1.3 introducing market Flashcards
consumer sovereignty
the principle that consumers, through their purchasing decisions, determine the demand for goods and services
demand
quantity of a good or service consumers are willing and able to buy at a given price
law of demand
inverse relationship between the
price of a good and the demand for a good - as prices fall customers buy more and vice versa
shifts in demand
- population
- advertising
- substitute goods
- income (disposable)
- fashion + trends
- income tax
- complementary goods
producer objectives
when prices are high, suppliers are willing to produce more output
supply
quantity of a good or service business are willing and able to provide at a given price.
shifts in supply
- production costs
- indirect tax
- no of firms
- technology
- subsidies
- weather (external shocks)
equilibrium
when the price and quantity are at a level at
which supply equals demand - market ‘clears’
excess demand
where demand outstrips supply - leads to shortage
excess supply
where supply is greater than demand - leads to surplus
ceteris paribus
all things being equal
perfectly competitive market
- homogenous products (basic generic items)
- large numbers of buyers and sellers
- perfect knowledge of prices
- low barriers to exit and entry in the market
price mechanism
the means by which millions of decisions taken by consumers and businesses interact to determine the allocation of scarce resources
incentive
consumers choices reflect demand so higher prices act as incentive to suppliers to raise output
signalling function
consumers decisions inform suppliers (e.g. more demand from customers signals to suppliers to increase output and raise prices)
rationing function
prices serve to ration scare resources (if there is a limited supply prices are higher so only a certain number of people are willing and able to purchase)
mass market
one where products used by most people are sold in large quantities meaning there are large numbers of buyers and sellers
niche market
a smaller part of a larger market where customers display similar characteristics and where there are only a few suppliers
market share
% of all sales within a market that are held by a particular product/company
potential market growth
implies increase in demand for a product
depends on:
- whether the product is luxury or not
- new technology
- creative destruction
- changing fashions
market research
systematic and objective collection, analysis, and evaluation of information intended to assist the marketing process
reasons for market research
- understand and identify consumers wants and needs
- understand patterns and purchasing behaviours
- predict future trends
- reduce risk of product failure
- measure how effective marketing strategy has been
- provide latest and up to date market information
primary
gathering information from a first hand source: observation, surveys + questionnaires, focus groups
secondary
finding and using information that has been collected by someone else: internet, government reports, market reports
qualitative
information about the market based on subjective factors such as opinions and reasons (cost and time implications)
quantitative
information about the market based on numbers and trends (quick and easy to collect but not as in depth)
limitations
non sampling errors - caused by human error
sampling errors- sample size too small/ not representative
quota sampling
population is divided by the most important variables such as income, age and location and the required quota is selected from each segment
random sampling
makes sure every member of the public has an equal chance at selection
stratified sampling
target population is subdivided into segments of same characteristics and members are chosen from each strata
market segmentation
sub group of consumers with similar characteristics in a given market
types of segmentation
- geographic
- demographic (characteristics e.g. age, income, gender)
- psychographic (lifestyle choices/personality e.g. social and economic values/status)
target market
group of consumers with common needs/wants that a business decides to sell to
market positioning
designing a product that meets needs of consumers better than the competitors do
competitive advantage
an advantage based on price, quality, service, reliability, reputation or innovation
product differentiation
a products feature that differentiates it from other competing products in the market - USP (unique selling point)
added value
difference between price of finished product and cost of inputs used to make it
- convenience, branding, quality, design and unique selling point
dynamic markets
changing all the time
stable markets
pace of change is slow, prices stay similar
