What is the difference between the consumer market and the business market?

One of the most common mistakes people make, when it comes to commercial transactions is thinking that business markets (B2B) are the same as consumer markets (B2C). This is quite an unfortunate mistake as the two, though similar in concept, are very different. One fact you should always remember about business markets is that it is a business to a business transaction where one company buys products from another business for resell or to facilitate the production of other goods.

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Here are some differences that will help you distinguish between these two markets;

The most important thing that you ought to remember about business markets as mentioned earlier is that it is a business to business type of transaction. It involves companies transacting with each other not for their consumption but in some cases to facilitate production, in other cases to supply the products to other firms or directly to resell the purchases to the consumers.

The procurement of the two markets also presents a significant distinction. For B2B markets, the purchasing process is quite complicated as the process is mostly influenced by a business’ executive and management depending on the type of purchase. Persons making purchasing often require authorization from these groups before making any purchasing decisions.

B2C markets, on the other hand, presents a very simplified procurement process because influences are not as complex as it is with B2Bs. The most common factors that affect consumers purchasing decisions include; reference groups, tastes and preferences, marketing campaigns and economic conditions.

The payment structure for these two markets differs significantly. Large sums of money are involved in B2B markets as compared to B2C markets. This is because the former often involves large volumes of purchases unlike in B2C where purchases are only made as per the consumer’s needs.

In this regard, B2B markets employ a more complex payment structure where a business makes an order and arranges for delivery through logistic procedures. After delivery, the seller then sends an invoice to the buyer business within which the buyer company can then make an official payment for goods delivered (based on the agreed terms of payment). In the consumer market, customers choose their product of interest and then pay for the product using cash, credit or checks.

Also, unlike in the consumer market where consumers buy products at the same price, in the business market buyers can negotiate for special terms depending on their volume of purchase, business relationship enjoyed with the selling business, etc.

Another distinction between these two market lies in how each market promotes their products and services. In the business market, products are sold to other companies, and thus the method of advertisement will slightly vary from that of the consumer market. Here, companies do not involve media advertisement to market their products and services. Instead, they use more formal channels like magazines, newspapers, and direct emails to concerned businesses.

Consumer markets as we now know targets the customers as the end user. Here, media advertisements are usually a large part of the promotions strategy that businesses use to market their products.

Throughout the years, B2B markets have dependably been behind the operation of B2C markets. Be that as it may, as the years wore on and improvements on technological have been seen, it has been harvesting popularity in light of the increased development.

Companies in the B2B market today aimed at boosting their shareholder value in these markets. So, while their promotion techniques are not as aggressive as with B2C markets, branding of products and services in this particular market is always top-notch. Moreover, businesses operating in a B2B market often work purposely Towards building up the business and giving it a strong position in the industry.

Read this article to learn about the differences between “Business Markets” and “Consumer Markets” – Explained!

There are significant differences between consumer and business markets. It is important to understand and appreciate the difference to be able to design appropriate strategies for the business markets. There are practices in consumer markets like intensive market research that can be very effectively employed in business markets.

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Similarly there are practices in business markets like systems selling, which can be effectively employed in consumer markets.

Business Markets in Comparison to Consumer Markets:

Market Structure:

There are fewer numbers of buyers and sellers in business markets. The business market is larger than consumers markets because it includes the business of various intermediaries.

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i. Business markets have fewer sellers and buyers in any market segment than do consumer markets.

ii. Customers in consumer markets initiate a direct demand with their purchases. The demand for business products or services depends on the level of activity that the buying organization can create in its own markets. Thus business demand is derived. This derived demand would not exist if the buyer organization could not find customers for its own products or services.

iii. The business buyer may buy an equipment to produce five hundred units a day. A second equipment will be required only if sales are expected to exceed five hundred units. But as soon as the business buyer’s sale exceeds five hundred units, he will buy another equipment, increasing the sale of business marketer’s product by hundred per cent.

As a result, there is no direct one-to-one relationship between the business buyer’s sales fluctuations and the business marketer’s sales. This makes the sales to business buyers more volatile than changes of demand experienced in consumer markets by a retailer.

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iv. When business buyers see prices starting to decline, they may postpone buying in the expectation of obtaining an even lower price later. The opposite happens if the business buyer anticipates continuing price increases.

In this case, when prices began to rise, more volume than is immediately needed is purchased to avoid paying even higher prices later. Such reverse price elasticity of demand is rare in consumer markets.

v. Business markets include the various early, value-adding stages of manufacturing and distributing consumer goods, and also the sales of business goods and services to manufacturing, processing, commercial, institutional and government organizations. The business market is significantly larger than the consumer market.

vi. The organizational buying unit called decision-making unit involves several individuals because various departments of an organization are affected by the purchase. The purchase of an equipment may affect the quality control department, the plant manager’s budget, the operator’s productivity and the purchase department.

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The members of the group are influential people of the buying organization. Each individual imposes different perspectives, expectations and requirements on the purchase.

The group membership removes the decision-making responsibility from any single individual. This can be useful if the decision turns out to be poor. In consumer markets purchase usually involves an individual or at most, one or two of his family members.

vii. Businesses tend to concentrate geographically because of the availability of natural resources or of skilled work force, the distribution advantages, or the desire to be close to customers. Thus, business markets tend to be geographically concentrated and business marketers have to travel long distances from one cluster of customers to another. Consumer markets are more diffuse.

Marketing Perspective:

Business marketers are required to have in-depth knowledge of their customers’ requirements. Business markets are global in nature because only technical requirements govern the acceptability of the product in various country markets.

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i. Consumer marketers use demographic variables like age, income, location and socio-psychological variables like attitudes, preferences, personality and lifestyle to segment their markets. Business marketers are segmented on the basis of industry, end market served, level of technology, ownership and characteristics of the buying unit.

ii. Business markets have higher investments in capital equipment’s and R&D. Consumer marketers’ investments are directed more toward marketing activities like researching their huge customer base and promoting to mass markets.

iii. Consumer marketers seek regional or national markets because their products are created to appeal to local tastes. Business goods are less dependent on regional tastes and preferences. Also, their specialized technologies and limited applications require that customers be sought outside home markets to achieve economic production volumes and to justify high R&D costs and capital investments.

Therefore business marketers must have more global perspectives of markets, in terms of both customers and competitors.

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iv. Most consumer marketers seek market share and sales volumes. Business marketers are more likely to have a sizeable share of highly segmented, smaller, specialized markets, resulting in more restricted sales volumes. Thus business marketers focus on improving profits in the short run.

v. In consumer markets, innovation involves greater emphasis on style and incremental changes to products that can justify model changes. Innovation tends to be more of demand-pull type, i.e., new products are developed as a result of research of customer needs.

Innovation in business markets is characterized by R&D inspired technological push and radical-breakthroughs that may revolutionize the entire industry. Such innovations would not come by trying to identify with unsatisfied customer needs.

vi. Business marketers deal with smaller number of customers, frequently on a face-to-face basis. They are more sensitive and responsive to their customers’ requirements. Thus business marketers are far more customer oriented than consumer marketers.

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Consumer marketers’ relations are distanced by long, indirect channels of distribution and are reduced to a mass of indifferent transactions. Business buyers and sellers usually enter stable, long-term relationships in which each party depends on the other for continuing business success.

Thus strong loyalty is developed between buyer and seller in business markets. Consumer marketers are desperately trying to engender loyalty among their customers.

They have not been much successful. Loyalty in business markets is the result of dependence that buyers and sellers have on each other. Unless the state of such dependence is replicated in consumer markets, customers of consumer products will remain fickle-minded.

vii. In business markets, two organizations can be buyers of each other’s products. An automobile manufacturer may require computers for its employees and the computer manufacturer may require automobiles for its employees.

In such situations reciprocity may be practiced i.e., they decide to buy from each other. Reciprocity is rarely possible in consumer markets.

viii. Among the customers of business marketers there are some customers whose business is so important that its loss would seriously erode the marketer’s sales volume and profitability. These important customers are called key accounts.

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The marketer must maintain close contact with these important customers to retain its business with them. A similar situation is absent in consumer markets. A small set of customers will not be able to affect the sales of a consumer product severely because the number of customers is very large.

ix. For many business marketers educating their customers is an important task. Business marketers send their technical and other staff to the facility of the buyer for long periods. Employees of the buyer and seller organizations work together to solve problems. Business goods like equipment’s have more complete instruction manuals, specification sheets and maintenance books than consumer equipment’s.

Customer Behaviour:

Business buyers focus on rational benefits of the seller’s offer. Many people of the buyer’s organization are involved in any purchase decision.

i. Because their number of customers is small and there is frequent face-to-face contact, business marketers are closer to customers and more in tune with customers’ buying behaviour.

ii. The number of customers in business markets are small, but their per order size is normally high. They buy to keep in inventory so that the item can be used in future. They buy in bulk because they want to minimize transportation cost and the cost incurred in placing an order.

They also buy in bulk and keep inventory to minimize chances of disruption in their work if a supplier failed to supply on time. Business buyers may have contracts to purchase items for a year with a supplier.

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Long-term contracts lasting for the life-time of the component are becoming common in business markets. Buyers and sellers become interested in each other’s operations in many ways. Such intrusive relationships are not very frequent in consumer markets.

iii. The purchasing motives of business buying are maintaining and furthering organizational goals. These motives are rational, economic, objective and profit or efficiency oriented. Business buyers are technically qualified purchasing specialists. They may have taken specialized training. In large companies they may be specializing in certain type of products. A purchaser may be responsible for buying paints only. Emotions and self-gratifying motives underlie most consumer purchases.

iv. Business buyers may impose substantial penalties for non-performance by suppliers. Such penalties may be built in the contracts with the suppliers. A contract may specify that a supplier pay a certain amount for every day’s delay in delivery of an order or in the completion of equipment installation in a plant. Such penalties have not yet become part of consumer markets.

v. If a business marketer’s plant is running under capacity, or a customer’s order today has the potential of significant follow-on business in the future, or if the order represents a sizeable portion of the marketer’s business, the customer can exert a strong influence on the business marketer’s price, product design, delivery and other dimensions of the supplier’s operations.

The aggressive use of buying power by a buyer organization to persuade a supplier to make a product that more closely meets the buyer’s requirement is called reverse marketing. Such buying power does not exist in consumer markets.

vi. Business buyers show strong loyalty to their current supplier. Such supplier loyalty is an outcome of the strong interdependence between business buyers and their suppliers.

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The business buyers who change suppliers face high switching costs, such as the costs of training a new supplier in the intricacies of the buyer’s business, the possible loss of confidential trade secrets if the supplier is abandoned, and the high cost of identifying an alternative supplier.

In consumer markets, customer loyalty to retailers or brands is weak and the consequence of supplier or brand switching is not severe to customers.

vii. The business buyer’s involvement in a purchase is much greater than that of a customer in consumer market. The business buyer must plan his requirements and specify technical and delivery requirements of the purchase, often with the assistance of the supplier.

The business buyer may help the supplier to develop the capability needed to supply the item. Negotiations may go on for a long time about specifications, quality and price. The buyer monitors supplier performance over the life of contract.

viii. The business buying decision process is complex and involves several functional areas of the buying organization. Each function may have a different point of view and interest in the purchase. Committees discuss a purchase using documented data, proposals, specifications and supplier analysis.

Business buyers often have the option of making the product themselves instead of buying it. The business decision making process is observable and moves through distinctive stages. The decision making process for major supplies may take a long time.

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In the consumer markets the customer decision making process is comparatively simple and short. It takes place in the buyer’s mind and cannot be observed. The option of making the product himself is generally not available with the customer.

ix. The business buyer’s risk can be very high. It is greatest in the new-task situation, in which the buyer has not encountered such a buying situation. Risk is least in the straight-rebuy situation, in which the item just has to be reordered.

But even in straight rebuy there are risks such as the item not being delivered on time. Performance risk is reduced by purchasing from large, well-known and reputable suppliers and by continuing to buy from the same supplier. In consumer markets the risks to customers are less.

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