1.1 Meeting Customer Needs Flashcards
What is a market?
Any place where buyers and sellers can meet e.g. amazon.co.uk or a shopping mall
What is the aim of marketing?
To help identify, anticipate and satisfy consumer needs and wants (profitably)
What are needs?
Essentials e.g. shelter, food and water
What are wants?
Desires which are non-essential, even if consumers consider them to be essential e.g. Nike trainers
Why is market research essential for a business?
It helps businesses to identify products and services they can develop in response to the needs and wants that their customers have
What is market research?
The process of collection, analysis and interpretation of data and information about consumers, competitors and the market place
What are the characteristics of a mass market?
Products are less unique as they are aimed at a broader market segment
Low average costs due to large scale production (economies of scale)
This means they can charge lower prices leading to greater affordability and a higher sales volume.
However, low prices lead to lower profit margins
What are the characteristics of niche markets?
Products are more specialised + unique as they are aimed at narrow market segments.
High average costs due to small scale production so 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.
How can the size of a market be measured?
Sales volume or sales value
What is sales volume?
The number of products sold
What is sales revenue?
Price x quantity
How is market share measured?
The proportion of the total sales of a product/service compared to the market as a whole.
How can market share be calculated?
Sales of a business/total sales in the market x 100
What is a brand?
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
What is adding value?
The process by which firms increase the price that the consumer is willing to pay
Why do businesses in mass and niche markets use branding?
Mass: to stand out from competition
Niche: to communicate their offering to a small, well defined group of consumers
Why are strong brands more likely to be able to charge higher prices for their products than weaker brands?
Because the perceived quality of a strong brands product is better than that of weaker brands
What is a dynamic market?
A market that is subject to rapid or continuous change.
Why do businesses adapt?
Because many markets are becoming more competitive, and 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
What does it mean when a business has monopoly power?
That they dominate a market e.g. Amazon
What are the four areas to consider when examining dynamic markets?
- online retailing
- how markets change
- innovation and market growth
- adapting to change
What are the advantages of online retailing for firms and consumers?
Advantages:
- 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 brick and mortal retailers (businesses with a physical presence)
- 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
What are the disadvantages of online retailing for firms and consumers?
Disadvantages:
- 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
- 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
What 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
What is a legislation?
A law passed by Parliament
What is product innovation?
The adaptation or improvement of existing products e.g. improved cameras on laptops
What is process innovation?
The adaptation or improvement of existing processes e.g. just in time stock control
What is market growth?
The measurement of the change in the entire market, expressed as a percentage of the original size
NOTE: the businesses market share does not necessarily increase automatically as the entire market continues to grow.
What can Market growth be caused by?
- increasing population sizes
- increasing incomes
- changing tastes and preferences e.g. growth in the electric car market
What strategies can businesses use to adapt to change?
- 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 (a competitive advantage gained by being the first business to introduce a new product/service to the market.
What is direct competition?
When the business is targeting customers with the same product as a competitor.
What is indirect competition?
When firms sell different products but compete with each other for customers disposable income e.g. cinema and theatre companies
What are the benefits of competition for consumers?
- 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
What is risk?
The potential threat to a businesses 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
(the process of identifying, assessing and preparing for potential threats to business success)
What is uncertainty?
When outcomes are difficult to predict
What are some examples of risks?
- technical failures due to break down of essential equipment
- cyber security threats
Loss of key staff
Currency fluctuations for firms trading internationally
What are some examples of uncertainty?
- Businesses continue to ace 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>
What is a product orientation?
An approach often used by inventors who research, test ad produce a product well before market research has taken place
What is market orientation?
An approach to marketing that focuses on the NEEDS OF CONSUMERS and uses this info to design products that meet customer needs.
- consumers are at the centre of marketing decisions
- products will be developed which respond to consumer needs
What is a problem with being too product orientated?
Overtime the 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 classified as a product-orientated business as the business focuses on the quality of its products and regular innovations aiming to increase sales.
What is the result of market orientation?
The firm will benefit from increased demand, and therefore increased profits. They will also obtain a valued brand image as its products become more desirable
E.g. unis often develop new courses based on the feedback they relieve from students and employers.
What are the tools of product orientation?
- product research
- product testing
- products focus
What are the tools of market orientation?
- market research
- market testing
- customer focus
What is market research?
The objective collection, compilation and analysis of information about a market
What will effective market research help a business do?
- to reduce risk when launching new products or entering new markets
- anticipate future needs and wants of consumers
- to understand consumer behaviour
- to identify potential consumer demand
- to identify how much consumers are prepared to pay
- to identify competitors and estimate their potential strengths and weaknesses
What is quantitative market research?
Numerical data
What is qualitative market research?
Data based on thoughts and opinions
What is primary market research?
The process of gathering information directly from consumers in the target market using field research methods such as surveys, interviews etc
(Gathers information that is new and does not necessarily exist in any format)
What is involved in a survey market research ?
- surveys:
Where you ask a series of questions to a certain number of people (respondents). The results from the ‘sample’ are used to make a conclusion in which the results of the sample are extrapolated (extended) to be true for the wider population
A wide range of respondents can be reached using online survey tools such as surveys monkey
What is involved in observation market research?
This involves hiring someone to stand in an appropriate location and study consumer behaviour in a store or perhaps judge the potential consumer traffic at a particular location.
Researchers may observe the impact of packaging on consumer choice, or the impact that the particular placement of a product in a store may have on consumer choice.
What is involved in interviews for market research?
Questions may be set up in a very similar way to a survey, however, an interviewer asks the questions
This methods TAKES LONGER but does allow the interviewee to ask follow-up questions and gather the information that can easily be missed when conducting surveys
What is involved in test marketing market research?
Free samples are provided for a limited period to the target market to determine their response to the product
What is involved in focus groups market research?
Free range discussions, led by a marketing specialist, detailed feedback is collected from the target market.
Usually limited to a small group of 12-15 people
The group typically meets for 90 minutes to 3 hours
What are the advantages of market research?
Information gathering is focused on the needs of the business and will not be available to its rivals
The business can get in-depth information from respondents, for example, reasons behind certain behaviour
Primary market research is more up-to-date and can be used to ask specific questions, so will be more relevant and specific to the business.
What are the disadvantages of primary market research?
The sample size may be too small and unrepresentative of all of the customers leading to unreliable results
Bias may mean that researchers can guide respondents to answer questions in a particular way. Similarly, respondents may be influenced by the responses of others, or not provide accurate information
A business may need to hire a specialist market research agency to help and the process can be expensive and time-consuming
What is secondary market research and what are some typical methods?
The collection, compilation and analysis of data that already exists
Typical methods include purchasing market reports from specialist companies or accessing government statistical portals which provide useful information
What are the advantages of secondary market research?
Information is already available and so is quicker to collect than primary research, thereby saving time
Information is often free (e.g. government websites and internet sources such as Statista) and is cheaper to collect, leading to lower costs compared to primary research
Suitable for a small business that lacks a large marketing budget and/or expertise
What are the disadvantages of secondary market research?
Information has been collected for other purposes and so may lack relevance or may not be factually correct, e.g. Wikipedia
Can be expensive to purchase market specific secondary data from specialist companies, e.g. MINTEL reports
Information may be out-of-date, especially in dynamic markets
Information will not be specific (tailored) for the business.
How can ICT be used to support market research?
- Company websites
Websites allow businesses to collect primary data cheaply e.g. tracking consumer searches and analysing customer receives, as well as collect secondary data about revivals e.g. prices and special offers - databases
Can be used to store large amounts of customer information e..g Tesco loyalty cards.
Databases are also effective in collecting customer e-mail addresses so targeted customers can be surveyed later via e-mail - social networking
Focuses on gathering information about consumers via online social channels such as twitter and facebook
It is also useful as a method of running quick polls and surveys or tracking opinions about brands
What is market segmentation and an example of it?
The process in which a single market is divided into ‘segments’
Each segment represents a slightly different set of consumer characteristics
Firms often segment their market according to factors such as income, geographical location, religion, gender, or lifestyle
E.g. the crisp market is divided into many market segments such as
- dinner party snacks (walkers, sensations or Pringles)
- health conscious crisps (walkers lite)
- lunch box value snacks (multipacks, hoola hoops)
What are the advantages of market segmentation?
Recognises that consumers are not all identical
Consumer groups do not all share the same tastes and preferences.
Products and marketing activities can be altered to meet different needs of different groups of consumers and targeted more precisely
Less expensive and wasteful than marketing products at wide market segments
May increase loyalty if the consumer feels that their needs are being met, which can lead to repeat purchases
What are the disadvantages of market segmentation?
Not everyone within a segment will behave in the same way
It may be difficult to identify a segment and consumers can belong to multiple segments at the same time
Segmentation requires more detailed market research, which can prove costly - but beneficial - to the business
A segment may be identified but it may be too small and unprofitable to cater for
What is market positioning?
Where the business decides where they want to position their prod out in the market with regard to price, quality, branding, and customer perception
Wha is market mapping and what is it displayed on?
Market mapping is a tool for identifying the position of a product within a market
A market map is a two-dimensional diagram that shows the attributes of characteristics of a product in comparison to rivals’ products.
Only 2 criteria can be chosen e.g. price and quality or age and income, etc.
What does it mean if there are no spaces left on a market map?
The market is saturated, meaning there are no opportunities to exploit a gap in the market.
Competition is likely to be high and profits low.
What does it mean if there is a space on the market map?
May indicate the existence of a gap in the market.
This needs to be researched carefully before the business commits
e.g. it looks like there is a gap in the market in the high price/ low quality area
What are the benefits of market mapping?
Market gaps can be identified which may enable a business to come up with ideas for new products
Comparisons can be made between a business’ products and those of its rivals - where are the business’ products positioned about its rivals?
Market maps are simple to construct and offer a visual illustration of the position of a product in the market
What are the drawbacks of market mapping?
A gap in the market may exist because it is not profitable to fill
Mapping a market may require primary research which can be expensive
Only two criteria can be chosen which may prove too simplistic
Markets are often dynamic and a market map only provides insight at a specific point in time
What is a competitive advantage?
The features of a business and its products that are perceived as superior to its rivals by customers
It is how a firm’s product is made both distinctive and defensible.
Distinctive means that it is different from the competitors
Defensible means that the business can prevent competitors from copying it
What are the methods of adding value?
- marketing and branding
- functions and features
- packaging
- customisation
- customer service
- convenience
- design
- product differentiation
How can a firm gain a competitive advantage?
- innovation, reputation (branding)
- building strong relationships with stakeholders
- adding value (difference between price charged to customer + cost of inputs required)
- differentiation
- market segmentation
- price leadership
What are some examples of businesses having a competitive advantage?
Quality e.g. Audi is well known for the exceptional quality of the finishing inside their cars
Delivery times e.g. Amazon Prime delivers products within 24 hours of ordering
Low price e.g. primary is considered to provide the best value/low price combination
Reliability e.g. Apple Macs have an excellent reputation for long life and reliability
Design e.g. Dyson vacuum cleaners stand out from the crowd with their original design
What is the purpose of product differentiation?
An attempt by a business to distinguish its productss from those of competitors
This involves creating functions or features of the product (or firm) which help it to stand out from its competitors.
Strong product differentiation helps the firm develop its competitive advantage.
The development of product differentiation often helps a firm to create a unique selling point for its product, which can be used in marketing
Product differentiation may be tangible (clearly visible) or it may be a perception that is created about the product in the consumer’s mind
