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Basic Concepts in Market Dynamics

5. Market Exchange

Markets shrink in three ways. The first is market decay. Decay simply means that the need which brought the individual goes away before it is satisfied. Decay is a continuous process, which exists to a greater or lesser degree in all markets.

The second is market recession. Recession is typically the result of a reduction in demand or money supply, but it can also be caused by a change in market priorities or increased demand in other markets, particularly primary markets as in food clothing and shelter. Market recession should not be confused with economic recession. While both may occur at the same time, and many believe synchronized recession of leading markets is the cause of economic recession, recession of a given market can occur at any time, even when the economy is booming.

The third way markets get smaller is through Market Exchange. This is the way you want to shrink your market. Exchange is what happens when you close a sale.

While the term exchange may be broadly applied to sales, they are not exactly the same. The sale is the process and exchange is one desirable result of that process, but not the process itself. In other words, not every sale is consummated or closed. When you lose a sale to a competitor, for example, exchange still takes place.

Exchange refers to the state of commerce immediately after a sale takes place. A marketer has exchanged a good or service for something of equal or greater value. At that moment, the person on the other side of the transaction is no longer in your market.

The important point to remember here is that the net result on your market, or impact on your sales potential of each exchange is greater than the actual sale. This is because, by removing a prospect from the market, you increase competition for those who remain in the market. Further, those with the greatest demand or need are the first to leave by exchange.

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