What Are Markets

Markets are a group of potential buyers with needs and wants and the purchasing power to satisfy them.

Learning Objective

Diagram the different types of markets and their relationship to one another

Key Points

Markets can be more tightly defined as a people who have a true need or want for the company's offering, the ability to pay for it, and the willingness and authority to buy it. The total number of buyers must be large enough to be profitable for the company.
Markets can also be a place such as a shopping center. This identification of markets is useful for marketing decision-making purposes because factors such as product features, price, location of facilities, and promotional design are affected by geographic factors.
The market can be defined as an economic entity because in most cases, a market is characterized by a dynamic system of economic forces including supply, demand, competition, and government intervention.
The primary types of markets are consumer markets, industrial markets, institutional markets, and reseller markets. These categories are not always clear-cut and in some industries, a business may be in a different category altogether or may even encompass multiple categories.

Terms

buyer's market
An excess of supply over demand, leading to abnormally low prices. A situation when there is an abundance of product, prices are usually low, and customers dictate the terms of sale.
esoteric
Confidential; private.
latent
Existing or present but concealed or inactive.

Example

Defining people as a market must meet all 5 criteria: One example is the pharmaceutical industry. There are several serious human diseases that remain uncured only because they have not been contracted by a large enough number of people to warrant the necessary research. The excessive research costs required to develop these drugs necessitates that companies are assured a certain level of profitability. Even though the first four criteria of defining people as a market may be met, a small potential customer base means no viable market exists.

Full Text

Defining the Market

A basic definition of a market is a group of potential buyers with needs and wants and the purchasing power to satisfy them.

We will also consider a more expansive definition given the complexities of these components.

The Market is People: Since exchange involves two or more people, the market can be thought of as people, individuals, or groups. People constitute markets only if they currently recognize their need or desire for an existing or future product.

Individuals and members of households are the largest category of markets, but business establishments and other organized behavior systems also represent valid markets. However, people or organizations must meet all five of the following basic criteria in order to represent a valid market:

There must be a true need or want for the product, service, or idea; this need may be recognized, unrecognized, or latent.
The person or organization must have the ability to pay for the product via means acceptable to the marketer.
The person or organization must be willing to buy the product.
The person or organization must have the authority to buy the product.
The total number of people or organizations meeting the previous criteria must be large enough to be profitable for the marketer.

The Market is a Place: The market can also be thought of as a place or as a geographical area within which trading occurs. International markets, American markets, a shopping center, and even the site of a single retail store can be called a market.

The Market is a Place - A Shopping Mall

Defining the market as a place can help marketers use geographic factors to decide which products to offer, how to promote product features, and even set price. A mall in Korea Town would have different offerings and promotions than a mall in Little Mexico.

This identification of markets is useful for marketing decision-making purposes because factors such as product features, price, location of facilities, and promotional design are all affected by geographic factors. Finally, a market may be somewhere other than a geographical region, such as a catalog or ad that allows you to place an order without a marketing intermediary.

The Market is an Economic Entity: In most cases, a market is characterized by a dynamic system of economic forces including supply, demand, competition, and government intervention. The terms buyer's market and seller's market describe different conditions of bargaining strength. Finally, the extent of personal freedom and government control produces free market systems, socialistic systems, and other systems of trade and commerce.

Types of markets

The primary types of markets are consumer markets, industrial markets, institutional markets, and reseller markets.

These categories are not always clear-cut. In some industries, a business may be in a different category altogether or may even encompass multiple categories. It is also possible that a product may be sold in all four markets.

Consumer Markets

Consumer markets include individuals and households who buy consumer goods and services for their own personal use. They are not interested in reselling the product or setting themselves up as a manufacturer.

Industrial Markets

The industrial market consists of organizations and the people who work for them, those who buy products or services for use in their own businesses or to make other products. For example, a steel mill might purchase computer software, pencils, and flooring as part of the operation and maintenance of their business.

Institutional Markets

The institutional market is made up of various types of profit and nonprofit institutions, such as hospitals, schools, churches, and government agencies. Institutional markets differ from typical businesses because they are motivated by satisfying esoteric, often intangible, needs rather than profits or market share. Because institutions operate under different restrictions and employ different goals, marketers must use different strategies to be successful.

Reseller Markets

All intermediaries that buy finished or semi-finished products and resell them for profit are part of the reseller market. This market includes approximately 383,000 wholesalers and 1,300,000 retailers that operate in the US.

With the exception of products obtained directly from the producer, all products are sold through resellers. Producers are always cognizant of the fact that successful marketing to resellers is just as important as successful marketing to consumers.

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