Marketing & Markets (DP IB Business Management)

Revision Note

Flashcards

An Introduction to Marketing

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

    • Different markets have different 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 to be 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 the process of systematically gathering data from consumers, which can be used to influence business decisions

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

Market Orientation Versus Product Orientation

  • Product orientation is an approach to marketing that focuses on the characteristics of the product rather than the needs of the consumer

    • The emphasis will be on creating a product first and then finding a market

    • The business has a belief that the product is superior i.e. it will sell itself

    • One problem with being too product orientated is that over time your business may move further and further away from what the market is looking for, thus increasing the risk of business failure

    • E.g. Gillette's razors can be classed as a product oriented business as the business focuses on the quality of its products and regular innovations aim to increase sales  

Diagram: tools of product orientation

Product orientation is an approach often used by inventors who research, test and produce a product well before market research has taken place
Product orientation is an approach often used by inventors who research, test and produce a product well before market research has taken place
  • Market orientation is an approach to marketing that focuses on the needs of consumers and uses this information to design products that meet those needs 

    • Consumers are at the centre of marketing decisions

    • Products will be developed which respond to consumer needs

    • The result of market orientation is that the firm will benefit from increased demand, increased profits, and a valued brand image as its products become more desirable 

    • E.g. Universities often develop new courses based on the feedback they receive from students and employers 

Diagram: tools of market orientation

Market orientation aims to develop products to meet consumer needs identified during the market research process
Market orientation aims to develop products to meet consumer needs identified during the market research process

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 is expressed as a percentage and is 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]

 Answer:

Step 1: Identify annual sales of Starbucks Coffee

   £328m            [1 mark]

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

£4.6bn [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 

  • If market growth is

    • Positive, the market is getting bigger (expanding) 

    • Negative, the market is getting smaller (contracting)

  • Market growth is expressed as a percentage and calculated using the formula

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
 

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]

Answer:

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

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.

Niche Markets & Mass Markets

  • 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

  • In mass markets, products are aimed at broad  market segments e.g. Kellogg's Cornflakes 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

Characteristics of  Niche Markets & Mass Markets

Niche Markets

Mass Markets

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

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

  • 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 margins 

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

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

  • 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 

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