Business Market

Imagine you are working from home and setting up your home office. You notice that the chair you currently have is uncomfortable, so you go to the shop and look for a new office chair. You buy the chair that seems most comfortable and looks the nicest for a price you deem appropriate. Now imagine a large corporation setting up its new office in London. It would need hundreds if not thousands of new office chairs. As the purchasing manager, you select a chair from a supplier you have worked with previously. However, the finance director says the chairs you have chosen are too expensive, and the people operations director says the chairs look too uncomfortable and would make employees lose motivation to come to the office. Both of the directors impact your purchase. In business markets, there are numerous influences on the buying process. Read along to find out more.

Business Market Definition

The global business-to-business (B2B) e-commerce market was valued at around USD 14 trillion in 2020.² However, this figure only represents the e-commerce side of business markets. In reality, the business market is enormous and provides numerous opportunities for organisations.

Business marketers sell products to (see Figure 1 below):

1. Commercial enterprises - corporations, small businesses, etc.

2. Governmental bodies - local councils, Department for Education, etc.

3. Institutions - hospitals, universities, etc.

There are two essential elements of business markets to keep in mind when thinking of marketing in the B2B context. Firstly, business buying behaviour differs from that of consumers (end-users). When we, as consumers, buy a product, we do so to use it. For example, if we buy a bowl, we will use it to eat soup, or if we buy a laptop, we use it to take notes, answer emails, and watch YouTube. These actions can be termed personal consumption.

On the other hand, businesses buy goods to integrate into their production of a good or provision of a service. For example, a car manufacturer will buy steel and tyres to make a car and buy laptops to help their sales agents provide a service.

Another essential factor of business markets is the business buying process. Business buyers go through a lengthy evaluation process to determine what they need. Therefore, the business buying process differs from the consumer buying process. We will discuss the characteristics of the business buying process in further detail in the following sections.

Business Market vs Consumer Market

As you may already know, business and consumer markets differ in various aspects. These contrasts are especially prevalent in the buying process and characteristics. Let's now examine them in more detail.

Firstly, business markets usually have fewer buyers than consumer markets. However, these few buyers tend to buy larger quantities than individuals.

As a result, business markets are also more complex and professional than consumer buying environments. The business buying process involves significantly more influences on decision-making. As organisations purchase large quantities of goods and services, they also spend significantly more than individual customers. Therefore, many decision-makers like managers, executives, and technical experts may be involved in the process.

Similarly, due to the complex nature of the buying process, business markets are also more formal.

Due to the characteristics of business markets, business marketers aim to create strong, long-term relationships with customers. In business markets, the buyer making a purchase is often just the beginning of a customer relationship. As a result, organisations use various marketing tools to ensure buyers remain satisfied.

Table 1 below summarises the primary differences between business and consumer markets.

Table 1. Business vs Consumer Market Characteristics

Business Market Characteristics

The characteristics of business markets differ from those of consumer markets. Let's take a closer look at what these characteristics are:

• Derived demand: business buyers try to produce goods and services that satisfy end user wants and needs. These end users are often customers who use the product for personal consumption. Therefore, derived demand is the idea that demand in business markets ultimately comes from the demand for consumer products.

• Demand trends: as demand is derived in business markets, business marketers must observe changing consumer behaviour in the B2C environment. This also includes monitoring demand patterns, buying behaviour, and preferences. For example, if gas prices are increasing universally and consumers worldwide are switching to electric radiators, manufacturers and distributors might stock up on electric radiator inventory.

• Demand elasticity: demand in business markets tends to be inelastic in the short run. However, due to derived demand, elasticity ultimately depends on the price sensitivity of end customers.

• International outlook: the revenues of many manufacturing businesses depend on international demand. Global markets also provide B2B businesses with tremendous opportunities.

• Marketing to end customers: B2B organisations may still end up marketing to end customers in the B2C environment. For example, a wood manufacturer that sells wood to furniture designers and distributors might run a communications campaign advertising wooden furniture in consumer markets.

  Check out our Integrated Marketing Communications and Advertising explanations to learn more about communications campaigns.

Business Market Segmentation

The goals of segmentation in business markets are similar to that of consumer markets. B2B companies also segment their customers into homogeneous groups to find the most profitable buyers to target. A 'good' customer segment should be:

• Substantial,

• Measurable,

• Responsive,

• Accessible.

Thus, business marketers look for segments that are large and heterogeneous (between segments) enough. Segments should have these characteristics for the organisation to justify spending on advertising, product development, and individual strategy development.

However, the segmentation process in business markets is slightly different from consumer markets. Instead of creating individual customer profiles based on demographics or behaviour, B2B marketers profile organisations (e.g. industry or size) and organisational buyers (e.g. decision-making style). Thus, they use two levels of segmentation: micro and macro segmentation. Business marketers start with the macro perspective and then look into the organisation further through the micro point of view.

Therefore, we can outline the two stages of segmentation in business markets:

1. Identified valuable macro-segments,

2. Divide macro-segments into micro-segments.

The variables or factors marketers may use for each segmentation type are outlined in the table below.

Table 1. Macro and Micro-Segmentation Variables. Source: Hutt and Speh (2021).¹

Business Market Examples

Let's now look at a business market example through a well-known electric vehicle (EV) manufacturer, Tesla.

One of the main components of a Tesla car is the battery. Generally, in the industry, the supply chain is as follows:

1. Miners source raw materials,

2. Battery cell manufacturers create the battery,

3. The car manufacturer uses the battery to assemble the car.

However, Tesla has taken a new approach to this process. The company began sourcing raw materials like lithium, cobalt, and nickel directly from miners. Tesla sources these materials from a dozen different miners and refiners internationally. As a result, Tesla builds long-term relationships with miners to ensure the constant flow of materials in its production process and avoid potential battery shortages.³