The term market appears to have its origin from the Latin word ‘Marcatus’, which means a place where business is conducted, buyers and sellers come together to facilitate exchange and by means of which the prices of goods tend to be equalized easily and quickly.
“Market is a group of sellers and buyers who are willing to exchange goods and/or services for something of value. Of course, some negotiation may be needed. This can be made face-to-face at some physical location. Or it can be done indirectly — through a complex network of middlemen who link buyers and sellers who are far apart.” — E.J. McCarthy/W.D. Perrault.
Learn about:- 1. Definitions of Market 2. Meaning of Market 3. Classification 4. Features 5. Types 6. Market- Structure and Forces 7. Characteristics of Organised Markets 8. Market Logistics Decisions 9. Market Identification and Analysis.
What is Market? – Meaning, Definitions, Features, Types, Classification, Logistic Decisions, Identification and Analysis
- Definitions of Market
- Meaning of Market
- Classification of Market
- Features of the Market
- Types of Markets
- Market- Structure and Forces
- Characteristics of Organised Markets
- Market Logistic Decisions
- Market Identification and Analysis
What is Market – Definitions: Given by American Marketing Association, Philip Kotler, W. J. Stanton, E. J, McCarthy, Prof. Jevons, Pyle, Chapman, Clark and Clark and Mitchell
The first concept to be understood in marketing management is market. The term ‘Market’ is derived from the Latin word ‘maratus’. This means merchandise, wares, traffic, trade or place of business. This term has been defined by many in many ways. But its central theme is that it is an activity which centres round two important operations viz. buying and selling. Simply, it means an ‘Exchange Activity’.
“A market is an aggregate demand of the potential buyers for a product/ service.” —American Marketing Association
“A market is an area for potential exchanges.” — Philip Kotler
“Any person or group with whom an individual or organisation has an existing or potential exchange relationship can be considered as market.” — W.J. Stanton and Others
“Market is a group of sellers and buyers who are willing to exchange goods and/or services for something of value. Of course, some negotiation may be needed. This can be made face-to-face at some physical location. Or it can be done indirectly — through a complex network of middlemen who link buyers and sellers who are far apart.” — E.J. McCarthy/W.D. Perrault
“Originally, a market was a public place in a town where provisions and other objects were exposed for sale, but the word has been generalised to mean any body of persons who are having intimate business relations and carry on extensive transactions in any commodity.” —Prof. Jevons
“Market includes both place and region in which buyers and sellers sure in free competition with one another.” — Pyle
“The term market refers not to place, but to a commodity or commodities and buyers and sellers who are in direct competition with one another.” — Chapman
“A market, is a centre about which or an area in which the forces leading to exchange of title to a particular product operate and towards which the actual goods tend to travel.” — Clark and Clark
“Market, for most commodities, may be thought of not as a geographical meeting place, but as getting together of buyers and sellers in person, by mail, telephone, telegraph, or any other means of communication.” — Mitchell
These and many more definitions put forward by leading writers on marketing give vital dimensions of market. But the main function is ‘Exchange’.
From this we understand that market is not just a place where buyers and sellers meet. It is something more. It is a group of buyers and sellers interested in negotiating the terms of purchase and sale of goods and services. The negotiation may take place in person or through any other type of communication, like telephone, correspondence, or teleshopping or electronic-mail.
Two vital forces of market viz. demand and supply facilitate the exchange process of consumers and sellers. ‘Exchange’ is the main activity in a market. Exchange is possible when something (goods) is there to offer and somebody is there to accept. Purchase consideration (price of the product or service) also plays an important role in matching the buyer and seller.
Therefore, price is the meeting point of buyers and sellers in the market. Actually price is determined by the free play of demand for supply of goods. Thus, ‘market’ is an exchange activity which takes place between buyers and sellers directly or through middlemen, in a place or otherwise, for a price, resulting in physical/legal delivery of ownership of goods.
Various definitions given also focus on these following aspects of market:
i. Aggregate demand of potential buyers.
ii. Area for potential exchanges.
iii. Buyers and sellers exchange goods or service for a price.
iv. Exchange may take place in a specific location or through other channels — middlemen, telephone, paper correspondence, electronic mail, teleshopping etc.
v. Having intimate business relations and carry on extensive transactions in any commodity.
vi. Element of competition exists.
vii. Market information, legal controls, regulation for fair trading, market feed-back regarding repeat purchase, are other facilitating factors of market.
What is Market – Meaning
Earlier, a “market” was a physical place where buyers and sellers gathered to buy and sell goods. A market is a place which allows the purchaser and the seller to invent and gather information and lets them carry-out exchange of various products and services. In other words, the meaning of market refers to a place where the trading of goods takes place.
The essential markets and their connecting flows starts from manufacturers, they go to resource markets such as raw material markets, labour markets, money markets, etc., buy resources and turn them into goods and services, and then sell finished products to intermediaries, who sell them to consumers.
Consumers earn money by working or by providing services to any company for which they receive money with which they pay for goods and services which they purchase. The government collects tax from manufacturer, and intermediary markets and uses these goods and services to provide public services. Every economy whether it is a nation’s or global economy, consists of complex interacting sets of markets linked through exchange processes.
The term market has been used for grouping of customers. They view sellers as constituting the industry and buyers as constituting the market. The market is composed of various markets such as need markets (the diet-seeking market), product markets (the watch market), demographic markets (the education market), and geographic markets (the Gujarat market); or the concept of market could be extended to cover other markets, such as voter markets, labour markets, etc.
The consumer, global, business and non-profit markets are said to be key customer markets which are as follows:
1. Consumer Markets:
Companies who sell consumer goods and services such as soft drinks, cosmetics, air travel; they spend lot of time in trying to establish a superior brand image as compared with competitors. The strength of brands lies in creating a superior product and packaging, ensuring availability of the product with regular services without any problem.
2. Global Markets:
The companies selling goods and services in global marketplace needs to be careful while taking decision and face challenge from different companies. The company which wants to enter any country must decide, which countries to enter; how to enter each (as an exporter, licenser, joint venture partner, contract manufacturer, or solo manufacturer) how to adopt product and service features of each country; to know that pricing strategy is different for different countries; and how to communicate to fit different cultures.
The various decisions are made on the basis of different requirements for buying, negotiating, and disposing of property; different culture, language, and legal and political and currencies that might fluctuate in value.
3. Business Markets:
The buyers in business markets are well trained, well-informed and skilled professional buyers who are competent of making an evaluation of competitive offerings made by the sellers. Business buyers buy goods for making and reselling a product to others by booking profit. Marketers must show that how their products would help buyers to achieve revenue at a lower costs.
4. Non-profit and Governmental Markets:
Companies selling to non-profit organizations such as universities, churches, and charitable organizations and government agencies need to price their product or service carefully, as these buyers have limited purchasing power. Lower selling prices may affect the features and quality that seller may offer to non-profit and governmental markets.
What is Market – 8 Important Features
1. In a narrow sense, market refers to a particular place whereas in a wider sense any convenient place, region, state, nation and world can be considered as market.
2. Buyers (demand) and sellers (supply) are the two sides of the market.
3. The needs of the people, their capacity to spend money, their willingness to part with money, and the availability of goods and services are the requirements of the market.
4. The meeting of minds is more important than face-to-face meeting, in order to create a market. The transaction can be completed either personally or through agents and through modern communication facilities like fax and Internet.
5. In the free market system, price is determined by interaction of forces of demand and supply.
6. Factors affecting the exchange process are- (a) Demand and supply, (b) Price, (c) Market information with sellers and buyers, (d) Legal control and regulations to ensure fair price.
7. Feedback information points out buyers’ post-purchase experience. If buyers’ expectations are fulfilled, seller will get repeated orders. If dissatisfied, buyers will switch to rival brands.
8. Under market driven approach, consumer service and satisfaction become the focus around which entire enterprise is centred and through demand satisfaction, profit is made even against keen competition.
What is Market – 11 Main Characteristics of Organised Markets
The characteristics of all organised markets are as follows:
(1) Convenient central meeting place for buyers and sellers.
(2) Best facilities for establishing close and continuous contact or interaction between total demand and total supply—present and potential both.
(3) Very sensitive price registering device.
(4) All business governed by rules and regulations which are strictly enforced by the exchange authorities.
(5) Usually, the exchange enjoys informal autonomy and is a self-disciplined, self-administered and self-regulated autonomous body. However, at present we have special legislation to control the activities of these organised markets.
(6) There is perfect freedom and free competition between buyers and sellers. The forward markets for commodities are also called two-way auction markets. Open public outcry gives offers and bids by sellers and buyers. They also use finger Signals and symbols to declare their prices and amounts and show whether they are buying or selling. Other mechanical devices like Ticker Tapes are also used for announcing prices.
(7) Each forward market has a clearing house organisation to facilitate clearing of all dealings and their due settlement. The clearing house guarantees payment of dues and taking and giving of delivery of commodities during the settlement period.
(8) Margin system is common for forward dealings. Each member has to keep a prescribed deposit in cash as a margin with the clearing house. The margin deposit regulates the volume of speculation automatically. A higher margin, e.g. 50%, will considerably reduce the volume of speculation.
(9) An organised market also acts as a clearing house of market information, i.e., collection of all facts and figures relating to vital aspects of marketing and regular publicity of all relevant statistical information which helps businessmen to estimate and forecast price trends, changes in demand and supply. Constant price quotation service enables people to make their purchases and sales with certainty and confidence.
(10) A forward market also acts as a price barometer and fulfils all the requirements of a perfect market.
(11) Speculative trading is a necessary and vital part of any broad and stable commodity market. Speculation is an integral part of the market mechanism in commodity exchange.
It has no code of rules and regulations governing buying/selling, trade practices, and market charges. The functionaries are not licensed. There is no standing machinery for settlement of disputes. There is no central body to manage the market and supervise the dealers and agents doing their business. It has no legal status. It cannot offer justice and safety to buyers and sellers or assure fair trading. Unorganised market is also called unregulated market.
What is Market – Classification: On the Basis of Geography, Importance, Business, Economy, Time and Nature of Goods
Markets can be classified in several ways from different approaches.
1. On Geographic or Area Basis:
From the stand point of geographical area, markets are divided into:
i. Local Markets,
ii. National Market, and
iii. International Market.
i. Local Market – These markets relate to a particular locality. In the case of these markets, commodities are sold within geographical limits. Such commodities are difficult to be sold outside local limits. Generally, commodities which are heavy and perishable have local markets. For example bricks, vegetables, fruits, milk etc., have local markets.
ii. National Market – The growth of industries has widened the scope of market on national level. With the growth of transportation and communication, most of the goods are marketed at national level.
iii. International Market – These are known as foreign markets where goods are sold beyond national boundaries. With the growth of transportation and communication systems, a number of products have acquired an international level.
2. On the Basis of Importance:
On the basis of importance markets may be divided into:
i. Primary Market,
ii. Secondary Market
iii. Terminal Market.
i. Primary Markets – In primary markets, primary producers of agricultural products or manufactured goods sell to wholesalers, who assemble the goods from different sources of production. These markets are generally found in villages.
ii. Secondary Markets – In the secondary markets, wholesalers sell the goods to retailers for further selling. Semi-processed and Semi manufactured goods are generally sold and purchased in secondary markets E.g. – Yarn market.
iii. Terminal Market – It is the market where final products are sold to final consumers i.e., consumers purchase goods in the terminal markets from the retailers.
3. On the Basis of Business:
On the basis of volume of business, the market may be divided into:
i. Wholesale Market,
ii. Retail Market.
i. Wholesale Market – In wholesale market goods are bought and sold in huge quantities. In these markets sellers are wholesalers and the buyers are retailers. Wholesalers purchase goods in bulk quantities and sell the same to retailers in small quantities.
ii. Retail Market – In this market retailers who purchase goods from wholesalers, sell to ultimate consumers in individual units i.e., Very small quantities.
4. On Economic Basis:
In economics, markets are classified into:
i. Perfect Market
ii. Imperfect Market.
i. Perfect Market – In perfect market there will be perfect competition between buyers and sellers who have full knowledge of other buyers and sellers. Due to this only one price will prevail in the market for the commodity.
The following are the essential features of perfect market:
a. Group of buyers and sellers.
b. Effective competition between buyers and sellers.
c. One price for the commodity throughout the market.
ii. Imperfect Market – Imperfect market is a market which is not a perfect market. In this market we find some kind of maladjustment in demand and supply; buyers and sellers have no knowledge of other buyers and sellers.
5. On Time Basis:
On the basis of time markets may be classified into:
i. Very Short Period Markets,
ii. Short Period Markets, and
iii. Long Period Markets.
i. Very Short Period Markets – It refers to markets which exist for a very short period, normally a day. Such markets generally sell fruits, flowers, vegetables, milk etc.
ii. Short Period Markets – These markets include weekly markets held in villages. Fairs are also included in this category.
iii. Long Period Markets – Durable goods are purchased and sold in long period markets. In these markets goods may be held for a long period without any deterioration in quality.
6. On the Basis of Nature of Goods:
On the basis of the nature of goods that are purchased and sold, markets may be divided into:
i. Commodity Markets,
ii. Capital Markets,
iii. Foreign Exchange Markets.
i. Commodity Markets – These markets deal in different commodities. Consumer goods are purchased by ultimate consumers and industrial goods are purchased by manufacturers.
ii. Capital Markets – These include money markets, stock markets etc. In money markets borrowing and lending take place. In stock market shares, debentures, bonds etc., are bought and sold.
iii. Foreign Exchange Markets – Foreign exchange markets deal in currencies of different foreign countries. These markets arrange foreign currencies to make payments for the imports from other countries. They convert home currency into currencies of foreign countries.
What is Market – 4 Important Types: Consumer, Business, International, Non-Profit and Governmental Markets
Markets can be classified on the basis of the product itself, or on the basis of the end- consumer, or both.
The market is most commonly classified as following:
(1) Consumer Markets:
Consumer markets are the markets for products and services like Car, LCD TV, Refrigerators, Toothpaste, Ice Cream, Apparels and Air travel bought by individuals for their own or family use. In the consumer market, companies try to identify and meet the needs of the consumer through their product and service offering.
Additionally, they try to position the products into the consumers mind for better awareness and purchases. In the last few years, products like deodorants, hand-wash, dish-wash etc. have emerged as a new category under Fast Moving Consumer Goods (FMCG).
Consumer markets can be classified in five ways:
(2) Business Markets:
In Business market, the buying and selling takes place among businesses. It includes profit as well as not for profit businesses, government agencies (Local, State and National) and institutions (Schools, Hospitals). The business buying is quite different from consumer buying, as the buyers are well informed and a professional approach is taken up, while taking purchase decisions.
Business markets include the finished goods like PCs, office furniture, raw materials and components like steel, paint, timber, plastics, steering and services like security, courier, accounting and legal services. With respect to the consumer market, the buyers and sellers in the business market are relatively small in number.
Most of the times, the products and services are similar in the consumer markets and business markets like a fan or a TV or a courier service. The classification of the market depends upon the usage by the consumer or the business entity.
A fan or a TV bought by a customer for his home use is a part of the consumer market, while the same brand of Fan or TV becomes a part of the business market, if it is bought by a hotel or by an educational institution.
(3) International Markets:
Markets are not restricted within the borders. Now it is difficult to find a leading company not having international market. Maruti Suzuki sells more cars in India than its own domestic marketing Japan. Tata Group has the largest number of employees in the manufacturing sector in England than any English Company.
Opportunities in these markets bring more challenges also. A company needs to take decisions not only on the front of country selection, but also needs to adapt products and services to the respective country. The difference in currency, culture, language, legal and political conditions bring far more challenges than the domestic market.
(4) Non-Profit and Governmental Markets:
Non-profit and Governmental markets pose a pricing challenge to the company. Most of the time pricing plays a crucial role in purchase decisions. Generally government purchasing is done through tenders, where bids are invited from different companies. The lowest bidder gets the order. That’s why pricing needs a careful consideration in these cases. Similarly, non-profit organisations also have limited purchasing power, which again calls for better pricing from the companies.
What is Market – Structure and Forces
Defining the market is a fundamental but tricky marketing challenge- Too narrowly — the firm risks being blindsided by competitors; too broadly — the firm will not allocate resources effectively.
The firm must also understand the markets evolutionary patterns, and the forces driving this process. Because most forces are external, the firm embracing an external orientation generally understands markets better than firms with internal orientations.
Each aspect provides a different window on the market. Together, these aspects lay the foundation for developing market strategy by anticipating market change. This foundation also helps identify, size new opportunities.
When seeking market insight via these four aspects, the firm must keep two things squarely in mind:
i. State of nature — aka current market factors. Examples- What competitors does the firm face today? How many baby boomers are in its target market?
ii. Trends — evolutionary patterns. Examples- What additional direct competitors will appear in two years? How will demographic changes affect the market?
Good market insight can put the firm ahead of competitors. Market insight provides the basis for securing differential advantage in the quest to attract, retain, grow customers.
We use three separate concepts to describe market structure- the market; products/services serving the market; the firm’s products/services.
The concepts are:
Markets comprise customers — people, organizations — who require products/services to satisfy needs. Basic customer needs — food, clothing, shelter — are enduring; many offerings satisfy these needs. Other needs — entertainment, travel — are more transitory. Of course, to be in the market, customers must possess sufficient interest, purchasing power to buy what firms are offering.
The concept of a market is slippery because we can identify markets at several different levels. The transportation market concerns the basic need to move people/things from point A to point B. In turn, the passenger transportation market comprises several more narrowly defined markets — ground, air, water.
More narrowly, we can define the automobile market; even more narrowly still are markets for particular types of automobiles — SUVs, hybrids, electric cars. Good market definition — fusing cricket with entertainment —drove IPL’s success.
When defining a market, its best to start broad, then focus as necessary. This approach ensures against marketing myopia — the risk of defining a market too narrowly, because of biases or insufficient data. Conversely, a broad definition provides greater scope in searching for opportunities.
Both the firm and competitors provide products/ services to serve market needs. A useful categorization- Product class, product form, product line, product item. These distinctions help identify opportunities, and emerging competitors.
a. Product Class:
Group of products offered by competing firms; they serve a subset of customer needs in a roughly similar manner. Examples in consumer entertainment- Home video, live music, movies, television, theater. Each product class provides distinct customer benefits/values.
b. Product Form:
Several product forms comprise each product class. Examples in the movies product class- Comedy, science fiction, romance, action/ adventure, horror. Generally, individual products within a single product form are more similar to each other than to individual products in different product forms. Competition is typically more intense among product forms than among product classes.
Product classes and product forms provide a useful framework for thinking about markets, but things are not always straightforward. Competitive changes/ technological evolution often blur product-class/ product-form boundaries. Example- In the entertainment market, Netflix changed movie-rental dynamics by introducing online ordering, home delivery; streaming video caused another market change.
Product classes/product forms embrace products from all competitors. Some firms offer products in multiple product classes; other firms specialize in just one or two product forms. When we consider individual firms, we speak of product lines and product items.
i. Product line — a group of related products.
ii. Product item — a subset of the product line. A product item is uniquely identified — specific size, color — often termed a stock-keeping unit (sku).
Current and potential market sizes are important for evaluating opportunities. Since B2C market demand drives B2B market demand, we focus on key indicators of B2C market size.
i. Population Size:
World population exceeds 7 billion. Increasing by 200,000 daily, population will exceed 8 billion by 2030. Population is unevenly distributed across nations- On the high end, China — 1.3 billion, India — 1.2 billion; on the low end- Tuvalu — 10,000, Nauru — 9,000. Population growth rates differ across nations — generally low in developed countries, higher in less-developed countries.
ii. Population Mix:
In many developed countries, immigration drives population-mix changes. Of the world’s 200 million immigrants (foreign-born residents), the U.S. leads with 35 million. Other countries with large immigrant populations — Russia (13 million); Germany, Ukraine (7 million); France, India, Canada (6 million); Saudi Arabia (5 million).
Most labor migration — legal, illegal — is from less-developed countries to more-developed countries. Reduced mobility barriers — European Union (EU) — increase population shifts. The long-standing pattern of Asian workers in Middle Eastern countries continues apace. In recent years. Middle Eastern conflicts have caused EU immigration to spike. Foreign workers have a major impact on home-country economies via remittances.
iii. Domestic Population Shifts:
Generally, as national is income grows, people leave rural areas for towns/cities. Then urban areas become overcrowded- Mumbai (India) — 14 million; Sao Paulo (Brazil) — 11 million. China predicts 500 million people will move from rural to urban areas by 2050. In advanced economies, people also move from cities to rural areas and follow the sun to warmer climates.
iv. Income, Income Distribution:
For many years, the U.S. was the world’s richest country in per capita income. Today, Qatar, Luxembourg, Singapore, Norway, UAE surpass the U.S. Economic development/demographic changes are shifting opportunities from traditional markets to emerging markets. Especially important growing markets are BRICI countries — Brazil, Russia, India, China, Indonesia.
v. Age Distribution:
Age distribution shifts have enormous implications for B2C marketers. Example- Large numbers of retirement-age consumers (baby boomers) are active; have significant discretionary income; are sophisticated buyers. Cruises, assisted- living facilities are growth markets.
By contrast, countries with median ages in (and below) the mid-20s — Brazil, Indonesia, Mexico — offer opportunities for Coke, Pepsi, KFC, McDonald’s, and other marketers whose products appeal to younger consumers.
A key firm challenge is translating market insight into market demand measures. Reflecting the state of nature and trends distinction, two concepts — potentials, forecasts — are key for understanding market demand and firm sales. Unfortunately, these terms confuse many managers.
Potential embraces having a capability/future-state view of products/markets:
i. Market potential — what total market sales could become.
ii. Sales potential — what firm sales could become.
By contrast, forecast concerns expectations:
i. Forecast market size — expected market sales in a given time period.
ii. Sales forecast — expected firm sales in a given time period.
Some forces affect the firm specifically; others may impact the entire industry — fuel prices for airlines. Strong industry forces may drive profitability downward for all players — worldwide paper industry.
The firm must develop a good understanding of these forces, and their implications:
a. Current Direct Competitors:
The firm’s current direct competitors offer customers similar benefits/values with similar products, technology, business models. Current direct competitors are the competitive status quo, traditional rivalry between established players. In banking, domestic rivals include State Bank of India (SNI), Citibank, ICICI, Yes Bank.
Typically, managers in rival firms know these competitors well. They have good insight into strengths/weaknesses, and likely strategic moves. They may even have worked for them!
Current direct competitors come in several forms:
These competitors fight according to established rules of the game. In mature markets, one firm rarely gains advantage quickly; rather, improved positions typically result from long-run sustained effort. Establishing differential advantage is difficult. Globalization, industry concentration affect direct competition in many markets.
ii. Acquisition, Divestiture:
Suppose a direct competitor or an industry outsider acquires a rival — independent firm or via a divestiture. The competitor has changed- Objectives, strategy, action programs, resources are likely all different.
Two entities combine as equal partners to create a stronger firm. By pooling strengths/ mitigating weaknesses, the new entity may be a tougher competitor; capabilities outstrip either former firm.
iv. Private Equity:
Hedge funds borrow extensively to acquire firms/businesses. The resulting heavy debt-reduction focus often makes these entities more nimble, tougher competitors.
b. New Direct Entrants:
These firms offer products/services similar to the firm, but were previously not competitors.
Barriers to entry hinder market entry, but new direct entrants can emerge from many sources:
i. Firm Employees:
It is a significant competitive threat in some industries. Employees may develop new business ideas/technologies the firm chooses not to fund; they resign to pursue them. Famously, several former Fairchild Semiconductor employees founded Intel. This competitive form is greatest when the firms core asset is intellectual capital held by employees — technology, advertising, consulting, financial services.
ii. Geographic Expansion:
It is often profitable, well-capitalized firms from a different geography — Asian firms entering U.S., European markets. These competitors have solid strengths/cost advantages, but lack market knowledge, customer relationships. They may use superior cost positions to support low-price strategies and aggressively seek market share.
It is a group of firms/individuals using their combined talents/resources to collaborate. Networks are very flexible, changing composition as requirements evolve.
iv. New Sales, Distribution Channels:
This can pose significant challenges to traditional players, like the Internet. Strong firms that add channels also heighten competition.
v. Start-up Entry:
It has flexibility, unencumbered by the status quo. Flexibility and talent can make startups potent competitors; incumbent may suffer from overhead allocations, old facilities, old technology, old processes. Successful startups include Indigo.
vi. Strategic Alliances:
Lacking critical assets like capital, skills, technology, market access; one firm may pool resources with another firm. The new entity is stronger than either firm separately.
c. Indirect Competitors:
Indirect competitors offer customers similar benefits/ values as the firm, but provide them in significantly different ways. These functional substitutes often appear as different product forms/product classes. Examples- Taxi firms — Uber, Ola; hotels — Airbnb; digital imaging — Xerox; supermarkets — Amazon, Flipkart; steel — high-performance plastics.
Suppliers provide firm inputs. Typically, supplier pressure on the firm increases as importance increases — providing a critical capability, large percentage of purchases. Supplier pressure may also arise if its brand is attractive to firm customers. Example- PC buyers value Intel Inside.
PC manufacturers feel pressure from Intel; Intel commands high prices. Pressure is strongest when the supplier is a monopoly — local telephone firms, government services, railroads. Sometimes several suppliers form cartels — oil (OPEC), diamonds (De Beers) — to manage production levels, prices.
The most severe supplier threat is forward integration — the supplier becomes a direct competitor by conducting operations the firm currently performs. Example- Outsourcing manufacturers in less- developed countries that supply U.S., European firms; they may develop the skills for future forward integration.
Buyers purchase firm products/services. Buyer pressure typically increases as market share increases. Firm profit margins shrink when powerful customers demand price discounts, expensive services.
Example- Wal-Mart demands (and receives) many supplier concessions. The most severe buyer threat is backward integration; the buyer becomes a new direct competitor by conducting operations the firm currently performs.
Environmental forces affect the firm and other industry participants. The PESTLE forces are— political, economic, socio-cultural, technological, legal/regulatory, environmental (physical) — and industry forces impact the firm.
These are explained as under:
Governments set the frameworks for regulators to develop rules for business. Typically, governments intervene in economies via fiscal, monetary policy. Governments pursue political ends; encourage investment; seek to enhance consumer welfare by creating a level playing field.
In recent years, many national governments realized that regulations designed to protect consumers actually lock in competitive structures, restrict competitive entry, stifle innovation— contrary to intended results. Deregulation/regulation (reregulation) is a continuing political tug-of-war.
A country’s economic well-being strongly influences market demand. High inflation, high/rising interest rates, falling share prices, depreciating currency point to an unhealthy economy. High inflation rates are generally a negative indicator, but very low/ below zero inflation rates are also negative. Because expectations influence spending patterns, evaluating direction/rate of change of economic indicators is crucial.
Culture is the distinctive customs, achievements, products, and outlook of a society or group; the way of life of a society or group. People learn culture early in life, largely from family, school, religious institutions. Cultural norms are resistant to change, but do evolve.
A cultural group may inhabit a nation-state — Brazil, Iran; geographic region within a nation, like Tamil — south India, Punjabi — north India; or a multinational region — Latin America, Southeast Asia. A cultural group may also comprise a people, regardless of geographic location — Armenian, Indian, Jewish, Kurdish diasporas.
A cultural group may comprise different subcultures, each reflecting both group culture and subcultural elements. Hence, in India, different Hindu castes represent different subcultures. Religious, gender, ethnic groups each represent different market opportunities.
An important contemporary cultural issue is the tension between localization and globalization. Many individuals/groups resist globalization; they also resist U.S., Western influence in particular. Global/local trends have a profound impact on firm actions, performance.
Since World War II, technological innovation has produced many products/services we now take for granted. These innovations changed individual, household, organizational life; restructured industries; continue to drive economic growth, as the pace of technological change continues to accelerate.
In the 20 years 1970-1990, six product classes in consumer electronics achieved mass acceptance — video recorders, video cameras, videogame consoles, CD players, telephone answering machines, cordless telephones.
Since 1990, digitization and the Internet have launched entire new industries; today, companies compete in different ways, offering previously unimaginable customer benefits/values.
Two categories of technological change:
i. Sustaining technologies are often incremental- They improve performance for existing/traditional products on dimensions current customers’ value. Examples- Cordless vacuum cleaners, power drills.
ii. Disruptive technologies bring new, very different benefits/values. They change customer behavior; new products/applications attract new-to-the- market customers. Disruptive technologies spawn products that threaten, and change, entire industries.
When disruptive technology becomes mainstream, it threatens old technology firms that do not adapt. Examples- the Internet, streaming video.
The legal framework (LF) establishes the rules for business. LF aims to protect societal interests, regulate market power, hinder collusion/stop deceptive practices. LFs differ across countries, but generally govern mergers, acquisitions, capital movements, consumer protection, and employment conditions. In India, powerful regulatory bodies — CAG, ECI, IRDA, SEBI, TRAI — enact rules embodying legislation.
The U.S. and EU countries have well-developed legal systems; by contrast, poorly developed/implemented systems of commercial law in other countries cause major problems for foreign firms — copyright infringements, patents, trademarks.
Natural and man-made forces coexist in an uneasy equilibrium. Global environmental forces- Hurricane Sandy – U.S.; tsunami – Japan; volcanic ash – Chile, Iceland; floods – Thailand; wildfires – Alberta (Canada) highlight the fragility of increasingly decentralized yet tightly integrated global supply chains. Production of many products, global commerce suffered from these events.
Firms face increasing pressure from governments, environmentalists, advocacy groups, the public at large to provide increased transparency, and to assume greater environmental responsibility — products, packaging, production systems. Some firms have enacted green strategies.
What is Market – Logistic Decisions
Market logistics is where the management students are required to use the quantitative techniques learned while getting their management degrees. Most of the time, management students only look at the subject quantitative techniques as unnecessary trouble and even the teachers teaching it also are not aware where it is useful.
Market logistics talk in terms of where the inventory should be stored economically and how the cost of transportation can be reduced or the response time of order is reduced.
Order processing is a very important part in selling. If order is not processed in time it can become invalid and the customer may refuse to accept it. If the orders are processed late on continuous basis the supplier may get black listed and will stop getting orders.
Delayed order processing can stop production at the customer level and lead to losses for the customer; these losses may be recovered by the customer from the supplier by deducting amount equal to the losses from the payments.
In Industrial sales order processing is very important as in Industrial sales the people involved are different at every level as follows:
i. Indent- Store keeper/production planner
ii. Purchase manager- Solicitation of the suppliers
iii. Decision Making Unit (DMU)/Buying Centers- Order specification, price and conditions negotiation, scheduling and confirmation
iv. Receipt of order- Sales staff of supplier collects purchase order (PO) with all details from the purchaser/customer
v. Order supply- Supplier’s production unit
vi. Receipt of product- Store at customer production unit
vii. Inspection- Quality inspectors at customer production unit
viii. Payment- Customers’ accounts/finance department
Since all the people are different, the sales staff at supplier must process the order properly to ensure that the production people understand the quality specifications and scheduling properly and make the bill as per the order and supply exactly as per the schedule. Any mistake can lead to disputes and loss of customers.
Order processing in consumer sales also leads to lot of disputes. Basically these disputes arise from sales officers giving tall promises to the customers while booking the order and being unable to fulfill them.
Many times, the problem starts with sales officers giving promises casually and forgetting to inform the distributor about it. When the distributor goes for supplying the order, the retailer refuses to accept unless the promise given by the sales officer is fulfilled.
Instead of accepting the fault, the sales officers deny having given the promise. Sometimes, the sales officer is unaware of the exact stock position with the distributor and gives promises based on imaginary stock positions and this leads to disputes. Sometimes, it is a deliberate attempt by the distributor to get additional benefits from the manufacturer.
Warehousing is a major area of importance for a marketing manager. Having warehouses at the right locations help the marketing manager in many ways, some of which can be listed as follows.
i. Reduces the Response Time to Customer Order:
As the product inventory is located nearer to the customer, it can be supplied to him faster. The inventory in warehouses is most of the time excise cleared so the time consumed in excise clearance is also not lost in supplying the orders to the customers.
ii. Reduces Cost of Transport:
Goods can be transported in wagon/truck loads to the warehouses in contracted carriers at much lower rates than hiring trucks every now and then. Goods then can be forwarded to various customers in smaller tempos/trucks as required, saving lot of cost of transportation.
iii. Reduces Transport/Transit Damages:
Supplying smaller quantity in large trucks is very expensive and not safe. Even if you book the truck paying full load, the transporter is bound to load other goods in the empty area of the truck. These other goods can damage your products. E.g If the transporter loads agarbatties (incense sticks) in a truck carrying biscuits, the biscuits will catch the smell and become unpalatable.
In some cases, the transporter carries the small load in his truck and then transships it to another at some point. The consignment can lie in wait for many days for another truck to pick it up for further journey delaying the delivery and also damaging the quality of goods.
E.g. A major transporter very famous in Karnataka, having depots in all towns in Karnataka picks up consignments to be delivered in any part of Karnataka at much cheaper rates than other transporters who carry the consignment from Mumbai in trucks with Maharashtra number plates up to Hubali.
These trucks dump the stock at Hubali and then are carried forward by Karnataka trucks depending on the load they get, so the consignments to say Karwar from Mumbai may take many days to reach even when it has reached Hubali next day.
Marketing manager has following choices in warehousing:
(a) Own Warehouse:
In this case the organization either purchases a warehouse or rents one and appoints own staff to maintain the warehouse. These arrangements have many difficulties. For e.g. –
i. Large warehouse space leads to large investment.
ii. Space requirements are not always steady and sometimes in emergency, additional warehousing space may be required and arranging it can be difficult and costly.
iii. Honest staff is required to ensure there is no stock pilferage and damages due to mishandling. To hire good staff, higher cost is involved.
(b) Rented Warehouse through Warehousing Agent:
Rented warehouse through warehousing agent is one option that is cost effective but warehousing agent takes responsibility of safe keeping of stock and gives no service.
(c) Clearing Forwarding Agent (CFA):
This is the best option as it does not involve any investment and CFA gives all the service to the manufacturer. Choice and training of CFA staff is very important to get better quality and efficient service.
With CFA as a choice, manufacturer can have as many CFAs as required in all corners of the country and ensure that the orders are supplied quickly and at low cost of transportation. In FMCG with many products and production centers it is useful to go in for Mother Depot arrangements that can reduce transportation and inventory costs further.
Inventory is very sensitive matter. Not having adequate inventory can lead to loss of selling opportunity. At the same time, having more inventory can lead to additional cost of selling. Marketing manager needs to have a proper balance in the inventory holding so that there is no loss of business and also no unnecessary inventory costs.
Most of the marketing managers rely on sales forecasting done by the sales team to decide on the inventory and production planning.
Professional organizations have a system of preparing forward forecast that helps production planning and also the inventory control. There is system of deciding inventory based on the estimated sales in the coming months. Most of the organizations have a rule of keeping 15 to 20 days inventory at the nearest warehouse for every sales area.
The quantity is decided on the basis of average sales of the area or the forecast for the coming month and the promotional plans decided by marketing department for the coming month.
This ensures adequate inventory at every warehouse and there is unnecessary inventory leading to extra cost to the organization. The only problem found in this system is if the sales manager of the area is not properly trained or is inefficient he falls short of his requirements or holds high inventory unnecessarily because of his wrong forecasting.
Forward forecast should give correct forecast of the coming month (sacrosanct) and variations in next two month should not be more that 5%. Variation in the third month can be between 5-10%. Table 3.1 shows forward forecast.
Cost of inventory can also be reduced by shifting the cost of inventory on the channel partners. This way one can ensure that the market never starves for want of inventory and also, the channel partner is always forced to push the product for achieving rotation of the investment. The additional margin/commission required to be paid to the channel partner is much lower than the inventory carrying cost of the manufacturer.
What is Market – Identification and Analysis
The firm with a comparatively small market share but a good product may find its greatest opportunity among organizations which have a need for its products and services but are not presently customers.
For many companies the most fruitful search effort is that for needs they are not presently meeting but have the requisite technical capacity to satisfy. This is the type of search required by a strategy for growth based on new-product development and expansion into previously untapped markets.
Finding New Buyers in Existing Markets:
Identifying new customers for current applications of a company’s existing product line usually proceeds in two phases. The first is classifying present customers by S.I.C. This provides a list of market segments for which a considerable amount of secondary data is available.
The second phase consists of developing an enumeration of the firms in each segment and comparing this list with the company’s customer list. This provides a positive identification of the noncustomer firms in each market segment.
Customers can be readily segregated on the basis of four-digit S.I.C. classes by ascertaining the primary product or type of operation of each and matching this characteristic with the appropriate industry definition. A partial list of customers segregated by S.I.C. is shown in Figure 8-5.
Every state has an industrial directory of some description published privately or by a department of the state government. These directories provide a complete census of commercial and industrial firms doing business in the state, identifying them by name and location.
A number of directories list firms by four-digit S.I.C. industries. Many which do not follow S.I.C. definitions list each firm twice- by product produced or handled—usually in a “Buyers Guide” section; and again under city of location.
The manufacturer whose customers are classified by S.I.C. or by product categories—if the appropriate state directories are not based on S.I.C.—can match his customer list against the list of firms in the appropriate state directories, category by category. Firms included in an industrial directory in every category in which a manufacturer has customers, but are not included in his list of customers represent potential new customers.
Suppose, for example, that an East Coast manufacturer of paints and varnishes wishes to know how many furniture manufacturers in the state of North Carolina are not among his customers. If the firm’s customers are already classified by S.I.C., reference to County Business Patterns would disclose 579 manufacturers of furniture and fixtures (S.I.C. 25) in the state in 1971.
In order for this manufacturer to determine how many furniture accounts in North Carolina he has been failing to sell, he simply needs to compare the number of present customers in S.I.C. 25 in North Carolina with the number of “reporting units” in this classification in the state. There may or may not be good reasons for a discrepancy between the two lists; but any substantial discrepancy may well represent untapped market opportunity.
The names and addresses of manufacturers missing from the firm’s customer list in North Carolina can be obtained from the North Carolina Directory of Manufacturing Firms. Like a number of other state directories, entries in this directory are listed alphabetically, by four- digit S.I.C. number, and alphabetically by county.
In addition to state industrial directories, the Dun and Bradstreet Reference Book, which gives a nearly complete listing of all businesses and is based on the S.I.C., is compiled for every community in the nation. Current editions of the Reference Books, however, are available only to subscribers of the Dun and Bradstreet rating service.
Listings of a particular kind of business in a given area sometimes may also be secured from mailing-list houses, the research departments of newspapers serving the area, local chambers of commerce, or business associations. These sources are often able to supply specialized and detailed directories for their immediate locality. Membership lists of national trade associations—when they can be obtained—and telephone directories can be useful in pinpointing prospects.
Identifying Untapped Markets:
An untapped market might be one of two types: an industry in which a manufacturer discovers new applications for his existing products, or an industry in which needs are found which require products of novel design and function which he is capable of developing. Both types of opportunity can be identified in much the same way—with an investigation of all S.I.C. categories for clues to needs the company might be able to satisfy.
If such an investigation is to be performed effectively, a great deal of technical knowledge and a broad understanding of manufacturing processes is usually required. Even large firms often draw upon the services of outside consultants for such work.
Essentially, each four-digit classification is studied with two questions in mind:
1. Could establishments making that kind of product or performing that kind of operation make use of any product or service this company could supply?
2. Could this company perform any operation or function which establishments in this classification are performing better than they are doing it?
While the answer to either question is rarely self-evident, it is often possible to eliminate industries in which a manufacturer is reasonably confident that the answer to both questions would be negative.
Obviously, if the answer to both questions is negative with respect to any given industry, that industry does not represent a prospective market and can be eliminated from further
This type of investigation results in a list of industries (four-digit S.I.C.’s) which, because of the products each produces or the type of operation in which each is involved, need what the marketer can supply. The next step is an evaluation of each industry to determine which ones represent the greatest potential markets.
Although the logical first step in market identification is the specification of need, companies often find themselves with products which they must decide to market, license, or abandon.
Research and development efforts almost invariably produce unintended spin-off products, and by-products are an inevitable consequence of many manufacturing processes. As a consequence, management must frequently find ways of making a quick assessment of the market for embryo products.
Attempting to identify specific industries which have a need for such products is often premature because there may be considerable uncertainty regarding what the product can do.
When Dow Chemical Company faced the question of what to do with 1, 1, 1 trichloro-ethane, a chemical co-product in the manufacture of Saran Wrap, it was decided to market it initially to Dow’s own customers. The chemical had the properties of a cold cleaning solvent with low toxicity and a high flashpoint.
Since it was not known what additional uses the chemical might have, management wisely decided to let users of the chemical discover new applications for it. As a result of customer ingenuity, and R&D success in developing inhibitors to lower the chemical’s volatility and reduce its corrosiveness, 1, 1, 1 trichloro-ethane inhibited soon became the “product with a thousand uses.”
Applications were found in such widely differing industries as missile manufacturing, appliance making, chemical specialties, public utilities, pharmaceuticals, and printing. As suggestions from users led to the development by Dow of additional inhibitors, the use of 1,1,1 trichloro-ethane inhibited expanded from cold cleaning (a small market) to vapor degreasing (a relatively large market) and finally to chemical processing (a sizeable market)—far beyond anything initially envisaged by its developers.
William H. Reynolds tells the story of the relatively sophisticated West Coast electronics firm which developed an electronic recording device with a visual output, something like an oscillograph. The product differed only in degree from other, similar, products on the market but was more accurate, possessed certain other advantages, and was more expensive.
Through its research the firm identified virtually every establishment in the nation which would have any conceivable use for the product. There was little reason to believe that many of them would find its increased accuracy or other advantages of much value. Serious consideration was given to dropping the product, but management finally decided to attempt to recover at least a part of its development cost.
The product was advertised in media reaching the companies identified as the best prospects and salesmen made regular calls on these firms. As expected, sales were slow, but no one was particularly disappointed.
But gradually inquiries began to drift in from companies not identified as having a need for the product. The tenor of the inquiries was, “We understand you have a thing that is accurate to four nines in measuring fluctuations of this particular type. We have used mechanical measuring instruments before because nothing electronic was stable enough. Could you send us specs?”
Sales rose steadily. Customers suggested applications and the most unlikely industries found ways to use the product. The company began by seeking to win a small share of an existing market, but found itself dominating a new market larger than the one in which it had hoped to find a minor niche.
The advertising this company now uses employs a variety of trade media and the principal message of its copy is almost, “To whom it may concern – we have this thing with these characteristics. Can you use it?”
It eventually became a standing joke in the company to try to think of an industry with no conceivable use for this product and then attempt to sell it to them. Some outrageously facetious suggestions proved to be sound in practice.
The moral of these two examples is that procedures and techniques should never be substituted for thinking. If the application of a product is clouded with uncertainty, or if one suspects that it might have hidden versatility, field testing is a logical first step in market identification. Even a fairly informal and unstructured field test should provide insights regarding application that will make subsequent analysis of S.I.C.’s much more meaningful.