Differences between the consumer market and business

Differences between the consumer market and business Some book authors define Market as a group of potential or actual buyers who are willing to buy certain product or service (Kolter Armstrong, 2006, p. 7; Kurtz Boone, 2006, p. G-7; Lau, 2007, p. 56). When we mentioned business to business (B2B) and business to consumer (B2C), there are two groups of market: the first one is business market and the later one is consumer market. First, discussion will start with differences between consumer and business market. Then, the second part will be followed by the influences of key factors that differentiate business marketing and consumer marketing. Differences between consumer and business market Kolter Armstrong (2006, p.161) stated that consumer and business markets have similar characteristics in some ways. Meanwhile, many researchers also argued that business market is different from consumer market in many ways (Webster, 1978; Ames, 1970; Cooke, 1986; Lilien, 1987; Kolter Armstrong, 2006, p. 161). Kolter Armstrong (2006, p. 161) classified key difference between business and consumer markets into three broad groups, namely: market structure and demand, nature of the buying unit, type of decisions and decision process. Their classification is parallel with Lau (2007, p. 6), whom stated that both markets are different in terms of number and size of customers, buying expertise and process, decision making, geographical concentration, derived demand, and relationships. From the review, total of seven key differences are identified. Type of customers First of all, a very obvious difference is the type of customer on both markets served (Coviello Brodie, 2001). According to Lau (2007, p. 12), customers in the business market can be classified into commercial enterprises, government and public organizations, and institutional organizations. In contrast, customers in the consumer market are individuals or households (Sashi Kudpi, 2001). In consumer market, target market for a juice drink is working woman with 12 years old youth at home. Nevertheless, target market for industrial products such as steel or cement will be different from consumer market. For instance, customers for industrial products such as steel or cement will be a group of people or organization whom doing business. This two examples show that type of customer for consumer market is more concern on individuals or households whereas business market is more concern on a group of people. Number and size of customers Despite type of customer, business markets and consumer markets are different in terms of number and size of customers (Lau, 2007, p. 6). Unlike consumer market, business market has fewer customers. However, customers in the business market buy larger quantities than consumer market. As Kaplan (2000) and Olsen (2000) stated that the market size for consumer market is normally measured in millions whereas business market is measured in thousands. Thus, conclusion can be drawn where a company might have millions of customers where each customer buys in small quantity. On the other hand, a company might only have thousand of business customers whom each of the organization buy in large quantity. For example, consider an apple pie seller and an individual buyer that buy apples for different use. In this situation, the apple sellers might have several apple pie business buyers but many individual apple buyers. Meanwhile, apple pie business buyers will buy larger quantities than the indivi dual consumer because the business buyers demand more apples to make apple pies for sale. Buying knowledge and process Other than that, purchaser of business market has greater buying expertise than consumer market (Lau, 2007, p. 7). Hence, business decision process is different from consumer decision process when business buyer has greater knowledge (Kolter Armstrong, 2006, p. 170; Blackwell, Miniard Engel, 2006, p. 70). Blackwell et al. (2006) stated that consumer decision for goods and services including seven stages: need recognition, information searching, pre-purchase evaluation, purchase behavior, consumption, post-purchase evaluation and divestment (p. 70). Examples will be as followed: An individual found that he needs a new printer to replace the old one. After that, he searches printers information available in internet/ seek information from his friends. From the searching stage, three alternatives are found and he evaluate different printers brand in terms of quality, after sale services, prices and etc. He decided to buy Printer B after evaluation and bring it home / install and use it. During the usage, good or bad perception towards the new buying will determine his satisfaction which further determines his loyalty to the brand. That is, consumer decision process is that simple. In contrast, business buying process has eight stages: Problem recognition, need description, product specification, supplier searching, proposal solicitation, select supplier, order-routine specification, and performance review (Kolter Armstrong, 2006, p. 171). Example is as followed: New entrant, XYZ automobile Sdn Bhd need new business suppliers to supply aluminums for cars produced. Before searching for suppliers, they list down their need and product specification. Then, they start search number of suppliers which supplies what they want. The pool of suppliers then compete and bidding for the projects. Eventually, the company selects BIBI aluminums Sdn Bhd which they think BIBIs offer /services best suit their needs and product specification. After that, XYZ listed down the order-routine items and all the specification/order with BIBI. Once the supplies process has started, XYZ will review and evaluate the performance of BIBI in terms of deliver, product quality, services and others performance. The evaluation will determine whether XYZ want to continue the business relationship or terminate it in the future. From the example, conclusion can be drawn where business market has more complex and formalized buying decision process than consumer market because business buyer has to follow specific procedures or get approval before buying decision are made (Kolter Armstrong, 2006, p. 163; Lau, 2007, p. 7). Despite greater knowledge, business buyer is responsible to purchase with huge resources (Lau, 2007, p. 7). Hence, they tend to spend more effort and time to evaluate products and services offered before buying decision are made (Lau, 2007, p.7). For example, a consumer buyer might not go through the stage of pre-purchase evaluation and buy an inkjet printer just because he or she likes it. But when it comes to business buyer, they cannot skip the formal procedure or approval to buy inkjet printers for office use just because he or she likes to do so. Buying decision making Besides that, business market made decision differently from consumer market (Lau, 2007, p.7). In business market, salesperson has to deal with number of individuals. Buying decision making involved more than one person, whom possesses different roles either to build or maintain the relationship with the supplier (Homburg et al., 1997). Those persons involved in buying decision making are known as the members of buying center (Lau, 2007, p.47-48). In the buying center, those members include decider, purchaser, influencer, initiator, gatekeeper and user (Schellhase et al., 1999; Lau, 2007, p. 47 48). For instance, in an automobile manufacturing company, a production team might be initiator or user for a machine. Then, another team in purchase department will act as buyer for the machine. Meanwhile, finance team will act as gatekeeper in decision making process which functions as budget control role. Lastly, Chief executive officer might act as influencer and decider which he or she w ill decide whether to buy or not to buy at the end. Salesperson in business marketing deals with more than one person in, but salesperson commonly deals with an individual in consumer market. For instance, materials purchase decision (new task buying) for car manufactured will only be made when the agreement across different functional department and vertical management levels have reached. Purchase decision will not be made when conflict between different departments has not yet solved. However, a mother (purchaser) will buy a dress for her daughter (user) without the consent of other family members (e.g. son, father). Demand In addition, business and consumer market can be differentiated in the view of economic perspective. Demand in business and consumer market is different. Demand in business market is derived from demand of the products that business suppliers help produce (McConnell et al., 2009). This is known as derived demand. Derived demand can be referred as Association demand between resource and product in which demand for industrial product is linked with demand for goods and products that made from the resource (Kurtz and Boone, 2006). For example, demand for cotton is derived from consumer demand of shirt. According to the news, consumers will be paying high prices for shirt for the coming New Year since cotton prices has increased (The star, 2010). According to law of demand, demand for shirt will drop as price goes up due to elasticity (McConnell et al., 2009). From here, we can conclude that demand for shirt will be affected by consumers directly. However, demand for cotton at business m arket is inelastic (Lau, 2007, p. 8). Demand for cotton is depending on consumer demand for shirt. It is in contrast with law of demand where changes in prices will not increase or decrease demand for business products. On other words, it means that decrease in prices will not encourage sale for business products (Lau, 2007, p. 8). Nevertheless, demand for cotton is being affected by demand for shirt. For instance, although cotton price is escalating, demand for cotton is still remaining or increasing if demand for shirt is greater. Geographical concentration As business is moving towards globalize, customers are everywhere. Business products buyers with similar business tend to be geographical concentrated. According to McDonald et al. (2001), geographical concentration serves as one of the characteristics of the term Cluster. The term cluster can be defined as a group of producer whom produce similar products are located near to each other (Schmitz, 1992, p. 65). Cluster and industrial district are used interchangeably (McDonald et al., 2001). Marshall (1890) claimed that one of the reasons for being geographical concentration is to grab economies of scale. For instance, consider automobile business companies: Nissan, Ssangyong, BMW, Daihatsu and Proton edar. These automobile business companies set up their headquarters office in Selangor. These companies are in the same industry: automobile selling industry. Similarly, they need raw materials such as steel and aluminum etc. to produce automobile. In contrast, customers in consumer mark et can be found everywhere and they are not that geographical concentrated as compare to business markets customers. Relationship When talk about relationship, relationship development for consumer market and business market is both important. Thus, customer relationship management in consumer market plays an important role. However, when comes to business to business relationship, relationship will even play a more critical role to determine business success or failure. In business market, need of coordination between business supplier and business customers is greater (Lau, 2007, p.10). In business market, Cann (1998) stated that long term relationship between business suppliers and customers is vital for business to be succeeded. According to some researchers, there are several reasons for business suppliers and customers to maintain long term relationship. For example, Sheth (1994) stated that maintain long term relationship will gain more benefits and risk of doing business will decrease. Apart from that, maintain existing relationship is less costly than acquired a new one and existing business partner is easy to work with (Cann, 1998; Congram, 1991). For instance, when an automobile company decided to replace a new supplier instead of the existing one, cost will incurred. New supplier is much likely will perform slow and not that effective in the beginning. This is because they are new joined supplied which they are not familiar to their new customer as compare to old supplier. As a result, operation efficiency decrease and cost incurred. Put it as conclusion, sellers have to develop close relationship with customers in customer market. But, business suppliers have to develop much closer relationship with customers and coordinate well with business customers. Table 1: Summarize differences between business and consumer market Key differences Business market Consumer market Type of customers Commercial enterprises Government and public organizations Institutional organizations Individuals households Market structure and demand Number and size of customers fewer customers large buyer more customers small buyer Geographical concentration More Concentrated Customers are less geographical concentrated Demand Derived from the demand of other products Derived directly from consumer Nature of the buying / Type of decision / Decision process Buying expertise and process Greater buying expertise/knowledge Complex and formalized buying decision process more professional effort in purchasing less buying expertise Simple and less formal buying decision process Buying decision making Decision made by a group of people More complex buying decision Decision made by individual Less complex as compare to Business to business Relationship Closer relationship Long term Close relationship Short term Sources: adapted from Lau (2007); Kolter Armstrong (2006). In conclusion, business and consumer market is different in several key characteristics: type of customers, number and size of customers, geographical concentration, demand, buying expertise and process, buying decision making and relationship (Table 1 summarize the differences between business and consumer market). Next, we look at how these seven key differences have caused business marketing different from consumer marketing. Business marketing and Consumer marketing Business to business marketing can be defined as the process of sale or purchase of goods and services involve at least two parties in which the buyer will buy the products from supplier for operation, production or resale purpose (Kurtz and Boone, 2006, p.188). Consumer marketing can be referred as the process of sale or purchase of goods and services between sellers and individual buyer (Noori and Salimi, 2005). There are different arguments towards marketing approaches for business and consumer market. Some researchers argued that differences in consumer and business market did not constitute to different marketing approaches (Fern Browns, 1984; Jackson Cooper, 1988). However, it is widely discussed that different marketing approaches should be used for business and consumer market (Cooke, 1986; Webster 1978, p. 24). For example, due to the differences between consumer and business market, Lilien (1987, p.16) suggested that marketers should use different marketing strategies to approach consumer market and business market. Comparison between business to business marketing and consumer marketing When mentioned about marketing, we should not overlook marketing mix. Marketing mix refers to the blending of four P strategies (Kotler and Armstrong, 2006, p. 48). Kurtz and Boone (2006, p.189) compared business to business and consumer marketing based on marketing mix: First, Business to business and consumer marketing is different in terms of product strategy. Business products are normally technical in nature whereas consumer products are in more standardized form (Kurtz and Boone, 2006). As a result, they claimed that accompanying services are more important in business products marketing as compare to consumer products marketing. Business customers have to be handled individually and personal selling is needed for business products marketing (Hakansson et al., 1967; Kaplan, 2000; Olsen, 2000). Second, Business to business and consumer marketing can be compared in terms of promotion strategy. Kurtz and Boone (2006) stated that business to business marketing should focus on personal selling whereas consumer marketing should focus on advertising. Other than that, Business to business marketing is different with consumer marketing in terms of distribution strategy. In business to business marketing, business marketer distribute business products direct channel which did not involve any intermediaries and the distribution channel is short whereas consumer products marketer utilize indirect channel to approach their customers (Kurtz and Boone, 2006). Lastly, Kurtz and Boone (2006) differentiated business to business marketing from consumer marketing in terms of price strategy. They stated that there will be competitive bidding in business to business despite list price whereas consumer products is more standardized thus using list price. From the review, example of consumer marketing is as followed: An instant noodle is standardized product. Despite sales promotion, business marketer for instant noodles will promote their products through advertising. The manufacturer uses list price to price their products. Then, pack and distribute their products by using indirect channel, which buyers can buy it from retailers. In contrast, example for business to business marketing is as followed: An electronic product is technically in nature, an accompanying service is needed. To convince business customer to buy electronic products, the company will send sales representative team to market their product to their customers due to the complexity of the marketed product. The sales representative will approach their customer directly rather than go through intermediaries. The supplies company might have to bid for the price because there are normally more than one companies are marketing similar products to the same customer. At the end, the project will goes to the best product quality and lowest price provider. However, Comparison between Business to business marketing and consumer marketing should look beyond marketing mix (Coviello and Brodie, 2001). Hence, we will discuss in depth regard the influence of key factors of business and consumer market in marketing practices. Differences between business and consumer marketing will be discussed based on each of the key factors listed in table 1. Mass marketing versus one-to-one marketing Since the number and size of customers are different, customer acquisition method for both markets also is different. Due to the differences, business organizations customers should be handled individually (Hakansson et al., 1967). Kaplan (2000) and Olsen (2000) stated that communication with business to consumer market is more relied on mass marketing. As mentioned, size of customers in consumer market is large. When size of customer is large and homogeneous, mass communication such as advertising will be used to approach the customers. In contrast, business market is more relied on one-to-one marketing. Customers in business market are fewer but large, they are more expert and making decision in group as a whole. Hence, business market customer should be handled individually (Hakansson et al., 1967). According to Kaplan (2000) and Olsen (2000), personal selling is normally used in business to business marketing. For example, salesperson engaged in business to business marketing wil l use direct selling rather than mass communication to approach their targeted customers. Argument of Kaplan (2000) and Olsen (2000) is parallel with Kurtz and Boone (2006, p. 189), which Kurtz and Boone also stated that promotion strategy in business marketing is more focus on advertising whereas consumer marketing is more focus on personal selling. Marketing strategy As seen in Table 1, type of customer for business and consumer market is different. Thus, marketing strategy for both markets will be different as well. In fact, type of customers might help business marketer to segment market group based on type of customers (Kurtz and Boone, 2006). Indeed, understanding customers needs and wants for both market is important as well. In consumer marketing, marketers market their products to individuals or household. Thus, marketer offered products to satisfy customers needs and wants or to make customer pleasure. Meanwhile, customers might buy the products which they do not really need, they buy just because for pleasure. However, types of customers for business supplier are a group of person whom doing a business. Product purchase is critical for their business operation. Unlike customer in consumer market, they are not purchase for pleasure. Hence, to convince business customers, business marketers have to understand and focus needs of business cu stomers but end user. Then, market their products by demonstrating how their products can help business customers in daily operation in long term period. Second, when demand for industrial products is driven from other products, customer demand for that particular product will determine the demand for industrial products as well. Since law of demand stated that any changes prices will stimulate consumer demand, marketer for consumer market might manipulate product price to stimulate the demand for consumer product. However, since demand for industrial products is inelastic, price manipulation would not increase the demand for industrial products unless demand for consumer demand is being stimulated. This explains why cooperative advertising is employed by manufacturer and channel members. Cooperative advertising is a manufacturer and channel members joint advertising (Cadeaux, 1997). When manufacturer and business customers agree to engaged in cooperative advertising, upstream channel partner such as manufacturer will bear certain percentage for product advertising (Kurtz and Boone, 2006, p. 423). Due to derived demand phenomenon, bus iness supplier such as manufacturer willing to spend money for cooperative advertising because they understand that increase in end user demand will eventually increase the demand for industrial products as well. From here, we know that price manipulation is not the solution for industrial products marketing. In contrast, cooperate with channel partners and develop relationship with channel partners and come out a comprehensive marketing strategy will help business suppliers business to growth further. Other that than, since business customers are geographical concentrated, business marketer has to identify where is the key district for their business customers to run operations. For example, as mentioned in first part, automobile business companies set up their head office in Selangor. From here, business marketers should able to identify that Selangor serve as key district for their business customers to run operations. When business customers are geographical concentrated, the distribution channels in business marketing is shorter than consumer marketing (Kurtz and Boone, 2006, p. 189). In conventional distribution channel, the channel involves numbers of intermediaries to distribute products to the market, this is known as indirect channel distribution (Peter and Donnelly, 2009, p. 145). In fact, business suppliers such as manufacturer will use short and direct channel to approach their business customers which means that distribution is shorter as compare to consumer products distribution (Peter and Donnelly, 2009, p.145; Pelton et al, 2001). In contrast, since consumer market is less geographical concentrated as compare to business market, distribution channel for consumer products normally involve participation of intermediaries to reach the dispersed consumer. Besides that, the distribution channel for consumer market is long (Kurtz and Boone, 2006, P. 189). This also explains why business marketing is relying more on personal selling whereas consumer marketing is relying on mass marketing. Besides, business expertise and buying process in business market also contribute to the different use of marketing strategy in both markets. Since business organization has trained expert to conduct purchase, they normally understand what the organization want. Most significant, they possess more knowledge on how to make purchase which best fulfill those requirements. (Lau, 2007, p. 7). Thus, when the trained person has skills and knowledge, this key factor differentiates business marketing from consumer marketing. In consumer market, customers tend to possess less knowledge about the products as compare to business customers. As a result, impulse purchase is likely to happen in customer market rather than business market (Lau, 2007, p. 7). For instance, a female customer might did not plan to buy body wash during shopping time. However, the customer encounters a salesperson for AAA brand body wash and bought the product eventually because she was told by the salesperson that the bo dy wash is good. From here, impulse purchase was happened in consumer market, and marketers can easily manipulate strategy to convince consumer to buy. Nevertheless, impulse purchase would not happen in business market since business customers would not buy business supplier products merely because business salespersons claimed that their supplies are good. For instance, an automobile would not purchase aluminum (raw material) to produce the car without proper evaluation of the products. Thus, to market industrial product to business customers, business marketer must possess greater product knowledge. Besides, fulfill business customers specific requirements and demonstrate how marketer products can solve their problems is a must in order for transaction to deal successfully. When comes to buying process, business customers have more formalized procedure to be followed (Lau, 2007, p.7) as compare to customers in consumer market. In such situation, understanding on business customers buying procedure is a must if business marketers hope to have a deal with them. Since there are no formalized procedure for individuals or households to purchase a product, marketers can freely approach customers in consumer market. But, if business marketers wish to approach business customers, marketers must understand clearly the formalized business buying procedure and adhere to their procedure (Lau, 2007). Business marketers must ensure any of their actions do not conflict with the specified procedure. In fact, decision making process of both markets advocated marketers to apply different marketing strategy in business and consumer market. In consumer marketing, marketers normally deal with individuals or household. Thus, marketer might only have to address and interact with individual if they wish to convince customer in consumer market to buy. However, different situation is in business marketing. Kurtz and Boone (2006, p. 202 203) identified four factors which will influence decision making process in business market: The four factors include environmental, organizational, interpersonal and buyer role. From these four factors, interpersonal factors do play greater influence in decision making process. According to Kotler and Pfoertsch (2007), customer in business market is much more rational. Hence, Sashi and Kudpi (2001) stated that organization will perform analysis of potential business suppliers in procurement decision. Unlike consumer market, they are more than one person involve in buying decision making. Thus, business marketer not only has to address buyer needs, marketer also has to address and interact with all parties involved in buying decision making (Kurtz and Boone, 2006). For example, initiator and buyers might want to buy material supplies from XYZ Company. However, Influencer and decider might not agree that; buy the supplies from XYZ Company will benefits their company. As Ghingold and Wilson (1998) claimed that different parties in buying center having different perspective or perceptions in regards to problem, needs of the organization. Hence, to convince business customers, business marketers have to make sure all the relevant parties involve in decision making and ensure all parties needs have been addressed. Some researchers even argued that brand plays an important role in business buying decision making (Bendixen et al., 2004; Michell et al., 2001). Webster and Keller (2004) stated that brands will help in gaining consensus of di fferent parties on buying decision. Relationship marketing Today, either consumer marketing or business marketing, relationship does play an important role for business successfulness; accordingly we have seen the emergence of customer relationship management (CRM), which this CRM system aid companies to interact with customers and response quickly to them (Nguyen et al., 2007; Anderson, 2006). Hence, buyer-seller relationship development in consumer marketing is important. Nevertheless, importance of relationship development is much greater in business marketing. Since business market is different with consumer market in terms of several factors, relationship marketing is commonly employed in service industry and industrial industry (Ahmad and Buttle, 2001). Relationship marketing can be defined as Achieving objectives of both sellers and customers by develop, maintain and enhance relationship (Gronroos, 1990). As mentioned earlier, seller-buyer relationship in business market is closer and long term relationship should be developed with th em (Ford, 2003). Hence, needs of coordination between business supplier and customer is greater in business market. As Simatupang et al. (2002) stated that greater coordination between distribution channels members will allow the entire distribution channel system become more flexible and allow them quickly response to the market changing. On other means, the way business supplier maintains relationship with their customer is vital to determine their long term sustainability and profitability. This emphasizes how development of business relationship or networking between business supplier and customer is vital in business marketing. In consumer marketing, marketers can utilize Customer relationship management system and gaining customer satisfaction and loyalty, hope that customers will stay loyal to the brand and buy it again. In business marketing, relationship development is much more complex. Cann (1998) suggested that there are eight steps for a business supplier develop busine ss relationship with customer; marketing goals, strategies, culture, customers orientation and socialization are critical in order for business supplier to develop business relationship. From these eight steps, it showed that business relationship development is much more complex in business to business world. Conclusion As a conclusion, there are seven key factors that differentiate business market from consumer market. The seven identified key factors include type of customers, demand, geographical concentration, buying expertise and process, buying decision making, seller and buyer relationship, number and size of customers. Structure in business market is much more complex than consumer market. Hence, handled business customer individually is more suitable. In fact, combi