Market selection and procurement decisions in B2B markets

Market selection in business‐to‐business (B2B) market transactions is more complex than the one‐step market segmentation decision in consumer markets. This article models market selection and procurement decision‐making in B2B markets as a five‐step procedure involving choice of vertical and horizontal markets. Vertical market choice decisions are shown to encompass choice of output markets, value adding that the organization will perform internally (the “make” decision), and input markets (the “buy” decision). Horizontal market choice decisions are shown to encompass choice of macro segments in the output market and micro segments within each of the macro segments selected. Explores how we can draw on theoretical developments in industrial organization economics to help make these strategic decisions. The article suggests how to set the boundaries of the organization and determine what markets to serve, what to make, and what to buy with the help of transaction cost and market structure analysis.