The Market (Edexcel A Level Business)

An Introduction to Marketing

• 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

Mass Markets & Niche Markets

The characteristics of markets

• 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

Characteristics of Mass Markets & Niche Markets

Market Size & Market Share

• 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:

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

Some famous brands

• 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

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 & Uncertainty

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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