How business markets differ from consumer markets

Exemplify how companies develop brand images
for consumer markets and the characteristics of
international business markets
◦ Consumer needs & wants vary greatly across
◦ Therefore, consumer products companies more
likely to use adaptation strategies
◦ Local companies often have advantage over
global brands because they understand local
consumer market better
◦ Consumer market promotion is moving heavily
toward the internet
◦ Web sites for global companies often have the
same design across countries, even when using a
different language
◦ Price is what is given up in exchange for receiving
a product.
◦ Bartering: Global pricing can use bartering,
exchange of one product (good or service) for
another product (good or service)
◦ Prices in wealthy countries tend to be higher than
in poor countries.
◦ Purchasing power parity (PPP) Global pricing
depends on the ability of each market to pay.
Purchasing power parity (PPP) measures how
much of a product a certain country’s currency
can purchase. Pricing for local markets typically
uses PPP to establish each price.
◦ Companies have two methods of setting prices in
global markets:
 Standard global price: difficult to establish
because of added distribution costs and taxes,
which are different in every market
 Local market price
◦ Luxury market would most likely use standard
global pricing since individuals with high incomes
are more likely to have similar needs and wants
and an equal ability to pay
◦ Otherwise, products could be purchased in
cheaper markets and returned to the local market
as a grey market product
Companies that purchase products for the
operation of a business or for re-sale.
Five different types of products purchased in
a business market:
◦ Raw materials: unprocessed products used to
produce other products such as chemicals, minerals
or natural agricultural products
◦ Equipment: capital equipment (land, buildings, major
machinery) or operating equipment (less expensive
equipment used to operate a business such as
computers or telephones)
◦ Supplies: materials consumed in the operation
◦ Component parts: partially completed parts
assembled to create a finished product such as a
steering wheel or tires on a car
◦ Services: transportation, banking, promotion,
accounting, clerical, maintenance
Total sales in business markets are larger than
consumer markets
Business markets operate on Derived demand:
the demand that comes from the end purchaser
Business markets compete mostly on price.
Exporting is more common in business to
business (B2B) markets.
(describes Derived Demand)
A specific type of business market. Distinct
characteristics of industrial markets include:
◦ Classification: markets are segmented by type of
product or how products are used in a business. (i.e.,
automobile parts)
◦ Industrial Buyers: Many cultural differences in
motives, authority and negotiating style for industrial
buyers in different countries. More complex decisions,
more service needs, more value oriented.
(Demonstrates industrial classification system)
Characteristics include (cont.):
◦ Relationship Development: Strong links between
businesses, strong network of relationships
where sellers and buyers are dependent upon
each other.
◦ International Orientation: Most industrial
relationships are global. Raw materials and
component parts are shipped to countries with
low labor costs and final products are shipped to
consumers worldwide.
◦ Uniformity: Industrial products have much less
variation than consumer products.
Goods that cannot be easily differentiated.
◦ Commodity products are traded in global
commodity markets with set pricing based on
total supply of the commodity and global
◦ Examples are petroleum, grain, minerals and
Business to business markets are more
likely to export.
◦ Export pricing involves tariffs, taxes and
expenses for necessary country specific
◦ Companies often develop a dual-pricing system using
the following methods:
 Cost-plus method: All export costs are included in the
price of the product and a % markup is added to the
total cost which can lead to very high prices in certain
 Marginal-cost method: Companies look at only the
additional cost of materials and labor to produce extra
product to sell to that country. This method is used for
more competitive markets or when total sales are low.
 Marginal cost explained