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Business vs Consumer Markets

Key Differences between Business Markets and Consumer Markets

In theory, the same basic marketing principles hold in both consumer and business markets – firms identify customer needs and develop a marketing mix to satisfy those needs.

For example, take the company that made the desks and chairs at your university. Just like a firm that markets consumer goods, the furniture company that supplies university establishments first must create an important competitive advantage for its target market of universities.

Next, the firm develops a marketing mix strategy beginning with a product – the lecture/seminar room furniture that will withstand years of use by thousands of students while providing a level of comfort required for a good learning environment. The firm must offer the furniture at prices that universities can afford and that will allow the firm to make a reasonable profit. Then the firm must develop a sales force or other marketing communication strategy to make sure your university (and many others) consider and hopefully choose its products when it furnishes classrooms.

However, although marketing to business customers does have a lot in common with consumer marketing, there are differences that make this basic process more complex. Table X-1 provides a quick look at some of these differences.

Organizational marketsConsumer markets
  • Purchases made for some purpose other than personal consumption
  • Purchases for individual or household consumption
  • Purchases made by someone other than the user of the product
  • Purchases usually made by ultimate user of the product
  • Decisions frequently made by several people
  • Decisions usually made by individuals
  • Purchases made according to precise technical specifications based on product expertise
  • Purchases often based on brand reputation or personal recommendations, with little or no product expertise
  • Purchases made after careful weighing of alternatives
  • Purchases frequently made on impulse
  • Purchases based on rational criteria
  • Purchases based on emotional responses to products or promotions
  • Purchasers often engage in lengthy decision process
  • Individual purchases often make quick decisions
  • Interdependencies between buyers and sellers; long-term relationships
  • Buyers engage in limited-term or one-time-only relationships with many different sellers
  • Purchases may involve competitive bidding, price negotiations and complex financial arrangements
  • Most purchases made at “list price” with cash or credit cards
  • Products frequently purchased directly from producer
  • Products usually purchased from someone other than producer of the product
  • Purchases frequently involve high risk and high cost
  • Most purchases are low risk and low cost
  • Limited number of large buyers
  • Many individual or household customers
  • Buyers often geographically concentrated in certain areas
  • Buyers generally dispersed throughout total population
  • Products often complex; classified based on how organizational customers use them
  • Products: consumer goods and services for individual use
  • Demand derived from demand for other goods and services, generally inelastic in the short run, subject to fluctuations, and may be joined to the demand for other goods and services
  • Demand based on consumer needs and preferences, generally price-elastic, steady over time, and independent of demand for other products
  • Promotion emphasizes personal selling
  • Promotion emphasizes advertising
Table X-1 Differences between organizational and consumer markets
There are many major and minor differences between organizational and consumer markets. To be successful, marketers must understand these differences and develop strategies that can be effective with organizational customers.
  1.     Large Buyers

In business markets, products often have to do more than satisfy an individual’s needs. They must meet the requirements of everyone involved in the company’s purchase decision. If you decide to buy a new chair for your room or apartment, you’re the only one who has to be satisfied.

For the lecturer/seminar room, the furniture must satisfy not only students but also faculty, administrators, campus planners, financial controllers and the people at your institution who actually do the purchasing. In some cases, the furniture may also have to meet certain governmental and safety standards.

  1.     Number of Customers

Organizational customers are few and far between compared with end consumers. In Europe, there are several million consumer households but significantly fewer businesses or organizations.

Dutch giant Philips Medical, which markets sophisticated electrical products to hospitals, health-maintenance organizations and other medical groups, has a limited number of potential customers compared with its consumer electronic division. This means that business marketing strategies may be quite different from consumer marketing strategies. For example, in consumer markets Philips may use TV advertising, but in its business markets a strong sales force is vital for promoting the product.

  1.     Size of Purchases

Business-to-business products can influence consumer purchases, both in the quantity of items ordered and in the price of individual purchases. A company that hires out uniforms to other businesses, for example, buys huge volumes of washing detergent each year to clean its uniforms. In contrast, even a hard-core football mother dealing with piles of dirty socks and shorts is likely to use just one box every few weeks.

Organizations purchase many products, such as highly sophisticated manufacturing equipment or computer-based marketing information systems that can cost millions of euros.

Recognizing such differences in the size of purchases allows marketers to develop effective marketing strategies. Although it makes perfect sense to use mass-media advertising to sell laundry detergent to consumers, selling laundry detergent worth thousands of euros or a million-euro machine tool is often best handled by a strong personal sales force.

  1.     Geographic Concentration

Another difference between business markets and consumer markets is geographic concentration. Business customers are often located in a small geographic area rather than being spread out across a country.

Whether they live in the heart of Paris or in a small fishing village in Greece, consumers buy toothpaste and televisions, but business-to-business customers may be almost exclusively located in a single region of a country. Birmingham in the UK is home to a significant number of companies that supply steel and engineering components. For business-to-business marketers who wish to sell to these markets, this means that they can concentrate their sales efforts and perhaps even locate distribution centers nearby.

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