Information Flows in Consumer vs. Business Markets


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published September 29, 2004

Advocates of efficient market theories claim that all relevant information concerning a stock is included in the price. This may be true with respect to financial markets, but other markets require far more information than price in order to function. The success of buyers and sellers in transacting information affects the ability of market participants to transact goods and services.

Information must flow to enable the decision making processes of both buyers and suppliers. Buyers need to be informed of their options, the benefits of selecting one over another, and the price associated with the different offerings in order to make rational purchasing decisions. Sellers need to be informed of potential buyers, the needs of those buyers, and the price they are willing-to-pay to satisfy those needs in selecting which markets to compete in, and which demands can be profitably satisfied.

The health of information flows within a market can be evaluated according to accessibility, depth, and validity. Accessibility refers to the ability of buyers and sellers to communicate information through a variety of mediums. Depth refers to the ability of relevant details to be communicated through different mediums. Validity refers to the trustworthiness of the information that is communicated, both in terms of its capacity to be accurate and the biases that influence its validity.

The accessibility, depth, and validity of information flows in business markets are different from that in consumer markets. Business markets have fewer channels for efficiently transacting information between buyers and suppliers. The challenges created through restricted information access in business markets are compounded by the depth of information that must be communicated. Both buyers and suppliers require greater depth of information for decision making in business markets. Numerous features, the benefits that each feature yields, and the full financial and business value of these features must be explored. Furthermore, because key information is communicated either through direct selling or price negations, both buyers and sellers are subject to biasing the information they communicate.

The challenge of efficient information flows in business markets is made evident in three key sales and marketing areas: opaque pricing, minimal information intermediaries, and greater reliance upon relationships. In the next few articles, we will examine the differences between marketing practices in consumer versus business markets created by challenge of inefficient information flows.

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About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.