Business 4.1 Flashcards
Define market orientation
Market orientation is a situation where the sole focus of a business is on the needs and wants of a market segment
- Market research is at the centre of all decision making.
- New products are designed based off on the market’s needs.
Advantages of market orientation
- Low risk. Likely for business to have a good product-market fit allowing increased revenues and profits.
- Repeat customers. High product-market fit allows further generation of profits.
- Social enterprises. An emphasis of such business as they want to meet human needs or to solve societal/environmental issues.
Disadvantages of market orientation
- No USP. Other rivals could carry out the same market research. This would then have lower sales and profits.
- Requires accurate market research. Poor market research could result in poor product development.
- Agility.Must be responsive to changing market conditions; this can be difficult for some companies.
Define Product orientation
Product orientation is a situation where a business prioritises research and development of high quality, specialised products, rather than prioritising market research.
- Faith are placed in business’ designers and engineers.
Advantages of product orientation
- USP and quality. Can distinguish it from rivals by providing high quality and a USP.
- Monopoly power. With a patent, the business would be a sole producer for a period of time, resulting in large revenues and profits.
- Lack of competition. Developing totally novel products may mean there is barely any competition, enabling large revenues and profits.
Disadvantages of product orientation
- High risk. No guarantee customers will make a purchase as it might not target their specific need.
- High cost. Large sums required for investments when it could be invested in other lower risk activities.
What is market share
Market sharerefers to the sales revenue that an organization accounts for within a given market or industry. It is measured by expressing the firm’s sales revenue as a percentage of the whole industry’s sales revenue.
Market share = (firm’s sales ÷ total sales in the market) * 100
The most common methods of measuring the size of a market are:
- The potential number of customers in a market for a particular good or service
- Sales volume.
- Sales revenue.
- The number of competitors (rivals) in the market. This can give an indication of the degree of intensity of competition. The greater the barriers of entry into the market, the fewer the number of rivals will exist in the market.
Higher market share means the business is faring better than its rivals.
Market growth (expressed in percentage)and how to calculate it:
Market growth (expressed in percentage)refers to an increase in the size of a market, usually measured by the rise in total sales revenue of the market or industry.
Higher market growth indicates increase in sales revenue and attraction of new suppliers. Positive market growth rate means market size is growing.
Market growth = [(new market size in period 2 - old market size in preiod 1) ÷ old market size in period 1] * 100
Market leadership brings significant benefits to a business, such as:
- Trend setter and leader in the industry, allowing space for exploration.
- Positive reputation attracts more investors and quality employees.
- Suggests brand loyalty with customers that would be willing for paying a higher price.
- Economies of scale, allowing higher profits.
- Popular choice of investory.
- Weaken existing rivals and gatekeep from business to enter.
What is market leader
product or brand with the highest market share.
Advantages of strong market leadership for customers
- Networks. The business may create network effects, where the product becomes more valuable the more people use it (for example, social media networks).
- Price. The business may reach economies of scale with low costs of production. The business may be able to lower prices for customers.
- Innovation. The business may achieve high sales and profits, which allow for investment in product research and development.
Disadvantages of strong market leadership for customers
- Networks. Larger businesses may continue to dominate and abuse their power in networks (for example, social media and privacy, technology companies extending their dominance into other markets).
- Price. Even if a large, dominant business achieves economies of scale, there is no guarantee it will lower prices for consumers. The business may simply take higher profits. A dominant company in an industry will also have pricing power. It may be able to raise prices for consumers due to low competition.
- Innovation. If the business dominates the market, it may have little competition. It may not have the incentive to innovate.
Advantages of market leadership for a business
- Accessing wide distribution channels. Smaller retailer may only stock the leading brand for each product line, allowing strong sales revealing a positive feedback loop, as the business can maintain or increase its market share.
- Brand recognition. Consumers are more likely to buy products they recognise.
- Economies of scale. Likely that market leader will have lower unit costs than its competitors and also how large business can bulk buy. With a lowered cost for production, goods could be sold at a cheaper price for the market, resulting in a positive feedback loop.
- Price leadership. The price that the market leaders set will seem like the ‘right’ price for the product category which could impact other business’ price. Thus, the market leader is in full control of being flexible.
-Disdvantages of market leadership for the business
- Large dominant businesses may lack the incentive that newer businesses have to innovate.
- Their high profits may also attract new competitors who are able to innovate more quickly.
- And they may get too large, and experiencediseconomies of scalethat raise costs of production and lower profits, so a market leader can experience disadvantages itself from its dominance of a market. This has been the case in the market for mobile communication devices.
