Market in Economics: Types and Characteristics

What is a market?

A market refers to the sum total of all buyers and sellers within a considerable area or region. It is the coming together of buyers and sellers with the purpose of facilitating the exchange or transaction of goods and services known as trade. A market involves two parties, the buyer and the seller. The buyers and sellers trade the value cost, and price of commodities on the basis of the forces of supply and demand. The market can be a physical entity or virtual. A physical entity includes a retail outlet where people meet face to face.  A  virtual market includes an online market. In an online market, there is usually no direct physical contact between buyers and sellers. Other examples of a market include the black market, auction market, financial market, etc., which will be explained in the course of this article.

To further explain what a market is, it can take other forms such as the stock exchange where securities are being traded. It can also describe a collection of people who desire to purchase a specific product or service. In technical terms, we can refer to a market as a place where two or more parties can come together to engage in an economic transaction, including those transactions that do not include a legal tender. Usually, a market transaction involves information, goods, services, currency, or any combination of these components that transit from one party to another.

Physical locations can present markets where transactions take place such as retail stores, wholesale, and other similar businesses that engage in trade. Generally, a market needs two parties to facilitate trade. At a minimum stage, the market needs a third party to introduce competition as well as bring balance to the market. We can determine the size of a market by the number of buyers and sellers and the amount of money that changes hand on a yearly basis.

What is a market in Business?

Market in business is a method company uses to sell goods and services to a particular customer group. It facilitates sales of goods and services from one business to another in situations whereby the business plans to reuse or resell the goods and services of another company. A market in business can show a company way to advertise and sell its products and services to specific demographics of consumers. Working in sales as well as knowing about the types of markets in business can help a company to determine the form of marketing that will bring the most success to the business. Here, as the market expands, a company can remain informed about recent developments to adjust sales. A company can also adopt marketing strategies to align with the market that may be most beneficial

It is the market that establishes the prices for goods and services and the forces of supply and demand determine these rates. Sellers create supply while buyers generate demand. While markets try finding some balance in price when supply and demand themselves are in balance. This balance in itself can however be disrupted by other factors aside from price. These factors include income, technology, expectations, cost of production, technology, and the number of buyers and sellers in the market.

Either organically or as a means of enabling ownership rights over goods, services, and information, markets may emerge. Depending on many factors such as income levels and how to open a nation or region is open to foreign trade, we may often categorize markets as developed, developing, or underdeveloped. This categorization usually takes place when on a national level or other more specific regional levels.

Market in economics

Market in Economics does not refer to a specific geographical area, it refers to a platform for the exchange of a commodity or commodities. Economists describe the term market as an arrangement where buyers and sellers come in close contact with one another either directly or indirectly to buy and sell goods or services or engage in trade/exchange. They further explain that a market does not need buyers and sellers to personally or physically meet in a specific geographical location to exist. They may contact one another by using other means like the telephone or internet.

Therefore, in economics, we use the market in a typical and specialized sense, it is not limited to a fixed location. In this sense, a market refers to the whole area of operation of demand and supply. It further refers to the conditions and commercial relationships that facilitate transactions or exchange between buyers and sellers. By implication, a market is a term that signifies any form of arrangement in which the sale and purchase of goods and services take place.

The economists’ understanding of marker is not a specific geographical location or any particular market where buying and selling of goods and services take place, but the entirety of any region where buyers and sellers are in such free intercourse with one another such that the piece of similar goods tends to equality so easily and quickly. There is a stronger tendency for buyers to pay the same price for the same commodity at the same time in all parts of the market the more nearly perfect the market is.

As explained above, the concept of the market primarily encompasses more or less standardized commodities such as automobiles. The word is also used in contexts like the market for real estate or for old masters, and the labor market. Although a difference exists between various contracts to work for a certain wage and a sale of goods, there is still a connecting idea in these various usages. This is the interplay of supply and demand.

Market in market (marketing)

Market in this context refers to a place where buyers and sellers come together to facilitate a transaction, that is the exchange of goods and services. Both parties can meet in a city, region, state, province, and country. One party, the seller, sells a product or service to a buyer in exchange for money while the buyer pays for the product or service and gets his wants or needs satisfied. There are many buyers and sellers in the marketplace.

Most markets comprise groups of intermediaries between the initial seller of a commodity and the final buyer or consumer. There are different types of intermediaries that exist in the channel of distribution ranging from agents, brokers, distributors…, down to the wholesaler and the retailer. These intermediaries may be mere dealers that do not have any equipment other than a telephone. They can also provide other services such as storage, grading, packaging, advertisements, etc. In general terms, the function of a market is to collect commodities from scattered sources and channel them to scattered outlets. From the seller’s point of view, dealers channel the demand for their (seller) products. From the buyer’s point of view, on the other hand, these dealers bring supplies within his (buyer) reach.

There are two major types of markets that exist for products, where the forces of supply and demand differ in their operations alongside some overlapping and borderline cases. Firstly, the producer offers his products and accepts whatever price these products will command. Secondly, the producer fixes his price and sells as many commodities as the market will take. In addition, alongside the growth of trade in commodities, there has been a rapid spread of financial markets including security exchange markets and money markets.

Market theory and its abstract nature

We may find the key to the modern concept of the market in the observation of the famous 18th-century economist, Adam Smith. He stated that that the division of labor is dependent upon the extent of the market. He could foresee that the modern industry is dependent upon its development upon an extensive market for its products. The emergence of the factory system resulted from the trading of cotton textiles, when merchants, discovering an apparently insatiable worldwide market, became interested in increasing their production in order to have more to sell.

The factory system resulted in the use of power to supplement human muscle, in turn, the application of science to technology followed. In an accelerating spiral, this has brought about the scope and complexity of the modern industry.

The economic theory of the late 19th century is still influential in academic teaching. It was however concerned with the allocation of existing resources among different uses rather than with technical progress. The theory was highly abstract. The market concept was mostly worked out systematically in a system of general equilibrium which Leon Walras, the French economist, developed. This economist was greatly influenced by the theoretical physics of his time. Though his system of mathematical equations was indigenous, two serious limitations exist to the mechanical analogy upon which they were based.

First, it omitted the time factor, that is the effect on the present behavior of people, of their expectations pertaining to the future. Secondly, it ignored the consequences for humans concerned with the distribution of purchasing power among them. Although economists have always accepted the theory’s abstract nature, they have generally accepted the doctrine that states that the free play of the market forces seemed to be about total employment and an optimal resource allocation. In view of this, unemployment could only result when wages become too high. In the Great Depression of the 1930s, this doctrine still remained influential.

The history and origin of markets

The origin of markets

As commercial centers, markets tend to have had three different points of origin. The first point of origin was in rural fairs where a typical cultivator would feed his family and pay the landlord and money lender from his chief crops. He had sidelines that helped in providing salable products as there were needs that he could not satisfy at home. Then, it was convenient for him to go to a market where many could meet to engage in trade.

The second point of origin was in service to the landlords. The cultivator essentially paid rent in grains. Even when they translate these grains to money, it was necessary to sell these grains for the cultivator to have funds to meet his due needs. At this point, the payment of rent was a one-way transaction that the landlord imposed. The landlord, in turn, made use of the rent to maintain his warriors, clients, and artisans. This then amounted to the growth of towns such as centers of trade and production. It was then that an urban class emerged with a standard of living thereby enabling its members to cater to one another and to the landlords and officials.

The third point of origin is the most influential which was in international trade. From early times, merchant adventurers, usually the Phoenicians and the Arabs, risked their lives and capital to move the products of one region to another.

The relevance that international trade has in the development of the market system was precisely based on the fact that third parties carry out this activity. Within a settled country, the considerations of rights obligations, and proper behavior greatly restrained commercial dealings.

The historical development of markets

History and anthropology made provision for many examples of economies that are neither based on markets nor commerce. For example, carrying out an exchange of gifts between communities with different resources may look like trade particularly in diversifying consumption and the encouragement and the encouragement of specialization in production. This however has a different meaning. While honor lies in giving, receiving imposes much burden. Here, competition exists with regard to who can show the most generosity rather than who can generate the biggest gain.

Another form of exchange that was not commercial was the payment of tribute or dues to a political authority which would then distribute what it had collected. Based on this, great, complex, and wealthy civilizations have arisen whereby commerce was almost entirely unknown and unrecognized. Through the administrative system, the people operated the network of supply and distribution. Herodotus pointed out that the Persians did not have marketplaces.

The distinguishing attribute of commerce is the fact that those goods are neither offered as a duty, for prestige, nor out of neighborly kindness, but to acquire purchasing power. It is clearly convenient for all parties to have a single currency commodity that is generally established. Once a commodity is generally acceptable as money, its use to store purchasing power surpasses its use for its actual purpose. In this case, it ceases from being a commodity like any other and becomes the very physical entity of value.

Features of market

The presence of transaction

In the market, business transactions are present. Here, the coming together of minds is more important than face-to-face meetings to facilitate transactions or the creation of the market. The parties involved can complete the transaction either personally or through agents. It can also take place can perform their transaction through modern communication tools such as fax and internet. Payment for commodities and services takes place.

Area

There is usually a convenient central place of meeting for buyers and sellers. In a narrow context, a market refers to a specific geographical location while in a wider context, any convenient place, region, state, nation, or world can be seen as a market. In this context, we have the physical and virtual markets. A physical market is a place where buyers and sellers physically come together where both parties carry out transactions in exchange for money. Virtual markets, on the other hand also refer to the internet market where buyers and sellers meet online. There is no need for them to physically meet or interact for transactions to successfully take place.

Buyer-seller relationship and interaction

There is a close relationship and interaction between buyers and sellers. A close relationship, as well as continuous contact, is being established from both the demand side and the supply side (buyers and sellers).

Comprises two side

The market comprises two sides. The buyer or the demand side and the seller or the supply side.

Price control

In the market system, the interactive forces of demand and supply determine the price. Also, constant price quotation service facilitates purchases and sales with certainty and confidence. There is usually a price at which buyers and sellers are willing to transact business for a particular commodity.

The presence of competition

In the market, perfect freedom of competition between buyers and sellers. Producers or sellers compete against one another for the patronage as well as the money of the consumer. They adopt various marketing strategies that will help them gain a competitive edge over their rivals. Through this competition, firms/companies get the motivation to increase the volume of their sales through the utilization of the various components of the marketing mix. The marketing mix comprises the 4Ps which stand for product, price, place, and promotion.

The satisfaction of needs and wants

For a market to be effective, the needs of the consumers have to be met. Their capacity to spend money, their willingness to pay for these goods and services, and the availability of the goods and services must be in place. The focus of producers and sellers should be on the satisfaction of wants.

Regulation

In the market, there is strict enforcement of rules and regulations by exchange and government authorities. Legislation exists to control the activities of markets. There are penalties for the violation of these rules and regulations.

Consumer behavior and feedback

There is usually feedback information that highlights the after-purchase experience of consumers/buyers. If the sellers fulfill the expectations of the buyers, they will get repeated orders. If these buyers are dissatisfied, on the other hand, they will switch to rival brands. This becomes necessary for producers to study the behaviors of consumers as well as tastes and preferences in order to improve in certain areas of their production.

Types of markets

A)Traditional classification

We can classify markets based on different criteria. The most common criteria are time, area, regulation, transactions, the volume of business, nature of competition, nature of goods, and the conditions of demand and supply. These classifications make up the traditional approach. The market was traditionally a physical place where buyers and sellers came together to buy and sell commodities. Economists describe a market as a collection of buyers and sellers who make transactions over a commodity or class of commodities.

On the basis of area

Based on the area, there can be local, national, and international markets.

a) Local markets

Local markets are confined to the locality, they deal mostly with perishable and semi-perishable goods such as seafood and vegetables.

b) Regional markets

Regional markets cover wider areas such as a district, state, or inter-state dealing in durables both consumer and nondurables, and industrial products which include agricultural produce,

c) National market

National markets cover national boundaries that deal with both durable and non-durable consumer goods, industrial or capital goods, forest products, and agricultural products.

d) International or world market

When we talk about the world market, there is a widespread movement of goods throughout the world thereby making it a single market. It is important to note that the latest technologies have made it possible to package, store, transport, and sell even the most perishable goods all over the world. In other words, the world market does not only deal with durables.

On the basis of time

Another basis for classifying markets is the time duration. This consists of the short-period and the long-period markets.

a) Short-period

This category of the market is meant for goods that are highly perishable of all kinds. It includes weekly markets that hold in villages. Fairs also form part of this category.

b) Long-period

These markets are for different goods that are durable, producers may manufacture different varieties. The parties involved in transactions can hold goods for a long time without any form of deterioration in quality.

On the basis of transactions

Based on the nature of transactions, we can classify the market into spot and future markets.

a) spot

Under this type of market, delivery takes place as soon as the transaction has been finalized.

b) Future

In the case of future markets, transactions are finalized pending delivery and payments for future dates

On the basis of regulation

Based on regulation, markets can fall in the category of regulated and non-regulated.

a) Regulated

Under this category, business dealings and transactions take place based on the laid down rules and regulations with regard to product quality, price, source changes, quantity produced, etc. This can apply to agricultural products, finished products, and securities.

b) Non-regulated

A non-regulated market is a free market where rules and regulations are absent. In this case, even if these rules are present, they go through amendments according to the requirements of the parties involved in the exchange.

On the basis of business volume

On the basis of the volume of business, markets can either be wholesale or retail.

a) Wholesale

A large volume of businesses and wholesalers feature the wholesale market. In other words, the sales and purchase of goods take place in huge quantities. While the sellers of these goods are in large quantities, the buyers are retailers. Wholesalers buy in large quantities from the producers and sell to retailers in smaller quantities.

b) Retail

These are markets in which buyers and sellers buy and sell goods on a small scale. The dealers or intermediaries are the retailers who buy from the wholesaler and sell to the final consumers.

On the basis of nature of goods

Based on the nature of goods, the markets that exist include the commodity markets and the capital markets.

a) Commodity market

Commodity markets deal with materials, finished products, both consumer and industrial goods. In this market, buyers and sellers basically engage in the sale of goods.

b) Capital market

Capital market refers to a market for finance. These markets comprise those that deal with lending and those that deal with borrowing, security exchange and stock markets that deal with buying and selling of shares and debentures, and the foreign exchange market popularly known as the forex which deals with the exchange, that is buying and selling of foreign currencies either hard or soft.

On the basis of the nature of competition (Market structure)

Markets are being categorized based on the nature of competition or competitive forces. They come in two basic forms with subdivisions. These are the perfect and the imperfect markets.

a) Perfect market

The major characteristics of a perfect include the presence of a large number of buyers and sellers. Another attribute is that there is a prevalence of a single lowest price for homogenous products. There is a perfect knowledge of buyers and sellers. There is free entry and free exit in the market. These forms of markets may hardly exist because there is no perfect market in real life.

b) Imperfect market

Imperfect markets comprise monopoly, monopolistic competition, oligopoly, oligopolistic competition, duopoly, etc. This will however be explained extensively in the latter part of the article.

The general features include similar but not homogenous products. There are different prices for a class of goods. Also, physical and psychological barriers to the movement of goods exist. In this market structure, there is no perfect knowledge of products and other aspects on part of the buyers and sellers,

On the basis of demand and supply

Categorizing markets based on the conditions of demand and supply, or hold of buyers and sellers, we have the buyer and seller markets.

a) Buyers

Buyers markets refer to those markets where the buyers are the ones taking the lead, in other words, they are in a commanding position when the supply for commodities exceeds the demand.

b) Sellers

This is one in which the sellers are in a commanding position while buyers are at the receiving end. Describing it in other words, it is a situation in which the demand for commodities exceeds supply.

On the basis of importance

On the basis of importance, markets comprise the primary market, secondary market, and terminal market.

a)  Primary markets

Primary markets are markets where producers of agricultural products or manufactured products sell to wholesalers, who assemble these products from different sources of production. In general terms, these markets are found in villages.

b) Secondary markets

Secondary markets are markets where wholesalers sell goods to retailers for further sales. The products sold include semi-processed goods such as yarns.

c)Terminal markets

This is where retailers sell goods to final consumers.

B) Modern classification of markets

The modern classification of markets is based on the orientation of the consumers as the modern economic system indicates that the consumer is sovereign as well as the decisive driving force. Experts in marketing have been able to identify markets on the basis of such broad-based classifications.  These include consumer, business, global and, non-­profit, and government markets.

Consumer markets

Consumer markets are those markets that are specialized in the sales of massive consumer durable and non-durable commodities and services. They devote their time in a good deal, attempting to establish a superior brand image. Most of these items include clothes, beverages, clothes, grains, fashion accessories, etc.

Business markets

Business markets are referring to the coming together of business buyers and sellers. The aim of business buyers is to buy commodities and resell them to others in order to obtain profit. Business marketers are to therefore be effective in demonstrating how their products will be helpful to the buyers in getting higher revenue or incurring lower costs. In this case, companies that sell business goods and services usually face well-trained and well-informed professional buyers who possess the skills in the evaluation of competitive offerings. These markets, usually deal with raw materials, fabricated parts, appliances, equipment, supplies, and services that form part of the end products of the business consumers. In this case, advertising plays a major role. Personal selling, however, has an upper hand. Product, price, quality, and the reputation of business suppliers all play a significant role in the effective running of business markets.

Global markets

Global markets comprise buyers and sellers all over the world. The companies that engage in the sales of goods and services in the global marketplace play global gain which involves decisions and challenges. For global marketers to be successful, they have to make strategic decisions with regard to;

  • Which country to enter
  • How to enter each country
  • The method of pricing their products in different countries
  • Ways to adapt their communications to cultures that differ across various countries.

They are to make these decisions in the face of different requirements for buying, negotiation, owning, and disposing of a property under various cultures, languages, legal, and political systems. Also, they have to consider the foreign currencies that are subject to fluctuations, having their own implications

Non-profit and government markets

Usually, companies sell their products and services to non-profit organizations such as churches, temples, charitable organizations, universities, and governmental departments, both at central, state, and local levels. It is necessary for companies marketing their products and services to take into consideration the aspect of price because the purchasing power of these buyers is limited. On the other hand, lower prices have negative effects on the features and quality of products and services if the marketers attempt to design such an offering. By implication, buyers make their purchases through bidding where the lowest bid is favorable as there is no other alternative. Also, they need a longer credit period.

Black market

A black market is an illegal market where transactions take place without the knowledge of the government and other regulatory agencies. The reason for the existence of many black markets is to avoid or bypass the tax laws in existence. For this reason, many people involve in cash-only transactions and other forms of currencies that are difficult for these authorities to track.

Mostly, black markets exist in countries that operate under centrally planned/command economies and communism where the government takes total control of the production and distribution of goods and services. Black markets also exist in underdeveloped or developing countries. In cases whereby, there are shortages of goods and services in an economy, members of the black market step in thereby filling in the void.

It is possible for black markets to also exist in developed countries or economies as well. This is most prevalent in cases where prices control or dictate the sales of certain products and services, especially when demand is high. For example, ticket scalp. In this case, scalpers step in and sell tickets at inflated prices on the black market when the demand for concert tickets is high.

Auction market

The purpose of auction markets is to bring people together to facilitate the purchase and sales of specific lots of goods. In this case, the buyers or bidders try to top one another for the purchase price. The items that are up for sale usually end up going to the highest bidder.

The auction markets that are most common involve livestock and homes, or websites. These include eBay where bidders may anonymously bid with the aim of winning actions.

Market structure

A market structure refers to the manner in which different industries are classified and differentiated on the basis of their nature and degree of competition, particularly for goods and services. This is based on the attributes that have an influence on the behavior and outcomes of companies that work in a specific market.

Some of the factors that determine a market structure are the number of buyers and sellers, the ability to negotiate, the ease and difficulty of entry and exit in the market, the degree of product differentiation or homogeneity, degree of concentration, etc.

To understand market structures, it is important to closely examine an array of factors or characteristics which different players exhibit. The common distinct features across which these markets can be differentiated are;

The buyer structure of the industry

  • The customers’ turnover
  • Vertical integration extent or level within the same industry
  • The nature of the costs of inputs or factors of production
  • How many players are in the market
  • The largest market share of players, and
  • The extent of product differentiation or homogeneity

When we cross-check the above attributes against one another, we can establish some traits that are similar. This, therefore, makes it easier to classify and differentiate companies across related industries. Economists have made use of this information based on the above attributes to describe different market structures.

Types of market structures (types of markets in economics)

The market structure is divided into two broad categories, the perfect and the imperfect markets. The perfect market is the perfect competition while the imperfect market is further divided into monopoly, monopolistic competition, oligopoly, oligopolistic competition, duopoly, monopsony, and oligopsony.

A) Perfect market

Perfect competition

Perfect competition occurs in a situation where there is a large number of small producers or firms producing or selling homogeneous products. They compete against one another. The maximum product which each firm can produce is usually very small relative to the total demand of the product of the industry. This is for a firm not to affect the price of products by changing the supply of its output. In other words, firms do not have any influence on the price of products. Here, there is free entry and free exit to and from the market. In this type of market, consumers have full knowledge of the goods firms produce and sell. They are also aware of the product pricing and branding.

It is certain that a perfect market (in its pure form) is almost non-existent in the real world. This is however useful when it comes to comparing companies with similar features.

The perfect competition tends to be unrealistic as it faces significant criticisms such as the lack of incentives for innovation.

B) Imperfect market

Monopoly

Monopoly entails the existence of a single company, producer, or seller that represents the entire industry. In other words, only one producer is producing and selling a product without any close substitute. This structure does not have competitors as it is the sole seller of products in the entire market. This type of market is characterized by a sole claim to ownership of resources, a large control over the price of its products, patents and copyrights, government licenses, and strong barriers to the entry of new firms into the industry. Usually, there are high initial set-up costs.

Monopolistic competition

This is an imperfectly competitive market that combines both the traits of perfect competition and monopoly. In this case, there is a large number of firms competing against one another, but there are product differences. These product differences occur in terms of quality and branding. Here, sellers consider the price their competitors charge and the impact of their own prices on their competition.

Two different aspects are observable when comparing monopolistic competition in the short and long run. In the short run, the monopolistic company maximizes its own profits and enjoys all the advantages or benefits as a monopoly. Initially, the company produces so many products as there is a high demand for them. In this case, the company’s marginal revenue corresponds to its marginal cost. Over time, the marginal revenue diminishes as new firms continue to enter the market with differentiated products. This will affect demand thereby leading to less profit.

Monopsony

A monopsony refers to a situation whereby a single individual or group of persons act as a unit takes responsibility for the purchase of a particular commodity. A monopsonist refers to a single buyer. The commodity boards are usually proximate to the monopsonists.

Oligopoly

Oligopoly is a market structure where there is a small number of large firms that sell differentiated and identical products. The fewness of the firms ensures that each firm has some control over the price of products. Under this market structure, large capital requirements tend to limit the number of firms in the industry. The few firms that exist in the industry can arrive at an agreement with regard to common production and pricing policies. Now, we refer to this as a colluding oligopoly.

In essence, the competitive strategies of the firms greatly depend on one another as they are few. For instance, if a single firm decides to reduce its product price, others will as well be triggered to reduce their own prices and vice-versa. It is therefore mandatory for all participants in the industry to have a sense of strategic planning. In the event of mutual competition among companies or firms, they are likely to create agreements to share the market through the restriction of production that leads to supernormal profits.

Oligopoly can fall within the category of either pure or differentiated oligopoly. Under the pure or perfect oligopoly, competition exists among a few firms producing homogeneous or identical products. In the differentiated or imperfect oligopoly, there is a competition among few firms producing differentiated product buys yet they are close substitutes.

Oligopolistic competition

Oligopolistic competition refers to a competitive situation whereby there are few sellers of slightly differentiated products. In this case, the seller has a high percentage of the market and cannot afford to ignore the actions of others.

Oligopsony

This is a market situation whereby there are few large buyers but many competitors of a commodity. The concentration of demand in the hands of just a few parties provides each of them with substantial power over sellers and has the ability to effectively keep the price down.

The case is the opposite in oligopoly where it is few sellers that dominate the market and can keep price high in the absence of competition from alternative sources of supply.

Duopoly

A duopoly is a market structure whereby there are only two firms, producers, or sellers of a commodity in the industry.

Concept of a market

These concepts of a market can help a firm in the achievement of organizational goals. This is greatly dependent upon the ability to understand the needs and wants of the target market in the course of delivering quality products which the people prefer. Businesses will design strategies to satisfy the needs of customers, increase sales, maximize profit and beat their competitors in marketing. There are five different concepts that have a specific function in a holistic marketing strategy. These concepts include;

  • Production concept
  • Product concept
  • Selling concept
  • Marketing concept
  • Societal marketing concept

The production concept

The production concept is the most oriented in terms of operations than every other concept of the market. It speaks the truth about humans, stating that humans prefer products that are easily available and not expensive. This concept came about during the production era of early capitalism in the mid-1950s. During this period, businesses were primarily concerned with the issues of production, manufacturing, and efficiency. During this same period, the “Says Law” came about, exciting the idea of supply and demand.

The primary idea of the production concept is that businesses wish to produce products that are widely cheap in maximum volumes to maximize profitability and economies of scale. Here, businesses go by this assumption that consumers primarily have an interest in products that are available at low prices while the needs of customers may not be fully addressed.

Such approaches are probably the most effective when a business operates in markets that have very high growth or where potential economies of scale are significant.

The limitation of this concept is the fact that businesses are at risk of producing low-quality products. This, in turn, may pose challenges to customer service with impersonal production.

The product concept

The product concept focuses basically on the customer and focuses less on the production and the business output. Here, potential consumers/customers favor commodities that offer quality, performance, and innovative features. This concept believes greatly in potential customers. It also believes that their brand loyalty is closely tied to the product options, product quality, and the benefits they derive as well as the business they invest in. For example, this is noticeable in the way most people are obsessed with apple products. They as well look forward to their new devices and features upon launch.

Under this concept, firms concentrate on manufacturing products that are superior and improving their quality over time. The common challenge here is that many business firms fail to strike a balance between the need for a product and the realization of the marketing needs. A fine line exists between focusing on the customer while still defining your role and leadership within the industry.

The selling concept

This is a concept that believes that customers will not buy enough of a firm’s products. In this case, it is needful that these business firms need to persuade their customers to buy their products. Because of this, the selling concept is sometimes referred to as the bread and butter of marketing efforts.

In present-day marketing, it is clear that selling is not the way to attaining a full marketing concept. However, this concept gives a business a lot of power to plan towards effectively stimulating more levels of buying with its potential customers. lt also has to do with a business firm dealing with overcapacity. They focus on the need to sell what they manufacture rather than what the market needs or wants, we usually see this action.

Any business firm that chooses to make use of this marketing concept must be excellent at finding potential customers and emotionally selling them on the benefits of their products (not needed).

The marketing concept

The marketing concept is the concept of competition. It believes that the success of a business is greatly dependent upon the marketing efforts that deliver a better value proposition than its competitors. This concept places its focus on the needs and wants of the target market. It also focuses on the delivery of value above its competition/competitors. It is the goal of every firm, through marketing, to be a preferred choice compared to their competitors. In this case, gaining a competitive edge or advantage is the key.

The societal marketing concept

When we talk about the most progressive and modern-day marketing that is applicable, it is in this concept. The societal marketing concept believes in giving back to society by manufacturing better products that are helpful in making the world a better place.

This orientation came about when questions with regard to whether marketing and business are really addressing the societal massive problems. These are problems such as shortage of resources, environmental deterioration, social disruption, growth in population, and poverty.

Factors that determine the size of a market

Several factors determine the size or extension of a market. More of these factors are related to the matters of internal infrastructure in a country. These factors have mixed characteristics, that is the coexistence of micro and macroeconomics. The factors are as follows;

The nature of transport facilities

The size of the market is greatly dependent on the nature of transport facilities that exist in a country. For instance, it will be easier for producers to distribute their products if a country has all wealthier roads. The size of the market will be larger if there is greater availability of transport facilities.

Communications

The nature of communication facilities is another factor that determines the size of a market. The size of a market will be greater if communication facilities such as telegraph and other postal amenities are available at all places.

Standardization and grading

If manufacturers adopt the methods of standardization and grading in the course of processing goods, the size of the market will be larger. This includes buying and selling goods on the basis of the samples.

Durability

Another important factor that determines the extent of market expansion is the durability of goods. The more goods are durable, the more they national and international markets. For example, goods like silver, gold, and diamonds have international markets.

Portability

It is easier to transport goods with less weight to any place either within or outside the country. Also, commodities that are larger in size can be transported with ease. This greatly influences the size of the market

Credit facilities

The nature of credit facilities banks and insurance institutions offer is another factor that determines the size of the market.

Government economic policies

Also, the economic policies of the government determine the size of the market. In essence, if governments follow the liberal policy for the development of business and commerce, the size of the market will be larger.

Law and order situation

The situation of law and order in a country also determines the size of a market. The market will have a greater size if political stability is in place. On the other hand, political instability deteriorates the size of the market.

Volume of demand

The volume of demand is certainly a factor that determines the size of the market. The higher the demand for various goods by buyers, the larger the size of the market will be. On the other hand, lower demand for products decreases the size of the market.

Market cap (capitalization)

Market cap, also known as market capitalization refers to the total market value (in dollars) of the outstanding share stock of a company. It is very pertinent to understand the worth of a company. Although, it is usually difficult to ascertain this value quickly and accurately. In order to ascertain the value of a market easily and quickly, analysts make use of market capitalization as it is the best tool. This is done by making estimations of what the market thinks is its value for publicly traded companies. It is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share

Typically, companies are divided based on market capitalizations. For instance, Large caps ($10 billion or more), Midcap ($2 billion to $10 billion), and small-cap ($300 million to $2 billion).

The establishment of the market capitalization of a company first took place via an Initial Public Offering (IPO). Before an IPO, the company that desires to go public enlists an investment bank in order to employ the techniques of valuation. This is meant to derive the value of a company and determine how many shares to offer to members of the public and the price to offer these shares.

For example, a company whose investment bank set its IPO value at $100 million may decide to issue 10 million shares at $10 per share or probably decide to issue 20 million shares to the public at $5 per share. In either case, the initial market cap would still remain $100 million.

After a company has gone public and begun trading on an exchange, demand and supply determine the price for its shares in the market. This implies that if the demand for its shares is high due to favorable factors, there will be an increase in the price. If the future growth potential of the company does not look good, the sellers of the stock would drive down its price.

In essence, the market cap then becomes a real-time estimate of the value of the company.

The market cap formula is expressed as;

Market cap = share price × #shares outstanding.

Market segmentation

The term market segmentation refers to the act of aggregating buyers into groups or segments with common needs and those who have similar responses to a marketing action. Market segmentation helps companies to be able to target different classes of consumers. These are customers who have the perception of the full value of certain products and services differently from one another. In other words, it is a mechanism for identifying targeted groups of consumers to tailor products and branding in an attractive way to the group.

It is possible to segment the market in several ways such as demographically, geographically, or based on consumer behavior (or behaviorally).

Market segmentation is a vital tool that helps companies to minimize risks by figuring out the products that are most likely to earn a share of the target market as well as the best ways of marketing and delivering those products to the market. In other words, having clarity with regard to the marketing and delivery of products minimizes marketing risks. This in turn helps a company to focus its resources on the most profitable efforts.

The three basic criteria companies generally use in identifying different market segments are;

  • Common needs within a segment or homogeneity
  • Distinction or uniqueness from other groups, and
  • Reactions or similar responses to the market.

Market segmentation is therefore an extension of market research. It seeks to identify target consumer groups. The aim is to tailor and brand products in an attractive manner to the groups. This, therefore, allows companies to boost their overall efficiency by focusing on limited resources on the most productive efforts and the best returns on investment (ROI).

Market segment

A market segment is a group of people that share common characteristics, lumped together for marketing purposes. That is a class of customers who have similar likes and dislikes in a homogenous market. This can be a single individual, families, communities with the same cultural values, business organizations, etc. Market segments are known to have a somewhat predictable response to a marketing strategy, plan, or promotion. Each segment is unique and marketers make use of different criteria to establish a target market for their product or service. Professionals in marketing use different approaches to different segments after having a full understanding of their needs, demographics, lifestyles, and the target consumer’s personality.

Market share

What is a market share?

Market share refers to the percentage of total sales within an industry that a particular firm generates over a specific period of time. Analysts make use of this matric to give a general overview of the size of a company in relation to its market and competitors. In this case, the firm possessing the largest market share in the industry becomes the market leader.

Market share is beneficial as investors as analysts carefully monitor its increase or decrease (in a company) to determine the sign of the relative competitiveness of that company’s products and services. Any company that consistently grows its market share equally grows its revenue faster than its competitors. An increase in market share allows a company to achieve a greater scale of production and improve profitability with its operations.

A firm can expand its market share by lowering prices, advertising, or introducing new or different products. It can also do so by appealing to other audiences or demographics.

Depending on the conditions of the industry, market share gains or losses can significantly impact the stock performance of a company.

How to calculate market share

We calculate market share by taking the company’s sales over a period of time and dividing it by the industry’s total sales over the same period. In this case, it is necessary to first determine the period you wish to examine either a fiscal year, year, or multiple years. The next step is to calculate the total sales of a company over that period. Thirdly, find out the total sales of the industry to which the company belongs. The final step is to divide the total revenue of the company by the total sales of the industry.

For example, a company sells $100 million in fertilizers in a particular year, and the total amount of fertilizers sold in the United States is $200 million, the US market share for that company will be 50 percent.

Market price

Market price refers to the current price at which an asset can be bought or sold. The forces of demand and supply are the factors that determine the market price of an asset or service. The price at which quantity supplied equates to quantity demanded is the market price. Analysts and investors use this matric to calculate consumer and economic surplus. Consumer surplus is the difference between the anticipated price a consumer is willing to pay for a commodity and the actual price he paid for it. The economic surplus has to do with two related quantities namely the consumer surplus and the producer surplus.

We can also refer to the producer surplus as profit. That is the amount that producers benefit from selling at the market price. This benefit is tied to the fact that the market price is higher than the least price the producer would be willing to sell. In essence, the economic surplus is the sum of the consumer surplus and the producer surplus. Shocks to either supply or demand for a product or service are bound to cause the market price to change. A shock to demand or supply refers to a sudden event that either increases or decreases the demand or supply for a product or service.

Competition in a market

In the market, competition refers to a rivalry between companies that sell similar products or services with the primary aim of generating revenue, profit, and market share growth. Competition in a market gives firms the motivation to increase the volume of their sales. Firms can do so by utilizing the various marketing mix components (the 4Ps). The 4Ps stand for product, price, place, and promotion.

Competition helps in increasing the value of companies. It is very a very critical step for a firm to understand its competitors while designing a successful marketing strategy. If a firm is not aware of who its competitors are, a firm will likely enter the picture and provide a competitive advantage. These competitive advantages include offering products at a lower price and other value-added benefits. It is important for a firm to be able to understand the strengths and weaknesses of its rivals (competitors). To remain competitive in a market, it is necessary for a firm to identify its competition/competitors. They should also remain informed about its products and services. With this, it will be able to survive in an extremely competitive business environment.

In a market, there are three types of competitors namely;

  • Direct competitors
  • Indirect competitors
  • Replacement competitors

Direct competitors are those competitors that offer the same products and services. They aim at the same target market and customer base, having the same goals of generating profit and growth in market share. In other words, the direct competitors of a firm target the same audience and sell the same products in a similar model of distribution with the firm.

Indirect competitors of a firm are other firms that offer the same products and services. They look like the direct competitors but their end goals are different. In this case, they seek to grow their revenue using a different strategy.

Replacement competitors are other firms that offer a product or service that the consumer could make use of, rather than choosing a firm’s products or services. These competitors make use of the same resources to purchase the replacement product or services that they could have used to buy the products of a rival firm.

Stock market

A stock market or stock exchange refers to a secondary market where existing owners can make transactions with potential buyers. It refers to an organized market that provided facilities for the purchase and sales of securities. These securities include stocks, shares, debentures, and bonds. The stock exchange is primarily concerned with creating a market for second-hand securities. When members of the public are buying shares on the stock exchange, they are usually not being bought directly from the company, they are buying from other existing shareholders. Likewise, shares are not sold back to the company, they are sold to other investors. Companies can issue new shares in the stock exchange.

How the stock market works

In the stock exchange, the principal dealers engaged are the brokers and the jobbers. Stockbrokers act as agents of the firms or individuals who wish to sell or buy securities/shares. Members of the public do not directly operate in the stock market. It is the brokers that buy and sell securities on behalf of their clients/customers. These brokers charge a commission for performing these services. This commission is known as brokerage.

Jobbers are the main dealers in stocks, shares, and other forms of securities. They carry out transactions with brokers and do not have any direct dealing with members of the public. They have two prices, that is the lower prices for buying and higher prices for selling. The difference between these prices is the profit which is also known as margin or jobbers’ turn. Members of the public transact business with the jobbers through the brokers.

The stock exchange market also displays a fascinating example of the laws of supply and demand that is practical in real life. A buyer and a seller must exist for a transaction to be successful. Because the laws of supply and demand are inevitable, when there are more buyers than buyers, the price of securities will shoot up. On the other hand, if there are more sellers of securities than buyers, the price will eventually fall.

The stock exchange functions in the following ways;

Provides a market for the purchase and sales of long-term financial securities. If a company wants to sell shares, the stock exchange will be responsible for making arrangements for the transaction. The same thing applies to individuals who want to buy or sell securities.

In terms of capital formation, the stock exchange helps to raise capital for development. This takes place by bringing the funds of a large number of investors and availing them to and the government that desires to use them.

To the workers in the stock exchange, it makes provision for employment opportunities particularly the brokers and jobbers.

For those who have a small capital base, the stock market provides investment opportunities. They do advertisements with regard to the price of securities which enables members of the public to invest their idle funds.

Through the stock exchange, existing investors have the avenue of selling and transferring their shares to those who wish to buy them.

The stock exchange helps companies to raise their administrative efficiency.

Frequently asked questions

How do you define a market?

A market is a platform in which buyers and sellers come together to facilitate transactions. In other words, it refers to the sum total of all buyers and sellers within a considerable area or region. It is the coming together of buyers and sellers with the purpose of facilitating the exchange or transaction of goods and services.

What does a market mean in economics?

According to Economics, a market refers to an arrangement where buyers and sellers come in close contact with one another. This close contact can be either directly or indirectly to buy and sell goods or services or engage in trade/exchange. In this context, the market does not just make reference to a specific geographical location. A market does not need buyers and sellers to physically meet in a specific geographical location to exist. They may contact one another by using other means like the telephone or internet (virtual market).

What is a market in business?

Market in business refers to the method a company uses to sell goods and services to a particular group of customers. It shows a customer how to advertise and sell its products to specific demographics of consumers.

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