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Business Marketing

NATURE AND CHARACTERISTICS 1. Manufacturers—Manufacturers produce products to
OF THE BUSINESS MARKET be sold at a profit. They buy products and services
The first obvious difference is that there are significantly that are directly used in the products they produce
fewer customers in the business market than in the con- or are consumed in the general operations of the
sumer market. These customers also buy in significantly firm.
larger quantities (e.g., tires by the thousands) and the 2. Trade—Trade includes organizations that purchase
prices of some of their single item purchases far exceed finished goods and resell them at a profit or use
those of an individual consumer (e.g., millions of dollars products and services for the general operations of
for a new bridge). Finally, business customers in the same the firm. Wholesalers and retailers are included in
industry often tend to be located in a concentrated geo- this type of business customer.
graphic region. For example, the Silicon Valley in Califor-
3. Government—Federal, state, and local governments
nia has a high concentration of firms in the high-tech represent the largest single business or organizational
industry.
market. Collectively they spend trillions of dollars
The nature of the demand for products differs from for services and products needed for governmental
consumer demand because it is often derived from con- operations and to provide citizens with the products
sumer demand. A derived demand means that the and services needed for their general welfare.
demand for original equipment leather seat covers
installed in new cars depends on the demand for the mod- 4. Institutions—Institutions are those organizations
els of automobiles that use those seat covers. They have a whose primary activities and goals are charitable,
educational, community, or nonbusiness in nature.
more inelastic demand curve because the demand for the
They include both public (such as libraries) and pri-
seat covers depends on the consumer demand for the
vate (some hospitals) institutions, which may be
automobiles, not on the price of the seat covers. Another nonprofit (charitable organizations) or profit (some
factor influenced by derived demand is that it may cause
nursing homes) oriented.
large fluctuations in the demand for the seat covers. If the
demand for the automobiles drops, it may have a small
effect on the sales figures of the auto manufacturer, but if TYPES OF BUYING SITUATIONS
this particular contract represents a large share of the seat There are three major types of buying situations, each
cover vendor’s production, that vendor could suffer a sig- requiring a different buying approach. The straight rebuys
nificant loss of revenue. are routine purchases of standard products from an exist-
Finally, the products and the buying process may dif- ing vendor without modifying specifications or without
fer from the consumer market to varying degrees. While renegotiating new terms. Little effort, beyond a short per-
some products purchased in the business market are the formance review, is necessary.
same or very similar to the products bought by consumers On the other hand, modified rebuys occur when the
(e.g., office supplies), the buying process may be much product is not purchased on a regular basis, when there is
more involved because of negotiated contract and unique a change in the specification of the product, when there is
or customized needs. Product specifications, price, quan- dissatisfaction with the current vendor, or if a new vendor
tity, service requirements, length of the contract, and offers better terms. Modified rebuys may involve new
delivery schedules are just a few of the terms that may product specifications, additional evaluation of vendors,
need to be negotiated. On the other hand, many of the or renegotiation of contracts.
products are very complex and often custom-made to The third buying situation is a new task buy. This sit-
agreed-upon specifications. The complexity of the buying uation normally involves purchases made by a business for
process is further complicated because a given purchase the first time The buying process needs to start from
will need to satisfy a number of different individuals and scratch and will probably be an extended problem-solving
departments within the company. Because of these fac- endeavor. One of the early decisions will be whether the
tors, the buying decisions in businesses and organizations firm wants to purchase the product from a vendor, lease
are often determined by a group of individuals known as the product, or produce the product in-house. These deci-
the buying center, which is discussed later in this entry. sions and the actual purchase decisions are often the
responsibility of a buying center.
TYPES OF CONSUMERS
The business market consists of many different organiza- THE BUYING CENTER
tions involved in many different primary activities, but Because of the size, importance, complexity, and commit-
they generally fall into four major types: ment involved in a business buying decision, often a com-

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 67