Let's say you live on a family-owned sheep farm. Your family produces hundreds of pounds of wool every day. Now you need to sell this wool in order to make a profit. But who'd be interested in purchasing several hundred pounds of raw wool?
This is the third video in Unit 7, Consumer Behavior. This is a bonus unit, meaning this topic isn't explicitly included on the official DECA exam breakdown, but it is a foundational concept you should know for both exams and role plays. Hello and welcome.
This is Lesson 7.3 Business Customers. Now let's get to work, team. In this video, we'll cover two main topics. First, we'll talk about the five types of business customers.
Then we'll go into the three ways of segmenting this business market. Those five types of business customers are producers, resellers, service businesses, the government market, and institutions. Let's break this down. Producers are businesses that buy raw materials and equipment and use them to produce products as well as components of products.
Producers may also be referred to as manufacturers. Our sheep farming family is a producer of wool and might sell to a textile mill, who produces wool socks. Resellers buy finished goods and resell them to consumers or businesses.
Examples are wholesalers and retail stores. So a reseller would buy the wool socks, not the wool. Now, remember that both producers and resellers may need to buy distribution and warehousing services. Check out our unit on distribution channels if you're a little unclear on this.
Service businesses provide services to either consumers or other businesses. For example, An accounting firm can provide accounting services to a manufacturer. An electric company can provide the electrical services to power our wool production tools.
A government market can also be business customers. Local, state, and national government offices all need to buy things. These groups often require a wide range of products and services, like airplanes, paper, and healthcare.
Maybe they're buying your finished wool for military uniforms. Finally, institutions refer to private and public nonprofit organizations such as schools, museums, and charities. Institutions also use a wide variety of products and services. Now, just like the consumer market, business markets can also be segmented.
This is when you create customer profiles to figure out the best way to market. There are three variables that can be used to segment the business market. Business type, customer size and location, and product use.
The first variable is business type, because different types of businesses have different needs. Like, most financial institutions might need ATMs, but a clothing store for sure doesn't need one. Businesses who sell ATMs can take advantage of this by directing their marketing to financial institutions.
Now, businesses use a list called the North American Industry Classification System, or NAICS, as a way to identify market segments. It's a numerical system that's used to classify business types. Leave a link to it down below in the description if you want to learn more.
For now, here's a table that shows you the classification. Each of these major NICS categories is divided into more specific subcategories. The second variable is business size and location.
Larger businesses have different needs than smaller businesses. For example, a private school might need to buy 200 computers, so they're more likely to prioritize affordability over performance. That's why Google markets their Chromebooks to schools as an affordable, easy-to-use laptop as opposed to a powerful laptop. But business size can mean a few different things. Sellers can look at a business's annual sales, number of employees, number of customers, and so on.
Businesses can also be segmented by location. For example, if you own a local cleaning service, then you're probably only going to market to businesses that are located geographically near you. Businesses can cater their products and services to either local or global business markets.
The last variable is product use. Different business customers use products very differently, so it's important for marketers to understand how to target customers who have similar uses for a product. For example, the steel market is huge, but there are a ton of uses for steel, so steel manufacturers might only target a specific niche within the industry.
There are three different reasons why businesses buy products. The first reason is to make new products. For example, a company might buy raw steel so that they can make school lockers, trucks, or airplanes. So you might market to businesses depending on what they do with the product.
The second reason businesses buy products is so that they can resell them to customers. If a business buys a finished product and resells it, they are called a vendor. An example is a company that purchases steel lockers to distribute to schools. Now the last reason is to operate the business. For example, most businesses need office supplies and machinery to properly run the business.
Now that we've gone over all the content, it's time to test your knowledge with a real DECA question. Pause the video and try to answer. The answer is D.
Quantity. Now, this question might come off as a little tricky, but let's break it down. From this lesson, we know that resellers take a certain amount of finished products and distribute them to buyers.
We also know that a wholesaler is a type of reseller. This wholesaler is reducing the discrepancy of quantity by breaking down a large amount of product into smaller groups for retailers. And here are the sources we used for this video. Feel free to check them out if you still have any questions.
Alright, that pretty much sums up lesson 7.3, Business Customers. Great work team and we'll see you in the next video.