I would first make the definition that a business market is to sell to other business, often referred to as B to B, business to business. So those that are in the Business market will have products and or services that are needed by other businesses. This separates them from consumer markets whereby a business will sell directly to the end consumer otherwise known normally as individual customers, you and me. When we refer however to ‘different’ business markets we are including business interactions across all markets.
Here I will be looking at the main 2:
Business to Business
Business to Consumer
Lets start with the characteristics of Business to Business
Business to Business (sometimes you’ll see this referenced as B2B)
Market Demand and Structure
A business that sells to other businesses is looking at a much smaller pool of customer than those that cater for the end consumer but with this said the customer or business that is buying is going to be placing much larger orders than that of an individual end consumer.
Its best to think of examples such as a manufacturer of baked beans selling into the food industry. Orders will be large from a selection of buyers. Think then of the individual shoppers with their trolleys and baskets in the supermarket and how many millions are wanting to buy baked beans for a small amount of money. It’s a different way of doing business as it is down to the consumer market businesses to make the final sale and clear the stock.
We all know that much of our products and services are delivered on internationally and depending on what that is and price, business markets will often have vast areas geographically that they cover. I quite like baked beans so lets stick with that. There are many Heinz factories across the globe but they don’t just supply locally, they ship all over the world. Holland has one of the largest factories and we have one here in the UK that sells into North America. Now consider you and me in our local supermarket, we buy what is available there to us on the shelves.
Business markets do of course need to take this into account as their buyers buy so they can sell on to an end consumer. Just to mention this often is more complex when there are various business markets involved before the end consumer comes into play… think of for example car parts or engine components. Often their will be business to business transactions across various markets before getting to the end buyer – the individual customer. But with end consumers in mind, if the demand stops then this dominos down the chain, now I cant ever imagine a world where no one wants baked beans anymore but if we look at technology – how for example do you think this had an impact on the paper industry over the last 20 years. For me coming from an era where we used pen and paper I can tell you this is significant. Imagine all those businesses back in ‘the old days’ never imagining that the demand for paper stationary products would drop off drastically in demand. It dried up considerably.
The buying unit
This involves a more professional approach to buying, so when businesses buy from another business those buyers know exactly what product or service they are looking for and are well trained in the art of buying. This type of purchasing is a world away from what we individuals do at end consumer, our buying habits involve emotions, personal values and are influenced by our culture and financial status.
Decisions on which business to buy from are more complicated. This in the first instance involves research and market comparisons to find the most suitable seller to work with. A collaborative relationship and often an agreement is negotiated to secure a long term relationship and all of this of course needs to be authorised in the right way. Depending on the business type and its product / services this could involve ethical decision making and it is now common for businesses to expect potential suppliers to meet the criteria set to allow them on to their approved supplier list. Accreditations such as an ISO standard or a more specific award may be required which can in some cases reduce the pool of suppliers available.
There are risks involved of course with such an arrangement, placing ‘all eggs in one basket’ for a particular product should that supply for what ever reason cease to be available and so its understandable that stringent policies are in place when making a choice on who to do business with.
Business to Consumer (or B2C)
A consumer is considered the end buyer or end user such as you and me so you can imagine compared to a B2B the market here for B2C is huge! So just to make clear here as an example, we as consumers will purchase from our favourite supermarket all our favourite products – B2C. That supermarket has purchased products and services from a variety of suppliers in the food industry – B2B
Its now easy to consider the characteristics of the B2C market but there has been a shift in this market which I will explain and this is due to online shopping.
Once upon a time we didn’t have the internet.. I Know? Barbarians we were !!! If we wanted something we went out and bought it as in left the sofa and went outdoors!
Online retailers did something incredible to the B2C market. Many businesses that would have once been B2B found they had direct access to the end consumer and could cut out the middle man. It also opened up a whole world of opportunity for small creative entrepreneurs who would otherwise never had access to such a vast audience. Visualise the local Saturday Markets with the small one person stalls selling their homemade chutneys or soaps and candles. The internet offered an environment of virtual shopping and these once small enterprises found they could enter the world of both B2C AND B2B by creating popular brands that other retailers wanted to sell.
Amazon in a traditional setting would have been a warehouse and logistics company selling to retailers with physical shop front properties but hey look at what they do – the internet allows them to sell direct to the end consumer taking out the middle bit, the retailer. They are the retailer and quite a substantial one too!
Internet dealt with I want to take you back to the characteristics of B2C markets and we can use a comparison here to B2B
Market demand and Market structure.
The end buyer (us) will always have an impact on B2B market demand because ultimately to two exist within the same chain. I use the term two to refer to B2C and B2B but of course in a chain of business transactions there can be many businesses involved in the final end product.
Consumer demand is both steadfast and volatile. There are the products and services that we need and then there are those that we want. The needs are going to be fairly stable in that we will always need basics such as food and clothing but the wants are very changeable and sometime unpredictable. We can be quite unfaithful with our loyalty, one minute loving our favourite brand, the next, ditching it for some new and more exciting. Customer loyalty as we know is a crucial part of all Business Strategies and essential for survival. Keeping up with what the consumer wants takes a mix of crystal ball thinking and market predictions. The clever businesses will scenario plan and forsee the upcoming trends by constantly undertaking environmental scans (see my post on PESTLE and Scenario planning)
Take an example of 2022’s economy forecast. Its clear that a recession is about to hit and consumers are going to tighten the purse strings and turn to budget plans. Luxury items will take a hit and the cheaper options particularly food products are going to do well. Some supermarkets have this covered and offer an – lets call it ‘ugly’ range of food products with plain branding and not so perfect items. Wonky vegetables in Morrisons and the imperfectly tasty offers in Sainsburys invite customers to continue to shop with them and they will assist with their food budget. Rather clever, and lets face it.. a carrot is a carrot ugly wobbly bits and all.
Nationally this is fairly predictable but internationally demand can be very different when we look at the culture and values of different nations. This is important because if we look at the UK we have always had a diverse culture and for many decades welcomed refugees and immigrant settlers but it took quite some time for Businesses to catch up and offer the products that these consumers wanted particularly when it came to food and diet choice. In fact most of the businesses were started by the immigrants themselves, supermarkets seem to have caught on with a small section of international choices.
There are 2 ways to look at this, what the consumer wants, needs and asks for and what Businesses ‘suggest’ the consumer wants and needs and ‘dangles’ with clever marketing “you want this!”
Setting trends and understanding patterns in trends is an interesting subject that requires an understanding of buying behaviour and the psychology of it. In the main, demand comes from the consumer, me and you. We know what we need and what we want (sometimes) and we demand the supply of these items. Theres a lot of factors here, culture, financial status, locality, health, age, gender and personal taste to name a few.
I have a couple of examples where it is the businesses that set out trends and create demand. Food and clothing are a great reference here. Who decided that flares should make a come back? Who decides whats going to be ‘in season’. I know Ive had years when Ive looked round M&S and wanted everything! But other years disliked the whole range. Even if you look at celebs or influencers parading round in something unusual and odd looking, its not that they demanded it. Designers within a business put it out there and carefully choose how to launch the trend. Before you know it, men everywhere are wearing supertight skinny jeans and women are in oversized hoodies!
Food is another one, yes…. What we eat can be trend set through the newest research that eating something will make you super healthy and a particular lifestyle diet is the way to go. Who had ever heard of chia seeds until the fitness gurus suddenly starting harping on about it and we all rushed to Holland and Barratt. I’m probably being a little unfair here but just want to make a point that often we don’t have a clue what we want until someone says ‘ you want this’ Do we nee chia seeds in our life? I have survived quite well so far without them and yet the unopened bag sits there at the back of kitchen cupboard 4 years old waiting for me to decide to either do something with them or throw them. To be fair, they’re probably out of date!
The Buying Unit
In a business the buying unit might involve a team of people researching the market but in the B2C market the buying unit is more likely one person or maybe a couple or family deciding on a purchase. The process will be very different here with all the factors I mentioned above and this leads us on to decision making
As an end consumer we make our decisions differently to businesses. We decide on what we buy based on what we can afford and what are preferences are but also on we consider important to us. Our decisions are personal. This doesn’t mean we don’t research however. Finding the best deal, looking at quality and thinking about why we need something.
I recently purchased shelving for my kitchen and chose cheap simple ones because I knew they where just for light items like herbs. I didn’t need any help with my decision and simply bought them. When I chose the sofa however, the family were involved and there was a lot of thought and input into the final decision.
Making decisions at consumer level is crucial to businesses which is why their pitch to us needs to be perfect. Brand, reputation, a promise that we will be taken care of all pull on our decision making process.
Learners undertaking the Level 3 Diploma in Management will find this assists with the following criteria:
Unit 304 ML 1.1 Explain the characteristic of different business markets.