[Music] [Music] Hello friends welcome to the class uh of busines to business marketing today we'll begin with the third lecture so uh in the initial one first and second lecture we discussed we introduced the course of busin to business marketing where we also said that B2B markets are also called as the producers Market uh other sometimes industrial Market also right and uh this is quite a large uh Market in size and uh in comparison to the uh consumer markets right the beauty of uh the business to business Market is that it cats to both uh
exclusively the industries the factories the business houses and as well as it deals with certain products which are used also by the end consumers like the retail consumers okay we also discussed about the type of uh customers involved in the business market and uh the different uh kinds of goods uh available in the business market right so today we'll be continuing from there and we'll be trying to understand how uh you know the business to business Market is different from the business to Consumer market right so what exactly is the difference so when I was
going through the news today and I was I was reading that the growth story in India is going to be in a very fast pace right especially in the B2B market right so this is a cal research report which states that India this year is going to grow very fast because of these certain sectors for example renewable Health uh and largely driven by the business markets okay this obviously this industry has a huge impact on the on the lives of the people the government its policies everything right so let's see uh what exactly is the
difference because when I say uh consumer Market immediately you know things that come to your mind is like for example the consumer products like soft drinks you know the deter gents you know Cosmetics these are very easy to uh recall but generally we cannot recall about B2B products the simple reason being that they are not used directly by the end consumer but it acts as only a facilitator to the producer and with the help of these products or Services the producer then products the end product which the finally the consumers like you and me enjoy
okay so let's understand what the key areas of difference so the key areas of difference between the B2B and the b2c market maret is in terms of the market structure the buyer Behavior the decision making process the kind of products involved in the B2B and the b2c market the price the pricing strategies involved in the B2B and the b2c market the distribution Channel involved and the way the products are promoted you know in the B2B market and the b2c market and finally the purchasing decisions so these are some key areas which uh actually help in
understanding or differentiating these two markets so let us go one by one slowly and understand them at length Okay so uh you know when I'm saying uh in terms of Market structure as you can see this you know diagram this is a small piece picture so you can see that there is it seems like some Industries are there and they are all close to each other okay now the first point when I uh talk about Market structure is that consumer markets are geographically Diversified right they are spread across the whole nation right but the other
hand if you look at B2B marketing the most of the markets are geographically concentrated right so that is why I I I'm I have shown this photo where you can see that the uh you know the producers are all close by to one another right and uh it's not that there's no reason behind it there's a there is a genuine reason why these uh Industries have to be concentrated in nature because they are generally close to the buyers right so the seller and the buyer when they are close to each other obviously the cost of
operations the cost of transaction the supply chain cost they all come down uh substantially right so that is one reason which uh has been uh a major uh you know difference difference Creator between these two markets then you have large number of customers when I talk about a consumer product the number of customers involved is huge maybe they are in crores millions and crores right but on the other hand if you look at the B2B marketing the number of buyers will be fewer in numbers but the volume of buying if you see will be very
very high right if the the per uh you know unit consumption for a retail consumer is one or two in that time the same uh condition a organization may buy in thousands or hundred or even lcks okay the kind of competition we look at is uh in the consumer Market is like a monopolistic competition where you know uh there are lots of producers lot of uh you know sellers in the market on the other hand in the B2B space you find very few players so you don't find too many players because the simple reason is
is that there is a huge competition in this market and you know the entry uh you know barriers are very high and even the exit barriers right so I'll explain each of them right interestingly one thing that you find is that in the consumer Market the demand is direct so for example if Hindustan un liver limited which is a uh is one of the biggest fmcg companies in the in India and espe in the world too right Hindustan un Li limited now when it wants to make a forecast of its products which is like soaps
detergents aages everything so they can make a you know uh forecasting which is more simpler because they can directly understand the consumers uh psychology the the necessity the the change in Trend and maybe you know even the competition the number of competitors in the market and the kind of substitutes available in the market that is is relatively simpler but since uh you know the B2B products are consum by a producer who then produces a final product for the retail consumer or end consumer in that case the entire forecasting becomes a big challenge so what I
mean to say here is for example let's say this is a case of a detergent right detergent now how many units of the detergent will be required we can just maybe say let's say 50% of the uh Hindustan un Li thinks 50% of the population now which is equal to maybe 50% is uh 1X 2 into the population of let's say one particular place is let's say uh you know 10 lakh people so 10 lakh so this is if the let's say now if I multiply with one products cost being 10 Rupees so I can
just say 5 lakh into 10 so which is 50 lakh so I can make a simple calculation but now look at it now the detergent is being produced in through a machine right so in a there's a a mold there is a proper production system completely arranged now for that production process there are one machine can produce let's say uh let's say thousand uh soaps per let's say, or one lakh soaps per year okay now if one lakh soaps per year it can produce let's say and here there is a requirement of five lakhs right
so that means we simply will say that we require five machines right so how do you come to know now because you have come to know that there is a demand of five lakhs so my one machine can produce one lakh uh you know units uh soaps per or detergents per year so I will need at least five machines for that right but the question is not is not that simple right since you are not directly playing in this industry you do not know how to forecast the you know the sales of detergents for which
your machine is required that is one thing and second you can't keep track as Hindustan un limited can keep track of the market you cannot keep track just because you are less uh you have less information in your hand right and one more thing is the demand if it changes let's say that it because of coid let's say there was a fall of 25% demand now this 25% demand fall fall in demand how will it be get reflected in for the business house or the producing the B2B Market how many machines should it now produce
accordingly so so these are the challenges that they have to face because it's a not a direct demand it's a derived demand so you derive it for example a car manufacturer now a car manufacturer for example let's say there is a increase in the demand for cars this year because last year or let's say last year there was a shortage in the you know microprocessors and chips and there that's why the number of automobiles that could be produced was affected now if you see if that was affected then a car has several parts right so
batteries let's say seats engine you have several parts now tires now everybody is connected to the car if suppose one car is sold then automatically these some X number of units of these also are sold so so this becomes a real challenge now okay how do we understand because this is not direct so you have a indirect demand or you have to have a derived demand so to calculate from this from by understanding the number of cars that can be sold your forecasting has to be done as a from a B2B perspective I'm saying so
this is a challenge and the final point is the cross elasticity now what is cross elasticity so cross elasticity is a change in response now when let's say there are two companies or there is a company which changes the price of its products so when it changes the price of its products what happens to its substitute products or what happens to its you know complimentary products so when you see uh the b2c market largely the products are substitutes in nature right so if one product increases let's say if tea and coffee you know are substitutes
and if tea prices are raised then people will jump towards coffee so they will try to drink coffee more than tea because the price has increased so this is something which it says so cross elasticity is nothing but d q by DP so d q which is change in quantity with uh depending on the change in price right but in case of a B2B Market it is a it's a it's basically they behave like compliment products now what do you mean by complimentary products now let us say if you buy a printer so or a
car so when you buy a printer the cage automatically is connected to the printer right so if the price of let's say catridge is increased so what will happen so there will be sales in the fall in the sales of catridges and automatically when there will be fall in the sales of catridges it will affect the uh sales of the printer or visa versa if the printer increases its price let's say so there will be sell uh decrease in the sale of printers and when there is a s decrease in the sell of printers there
will be a less requirement of catridges so catridges also get affected so this is a case where complimentary products are available now I have explain these terms for example I have used for example monopolistic competition now what it says many firms compete in the same space but for slightly different customer groups now for example look at hotel now there are large number of producers no doubt about it or service providers now every Hotel uh tries to give you some security or space for taking rest or something but is it true that we can compare all
hotels at one go no it's not possible because certain kind of consumers will require a cost effective Hotel somebody may go for a luxury so although they all are cering to the customers but they are set cering to different kinds of customers so the products cannot be termed perfect substitutes okay because here one is a poor man who wants to go to economical hotel and somebody's a rich man he wants to go to a very costly Hotel okay derived demand I said increase in demand for Education example increases the demand for professors so professors like
us will be in higher demand if the demand for Education increases there'll be demand for computers infrastructure markers you know even pointers chalks notebooks school bags Etc so this is a derived demand if just in this country suddenly the government increases the budget for Education see it is not only education that is directly affected it is all the related Industries complimentary Industries which are connected to this you know to the education so they are all positively affected right cross elasticity of demand as I said is a responsiveness in quantity demanded for one good due to
a change in price in another so it is positive for substitute Goods like tea and coffee so if tea increases price the demand will shift towards coffee but it is negative for complimentary groups like printer and catridge I said finally this point if you look when I said geographically concentrated right and this is geographically diverged why is it we have to understand there is a you know there is a you know theory behind it which comes from the transaction cost economics or largely you can understand it through the transaction cost right this theory was given
by Oliver Williamson in 1975 who said that there are five determinants of the transaction cost right every company would like to reduce the transaction cost as much as possible so that the cost of the product can come down and once the cost of the product comes down automatically there will be more number of buyers for the product Okay so so in order to do that they have to be as close as possible they have to stay together they have to that is why if you see any mother plant like steel plant or any big plant
which is called the mother plant then you will see that there will be a lot of ancillary uh units or Industries around close to the mother plant why these industries will be supplying or supporting with the different kinds of work in components you know materials parts to this mother plant right so they have to be closed so that in case there is a certain demand or certain urgency requirement then they can immediately pass on to the products to the or service to the company and as a result they also get a good amount of business
and the buyer gets it at a much faster pace and a lesser price okay so Williamson said there are five points as uh you know which affects this transaction cost one is frequency asset specificity it is called specific assets also it is called sometime sometimes uncertainty bounded rationality and finally opportunistic Behavior so these five points are ones which affect the you know uh transaction cost of any any firm okay now let me talk about these three first opportunistic Behavior so when you talk about frequency so it is like how many times you want to give
order right so every organization B2B organization uh you know any business organization will give an order right to buy something now how many times will it place an order right that will depend on how much of space it has got and how much is the you know cost of ordering so and what is the cost of holding so all these different things will lead to its taking a decision that how frequently it should buy should it for example if it is a very uh is a product which can change very fast or you know the
life cycle is very short in such a condition the frequency of buying has to be more because they cannot hold it if they hold it then maybe this product may become Obsolete and the demand for this product may come down so that is one thing frequency second thing that you talk about is uncertainty now how much of uncertainty is there in the market what is the level of uncertainty prevailing for example you see technology changes very very fast right so when technology is changing new substitutes are coming into the market what will happen to the
earlier products will they will they stay will they be out of the market what will happen for example nowadays you can see now you know many different startups have emerged uh which are providing specific Services right now this has created a kind of uncertainty in the market for the existing large players who are earlier providing the same Services now in such a condition here the government is encouraging startup which is a good thing right so compet competition will increase now with increase in competition how would the organizations the the business firms how would they you
know tackle this problem right then uh I'll talk about opportunistic Behavior opportunistic Behavior actually is nothing but which Williamson says that people or human beings are opportunistic in nature so they would try to maximize their benefit by switching their sides okay so somebody they would not take a waste a moment to shift their sides in order to take an opportunity right or take advantage of the opportunity so this is a natural behavior we can't feel good or bad about it right it's a natural behavior so it is better to understand that it is the human
psychology this is how organisms are made so if this is the behavior then how do you handle this Behavior how do you cater to this Behavior this is something that is that has a significant relevance or signicant impact on on the transaction cost for example let's say you are depending on a supplier and the supplier suddenly doesn't Supply to you just because it feels that you know you are paying a low price so so it it sells its products to another buyer who is ready to willing to pay a higher price now your entire supply
chain is disrupted so how would you deal with this kind of situation then there is something like the two remaining are asset specificity what it is saying it is a degree to which an asset can be used for multiple purposes now let's say you have uh learned about flexible manufacturing systems and all so when you talk about how an asset can have multiple utilities right so more the utilities the the the cost of the asset is spread across these uh different utilities but let's say a particular asset has been made for a particular purpose let's
say in that case if the buyer or the user doesn't uh continue its purchasing or buying then what will happen to the supplier who has created the specific asset or a particular asset designed for this particular buyer so that will be that will create a lot of trouble for the seller right so example it says this can be equipments designed for a particular function or labor trained to form a single task right examples are softwares oil drills jetliners assembly lines which are not easy or cheap even to be flexible or they cannot be easily uh
manipulated or they cannot be changed easily right so these are specific purpose machines or you know Technologies so it is very difficult in such a condition for to change or you know which is called in simple terms which we say in you know is switching cost the switching cost is very high with such kind of machines or Technologies the switching cost is very high and when the switching cost is very high that means if you want to change it l leads lot of uh labor lot of you know design changes infrastructural changes and all these
things so when you are doing it automatically there's a heavy cost involved so firms would not like to do it until unless there is a clearcut gain out of it now look at this case if a buying firm offers a contract to build a new Gadget that has an unusual form and requires different kinds of materials in such a case a new and expensive machine must be custom built just to manufacture this gadget now you want a gadget you have ordered a gadget from me right now I am ready to uh you know make it
but to make that I will need a specially designed a machine for it right now since human beings are opportunistic we said so maybe if tomorrow you don't buy the you know Gadget from me then what happens to the entire investment I have made for this machine and all they all wasted right so these are the kind of risks involved that is why there is some contractual you know contracts or you know some legal uh challenges that come in when you talk about specific assets so firms try to create build a contract or uh have
a legal binding so that you know one doesn't ditch the other okay the second point was bounded rationality which was given by Herbert Simon right where he said human decisions differ from economically rational decisions right due to why what's the reason due to cognitive ability social limits time constraint and imperfect information example let's take an example now while purchasing in a store you you went to a store and you want to buy something now you might not have information about the product or whatever is your level of information that will have an impact right now
how much of time you have if it's an urgency so you may not be able to search well and maybe you may pay a higher price right or you know what is the person's cognitive ability many cognitive ability is your mental ability now what kind of mental ability he has or she has that also plays a very vital role in decision making and finally maybe the behavior or the relationship with the storek keeper or the salesperson can also have an impact so Harbert Simon had said that human beings suffer from bounded rationality we all know
that some of the best people have taken the worst silliest decisions in life and we get surprised we feel how can he do that right or she do that actually this is something like a simple equation which can be uh created by taking these factors like cognitive ability into social limits into time constraint into imperfect information all these together right so these are the few things that business it affects the business producers or the business organizations in a large way so they you need to understand that business organizations if they do not understand then the
cost of transaction will go up and once the cost of transaction will go up it will have a profound effect on their profitability their business relationship with their uh you know their Partners so all these things right now coming to the second point which we are going to talk is the buyer Behavior now when we are talking about buyer Behavior so what is the difference between the consumer market and the B2B market so this is a you know uh product which is a consumer product and this is a lift truck as simple as you can
see which is a business product because you don't buy a business uh you know a lift truck for your home right so the first thing that it talks about is teams for example uh people from marketing uh Finance HR uh production uh it they all might be involved in the uh buying process you know uh in the of the B2B products right so B2B product purchasing is generally done by something called a buying Center so I I I'm just writing here I'll explain buying Center later on right buying Center so these buying centers are nothing
but a group of people taken together from different functional areas who are involved with a particular product right so it could be just a Ider who is the vice president or president of a company or you know a soft floor mechanic who is using this product or you know a marketing guy who wants a different kind of design anybody right consumer markets are all about impulse buying largely So when you buy a chocolate or a detergent you don't think much right you impulsively buy it because it's a low involvement product it's a low involvement product
generally it's a low involvement product product but these are all high involvement products why these are high involvement products because you see because if you if you buy a machine and for some reason the machine doesn't function the story doesn't end there rather what happens is that it affects a entire line of production for example you see if if let's say this lift truck doesn't function there's some problem with the lift truck then what will happen the material handling will get affected so you can't put the different materials the right places as because of this
maybe searching a material during production will take a lot of time so there will be unnecessary wastage which will all if you add up the idle time the you know the the idle labor and all it will have a strong uh Financial effect right so this is very important that's why there is a int there's a rational buying decision because the marketers in the B2B space are extremely conscious and they are careful about what they are buying they will never be affected by who is the celebrity who is endorsing or who is telling about it
it is not important for them and then third is it's there's no technical expertise obviously and here there's a large technical expertise involved right so that is why we say the B2B marketers generally people who are from a technical background they prefer it more rather than uh you know people who do not have a technical background because here you need to think like a you know engineer or a you know system manager or somebody so you need to understand those words those jargons those quotes better this you can learn it through experience no doubt but
then these are taught to people who are from a background of engineering or somebody right no reciprocity and here reci what does it mean that means if you buy if there is a manufacturer and there is a sell uh you know buyer seller and buyer let's say so there's only one direction right so the manufacturer sells it to the CNF agent to the distributor comes from the distribut retailer then to the buyer and which are which is you and me but there's no reverse reverse flow right it happens which is called reverse Logistics but generally
it is not to be considered but what happens here here every Act of purchase or Every Act of buying has an involvement of negotiation has an involvement of reciprocity that means what the buyer the seller would constantly seek information from the buyer to know what it requires why why this is happening the simple reason being that you know this is a customized Market B2B Market is a customized Market here everything is done according to the need and specification of the buyer so this is generally not a standardized product it is generally a customized product so
that is why a lot of discussion will happen between the buyer and the seller all the time right and last uh uh is there is no requirement of personal relationships in this case but since as I said in the earlier point also there's a lot of discussion going on personal relationships are very very important and in fact the entire sales happens through a personal relationship basis or relationship marketing is very very important in a B2B space or B2B marketing rather in comparison to the consumer marketing right okay that's for the day thank you very much
so I hope you have understood what I have explained uh we'll meet in the next lecture thank [Music] you [Music] a
