Tampere Spa (Holiday Club official web-site 2011. ) 10 1. 4. 4 Saimaa Gardens In this study the analysis is carried out from the standpoint of Saimaa gardens spa resort, as it is the nearest hotel of Holiday Club chain to Russia. Saimaa Gardens is a wellness resort, comprising spa hotel, holiday houses, various top-class apartments, golf centre, a great variety of shops, restaurants and galleries.

It’s located at the shore of Lake Saimaa, nearby Imatra and occupies approximately 300 hectares of total area. Saimaa Gardens is also the nearest large tourist attraction to St. Petersburg in Finland. Companies’ clients belong both to consumer and business markets. Holiday club’s resorts provide services for public consumers as well as for corporate clients because they have good amenities for family vacation and honey moons along with facilities for conferences, corporate parties and business travelling. Holiday Club sees a great potential particularly in Russian tourists and organizations, as it will be situated near Saint-Petersburg, a city, where travelling to Finland is popular and easy. 1. 5 Limitations

This thesis does not handle deep analyses of business tourism market and just gives a small overview of this topic to provide basic understanding of this tourism sphere. Consumer needs and preferences as well as product specifications are not covered by the study as this is a topic of a parallel research, prepared by another student. The theoretical part of this thesis is limited to theories about composition of the buying center and it’s characteristics, decision making process and factors, influencing it. The theories also describe the difference between organizational and consumer buying. These theories were chosen, because they are closely related to the research problem and they support the empirical part of the thesis by providing guidelines how the organizational buying process looks in real life.

This thesis does not cover theories about sales techniques and relations between buyers and sellers, because one of the main objectives of bachelors’ thesis is to make the topic narrow but analyze it deeper. 11 2 RESEARCH METHODOLOGY AND IMPLEMENTATION The research was done according to a plan that consisted of 3 stages. The first stage involved analyzing of theoretical background and gave a comprehensive view on organizational buying behavior process, describing composition of buying center, identifying factors, influencing decision making process and exploring all stages of this process. After that the theory was ready to be implemented in life. On the second stage the search of companies that may be interviewees for the research and potential clients for Holiday Club was done.

The search criteria was explained in empirical part. When organizations were identified, their portfolios should be created to obtain knowledge about potential customers. The final and most important stage of research was identifying the buying centers in chosen organizations and conducting an interview with it’s members. This was done to identify roles and motives of members, analyze the decision making process and finally develop an effective framework according to gained information. Figure 2 represents the plan research. Theory analyses Buying behavior -main concepts -influencing factors -buying center -decision making process Companies’ portfolio gathering What size? What industry?

What location? Interview Figure 2. Research plan. 12 As it was stated above, the main research problems were: finding members of the buying center, analyzing their roles and decision making process and describing an organizational buying process in general. In order to understand, what the most effective methods for solving these problems are, a book of Tony Proctor (2005 p. 63) «Essentials of Marketing research» was read. After examination of possible methodology, it was concluded that the most appropriate methods to solve thesis problems were qualitative research, case study and analyzing of primary and secondary data. 2. 1 Quantitative research

Quantitative research produces numbers and figures, while qualitative research provides data on why people buy, what motivates them to buy, or their impressions of products, services or advertisements. It also produces information on behavior, attitudes and intentions. Simply put, qualitative research goes inside of people’s thinking, value system as well as decision making process, what fitted perfectly objectives of this study. This type of research involves different approaches such as focus groups, interviews, feedback analysis, surveys and others. It relies on primary data as well as on secondary. In this study the object of qualitative research was an organizational buying behavior (Proctor, 2005 p. 71. ) The research was carried out in a context of business tourism, which is very specific area of business market.

That is why organization buying process in business tourism market is based on general model of organizational buying. So first of all, problem solutions required general knowledge about such concepts as buying center, organizational buying and others. That kind of information was necessary for good orientation in actual topic and for further planning of the research. To gain this information secondary data analysis was used. 13 2. 2 Secondary data analysis Secondary data analysis is the method of using preexisting data in a different way or to answer a different research question than that intended by those who collected the data (Schutt 1999).

The sources of secondary data may be different: books, magazines, newspapers, internet, earlier conducted surveys, etc. The organizational buying behavior has been studied by many authors such as Philip Kotler, Frederick E. Webster Jr. , Yoram Wind, Ajay Kumar Kohli and others. Their books and articles were used as sources of theoretical information. Secondary analysis of different statistics was also conducted to help to choose the right kind of companies for the case study, which is described further. 2. 3 Primary data analysis and case study The study was accomplished for the particular organization, one of the needs of which was understanding of organizational buying process in Russian companies.

Solving this problem required a primary data analyses. Primary data is data observed or collected directly from first-hand experience. There are many methods of collecting primary data: ? ? ? ? Questionnaire Interview Observation Case study, etc. (Proctor 2005, p74. ) This research is based on a case study. The purpose of case study is collecting information about organizational buying in Russian companies from the «first hands». The most appropriate method to collect it was interview. For that purpose 3 Russian companies were chosen. The amount of 3 went from the principle, that analyses of 1 company is definitely not enough, while 5 or more requires much more time.

Moreover 3 companies represent 3 kinds of organizations: small, medium and large. In order to choose 3 respondents, it 14 was needed to find out what kind of companies normally buys the MICE trips and how they can be specified according to the industry, size, location, and etc. As Saimaa Gardens will be the nearest Finnish leisure attraction to the SaintPetersburg, it was quite obvious that case companies would be located in SaintPetersburg, Leningrad region and Vyborg. Another criteria, size of case companies, was based on assumption, that organizational buying process in small organizations differs from one in big corporation’s due to the amount of staff, availability of funds and corporate culture in general.

The last aspect of the choice was the industry. There was no difference for Holiday Club Oy which kind of companies would use their services. So it was necessary to investigate what kind of companies buy MICE trips more often. According to the statistics for the year 2009-2010, provided by VIP-tour agency (contact person- Stanislav Lisovsky, sales manager), companies, represented 5 industries, used MICE services more frequently: ? ? ? ? ? Metal industry IT industry Oil and gas industry Estate industry Pharmaceutical and medicine industry According to this information a list of potential companies was created and proposals to take part in the interview were sent.

Some companies didn’t respond at all, some provided unclear and poor information. However, it was possible to choose 3 companies, whose response was full and actual. That is how 3 case companies were chosen. Using the knowledge and information gathered for the theory, the research questionnaire was developed so that questions were straight, easy and aimed to minimize the uncertainties. Finally, despite of all difficulties, 3 interviews were carried out. Based on these interviews, it was possible to gain valuable and unique information, concerning compositions of buying centers and organizational buying processes in context of business tourism. 15 3 THE NATURE OF ORGANIZATIONAL BUYING 3. 1 Organizational vs. onsumer buying According to Webster and Wind (1995), organizational buying is the decisionmaking process by which organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. It takes place in the context of a formal organization influenced by a budget, cost and profit considerations. Consumer behavior has not much relevance for the industrial marketer. This is due to several important differences between the two purchase processes. Comparing complicity of buying processes, buying decisions are made relatively easily and quickly by individual customers, organizational buying involves thorough and deep analysis. This is because organizational buying usually involves many people in decision process with complex interactions among people and among individual and organizational goals. Furthermore, rganizational buyer’s decisions require more information, undergo longer evaluation and more uncertainty about product performance. Companies usually adopt certain methods for buying products and employ skilled professionals for purchasing departments. (Kotler 1997, p. 205. ) According to Sandhusen (2000 p. 248), when compared to demand patterns in consumer market, demand patterns in industrial markets tend to be more concentrated, more direct, more dependent on other markets and purchases of related products and reciprocal agreements. Demand for goods in consumer markets is heavily affected by the changes in the prices so that it can be concluded that consumer market demand is price elastic.

The organizational demand for products or services can be elastic only on early negotiation stage when many suppliers are actively competing on price for contracts. Once contracts are negotiated, however, demand becomes inelastic and is not influenced by short-run price changes. Frequently, demand for some b2b products is related to demand for other b2b products, what is called joint demand. For example, if Food &Drink supplier for a hotel restaurant has delivery problems or poor service, it will probably cut back on its purchases of 16 foodstuffs. It’s also important to mention that demand for industrial products derives largely from demand for consumer goods. It’s quite typical or tourism market as purchasing travel package for the company’s purposes, organizational buyers sometimes follows consumer’s opinions and reputation on the consumer market. According to Kovalev (2003 p. 203), despite of ordinary consumers, industrial buyers are more likely to purchase products directly from suppliers or manufacturers and in larger quantities, than consumers. Buying decisions of a consumer market is simple where it purely depends on the wish of consumer. But business buyers face complicated buying process where they have to adhere to purchasing standards, satisfy complex requirements and involve approval of many people. Consumer buying is generally short term focused where they conclude the relationship with seller upon the transaction is completed.

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