What is a Business Market?

Definition: A business market is the collection of systems, institutions, procedures, social relations, or infrastructure in which individuals buy and sell goods or services for monetary compensation. The market is responsible for the distribution of commodities and services. The definition of business is the production of things by businesses, followed by transporting those items to a market to transact with customers.

The market serves as the organizing principle for all of these different transactions that result in the exchange of value.

The following are some frequent terminology used in the business market:

Buyers and Sellers: These are the two parties in a transaction.

Commodity: This is the object of the transaction. It is the reason for the market, provided by the seller sought by the buyer.

Medium of Exchange: For every transaction, an exchange occurs. Money, gold, silver, etc., are media of exchange. It must be a legal tender.

Area/Channel: This is the location where buyers and sellers interact. Technology has made online platforms a fast-growing channel, including digital marketing.

Competition: This is the demand and supply forces at work.

Business Markets

The sale of goods and services to end users is facilitated by business markets. The term “consumer” can refer to either an end user or another company. Customers put the products, services, and solutions offered by businesses to various uses in the course of their commercial interactions. Others are used as components in another good or service’s manufacturing process, while others are consumed directly.

As a result, a business market can be subdivided further into consumer markets (also known as business-to-consumer or B2C markets) and business markets (Business-to-business; B2B).

Consumer Market

It is essential to have an understanding of the purchasing decisions made by consumers. This type of activity is known as consumer behavior. When assessing a product or service, customers consider both the price and the perceived value of the offering. They will pay for the offering if the value they consider it to have is greater than the cost of the goods.

Marketers should not overlook cultural considerations when developing and marketing goods and services to the general consumer. Other considerations include social and personal aspects.

For instance, the factors influencing consumer behavior in the United States are broken down in the table below. Business markets can use this information to determine how and when a product or service will be most suitable.

For instance, according to demographics, persons aged 25 to 54 years spend the greatest proportion of their time working and participating in activities related to their jobs. As a result, companies are more likely to market or sell to customers through this channel than others, such as when customers are sleeping, engaged in tasks around the house, etc.

Other factors such as wants, status, economic situation, beliefs, and attitudes play a crucial role.

A typical buying decision follows this sequence.

In the consumer sector, loyalty is an important factor. Having loyal consumers reduces the costs associated with obtaining new ones. For example, eBay spends less than ten dollars on advertising to attract each new customer. It is in the company’s best interest not to lose a customer but rather to get new ones; and to promote the product via word of mouth, with each customer acting as an independent salesperson for the company. This is consumer loyalty, which can only be achieved via the delivery of great products and services.

Business Market

This article has covered the business-to-consumer, or B2C, market, where the product is meant to be consumed by the end user. There is an additional market in which the purchased product serves as an input to a different process. This sector is known as business-to-business, or B2B for short, and is quite popular among corporations. At this location, businesses purchase manufactured components, raw materials, plant and equipment, supplies, and business services in preparation for production.

Agriculture (including the purchase of machinery and fertilizer, among other things), manufacturing, transportation, finance, distribution, communication, and other related businesses are the primary economic drivers in this market. The supply chain, which is a network of people and businesses involved in generating a product and delivering it to the consumer, becomes crucial in this context.

Peculiarities of Business-to-Business Markets

Fewer Buyers But High Order: Compared to consumer buyers, the B2-B markets have fewer buyers but with big tickets. Some of the world’s most valuable brands, such as Caterpillar, DuPont, HP, IBM, Siemens, and Intel, fall in this category. For example, Toyota produces Siena SUVs; it orders tons of steel, plastic, aluminum, glass, rubber, and fiber input to its production line. The suppliers of these raw materials have a B-2-B relationship with Toyota.
Close Supplier-Customer Relationship: Businesses have stronger ties/affinity with their customers as the numbers are relatively small but critical. The offering will need to be customized to suit specific market needs. Hence, customer requirement is essential.
Professional Purchasing: In the consumer market, purchasing is random, while in B2C, the transaction is more structured, involving purchasing policies, request for quotation (RFQ), request for proposal (RFP), request for information (RFI), contracts, and service level agreement (SLA). Suppliers must showcase why their product/quote should be selected, leveraging on quality, reliability, expertise, etc., as the competition could be tough.
Multiple Buying Influences: Unlike consumer products where the individual buyer makes the decision, in the business market, the consumer could have a team comprising purchasing manager, senior management, chief financial officer, bid evaluation committee, etc., involved. The seller needs to have a well-trained sales force to win the market.
Inelastic Demand: As the price of products or services drops, organizations do not increase purchases, unlike the consumer market. Even if the price increases, the quantity bought is almost the same. There is an inelastic relationship between price and quantity.
Derived Demand: Like the case above, the demand for the business market is linked with the demand for products. It is not a direct link but is dependent on production needs. If company production increases, demand for raw materials also increases.
System Buying: Companies can leverage system buying or supplying where the performing party scans the entire value chain of the other party and provide service accordingly. The benefit is mutual; the customer reduces procurement and administrative cost while the seller experience lowers operating costs and paperwork and more profit. A typical example is where a firm offers to provide a supply of equipment, training, operating maintenance, and disposal at the end of life. A kind of lifecycle thinking. Businesses call this a total solution. Businesses have the prime contractor who provides the turn-key solution involving several other component contractors. They only deal with the prime contractor.
Economies of Scale: Businesses can buy in larger quantities to benefit from economies of scale.

The Role of Branding in the Business Market

A brand is an extrinsic quality that, if properly harnessed, has the potential to change the course of patronage completely. Andersen Consulting, a business whose primary focus is information technology, was misunderstood by its industry contemporaries as being its illustrious parent company, Artur Andersen. This was because of the company’s successful use of brand marketing.

Crafting a new name, ‘Accenture,’ with massive investment in advertising, marketing, and communications campaign, the name Accenture brand increased 11% in equity, and the number of firms inquiring about its services rose by 350% resulting in 96% achievement in brand awareness.

These results let Accenture float a $1.2b initial public offer (IPO) within two years. Branding includes logo, company name, tagline, tone of voice, architecture, identity, etc. General Electric is another company that invested over $150m in 2003 in corporate advertising to integrate its diverse brands with a unified global message. This investment, coupled with customer-focused initiative across all arms of the business, GE brand was ranked among the “Top 100 global brands” in 2009, with a value of $48b. The story of GE shows that branding yields the result and commensurate customer-focused initiative.

The Theory of Value in the Business Market

Abraham Maslow’s hierarchy of needs explains how individuals prioritize value. The priority is different for the consumer and business markets. For the consumer market, the quality or specification is at the base of the pyramid, while for business markets, it is regulation and compliance.

The pyramids for both markets are shown below.

Summary

The purpose of marketing is to ascertain and fulfill the requirements of customers in a manner that is superior to that of competitors. Every company should understand the behavior of its customers, whether they are consumers or businesses, and use the knowledge to gain their customers’ loyalty and increase their market share. There should be no attempt to dilute the brand.