Market Structure and Demand

The business marketer normally deals with far fewer but far larger buyers than the consumer marketer does. For example, when Michelin sells replacement tyres to final consumers, its potential market includes the owners of cars currently in use. But Michelin's fate in the business market depends on getting orders from a few large car makers. These sales of original equipment are doubly important, since many people replace their tyres with the brand already on the car. Even in large business markets, a few buyers normally account for most of the purchasing.

Business markets are also more geographically concentrated: international financial services in London, petrochemicals and synthetic fibers around Rotterdam and Amsterdam, and the movie industry in Hollywood. Further, business demand is derived demand - it ultimately derives from the demand for consumer goods. Mercedes buys steel because consumers buy cars. If consumer derived demand Business demand that ultimately c&mesfrom (derivesfrom) the demand for consumer goods.

Tencel to the people who sell mi garmen ts, Co the retailers who sell them to consumers, consumers pulls the fibre

inelastic demand Total demand fur a product that is not much affected by price changes, especially in the short run.

demand for cars drops, so will the demand for steei and all the other products used to make cars. Therefore, business marketers sometimes promote their products directly to final consumers to increase business demand (see Marketing Highlight 7.1).4

In late 1997 Ron Woodard, the boss of Boeing Commercial Airplane Group, was half-jokingly asking airlines to decrease their orders to ease Boeing's over-stretched production. In January 1998 he got more than he asked for. Following the economic troubles in south-east. Asia and the resultant decline in local air travel, airlines all over the region were renegotiating orders. Philippine Airlines said it planned to cancel four 747-400 jets, Malaysian Airlines System wants to delay the delivery of 20 aircraft up to five years, Garuda Indonesia left Boeing stranded with jets it ordered but could not afford and stopped lease payments on six new Airbus A330s. More trouble is on the way as Korean Air's value drops to less than three of its fleet of 45 747s.s

Many business markets have inelastic demand: that is, total demand for many business products is not affected much by price changes, especially in the short run. A drop in the price of leather will not cause shoe manufacturers to buy much more leather unless it results in lower shoe prices, which, in turn, will increase consumer demand for shoes.

Finally, business markets have more fluctuating demand. The demand for many business goods and services tends to change more — and more quickly -than the demand for consumer goods and services does. A small percentage increase in consumer demand can cause large increases in business demand. Sometimes a rise of only 10 per cent in consumer demand can cause as much as a 200 per cent rise in business demand during the next period.

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Responses

  • Mandy
    When compared to the consumer market, the demands for goods and services?
    5 years ago

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