Exchange and transactions – some market practices


A person can obtain a product in one of four ways. One can self-produce the product or service, as when one hunts, fishes, or gathers fruit. One can use force to get a product, as in a holdup or burglary. One can beg, as happens when a homeless person asks for food; or one can offer a product, a service, or money in exchange for something he or she desires.

Exchange, which is the core concept of marketing, is the process of obtaining a desired product from someone by offering something in return. For exchange potential to exist, five conditions must be satisfied:

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

Whether exchange actually takes place depends on whether the two parties can agree on terms that will leave them both better off (or at least not worse off) than before. Exchange is a value-creating process because it normally leaves both parties better off.

Two parties are engaged in exchange if they are negotiating—trying to arrive at mutually agreeable terms. When an agreement is reached, we say that a transaction takes place. A transaction is a trade of values between two or more parties: A gives X to B and receives Yin return. Smith sells Jones a television set and Jones pays $400 to Smith. This is a classic monetary transaction; but transactions do not require money as one of the traded values. A barter transaction involves trading goods or services for other goods or services, as when lawyer Jones writes a will for physician Smith in return for a medical examination.

A transaction involves several dimensions: at least two things of value, agreed-upon conditions, a time of agreement, and a place of agreement. A legal system supports and enforces compliance on the part of the two parties involved in the exchange transaction.. 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. Gifts, subsidies, and charitable contributions are all transfers. Transfer behavior can also be understood through the concept of exchange. Typically, the transferor expects to receive something in exchange for his or her gift—for example , gratitude or seeing changed behavior in the recipient. Professional fund-raisers provide benefits to donors, such as thank-you notes, donor magazines, and invitations to events. Marketers have broadened the concept of marketing to include the study of transfer behavior as well as transaction behavior.

In the most generic sense, a marketer seeks to elicit a behavioral response from another party. A business firm wants a purchase, a political candidate wants a vote, a church wants an active member, and a social-action group wants the passionate adoption of some cause. Marketing consists of actions undertaken to elicit desired responses from a target audience.

To make successful exchanges, marketers analyze what each party expects from the transaction. Simple exchange situations can be mapped by showing the two actors and the wants and offerings flowing between them. Suppose John Deere, a worldwide leader in agricultural equipment, researches the benefits that a typical large-scale farm enterprise wants when it buys tractors, combines, planters, and sprayers. The research revealed that the benefits desired by large scale farm enterprise are high-quality equipment, a fair price, on-time delivery, good financing terms, and good parts and service. The items on this wanted list are not equally important and may vary from buyer to buyer. One of John Deere’s tasks is to discover the relative importance of these different wants to the buyer.

John Deere also has a want list. It wants a good price for the equipment, on-time payment, and good word of mouth. If there is a sufficient match or overlap in the want lists, a basis for a transaction exists. John Deere’s task is to formulate an offer that motivates the farm enterprise to buy John Deere equipment. The farm enterprise might in turn make a counter offer. This process of negotiation leads to mutually acceptable terms or a decision not to transact.

The exchange and transaction practice is on a limited scale in India between large manufacturers. One may supply raw materials to the other and the other may permit the raw material supplier to distribute the finished product. Indirectly both may gain monetarily in the transaction.