Theme 1: 1.1 — Meeting customer needs

What is a market?

Any physical or digital place where buyers and sellers can meet in order to exchange goods or services

What is the aim of a market?

To help identify, anticipate, and satisfy customer needs and wants profitably

What is a need?

Things that are essential for life

What is a want?

Desires that are not essential

What is market research?

The process of systematically gathering data from consumers that can be used to influence business decisions

What is market research essential for?

Helping businesses identify products and services they can develop in response to the needs and wants of their customers

What is a mass market?

Businesses aiming standardised products and services to broad market segments with large scale production

What is a market segment?

A sub-group of a larger market made up of customers who share similar characteristics

In mass markets, production happens on a…

Large scale

What are economies of scale?

A fall in average costs as output or scale of production rises

What is a niche market?

Businesses aiming specialised products towards a small segment of a larger market with small scale production

In niche markets, production happens on a…

Small scale

Characteristics of mass markets:

• Products are standardised and less unique

• Low average costs, due to large scale production economies of scale

• Low prices, leading to greater affordability, higher sales volumes, and lower profit margins

What is a standardised product?

Selling the exact same product worldwide without altering it for different countries

What is a standardised product?

Selling the exact same product worldwide without altering it for different countries

What is a profit margin?

The percentage of the selling price that is profit

Characteristics of a niche market:

• Products are more specialised and unique

• High average costs due to small scale production

• They do not benefit from economies of scale

• High prices, leading to less affordability, lower sales volumes, and a higher profit margin

What is sales volume?

The total number of items or services sold by a business over a specific time period

What is sales revenue?

The total amount of money a business earns from selling its goods or services before any costs are taken away

How can the size of a market be measured through?

Sales volume or sales value

What is the equation for sales revenue?

Sales revenue = price x quantity sold

What is market size?

The total value or volume of the sales in the market

What is the equation for market size?

Market size = number of units sold x price

What is market share?

The proportion of total market sales of a product or service compared to the market as a whole

What is the equation for market share?

Market share = (sales of a business / total sales in the market) x 100

What is a brand?

A name, image, or logo that helps a product or service stand out from its competitors

What is product differentiation?

The process of distinguishing a product or service from competitors’ products in the market

What is the process of adding value to a product?

Firms increasing the price that the consumer is willing to pay

True or false: Brands are protected by the law.

True

What is a key way in which businesses achieve product differentiation?

Branding

Why do businesses operating in mass markets use branding?

To stand out from competitors

Why do businesses operating in niche markets use branding?

To communicate their offering to a small, well-defined group of consumers

What are strong brands more likely to be able to do than weaker brands?

Charge higher prices for their products

What is a dynamic market?

A market that is subject to rapid or continuous changes

True or false: Businesses that do not adapt are more likely to survive in the long run.

False

Why are rapid and continuous changes in the market inevitable?

Due to many markets becoming more competitive

What is monopoly power?

A large business that dominates a market

True or false: Business with monopoly power might not face the same dynamic pressure as businesses in more competitive markets.

True

What is online retailing?

Selling products on the internet

Advantages of online retailing:

• Provides access to more consumers, including internationally

• Enables longer trading hours, as the business is open all hours

• Cheaper to run, as it lowers fixed and variable costs compared to physical retailers

• Can collect data by tracking consumer behaviour, helping with primary market research

• Consumers can receive offers

• Consumers can shop at a time that suits them

What is a fixed cost?

Costs that do not change with the level of output or sales in the short run, they must be paid even if output is zero. (e.g - rent)

What is a variable cost?

Costs that change directly and proportionally with the level of output. If output is zero, variable costs fall to zero. (e.g - raw materials, packaging)

Disadvantages of online retailing:

• High costs for website development, maintenance, and promotion

• Is dominated by well known large businesses

• There are high levels of competition, making it expensive to make the website stand out

• Lack of personal contact with customers

• Consumers may find it difficult to get their desired levels of customer service

• Consumers may find difficult to return unwanted products

• Online purchasing increases the risk of credit card fraud

What major sources of external changes cause markets to change? (PESTLE)

• Political

• Economic

• Social

• Technological

• Legal

• Environment

Changes that cause markets to be dynamic:

• Changing consumer tastes and preferences

• Changing demographics

• Amount of competition

• Changing legislation

What is invention?

The creation, discovery, or design of a completely new product that has never existed before

What is the primary goal of an invention?

To solve a challenge or discover a new concept

What is innovation?

The process of adapting and improving an invention to make it useful, practical, or commercially viable

What does it mean if a product is commercially viable?

It can generate enough revenue to cover its costs and earn a satisfactory profit in the market

What is market growth?

The percentage increase in the size of the market

True or false: A business’s market share always automatically increases as the entire market continues to grow

False

Factors that cause market growth:

• Increasing population sizes

• Increasing incomes

• Changing tastes and preferences

Strategies for businesses to adapt to change:

• Create flexible business structures

• Carry out market research to meet customer needs

• Invest is new technology

• Invest in staff training, new products, and processes

• Innovate to gain the first mover advantage

What is the first mover advantage?

A competitive advantage gained by being the first business to introduce a new product or service to the market

What is competition?

The rivalry between businesses that sell similar products to the same target customers, each trying to win a larger revenue and market share

True or false: The more businesses in the market, the more intense the competition.

True

What are the two types of competition?

• Direct

• Indirect

What is direct competition?

When the business is targeting customers with the same product as a competitor

What is indirect competition?

When firms sell different products but compete with each other for customers’ disposable income

What is disposable income?

Money that households have left over to spend or save from their salary or wages after they have paid their taxes

What are the advantages of high competition on the business?

• Drives innovation

• Increases efficiency

• Allows for competitive pricing

What are the disadvantages of high competition on the business?

• Lowered profit margins

• Higher marketing costs

• Risk of business failure if they lack economies of scale

What are the advantages of high competition on the customer?

• Lower prices

• Better quality and service

• Wider choice and variety

What are the advantages of low competition on the business?

• Can dominate the market

• Can set high prices

• Less money spent on marketing

What are the disadvantages of low competition on the customer?

• Higher prices

• Poor quality or service

• Limited choices

What is a risk?

The chance of an outcome that can be quantified with a probability

What does calculating the probability of a risk rely on?

Historical/statistical data and past records

What is an uncertainty?

The inability to quantify the probability of an outcome

True or false: Risks can be internal or external.

True

What is a market leader?

The business that holds the largest market share in a specific market or industry

What is product orientation?

An approach to marketing that focuses on the characteristics of the product, rather than the needs of the consumer

True or false: Product orientation emphasises on creating the product first, then finding a market.

True

What is the disadvantage of a business too product oriented?

The business may go further away from what the market is looking for, increasing the risk of business failure

What are the tools of product orientation?

• Product research

• Product testing

• Product focus

What are the tools of product orientation?

• Product research

• Product testing

• Product focus

What is the advantage of a business focusing on the needs of consumers?

Increased demand, increased profits and a valued brand image

What are the tools of market orientation?

• Market research

• Market testing

• Customer focus

What is market research?

The collection, compilation, and analysis of information about a market

Effective market research helps the business to:

• Reduce risk when launching new products

• Anticipate the future needs and wants of consumers

• Understand consumer behaviour

• Identify potential consumer demand

• Identify how much consumers are prepared to pay for a product or service

• Identify competitors and learn their strengths and weaknesses

True or false: Market research data can be quantitative or qualitative.

True

What is quantitative data?

Numerical data