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What is a Market?

Disciplines > Marketing > Understanding Markets > What is a Market?

The market principle | Definition | Discussion | See also

What exactly is a market? Marketers, of course, should know all about their markets.

The market principle

The basic principle of a market is a place of exchange. Early markets were held in the town square where people brought excess goods and food to barter with others.

The value principle

A critical principle why people buy and sell is value. If I have plenty of apples but no pears, I will value a spare basket of apples less than the basket of pears you have. And if you have similar (reversed) views, both of us gain when we exchange. The principle of value exchange is hence core to markets.

The qualification principle

Not everyone goes to a market. It hence is important to qualify customers and sellers, excluding those who cannot give, get or exchange value. Hence, for example, young children would not be expected to be selling or buying in a local food market, so are not catered for.

The money principle

When money became available, this allowed a period of time to be inserted between giving and getting, creating a kind of delayed, diffused bartering that we call selling and buying. The money principle hence is that it acts as an 'intermediary product'. It cannot be consumed; it can only be exchanged.

Money has fixed nominal value, although those who have plenty will personally value a handful of cash far less than someone who has none.

The transaction principle

When two things are exchanged within a market, this is called a 'transaction' and should be done with full and free intent by both parties. When completed, it may well not be reversible, although laws and contracts may allow for a buyers to return goods that sub-standard.

Definition

Definitions of a 'market' often focuses on customers, with some qualification to indicate who is in or out. Most typically, this includes need and resource (mostly money), although it may also recognize that regulations may prevent some people from certain purchases (such as children buying alcohol):

A group of consumers who may buy the product and who are able to buy the product.

Companies often view a market as a target, a group of people and organizations to which marketing will be applied. This view is effectively:

A coherent set of possible customers.

Although pragmatic for many marketers, this is still rather narrow and hence limiting definition. From the principles discussed above, markets can be defined more broadly and including the equality of those who have goods and those who want to acquire them:

A place where sellers and buyers meet to exchange value.

Discussion

The notion of markets is useful for marketers and is effectively the first level of segmentation, whereby customers are divided into relatively similar groups to which the same marketing approaches may be applied. What makes markets different to segments is generally that the qualification criteria used is product-based rather than message-based.

A factor that constrains markets is availability. There is no point marketing to a group of people where they cannot see or read your communications, nor where the buying or shipping processes would be prohibitive. This is why many companies sell only within their native country.

A defining attribute of markets is competition. If two people want one thing then the seller may put the price up accordingly. Auctions may also be used to determine the price buyers are willing to bear.

Where prices may go beyond that which ordinary people can buy things, the price and availability may be regulated to ensure a degree of fairness. In a 'free market', there are no controls on price or availability, and government do not intervene with imbalanced taxes, protectionism or other bias.

In a full market economy anything may be traded, including currencies, future prices, company shares and so on.

People in markets are assumed to be rational, but the occurrence of wild auction bidding and market bubbles indicates that human psychology, including greed and fear, can drive prices just as much as true need.

See also

What is Marketing?