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Basic Concepts in Market Dynamics

4. Market Conversion

All market growth occurs through processes of conversion.

This law applies to both the market itself as well as to an individual marketer's profile or share of that market. In the case of a market, it means that an entity who already had demand for a product and recognition that such a product existed, is still not part of the market unless there was also a distribution channel available whereby the demand could be satisfied. The moment a distribution channel becomes available and known, the entity is converted into the market.

This same entity, having been converted to the market, can then be converted to your share if it has the means to pay your price (D'), knows of your offering (R') and has access to at least one of your channels of distribution (A'). Sometimes the market conversion and the share conversion occur simultaneously. This happens when it is your promotion, distribution or pricing which provide the catalyst for the original conversion.

This last scenario, however, is relatively unusual. Doing "missionary work" to develop a market is often high risk, high cost and low return. It is usually, but not always, better to let markets grow on their own and concentrate on building share from those already in the market, or who have been recently converted through a circumstance, evolution or a sale.

The best illustration of circumstantial market conversion is called the "Umbrella Model". Basically it means that when it begins to rain, a smart retailer puts his umbrellas out on display. It also applies to circumstances of increased money supply which can raise demand, a fashion or fad. Building share from circumstantial conversion requires advance preparation and timing.

Evolutionary market conversion applies to new populations entering a market. First time home buyers are a good example of evolutionary conversion. Each new generation brings with it a new definition of needs and expectations. Building share from evolutionary conversion requires responsiveness to the emerging segments' needs.

Finally, we have the much misunderstood concept of sales conversion. A sales conversion occurs, for example, after a first time buyer purchases an automobile. The buyer is then converted into the gasoline market, the automotive service market, the tire market, etc. These are called aftermarkets. The sale did not convert him into the market for an automobile - it removed him from that market and made that market smaller.

The forces which make markets smaller are decay, recession and Market Exchange. In the next chapter we will take a closer look at exchange.

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