1.1.1 The market

Question 1

What is a market?

Answer 1

Where buyers and sellers can meet, such as Amazon.com.

Question 2

What is the aim of a market?

Answer 2

To identify, anticipate and satisfy consumer needs and wants profitably.

Question 3

What is a mass market?

Answer 3

In a mass market products are aimed at large market segments, production usually happens on a larger scale.

Question 4

What is a niche market?

Answer 4

In a niche market products are aimed at a subset of the larger market, production usually happens on a smaller scale.

Question 5

Characteristics of a mass market.

Answer 5

• Products are less unique as they are aimed at broad market segments
  + Low average costs due to large scale production and economies of scale
  + Low prices lead to greater affordability and higher sales volume
• Low prices lead to low profit margins
  Primark is an example of a clothing company that focuses its products on a mass market.

Question 6

Characteristics of a niche market.

Answer 6

+ Products are more specialized and unique
- High average costs due to small scale production, no benefit from economies of scale
- High prices make products less affordable and lead to lower sales volume
+ High prices can allow businesses to have higher profit margins
Louis Vuitton is an example of a fashion company that aims its products at a niche market.

Question 7

How do you work out the size of a market?

Answer 7

Sales volume - The amount of products/units sold.
Sales value - price x quantity sold.

Question 8

What is market share?

Answer 8

The percentage of a market the business has total sales in. For example Tesco has 26% of the UK grocery market.

Question 9

How do you work out market share?

Answer 9

Sales of a business
————————— x100 = Market share
Total sales in the market

Question 10

What is a brand?

Answer 10

A brand is a name, logo or image which helps a product/service stand out from competitors.

Question 11

Characteristics of brands.

Answer 11

+ Brands are unique and protected by law
+ Brands add value
+ Brands influence the position of a product within its market, stand out from competition
+ Can charge higher prices because of their perceived quality

Question 12

What is a dynamic market?

Answer 12

A dynamic market is a market that is subject to rapid or continuous changes.

Question 13

Will businesses with monopoly power face dynamic pressures?

Answer 13

No monopoly power businesses such as Amazon will not experience the same dynamic pressures as businesses in more competitive markets.

Question 14

What is online retailing?

Answer 14

Online retailing involves selling products/services via the internet.

Question 15

Advantages and disadvantages of online retailing.

Answer 15

+ Provides business access to more customers, including internationally
- There may be high costs for website development, maintenance and promotion
+ Enables longer trading hours as the business can be open 24/7
- Online retailing is dominated by larger businesses that are more well-known
+ Cheaper to run as it lowers fixed and variable costs compared to bricks and mortar retailers
- There is a lack of personal connection with customers

Question 16

How do markets change?

Answer 16

/ Change in consumer tastes and preferences
/ Changing demographics
/ The amount of competition
/ Changing legislation

Question 17

What is innovation?

Answer 17

Product innovation - Involves the adaptation or improvement of existing products.
Process innovation - Involves the adaptation or improvement of existing processes.

Question 18

What is market growth?

Answer 18

Market growth is the measurement of the change in the entire market, expressed as a percentage of the original size. A businesses market share does not necessarily grow with the market.

Question 19

Causes of market growth.

Answer 19

/ Increasing population
/ Increasing incomes
/ Changing tastes and preferences

Question 20

What is adapting to change?

Answer 20

Adapting to change is recognizing and adapting to market changes to thrive in dynamic markets.

Question 21

Strategies to adapt.

Answer 21

/ Create flexible business structure
/ Meet customer needs
/ Invest in staff training, new products and processes
/ Innovate so as to gain the first mover advantage

Question 22

When does competition occur?

Answer 22

Competition occurs when at least two businesses are providing goods/services to the same target market. The more the business the more tense the competition.

Question 23

What is the difference between direct and indirect competition?

Answer 23

Direct competition - When the business is targeting customers with the same product as a competitor.
Indirect competition - When firms sell different products but all compete with each other for the customers disposable income.

Question 24

Why is competition a good thing?

Answer 24

The absence of competition reduces incentives for business to innovate, be efficient or offer consumers lower prices.

Question 25

Difference between risk and uncertainty?

Answer 25

Risk - The potential threat to a businesses success.
Uncertainty - When outcomes are difficult to predict.