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 Business Market

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Table of contents

    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.

    A business market is a market in which organisations sell their goods and services to other organisations to use in their manufacturing process or service provision.

    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.

    For an overview of the business buying process, check out our B2B Marketing explanation.

    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.

    Imagine you are looking to buy a new laptop. As a consumer, you would go to Apple and probably purchase a single MacBook. However, a corporation looking to buy laptops for its new office will likely purchase tens or even hundreds.

    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.

    When searching for new products or suppliers, business buyers often have to go through formal approvals, longer waiting times, and extensive supplier searches.

    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.

    To learn more about the importance of relationships in business markets, explore our explanation of B2B Marketing.

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

    Business MarketsConsumer Markets
    Number of buyersFew Many
    Buying processFormal and complex Less formal
    Single purchase quantityLargeSmall
    RelationshipsHighly important, close, and long-lastingRelationships emphasised to a lesser degree
    Buying characteristicsMany influences on decision-makingMostly individual decision-making

    Table 1. Business vs Consumer Market Characteristics

    Supply Chain Management in Business Markets

    Supply chain management strategies are crucial in business markets as they significantly contribute to long-lasting customer relationships. As a result, supply chain strategies may vary considerably based on the commercial buyer. These buyers can be classified into three different types:

    1. Users - purchase goods and services to support their production processes.
    2. Original equipment manufacturers - purchase industrial goods to use in their own production.
    3. Distributors - purchase goods to sell to users and original equipment manufacturers.

    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.

    To learn more about the characteristics of appropriate customer segments, check out our explanation of Demographic Segmentation.

    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.

    Macro-segmentation is based on the characteristics (i.e. industry, size, location, and structure) and the buying situation of the organisation.

    Micro-segmentation is based on the characteristics of the decision-making style within each macro-segment.

    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.

    Macro-Segmentation FactorsMicro-Segmentation Factors
    Characteristics of the Buying OrganisationExamples: size, location, usage rate.Key Criteria in Purchase DecisionExamples: product quality, technical support, price.
    Product ApplicationExamples: value in use, end market served, NAICS category (industry).Value-Based Strategies/Organisational InnovativenessExamples: innovation-focused, highly competitive, fast-growing.
    Purchasing SituationExamples: type of buying situation, stage in the purchase decision process.Purchase StrategiesExamples: number of suppliers, the importance of the purchase, decision-making unit structure, and personal characteristics of decision-makers.

    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

    Business Market - Key takeaways

    • A business market is a market in which organisations sell their goods and services to other organisations to use in their manufacturing process or service provision.
    • Business markets consist of fewer buyers who purchase in larger quantities.
    • Business buying behaviour is different to that of consumers (end-users).
    • The business buying process is lengthy, complex, formal, and influenced by various factors.
    • Macro-segmentation is based on the characteristics (i.e. industry, size, location, and structure) and the buying situation of the organisation.
    • Micro-segmentation is based on the characteristics of the decision-making style within each macro-segment.

    References

    1. Hutt, Michael D., and Thomas W. Speh. Business marketing management: B2B. South-Western, Cengage Learning. 2021.
    2. Statista. In-depth Report: B2B e-Commerce 2021. 2021. https://www.statista.com/study/44442/in-depth-report-b2b-e-commerce/
    3. Fred Lambert. Tesla releases list of battery material suppliers, confirms long-term nickel deal with Vale. 2022. https://electrek.co/2022/05/06/tesla-list-battery-material-suppliers-long-term-nickel-deal-vale/
    Frequently Asked Questions about Business Market

    What are the 4 types of business markets?

    The four types of business markets include commercial enterprises, governmental bodies, institutions, and global markets. 

    What is the business market called?

    A business market is a market in which organisations sell their goods and services to other organisations to use in their manufacturing process or service provision. The business market is often referred to as business-to-business or B2B markets. 

    What are the characteristics of a business market?

    The main characteristics of business markets come from demand: derived demand, changing demand, and demand elasticity. Additionally, business markets can be characterised by having an international outlook and often marketing to end customers.

    What is the difference between business market and consumer market?

    There are several differences between business and consumer markets. Firstly, business markets usually have fewer buyers than consumer markets. However, these few buyers tend to buy larger quantities than individuals. The buying process is also more formal and complex in business markets, in addition to there being many influences on decision-making.

    What are the types of markets?

    There are many different types of markets. The two main market types are consumer and business markets. Within business markets, there are commercial, government, and institutional markets. Another type of market includes global markets, which provide huge opportunities for businesses. 

    Test your knowledge with multiple choice flashcards

    Business-to-business (B2B) marketing refers to marketing goods or services to ______ and organisational buyers.

    B2B decision-makers are always rational; therefore, B2B advertisements are boring and emotionless. 

    Are the B2B stereotypes still valid today?

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