1.1.1 The Market

Question 1

What are the characteristics of a mass market

Answer 1

• Products are less unique as they are aimed at broad market segment
• Low average costs due to large scale production (economies of scale)
• Low prices lead to greater affordability in a higher sales volumes
• Low prices lead to lower profit margins

Question 2

What are the characteristics of a niche market

Answer 2

• Products are more specialised and unique as they are aimed at narrow market segments
• Average cost due to small scale production (they do not benefit from economies of scale)
• High prices make products less affordable and lead to lower sales volumes
• Higher prices can allow businesses to earn higher profit margins

Question 3

What is sales volume

Answer 3

• sales volume is a number of products sold
  Sales revenue = price X quantity sold

Question 4

What is market share

Answer 4

• The market share that a business enjoys is to proportion of the total sales of a product/service compared to the market as a whole
  Can be calculated as: sales of a business/total sales in the market X100

Question 5

What is a brand?

Answer 5

• A brand is a name, image, or logo which helps one product/service stand out from its competitors
• Branding is one of the key ways businesses achieveproduct differentiation
• Brands ad value making the product/service more desirable to consumers, increasing the price of the consumer is willing to pay
• Brands influence the position of the business within its market (in mass markets are used to stand out from the competition, and niche markets are used to communicate that offering to a small, well defined group of consumers)

Question 6

What is a dynamic market

Answer 6

• A dynamic market is a market that is subject to rapid or continuous change
• Businesses which do not adapt are less likely to survive in the long run
• Four areas to consider when examining dynamic markets: online retailing, how markets change, innovation market growth, adapting to change

Question 7

1. Online retailing

Answer 7

• online retailing involves selling products via the Internet
  Advantages:
• Provide 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 cost compared to brick and mortar retailers
  Disadvantages:
• There may be high cost for website development, maintenance, and promotion
• High levels of competition mean that it will be expensive to make a website stand out
• Consumers may find it difficult to get the desired level of customer service

Question 8

2. How markets change

Answer 8

• 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 ones and needs to previous market
• The amount of competition e.g. international trade means larger market size but also more competition between an increasing number of firms
  
  • Competition compete direct e.g. the sale of similar products or indirect e.g. airlines compete with each other but also with other forms of transport such as trains
• Changing legislation e.g. laws strengthening environmental standards often create new market

Question 9

3. Innovation and market growth

Answer 9

• product innovation involves the adaptation or improvement of existing products
• Market growth is a measurement of the change in the entire market, expressed as a percentage of the original size
  Market growth can be caused by:
• Increasing population sizes can increase demand in certain markets
• Increasing incomes can increase demand in certain markets
• Changing tastes and preferences can cause the market to grow

Question 10

4. Adapting to change

Answer 10

• recognising and adapting to market changes allows businesses to thrive in dynamic market
  Strategies can include:
• 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 process
• Innovate so as to gain the first mover advantage

Question 11

How does competition affect the market?

Answer 11

• competition occurs when at least two businesses are providing goods/services to the same target market and the more businesses in the market, the more intense the competition
• Competition can be direct or indirect
  
  • Direct competition occurs when the business is targeting customers with the same product as a competitor
  • Indirect competition occur when firms sell different products but compete with each other for the customers disposable income e.g. cinema and theatre companies are in indirect competition
• Competition results in many benefits for the customer such as:
  
  • Businesses offer lower prices, businesses produce better quality products, businesses provide better customer service
• The absence of competition reduces incentives for businesses to innovate, be efficient or offer consumers lower prices

Question 12

The difference between risk and uncertainty

Answer 12

• Risk is the potential threat to business success
• Uncertainty is when outcomes are difficult to predict