1.1.1 The Market

Question 1

Market

Answer 1

Any place where buyers and sellers come together to exchange goods or services. There will normally be an exchange of money at a set price.

Question 2

Marketing

Answer 2

The department tasked with targeting the right product to the right target market using the right combination of price, promotion and place.

Question 3

Mass market

Answer 3

The attempt to create products or services which is targeted at the whole market.

Question 4

Benefits of a mass market

Answer 4

• More sales due to higher customers.
• Easier to advertise, more generic.
• Lower cost per unit, benefit from economies of scale.

Question 5

Drawbacks of a mass market

Answer 5

• More competition.
• Less profit.
• No unique selling point.

Question 6

Niche market

Answer 6

The attempt to create products or services targeted at a specific segment of the market.

Question 7

Benefits of a niche market

Answer 7

• Charge higher prices, higher profit.
• Less competition.
• Small scale production, can be flexible and follow trends.

Question 8

Drawbacks of a niche market

Answer 8

• Higher cost per unit, no economies of scale.
• Very risky as demand may not be constant.
• Risk of overdependence on a single market product.

Question 9

Market size

Answer 9

The total value or volume of sales in the market.

Question 10

Market size formula

Answer 10

Number of units sold x price

Question 11

Market share

Answer 11

The proportion of total market sales that a firm has.

Question 12

Market share formula

Answer 12

Sale of one firm/Total market sales x 100

Question 13

Dynamic market

Answer 13

A market that is constantly changing. Sellers respond to the changing needs of buyers by improving existing products and services of introducing new ones.

Social trends
Changes in technology
Competitive environment
Consumer tastes.
Legislation

Question 14

Stable market

Answer 14

A market in which the pace of change is slow; market size and share are fairly constant with little variation in price. Innovation is rare and may consist of minor changes to existing products.

Question 15

Online retailing

Answer 15

The process of buying and selling goods and services over the internet, also known as e-commerce or e-tail.

Question 16

Benefits and drawbacks of online retailing to customers

Answer 16

+ Greater convenience – breaks down geographical barriers.
+ Greater choice - access to new products/services.
+ More price transparency.

• Not all consumers can or will use online retailing.
• Increased risk of fraud.

Question 17

Benefits and drawbacks of online retailing to businesses

Answer 17

+ Small businesses can reach global markets.
+ Online sales can be added to existing sales channels.
+ Cheaper to run as no overheads of running a store.
+ Fast opportunities for growth.

• May have to reduce prices due to greater consumer knowledge.
• Increased competition from global online stores.
• May lose share from conventional area e.g. high street shops.
• Transparent to competition.
• Need a specialist to set up and maintain website.

Question 18

Degree of competition

Answer 18

Refers to the number of firms that exist within a market.

Question 19

How competition affects customers?

Answer 19

• Lowers prices.
• Better quality products.
• Better quality customer service.

Question 20

How competition affects businesses?

Answer 20

• Reduces incentives for business to innovate, be efficient or lower prices.

Question 21

Adapting to change: offensive

Answer 21

Trying to increase sales or develop new markets.

Question 22

Adapting to change: defensive

Answer 22

React to the competition and try to maintain their market share.

Question 23

Ways a business adapt to change?

Answer 23

• Flexible in the way business operates (operations and people management).
• Carrying out market research to have a better understanding of customers.
• Invest in new technology, people and processes.
• Innovate and improve to be better at what they do.

Question 24

Product innovation

Answer 24

Occurs when new technologies make it possible to create completely new products.

Question 25

Process innovation

Answer 25

Using new technology to improve production methods, so that costs are reduced without a loss in quality. This could also be through distribution channels, stock control systems and supply chains.

Question 26

Causes of uncertainty

Answer 26

1. The market: Dynamic markets are constantly changing, rivals are trying to take market share.
2. The economy.
3. The government: taxation, government spending, legislation or trade negotiations.
4. Geopolitical events: Events in other countries e.g. wars, floods, famine.