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BAEM1 (Chapter 1 - Understanding The Market)
BAEM1 (Chapter 1 - Understanding The Market)
Chapter 1
Understanding the Market
Learning Outcomes:
At the end of this lecture, you are expected to:
Customers are important to the firm. Although individual customers are the day-to-day concern of firms,
as a whole, they must be able to provide the required volume of business. The firms, then, will need to
refer to a group or to an aggregation of individual demands which will be the basis for justifying
operations. The most common point of reference is the market.
Compassion. In essence, compassion is “having the peripheral vision to see others and help them along
the journey of awareness, courage, confidence and joy.” There is much talk these days of businesses having
empathy for their customers. “Empathy is a desire to know the other person. Compassion is to act on that
knowledge with positive intent.”
WHAT IS A MARKET?
The term "market" has been defined in many ways, all depending on which point of view is referred to.
Improvements in the definition of market are related to the development of three disciplines: economics,
management, and marketing. Economics is the mother discipline of management which, in turn, gave
"birth" to marketing.
Economists define market to suit their own purposes. This is also true in the definition provided by
management writers. Consider the following:
Musselman and Hughes stressed the place aspect when they defined market as "a place where sellers
and buyers exchange goods (or services) for an agreed-upon price."
According to Investopedia, A market is a place where two parties can gather to facilitate the exchange of
goods and services. The parties involved are usually buyers and sellers. The market may be physical like a
retail outlet, where people meet face-to-face, or virtual like an online market, where there is no direct
physical contact between buyers and sellers.
Ivancevich and others indicated the importance of present buyers when they defined market as "a group
of people or organizations that buy a particular good, service, or concept."
The foregoing definitions, as well as some others not cited here, are helpful, but not useful enough to
make it easier for the firm (or the individual) to achieve its objectives. For the reason that marketing has
for its purpose the satisfaction of human wants directed towards the accomplishment of objectives, we
shall adapt a definition of "market" which will help facilitate the accomplishment of the said purpose.
"A market is composed of people with needs to satisfy, the money to spend, and the willingness to spend."
Stanton's view of the market includes present and potential buyers, with purchasing power, and the
resolve to buy. This provides us with a useful framework for analyzing market opportunities.
The firm, however, will not and must not just grab any market it could find. It will have to determine
whether the prospective market has the potential to satisfy the requirements of the firm, i.e., the
attainment of objectives. To be able to achieve this, the definition of a market must be:
A market as a group of individuals and/or organizations that have a desire or need for products in a
product class and have the ability, willingness, and authority to purchase those products.
According to Medina (1998) A market is composed of people with needs to satisfy, the money to spend,
the willingness to spend, and the ability to satisfy the objectives of the seller.
5 levels of Market
Beginning with the total population, various terms are used to describe the market based on the level of
narrowing:
✓ Total Population
✓ Potential market
✓ Available market
✓ Target market
✓ Penetrated market
Total Population - The total market consists of the total number of individuals residing in the geographical
area of interest. These population figures are usually available from census data produced by the
government statistical agency.
Potential Market – Those in the total population who have interest in acquiring the product.
The potential market is a broader estimate of the market size based on expressed interest among all of
the available market. This is usually based on those very or somewhat interested in acquiring a certain
product.
Available Market – Within the potential market. All those people with enough money to buy products.
Qualified Available Market– Those in the available market who legally are permitted to buy the product.
Target Market – The segment of the qualified available market that the firm has decided to serve (served
markets).
Target market is the market a company wants to sell its product and services to, and it includes a targeted
set of customers for whom it directs its marketing efforts.
Penetrated Market– Those in the target market who have purchased the product.
Types of Market
Consumer Markets
An individual may belong to various consumer markets. For instance, he may, all at the same time, be a
part of the entertainment market, the drug market, the dry goods market, the food market, etc.
Manufacturers of chalk may consider universities as a part of their business market. Poultry raisers may
also regard restaurants as their business market.
Global Markets
Dairy farmers in New Zealand who export milk products to the Philippines consider the Filipinos as a
portion of their international market.
Reseller Markets
The term "reseller markets" refers to organizations that buy goods and services which they later sell at a
profit. Wholesalers and retailers of grocery items will qualify as a reseller market of grocery
manufacturers.
The CELCOR-Cabanatuan Electric Corporation and various electric cooperatives in the Philippines buy
electric power from the National Power Corporation (NPC) which are later resold to individual households
and industries. The NPC considers the CELCOR-Cabanatuan Electric Corporation and the cooperatives as
a reseller market.
Most farmers sell their produce to persons who later sell them to other sellers or consumers. These
middlemen are the most visible forms of reseller markets.
Companies selling to nonprofit organizations with limited purchasing power such as churches, universities,
charitable organizations, and government agencies need to price carefully. Lower selling prices affect the
features and quality the seller can build into the offering.
The term "governmental markets" refers to government agencies that buy products and services for use
in the production of public goods and services. Much government purchasing calls for bids, and buyers
often focus on practical solutions and favor the lowest bid.
The Armed Forces, for example, buy several items on a bulk-order basis. Manufacturers of uniforms,
insignias, arms, and transport equipment consider the Armed Forces of the Philippines as a government
market.
New Market Development is a business strategy whereby a business attempts to find new groups of
buyers as potential customers for its existing products and services.
New Market Development is a known growth strategy that identifies and develops new market segments
for current products/services. A market development strategy targets non-buying customers in currently
targeted segments. It also targeted new customers in new segments.
References:
http://www.netmba.com/
www.investopedia.com
Marketing Management –P. Kotler and Keller
Principles of Marketing – R. Medina