The Business Market versus the Consumer Market
The business market consists of all the organizations that acquire goods and services used in the production
of other products or services that are sold, rented, or supplied to others. Any firm that supplies components for products is in the business-to-business marketplace. Some of the major industries making up the business market are aerospace; agriculture, forestry, and fisheries; chemical; computer; construction; defense; energy; mining; manufacturing; construction; transportation; communication; public utilities; banking, finance, and insurance; distribution; and services.
The business market consists of all the organizations that acquire goods and services used in the production
of other products or services that are sold, rented, or supplied to others. Any firm that supplies components for products is in the business-to-business marketplace. Some of the major industries making up the business market are aerospace; agriculture, forestry, and fisheries; chemical; computer; construction; defense; energy; mining; manufacturing; construction; transportation; communication; public utilities; banking, finance, and insurance; distribution; and services.
Business marketers contrast sharply with consumer markets in some ways, however. They have:
• Fewer, larger buyers. The business marketer normally deals with far fewer and much larger buyers than
the consumer marketer does, particularly in such industries as aircraft engines and defense weapons. The
fortunes of Goodyear tires, Cummins engines, Delphi control systems, and other automotive part suppliers
depend in large part on getting big contracts from just a handful of major automakers
Close supplier–customer relationships. Because of the smaller customer base and the importance and
power of the larger customers, suppliers are frequently expected to customize their offerings to individual
business customer needs. On an annual basis, Pittsburgh-based PPG Industries purchases more than
$7 billion in materials and services from thousands of suppliers. The company presented seven Excellent
Supplier Awards for superior performance in 2011, the criteria for which included product quality,
delivery,
• Fewer, larger buyers. The business marketer normally deals with far fewer and much larger buyers than
the consumer marketer does, particularly in such industries as aircraft engines and defense weapons. The
fortunes of Goodyear tires, Cummins engines, Delphi control systems, and other automotive part suppliers
depend in large part on getting big contracts from just a handful of major automakers
Close supplier–customer relationships. Because of the smaller customer base and the importance and
power of the larger customers, suppliers are frequently expected to customize their offerings to individual
business customer needs. On an annual basis, Pittsburgh-based PPG Industries purchases more than
$7 billion in materials and services from thousands of suppliers. The company presented seven Excellent
Supplier Awards for superior performance in 2011, the criteria for which included product quality,
delivery,
documentation, innovation, responsiveness, continuous improvement, and participation in
the Supplier Added Value Effort ($AVE) program.With its $AVE program, PPG challenges its suppliers
of maintenance, repair, and operating (MRO) goods and services to deliver on annual value-added and
cost-savings proposals equaling at least 5 percent of their total annual sales to PPG.9 Business buyers also
often select suppliers that also buy from them. A paper manufacturer might buy chemicals for its pulp
and paper making from a chemical company that in turn buys a considerable amount of paper from the
manufacturer.
• Professional purchasing. Business goods are often purchased by trained purchasing agents, who must follow their organizations’ purchasing policies, constraints, and requirements. Many business buying instruments for example, requests for quotations, proposals, and purchase contracts—are not typically found in consumer buying. Many professional buyers belong to the Institute for Supply Management (ISM), which seeks to improve the profession’s effectiveness and status. This means business marketers must provide greater technical data about their product and its competitive advantages.
Multiple buying influences. More people typically influence business buying decisions. Buying committees
that include technical experts and even senior management are common in the purchase of major goods.
Business marketers need to send well-trained sales representatives and teams to deal with these equally welltrained buyers.
• Multiple sales calls. A study by McGraw-Hill found that it took four to four-and-a-half calls to close an average industrial sale. For capital equipment sales for large projects, it may take many attempts to fund a project, and the sales cycle between quoting a job and delivering the product—can even take years.
• Derived demand. The demand for business goods is ultimately derived from the demand for consumer goods. For this reason, the business marketer must closely monitor the buying patterns of end users. Pittsburgh-based Consol Energy’s coal and natural gas business largely depends on orders from utilities and steel companies, which, in turn, depend on consumer demand for electricity and for steel-based products such as automobiles, machines, and appliances. Business buyers must also pay close attention to economic factors like the level of production, investment, and consumer spending and the interest rate. Business marketers can do little to stimulate total demand. They can only fight harder to increase or maintain their share of it
• Inelastic demand. The total demand for many business goods and services is inelastic that is, not much
affected by price changes. Shoe manufacturers are not going to buy much more leather if the price of leather
falls, nor less if the price rises unless they find satisfactory substitutes. Demand is especially inelastic in the
short run because producers cannot make quick changes in production methods. Demand is also inelastic for
business goods that represent a small percentage of the item’s total cost, such as shoelaces.
• Fluctuating demand. The demand for business goods and services tends to be more volatile than the demand for consumer goods and services. A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for plant and equipment. Demand for plant and equipment is more volatile because it reflects the normal year-to-year replacement demand as well as the need to satisfy increased or decreased consumer demand. Economists refer to this as the acceleration effect. Sometimes a rise of only 10 percent in consumer demand can cause as much as a 200 percent rise in business demand for products in the next period; a 10 percent fall in consumer demand may cause a complete collapse in business demand as replacement needs drop considerably.
• Geographically concentrated buyers. For years, more than half of U.S. business buyers have been concentrated in seven states: New York, California, Pennsylvania, Illinois, Ohio, New Jersey, and Michigan. The geographical concentration of producers helps to reduce selling costs. At the same time, business marketers need to monitor regional shifts of certain industries such as the automobile industry, which is no longer concentrated around Detroit.
Direct purchasing. Business buyers often buy directly from manufacturers rather than through intermediaries,
especially items that are technically complex or expensive such as servers or aircraft.
the Supplier Added Value Effort ($AVE) program.With its $AVE program, PPG challenges its suppliers
of maintenance, repair, and operating (MRO) goods and services to deliver on annual value-added and
cost-savings proposals equaling at least 5 percent of their total annual sales to PPG.9 Business buyers also
often select suppliers that also buy from them. A paper manufacturer might buy chemicals for its pulp
and paper making from a chemical company that in turn buys a considerable amount of paper from the
manufacturer.
• Professional purchasing. Business goods are often purchased by trained purchasing agents, who must follow their organizations’ purchasing policies, constraints, and requirements. Many business buying instruments for example, requests for quotations, proposals, and purchase contracts—are not typically found in consumer buying. Many professional buyers belong to the Institute for Supply Management (ISM), which seeks to improve the profession’s effectiveness and status. This means business marketers must provide greater technical data about their product and its competitive advantages.
Multiple buying influences. More people typically influence business buying decisions. Buying committees
that include technical experts and even senior management are common in the purchase of major goods.
Business marketers need to send well-trained sales representatives and teams to deal with these equally welltrained buyers.
• Multiple sales calls. A study by McGraw-Hill found that it took four to four-and-a-half calls to close an average industrial sale. For capital equipment sales for large projects, it may take many attempts to fund a project, and the sales cycle between quoting a job and delivering the product—can even take years.
• Derived demand. The demand for business goods is ultimately derived from the demand for consumer goods. For this reason, the business marketer must closely monitor the buying patterns of end users. Pittsburgh-based Consol Energy’s coal and natural gas business largely depends on orders from utilities and steel companies, which, in turn, depend on consumer demand for electricity and for steel-based products such as automobiles, machines, and appliances. Business buyers must also pay close attention to economic factors like the level of production, investment, and consumer spending and the interest rate. Business marketers can do little to stimulate total demand. They can only fight harder to increase or maintain their share of it
• Inelastic demand. The total demand for many business goods and services is inelastic that is, not much
affected by price changes. Shoe manufacturers are not going to buy much more leather if the price of leather
falls, nor less if the price rises unless they find satisfactory substitutes. Demand is especially inelastic in the
short run because producers cannot make quick changes in production methods. Demand is also inelastic for
business goods that represent a small percentage of the item’s total cost, such as shoelaces.
• Fluctuating demand. The demand for business goods and services tends to be more volatile than the demand for consumer goods and services. A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for plant and equipment. Demand for plant and equipment is more volatile because it reflects the normal year-to-year replacement demand as well as the need to satisfy increased or decreased consumer demand. Economists refer to this as the acceleration effect. Sometimes a rise of only 10 percent in consumer demand can cause as much as a 200 percent rise in business demand for products in the next period; a 10 percent fall in consumer demand may cause a complete collapse in business demand as replacement needs drop considerably.
• Geographically concentrated buyers. For years, more than half of U.S. business buyers have been concentrated in seven states: New York, California, Pennsylvania, Illinois, Ohio, New Jersey, and Michigan. The geographical concentration of producers helps to reduce selling costs. At the same time, business marketers need to monitor regional shifts of certain industries such as the automobile industry, which is no longer concentrated around Detroit.
Direct purchasing. Business buyers often buy directly from manufacturers rather than through intermediaries,
especially items that are technically complex or expensive such as servers or aircraft.
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