1.1 The Peculiarity of Business Markets
In the broadest sense , this volume is about interorganisational business relationships. We will deal in this volume with markets commonly referred to as business markets or business to business (B2B) markets , in which buyers are businesses and other organisations. This study explores how buyers and sellersâwhen both are businesses or economic organisationsâinteract with one another and develop business relationships . Business markets tend to be neglected not only by the public at large, but alsoâsomewhat unexpectedly by many management and marketing scholars, possibly because business markets are much less visible than consumer markets. While most of us experience consumer markets more or less daily, few have information about and experience of markets for airplane engines, medical equipment, nuclear power plants, disc drives, braking systems for cars, reinsurance services or international logistics, just to name a few of the myriad business markets. Yet, these markets are behind all goods and services we benefit from as consumers and make the supply of goods and services to consumers possible. Being less visible does not mean these markets are marginal and of little interest.
However, business markets possess peculiarities that consumer markets do not and are important for at least two reasons. The first reason concerns the volume and value of transactions that take place between businesses and organisations. The volume and value of products and services sold between economic organisations dwarf those sold to consumers. The explanation for this is simple: for example, behind a consumerâs purchase of a laptop computer from Dell there are numerous transactions that have taken place between Dell and its direct suppliers of components, materials and services. Dell had to purchase parts from different manufacturers of computer components, as well as pay for the equipment and facilities required to assemble its computers. The company also has a wide spectrum of costs related to its products, including investments in communication and promotion, as well as insurance, accounting and financial services to keep its operations running smoothly. However, these are not the only transactions, as there have also been transactions between the suppliers of Dellâs suppliers, and possibly between the suppliersâ suppliers. In contemporary business, the chain of transactions that is concluded when a consumer purchases a product tends to be very elaborate and reflects all the necessary transformations of primary resources into products and services we consider fit for use as consumers. Multiple transactions in business markets precede each purchasing event and transaction in consumer markets.
It is estimated that the volume of sales and deliveries between businesses and organisations is three to four times the volume of sales in consumer markets, which clearly suggests that business markets are the most common type of market (Hutt & Speh, 2013). Most of the academic literature on marketing neglects, if not underestimates, the economic importance of business markets, even though they evidently account for a major portion of markets in general. While we lack precise statistics, a reasonable estimate is that seven out of ten businesses actually operate in markets in which customers are other businesses and organisations .
The second reason why business markets are important is more complex. Business markets represent the backcloth of economic efficiency, development and innovation in the economic system. The efficiency and productivity of economic systems, the rate of growth of an economy and innovation rates appear closely linked to how well business markets perform and develop. In turn, how well business markets work depends on how well the businesses that operate in these markets can become related to each other and co-evolve. Without well-performing business markets there would be no technological progress, no innovation and no globalisation. Well-performing business markets are also conducive of new business development. Novel products and services in consumer markets build on innovations put in place in related business markets, as well as continuous improvements in equipment, materials, components and the like, carried out by businesses that operate in business markets.
What about the specificity of business markets? Considering their importance in value and for innovations, the question is whether business markets are really different from consumer markets and display features that are not well captured in the conventional conceptual frameworks and market theories as they are brought forward in the most popular marketing textbooks. Considerable empirical evidence shows that business markets have features that are substantially different from those characterising consumer markets, which we are more familiar with (e.g., Anderson, HĂ„kansson, Johanson, 1994; HĂ„kansson & Snehota, 1995). Research shows that business markets tend to have several peculiarities that make them diverge from common assumptions about how consumer markets and markets in general work and that these peculiar features cannot be explained using common mainstream conceptualisations of markets (Waluszewski, Snehota, & La Rocca, 2019). The peculiarities of business markets are due to the characteristics of business customers, their needs and demands on suppliers.
The first feature typical of business markets is a relative concentration of customers and suppliers. At first glance, it is rather obvious that business customers are fewer and buy in larger volumes than consumers. Concentration in various industrial sectors and organisations in various fields of economic activity is considerable. While hospitals are rather numerous, there are far fewer hospitals than patients, and a hospital makes use of a far greater quantity of products and services than an individual consumer or family. There are few producers of personal computers and mobile phone handsets globally and these demand equipment, components and services from relatively few suppliers of equipment, components, materials and/or logistical services. The relative concentration that we encounter both on the supply side and customer side is one feature of business markets that is at the origin of their peculiarity .
The second major feature that has considerable consequences for business markets has to do with the purpose of procurement. Businesses and other organisations buy in order to secure the continuous supply of inputs necessary for their operations. There is a continuity in operations of a hospital, personal computer production or steel production that has consequences for the procurement. Organisational buyers do not, as a rule, shop and engage in single discrete transactions. Purchasing in business organisations is in the sign of continuity of supply to sustain and satisfy the needs of the continuous operations of the customer organisation.
Relative concentration on both the supply side and customer side and the continuity in supply for operations in business markets translates in the main peculiarity of such markets, which is the presence and importance of continuous business relationships that arise among customer and supplier organisations. Given the relative concentration of business markets, single customer-supplier relationships tend to become singularly important for both suppliers and customers. In many cases, a dozen main customer or supplier relationships account for the major part of sales/purchasing. Customers and suppliers in business markets become both mutually and singularly important to one another. As a consequence, business markets appear to be more about how buyer and seller organisations and their operations connect to each other (Cespedes, 1995) and relate (Johanson & Vahlne, 2011), rather than simply about single discrete market transactions (Dwyer, Schurr, & Oh, 1987; HĂ„kansson, 1982; HĂ„kansson, Ford, Gadde, Snehota, & Waluszewski, 2009).
Buyer-seller relationships in business markets tend to be complex in the content and impact they have on the two organisations involved in the relationship. It has been noted that buying and selling activities (and transactions) can be seen as episodes in complex and often long-term relationships between companies. Many different activities are going on in a rela...