Derived And Fluctuating Demand: The Characteristic Of B2B Ma ✓ Solved

Derived And Fluctuating Demandthe Characteristic Of B2b Mar

Topic 1: Derived and Fluctuating Demand The characteristic of B2B markets that is most opposite of B2C markets is the concept of derived and fluctuating demand. These concepts explain why when consumer purchasing goes down, the effect on the economy is multiplied by all the transactions that occur throughout the channels. A slowdown in consumer spending is not good for the economy. Here are some examples of derived demand.

A good way to illustrate derived demand is with an example. Observe the increase in tourism that often occurs after a specific location is featured in a blockbuster movie. What businesses might be impacted? Airlines, hotels, AirBNB, restaurants, Uber, and tour guides, of course. This happened with Mexico City following the release of the 2015 James Bond film Spectre which prominently featured the city in the opening sequence.

Following the success of the Bond film, Mexico City decided to create a "Day of the Dead" experience similar to the film's opening sequence parade to entertain expected tourists. Companies outside of the typical travel space (e.g., artisans, craftspeople, construction workers) also had to increase capacity to meet this demand. That is derived demand. Marcus, L. (2020, February 13). Made for travel: When tourists demand something to see.

Can you think of another situation similar to the tourism effect in which derived demand was created by something that happened in the external environment, something that caused other companies to sell their products to meet new demand?

Sample Paper For Above instruction

Derived and fluctuating demand are fundamental characteristics of B2B markets that distinguish them significantly from B2C markets. These demand patterns revolve around the concept that the demand for business goods and services is not directly driven by end consumers but instead is derived from consumer demand for finished goods and services. When consumers increase their purchasing, the demand for raw materials, components, and business services also rises, and vice versa. This interconnectedness results in fluctuations that can ripple through the supply chain, amplifying economic effects.

The core characteristic of derived demand is that it stems from the demand for another product or service. For example, in the automotive industry, the demand for car tires is derived from the demand for vehicles. When consumers purchase more vehicles, the demand for tires increases correspondingly. This relationship is not linear but significantly influences manufacturing schedules, inventory management, and procurement strategies. Similarly, the demand for industrial machinery and equipment is contingent on the growth or decline of manufacturing sectors, illustrating the indirect nature of this demand.

Fluctuations in demand are often more pronounced in B2B markets, primarily due to their dependence on broader economic cycles and consumer behavior. During economic booms, demand surges lead to increased production and procurement activities among B2B firms. Conversely, during downturns, these firms experience a sharp decline in orders, which can trigger layoffs, reduced investment, and further economic slowdown. An illustrative example of derived demand can be witnessed in the tourism industry, where the popularity of a movie or cultural event can stimulate tourism-related demand significantly.

A notable illustration is the 2015 James Bond film Spectre, which featured Mexico City in its opening sequence. The depiction of the city in the film led to a surge in tourism, prompting Mexican authorities and local businesses to capitalize on this opportunity. They organized themed events, such as the "Day of the Dead" parade, to attract tourists inspired by the film. Businesses beyond traditional travel services, such as artisans and construction companies, increased capacity to meet this new demand, exemplifying derived demand in action. This demonstrates how external environmental factors, like media portrayal, can create demand for certain destinations and activities, affecting a wide array of businesses.

Another real-world example of derived demand involves the electronics industry, where the launch of new smartphones or gadgets can lead to increased demand for components such as screens, chips, and batteries. The demand for these components is indirectly driven by consumer interest in the latest devices. Similarly, in the fashion industry, a viral celebrity trend can boost demand for specific clothing and accessories, affecting manufacturers, retailers, and raw material suppliers.

Understanding the dynamics of derived demand is crucial for companies operating within B2B markets, as it enables them to anticipate market fluctuations and adjust their procurement and production strategies accordingly. Recognizing external factors that influence consumer behavior—such as media trends, technological innovations, or cultural events—can help firms better manage supply chain risks and capitalize on emerging opportunities.

Buying Centers - Personal Application

In my current workplace, our organization’s buying center consists of several key roles that collaborate to make procurement decisions. These roles include the purchasing manager, who oversees the procurement process; the finance department, which assesses budgets and cost implications; the operations team, which defines the specifications for purchased equipment or services; and executive leadership, which approves major purchases. This structure ensures that procurement decisions align with organizational goals, budget constraints, and operational needs.

The buying process begins with identifying a need, followed by specifying requirements and conducting market research. The purchasing team solicits quotes or proposals from suppliers, evaluates options based on price, quality, delivery timelines, and after-sales service, and then makes a recommendation to leadership. Once approved, the purchase is executed, and post-purchase evaluations ensure that the procurement meets organizational expectations. This process adds value by ensuring that the organization acquires the right resources efficiently and cost-effectively to support its core activities.

For example, our organization recently needed new office furniture. The buying center involved the operations team specifying ergonomic requirements, the finance department setting budget constraints, and the purchasing manager soliciting bids from various suppliers. After evaluating proposals and considering delivery schedules and warranties, the leadership approved the purchase. This structured approach facilitated a transparent, competitive, and efficient procurement process that supported our organization’s productivity and employee well-being.

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