Text 1 Markets and marketing

Most people do not have a clear idea of the working of markets. You know that if there are just a few sellers and lots of buyers, the sellers are likely to ask a higher price. Some of the buyers will pay a high price, and others will try to find substitute goods. You also know that if one producer is making high profits, other firms will enter that business to try to make the same high profits.

The most important information for market participants is price. In a market economy, prices give information about both the costs of production and the wants of consumers. As costs or wants change, so do prices. The problem is to analyze the factors that affect costs and wants and see how they affect prices.

The first factor that must be considered is the law of demand. It says that the quantity of a good demanded varies inversely with price. In other words, people tend to buy less of a product at high prices, if all other factors influencing demand are constant.

Another explanation for the inverse relationship between price and quantity demanded is the existence of substitution and income effects. Consumers typically choose among several products, and when the price of one product falls relative to another good, they tend to substitute the cheaper good for the more expensive good. Because a lower price increases the relative attractiveness of a product, the consumer buys more of it. A rise in price will cause people to substitute other goods and thus decrease their purchases of the good whose price has risen. This process is known as the substitution effect. The income effect refers to the fact that as the price for a good rises, you can purchase fewer goods. A decline in the price of a good increases the consumer’s real income, enabling him or her to purchase more goods. The income and substitution effects combine to make a consumer able and willing to buy more of a specific good at a lower price than at a higher price.

A firm in the market economy survives by producing goods that persons are willing and able to buy.

Marketing is the process of communicating the value of a product or service to customers, for the purpose of selling the product or service. Simply stated, marketing is everything you do to place your product or service in the hands of potential customers. It includes sales, public relations, pricing, packaging, and distribution. If business is all about people and money and the art of persuading one to part from the other, then marketing is all about finding the right people to persuade.

Marketing begins with customers – those people who want or need some product and will actually buy it. Business people must take time at the beginning to discover who their potential customers are and how to effectively reach them. Without a marketing plan their dreams are really wishful thinking. A marketing plan can be a map of success. But it is not a territory. It is a strategy. It helps to focus energy and resources. However, a marketing plan, based only on business people ideas and wishes, will never work without market research, simple or sophisticated. Market research is more than the analysis of data. It is the opportunity to look outside the company to factors that may affect business. The research is conducted by asking and answering questions.Who are our potential customers? How large is our target market? Who are our competitors? How is our idea unique? How can we communicate that uniqueness?

Market research is like a scientist who seeks to prove or disprove a hypothesis through questions, analysis and observation. Research is a process. Like innovation, it is continuous.