Chapter 1- The Market

Question 1

Market

Answer 1

• A place where goods and services are traded by businesses
• There are multiple different types of markets where
  businesses make money by selling their goods and services.
• It is possible to trade goods and services without buyers meeting up. Trading can be done over the telephone and in a multitude of different ways. There are many markets such as:

1. Consumer goods
2. Service markets
3. Commodity markets
4. Financial markets

Question 2

Consumer goods

Answer 2

products such as food, cosmetics and magazines are sold

Question 3

Service markets

Answer 3

This can include services for individuals such as hairdressing, or business services

Question 4

Commodity markets

Answer 4

where raw materials such as oil, copper, wheat and coffee are traded

Question 5

Financial markets

Answer 5

where currencies and financial products are traded

Question 6

Mass Marketing

Answer 6

An attempt to create products or services with universal appeal rather than targeting a specific type of customer. With the aim to create generic brands e.g. coke (cola).

The number of customers in these markets is huge, however means that there is a lot of competition so large sums of money are required on marketing.

Coca-Cola spent 3.3 billion dollars on marketing in 2013

Question 7

Brand

Answer 7

the skill of giving a product or service distinctiveness – even personality (identify, quality, how well known).

Question 8

Niche Marketing

Answer 8

Targeting a very small segment of a much larger market. Identifying the specific needs of a small customer group and developing a product to meet their distinctive needs.

Niche marketing operators often sell in low volumes = prices usually higher than that of a mass market as there is little competition.

As well as distribution through specialist retailers or direct to the consumer via the internet.

Question 9

Which is better, Mass or Niche Marketing?

Answer 9

• Depends on product or service
• Mass marketing great if you can succeed there.
• Business such as Heinz and Kellogg’s show that it can be
profitable in the long term.
• HOWEVER vanilla ice cream has become so cheap to buy that
there is little profit = niche is better e.g. Haagen-Dazs

Question 10

Market Size

Answer 10

Can be calculated or estimated by the total sales of all businesses sin the market –

for example value: total amount spent by customers buying products or volume the physical quantity of products which are produced and sold

Question 11

Market Share

Answer 11

The term used to describe the proportion of a particular market that us held by a business.

It is important as it can be used to indicate that a business is a market leader, if the market share of a business changes over a period of time it can be an indication of success or failure of a business or its strategy

Question 12

Market share equation

Answer 12

Sales or profit of 1 business / sales or profit of whole market x 100

Question 13

Dynamic Markets

Answer 13

Markets characterised by continuous change, activity or progress. Dynamic markets may shrink, fragment, emerge or completely disappear. For example there is no longer a market for cassettes.
E.g. Sony, Microsoft etc.

Dynamic markets can have a huge impact on businesses and failure to adapt can lead to a total collapse, Kodak went into liquidation after it failed to adapt to a changing camera market

Question 14

Factors to consider in a Dynamic Market?

Answer 14

• Online retailing
• How markets change
• Innovation and market growth
• Adapting to change

Question 15

Online retailing

factor to consider in dynamic market

Answer 15

A number of benefits emerge from online retailing

For example people who do not enjoy personal shopping or cannot

Easier to gather personal information from customers so they can be targeted with other products (cookies),

Smaller staff costs so cost of product can be lowered 0 reach more customers (global reach) – 24/7 service –

But Online retailing is active and unpredictable. E.g. HMV out of business due to companies such as Amazon which can sell as lower prices due to tax free zones.

Not all potential customers are able, or are
comfortable with, using the internet - This could lead to reduced sales from this market
segment.

Question 16

How markets change

factor to consider in dynamic market

Answer 16

Sizes of markets can remain quite stable over periods of time if the consumption is fairly constant e.g. milk – however for other markets may be in decline such as coal has fallen sharply since the 1970s as the need for it has drastically dropped.

The nature of markets may also be in a state of constant change, for example, in many markets products are constantly updated, modified and re-launched – the choice available increasing enormously over time – restaurants in the UK gave undergone huge change – today the sector is large and diverse

New markets may also impact this, new markets are always developing particularly in the ‘emerging economies’ which includes the BRIC countries and other developing nations. In the 1970s no one had a mobile phone, E-books gave also grown into a market

Question 17

Innovation and market growth

factor to consider in dynamic market

Answer 17

• Innovation can help a business gain market share and increase growth. New products encourage new customers to try something new and therefore boost market growth.

Global living standards tend to rise over time which means the world’s population has more money to spend

– innovation such as technological research and development have led to new markets such as 3D printing, driverless cars etc.

– changes in legislation are also key such as environmental legislation has helped foster renewable energies

Question 18

Adapting to change

factor to consider in dynamic market

Answer 18

Businesses need to be clever about adapting rather than waiting to be forced to change e.g. Heinz with chilli ketchup and Coca cola with Coca-Cola life.

Businesses need to be prepared for flexibility in working practices, machinery and staff skillset

– market research is vital to keep in touch with developments in the market and investing in new products will allow for a business to survive for longer in the market

Question 19

How does Competition affect the market?

Answer 19

It’s the pressure that stops businesses getting careless and complacent.

For most, competition is norm, making it hard to charge high prices (unless customer believe business is selling an outstanding product/service.)

Lowering prices – making their products appear different quality etc. are central in effecting the profit margins of businesses

Consumers will generally benefit from competition in markets – in markets where there are lots of businesses competing with each other – diversity will create choice – and prices will be forced to be lowered

Question 20

Risk

Answer 20

Owners take risks when running businesses – which means they take actions where outcomes are unknown – they invest money with no guarantee of success – each year 23,000 businesses each year are expected to fail

Risk can be quantified whereas uncertainty cannot. Data from America shows that only 40% of new, independent restaurants survive until the end of year 3 = failure rate is 60%.

Question 21

Uncertainty

Answer 21

The markets which businesses operate are often subject to external influences

– a new competitor may enter the market with a superior product

• consumer tastes might change as a result of a new social trend

– the government might introduce a new policy or piece of legislation

– some new tech may be invented

Uncertainty is not always negative and can provide new opportunities such as the introduction of the internet