Purchasing: Risk Reduction Strategies


Individuals are motivated by a strong desire to reduce the level of risk in purchase decisions. The perceived risk concept includes two components: 1) uncertainty about the outcome of a decision, and 2) the magnitude of consequences associated with making the wrong choice. Research highlights the importance of perceived risk and the purchase type in shaping the structure of the decision-making unit. Individual decision-making is likely to occur in organizational buying for straight rebuys and for modified rebuy situations when the perceived risk is low. In these situations, the purchasing agent may initiate action. Modified rebuys of higher risk and new tasks seem to spawn a group structure.

In confronting “risky” purchase decisions, how do organizational buyers behave? As the risk associated with an organizational purchase decision increases:

  • The buying center will become larger and will comprise members with high levels of organizational status and authority.
  • The information search will be active and a wide variety of information sources will be considered to guide and support an important purchase decision. As the decision process unfolds, personal information sources (for example, discussions with managers at other organizations that have made similar purchasees) become more important.
  • Buying center participants will be motivated to invest greater effort and to deliberate more carefully throughout the purchase process.
  • Sellers who have a proven track record with the firm will be favored. The choice of a familiar supplier helps reduce the perceived risk associated with a purchase.

Rather than price, product quality and after-sale service are typically most important to organizational buyers when they confront “risky” decisions. When introducing new products, entering new markets, or approaching new customers, the marketing strategist should evaluate the impact of alternative strategies on perceived risk.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Yoking Technology with Market Opportunities


Developing new products that cost less or perform better has always been crucial for any technically based company. In our increasingly turbulent business environment, developing the know-how to keep pace with or even ahead of technological developments and competitors’ moves is more important than ever for several reasons. First, exploding technology is spawning new products and processes at an accelerating rate that threatens almost every product and process in place. Second, competition continues to intensify from abroad and a plethora of new startups and many substitute technologies that encroach on established products and processes. Third, product innovations that result in superior performance or cost advantages are the best means of protecting or building market position without sacrificing profit margins. This is especially true in today’s world when many industrial markets are flat or slow growth and excess capacity is commonplace.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight