Financing and Marketing Management

Unit 7 - The Core concepts of marketing

7.4. Exchange, Transactions and Relationships
The fact that people have needs and wants and can place value on products does not fully define marketing. Marketing emerges when people decide to satisfy needs and wants through exchange. Exchange is one of the four ways people can obtain products they want.
The first way is self- production. People can relieve hunger through hunting, fishing, or fruit gathering. They need not interact with anyone else. In this case, there is no market and no marketing.
The second way is coercion. Hungry people can wrest or steal food from others. No benefit is offered to the others except that of not being harmed.
The third way is begging. Hungry people can approach others and beg for food. They have nothing tangible to offer except gratitude.
The fourth way is exchange. Hungry people can approach others and offers some resource in exchange, such as money, another good or some service.
Marketing arises from this last approach to acquiring products. Exchange is the act of obtaining a desired product from someone by offering something in return.
Exchange is the defining concept underling marketing. For exchange to take place, five conditions must be satisfied:

• There are at least two parties
• Each party has something that might be of value to other party
• Each party is capable of communication and delivery
• Each party is free to accept or reject the offer
• Each party believes it is appropriate or desirable to deal with the other party

If these conditions exist, there is a potential for exchange. Whether exchange actually takes place depends upon whether the two parties can agree on terms of exchange that will leave them both better off (or at least not worst off) than before the exchange. This is the sense in which exchange is described as a value-creating process; that is, exchange normally leaves both parties better off than before the exchange.
Exchange must be seen as a process rather than as an event. Two parties are said to be engaged in exchange if they are negotiating and moving toward an agreement. If an agreement is reached, we say that a transaction takes place. Transactions are the basic unit of exchange. A transaction consists of a trade of values between two parties.
A transaction involves several dimensions: at least two things of value, agreed-upon conditions, a time of agreement, and a place of agreement. Usually a legal system arises to support and enforce compliance on the part of the transactors. Transactions can easily give rise to conflicts based on misinterpretation or malice. Without a “law of contracts”, people would approach transactions with some distrust, and everyone would lose.
A transaction differs from a transfer. In a transfer, A gives X to B but does not receive anything tangible in return. When A gives B a gift, a subsidy or a charitable contribution, we call this a transfer, not a transaction. It would seem that marketing should be confined to the study of transactions and not transfers. However transfer behaviour could be understood through the concept of exchange.
Transaction marketing is part of larger idea, that of relationship marketing. Smart marketers try to build up long term, trusting, “win-win” relationships with customers, distributors, dealers and suppliers. That is accomplished by promising and delivering high quality, good service, and fair prices to the other party over time. It is accomplished by strengthening the economic, technical and social ties between members of the two organizations. Relationship marketing cuts down on transaction costs and time; in the best cases, transactions move from being negotiated each time to being routinized.
The ultimate outcome of relationship marketing is the building of a unique company asset called a marketing network. A marketing network consists of the company and the firms with which it has built solid, dependable business relationships. The operating principle is, build good relationships, and profitable transactions will follow.