Page 93 - DMGT408DMGT203_Marketing Management

Marketing Management/Essentials of Marketing

Notes Fewer but Larger Buyers

The number of organisational buyers is very small unlike individual consumers who are
numerous. Organisations place purchase orders for raw materials and supplies etc. that involve
substantial amounts of money. There are just a few manufacturers in the auto industry but they
buy tyres that involve huge amounts of money. In the consumer market these companies face
millions of vehicles needing tire replacements.

Example: Branded computer manufacturers are relatively few and buy Intel or AMD
processors in large numbers. Independent assemblers of computers are numerous and buy few
processors at a time.
Derived Demand

Organisational demand is derived demand because organisations purchase products to be used
directly or indirectly in the production of goods and services to satisfy consumers’ demand.
Consequently, the demand for products is derived from the demand for consumer products.

Example: Branded computer manufacturers have demand for processors and other
hardware and software to produce home computers because there is demand for computers by
consumers. If for any reason, consumer demand for computers takes a nose-dive, the demand
for processors and other components from computer manufacturers is also likely to take a nose-
dive.

Demand is Inelastic

The demand for many organisational products is inelastic. This means that an increase or decrease
in the price of a product will not significantly influence demand for the product. Total industry
demand for goods and supplies that they use remains relatively unaffected by changes in price
in the short run, unlike consumer demand that shows remarkable elasticity to price changes.

Example: If the price for computer hard disks decreases, their demand is unlikely to
increase. However, when car manufacturers reduce the price of their models, there is a spurt in
sales and as the prices are raised, demand decreases.

Joint Demand

In certain instances, organisational products can be used only in conjunction with other products.
There would be joint demand when the sale of one product is dependent on the sale of another.

Example: Companies producing petroleum require additive products like octane and
boron. If the company cannot obtain any one of the two products, it does not need others.

Fluctuating Demand

Compared to consumer demand, organisational demand fluctuates widely. The demand by
organisational buyers is closely related to the economic cycle. In case of economic slowdown or
reverses, organisational buyers use up the existing inventories and postpone purchases. When
the economy is buoyant, organisational buyers may build large inventories of raw material and
spares, buy office equipment and other items.

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