"Marketing" is a term used to describe the various activities involved in transferring goods and services from producers to consumers. In addition to the functions commonly associated with it, such as advertising and sales promotion, marketing also encompasses product development, packaging, distribution channels, pricing, and many other functions. Modern marketing is often presented as an effort to discover and satisfy customer needs. It is often also a method of inventing products and services and creating a demand for them by artful persuasion.
In most large organizations the selling function is divided into distinct marketing and sales functions. In organizations where symbolic product presentation is all-important and buying decisions tend to be emotional, marketing is given much higher rank and emphasis. Such is the case typically with mature products that have over time achieved a commodity status and therefore persuasion to buy this brand is the central focus. In organizations where the product performance as such remains the chief selling feature, sales activity is dominant. Business-to-business distribution tends to have this character, with the selling burden carried by experts (e.g. in finance), sales engineers, and skilled product-savvy sales people. In some industries, e.g., in Pharmaceuticals, emphasis is evenly divided, with the public bombarded by marketing messages ("Ask your doctor …") while "detail men" (and women) are doing technical selling at the doctor's office.
"Marketing" used to mean going to the market—either to sell or to buy. The modern concept emerged in the wake of the industrial revolution in the 19th and 20th centuries. During that period, the proliferation of goods and services, increased worker specialization, and technological advances in transportation, refrigeration, and other factors that facilitated the transfer of goods over long distances resulted in the need for more advanced market mechanisms and selling techniques. But it was not until the 1930s that companies began to place a greater emphasis on advertising and promoting their products and began striving to tailor goods to please specific consumer groups. By the 1950s, and the rise of television as a communications medium, many large companies had developed marketing departments charged with devising and implementing strategies that would complement, and later direct, overall sales operations.
MACRO- AND MICRO-MARKETING
Macro-marketing refers to the overall economic/communications process that directs the flow of goods and services from producer to consumer. It includes 1) the buyer's behavior in seeking and judging goods and services; 2) the seller's efforts to draw and to persuade customers to buy; 3) the physical distribution of goods including warehousing and storage at intermediate stages; 3) product-related activities like standardization, grading, and sorting; 4) the financing of distribution at all stages, not least consumer credit; and 5) the communications processes supporting all of these activities.
Micro-marketing refers to the activities of the individual providers operating within this system. Organizations or businesses use various marketing techniques to accomplish objectives related to profits, market share, cash flow, and other economic factors that can enhance their well being and position in the marketplace. The micro-marketing function within an entity is commonly referred to as marketing management. Marketing managers strive to match products to customers; in this process they are equally interested in getting products customers will want to buy and influencing consumers to buy the products the company wishes to sell.
THE TARGET MARKETING CONCEPT
Micro-marketing encompasses a number of related activities and responsibilities. Marketing managers must carefully design their marketing plans to ensure that they complement related production, distribution, and financial constraints. They must also allow for constant adaptation to changing markets and economic conditions. Perhaps the core function of a marketing manager, however, is to identify a specific market, or group of consumers, and then deliver products and promotions that ultimately maximize the profit potential of that targeted market. This is particularly important for small businesses, which more than likely lack the resources to target large aggregate markets. Often, it is only by carefully selecting and wooing a specific group that a small firm can attain profit margins sufficient to allow it to continue to compete in the marketplace.
For instance, a manufacturer of fishing equipment would not randomly market its product to the entire U.S. population. Instead, it would likely conduct market research—using such tools as demographic reports, market surveys, or focus groups—to determine which customers would be most likely to purchase its offerings. It could then more efficiently spend its limited resources in an effort to persuade members of its target group(s) to buy its products. Perhaps it would target males in the Midwest between the ages of 18 and 35. The company may even strive to further maximize the profitability of its target market through market segmentation, whereby the group is further broken down by age, income, zip code, or other factors indicative of buying patterns. Advertisements and promotions could then be tailored for each segment of the target market.
There are many ways to address the wants and needs of a target market. For example, product packaging can be designed in different sizes and colors, or the product itself can be altered to appeal to different personality types or age groups. Producers can also change the warranty or durability of the good or provide different levels of follow-up service. Other influences, such as distribution and sales methods, licensing strategies, and advertising media also play an important role. It is the responsibility of the marketing manager to take all of these factors into account and to devise a cohesive marketing program that will appeal to the target customer.
THE FOUR PS
The different elements of a company's marketing mix can be divided into four basic decision areas—known as the "four Ps": product, place, promotion, and price—which marketing managers can use to devise an overall marketing strategy for a product or group of goods. These four decision groups represent all of the variables that a company can control. But those decisions must be made within the context of outside variables that are not entirely under the control of the company, such as competition, economic and technological changes, the political and legal environment, and cultural and social factors.
Marketing decisions related to the product (or service) involve creating the right product for the selected target group. This typically encompasses research and data analysis, as well as the use of tools such as focus groups, to determine how well the product meets the wants and needs of the target group. Numerous determinants factor into the final choice of a product and its presentation. A completely new product, for example, will entail much higher promotional costs to raise consumer awareness, whereas a product that is simply an improved version of an existing item likely will make use of its predecessor's image. A pivotal consideration in product planning and development is branding, whereby the good or service is positioned in the market according to its brand name. Other important elements of the complex product planning and management process may include selection of features, warranty, related product lines, and post-sale service levels.
Considerations about place, the second major decision group, relate to actually getting the good or service to the target market at the right time and in the proper quantity. Strategies related to place may utilize middlemen and facilitators with expertise in joining buyers and sellers, and they may also encompass various distribution channels, including retail, wholesale, catalog, and others. Marketing managers must also devise a means of transporting the goods to the selected sales channels, and they may need to maintain an inventory of items to meet demand. Decisions related to place typically play an important role in determining the degree of vertical integration in a company, or how many activities in the distribution chain are owned and operated by the manufacturer. For example, some larger companies elect to own their trucks, the stores in which their goods are sold, and perhaps even the raw resources used to manufacture their goods.
Decisions about promotion, the third marketing mix decision area, relate to sales, advertising, public relations, and other activities that communicate information intended to influence consumer behavior. Often promotions are also necessary to influence the behavior of retailers and others who resell or distribute the product. Three major types of promotion typically integrated into a market strategy are personal selling, mass selling, and sales promotions. Personal selling, which refers to face-to-face or telephone sales, usually provides immediate feedback for the company about the product and instills greater confidence in customers. Mass selling encompasses advertising on mass media, such as television, radio, direct mail, and newspapers, and is beneficial because of its broad scope. A relatively new means of promotion involves the Internet, which combines features of mass media with a unique opportunity for interactive communication with customers. Publicity entails the use of free media, such as feature articles about a company or product in a magazine or related interviews on television talk shows, to spread the word to the target audience. Finally, sales promotion efforts include free samples, coupons, contests, rebates, and other miscellaneous marketing tactics.
Determination of price, the fourth major activity related to target marketing, entails the use of discounts and long-term pricing goals, as well as the consideration of demographic and geographic influences. The price of a product or service generally must at least meet some minimum level that will cover a company's cost of producing and delivering its offering. Also a firm would logically price a product at the level that would maximize profits. The price that a company selects for its products, however, will vary according to its long-term marketing strategy. For example, a company may under price its product in the hopes of increasing market share and ensuring its competitive presence, or simply to generate a desired level of cash flow. Another producer may price a good extremely high in the hopes of eventually conveying to the consumer that it is a premium product. Another reason a firm might offer a product at a very high price is to discount the good slowly in an effort to maximize the dollars available from consumers willing to pay different prices for the good. In any case, price is used as a tool to achieve comprehensive marketing goals.
Decisions about product, place, promotion, and price will often be dictated by the competitive stance that a firm assumes in its target market. Common strategies are to be the low-cost supplier, to be highly differentiated, or to satisfy a niche market.
Companies that adopt a low-cost supplier strategy are usually characterized by a vigorous pursuit of efficiency and cost controls. A company that manufactures a low-tech or commodity product, such as wood paneling, would likely adopt this approach. Such firms compete by offering a better value than their competitors, accumulating market share, and focusing on high-volume and fast inventory turnover.
Companies that adhere to a differentiation strategy achieve market success by offering a unique product or service. They often rely on brand loyalty, specialized distribution channels or service offerings, or patent protection to insulate them from competitors. Because of their uniqueness, they are able to achieve higher-than-average profit margins, making them less reliant on high sales volume and extreme efficiency. For example, a company that markets proprietary medical devices would likely assume a differentiation strategy.
Firms that pursue a niche market strategy succeed by focusing all of their efforts on a very narrow segment of an overall target market. They strive to prosper by dominating their selected niche. Such companies are able to overcome competition by aggressively protecting market share and by orienting every action and decision toward the service of its select group. An example of a company that might employ a niche strategy would be a firm that produced floor coverings only for extremely upscale commercial applications.
BUSINESS VERSUS CONSUMER MARKETS
An important micro-marketing delineation is that between industrial and consumer markets. Selling to business is often very different than selling to the consumer. The industrial buyer is almost never moved by fancies and emotions and buys on price and technical specifications. To be sure, in many consumer markets the same rules apply as well; where they do, the situation is, of course, the same. Examples are elderly couples buying retirement packages and do-it-yourselfers buying tools. Buyers in the middle levels of distribution, such as wholesalers, think in terms of their customers, the retailers. Retailers, in turn, will view products from the consumer's point of view. Both of these levels, of course, will be very interested in price and performance issues as well.
Technical know-how and deep product knowledge is more valued in selling business-to-business. The industrial buyers will use components or machinery and will wish to satisfy him- or herself on their suitability to a particular end-use of operation. Distribution channel buyers will see the products as items they will have to explain to others or service in-house.
A discussion of marketing would not be complete without mentioning the emerging field of Internet marketing. Increasingly, small businesses have sought to take advantage of the global reach of the World Wide Web and the huge number of potential customers available online. Although it may seem like a completely new field, Internet marketing actually combines many of the basic elements of traditional marketing. "Internet marketing employs the same methods and theory as traditional public relations and integrated marketing—the basic tools for any campaign," Maria Duggan and John Deveney wrote in Communication World.
In their article, Duggan and Deveney outline five steps for marketing managers to follow in putting together an Internet marketing campaign. Whether the campaign is intended to increase awareness of an existing brand, draw visitors to a Web site, or promote a new product offering, the first step involves identifying the target market. As is the case with any other type of marketing campaign, the small business must conduct market research in order to define the target audience for the campaign, and then use the information gathered to determine how best to reach them.
The next step is to develop a strategy for the campaign. This involves setting concrete and measurable goals and tying the campaign into the organization's traditional marketing efforts. The third step is to present the strategy to key decision-makers in the small business. It is important at this stage to develop a timeline and budget, and also to be prepared to encounter resistance among colleagues not familiar with cyberspace. The fourth step is to implement the Internet marketing campaign. The final step, evaluation, should be conducted throughout the process. Online surveys of customers are one source of potential feedback.
MARKETING FOR SMALL BUSINESSES
In the early stages of forming a small business, a business plan is a vital tool to help an entrepreneur chart the future direction of the enterprise. A good plan will have a marketing component and demonstrate the owner's understanding of how to advertise and promote his or her product or service line. The more the business is narrowly focused on selling, the more important this element will be. Some businesses, of course, will be engaged in activities barely touched by marketing in the modern sense—but will always have a sales component.
As a small business grows, it may be helpful to create a separate marketing plan. While similar in format to the general business plan, a marketing plan will focus on expanding a certain product line or service rather than on the overall business. Such plans will be especially valuable in obtaining financing for ventures relying upon persuading buyers to try novel products not already on the market.
A number of resources are available to assist small businesses in marketing their products and services. It may be prudent to seek legal advice before implementing a marketing plan, for example. A firm with experience in consumer law could review the small business's product, packaging, labeling, advertising, sales agreements, and price policies to be sure that they meet all relevant regulations to prevent problems from arising later. In addition, many advertising agencies and market research firms offer a variety of means of testing the individual elements of marketing programs. Although such testing can be expensive, it can significantly increase the effectiveness of a company's marketing efforts.
Duggan, Maria, and John Deveney. "How to Make Internet Marketing Simple." Communication World. April 2000.
"Office Depot Helps Small Business Hitch a Ride with Nascar." Brandweek. 13 March 2006.
"Picture Your Business with a Logo; Logoworks.com creates affordable logos and identities for small businesses." Business Week Online. 4 April 2006.
Schaller, Marcus. "Analyze the Basics When Evaluating Marketing." San Diego Business Journal. 13 March 2006.
Scharich, Joanne. "Learn to Take Small Business Global." Crain's Detroit Business. 10 April 2006.
Simkin, Lyndon. "Marketing Is Marketing—Maybe!" Marketing Intelligence and Planning. March 2000.
Stephenson, James. Ultimate Small Business Marketing Guide: Over 1500 Great Marketing Tricks That Will Drive Your Business Through the Roof. Entrepreneur Press, 2003.
Tracy, Joe. Web Marketing Applied: Web Marketing Strategies for the New Millennium. Advanstar Communications, 2000.
Zyman, Sergio. "Put the Petal to the Metal: Marketing and the Internet." Brandweek. 2 October 2000.
Hillstrom, Northern Lights
updated by Magee, ECDI
Marketing pertains to the interactive process that requires developing, pricing, placing, and promoting goods, ideas, or services in order to facilitate exchanges between customers and sellers to satisfy the needs and wants of consumers. Thus, at the very center of the marketing process is satisfying the needs and wants of customers.
NEEDS AND WANTS
Needs are the basic items required for human survival. Human needs are an essential concept underlying the marketing process because needs are translated into consumer wants. Human needs are often described as a state of real or perceived deprivation. Basic human needs take one of three forms: physical, social, and individual. Physical needs are basic to survival and include food, clothing, warmth, and safety. Social needs revolve around the desire for belonging and affection. Individual needs include longings for knowledge and self-expression, through items such as clothing choices.
Wants are needs that are shaped by both cultural influences and individual preferences. Wants are often described as goods, ideas, and services that fulfill the needs of an individual consumer. The wants of individuals change as both society and technology change. For example, when a computer is released, a consumer may want it simply because it is a new and improved technology. Therefore, the purpose of marketing is to convert these generic needs into wants for specific goods, ideas, or services. Demand is created when wants are supported by an individual consumer's ability to purchase the goods, ideas, or services in question.
Consumers buy products that will best meet their needs, as well as provide the most fulfillment resulting from the exchange process. The first step in the exchange process is to provide a product. Products can take a number of forms such as goods, ideas, and services. All products are produced to satisfy the needs, wants, and demands of individual buyers.
The second step in the satisfaction process is exchange. Exchange occurs when an individual receives a product from a seller in return for something called consideration. Consideration usually takes the form of currency. For an exchange to take place, it must meet a number of conditions:
- There must be at least two participants in the process.
- Each party must offer something of value to the other.
- Both parties must want to deal with each other.
- Both participants have the right to accept or to reject the offer.
- Both parties must have the ability to communicate and deliver on the mutual agreement.
Thus, the transaction process is a core component of marketing. Whenever there is a trade of values between two parties, a transaction has occurred. A transaction is often considered a unit of measurement in marketing. The earliest form of exchange was known as barter.
HISTORICAL ERAS OF MARKETING
Modern marketing began in the early 1900s. The marketing process progressed through four distinct eras: production, sales, marketing, and relationship. In the 1920s, firms operated under the premise that production was a seller's market. Product choices were nearly nonexistent because firm managers believed that a superior product would sell itself. This philosophy was possible because the demand for products outlasted supply. During this era, firm success was measured totally in terms of production.
The second era of marketing, ushered in during 1950s, is known as the sales era. During this era, product supply exceeded demand. Thus, firms assumed that consumers would resist buying goods and services deemed nonessential. To overcome this consumer resistance, sellers had to employ creative advertising and skillful personal selling in order to get consumers to buy.
The marketing era emerged after firm managers realized that a better strategy was needed to attract and keep customers because allowing products to sell themselves was not effective. Rather, the marketing concept philosophy was adopted by many firms in an attempt to meet the specific needs of customers. Proponents of the marketing concept argued that in order for firms to achieve their goals, they had to satisfy the needs and wants of consumers.
The relationship era began in the 1990s and continues today. The thrust of the relationship era is to establish and foster long-term relationships with both customers and suppliers. These long-term relationships with both customers and suppliers add value to the marketing process that benefits all affiliated parties.
MARKETING IN THE OVERALL BUSINESS
There are four areas of operation within all firms: accounting, finance, management, and marketing. Each of these four areas performs specific functions. The accounting department is responsible for keeping track of income and expenditures. The primary responsibility of the finance department is maintaining and tracking assets. The management department is responsible for creating and implementing procedural policies of the firm. The marketing department is responsible for generating revenue through the exchange process. As a means of generating revenue, marketing objectives are established in alignment with the overall objectives of the firm.
Aligning the marketing activities with the objectives of the firm is completed through the process of marketing management. The marketing management process involves developing objectives that promote the long-term competitive advantage of a firm. The first step in the marketing management process is to develop the firm's overall strategic plan. The second step is to establish marketing strategies that support the firm's overall strategic objectives. Lastly, a marketing plan is developed for each product. Each product plan contains an executive summary, an explanation of the current marketing situation, a list of threats and opportunities, proposed sales objectives, possible marketing strategies, action programs, and budget proposals.
The marketing management process includes analyzing marketing opportunities, selecting target markets, developing the marketing mix, and managing the marketing effort. In order to analyze marketing opportunities, firms scan current environmental conditions in order to determine potential opportunities. The aim of the marketing effort is to satisfy the needs and wants of consumers. Thus, it is necessary for marketing managers to determine the particular needs and wants of potential customers. Various quantitative and qualitative techniques of marketing research are used to collect data about potential customers, who are then segmented into markets.
In order to better manage the marketing effort and to satisfy the needs and wants of customers, many firms place consumers into groups, a process called market segmentation. In this process, potential customers are categorized based on different needs, characteristics, or behaviors. Market segments are evaluated as to their attractiveness or potential for generating revenue for the firm. Four factors are generally reviewed to determine the potential of a particular market segment. Effective segments are measurable, accessible, substantial, and actionable. Measurability is the degree to which a market segment's size and purchasing power can be measured. Accessibility refers to the degree to which a market segment can be reached and served. Substantiality refers to the size of the segment in terms of profitability for the firm. Action ability refers to the degree to which a firm can design or develop a product to serve a particular market segment.
Consumer characteristics are used to segment markets into workable groups. Common characteristics used for consumer categorizations include demographic, geographic, psychographic, and behavioral segmentation. Demographic segmentation categorizes consumers based on such characteristics as age, ethnicity, gender, income level, and occupation. It is one of the most popular methods of segmenting potential customers because it makes it relatively easy to identify potential customers.
Categorizing consumers according to their locations is called geographic segmentation. Consumers can be segmented geographically according to the nations, states, regions, cities, or neighborhoods in which they live, shop, and/or work. Psychographic segmentation uses consumers' activities, interests, and opinions to sort them into groups. Social class, lifestyle, or personality characteristics are psychographic variables used to categorize consumers into different groups. In behavioral segmentation, marketers divide consumers into groups based on their knowledge, attitudes, uses, or responses to a product.
Once the potential market has been segmented, firms need to station their products relative to similar products of other producers, a process called product positioning. Market positioning is the process of arranging a product so as to engage the minds of target consumers. Firm managers position their products in such a way as to distinguish them from those of competitors in order to gain a competitive advantage in the marketplace. The position of a product in the marketplace must be clear, distinctive, and desirable relative to those of its competitors in order for it to be effective.
Marketing managers use three basic market-coverage strategies: undifferentiated, differentiated, and concentrated. An undifferentiated marketing strategy occurs when a firm focuses on the common needs of consumers rather than their different needs. When using this strategy, producers design products to appeal to the largest number of potential buyers. The benefit of an undifferentiated strategy is that it is cost-effective because a narrow product focus results in lower production, inventory, and transportation costs.
A firm using a differentiated strategy makes a conscious decision to divide and target several different market segments, with a different product geared to each segment. Thus, a different marketing plan is needed for each segment in order to maximize sales and, as a result, increase firm profits. With a differentiated marketing strategy, firms create more total sales because of broader appeal across market segments and stronger position within each segment.
The last market coverage strategy is known as the concentrated marketing strategy. The concentrated strategy, which aims to serve a large share of one or a very few markets, is best suited for firms with limited resources. This approach allows firms to obtain a much stronger position in the segments it targets because of the greater emphasis on these targeted segments. This greater emphasis ultimately leads to a better understanding of the needs of the targeted segments.
Once a positioning strategy has been determined, marketing managers seek to control the four basic elements of the marketing mix: product, price, place, and promotion, known as the four Ps of marketing. Since these four variables are controllable, the best mix of these elements is determined to reach the selected target market.
The first element in the marketing mix is the product. Products can be either tangible or intangible. Tangible products are products that can be touched; intangible products are those that cannot be touched, such as services. There are three basic levels of a product: core, actual, and augmented. The core product is the most basic level, what consumers really buy in terms of benefits. For example, consumers do not buy food processors, per se; rather, they buy the benefit of being able to process food quickly and efficiently.
The next level of the product is the actual product—in the case of the previous example, food processors. Products are typically sorted according to the following five characteristics: quality, features, styling, brand name, and packaging. Finally, the augmented level of a product consists of all the elements that surround both the core and the actual product. The augmented level provides purchasers with additional services and benefits. For example, follow-up technical assistance and warranties and guaranties are augmented product components. When planning new products, firm managers consider a number of issues including product quality, features, options, styles, brand name, packaging, size, service, warranties, and return policies, all in an attempt to meet the needs and wants of consumers.
Price is the cost of the product paid by consumers. This is the only element in the marketing mix that generates revenue for firms. In order to generate revenue, managers must consider factors both internal and external to the organization. Internal factors take the form of marketing objectives, the marketing-mix strategy, and production costs. External factors to consider are the target market, product demand, competition, economic conditions, and government regulations.
A number of pricing strategies are available to marketing managers: skimming, penetration, quantity, and psychological. With a price-skimming strategy, the price is initially set high, allowing firms to generate maximum profits from customers willing to pay the high price. Prices are then gradually lowered until maximum profit is received from each level of consumer.
Penetration pricing is used when firms set low prices in order to capture a large share of a market quickly. A quantity-pricing strategy provides lower prices to consumers who purchase larger quantities of a product. Psychological pricing tends to focus on consumer perceptions. For example, odd pricing is a common psychological pricing strategy. With odd pricing, the cost of the product may be a few cents lower than a full-dollar value. Consumers tend to focus on the lower-value full-dollar cost even though it is really priced closer to the next higher full-dollar amount. For example, if a good is priced at $19.95, consumers will focus on $19 rather than $20.
Place refers to where and how the products will be distributed to consumers. There are two basic issues involved in getting the products to consumers: channel management and logistics management. Channel management involves the process of selecting and motivating wholesalers and retailers, sometimes called middlemen, through the use of incentives. Several factors are reviewed by firm management when determining where to sell their products: distribution channels, market-coverage strategy, geographic locations, inventory, and transportation methods. The process of moving products from a manufacturer to the final consumer is often called the channel of distribution.
The last variable in the marketing mix is promotion. Various promotional tools are used to communicate messages about products, ideas, or services from firms to their customers. The promotional tools available to managers are advertising, personal selling, sales promotion, and public relations. For the promotional program to be effective, managers use a blend of the four promotional tools that best reaches potential customers. This blending of promotional tools is sometimes referred to as the promotional mix. The goal of this promotional mix is to communicate to potential customers the features and benefits of goods, ideas, or services.
International business has been practiced for thousands of years. In modern times, advances in technology have improved transportation and communication methods; as a result, more and more firms have set up shop at various locations around the globe. A natural component of international business is international marketing. International marketing occurs when firms plan and conduct transactions across international borders in order to satisfy the objectives of both consumers and the firm.
International marketing is simply a strategy used by firms to improve both market share and profits. While firm managers may try to employ the same basic marketing strategies used in the domestic market when promoting products in international locations, those strategies may not be appropriate or effective. Firm managers must adapt their strategies to fit the unique characteristics of each international market. Unique environmental factors that need to be explored by firm managers before going global include trade systems, economic conditions, political-legal systems, and cultural conditions.
The first factor to consider in the international marketplace is each country's trading system. All countries have their own trade system regulations and restrictions. Common trade system regulations and restrictions include tariffs, quotas, embargoes, exchange controls, and nontariff trade barriers. The second factor to review is the economic environment. Two economic factors reflect how attractive a particular market is in a selected country: industrial structure and income distribution. Industrial structure refers to how well developed a country's infrastructure is, while income distribution refers to how income is distributed among its citizens.
Political-legal environment is the third factor to investigate. For example, the individual and cultural attitudes regarding purchasing products from foreign countries, political stability, monetary regulations, and government bureaucracy all influence marketing practices and opportunities. Finally, the last factor to be considered before entering a global market is the cultural environment. Since cultural values regarding particular products will vary considerably from one country to another around the world, managers must take into account these differences in the planning process.
Just as with domestic markets, managers must establish their international marketing objectives and policies before going overseas. For example, target countries will need to be identified and evaluated in terms of their potential sales and profits. After selecting a market and establishing marketing objectives, the mode of entry into the market must be determined. There are three major modes of entry into international markets: exporting, joint venture, and direct investment.
Exporting is the simplest way to enter an international market. With exporting, firms enter international markets by selling products internationally through the use of middlemen. This use of these middlemen is sometimes called indirect exporting.
The second way to enter an international market is by using the joint-venture approach. A joint venture takes place when firms join forces with companies from the international market to produce or market a product. Joint ventures differ from direct investment in that an association is formed between firms and businesses in the international market.
The four types of joint venture are licensing, contract manufacturing, management contracting, and joint ownership. Under licensing, firms allow other businesses in the international market to produce products under an agreement called a license. The licensee has the right to use the manufacturing process, trademark, patent, trade secret, or other items of value for a fee or royalty. Firms also use contract manufacturing, which arranges for the manufacture of products to enter international markets. In the third type of joint venture, management contracting, the firms supply the capital to the local international firm in exchange for the management know-how.
The last category of joint venture is joint ownership. Firms join with local international investors to establish a local business. Both groups share joint ownership and control of the newly established business.
Direct investment is the last mode used by firms to enter international markets. With direct investment, a firm enters the market by establishing its own base in international locations. Direct investment is advantageous because labor and raw materials may be cheaper in some countries. Firms can also improve their images in international markets because of the employment opportunities they create.
MARKETING VIA THE INTERNET
Advances in digital technology have revolutionized the way companies satisfy the needs and wants of customers through marketing. The term e-commerce is used to describe the broad range of activities associated conducting business via telecommunication networks. E-marketing is the term used to describe the activities associated with the four Ps of marketing for goods and services sold via the Internet.
E-marketing offers a number of advantages to consumers such as convenience, comparison pricing, and personalization. Buyers have the convenience of shopping at businesses located around the world at anytime. For instance, via the General Motors Web site (http://www.gm.com), potential buyers can build custom vehicles, print window stickers, determine monthly payments, and search dealer inventories. Through e-marketing, shoppers can look for the lowest price for products they want to purchase. At certain Web sites, such as Price-Grabber.com (http://www.pricegrabber.com), buyers can compare prices for the same product from many different sellers at the same time and in one location. Personalization is another important advantage of e-marketing. For example, American Airlines provides customers with personalized frequent-flier account summaries, as well as special airfare promotions via electronic mail.
E-marketing offers a number of advantages to sellers, including enhanced speed and efficiency, flexibility, and worldwide reach. Enhanced speed and efficiency is achieved for sellers through the virtual link created with customers via the Internet. This virtual link with buyers results in lower operating cost that can be passed along to customers. E-marketing's flexibility allows changes to be made to product offerings or promotional activities on short notice. Lastly, the worldwide reach of the Internet makes anyone in the world with Internet access a potential customer. This access to a worldwide customer base levels the playing field for small businesses. For example, the Vermont Country Store, with two physical locations, in Rockingham and Weston, Vermont, is able to sell its products to customers worldwide via e-marketing.
see also Careers in Marketing ; Ethics in Marketing ; Marketing Concept ; Marketing: Historical Perspectives ; Pricing
Boone, Louis E., and Kurtz, David L. (2005). Contemporary marketing 2006 (12th ed.). Eagan, MN: Thomson South-Western.
Churchill, Gilbert A., Jr., and Peter, Paul J. (1998). Marketing: Creating value for customers (2nd ed.). New York: Irwin McGraw-Hill.
Farese, Lois, Kimbrell, Grady, and Woloszyk, Carl (2002). Marketing essentials (3rd ed.). Mission Hills, CA: Glencoe/McGraw-Hill.
Kotler, Philip, and Armstrong, Gary (2006). Principles of marketing (11th ed.). Upper Saddle River, NJ: Pearson Prentice-Hall.
Pride, William M., and Ferrell, O. C. (2006). Marketing concepts and strategies. Boston: Houghton Mifflin.
Semenik, Richard J., and Bamossy, Gary J. (1995). Principles of marketing: A global perspective (2nd ed.). Cincinnati: South-Western.
Allen D. Truell
MARKETING is the multifaceted, systematic approach to selling goods, adopted by every business and not for-profit agency and group with a message. It attempts to optimize an organization's ability to make a profit, whether monetary (profits or donations) or electoral.
Marketing encompasses advertising, promotions, product design, positioning, and product development. Marketing tools include elements such as focus groups, gap analysis, concept testing, product testing, perceptual maps, demographics, psychographics (lifestyles), and choice modeling. It is powerfully aided by market research, a science that has become increasingly complex and sophisticated over the past century or more.
Market research embraces qualitative and quantitative methods. Environmental analysis gives companies key information about economic conditions, consumer demographics, consumer lifestyles, industry trends, distribution channels, new technology, employee relations and supply, foreign markets, corporate image, political and regulatory changes, and key players in the business. Sophisticated data collection and analysis investigate market segmentation and target selection, product and advertising positioning, product design, pricing, mass media advertising, direct marketing, promotion, distribution channels, and sales force allocation.
Market research rarely has a direct impact on income, but provides the essential data to prove or disprove client preconceptions, resolve disagreements, expose threats, quantify a population, and qualify an opportunity. The ways that research is used for strategic decision making determines its relationship to profit and market advance. Marketing has existed in every age and culture. In the United States, marketing reached its high level of sophistication as a result of the mass market.
Three overlapping stages have marked the history of our republic. Until roughly the 1880s, the economy was characterized by market fragmentation. Geographical limitations were reinforced by the absence of a transportation and communications infrastructure that spanned the continent. There were hundreds of local markets and very few national brand names. Profit was determined by low sales volume and high prices.
Spurred by a communications revolution and the completion of a national railroad network that by 1900 consisted of more miles of track than the rest of the world combined, a national mass market emerged. Technological innovation mushroomed, and a small number of firms realized economies of scale previously undreamed of. Giant corporations (or a small cluster of corporations) dominated single industries. Companies were able to produce goods in high volume at low prices. By 1900, firms followed the logic of mass production as they sought to create a "democracy of desire" by universalizing the availability of products.
Mass production required the development of mass marketing as well as modern management, a process spurred by analysis of the depression of the 1870s, when unsold inventory was blamed in part for the depth of the crisis, and the depression of the 1890s, when the chaos of market competition spurred efforts to make the market more predictable and controllable.
As the mass market emerged, manufacturers and retailers developed a range of instruments to shape and mold the market. National brand names like the Singer Sewing Machine from the 1860s, Coca-Cola from the 1890s, Wrigley's Chewing Gum after 1907, and Maxwell House coffee around the same time heralded the "golden age of brand names." Advertising also came into its own during the early decades of the twentieth century. The first advertising agency was established in 1869 as N. W. Ayer and Son. John Wanamaker placed the first full-page advertisement in a newspaper in 1879. Advertising media were powerfully supplemented by the use of subway cars, electric trolleys, trams, billboards, and the explosion in magazine sales. Further developments came after the 1890s with flashing electric signs, and in 1912 "talking signs" that allowed copy to move swiftly along boards from right to left first appeared on Broadway in New York City. By 1910, photo technology and color lithography revolutionized the capacity to reproduce images of all kinds.
Forward integration into wholesaling also aided mass marketing, beginning in the 1870s and 1880s with meat packers like Gustavus Swift. Franchise agreements with retailers were one key to the success of companies such as Coca-Cola. Another feature in the success of mass marketing was the creation and implementation of sales programs made possible by the spread of modern management structures and the division of corporate functions. In 1911, with the appointment of its first director of commercial research, the Curtis Publishing Company instituted the systematic analysis of carefully collected data. Hart, Shafner, and Marx became the largest manufacturer of men's suits in America by the 1910s through research that suggested producing suits for fourteen different male body types and psychographic appeals in its advertising. During and after the 1920s, as the social sciences matured, sweeping improvements in statistical methodology, behavioral science, and quantitative analysis made market research more important and accurate. Through these means—as well as coherent production and marketing plans—a mass market was created by World War II. However, consumerism as understood in the beginning of the twenty-first century did not triumph until after 1950.
The final stage of the twentieth-century market in America has been characterized as "market segmentation." Fully developed in the 1970s and 1980s, firms sought competitive advantage through the use of demographics and psychographics to more accurately pinpoint and persuade consumers of their products. Price was determined not so much by how cheaply something could be sold, but more by the special value a particular market placed upon the goods, independent of production costs.
General Motors (GM) pioneered market segmentation in the 1920s, as it fought and beat Ford for the biggest market share of the booming automobile business. Henry Ford was an exemplar of mass marketing. He had pioneered the marketing of the automobile so that it could be within the reach of almost all Americans. Standardized models were produced quickly, identically, and only in black, which dropped the cost of car buying from $600 in 1905 to $290 by 1924. In nineteen years of production, his Model T sold to 15.5 million customers. By 1924, thanks largely to Ford, the number of cars produced in the United States was greater than 4 million, compared to 180,000 in 1910. Due to his methods, by 1921 Ford sold 55 percent of all new cars in America. In trying to compete with Ford, GM first tried merging with rivals to create a larger market force, but then embraced individuality. It was in the 1920s that annual modifications to automobile models were introduced. GM made not one model to suit all, but a number of different models to suit differing pocketbooks. It looked at the market not as an undifferentiated whole, but as a collection of segments with differing requirements and desires to be satisfied. GM made the ownership of automobiles both a status symbol and stylish. By 1927, Ford's market share had been cut to 25 percent, and Ford was forced to retool and try to catch up with GM.
By the 1960s, as consumer values shifted because of social change, marketers and advertisers sought ways to reach a more segmented society. Generational differences became much more important. Further changes, after 1970, meant that marketers needed to be much more sensitive to the differences between groups of Americans and their values. Serious foreign competition in American markets during the 1970s and 1980s also spurred innovation in market research, product design, and marketing generally. Television's Nielsen ratings offered one instrument, and more sophisticated polling techniques another. The ability to identify who watched what shows according to age, gender, and ethnic background led to more targeted advertising and a leap in TV advertising, from $12 billion in 1960 to $54.5 billion in 1980. By 1985, advertisers had developed eight consumer clusters for women alone, and over forty lifestyle groups.
By the 1990s, children, teens, and seniors were similarly analyzed. In 1997, it was estimated that "kid power" accounted for sales of over $200 billion per year. Age segmentation among children received particular attention, as researchers took into account neurological, social, emotional, and moral development. Testing determined the relative perception of visual and verbal information at different ages and developmental stages. Humor and gender differences were also studied to make marketing more successful. Deregulation of children's programming in the 1980s led to cartoons becoming merchandising vehicles. By 1987, about 60 percent of all toys sold in the United States were based on licensed characters from television, movies, or books.
Market research also determined the kinds of junk mail that went to each individual and how advertising would appear on the Internet or on television. During the 1980s and 1990s, more sophisticated research developed as patterns of credit card spending were analyzed, television was deregulated into cable and satellite channels, and Internet usage was identified.
Despite the end of a long post–World War II economic expansion, after 1970 consumer spending continued to grow, largely the result of consumerism; newer, easier forms of obtaining credit; and segmented marketing; which seized a generation of Americans who were born into the first generalized age of affluence in America. Consumer spending jumped from $70.8 billion in 1940 to $617 billion in 1970. The U.S. Census Bureau reported in 2001 that retail sales just for the fourth quarter accounted for $861 billion, a remarkable figure, given the slowdown in economic growth in the preceding thirty years.
The development of marketing during the twentieth century matched and aided American economic growth and was symbiotic with the triumph of consumerism. The creation of a "democracy of desire" came to characterize American society and its values. It was a distinctive quality that influenced the attitudes of the rest of the world toward the United States, as the strength of marketing smoothed its economic dominance around the planet.
Acuff, Dan S. What Kids Buy and Why: The Psychology of Marketing to Kids. New York: Free Press, 1997.
Beacham, Walton, et al., eds. Beacham's Marketing Reference: Account Executive-Market Segmentation. 2 vols. Washington, D.C.: Research Publishing, 1986.
Burwood, Stephen. "Advertising and Consumerism." In Beacham'sEncyclopedia of Social Change: America in the Twentieth Century. Edited by Veryan B. Khan. Osprey, Fla.: Beacham Publishing, 2001.
Clancy, Kevin J., and Robert S. Shulman. The Marketing Revolution: A Radical Manifesto for Dominating the Marketplace. New York: Harper Business, 1991.
Tedlow, Richard S. New and Improved: The Story of Mass Marketing in America. Boston: Harvard Business School Press, 1996.
Zollo, Peter. Wise Up To Teens: Insights into Marketing and Advertising to Teenagers. 2d ed. Ithaca, N.Y.: New Strategist Publications, 1999.
What It Means
In economics a market is a place or system that allows buyers and sellers of goods and services to interact with one another. Markets used to be specific physical locations. For instance, in the eighteenth century American farmers typically took their harvested goods to market, a site in a town where sellers and buyers gathered to do business. As the world modernized, the meaning of the term market expanded. The term still refers to such specific locations (a present-day example would be a flea market or a farmers’ market), but in economics it more commonly refers to any geographical region or electronic arrangement in which buyers and sellers interact with one another to establish the same prices for the same items.
In present-day New York City, for example, there is a single market for real estate. The prices of houses and apartments across the city rise and fall together, depending on the collective action of all the buyers and sellers within that market. Though the real-estate market in another American city might be affected by national trends that similarly affect the New York real-estate market, the price of real estate differs dramatically from city to city. By contrast the market for shares of stock (a portion of company ownership that can be bought and sold) in American companies is global. A person in Japan who wants to buy stock in Microsoft will pay the same price as a person in Ohio.
All markets share one central characteristic: they supply a site where sellers and buyers can interact. The simple farmers’ markets of the eighteenth century provided a place for the interaction of the forces of supply (the amount of any good or service that a seller is willing to sell at a given price) and demand (the amount of any good or service that buyers are willing to buy at a given price), just as the high-tech stock markets of today do. The competing desires of buyers and sellers, rather than a central authority figure or a government, are responsible for determining the prices of goods and services in any market. Sellers want to make a profit, so the higher the price of any particular product, the more of it the seller tends to produce (the reverse holds true when prices fall). Buyers want to pay as little as possible, so the higher the price of a certain product, the less of it buyers tend to buy (again, the reverse holds true when prices fall). Prices therefore determine how much of any given product is manufactured. Prices also determine how (and how well) something will be produced, as well as the degree to which various people benefit from the economic activity that goes on in the market.
Capitalism, the dominant economic system in the world today, is built on two key pillars: the right of individuals to own private property and the reliance on markets, rather than any central authority, to dictate the production and distribution of goods and services. Markets therefore substantially determine the shape of the contemporary world.
When Did It Begin
Public marketplaces existed prior to the rise of capitalism, which occurred between the sixteenth and the eighteenth centuries in Europe. Before capitalism took hold, however, much economic activity was directly controlled by ruling authority figures rather than by such market forces as supply and demand. While people bought and sold goods at marketplaces in the ancient and medieval worlds, the prices paid for goods and services were likely to have been set by rulers rather than by the competing interests of buyers and sellers. In such cases economic activity may have been motivated not by a desire for gain but by law. If a ruler demanded, for example, that a farmer grow wheat on his land and sell it for a certain price for the benefit of society, then that farmer had no choice but to engage in that activity and sell for that price.
Many economists agree, however, that public fairs held in medieval Europe were one origin of the market system. A farmer in fifteenth-century England might have been forced to hand over a certain amount of his crop to his aristocratic landlord, but he might also have engaged in the production of profitable sidelines, such as the brewing of beer or the making of cheese. This farmer might then have taken his surplus crop, together with the fruits of these side businesses, to a public fair, where he was free to sell his products to buyers for personal gain.
The rise of capitalism was caused by a complex set of factors. One of the most important of these factors was the centralization and growth of European nation-states between the sixteenth and the eighteenth centuries. European countries, which had formerly been divided into smaller kingdoms, became more unified during this time, and they competed against one another for power. This rivalry required raising large armies and seizing colonies around the world, activities that could not be undertaken without vast amounts of money. Nations could produce more wealth by allowing individuals to own property and pursue a profit in various markets than by keeping ownership and wealth locked up in the hands of a small number of aristocrats (those belonging to a privileged class that lived partly on inherited family money).
More Detailed Information
At the foundation of all markets are the forces of supply and demand. Again, supply is the quantity of any good or service that sellers are willing to sell over a range of prices, and demand is the quantity of any good or service that buyers are willing to buy over a range of prices. The law of supply states that as the price of a good rises, sellers will want to supply more of that good because they want to maximize their profits; and the law of demand states that as the price of a good rises, buyers will want to buy less of that good because they want to keep as much of their money as possible to ensure their well-being. Through trial and error in a market situation, sellers and buyers measure their desires to sell and buy until eventually a price results that is acceptable to both. When this happens, the correct quantities of goods are produced in the most efficient ways, and both sellers and buyers get what they want.
For a concrete example of how markets distribute information and promote efficiency, imagine that an existing automobile company is introducing a new sports car. When the company attempts to calculate a price, it will first determine how much it must charge consumers in order to recover the money it has put into designing, engineering, producing, marketing, and distributing the new model. Beyond this basic level of costs, the company will want to maximize its profits, so it will set the highest price that the car market will bear, which requires keeping in mind the desires of consumers. Those consumers likely to be interested in the new-model sports car will probably not have an unlimited interest in it. If the model is unveiled and the price is generally seen as too high, consumers will look to other sports-car models or refrain from buying a car altogether. If the price is lower than it could be, given consumer demand for the car, the company will not maximize its profits.
Once the car model enters the market, consumers begin communicating to the car company through the amount of purchases they make. If, for instance, sales are disappointing at the first price set by the company, price X, then the market is sending the company a clear message that demand is weak at price X. Based on this information, the company will lower the price by several thousand dollars to price Y. At price Y sales pick up and remain steady over several months. Assuming that price Y still brings in an amount of money well above the car company’s production costs, the company now understands how much it can charge, based on consumer demand, at the same time ensuring a satisfactory level of profits.
Further, the company will weigh this information against its own ability to make profits in other ways. For instance, if price Y represents a smaller amount of profit than the company can bring in by selling its economy-car models, then it may want to reduce the number of new sports cars it manufactures and increase the number of economy cars it produces. If the company has 10 different car models, it will use the information on each model transmitted to it via the market to make its future decisions about which models to produce, how many of them to produce, and how to produce them (balancing efficiency and quality).
This basic pattern holds true across the entire economy. Buyers and sellers communicate with one another through prices, and the exchange of information allows each to make the countless individual decisions that add up, every day, to the overall economy. Without markets this same exchange of information would be extremely time-consuming and inefficient, and very little economic activity (by contemporary standards) could take place.
After the Great Depression (the severe economic crisis that impoverished much of the United States between 1929 and about 1939) people generally had less confidence in markets to regulate the economy and provide for the greater good. In response, the U.S. government began intervening in the economy as a matter of policy, hoping to prevent other dramatic crises in the future. This trend continued into the 1970s, but economic stagnation at that time was blamed on the very government intervention that had previously helped the country out of the depression.
In the 1980s conservative politicians, such as President Ronald Reagan, routinely called for smaller government, the idea being that the smaller the size of the government, the less effect government could have on the economy. The belief that government is often harmful to the economy gained further momentum in the 1990s and the early years of the new century. While there are serious economic arguments to be made for and against government involvement in the economy, many people during this time simply took it on faith that free markets were always preferable to government-managed capitalism.
Note that a market need not be a physical location–as in the case of a Stock Exchange. It is any arrangement for bringing buyers and sellers together. Improvements in telecommunications networks have speeded up communication to such an extent that financial markets and commodity markets are now international in scope. The central purpose of certain regional political initiatives is to create larger integrated markets for goods and services, such as the European Economic Community, or the proposed Latin American Economic Community.
Mainstream economic theory mostly assumes that competition in markets is perfect. That is to say, there is a large number of buyers and sellers, none of whom can exert undue individual influence on the process by which the market price is fixed. Perfect competition, it is argued, ensures that there is an inherent tendency for supply and demand to adjust to each other through the prevailing price which, if all participants act rationally, will rise or fall according to the relative scarcity of the commodity and the competitive efficiency with which it is supplied by producers and purchased by consumers. Competition also explains the relationship between markets: all products are in competition with each other for a share of consumers' limited purchasing power, and all producers are in competition for access to a limited total stock of raw materials, machinery, labour, and investment capital. The competitive process will then penalize any departures from rationality among producers or consumers by driving them out of the market altogether.
Market economies are seen as placing the individual consumer in command of production. Each individual, using income derived in the main from his or her own productive activities, expresses his or her desires and preferences by the way he or she distributes this income for the various goods and services available in markets. This economic theory is associated with a political theory which places the citizen, as a voter, in ultimate authority over the production of public goods, such as education services, weapons, or art. The market system is thus argued to be democratic in essence.
A market is not the only method of allocating goods and services since a central planner could achieve the same result. One of the longest-standing debates in economics has been over which is the more efficient method. Hence the command economies of socialist countries are contrasted with the market economies of capitalist countries. In the market economy, also called free economy or free enterprise economy, the greater part of the activities of production, distribution and exchange are conducted by private individuals or companies rather than by the government, and government intervention is kept to a minimum. Exceptions are sometimes made in the provision and distribution of health services and education services, which are funded by and organized by central or local governments, in which case the term mixed economy would be more appropriate.
Markets are recognized to have some obvious disadvantages. They tend to have trade-cycles which mean that resources are periodically not fully employed. In the case of labour, under-utilization means unemployment, which threatens workers' living standards and this may in turn have a wide range of social as well as economic effects. An uncontrolled market system produces undesirable outputs as well as the goods and services sold on the market. The classic example now is environmental pollution, with waste products being dispersed into the atmosphere, rivers, and oceans. Markets have no morals. The production and sale of weapons, access to basic health care, scientific research, artistic products, and religious services are determined entirely by the level of demand for them. Most societies have value systems which are not wholly consistent with and subservient to the amoral functioning of the market, so that market outcomes may at times be judged to be socially unacceptable. Disadvantages such as these are quite separate from a range of practical imperfections in the functioning of any market. For example markets work best when there is perfect information available to all buyers and sellers, so that demand for commodities and the supply of them interact until prices reach an equilibrium. In practice, full information may not be available, or only at disproportionate cost, or information may be unequally distributed among market participants.
Since few social scientists have been entirely happy with the notion of perfect competition, one fruitful area for collaboration between economics and sociology is the attempt to develop a systematic account of how the empirical world supports or departs from the competitive ideal. From the outset, economics has sought to understand the distortions to economic processes introduced by any government which attempted to displace the effects of unregulated economic transactions with the political allocation of resources and commodities, even within a single society. Departures occur, however, because of monopoly and other concentrations of economic power and interest; or because of cultural or administrative barriers. All of these issues are central to the concerns of the sociologist of economic life but it is only in the study of labour-markets that any real attempt at integrating economic and social theory has occurred.
One of the few exceptions to this generalization is Robert E. Lane's The Market Experience (1991), which comprehensively reviews the literature on the market economy, drawing on material from economic philosophy, economic anthropology, economic psychology, and the sociology of work. Controversially, Lane argues that the research evidence from these fields offers a powerful critique of market economics, notably by demonstrating that two of its major premisses are mistaken: namely, that (contrary to mainstream economic theory) work is not a disutility, but is in fact one of the two major sources of lifetime satisfaction; and that monetary income, although a source of utility which does compensate for sacrifices at work, contributes little to a person's sense of well-being.
mar·ket / ˈmärkit/ • n. 1. a regular gathering of people for the purchase and sale of provisions, livestock, and other commodities: farmers going to market. ∎ an open space or covered building where vendors convene to sell their goods.2. an area or arena in which commercial dealings are conducted: the sale of cruisers in the American market continues to plummet. the labor market. ∎ a demand for a particular commodity or service: there is a market for ornamental daggers. ∎ the state of trade at a particular time or in a particular context: the bottom's fallen out of the market. ∎ the free market; the operation of supply and demand: future development cannot simply be left to the market | [as adj.] a market economy. ∎ a stock market.• v. (-ket·ed, -ket·ing) [tr.] advertise or promote (something): the product was marketed under the name “aspirin.” ∎ offer for sale: sheep farmers are still unable to market their lambs. ∎ [intr.] buy or sell provisions in a market: [as n.] (marketing) some people liked to do their marketing very early in the morning.PHRASES: be in the market for wish to buy.make a market Finance take part in active dealing in particular shares or other assets.on the market available for sale: he bought every new gadget as it came on the market.DERIVATIVES: mar·ket·er n.ORIGIN: Middle English, via Anglo-Norman French from Latin mercatus, from mercari ‘buy’ (see also merchant).
A market exists when a buyer and a seller exchange money for a product or service in a transaction in which neither person is forced into the exchange. Markets can be as simple as children selling lemonade for a nickel or as complex as the international trade in cars, steel, or telecommunications.
The most important question in any market is the setting of the price. Economists since the days of British economist Adam Smith (1723–1790) have noted that prices tend to fluctuate with supply and demand. If, for example, a farmer offers his crop of wheat for sale at a given price and no one buys, she or he will lower the price to try to attract buyers. On the other hand, if there is a scarcity of the product, sellers will be able to charge more for it. In this way prices are set for thousands of products in many markets every day.
The free flow of information is essential to the efficient operation of markets. If a buyer knows that cars are cheaper at one dealership than another, she or he will buy at the less expensive dealership. But if this information is not available, the buyer may spend more money than necessary. This would leave less money to spend on something else, and thus markets would be less efficient. Information, then, is essential, whether passed by word of mouth, newspaper advertisements, or other means. Sellers sometimes try to restrict such information or scheme to keep prices high. Economists refer to such schemes as price-fixing or collusion, and governments generally outlaw such practices.
Economists also believe it is important that governments don't unduly restrict the operation of free markets with burdensome taxes or regulation. Some regulation may be necessary; for example, some regulations protect the health and safety of workers. But when governments restrict the sale of a commodity, such as automobiles, to a single state-controlled brand at an artificial price, then economists say such a market is no longer free. Markets in the former Soviet Union were not free, which is why an illegal market in food and other essential goods and services flourished side by side with official ones. Economists call these illegal markets the underground economy or black markets. Such markets tend to spring into existence in any country whenever government taxes or regulations restrict the sale or supply of a product.
See also: Price, Supply and Demand
Hence vb. XVII (marketing XVI).
mar·ket·ing / ˈmärkiting/ • n. the action or business of promoting and selling products or services, including market research and advertising.