Organizational Market – SS1 Marketing Lesson Note (Second Term)

An organisational market is made up of individuals and companies that buy goods and services for a use other than personal consumption.

Behavioural objectives

By the end of the lesson, students should be able to:

1. Define an organisational market.
2. State how organisational buying differs from consumer buying.
3. List the demand characteristics of organisational markets.
4. Explain the industrial (producer) market, the reseller market and the government market.
5. Give an example of value added by a reseller.

What is an organisational market?

An organisational market consists of individuals and companies that buy goods and services for some use other than personal consumption.

• Buyers: producers, resellers, and government and institutional customers.
• Products bought: anything from highly complex machinery to small components.
• Purpose: to make other goods, to resell, or to run the organisation or provide public services.

How does organisational buying differ from consumer buying?

Consumer buying is done by individuals for personal use. Organisational buying is done for a business, government or institution.

• Consumer buying: individual customers make decisions relatively easily and quickly.
• Organisational buying: the purchase involves thorough and deep analysis before a decision is made.

What do organisational buyers consider?

Organisational buyers mainly consider price, quality and the service the vendor provides.

• Price: the price of raw materials is the investment from which profit is made, so it affects the profitability of the firm.
• Quality: the goods must be good enough for the use the organisation intends.
• Service: no organisation wants to buy from a vendor who cannot give timely and efficient service.
• Group decision: several individuals influence the purchase, and no one person decides in isolation.

How do organisations check what they buy?

Organisations often check a sample before the actual purchase.

1. Most organisational purchases are products in large lots.
2. It is not feasible to inspect every item in the lot.
3. A sample is taken from the lot and checked.
4. The sample is assumed to represent the entire lot.

What are the demand characteristics of organisational markets?

Organisational demand for products or services may be inelastic, derived, joint or fluctuating.

• Inelastic demand: demand does not change much when the price changes.
• Derived demand: demand comes from the demand for consumer goods, as a bakery’s demand for flour comes from demand for bread.
• Joint demand: demand for one item depends on another used with it, as demand for cement goes with demand for sand in building.
• Fluctuating demand: demand for organisational goods can rise and fall sharply, often more than consumer demand.

Who buys in organisational markets?

There are three main groups of organisational buyers: producers, resellers, and government and institutional customers.

• Producers: buy goods and services to make other goods and services, using them as raw materials.
• Resellers: buy products to sell directly to other customers without any modification.
• Government and institutional customers: the government buys goods for public utility, for use in its departments or for production purposes.

What are the types of organisational markets?

There are three types of organisational market: the industrial (producer) market, the reseller market and the government market.

What is the industrial (producer) market?

The industrial market consists of organisations that buy products for direct use in making other products for resale, or for use in daily business.

• Who they are: businesses that make or create goods or services.
• What they buy: raw materials and machinery, often from other producers but sometimes from resellers.
• How to market to them: it needs technical expertise and knowledge of the producer’s operations.
• Typical strategy: identify problems in the producer’s industry or operations and propose cost-effective solutions.
• Time view: producers take a long-term view because their needs change slowly.
• Relationship: marketing to producers is usually based on long-term relationships.

What is the reseller market?

The reseller market consists of distributors, dealers, wholesalers and retailers who buy goods to sell at a profit.

• What they do: buy finished goods and resell them to the next level in a distribution channel.
• Modification: resellers do not normally transform the products they sell.
• Added value: resellers may still add some value, for example by bundling products from several manufacturers.
• Example: a computer reseller bundles hardware and software and sells the package to the consumer at a discount.
• Key factor in marketing to them: know the reseller’s added-value proposition.
• Wholesaler case: if a wholesaler offers low prices for high volume, marketers must make proposals that fit this.
• Specialist case: if a company buys specialised equipment to specification and resells on quality and reliability, the marketing will be different.

What is the government market?

The government market consists of local, state and federal governments that buy goods and services.

• Internal operations: goods and services bought to support the work of government departments.
• Public services: goods and services bought to provide essential services for citizens.
• Scale: agencies at all levels buy goods and services for critical government functions.
• Size: governments are huge customers for all kinds of products.

What is the difference between the three types of organisational market?

Evaluation

1. Define an organisational market.
2. State two ways in which organisational buying differs from consumer buying.
3. Why do organisations check a sample before buying a large lot?
4. List the four demand characteristics of organisational markets.
5. Give one example of value added by a reseller.

Assignment

Explain the following: (i) government market (ii) reseller market (iii) industrial market (WASSCE June 2017).