The Four Different Types of Business Markets
Meet Carlton the Courier. His job is to deliver whatever his customers need as fast as he can. Carlton has never lost a package or been late for a delivery. Many of Carlton's customers think he is the best courier in the world. One time, Carlton was delivering an enormous wedding cake, and his truck got a flat tire. Carlton hailed a taxi, strapped the cake to the roof of the cab, and made his delivery just in time to hear the bride say, 'I do.' There are four different types of business markets, and Carlton delivers different goods to all four types.
Business Markets Defined
A business market is made up of groups of people who buy goods and services to use in producing other products, to resell, or for their own use in their day-to-day operations. The four different types of business markets are:
- Producer markets: Producers buy goods and services and transform them into a sellable product, which they sell to their customers for the purpose of making a profit. Examples of producers are farmers, manufacturers and construction companies.
- Reseller markets: Resellers buy finished products and resell them to their customers for the purpose of making a profit. Resellers do not modify the products they buy. Resellers can be wholesalers who sell their products to other resellers or retailers who sell their products to end users.
- Government markets: Governments buy goods and services to support their internal operations; they do not transform the goods and services or resell them to make a profit. Government markets usually buy their goods through a bidding process and include federal, state, county, and local governments.
- Institutional markets: Institutions are non-government organizations that buy goods and services to support their internal operations. The function of institutions is to better their communities, not to make a profit. Examples of institutional markets are churches, hospitals, and colleges.
Business Markets in Action
On an average day, Carlton will serve all four business markets. His first delivery today is to Manny's Mattress Factory. Manny is about to run out of the springs he puts into the mattresses he makes. If Manny can't make mattresses, he can't sell them and won't make a profit. Manny is a producer who transforms many different parts into mattresses, which he sells in order to make a profit.
Carlton's next delivery is to Paula's Pet Store. Paula is having a sale on iguanas today and has almost sold her entire inventory of heat lamps. Since iguanas must have a heat lamp, she cannot sell any more iguanas until Carlton delivers more heat lamps to her. Paula tells Carlton to hurry because without the heat lamps, she is losing sales, which will have a negative impact on her profits for the day. Paula is a reseller since she does not transform the products she sells and does try to make a profit.
After delivering the heat lamps, Carlton gets an urgent call from City Hall. The mayor is giving a speech in thirty minutes, and they don't have enough folding chairs for all the reporters who are going to be there. City Hall is a government market that buys goods and services to support their internal operations. Government markets do not try to make a profit.
It's getting late in the day when Carlton gets his last call. An administrator from the hospital calls Carlton and tells him they had more people than expected turn out for their blood drive, and they are running out of sterile gauze. Businesses, like colleges and hospitals, are institutional markets. They buy products to support their internal operations, and their goal is to better their community, not to make a profit.
Why the Four Business Markets Are Important to Marketers
Selling goods and services to business markets is different than selling goods and services to consumers. Each of the four different types of business markets buys goods and services in a different way. Producers and resellers typically make repeat purchases and are more time-sensitive in their needs for products. Governments and institutions often buy products through a bid process. It is important for marketers to be able to identify each of the four types of business markets so that they can adjust their promotional effort to effectively reach each market.
Let's review. The four types of business markets are:
- Producer markets: Producers transform what they buy into a sellable product and sell the product in order to make a profit.
- Reseller markets: Resellers buy finished products and sell them to their customers in order to make a profit. They do not change what they buy.
- Government markets: Government markets buy goods and services to support their internal operations. They do not try to make a profit.
- Institutional markets: Institutions buy goods and services to support their internal operations. Institutions do not try to make a profit; their goal is to better their community.
Business markets buy goods and services differently than consumers. It is important for marketers to be able to distinguish between each of these markets so that they can modify their marketing message to effectively reach each market.
Following this lesson, you'll be able to:
- Describe the four types of business markets
- Explain why it is important for business marketers to understand the different types of markets
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