Theme 1.1

  • A market is any place where buyers and sellers can meet, e.g. amazon.co.uk or a shopping mall

  • Different markets have varying characteristics and are affected differently by changes

  • The aim of marketing is to help identify, anticipate and satisfy consumer needs and wants profitably

    • Needs are considered essential, e.g. shelter or food

    • Wants are desires which are non-essential, even if consumers consider them to be essential, e.g. Nike trainers

  • Market research is essential in helping businesses to identify products and services they can develop in response to the needs and wants that their customers have

    • Market research is the process of systematically gathering data from consumers which can be used to influence business decisions

    • In mass markets, products are aimed at broad  market segments, e.g. Kellogg's Corn Flakes is an example of a breakfast cereal aimed at the mass market

      • Market segments are groups of consumers who share similar characteristics, e.g. age, lifestyle, etc.

      • Mass marketing occurs when businesses sell their products to most of the available market 

      • Production usually happens on a large scale

    • In niche markets, products are aimed at a subset of the larger market, e.g. gluten free products

      • Niche marketing occurs when businesses identify and satisfy the demands of a small group of consumers within the wider market

      • Production usually happens on a small scale

      Mass Markets

      Niche Markets

      • Products are less unique as they are aimed at broad market segments

      • Low average costs due large scale production  economies of scale

      • Low prices lead to greater affordability and higher sales volumes

      • Low prices lead to lower profit margins

      • Primark is an example of a clothing company that focuses its product on the mass market

      • Products are more specialised and unique as they are aimed at narrow market segments

      • High average costs due to small scale production

        • They do not benefit from economies of scale

      • High prices make products less affordable and lead to lower sales volumes

      • High prices can allow businesses to earn higher profit margin

      • Louis Vuitton is an example of a fashion company that aims its products at a niche market

  • The size of a market can be measured through  sales volume  or sales value

    • Sales volume is the number of products sold, i.e. the physical number of units sold

    • Sales revenue = price x quantity sold, i.e. the financial value of the units sold

  • The market share that a business enjoys is the proportion of the total sales of a product/service compared to the market as a whole, e.g. Tesco has 26% of the UK grocery market

  • Market share can be calculated as follows:

Sales of a business divided by Total sales in the market × 100

Brands
  • A brand is a name, image, or logo which helps one product/service stand out from its competitors

  • Branding is one of the key ways businesses achieve product differentiation

  • Brands are unique and protected by law

  • Brands add value, often making the product/service more desirable to consumers

    • Adding value is the process by which firms increase the price that the consumer is willing to pay

  • Brands influence the position of the business within its market

    • Businesses operating in mass markets use branding to stand out from the competition

    • Businesses operating in niche markets use branding to communicate their offering to a small, well defined group of consumers

    • Strong brands are more likely to be able to charge higher prices for their products than weaker brands

    • The perceived quality of a strong brands products is better than that of weaker brands

Dynamic Markets

  • A dynamic market is a market that is subject to rapid or continuous changes

  • Many markets are becoming more competitive and change is inevitable

    • Those businesses which do not adapt are less likely to survive in the long run

    • The mobile phone market is a good example of a dynamic market

  • Businesses with  monopoly power (e.g. Amazon) might not face the same dynamic pressures as businesses in more competitive markets

  •  Many markets are dynamic but others change very slowly, e.g. the market for eggs and milk has been relatively stable for years

  • Changing technology ensures that the mobile phone market is dynamic

    • There are four areas to consider when examining dynamic markets

      • Online retailing

      • How markets change

      • Innovation and market growth

      • Adapting to change

1. Online retailing
  • Online retailing involves selling products via the internet

The Advantages & Disadvantages of Online Retailing for Firms & Consumers

Advantages

Disadvantages

  • Provides business access to more consumers, including internationally

  • Enables longer trading hours as the business is open 24/7

  • Cheaper to run as it lowers fixed and variable costs compared to bricks and mortar retailers

  • Businesses can collect data by tracking consumer behaviour, which helps with primary market research

  • Consumers can receive offers that they are more likely to benefit from

  • Consumers can shop at a time that suits them

  • There may be high costs for website development, maintenance, and promotion

  • Online retailing is dominated by well-known large businesses

  • High levels of competition mean that it will be expensive to make a website stand out

  • There is a lack of personal contact with customers

  • Consumers may find it difficult to get the desired level of customer service

  • Consumers may find it difficult to return unwanted products

  • Online purchasing opens consumers up to credit card fraud

2. How markets change
  • Changing market conditions offer new opportunities for firms, but also pose threats

  • The following changes cause markets to be dynamic

    • Changing consumer tastes and preferences, e.g. consumers desiring electric vehicles in place of traditional petrol/diesel

    • Changing demographics, e.g. many developed countries have an increasingly older population who have different wants and needs to previous markets

    • The amount of competition, e.g. international trade means larger market sizes but also more competition between an increasing number of firms

      • Competition can be direct, i.e. the sale of similar products or indirect, e.g. airlines compete with each other but also with other forms of transport such as trains

    • Changing legislation, e.g. laws strengthening environmental standards often create new markets

3. Innovation and market growth
  • Product innovation involves the adaptation or improvement of existing products, e.g. improved video cameras on laptops

  • Process innovation involves the adaptation or improvement of existing processes, e.g. just in time stock control

  • Market growth is the measurement of the change in the entire market, expressed as a percentage of the original size

    • The businesses market share does not necessarily increase automatically as the entire market continues to grow

  • Market growth can be caused by numerous factors, e.g.

    • Increasing population sizes can increase demand in certain markets

    • Increasing incomes can increase demand in certain markets

    • Changing tastes and preferences can cause the market to grow e.g. the growth in the electric car market

4. Adapting to change
  • Recognising and adapting to market changes allows businesses to thrive in dynamic markets

  • Strategies to adapt to change include

    • Create flexible business structures, especially in terms of operations and people management 

    • Meet customer needs by carrying out market research and communicating with customers

    • Invest in staff training, new products and processes

    • Innovate so as to gain the first mover advantage 

How Competition Affects the Market

  • Competition occurs when at least two businesses are providing goods/services to the same target market

    • The more businesses in the market, the more intense the competition

  • Competition can be direct or indirect

    • Direct competition occurs when the business is targeting customers with the same product as a competitor

    • Indirect competition occurs when firms sell different products but compete with each other for the customers disposable income e.g. cinema and theatre companies are in indirect competition

  • Competition results in many benefits for the customer, such as

    • Businesses offer lower prices

    • Businesses produce better quality products

    • Businesses provide better customer service

  • However, the absence of competition reduces incentives for businesses to innovate, be efficient or offer consumers lower prices

The difference between risk and uncertainty 

  • Risk is the potential threat to business success

    • Risks can be from inside the business (internal) or from outside the business (external)

    • Risks can be measured and prepared for using risk management

  • Uncertainty is when outcomes are difficult to predict

Examples of Risk & Uncertainty

Risk

Uncertainty

  • Technical failures due to the break down of essential equipment

  • Cyber security threats

  • Loss of key staff

  • Currency fluctuations for firms trading internationally

  • Businesses continue to face uncertainty after Britain's exit from the European Union

  • Will the economy go into recession?

  • Will energy prices continue to rise?

  • What will happen to interest rates?

  • How will rivals react to a new product launch?

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