What is a Primary Market?
Primary market is a term used in both business and investing circles. In investing, the term relates to outlets that make it possible to acquire newly available investments, such as recently issued shares of stock or new bond issues. In business circles, a primary market refers to the first tier of interaction between manufactures and customers, where purchases of goods and services occur.
For investors, identifying the presence of a primary market is important when it comes to securing new stock issues and other types of new investments. This market may involve the presence of intermediaries who process the purchase of the investments on behalf of the issuing entities. An intermediary may be a broker or dealer who has knowledge regarding upcoming initial public offerings, or the new issue of bonds. While it is possible for individual investors to have access to a primary or new issue market, the use of intermediaries often simplifies the process of finding and securing desirable investments.
In a primary market focused on investing opportunities, investors are able to secure recently issued investments at the public offering price initiated by the issuer of the stocks. This price is often desirable, since once the first phase of the public offering is completed, there is a good chance that the price per share will increase as the new stock is actively traded on an open market. For this reason, a primary market is often seen as the best way to acquire new issues and begin to generate a return almost immediately.
For manufacturers who are looking for ways to sell their products, a primary market is often the stores or dealers who are willing to purchase the products in bulk, then resell them to consumers. The retailer may be a locally owned business that purchases directly from the manufacture, or some type of retail consortium that has made a special arrangement with the manufacturer to purchase the products in bulk on behalf of the consortium members. Large chain stores may also represent a primary market, since they are likely to purchase large volumes of products for distribution and sale in many domestic and even international locations.
Even companies offering services will seek to identify a primary market of consumers that are highly likely to find the services offered to be desirable. For example, a business that offers audio and web conferencing solutions may identify retailers as the primary market for their communications tools, while also seeking to build a secondary market within the legal industry. The identification of primary and secondary markets is often a good idea for any business, since it creates a situation where the client base is more diversified, and thus less dependent on one industry type to remain profitable.
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