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Principles of Marketing

The Principle of Exchange in Marketing

Because you receive something that in your mind (and we always emphasize this point) is worth more than what you handed out in exchange, then in principle you are better off after the exchange.

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If you and your seatmates both have identical-looking apples, would it make sense for you to swap these with one another? Probably not, mainly because neither of you would gain anything out of such a move. Both of you will neither be better off nor worse off after such a swap and you would only have exerted effort for naught.

But think about it. What this implies is that the only reason you would want to exchange one thing for another is if that other thing offers more value to you than the item that you currently have.

The same principle lies at the heart of marketing transactions. Let us say that you have one hundred pesos in your pocket. Then you find out that the canteen, which is a few steps away, is offering food for one hundred pesos. If you are not hungry, then you will not even consider exchanging your hundred peso bill for their food. But as the day goes on and as you get hungrier and hungrier, the canteen food also gradually increases its perceived value. Eventually, you may become so hungry that in your mind the canteen food will already be worth more than one hundred pesos. At that point, it finally makes sense for you to hand over your hundred peso bill in exchange for the food.

Because you receive something that in your mind (and we always emphasize this point) is worth more than what you handed out in exchange, then in principle you are better off after the exchange. Meanwhile, the canteen too is better off after the exchange because they were able to move their food and make a profit out of it.

Marketing is all about fostering such positive exchanges. It is imperative that the customers feel better off after a transaction because otherwise, they may feel that they should have spent their money elsewhere—a feeling which will prevent them from becoming loyal customers.

What can make customers feel like they are not getting their money’s worth? Consider this example:

You are asked to sell tickets to your organization’s upcoming event. You approach your friend Emma and beg her to buy a 200 peso ticket from you, even if she does not really feel like going. After a lot of cajoling and pleading, she finally buys the ticket. But she is not happy because you simply took advantage of your friendship to coerce her into buying.

But wait! Did we not just say that exchanges will not happen unless a person feels better off after the exchange? Well, let us view the above transaction using hypothetical values.

Imagine that Emma refuses to buy the 200 peso ticket because in her mind it is only worth about 40 pesos to her (because she is indifferent to it, but would be interested only at this price or lower). However, you nag, beg and cajole her into buying from you. Because of this, something else is brewing inside Emma’s mind: she wants to get you to stop bothering her and is now willing to pay to get you to leave her alone. The longer you bother her, the higher she begins to value her peace of mind. Soon, getting rid of you becomes more valuable than 160 pesos (which is the balance between the 200 peso ticket price and her perceived value of it). When that happens, she will throw the two hundred pesos to your face, take the ticket, and tell you to leave her alone.

The exchange did happen and she did get more than what she paid for. But it was not about the ticket per se. It was about her peace of mind. So the unfortunate effect of such a transaction is now this: she feels shortchanged because she spent 200 pesos for something which to her is worth just 40 pesos.

In case it still was not clear, this was certainly not a marketing-oriented transaction.

To successfully make such marketing-oriented exchanges happen, it is essential that companies know what the market really needs. Knowing what the market truly needs will come from gaining useful insights into what consumers are really looking for.

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