1.1.1 - The Market

Question 1

What is a Mass Market

Answer 1

Market that is aimed at the general population

Question 2

What are the characteristics of a mass market

Answer 2

• Product is sold to all consumers in the same way
• Many products can be sold on a global scale with just a few language tweaks

Question 3

What are the advantages of a mass market

Answer 3

• Large scale production means economics of scale and lower average unit costs
• Mass marketing is straightforward as everyone is equally targeted
• Large volume of sales means high revenues (this can be pumped into research and development)

Question 4

What are the disadvantages of a mass market

Answer 4

• Lots of competition in mass markets
• Homogenous products need to be differentiated thorough marketing which can be expensive
• High volume production may mot be flexible enough to keep up with changes in demand

Question 5

What is a niche Market

Answer 5

• A subset of the main market and addresses a specialist need

Question 6

What are the characteristics of a niche market

Answer 6

• Subset of the main market and caters to a particular segment of the market that is not being met by other providers

Question 7

What are the advantages of a niche market

Answer 7

• Charge premium prices
• Easier to target customers
• Small scale productions can be flexible and follow trends
• Less competition than in mass markets

Question 8

What are the disadvantages of a niche market

Answer 8

• Very risky as demand may not be constant
• Higher unit cost so no economies of scale

Question 9

What is a dynamic market

Answer 9

A market that is subject to rapid or continuous changes

Question 10

What is Market Size

Answer 10

• 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 11

What does a business do with information about market size

Answer 11

• 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 12

What is a Market Share

Answer 12

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

𝑆𝑎𝑙𝑒𝑠 𝑜𝑓 𝑥 / Total sales in whole market x 100

Question 13

What is online retailing

Answer 13

• This is a dynamic market because it is constantly changing, developing, expanding and offering customers new products and new ways to shop
• Shoppers can make 51% of there purchases online

Question 14

What are the advantages of online retailing

Answer 14

• Shops can open round the clock so they don’t miss critical times when customers can shop
• Orders can be taken automatically without the need for staff
• Shops can reach international markets easily
• Low overheads (no need for shop premises)
• Stock can be easily withdrawn or updated to keep up with dynamic market changes in tastes
• Flexible and easy to set up

Question 15

What are the disadvantages of online retailing

Answer 15

• 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
• owners need IT skills
• problems with fraud/spam/viruses
• competitors can be aware of owners business model, prices, activity

Question 16

What is Market Growth

Answer 16

• 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 17

How does a competitive market benefit the consumer

Answer 17

• More competition means a business needs to be very efficient
• 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
• More competition means a business must be less wasteful

Question 18

How does competition affect the market

Answer 18

• 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 19

What is risk

Answer 19

• 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 20

What is risk (Lack of job security)

Answer 20

• 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

Question 21

What is risk (Financial risk)

Answer 21

• 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 22

What is uncertainty

Answer 22

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

Question 23

How does uncertainty affect spending decisions

Answer 23

• 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 24

How might a business protect itself from uncertainty

Answer 24

• 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