1.1.1 The market

Question 1

mass market def

Answer 1

Mass market – this is the market that is aimed at the general population e.g. regular toothpaste

Question 2

Niche market def

Answer 2

Niche market – this is a subset of the main market and addresses a specialist need e.g. Sensodyne toothpaste for sensitive teeth

Question 3

Homogenous def

Answer 3

• Homogeneous = Adjective of the same kind; alike.
• For example similar products that compete in a market e.g. different brands of yoghurt

Question 4

Mass market characteristics

Answer 4

• A product is sold to all consumers in the same way. For example coca cola – one advert made to appeal to everyone
• Many products can be sold on a global scale with just a few language tweaks

Question 5

Mass market examples

Answer 5

• The car market is an example of a mass market
• Consumers are not brand loyal in this market, they choose a car based on a logical comparison of features, engine and price
• In comparison the premium car market is a niche market
• Consumers are very brand loyal, for example they may be a “BMW person” or a “Mercedes fan”

Question 6

Advantages of operating in a mass market

Answer 6

✓Large scale production means economies of scale and lower average unit costs
✓Mass marketing is straightforward as everyone is equally targeted
✓Large volume of sales means high revenues
✓High revenues can be pumped into research and development (R&D)

Question 7

Disadvantages of operating in a mass marketplace

Answer 7

• Lots of competition in mass markets
• Homogenous products need to be differentiated thorough marketing which can be expensive
• High volume production may not flexible enough to keep up with changes in demand

Question 8

Mass market brands

Answer 8

• Branding is very important in mass marketing to instil loyalty in customers, but not all mass markets rely on branding (small car market)
• In mass markets the products are homogenous (all the same) so they differentiate on branding
• Kellogg’s corn flakes * Heinz Ketchup

Question 9

Niche market characteristics

Answer 9

This is a subset of the main market and caters to a particular segment of the market that is not being met by other providers e.g. Rolex

Question 10

Niche markets – example supercars

Answer 10

There are many niche markets in the car market, mainly at the top end.
Customers are looking for a very special car that will turn heads, attract attention, give the owner kudos and also have a very fast engine.

Question 11

Niche market pros

Answer 11

✓Charge premium price
✓Easier to target customers
✓Small scale production can be flexible and follow trends ✓Less competition than in the mass markets

Question 12

Niche market cons

Answer 12

Very risky as demand may not be constant
Higher unit costs so no economies of scale Example: Tokyo old cameras

Question 13

Niche markets and profitability

Answer 13

• These can be profitable markets to be in, often prices charged are higher as consumers in that niche are willing to pay for exactly the right product.
• The profits can often signal more competitors to enter the market
• Businesses in niche markets often have a small range of products which
  make them more risky ventures
• There can be a problem of the lack of economies of scale as not enough products are sold for the business to be viable
• Additionally the market for some more expensive items may be very limited

Question 14

Mass or Niche?

Answer 14

Mass

Question 15

Mass or Niche?

Answer 15

Mass

Question 16

Mass or Niche?

Answer 16

Niche

Question 17

Mass or Niche?

Answer 17

Mass

Question 18

Mass or Niche?

Answer 18

Mass

Question 19

Mass or Niche?

Answer 19

Niche

Question 20

Market size

Answer 20

• The size of the market is the TOTAL of all the sales of all the producers in that market
• This can be measured two ways:
  1. Volume of sales, or quantity of products sold e.g. 91 million burgers
  sold every year**
  2. Value, total amount spent by customers e.g. The UK burger bar market is estimated to be worth £3.28billion in 2016*

Question 21

What does a business do with the information about market size?

Answer 21

• Coca Cola can look at the data and decide if the market is expanding or contracting
• Coca cola can calculate their market share in relation to competitors
• Coca cola can look at other markets e.g. China or emerging economies and see if they are worth entering

Question 22

Market share

Answer 22

This means the proportion (%) of a market that is taken by a business, product or brand. It is calculated using the following formula:

Question 23

Sample market share calculations

Answer 23

Sample market share calculations - answers

Question 24

Dynamic markets def

Answer 24

A dynamic market is one that is subject to rapid or continuous changes

Question 25

Dynamic market – tastes and fashion

Answer 25

• As tastes in fashion change rapidly, so products are made to satisfy these new needs.
• Businesses need to be one step ahead of the competition, this is why fashion shows are important as they predict trends for the following year

Question 26

Dynamic markets - online retailing

Answer 26

• Online retailing is a dynamic market because it is constantly changing, developing, expanding and offering customers new products and new ways to shop.
• Shoppers now make 51% of all their purchases on the web*
• Some retailers’ goods are only available on the Internet and are known as “clicks”
• Some (like Argos and Next,) were retail stores first and then developed websites, known as “bricks and clicks”

Question 27

Advantages of online retailing

Answer 27

✓Shops are open round the clock so they don’t miss critical times when customers can shop e.g. evenings
✓Orders can be taken automatically without the need for staff
✓Shop can reach international markets easily
✓Low overheads, no need for a shop premises
✓Stock can be easily withdrawn or updated to keep up with dynamic market changes in tastes
✓Easy to set up (eBay)
✓Flexible – owner can be anywhere in world ✓Opportunities for fast growth

Question 28

Disadvantages of online retailing

Answer 28

Issues with sending goods back may put customers off
Issues with online security worries put off older customers and those
not keen to share their bank details
Very competitive market, hard to drive traffic to sites
Owners need IT skills
Problems with fraud / spam / viruses
Competitors can be aware of owners business model, prices, activity

Question 29

Market growth

Answer 29

• With dynamic markets, comes constantly changing consumer tastes and preferences
• Products not used widely 20 years ago:
• Internet
• Mobile Phones
• PC computers for home use
• Computer games / games consoles
• Technology is a massive growth market, consider how many of these items are in most UK households’ now

Question 30

Competition and the market

Answer 30

• Very competitive markets benefit the consumer in a number of ways:
  1. More competition means a business needs to be very efficient
  2. More competition means the business needs to listen to consumer needs and wants and constantly strive to meet those needs rather than being product orientated
  3. More competition means a business must be less wasteful
• More competition means a business must produce a good quality product or service, or their customers will go elsewhere.
• More competition in homogenous markets means that businesses must complete on non-price factors, meaning lots of exciting promotions to persuade consumers to switch supplier or product

Question 31

Definition of risk

Answer 31

• Business risk is the possibility a business will have lower than anticipated profits or experience a loss rather than taking a profit
• Business risk is influenced by; raw material costs, competition, the overall economic climate and government laws e.g. minimum wage

Question 32

Risk – lack of job security

Answer 32

• When a person starts a business they may leave behind a secure job, this means they may suffer stress and anxiety as a result. Setting up your own business can be a huge risk financially, and there are lots of factors to consider before starting out on your own.
• The risk of business failure means the business owner may not be able to meet their own financial bills
• The business owner may have a mortgage on a house and need to pay for it every month – if the business fails they could lose the house if they don’t keep up payments.

Question 33

Risk – financial risk

Answer 33

• A business owner may put their own savings or finances into the business, this could be lost if the business fails
• If the business is too highly geared (dependent on debt) then it may have difficulty if interest rates rise
• Most businesses fail due to poor cash flow management
• Cash flow can be improved by making sure that customers pay on time

Question 34

Uncertainty def

Answer 34

Uncertainty is when businesses are unable to predict external shocks or future events

Question 35

Uncertainty and spending decisions

Answer 35

• As uncertainty about future economic conditions changes over time it can affect spending decisions:
• If one company is taken over by another, the employees may feel more uncertain about whether next year’s pay will be higher or lower
• Businesses may become more unsure about the level of next years’ orders if there is a change of government in one of their export markets
• Households faced with uncertainty may save more rather than spend
• Consumers may delay the purchase of a large item such as a car or house, these industries feel effects of shock and uncertainty the most
• Companies may decide to delay an investment decision with a “wait and see” policy

Question 36

Uncertainty

Answer 36

• There is a degree of uncertainty in most business decisions
• This is because the future cannot be predicted with any certainty, we cannot be 100% sure that any event will happen
• Uncertainty increases with time; a forecast a week ahead will be more accurate than a year ahead

Question 37

How might a business may protect itself from uncertainty?

Answer 37

• A business may worry about fluctuating interest rates and so may take out a long term loan at a FIXED rate of interest, then it will know exactly how much loan interest will be a month, making it easier to budget and plan
• This means that loan payments stay the same each month and the business knows its fixed costs each month will not change