The concept of exchange leads to the concept of a market. A market is the set of actual and potential buyers of a product. These buyers share a particular need or want that can be satisfied through exchange. Thus, the size of a market depends on the number of people who exhibit the need, have resources to engage in exchange, and are willing to offer these resources in exchange for what they want.

Originally the term market stood for the place where buyers and sellers gathered to exchange their goods, such as a village square. Economists use the term to refer to a collection of buyers and sellers who transact in a particular product class, as in the housing market or the grain market. Marketers, however, see the sellers as constituting an industry and the buyers as constituting a market. The relationship between the industry and the market is shown in Figure 1.2. The sellers and the buyers are connected by four flows. The sellers send products, services and communications to the market; in return, they receive money and information. The inner loop shows an exchange of money for goods; the outer loop shows an exchange of information.

Modern economics operate on the principle of division of labour, where each person specializes in producing something, receives payment, and buys needed things with this money. Thus, modern economies abound in markets. Producers go to resource markets (raw material markets, labour markets, money markets), buy resources, turn them into goods and services, and sell them to intermediaries, who sell them to consumers. The consumers sell their labour, for which they receive income to pay for the goods and services they buy. The government is another market that plays several roles. It buys goods from resource, producer and intermediary markets; it pays them; it taxes these markets (including

Figure Simple Marketing System

Figure 1.2

A simple marketing system

Figure 1.2

A simple marketing system consumer markets); and it returns needed public services. Thus each nation's economy and the whole world economy consist of complex interacting sets of markets that are linked through exchange processes.

In advanced societies, markets need not be physical locations where buyers and sellers interact. With modern communications and transportation, a merchant can easily advertise a product on a late evening television programme, take orders from thousands of customers over the phone, and mail the goods to the buyers on the following day without having had any physical contact with them.

Businesspeople use the term markets to cover various groupings of customers. They talk about need markets (such as health seekers); product markets (such as teens or the baby boomers); and geographic markets (such as western Europe or the United States). Or they extend the concept to cover non-customer groupings. For example, a labour market consists of people who offer their work in return for wages or products. Various institutions, such as employment agencies and job-counselling firms, will grow up around a labour market to help it function better. The money market is another important market that emerges to meet the needs of people so that they can borrow, lend, save and protect money. The donor market has emerged to meet the financial needs of non-profit organizations.


The concept of markets finally brings us full circle to the concept of marketing. Marketing means managing markets to bring about exchanges for the purpose of satisfying human needs and wants. Thus, we return to our definition of marketing as a process by which individuals and groups obtain what they need and want by creating and exchanging products and value with others.

Exchange processes involve work. Sellers must search for buyers, identify their needs, design good products and services, promote them, and store and deliver them. Activities such as product development, research, communication, distribution, pricing and service are core marketing activities.

Although we normally think of marketing as being carried on by sellers, buyers also carry out marketing activities. Consumers do 'marketing' when they search for the goods they need at prices they can afford. Company purchasing agents do 'marketing' when they track down sellers and bargain for good terms. A sellers' market is one in svhich sellers have more power and buyers must be die more active 'marketers'. In a buyers' market, buyers have more power and sellers have to be more active 'marketers'.

Figure 1.3 shows the main elements iir a modern marketing system. In the usual situation, marketing involves serving a market of end users in the face of

Elements Modern Marketing System

Figure 1.3

Main actors and forces in a modern marketing system

Figure 1.3

Main actors and forces in a modern marketing system eompetitors. The company and the competitors send their respective products and messages directly to eonsumers or through marketing intermediaries to the end users. All of the actors in the system are affected by major environmental forces - demographic, eeonomic, physical, technological, political/legal, social/ cultural. We will address these forces that affect marketing decisions in Chapter 4.

Eaeh party in the system adds value for the next level. Thus, a company's success depends not only on its own actions, but also on how well the entire value chain serves the needs of final consumers. IKEA cannot fulfil its promise of Sow prices unless its suppliers provide merchandise at low costs. And Toyota cannot deliver high quality to car buyers unless its dealers provide outstanding service.

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