1.3

Market

A market is any medium in which buyers and sellers interact and agree to trade at a price.

Characteristics of a market

Markets can be real or virtual, small or global.

Their key characteristic is that buyers and sellers **following their own interests create market forces** that determine both the price and quantity sold of a good or service.

Buyers

are all those people or organisations that want to purchase something; they **create the demand for goods and services.**

Sellers

are all those people or organisations that want to sell something; **they create the supply of goods and services.**

Demand

the quantity of a good or service that people are willing and able to buy at a given price, at a given time.

Market demand

the sum of all individual demands for a particular good or service.

How does the consumer decide what to buy and not to buy

They will weigh up the **opportunity costs of each purchase** and any possible **trade-offs**. This will help them to decide which products will **yield the greatest benefit to them**, given their **limited income** and the **price** of the good or service.

Relationship between quantity and price

This is usually an **inverse relationship**: as one changes so does the other but in the opposite direction. **As price (P) rises, quantity (Q) falls** and vice versa.

How are substitutes a factor that shifts the demand curve

Substitutes are goods that can be consumed in place of one another. If the price of a substitute increases, the demand curve for the original good shifts to the right, Eg coke and Pepsi

How complements affects the shift in the demand curve

Complements are goods that are normally consumed together. If the price of a complement increases, **the demand curve for the original good shifts to the left.** If the price of a complement decreases, the demand curve for the original good shifts to the right.

Changes in real income affecting the shift of the demand curve

when real incomes change, so does the quantity demanded. For most goods and services, as **real income rises so too does the quantity demanded** and as income drops, so does quantity; these are called **normal good**s. Some goods and services work the other way round, as **income increases quantity demanded falls and as income falls demand increases.** These are called **inferior goods.**

Supply

Supply- the amount of a good or service that producers are willing and able to provide, at a given price, at a given time.

Market supply

Market supply refers to the total output of all individual suppliers of a particular good or service.

Basis of how much suppliers are will and able to supply

Producers make decisions as to how much they are willing and able to supply at any given price. This wil be based on **the cost of inputs** and the **amount of profit they are likely to make, together with any other objectives they may have**.

Relationship between price and quantity for supply

With supply there is a **positive relationship between P and Q**. As one changes so does the other but in the Same direction. **As P rises Q rises** and vice versa. Higher prices give **suppliers an incentive to produce and sell more**

Remember a change in price causes a movement along the demand/supply curve not a shift

How does **changes in cost of production** affect the shift on the supply curve

How does **changes in cost of production** affect the shift on the supply curve 

Changes in the costs of production - an **increase in costs shifts the supply curve upwards and to the left**. If a furniture maker has to pay more for wood, then **profits decline.** The **less attractive profit opportunities may mean that the producer cuts output**, shifting the supply curve for furniture to the left. If costs decline, firms respond by increasing output. The furniture manufacturer may increase production if wood costs fall. Technical changes are a very important reason why costs may fall.

How does **introduction to new technology** affect the shift on the supply curve 

a technology change shifts the supply curve to the right. Technological progress allows firms to produce a given item at a lower cost.

How does **indirect taxes**  affect the shift on the supply curve 

if the government intervenes in a market it may be because it wants to **tax a product to cut consumption and/or raise revenue** (as with petrol). An increase in the tax on a product shifts **the supply curve upwards and to the left**. In effect the **costs for the producer have increased by the amount of the tax**. The producer may raise prices by up to the amount of tax.

Subsidies supply curve

these are **payments to a producer to encourage production and will shift the supply curve to the right**. The subsidy **cuts the cost of production** for the producer and they are therefore willing and able to supply more at each and every price.

Changes in the number of firms supply curve

if the **output of an industry grows, the supply curve shifts to the right**. The ==fast-food industry==, for example, exploded in the latter half of the twentieth century as more and more fast food chains entered the market. **The supply curve shifts to the left as the size of an industry shrinks.**

External shocks supply curve

the **supply of some goods is dependent on events beyond the producer's control.** This covers both **sudden and unexpected events e.g. natural phenomena**. Examples include the ==Japanese tsunami==, which adversely affected the supply of many Japanese products such as Toyota cars. Similarly, ==the supply of wheat depends on the quality of the harvest;== a poor harvest will send the supply curve to the left.

Equilibrium point

The point at which the quantity demanded is the same as the quantity supplied

What happens at the equilibrium price

there will be **no unsold stocks** and customers will be able to buy all they demand at that price.

What determines price and quantity set

Price and quantity are set by **market forces**. The interaction of supply and demand determines the prices and quantities of the economy's goods and services.

What does price do in terms of allocation of resources

prices are the ==**signals that guide the allocation of resources**==. They indicate clearly to suppliers when consumers want more or less of their product.

What is equilibrium in the market

Equilibrium in the market place means that the **quantity suppliers wish to sell is exactly equal to the quantity** **customers wish to buy.**

Equilibrium price

The right level to make sure that the quantity that suppliers wish to sell is the same as the quantity consumers wish ti buy

Characteristics of excess demand

When there is excess demand the immediate impact is a **shortage of that particular good or service.**

People who want to buy at the current price are unable to do so

Characteristics of excess supply

When there is excess supply the immediate impact is a **surplus of that particular good or service**. **Suppliers are unable to sell some of the goods and services that are available to buy**. The ==price is too high== for some potential customers and the market will not clear.

How are market forces used to eliminate excess demand

With excess demand, some customers who cannot get the goods they want to buy at price P1 in Figure 6 will be willing to pay more for the product in question. **Suppliers wil be able to raise the price and still sell the product so the price will start to rise towards the equilibrium level.** However, some customers who would have bought at the old, low price will drop out - **the higher prices will put them off**. There will be a **movement up the demand curve.** ==**NOT A SHIFT** ==

\
\
At the same time, **some producers will be attracted by the rising prices to increase production**; they stand to make a **better profit at a higher price**. There will be a **movement up and along the supply curve** because more suppliers are willing to produce at the new higher price. These trends will continue until the equilibrium price shown in Figure 6 is restored and the market clears.

How are market forces used to eliminate excess supply  

When there is excess supply the immediate impact is a surplus of that particular good or service. The price P2 is too high to attract customers to buy all that is on offer. **Some suppliers will cut prices in order to sell their goods, causing a movement along and down the demand curve,** because more buyers will want to **buy at the new lower price.**

\
At the same time there is also a **movement down and along the supply curve** because **fewer suppliers are willing to produce at the new lower price.** Eventually equilibrium is restored as the amount buyers demand and the amount suppliers want to sell are in equilibrium.

Limitations of the supply and demand model

The demand and supply model is just that - **a model**. It is a **simplified demonstration of a set of complex events** that might otherwise be hard to understand.

\
The model is **based on simplified assumptions about the way markets work.** It **assumes that businesses, individuals and other organisations have full information**. In fact, when taking economic decisions, we almost never have complete information.

\
• Another simplified assumption is that **all markets are competitiv**e. But if one big business outcompetes others in the industry, it may gain market power that greatly reduces the impact of competitive forces.

\
The model **relies on the condition that economists call ceteris paribus,** meaning 'all other things being equal'. So we can look only at how one particular part of the model works at any one time and we assume that everything else is 'frozen' and has no effect. In reality this is not the case and several variables may be at work.

\
Nevertheless the supply and demand model is a useful explanation of how markets work. We can examine each change separately and link cause and effect directly.

In a free market how are resources allocated

resources are allocated by **the profit signalling mechanism**, in three ways:

Profit signalling mechanism: rationing

Consumers can buy only the goods and services that they can pay for. It follows that the **output of the economy is distributed according to how much the buyer can pay.** Products go to the highest bidder

\
Effectively resources are **rationed**.

**Very scarce resources (like caviar or diamonds) sell for very high prices** so not everyone can buy them.

\
In the market place **the price mechanism rations consumer goods according to buyers' ability to pay.**

Profit signalling mechanism: incentive

**Profit acts as an incentive.** It makes it worthwhile for businesses to use resources to produce the most popular products. When many people want to buy something (iPhones perhaps) that product becomes very profitable. This signal tells Apple to carry on upgrading the product and manufacture more.

\
* Buyers decide which of the competing want that want to buy
* Creates a demand for the product or service
* Products acts as an incentive to produce and supply the desired product
* Resources are allocated to produce the product or service
* This creates a supply of the product or service
* The existence of profit signals more businesses to join the industry

\
Consumer sovereignty-

Consumer sovereignty

\- the power of the consumer to determine what is produced. It is important because resources are scarce, and it works to give society as a whole the best standard of living possible with the resources available.

Advantages of rationalising

can help ensure that goods are **distributed more fairly and equitably.** By allocating scarce goods based on need, rather than the ability to pay, rationing can help to **prevent individuals with greater financial resources from monopolising the supply of the good.**

\
help to **control prices and prevent excessive price increases during times of scarcity**. By limiting the amount of the good that consumers can purchase, rationing can help to **prevent hoarding and panic buying,** which can lead to price increases and shortages.

Disadvantages of rationalising

One disadvantage is that it can be difficult to determine the appropriate criteria for allocating the good. For example, determining who has the greatest need for medical supplies during a pandemic can be challenging, as there may be many individuals with critical medical needs. Additionally, rationing can lead to a black market for the good, where individuals may seek to purchase the good at higher prices than the rationed price.

Why are market are competitive the lost problematic assumption

People in business think a lot about competition, and most of their thoughts focus on how to avoid it. Creating a distinctive product hardly hinders competition - in fact, it often provides consumers with more choices. But very big businesses may use their power in the marketplace to raise prices, or just get careless about keeping costs down to a minimum. Higher prices eat into real incomes. The market will become less competitive and consumer sovereignty may be threatened. Only through competition can prices be kept down to the lowest possible level.

Profit signalling mechanism

The profit-signalling mechanism ensures that businesses do not for long produce goods and services that do not sell and instead follow the incentive to focus on products that will generate profit because customers want to buy them.

Incentive

Price mechanism that uses market demands and prices to motivate producers to increase supply or consumers to reduce demand

Example of incentive

An example of incentive as a price mechanism is the market for electric cars. As governments around the world implement policies to reduce carbon emissions, **consumers are incentivized to purchase electric cars through various measures such as tax credits or subsidies.** This, in turn, **motivates car manufacturers to increase the supply of electric cars to meet the growing demand.**

Explain incentives in your own words

Incentive works as a price mechanism by providing a clear price signal that motivates producers or consumers to take certain actions. In a market-based price mechanism, prices are determined by the interaction of supply and demand, and prices rise or fall based on changes in these factors. When prices rise, it signals that demand for a good is high and that producers should increase supply to capture the higher profits. Conversely, when prices fall, it signals that demand for a good is low and that producers should reduce supply to avoid losses.

Advantage of an incentive

One advantage of incentive as a price mechanism is that it can ==**help to allocate resources efficiently.**== By providing a clear price signal, producers and consumers can make **informed decisions about how to allocate resources in the most efficient manner**. For example, if the ==price of a good is high, it signals that there is a shortage of the good== and that resources should be allocated towards increasing supply. On the other hand, if ==the price of a good is low, it signals that there is a surplus of the good and that resources should be allocated towards reducing supply== or finding alternative uses for the good.

\
Another advantage of incentive is that it can **promote innovation and technological advancement**. When prices are high, it **incentivises producers to invest in new technologies or processes to increase production and capture higher profits.** For example, ==the high price of oil in the 2000s incentivized producers to invest in technologies such as **hydraulic fracturing and horizontal drilling**==**,** which led to a **surge in oil production and a reduction in prices.**

Disadvantages of incentives

One disadvantage is that it can lead to **price volatility and uncertainty,** particularly in markets with high levels of competition. Prices may rise or fall rapidly in response to changes in supply or demand, which can make it difficult for producers and consumers to plan for the future. Additionally, high prices can lead to price gouging and other forms of market manipulation, particularly in markets with limited competition.

\
\
it may **not address issues of inequality or externalities**. For example, if the price of a good is high due to a natural disaster or other external factor, it may be difficult for some consumers to afford the good, regardless of the incentives provided. Similarly, if the production of a good has negative externalities such as pollution, high prices may not incentives producers to reduce their emissions or address the externalities. In these cases, alternative price mechanisms or policies may be needed to address these issues.

Signalling

a price mechanism that conveys information to buyers and sellers in a market. It operates by using prices to signal the quality or value of a good or service, thereby influencing the behavior of buyers and sellers.

Example of signalling

An example of signalling as a price mechanism is the market for luxury goods. Luxury goods are often priced higher than comparable non-luxury goods, signaling to consumers that they are of higher quality or have greater value. This, in turn, motivates consumers to purchase the luxury goods, while also motivating producers to maintain the high quality or value of the goods.

Explain signalling

Signalling works as a price mechanism by **using prices to convey information about the quality or value of a good or service**. ==When a good is priced higher than its comp&titors, it signals to buyers that the good is of higher quality or has greater value==. Similarly, when a good is priced lower than its competitors, it signals to buyers that the good is of lower quality or has lower value. This information can **influence the behavior of buyers and sellers in the market, leading to more efficient outcomes**.

Advantages of signalling

Another advantage of signaling is that it can **help to differentiate between goods that are otherwise indistinguishable**. In markets where goods are homogenous, such as ==agricultural commodities==, signaling can help to differentiate between goods based on quality or value. For example, a farmer who produces high-quality organic produce can signal the quality of their goods by pricing them higher than comparable non-organic produce.

Disadvantages of signalling

One disadvantage is that it **may not always accurately reflect the quality or value of a good or service.** For example, in markets where branding or marketing is a significant factor, prices may be artificially inflated to signal quality or value, even if the actual quality or value is not significantly higher. This can lead to market inefficiencies such as price discrimination or rent-seeking.

\
Another disadvantage of signalling is that it may lead to **market segmentation and reduced competition.** If prices are used to signal quality or value, it may lead to a situation where **only certain types of goods or services are valued, while others are not.** This can create market segmentation and reduce competition, leading to higher prices and reduced efficiency. Additionally, if prices are used to signal quality or value, it may lead to a situation where lower-income consumers are priced out of the market for high- quality or high-value goods and services.

Explain how firms to changes in demand

Firms respond to changes in demand in order to maximize their profits. When demand for a good or service increases, firms may be able to charge a higher price, which increases their revenue and profits. They may also increase the quantity produced, which allows them to take advantage of the higher demand and generate more revenue. Conversely, when demand for a good or service decreases, firms may need to lower the price or decrease the quantity produced in order to maintain their market share and avoid losses.

Example of how a firm responds to changes in demand

An example of how firms respond to changes in demand is the smartphone industry. When demand for a particular model of smartphone increases, firms such as Apple or Samsung may increase the quantity produced and/or raise the price of the product. When demand for a particular model of smartphone decreases, firms may decrease the quantity produced and/or lower the price of the product.

Advantages of responding to changes in Demand

One advantage of firms responding to changes in demand is that it leads to efficient allocation of resources in the economy. When firms adjust their production levels and prices in response to changes in demand, they are able to meet consumer preferences and allocate resources to the production of goods and services that are in highest demand. This leads to more efficient use of resources, as firms are able to produce goods and services that are in demand and avoid producing goods and services that are not in demand.

\
it leads to **innovation and competition in the market**. When firms are responsive to changes in demand, they are able to **identify new trends and customer prefere**nces, which can drive innovation and new product development. This, in turn, can **lead to increased competition in the market, as firms strive to offer new and innovative products that meet consumer needs.**

Disadvantages of forms responding to changes I. Demand

One disadvantage is that it may lead to market volatility and instability. When demand fluctuates rapidly, firms may struggle to adjust their production levels and prices quickly enough, which can lead to imbalances in supply and demand and market instability. Additionally, firms may engage in priceywars or cut corners in order to maintain market share, which can lead to reduced quality and negative impacts on consumers.

\
Another disadvantage of firms responding to changes in demand is that it may lead to environmental or social externalities. When demand for a particular good or service increases, firms may increase production levels, which can lead to increased pollution or resource depletion. Additionally, when demand for a particular good or service decreases, firms may lay off workers or shut down production facilities, which can have negative social impacts on communities.

Characteristics of a mass markets

1. ==**Large number of customers:**== Mass markets typically have a significant number of customers, making it possible for companies to achieve economies of scale and operate profitably.
2. ==**Homogeneous needs:**== Customers in mass markets have similar needs and wants, which can make it easier for companies to produce standardized products or services.
3. ==**Low price sensitivity:**== Mass market customers are generally less price-sensitive than customers in niche markets, and are willing to pay a premium for convenience and availability.
4. ==**High sales volume:**== Companies operating in mass markets aim to achieve high sales volumes to benefit from economies of scale.

\
products are usually standardised and targeted at a broad market segment → production is large scale → costs are driven down with economies of scales, in order to be competitive with rivals → shits the supply curve to the right

**Examples of firms operating in mass markets include:**

Examples of firms operating in mass markets include:


1. **Coca-Cola:** Coca-Cola is a global beverage company that produces and distributes soft drinks to a mass market. Coca-Cola operates in over 200 countries and has a diverse range of products that appeal to a broad range of customers.
2. **Walmart**: Walmart is a large retail chain that operates in a mass market. Walmart's low prices and wide range of products appeal to customers with homogeneous needs, and the company's size allows it to achieve significant economies of scale.
3. **McDonald's**: McDonald's is a global fast-food chain that serves a mass market. McDonald's standardized menu and fast service appeal to customers with homogeneous needs, and the company's large size allows it to achieve significant economies of scale in its operations.

Niche markets

Niche markets refer to a smaller, specialized segment of the consumer market with unique needs and wants.

\
In economics, niche markets are often associated with higher profit margins and lower competition due to the specific nature of the products or services offered.

Characteristics of niche markets

Niche markets refer to a smaller, specialized segment of the consumer market with unique needs and wants. In economics, niche markets are often associated with higher profit margins and lower competition due to the specific nature of the products or services offered.

Characteristics of niche markets include:


1. **Small number of customers:** Niche markets typically have a smaller number of customers with highly specific needs and wants, making it challenging for companies to achieve economies of scale.
2. **Heterogeneous needs:** Customers in niche markets have highly specific needs and wants, which can make it difficult for companies to produce standardized products or services.
3. **High price sensitivity:** Niche market customers are generally more price-sensitive than customers in mass markets due to the limited availability of similar products or services.
4. **Specialized products or services:** Companies operating in niche markets aim to provide highly specialized products or services that meet the unique needs of the target customers.

example of price mechanism in the context of niche markets

Consider the market for luxury cars.

Luxury cars are targeted at a small segment of the population that values the brand, the quality, and the unique features of the car. The price of luxury cars is much higher than regular cars, which reflects the exclusivity and the perceived value of the product. As the demand for luxury cars increases, the price increases as well, signaling to firms that there is an opportunity to make more profits by producing and selling more luxury cars.

explain an advantage of using price mechanisms within niche markets

The price mechanism in niche markets also helps to ensure that goods and services are distributed according to the consumers' willingness to pay.

Consumers who are willing to pay a higher price for a niche product will receive it, while those who are not willing to pay a higher price will not.

This encourages firms to invest in research and development to create more unique and specialized products that cater to the specific needs of the niche market.

Mass market and niche markets - competition

mass markets, businesses often compete on price. There may be brands, Which diferentiate one product (rom another Bu there will be competing rivals in a mass market and the price must therefore be reasonab markets competitive, 

\
**In niche markets, competition is not so strong**. Very specialised products may appear unique Businesses target small market segments that appreciate particular product features. **Making a profit may depend less on the price and more on the style, design or other aspects of the product appeal**

Disadvantages of price mechanisms in a niche market

However, the price mechanism in **niche markets may not always work efficiently as the supply of unique and specialized products may be limited.** In such cases, the price may become **unaffordable** to some consumers, and firms may need to explore alternative ways to meet the demand, such as èxpanding their product lines or offering customized products. Overall, the price mechanism is an important tool in the allocation of resources in niche markets, but it requires a deep understanding of the specific needs and preferences of the target market.

Market growth

Market growth implies an increase in the demand for a product. It can be rapid if the product is new and many people want it or it can be slow or static if the product is well established.

What does a negative growth rate imply

A negative growth rate would mean that the product is facing falling demand.

explain what factors determine the extent to which a firm experiences market growth

1. Market demand: Market demand refers to the willingness and ability of consumers to purchase a product or service at a given price. A firm operating in a market with high demand is likely to experience growth as it can increase its sales volume and revenue.

For example, the smartphone market has experienced significant growth in recent years due to the high demand for smartphones among consumers. Firms such as Apple and Samsung have experienced market growth as a result of the high demand for their products.

\

2. Competition: Competition refers to the number of firms operating in a particular market and the degree of rivalry among them. A firm operating in a highly competitive market may struggle to experience growth as it faces intense price competition and pressure on profit margins.

For example, the airline industry is highly competitive, with many airlines competing for market share. This intense competition makes it difficult for airlines to experience significant market growth, and many airlines struggle to generate profits.

\

3. Innovation: Innovation refers to the development of new products or processes that offer consumers new or improved features. A firm that invests in innovation and develops new products or processes may experience market growth as it gains a competitive advantage over other firms.

For example, Tesla has experienced significant market growth due to its focus on innovation in the electric vehicle market. Tesla's innovative electric vehicles have differentiated the company from other automakers and allowed it to capture a significant share of the market.

\

4. Economic conditions: Economic conditions, such as inflation, interest rates, and consumer confidence, can affect market growth. A firm operating in a market experiencing economic growth is more likely to experience market growth as consumer spending and business investment increase.

For example, the housing market experiences growth during periods of economic expansion, as low-interest rates and high consumer confidence encourage people to invest in property.

How can firms experience market growth without making new products

Some businesses come up with **a new product that is cheaper or better than existing substitutes.** Others may devise a new way to make an **existing product more cheaply and will be able to cut costs and prices**. This will lead to **consumers demanding larger quantities** and perhaps to an individual business getting a larger share of the growing market.

Give an example of a product with a high potential market growth

An example of a product with high potential market growth is **electric cars.**

As the global demand for environmentally-friendly transportation continues to rise, the potential market growth for electric cars is significant. In 2020, the ==**global electric vehicle market grew by 43%**== **compared to the previous year,** and it is projected to continue growing in the coming years.

Advantages of firms having a a large potential market growth

provide firms with a competitive advantage over their rivals. If a firm is able to identify and capitalize on a growing market trend before its competitors, it can establish a strong market position and increase its market share. This can lead to increased profitability and long-term success.

Disadvantage of market growth.

As the market grows, competition may increase, and firms may need to invest more resources in marketing and advertising to maintain their market position. Moreover, the potential market growth may not materialize as expected, and firms may be left with excess capacity and unsold products. Therefore, it is important for firms to conduct thorough market research and analysis to assess the potential market growth and to develop a strategic plan that mitigates the associated risks.

Market research…(advantages)

* gives information that can be used to make better informed decisions about the business and its future.


* allows businesses to understand consumer behaviour and makes them more responsive to customers' needs, leading to increased profits (market orientation).


* helps to give a business a competitive advantage by improving its products and/or services and successfully marketing them.


* is crucial for any business start-up, to reduce the risks involved.


* is also essential for established businesses, to keep up with market trends and remain competitive.

Why doe we need market research

* To identify what's happening in the market now.
* To predict what might happen in the market in the future )
* To explore new possibilities in the market.

Primary research

gathering information, **first hand from an original source**, that has not been collected before. Often involves **going out and asking people for specific information**, hence its alternative name field research. Examples include **questionnaires, focus groups and direct interviews**. Direct observation may be important too, especially for small businesses, and may help in deciding where to locate.

Secondary research

finding and using information that has already been **gathered by somebody else**. Sometimes called desk research, it involves **reading books and journals, or using online information**. Examples include Google, trade journals and **Office of National Statistics (ONS).**

Difference in market research for startups and long established businesses

A new business may look initially for a **small, local market**.

There may be a gap in the local shopping centre, a need that is not catered for by existing retailers. Maybe there is no health food shop, or no antique or junk shop. The gap may indicate a profitable market. Equally, some places have many competing shops. Collectors may visit a place with many antique shops purposely to get a good choice of second-hand stuff. Another shop could be profitable, despite the competition. **Close observation of local markets is some the key to a successful start-up.**

\
Long-established businesses can put extensive resources into **researching the market for a new product.**

\
They may be looking **for gaps in a wider market** so researching **customer preferences becomes very important**. Primary research using ==focus groups, observation and social media communities== can provide valuable information.

Quantitative research

based on numerical data, measures key details and produces statistical information e.g. the number of times 18 to 25 year olds go to the cinema or the percentage of Toyota's sales now made in China. Sampling and questionnaires may be used.

\
* Produces data on market size and buyers characteristics such as age, gender and location

Qualitative research

based on consumers' attitudes and opinions. It tries to identify why consumers behave as they do e.g. how they react to a new product, how do they feel when buying chocolate. Qualitative research may include focus groups and interviews.

How has qualitative research differed overtime

Primary research requires far fewer face-to-face interviews and focus groups than in the past. Telephone calls, email surveys and social media are widely employed to build a picture of consumer preferences. Market researchers will run on-line global research communities that can be used continually to generate information, as well as advertising new developments. Many businesses use Facebook as a cheap way to keep in touch with their markets. These methods of generating qualitative research are much cheaper than local surveys and focus groups.

How has quantitative changed overtime

Supermarkets keep in close touch with customers using their loyalty cards. Web sites provide easily accessible secondary research data. However, many businesses still attach great weight to designers' judgement about what is likely to succeed. The best example of this approach is Apple, which has repeatedly developed new and very successful products, based on creativity and innovation rather than market research.

The limitations of market research

Market research can be ==**misleading**==. Some secondary research gives useful clues, but it may be too generalised to be of real value. Primary research can be costly and qualitative research must be very carefully designed if it is to be reliable. Even when research findings are accurate, market change may make them obsolete before products are ready for distribution. Businesses in dynamic markets have to respond quickly to changes in fashion or new technologies. Market research must be interpreted with great care, especially if sampling is involved.

Example of how primary research can be used

An example of primary market research would be a company **conducting a survey to determine customer preferences for a new product**. The company might **ask customers about the features they would like to see in the product**, their **willingness to pay for it, and their likelihood of purchasing it.** (for long stablished businesses)

Advantage of primary research

Another advantage of primary market research is that ==**it is tailored to the specific needs of the business**==. Primary research **can be designed to answer specific questions, and the data collected can be analysed in a way that is most relevant to the business's objectives**. This allows businesses to make **more informed decisions** and to **develop more effective marketing strategies.**

\
the advantage of ==**being up-to-date and relevant**==. The data collected is **based on current market conditions, customer preferences, and other factors that may influence consumer behaviour.** This allows businesses to **respond quickly to changes in the market** and to **adapt their strategies accordingly.**

\
primary market research can be ==**used to validate or refute assumptions that a business may have about its target market**==. By collecting data directly from customers, businesses can **gain a better understanding of whether their assumptions are accurate or not**. This can help businesses avoid costly mistakes and make more informed decisions.

\
primary market research can also be ==**cost-effective, especially when compared to secondary research.**== While primary research can be more time-consuming and resource-intensive than secondary research, it can also be more accurate and relevant to the business's needs.

Disadvantages of primary research

1. ==**Cost**==: One of the biggest disadvantages of primary market research is the cost. **Conducting surveys, focus groups, and experiments can be expensive**, particularly if the sample size is large. Businesses may also need to **hire researchers or consultants to design and carry out the research**, which can add to the cost.

\

1. ==**Time-consuming:**== Another disadvantage of primary market research is that it can be time-consuming. Businesses **need to plan and execute the research, which can take weeks or months.** In addition, data analysis can be time-consuming, particularly if the sample size is large.

\

1. ==**Limited sample size:**== Primary market research typically involves a limited sample size, which **may not be representative of the broader population**. As a result, businesses may need to conduct multiple rounds of research to gather enough data to make informed decisions.

\

1. ==**Bias**==: Another potential disadvantage of primary market research is bias. The way questions are framed, the sample population, and the research design can all influence the results of the research. This means that businesses need to be careful when interpreting the results of primary market research and should consider using multiple sources of data to inform their decisions.

\

1. ==**Difficulty in recruiting participants:**== Recruiting participants for primary market research can be challenging, particularly **if the research requires a specific demographic or expertise**. This can result in a biased sample and limit the generalizability of the research findings.

\

Advantage of secondary research

1. ==**Cost-effective:**== Conducting secondary market research can be less expensive than primary market research. It saves the cost of hiring a research firm or conducting surveys, which can be time-consuming and expensive.

\

1. ==**Time-saving:**== Secondary market research can be conducted quickly and easily, as the data already exists and can be accessed through various sources like online databases and publications.

\

1. ==**Large sample size:**== Secondary market research often includes a large sample size, which can provide more reliable and accurate results than primary research.

\

1. ==**Historical data:**== Secondary market research often includes historical data, which can help businesses to analyze trends and make predictions for future market conditions.

\

1. ==**Industry insights:**== Secondary market research can provide valuable insights into the industry, competitors, and overall market conditions. This information can help businesses to make informed decisions about product development, marketing strategies, and pricing.

Disadvantage of secondary research

1. ==**Data limitations:**== One of the primary disadvantages of secondary market research is that the data may not be specific or relevant to the company's needs. The data may be outdated, incomplete, or inaccurate, which can lead to incorrect conclusions.

\

1. ==**Lack of control:**== With secondary market research, businesses have no control over the data collection process, which means they cannot control the quality or accuracy of the data.

\
2. ==**Biased sources:**== The sources used for secondary market research may have biases or conflicts of interest that can affect the reliability and accuracy of the data. For example, an industry report may be funded by a specific company, which could influence the results.

\

1. ==**Data accessibility:**== Some data sources may not be easily accessible, especially if they require expensive subscriptions or licenses to access. This can make it difficult for small businesses or startups to access the data they need.

\

1. ==**Lack of customization:**== Secondary market research data is often generalized and may not be tailored to the specific needs of the business. This can make it challenging to apply the data to the company's specific situation.

Quantitative research

Quantitative research is based on numerical data, measures key details and produces statistical information e.g. the number of times 18 to 25 year olds go to the cinema or the percentage of Toyota's sales now made in China. Sampling and questionnaires may be used.

Qualitative research

Qualitative research is based on consumers attitudes and opinions. It tries to identify why consumers behave as they do e.g. how they react to a new product, how do they feel when buying chocolate. Qualitative research may include focus groups and interviews.

How has primary research changed over time

Primary research requires far fewer face-to-face interviews and focus groups than in the past. Telephone calls, email surveys and social media are widely employed to build a picture of consumer preferences. Market researchers will run on-line global research communities that can be used continually to generate information, as well as advertising new developments. Many businesses use Facebook as a cheap way to keep in touch with their markets. These methods of generating qualitative research are much cheaper than local surveys and focus groups.

How has quantitative research changed over time

Quantitative research has also changed its nature. Supermarkets keep in close touch with customers using their loyalty cards. Web sites provide easily accessible secondary research data. However, many businesses still attach great weight to designers' judgement about what is likely to succeed. The best example of this approach is Apple, which has repeatedly developed new and very successful products, based on creativity and innovation rather than market research.

Limitations of market research

Market research can be misleading. Some secondary research gives useful clues, but it may be too generalised to be of real value. Primary research can be costly and qualitative research must be very carefully designed if it is to be reliable. Even when research findings are accurate, market change may make them obsolete before products are ready for distribution. Businesses in dynamic markets have to respond quickly to changes in fashion or new technologies. Market research must be interpreted with great care, especially if sampling is involved.

Random sampling

Random sample - a group of people selected so as to be representative of the population as a whole. Interviewing people as they happen to walk by will result in a biased sample. The group will change according to the location and the time of day, and may include few people who have jobs. Appropriate methods might be to pick addresses at random from the electoral register or numbers chosen from the phone book.

quota sampling

involves selecting evenly from particular groups within the population, i.e. by age or gender.

Stratified sampling

Stratified sampling is a statistical sampling method that involves dividing a population into subgroups, or strata, and then selecting a random sample from each stratum. Each stratum represents a distinct subset of the population that shares similar characteristics, and the sample from each stratum is proportional to the size of the stratum.

Advantages of random sampling

Random sampling can provide firms with a range of benefits, including cost savings, increased accuracy of results, and more efficient use of resources.

* For example, a retail company may want to conduct market research to understand their customers' preferences and buying habits. To achieve this, they could conduct a survey of a representative sample of customers, chosen through random sampling. This method would allow them to gather data from a diverse range of customers, while saving time and money compared to surveying all customers.

\
* Random sampling allows **firms to gain a representative understanding of a larger population** without the need to examine every member of the population. This can help firms to make informed decisions and to allocate resources effectively.

\
* Random sampling can help firms to **reduce costs associated with collecting data**. By selecting a representative subset of individuals, firms can reduce the amount of time and resources required to collect data.
* For example, a manufacturing firm might use random sampling to test the quality of its products. Rather than testing every product, the firm might randomly select a subset of products to test. This can help the firm to identify quality issues while minimising the cost of testing.

\
* In addition to reducing costs, random sampling can also **increase the accuracy of results by reducing the likelihood of bias.** For example, if a firm only surveyed customers who regularly visited their most profitable stores, they would not obtain a representative sample, as they would be missing out on the opinions of customers who frequent other stores.

\

Disadvantage of random sampling

One potential disadvantage of random sampling is sampling error, which occurs when the sample is not truly representative of the larger population. This can result in inaccurate conclusions being drawn from the data, which could lead to poor decision-making by the firm.

Develop: Another issue with random sampling is that it can be time-consuming and resource-intensive, particularly when the population being studied is large and diverse. In some cases, it may be more efficient to use other sampling methods, such as stratified sampling or cluster sampling.

Link: From an economic standpoint, the disadvantages of random sampling can impact a firm's profitability and competitive advantage. If the data obtained through random sampling is inaccurate or incomplete, the firm may make decisions based on flawed information, leading to poor outcomes. Additionally, if the cost of conducting a random sample outweighs the benefits gained, it may not be a cost-effective method for the firm to use. Overall, while random sampling can be a useful tool for firms, it is important to carefully consider its potential drawbacks and limitations before implementing it as a research method.

Advantages of stratified sampling:

1. Increased accuracy: Stratified sampling can increase the accuracy of the sample as it ensures that each stratum is represented in the sample. This is particularly useful when there is significant variation in the population, and certain subgroups are more important or more prevalent than others.

For example, a market research firm may use stratified sampling to survey consumers in different age groups to better understand the preferences of different age groups for a particular product or service. By ensuring that each age group is represented in the sample, the research firm can more accurately estimate the preferences of the overall population.

\

2. Improved efficiency: Stratified sampling can improve the efficiency of the sampling process by reducing the sample size required to achieve a desired level of accuracy. This is because the sample from each stratum is proportional to the size of the stratum, and smaller strata require a smaller sample size.

For example, a political pollster may use stratified sampling to survey voters in different regions of the country to better understand regional voting patterns. By ensuring that each region is represented in the sample, the pollster can more accurately estimate the voting patterns of the overall population.

Disadvantages of stratified sampling:

1. Complexity: Stratified sampling can be more complex than other sampling methods, as it requires the identification of relevant strata and the calculation of appropriate sample sizes for each stratum. This can increase the time and cost required to conduct the sampling process.

For example, a firm conducting a market research study may need to spend more time and resources to identify relevant strata and determine appropriate sample sizes for each stratum. This could increase the overall cost of the research study.


2. Sampling error: Despite its advantages, stratified sampling can still be subject to sampling error, which occurs when the sample does not accurately reflect the population. This can occur if the strata are not chosen appropriately or if the sample size for each stratum is too small.

For example, a retailer may use stratified sampling to survey customers in different geographic regions to better understand regional preferences for a particular product. However, if the retailer does not choose appropriate strata or if the sample size for each stratum is too small, the resulting sample may not accurately reflect the preferences of the overall customer population.

\

Advantages of quota sampling:

1. Cost-effective: Quota sampling can be a cost-effective way to conduct research, as it does not require the use of random selection or the calculation of sample sizes. This can be particularly useful for small-scale research projects or when resources are limited.

For example, a small business may use quota sampling to survey customers about their satisfaction with the business's products or services. By setting quotas for different age groups, genders, and income levels, the business can ensure that the survey is representative of its customer base without incurring significant costs.


2. Ease of implementation: Quota sampling is relatively easy to implement, as it does not require the use of complex statistical techniques or specialized equipment. This can be particularly useful for researchers or surveyors who have limited training or expertise in statistical sampling methods.

For example, a nonprofit organization may use quota sampling to survey residents in a specific community about their awareness of and attitudes toward a particular issue. By setting quotas for different age groups and ethnicities, the organization can ensure that the survey is representative of the community without requiring specialized expertise or equipment.

\

Disadvantages of quota sampling:

1. Sampling bias: Quota sampling can be subject to sampling bias, as it relies on the judgment of the researchers or surveyors to set the quotas. This can result in overrepresentation or underrepresentation of certain demographic groups in the sample.

For example, a marketing research firm may use quota sampling to survey consumers about their preferences for a particular product. If the researchers set quotas that are not representative of the overall population, the resulting sample may not accurately reflect the preferences of the overall population.


2. Limited generalizability: Quota sampling may have limited generalizability, as the sample is not randomly selected from the population. This can limit the ability of researchers or surveyors to generalize their findings to the overall population.

For example, a healthcare provider may use quota sampling to survey patients about their satisfaction with the provider's services. While the results of the survey may be useful for making improvements to the provider's services, they may not be generalizable to other healthcare providers or patient populations.

Market segmentation

Market segmentation means **dividing the market into groups of consumers with similar characteristic**s. Common groupings include; ==age, gender, income, interests, location etc==. This enables products and services to be more effectively produced and targeted for a particular market segment.