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Business Market

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.

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 Factors
Micro-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

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

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. 

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.

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.

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. 

Final Business Market Quiz

Question

__________ studies how organisations buy goods and services to include in their production process or to supply them to other consumers.

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Answer

Business buying behaviour

Show question

Question

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

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Answer

industrial

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Question

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

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Answer

False

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Question

Are the B2B stereotypes still valid today?

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Answer

No

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Question

Outline an example of a commercial buyer and the type of product it is likely to buy.

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Answer

For example, a manufacturing firm that requires industrial goods (e.g. parts or tools) to use in its manufacturing process, which it then turns into final products.

Show question

Question

A local council might buy industrial goods to deliver certain ______ or facilitate ________.


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Answer

A local council might buy industrial goods to deliver certain services or facilitate operations.

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Question

Demand in business markets tends to be _____ in the short run.


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Answer

inelastic

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Question

The business buying process is more formal and more complex.


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Answer

True

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Question

What is derived demand?

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Answer

Derived demand is the idea that demand in business markets ultimately comes from the demand for consumer products.

Show question

Question

What are the three main buying situations?

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Answer

1. Straight rebuy

2. Modified rebuy

3. New task buy

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Question

'The buyer acts out of routine and looks for no or very little information' is usually the case for a:


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Answer

Straight rebuy

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Question

What is the first step of the buying process?

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Answer

Problem recognition or opportunity identification.

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Question

During the 'description of needs and product specifications' phase, the buyer chooses the supplier, date, and terms of the order.

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Answer

False

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Question

What is a key account manager?

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Answer

Key account managers work with the company's most important (largest) customers to build long-term relationships.

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Question

________ is the act of purchasing products electronically (most often online).

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Answer

E-procurement

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Question

________, in the B2B context, is about aligning your digital marketing efforts with the buyer's decision-making and buying process.


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Answer

Inbound marketing

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What is the main goal of inbound marketing?

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Answer

Engagement

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What should the seller focus on to retain profitable customers?

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Answer

  • Providing superior value,

  • Offering a set of core and add-on benefits that suit the client's needs,

  • Trying to reduce the client's operational costs with an outstanding offering.

Show question

Question

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

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Answer

manufacturing process/production process

Show question

Question

Business marketers sell their products to:

  • ___________, 
  • Governmental bodies, 
  • ___________.

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Answer

  1. Commercial enterprises 

  2. Governmental bodies 

  3. Institutions 

Show question

Question

Business buying behaviour shares the same characteristics as consumer buying behaviour.

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Answer

False

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Question

Business buyers go through a lengthy evaluation process to determine what they need.

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Answer

True

Show question

Question

Business markets usually have _______ buyers than consumer markets.

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Answer

fewer

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Business buyers tend to buy _____ quantities than individuals.

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Answer

larger

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The business buying process involves significantly more _______ on decision-making.

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Answer

influences

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Business markets are more complex and professional than consumer buying environments.

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Answer

True

Show question

Question

In business markets, the buyer making a purchase is often just the beginning of a customer relationship.

Show answer

Answer

True

Show question

Question

What are the three categories of commercial buyers?

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Answer

Users, original equipment manufacturers, and distributors.

Show question

Question

______ purchase goods and services to support their production processes.

Show answer

Answer

Users

Show question

Question

________ purchase industrial goods to use in their own production.

Show answer

Answer

Original equipment manufacturers

Show question

Question

Business buyers try to produce goods and services that satisfy end user wants and needs. This is known as

Show answer

Answer

derived demand

Show question

Question

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

Show answer

Answer

Macro-segmentation

Show question

Question

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

Show answer

Answer

macro-segment

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Question

What are the two stages of segmentation in business markets?

Show answer

Answer

  1. Identify valuable macro-segments, 

  2. Divide macro-segments into micro-segments.

Show question

Question

E-procurement means purchasing supplies, work, or services via ________. 

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Answer

the Internet

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Question

E-procurement employs software and networking systems to ________, track inventory, handle invoices, and trigger payments. 

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Answer

source suppliers

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Question

Automating the procurement process is not a main function of e-procurement.


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Answer

True

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Question

There are _______ main stages in Procure-To-Pay Process. 

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Answer

Three

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Question

Which stage involves buyers and sellers exchanging information before e-procurement?

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Answer

E-informing

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Question

Which stage of e-procurement involves evaluating and shorting potential suppliers?

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Answer

E-sourcing

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Question

___________ means placing bids to acquire a contract. 

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Answer

Tendering / E-tendering

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Question

In e-procurement, after a supplier is chosen, __________ will be sent to request goods or services from them.

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Answer

an electronic purchase order (PO)

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Question

Vendor onboarding is the process where the company sends questionnaires to gather data from multiple vendors. 

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Answer

True

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Question

EDI's main task is managing inventory and supply chain.

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Answer

True

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Question

__________ requires lot of phone calls and in-person negotiations.

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Answer

Traditional Procurement

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Question

What is not a benefit of e-procurement?

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Answer

Improved productivity

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Question

An e-procurement system can ______ orders, bidding, invoicing, and payment.

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Answer

automate

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Question

Older vendors may have trouble collaborating with companies using e-procurement tools. 

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Answer

True

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Question

Even when e-procurement is employed, companies still need to handle a lot of paperwork.

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Answer

True

Show question

Question

Field marketing puts marketers in the field to ____________. 


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Answer

Introduce the company's product and persuade people to make a buying decision

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