Page 216 - Foundations of Marketing

Business Markets and Buying Behavior | Chapter 7 183

reordering easy and convenient for business buyers. A supplier may even monitor the business
buyer’s inventories and communicate to the buyer what should be ordered and when.
For a modifi ed rebuy purchase , a new-task purchase is altered after two or three orders,
or requirements associated with a straight rebuy purchase are modified. A business buyer
might seek faster delivery, lower prices, or a different quality level of product specifications.
For example, business customers of HP products, featured in the advertisement, are likely
to use a modified rebuy purchase. Orders may be similar over time, but demand for specific
business products and supplies may fluctuate in cycles that mirror periods of high and low
customer demand. A modified rebuy situation may cause regular suppliers to compete to
keep the account. When a firm changes the terms of a service contract, such as modifying
the speed or comprehensiveness of a telecommunication services package, it has made a
modified rebuy purchase.

DEMAND FOR BUSINESS PRODUCTS LO 3 . Understand several attri-
butes of demand for business
products.
Demand for business products (also called industrial demand ) can be characterized in differ-
ent ways, either as (1) derived, (2) inelastic, (3) joint, or (4) fluctuating.

Derived Demand
modified rebuy purchase
Because business customers, especially producers, buy products for direct or indirect use in the
A new-task purchase that is
production of goods and services to satisfy consumers’ needs, the demand for business products changed on subsequent orders or
derives from the demand for consumer products; it is therefore called derived demand . In the when the requirements of a straight
long run, no demand for business products is totally unrelated to the demand for consumer prod- rebuy purchase are modified
ucts. The derived nature of demand is usually multilevel in that business marketers at different
derived demand Demand for
levels are affected by a change in consumer demand for a product. Take a look at the advertise- business products that stems
TM
ment for Dow’s FILMTEC reverse osmosis filtration membranes. This is a product strongly from demand for consumer
affected by derived demand. As global demand for clean water increases, so does demand for products
TM
water filtration systems. Because the FILMTEC membrane is used in these systems, Dow inelastic demand Demand that
sells more products as more units are produced and sold. Particularly in parts of the country and is not significantly altered by a
the world where drinkable water is in short supply, demand for Dow’s product will increase. price increase or decrease

Inelastic Demand
With inelastic demand , a price increase or decrease does not
significantly alter demand for a business product. A product
has inelastic demand when the buyer is not sensitive to price
or when there are no ready substitutes. Because many business
products are more specialized than consumer products, buyers
will continue to make purchases even as the price goes up.
Because some business products contain many different parts,
price increases that affect only one or two parts may yield only
a slightly higher per-unit production cost.
Inelasticity of demand in the business market applies at the
industry level, while demand for an individual firm’s products Courtesy of Dow Chemical Company
may fluctuate. Suppose a spark plug producer increases the
price of spark plugs sold to small-engine manufacturers, but
its competitors continue to maintain lower prices. The spark
plug company that raised its prices will experience reduced
unit sales because most small-engine producers will switch to
Derived Demand
lower-priced brands. A specific firm, therefore, remains vul- Dow’s water filtration membranes are affected by derived demand.
nerable to elastic demand, while demand across the industry As demand for water filtration systems increases, so does demand
as a whole will not fluctuate drastically. for this product.

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