6: Understanding Markets

Question 1

Local Market

Answer 1

Customers are only a short distance away.

Question 2

National market

Answer 2

A geographically dispersed market where customers are spread over a large area.

Question 3

Electronic market

Answer 3

Does not have a physical presence, but exists in terms of a virtual presence via the internet. Many businesses have gone from ‘brick to click’.

Question 4

Demand

Answer 4

The quantity of a product that customers are willing and able to buy at a given price over a certain time period.

Question 5

Factors effecting demand:

Answer 5

• Income and wealth. As consumers incomes increase, their overall demand for products will increase.
• Price. As the price of a product rises, the demand for it will sully fall, and vice versa. However, products such as necessities may be bought in similar quantities whatever the price charged.
• Marketing and Advertising. Successful marketing and promotion can have a major impact upon the demand for a good or service.
• Prices of other goods. Sometimes demand for a product can be influenced by the price of totally different product. This occurs in two instances - when the products are either substitutes or complements.
• Tastes and fashion. Over time peoples tastes and fashion change. Such change will affect the demand for products and services.
  Government action. Government an influence the demand for a product by subsidising it, taxing it and using its own advertising campaigns either to encourage or discourage the purchase of a product.
  Demographic factors - Higher population = higher demand.

Question 6

Market segmentation

Answer 6

The technique where the market is broken down into smaller sections with similar characteristics.

Question 7

Market segment

Answer 7

A group of consumers within a larger marker who have similar characteristics such as age or income level.

Question 8

Advantages of market segmentation:

Answer 8

• Leads to better understanding of customers needs in that market segment and a greater chance that these needs will be met.
• Less wasteful of resources than when trying to sell the same product to ‘everyone’
• More effective targeting of promotion to specific groups.
• Segmentation can help a business differentiate its products from those of competitors and this might allow higher prices to be charged.

Question 9

Disadvantages of segmentation:

Answer 9

• Requires effective and expensive market research to establish customer segments and needs within these groups.
• May be inaccurate to assume that all customers in a segment, e.g. the 18-25 year olds, all want the same type of product.
• May not be appropriate for a new business operating in a market that is already small.

Question 10

Market Share

Answer 10

The proportion of a total market accounted for by one product or company.
Market share/total market share X 100

Question 11

Market Growth

Answer 11

The measurement of the change in market size, usually expressed as a percentage of its original size.

How much has the value changed/what was the original value X 100

Question 12

Market Size

Answer 12

The measurement of the size of total sales for a whole market, either expressed in terms of the value of sales (in currency) or the volume of sales (in units).