1.3 Introducing the market
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.
Effective demand – the intent of people who want to buy a product and have the means. Demand comes from the individual consumers of goods and services, and assuming that they are rational, they maximise their satisfaction.
There is an inverse relationship between price and quantity demanded, which means as price goes up, quantity demanded goes down, which is shown by the demand curve.
A change in the price causes a movement along the demand curve.
A shift in the demand curve is caused by any factor other than price.
o Substitutes are goods that can be consumed in place of another, if the price of the
original good goes up then sales of the substitute will rise, shifting the demand curve
to the right.
oComplements are products that will usually be consumed together, if a good
increases in price, then its complement will have the demand curve move to the left
and vice versa.
oTastes/fashions and how they change. Preferences for a certain good over time will
cause demand for that good to change can move the demand curve: to the right with
an increase in demand and vice versa.
o Changes in real inincomes also affect demand, usually as income increases quantity
demanded for most products go up and vice versa, these are known as normal goods. Some goods work in the opposite way, they are inferior goods and are usually cheaper substitutes which are usually chosen when incomes fall.
o Changes in the demographic (size and age distribution of the population) as population increases or decreases, so does demand for most products and as the structure of the population changes so will increase demand for certain products, e.g. if there is an aging population then demand for care homes will increase.
o Advertising is meant to cause people to buy more and is intended to shift the demand curve to the right, which works similarly to branding which works by reinforcing and increasing knowledge of the brand.
These can be remembered by the following acronym:
Supply – the amount of a good or service that producers are willing and able to provide, at a given price, at a given time.
Individual supply – supply of a single producer of a certain good or service.
Market supply – the total output of all individual suppliers of a particular good or service. Law of supply the higher the price paid, the more is supplied (more profit).
There is a direct relationship between quantity supplied and the price, so as the price increases, so does the quantity supplied.
A change in the price causes a movement along the supply curve.
A shift in the supply curve is caused by any factor other than price.
o Changes in the cost ofraw materials, which increase the costs of production and
shifts the supply curve upwards and to the left. This is because as profits decrease,
suppliers are less willing to make products as it is less profitable.
o Changes in thewages paid to staff also add to the costs of production which also
moves the supply curve to the left.
o Changes in theclimatic conditions which affect the production of the goods/services
can reduce or increase supplies depending on the weather conditions causing les raw
materials to be available etc.
o The number ofnew firms that join the market changes the output of the market, as
more firms produce the good/service, it will shift the supply curve to the right. As an industry shrinks the supply curve shifts to the left, both of which are long-term changes.
o Indirect taxes also affect the supply curve as if the government intervenes, it is often to cut consumption and/or raise (government) revenue. An increase on the tax on a product shifts to the left and in effect increases the costs for the producer, which they may pass on to consumer.
o The introduction of new technology allows the firms to produce a given item at a lower price and cut costs of production.
o Subsidies are payments made to a producer by the government in order to encourage production as it lowers their cost of production and makes them more willing and able to produce more.
These can be remembered using the following phrase:
Raw materials Wages Climate conditions New firms Tax Technology Subsidies
Why does the supply curve slope upwards?
High prices encourage new firms to enter the market because it seems profitable, so total supply increases.
With larger outputs, firm’s costs increase so they need to charge a higher price to cover the costs.
1.3.3 Price determination
When the demand and supply curves are brought together on the same diagram, there is a
point at which the curves cross each other. This is known as equilibrium.
Equilibrium – the point at which consumers will demand the exact amount that is supplied. All that is produced by suppliers is bought by consumers.
There will be no unsold goods and we say that the market clears as surpluses and shortages are eroded away which allows them to arrive at a equilibrium price at which market clearing occurs.
Equilibrium price – the price at which there are no shortages or surpluses.
The ideal or market price occurs at the intersection of demand and supply.
The interaction of supply and demand determines the prices and quantities of the economy’s goods and services.
In market economies prices are the signals that guide allocation of resources for suppliers.
When there is excess demand, there is a shortage of that particular good/service.
This occurs when demand is higher than supply.
The price needs to be increased, causing the demand to lower as not everyone can afford a higher price until a new equilibrium is reached
When there is excess supply, there is a surplus of that particular good/service.
This occurs when supply is higher than demand.
The price needs to be decreased so that more people are willing to buy a cheaper product, and this happens until a new equilibrium is reached.
o Diagrams only show what happens in certain markets e.g. in competitive markets where there are many buyers.
o It assumes that when making economic decisions, that business have complete knowledge whereas in real life this is often not the case.
o Some markets/products do not reduce in demand if the prices increase e.g. designer clothes/ticket prices.
o There is an assumption that if price falls, demand increases which is not always the case in real life.
o Brand loyalty is a factor which is not taken into account.
o Supply curves assume that as prices rise, suppliers will produce more which is not
always the case as suppliers may not have sufficient resources to do so.
o Consumers are not always rational e.g. despite the fact that products are cheaper
after Christmas, consumers still buy before Christmas when prices are high.
CETERIS PARIBUS (all other things being equal)
When we look at supply in the market, we assume demand stays the same.
Demand and supply might change at the same time which diagrams do not take into
account.
The price mechanism is an automatic process to bring market into equilibrium.
Eg: Oil becomes scarce, the Price mechanism allows alternatives to be found.
→ Prices help to ration demand
→If something is too expensive, we are reluctant to buy it.
→ Stops demand outstripping supply
→ Consumers have cheaper noises to motivate us to buy
→Firms have higher prices, motivate them to supply (profit)
→Prices help to attract new firms to the the market where resources are needed
→Invisible hand
→Can deter them from the market where prices are lower+Resources aren’t needed
Eg: Blockbuster Video→Pizza Bar
Rational→ Higher prices for premium quality and specialty coffee indicates the precedes of the rationing function.
Incentive→ High prices act as an incentive to produce in other markets to leave those markets and move to those with higher prices, because of the products that can be made Eg. Smartphones
Signalling→High Prices attract to producer to the market → Profit incentive
Rising prices→Rising Demand→Firms INCREASE output and so increases profit margin
Falling prices→Falling demand→So firms should cut prices and reduce output or come up with new products.
Mass Market→A large market with a high sales volume. Tends to be a standardised product Eg; Cadbury Diary Milk
Niche Market→Small segment of a bigger market Eg: Organic Food or Gothic Clothing
Low Competition→A higher price can be charged→Increased profit
Market Size→The total sales volume of a given market
Market Growth→Increase in demand for a product due to rising incomes/population, better substitutes or the product becomes cheaper
Dynamic Market→Changing and evolving all the time
Static Markets→Little Change
New Technologies→Cheaper or Better Products→Increased Sales and Profit→Business invest in research and process innovation.
Market Change→Not static (some grow, some shrink)
-Factors that affect the market: Technology + Consumer tastes
New technologies are developed→New products are created and demand grows → Increased sales and more jobs created→ Over time better substitutes are created so consumers switch to these→ Jobs are now lost the declining industry.
When new innovative products cause the destruction of others.
Market Share→The percentage of a market’s total sales that a particular business has.
(Individual business sales/ Total Market Sales) x 100
Gathering and analysing market research.
Eg:
-Finding out consumer preferences
-Who is your target market?
-Style of packaging preferred
-Frequency of purchase?
-Is there a need or want?
-Competitors?
-Price?
First Hand Info→Collected by the business itself or a specialist agency on behalf of the business (New Data)
Surveys→ Based on questions but also involve the process of collecting and analysing the participant responses. (ANALYSE)
Eg. Online surveys + Postal Survey + Focus Group + Interviews + Test Marketing
Questionnaire→ Written set of questions aimed at collecting information about individuals. (GATHER INFORMATION)
Observations→Watching customers’ routes taken around the store and aiming to spot patterns and trends.
Test Marketing→Trialing product with customers before launch→Gain real date
Benefits of Primary Market Research:
→Focused Eg: Interview or Focused Group
→Detailed insights Eg: Does a display/Promotion increase sales
→Up to date
Drawbacks of Primary Market Research:
→Time Consuming=
→Costly
→Bias view might not represent the population
→Not available to other competitors
Research that had previously been carried out for a different purpose.
Government Statistics (Free) → Census (Survey of households in the UK every 10 years)
National Statistics→Shows spending on products over time.
Market Research reports→ Carried out by market companies → Expensive but specific
Trade Publications produce specialist market reports
Digital Sales Data→From Debit Card Sales
Benefits of Secondary Market Research:
→Often free and easy to obtain
→Good source of market insights
→Quick to access and use
Drawbacks of Secondary Market Research:
→Can quickly become out of date
→Not always tailored to specific research needs
→Specific reports often quite expensive
QuaNtitative Information→Market Research that gives numerical results and so can be analysed statistically (yes/no) N→Numerical
Easy to analyse
Large sample
Limited info (Don’t know why)
Qualitative Information → Market Research giving results are based on opinions and feelings (more in-depth) Eg: How does this advert make you feel? (Personal opinions)
More difficult to analyse
In-depth Info
To gather market research, a representative group is chosen to survey.
Idea→This will represent the whole population
Types:
Random Sampling→ Everyone has an equal chance of participation
Eg: Electoral Register → Every 100th name→Send to post address
Hard to obtain a random samples
Quota Sample→A sample is chosen that reflects the distribution of different groups in society
Eg: 20% of population is between 20-30, so if doing a 1000 surveys, 20% will be in that age group
Takes longer
More difficult
More Specific
Stratified Sampling→A selection of people are randomly chosen within a set-group
Sub-group was known as' ‘strata’.
Eg: students aged 18-22
Blind Tests
Eg: As part of a taste test can give very inaccurate results→Ignore brand loyalty
Eg: Coca Cola Taste Tests
Smaller samples of Research may have bias and not represent views of the whole population.
Survey Questions may not be easily understood or may only be quantitative
Some markets change very quickly Eg: Technology Products
So market research can quickly be understood
Difficult and costly to obtain for small business.
As different buyers require different products and marketing approaches, businesses can target each segment by adapting products and advertising to best suit/fit each segment.
Age, Gender, socio-economic group, geographical area, religion, ethnicity, education level, hobbies, family size.
Age→Clothing shops
Eg: Next→Older
Zara→ Younger
Income Group→Cars
Eg: Citroen→Lower Income
Porsche→Higher income
Family Size→Cars
Eg: Estate Cars→Larger families
Smarter Cars→1/2 People
Geographic Area
Clothing→Coats/Scarves/Kilts→Scotland
Cars→Country (4x4)
More precisely a segment can identified→More likely to create sales
Particular products are targeted at particular people→Less hate of resources+time
Encourages development of brand loyalty and so can develop USP to suit specific buyers
Helps select appropriate pricing and advertising.
Segmentation is very stereo typical as not everyone behaves the same way.
Can be costly and time consuming
More difficult to develop standardised products for different people.
Opportunity costs
Socio Economic Groups: Determines how people spend money
A = Higher Managerial and professional occupations
B = Lower Managerial and Professional occupations
C 1 = Supervisory, clerical, junior managerial
C 2 = Skilled manual workers technical occupations
D = Semi-skilled and unskilled manual workers
E = State Pensioners + Casual Workers
Problems with the social grading to segment market:
Classifies an entire household on the occupation of a single individual
It can’t classify some groups (wealthy who do not work)
It contains no information about the size or structure of households
Very stereotypical and generalised
It’s too broad a classification
-Assess level of competitors
-Identify gap in the market
-Identify saturated market areas
-Inform Pricing strategy
-Select labels of the grid that suit their product
-Firm select labels of the grid that suit the product
-High Price vs Low price
-Simple vs Complex
-Low Tech vs High Tech
-Basic Quality vs High Quality
-Necessity vs Luxury
A product needs to be positioned correctly in order to gain/maximise sales (ie: When there is a gap in the market)
Aim=Create profitable opportunity
Definition
Identifies market gaps (KN) →Lead to a good sales opportunity due to less competitors ^^(AN)^^→Higher Chance of success (Expand point) However, there may be a good reason (eg:high price or low quality) why a ‘gap’ has not been taken as there would be no demand ^^(EV)
^^Helps the business with its pricing strategy (KN) →Look at competitors in your group/section and price slighlty below in order to entrice customers →Increased demand (AN) but maybe many established brands so sales won’t increase ^^(EV)
Advantages:
-Helps spot gaps in the market
-Useful for analysing competitors
-Encourages use of market research
Disadvantages:
-Just because there is a ‘gap’ doesn’t mean there is a demand-Eg:High Price, low quality
-Can be time consuming and products can change especially in dynamic market which reduces reliability of map (Tech)
-Not a guarantee of success
-How reliable is market research→Out of date?
→ANY FEATURE OF A BUSINESS THAT ENABLES IT TO COMPETE EFFECTIVELY WITH RIVAL PRODUCTS.
Somehting that give a business an edge over rivals by offering consumers greater value (lower prices) or greater benefits (better service) that justifies higher prices.
Advantages :
Increases customer loyalty so more certainty over sales→Reduces Competition
The business can charge a higher price.
Eg:
Lower Prices→ eg: Aldi
Brand → eg: Nike, Coca Cola
Quality → eg: Thorntons chocolate, Yankee Candle
Performance →eg: Expensive cars
→DESIGNING/MAKING THE PRODUCT STAND OUT FROM OTHER PRODUCTS (USING A TECHNIQUE/PROCESS) Eg: Coca Cola Life (Different Ingredients)
Advantages of Product Differentiation:
Increases customer loyalty so more certainty over sales
Reduces Competition
The business can charge a higher price.
Disadvantages of Product Differentiation:
May cost more to make/produce
May have competitors entering the market→Might need a patent
Time consuming
Hard to employ specialised workers.
Eg:
After Eight Mints → Distinctive Design and Purpose
Polo Mint → Design
Creating worth (value) to a product above its cost of production
How to add value?
Packaging→ Good Impression + Better Quality
Advertising→Creates interest in product and initiates desire to buy
Image→Created by advertising eg: Coca Cola-’drinking it will change your life’
Branding→Creates an image and status (Brand have more status and rich brand)
Convenience→ Vending
Why add value?
Differentiate the product→Charge a higher price
Survive Financially
Focus on a market segment (Type of customer)
Eg:
Pizza Venders:
-Hygienic
-Convenient
-Accessible
-Cheap to produce
Competitor Prices
Strength of brand
Covering costs
Profit margin
Objectives of business (Eg: Cost Leaders → Cheap price)-Differentiation→ Higher Price (Eg: Apple)
Perceived value (Brand)
Position in market → Market leader can charge more
Added Value→ Charge more
Fact: Producing on a large scale usually reduces costs eg: In a factory
Economics of Scale: Makes a lol of products in the time→ Cheaper unit (individual costs)
If more items are produced costs fall (Eg: By sing machines)
Unit Cost of one item/product.
Theoretical: Produce products until the marginal cost (next product) is equal to the revenue (money).
o Think about apple picking→ Apples at the top are tricky to pick.
Static/Stable and Dynamic Markets
Stable-Pace of change is slow, market size and share quite constant, little variation in price
Dynamic-Rapid change in demand (affecting by change in income and taste), new entrants to market changes) Can be creative destruction
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.
Effective demand – the intent of people who want to buy a product and have the means. Demand comes from the individual consumers of goods and services, and assuming that they are rational, they maximise their satisfaction.
There is an inverse relationship between price and quantity demanded, which means as price goes up, quantity demanded goes down, which is shown by the demand curve.
A change in the price causes a movement along the demand curve.
A shift in the demand curve is caused by any factor other than price.
o Substitutes are goods that can be consumed in place of another, if the price of the
original good goes up then sales of the substitute will rise, shifting the demand curve
to the right.
oComplements are products that will usually be consumed together, if a good
increases in price, then its complement will have the demand curve move to the left
and vice versa.
oTastes/fashions and how they change. Preferences for a certain good over time will
cause demand for that good to change can move the demand curve: to the right with
an increase in demand and vice versa.
o Changes in real inincomes also affect demand, usually as income increases quantity
demanded for most products go up and vice versa, these are known as normal goods. Some goods work in the opposite way, they are inferior goods and are usually cheaper substitutes which are usually chosen when incomes fall.
o Changes in the demographic (size and age distribution of the population) as population increases or decreases, so does demand for most products and as the structure of the population changes so will increase demand for certain products, e.g. if there is an aging population then demand for care homes will increase.
o Advertising is meant to cause people to buy more and is intended to shift the demand curve to the right, which works similarly to branding which works by reinforcing and increasing knowledge of the brand.
These can be remembered by the following acronym:
Supply – the amount of a good or service that producers are willing and able to provide, at a given price, at a given time.
Individual supply – supply of a single producer of a certain good or service.
Market supply – the total output of all individual suppliers of a particular good or service. Law of supply the higher the price paid, the more is supplied (more profit).
There is a direct relationship between quantity supplied and the price, so as the price increases, so does the quantity supplied.
A change in the price causes a movement along the supply curve.
A shift in the supply curve is caused by any factor other than price.
o Changes in the cost ofraw materials, which increase the costs of production and
shifts the supply curve upwards and to the left. This is because as profits decrease,
suppliers are less willing to make products as it is less profitable.
o Changes in thewages paid to staff also add to the costs of production which also
moves the supply curve to the left.
o Changes in theclimatic conditions which affect the production of the goods/services
can reduce or increase supplies depending on the weather conditions causing les raw
materials to be available etc.
o The number ofnew firms that join the market changes the output of the market, as
more firms produce the good/service, it will shift the supply curve to the right. As an industry shrinks the supply curve shifts to the left, both of which are long-term changes.
o Indirect taxes also affect the supply curve as if the government intervenes, it is often to cut consumption and/or raise (government) revenue. An increase on the tax on a product shifts to the left and in effect increases the costs for the producer, which they may pass on to consumer.
o The introduction of new technology allows the firms to produce a given item at a lower price and cut costs of production.
o Subsidies are payments made to a producer by the government in order to encourage production as it lowers their cost of production and makes them more willing and able to produce more.
These can be remembered using the following phrase:
Raw materials Wages Climate conditions New firms Tax Technology Subsidies
Why does the supply curve slope upwards?
High prices encourage new firms to enter the market because it seems profitable, so total supply increases.
With larger outputs, firm’s costs increase so they need to charge a higher price to cover the costs.
1.3.3 Price determination
When the demand and supply curves are brought together on the same diagram, there is a
point at which the curves cross each other. This is known as equilibrium.
Equilibrium – the point at which consumers will demand the exact amount that is supplied. All that is produced by suppliers is bought by consumers.
There will be no unsold goods and we say that the market clears as surpluses and shortages are eroded away which allows them to arrive at a equilibrium price at which market clearing occurs.
Equilibrium price – the price at which there are no shortages or surpluses.
The ideal or market price occurs at the intersection of demand and supply.
The interaction of supply and demand determines the prices and quantities of the economy’s goods and services.
In market economies prices are the signals that guide allocation of resources for suppliers.
When there is excess demand, there is a shortage of that particular good/service.
This occurs when demand is higher than supply.
The price needs to be increased, causing the demand to lower as not everyone can afford a higher price until a new equilibrium is reached
When there is excess supply, there is a surplus of that particular good/service.
This occurs when supply is higher than demand.
The price needs to be decreased so that more people are willing to buy a cheaper product, and this happens until a new equilibrium is reached.
o Diagrams only show what happens in certain markets e.g. in competitive markets where there are many buyers.
o It assumes that when making economic decisions, that business have complete knowledge whereas in real life this is often not the case.
o Some markets/products do not reduce in demand if the prices increase e.g. designer clothes/ticket prices.
o There is an assumption that if price falls, demand increases which is not always the case in real life.
o Brand loyalty is a factor which is not taken into account.
o Supply curves assume that as prices rise, suppliers will produce more which is not
always the case as suppliers may not have sufficient resources to do so.
o Consumers are not always rational e.g. despite the fact that products are cheaper
after Christmas, consumers still buy before Christmas when prices are high.
CETERIS PARIBUS (all other things being equal)
When we look at supply in the market, we assume demand stays the same.
Demand and supply might change at the same time which diagrams do not take into
account.
The price mechanism is an automatic process to bring market into equilibrium.
Eg: Oil becomes scarce, the Price mechanism allows alternatives to be found.
→ Prices help to ration demand
→If something is too expensive, we are reluctant to buy it.
→ Stops demand outstripping supply
→ Consumers have cheaper noises to motivate us to buy
→Firms have higher prices, motivate them to supply (profit)
→Prices help to attract new firms to the the market where resources are needed
→Invisible hand
→Can deter them from the market where prices are lower+Resources aren’t needed
Eg: Blockbuster Video→Pizza Bar
Rational→ Higher prices for premium quality and specialty coffee indicates the precedes of the rationing function.
Incentive→ High prices act as an incentive to produce in other markets to leave those markets and move to those with higher prices, because of the products that can be made Eg. Smartphones
Signalling→High Prices attract to producer to the market → Profit incentive
Rising prices→Rising Demand→Firms INCREASE output and so increases profit margin
Falling prices→Falling demand→So firms should cut prices and reduce output or come up with new products.
Mass Market→A large market with a high sales volume. Tends to be a standardised product Eg; Cadbury Diary Milk
Niche Market→Small segment of a bigger market Eg: Organic Food or Gothic Clothing
Low Competition→A higher price can be charged→Increased profit
Market Size→The total sales volume of a given market
Market Growth→Increase in demand for a product due to rising incomes/population, better substitutes or the product becomes cheaper
Dynamic Market→Changing and evolving all the time
Static Markets→Little Change
New Technologies→Cheaper or Better Products→Increased Sales and Profit→Business invest in research and process innovation.
Market Change→Not static (some grow, some shrink)
-Factors that affect the market: Technology + Consumer tastes
New technologies are developed→New products are created and demand grows → Increased sales and more jobs created→ Over time better substitutes are created so consumers switch to these→ Jobs are now lost the declining industry.
When new innovative products cause the destruction of others.
Market Share→The percentage of a market’s total sales that a particular business has.
(Individual business sales/ Total Market Sales) x 100
Gathering and analysing market research.
Eg:
-Finding out consumer preferences
-Who is your target market?
-Style of packaging preferred
-Frequency of purchase?
-Is there a need or want?
-Competitors?
-Price?
First Hand Info→Collected by the business itself or a specialist agency on behalf of the business (New Data)
Surveys→ Based on questions but also involve the process of collecting and analysing the participant responses. (ANALYSE)
Eg. Online surveys + Postal Survey + Focus Group + Interviews + Test Marketing
Questionnaire→ Written set of questions aimed at collecting information about individuals. (GATHER INFORMATION)
Observations→Watching customers’ routes taken around the store and aiming to spot patterns and trends.
Test Marketing→Trialing product with customers before launch→Gain real date
Benefits of Primary Market Research:
→Focused Eg: Interview or Focused Group
→Detailed insights Eg: Does a display/Promotion increase sales
→Up to date
Drawbacks of Primary Market Research:
→Time Consuming=
→Costly
→Bias view might not represent the population
→Not available to other competitors
Research that had previously been carried out for a different purpose.
Government Statistics (Free) → Census (Survey of households in the UK every 10 years)
National Statistics→Shows spending on products over time.
Market Research reports→ Carried out by market companies → Expensive but specific
Trade Publications produce specialist market reports
Digital Sales Data→From Debit Card Sales
Benefits of Secondary Market Research:
→Often free and easy to obtain
→Good source of market insights
→Quick to access and use
Drawbacks of Secondary Market Research:
→Can quickly become out of date
→Not always tailored to specific research needs
→Specific reports often quite expensive
QuaNtitative Information→Market Research that gives numerical results and so can be analysed statistically (yes/no) N→Numerical
Easy to analyse
Large sample
Limited info (Don’t know why)
Qualitative Information → Market Research giving results are based on opinions and feelings (more in-depth) Eg: How does this advert make you feel? (Personal opinions)
More difficult to analyse
In-depth Info
To gather market research, a representative group is chosen to survey.
Idea→This will represent the whole population
Types:
Random Sampling→ Everyone has an equal chance of participation
Eg: Electoral Register → Every 100th name→Send to post address
Hard to obtain a random samples
Quota Sample→A sample is chosen that reflects the distribution of different groups in society
Eg: 20% of population is between 20-30, so if doing a 1000 surveys, 20% will be in that age group
Takes longer
More difficult
More Specific
Stratified Sampling→A selection of people are randomly chosen within a set-group
Sub-group was known as' ‘strata’.
Eg: students aged 18-22
Blind Tests
Eg: As part of a taste test can give very inaccurate results→Ignore brand loyalty
Eg: Coca Cola Taste Tests
Smaller samples of Research may have bias and not represent views of the whole population.
Survey Questions may not be easily understood or may only be quantitative
Some markets change very quickly Eg: Technology Products
So market research can quickly be understood
Difficult and costly to obtain for small business.
As different buyers require different products and marketing approaches, businesses can target each segment by adapting products and advertising to best suit/fit each segment.
Age, Gender, socio-economic group, geographical area, religion, ethnicity, education level, hobbies, family size.
Age→Clothing shops
Eg: Next→Older
Zara→ Younger
Income Group→Cars
Eg: Citroen→Lower Income
Porsche→Higher income
Family Size→Cars
Eg: Estate Cars→Larger families
Smarter Cars→1/2 People
Geographic Area
Clothing→Coats/Scarves/Kilts→Scotland
Cars→Country (4x4)
More precisely a segment can identified→More likely to create sales
Particular products are targeted at particular people→Less hate of resources+time
Encourages development of brand loyalty and so can develop USP to suit specific buyers
Helps select appropriate pricing and advertising.
Segmentation is very stereo typical as not everyone behaves the same way.
Can be costly and time consuming
More difficult to develop standardised products for different people.
Opportunity costs
Socio Economic Groups: Determines how people spend money
A = Higher Managerial and professional occupations
B = Lower Managerial and Professional occupations
C 1 = Supervisory, clerical, junior managerial
C 2 = Skilled manual workers technical occupations
D = Semi-skilled and unskilled manual workers
E = State Pensioners + Casual Workers
Problems with the social grading to segment market:
Classifies an entire household on the occupation of a single individual
It can’t classify some groups (wealthy who do not work)
It contains no information about the size or structure of households
Very stereotypical and generalised
It’s too broad a classification
-Assess level of competitors
-Identify gap in the market
-Identify saturated market areas
-Inform Pricing strategy
-Select labels of the grid that suit their product
-Firm select labels of the grid that suit the product
-High Price vs Low price
-Simple vs Complex
-Low Tech vs High Tech
-Basic Quality vs High Quality
-Necessity vs Luxury
A product needs to be positioned correctly in order to gain/maximise sales (ie: When there is a gap in the market)
Aim=Create profitable opportunity
Definition
Identifies market gaps (KN) →Lead to a good sales opportunity due to less competitors ^^(AN)^^→Higher Chance of success (Expand point) However, there may be a good reason (eg:high price or low quality) why a ‘gap’ has not been taken as there would be no demand ^^(EV)
^^Helps the business with its pricing strategy (KN) →Look at competitors in your group/section and price slighlty below in order to entrice customers →Increased demand (AN) but maybe many established brands so sales won’t increase ^^(EV)
Advantages:
-Helps spot gaps in the market
-Useful for analysing competitors
-Encourages use of market research
Disadvantages:
-Just because there is a ‘gap’ doesn’t mean there is a demand-Eg:High Price, low quality
-Can be time consuming and products can change especially in dynamic market which reduces reliability of map (Tech)
-Not a guarantee of success
-How reliable is market research→Out of date?
→ANY FEATURE OF A BUSINESS THAT ENABLES IT TO COMPETE EFFECTIVELY WITH RIVAL PRODUCTS.
Somehting that give a business an edge over rivals by offering consumers greater value (lower prices) or greater benefits (better service) that justifies higher prices.
Advantages :
Increases customer loyalty so more certainty over sales→Reduces Competition
The business can charge a higher price.
Eg:
Lower Prices→ eg: Aldi
Brand → eg: Nike, Coca Cola
Quality → eg: Thorntons chocolate, Yankee Candle
Performance →eg: Expensive cars
→DESIGNING/MAKING THE PRODUCT STAND OUT FROM OTHER PRODUCTS (USING A TECHNIQUE/PROCESS) Eg: Coca Cola Life (Different Ingredients)
Advantages of Product Differentiation:
Increases customer loyalty so more certainty over sales
Reduces Competition
The business can charge a higher price.
Disadvantages of Product Differentiation:
May cost more to make/produce
May have competitors entering the market→Might need a patent
Time consuming
Hard to employ specialised workers.
Eg:
After Eight Mints → Distinctive Design and Purpose
Polo Mint → Design
Creating worth (value) to a product above its cost of production
How to add value?
Packaging→ Good Impression + Better Quality
Advertising→Creates interest in product and initiates desire to buy
Image→Created by advertising eg: Coca Cola-’drinking it will change your life’
Branding→Creates an image and status (Brand have more status and rich brand)
Convenience→ Vending
Why add value?
Differentiate the product→Charge a higher price
Survive Financially
Focus on a market segment (Type of customer)
Eg:
Pizza Venders:
-Hygienic
-Convenient
-Accessible
-Cheap to produce
Competitor Prices
Strength of brand
Covering costs
Profit margin
Objectives of business (Eg: Cost Leaders → Cheap price)-Differentiation→ Higher Price (Eg: Apple)
Perceived value (Brand)
Position in market → Market leader can charge more
Added Value→ Charge more
Fact: Producing on a large scale usually reduces costs eg: In a factory
Economics of Scale: Makes a lol of products in the time→ Cheaper unit (individual costs)
If more items are produced costs fall (Eg: By sing machines)
Unit Cost of one item/product.
Theoretical: Produce products until the marginal cost (next product) is equal to the revenue (money).
o Think about apple picking→ Apples at the top are tricky to pick.
Static/Stable and Dynamic Markets
Stable-Pace of change is slow, market size and share quite constant, little variation in price
Dynamic-Rapid change in demand (affecting by change in income and taste), new entrants to market changes) Can be creative destruction
