IBBusinessDPBusiness ManagementHLRevision Notes4. Marketing4.1 Introduction to MarketingMarket Share & Growth

Market Share & Growth (DP IB Business Management)

Revision Note

Flashcards
Lisa Eades

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 as a proportion of the size of the market as a whole

    • E.g. Tesco has 26% of the UK grocery market

  • Market share can be calculated using the formula

fraction numerator Sales space of space straight a space business space open parentheses volume space or space value close parentheses over denominator Market space size space space stretchy left parenthesis volume space or space value stretchy right parenthesis end fraction space cross times space 100 

  • An increase in market share can indicate that a business has made effective use of marketing strategies to increase sales and gain customers from competitors

Worked Example

In 2022 the UK coffee shop/cafe market was worth £4.6bn. Sales of Starbucks Coffee were £328m in 2022.

Using the data calculate, to 2 decimal places, the market share of Starbucks Coffee in the coffee shop/café market. You are advised to show your workings.

[4 marks]

 Step 1: Identify annual sales of Starbucks Coffee

   £328 m            

[1 mark]

Step 2: Identify the total size of the coffee shop/cafe market

£4.6 bn

[1 mark]

Step 3: Substitute figures into the formula

              fraction numerator Sales space of space straight a space business over denominator Market space size end fraction space cross times space 100 equals fraction numerator space £ 328 straight m over denominator £ 4.6 bn end fraction space cross times space 100

[1 mark]
 

Step 4: Present the answer to two decimal places

       7.13 %

[1 mark] 

Examiner Tip

By providing the formula and showing your working out, even if you do not get the right answer you will still be able to gain some marks.

Market Growth

  • Market growth is the increase in the overall size, value or volume of a market over a period of time, usually expressed as a percentage

    • This metric considers the size of the whole market/industry as opposed to a single firm's share of the market

  • Some common ways to measure market growth include sales revenue, sales volume or the number of customers

  • Market growth is calculated using the formula
     

begin mathsize 14px style Market space growth space equals space fraction numerator This space year apostrophe straight s space market space sales space minus space Last space year apostrophe straight s space market space sales over denominator Last space year apostrophe straight s space market space sales end fraction space straight x space 100 end style
 

  • If the growth rate is positive the market is getting bigger (expanding)

  • If the growth rate is negative the market is getting smaller (contracting)

Worked Example

In 2021 worldwide sales of plug-in hybrid vehicles was 1.94 million units. By 2022 sales had increased to 2.84 million units.

Calculate the rate of market growth in the plug-in hybrid vehicles market.

[2 marks]

Step 1 - Deduct 2021's sales from 2022's sales

2.84 space million space minus space 1.94 space million space equals space 0.90 space million

Step 2 - Divide the outcome by 2021's sales

fraction numerator 0.90 space million over denominator 1.94 space million end fraction space equals space 0.4639

[1 mark]

Step 3 - Multiply the outcome by 100 to find the percentage growth rate

0.4639 space cross times space 100 space equals space 46.39 percent sign 

[1 mark]

  • Market growth provides an incentive for businesses looking to expand, increase sales and generate higher revenue

  • Businesses are often attracted to the potential of growing markets - and they can become increasingly competitive quite rapidly

Diagram: reasons for market growth

Reasons why a market grows include media attention, increased demand for products, advances in technology, favourable economic conditions, changes in tastes and preferences, and population growth
Market growth can vary significantly across industries and can occur for a range of reasons

Examiner Tip

You may be asked to calculate the sales in a market given a certain growth rate. In simple terms you are being asked to calculate a percentage increase.

For example, in 2022 a niche market had total sales of $850,000. This was expected to grow by 15% in 2023.

  • To calculate expected market sales in 2023 you must first find 15% of $850,000:

0.15 space cross times space $ 850 comma 000 space equals space $ 127 comma 500

  •  Then add this amount to 2022's sales:

$ 850 comma 000 space plus space $ 127 comma 500 space equals space $ 977 comma 500

So, with a market growth rate of 15%, market sales in 2023 are predicted to be $977,500.

Market Leadership

  • Market leadership is a businesses ability to maintain the largest share of a specific market or industry

    • It can refer to a product, brand or organisation

    • It is a key way to measure business success

  • Most industries are dominated by a small number of large businesses that control a large proportion of market share

    • These markets are called oligopolies

    • Market concentration measures how competitive these markets are

      • A high market concentration is where market leaders have a very high combined market share

        • These markets are not very competitive

        • Examples include energy supply and textbook publishing

      • A low market concentration is where market share is spread across market leaders and smaller competitors

        • These markets tent to be more competitive

        • Examples include UK supermarkets and travel agencies

  • Market leadership has several important advantages
     

Advantages of Market Leadership

Advantage

Explanation

Brand Recognition

  • Market leaders are often the most recognised and trusted brands in their industry

  • This can lead to customer loyalty, being the buying preference and long product life cycles

  • It also provides opportunities for upselling

  • In 2022, three out of ten of the the UK's top confectionery products were sold by market leader Cadbury 

Economies of Scale

  • Market leaders usually make and sell greater quantities than rivals

  • Greater scale lowers production costs and can lead to higher profit margins

  • Economies of scale allow Swedish furniture retailer IKEA to sell its vast range of homeware and lifestyle products at significantly lower prices than competitors

Innovation and Resources

  • Market leaders typically have finance to invest in research and development

  • This allows them to innovate to stay ahead of competitors

  • In 2022, Apple spent around $3bn more than its closest rival Huawei on research and development

Distribution Channels

  • Leading companies usually have significant presence in major retailers

  • This makes it easier for to reach customers and expand their market presence

  • In November 2023, Heinz's new pickle-flavoured ketchup was launched in more than 4,000 Tesco stores across the UK

Competitive Advantage

  • Market leaders may have a competitive advantage in terms of cost, quality or technology

  • This makes it difficult for competitors to catch up

  • Amazon is expanding its Prime Air drone delivery service to the UK and Italy in 2014, allowing some customers to receive orders within one hour

Attractive to highly-qualified job applicants

  • Employees feel proud to be associated with the brand

  • High quality Human Resources can provide a competitive advantage

  • Large, market-leading businesses such as Google often rank highly in employee satisfaction surveys

  • Market leaders often face significant pressure

    • To maintain high market share by repeating successes

      • As a leading high street retailer, M&S's progress is keenly watched by the media and shareholders 

    • To see off challenges from competitors

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    Lisa Eades

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