How do firms compete? Flashcards
What types of market will be segmented?
Those where there are likely to be two or more variables influencing which segment the product is aimed at
What is a gap in the market and why is it beneficial for firms?
- It is essentially a combination of features for a neglected segment
- A business will face little competition if they manage to find a gap in the market
What is marketing often used to do?
Reposition a business
Why might a firm look to reposition itself?
Sometimes a product loses its attractions in its target market or a business wants to expand to a larger market segment
What is market mapping?
- Plotting key product features on a diagram, then showing where brands fit in terms of these features
- A tool that plots brands in the market according to how well they meet consumer’s needs
What is market mapping used to do?
It helps to find gaps in the market and so helps to decide on market positioning for new products. This allows businesses to position individual products effectively
What is repositioning?
Targeting a different market segment, one with more potential sales revenue or profit
What is market positioning?
Refers to the way the product is seen in comparison with rival products. Market research helps to position products so that businesses can match consumer preferences or appeal to different market segments
What do market mapping and market segmentation aim to do?
Gain an edge over the competition by making the product stand out
What is a competitive advantage?
This means having an edge over rival products. There are making perceptions of a product positive, depending on the nature of a product and its consumers
List the 9 different sources of competitive advantage
- Lower price
- Higher quality
- Customer service
- Extra features
- Reliability
- Uniqueness
- Convenience
- New and innovative technology
- Successful and high quality branding and advertising
Define product differentiation
Describes unique features that distinguish products from its rivals. This may be based on special characteristics or a distinct image that has been built up
What type of products are market positioning and competitive advantage less relevant to?
Commodity products where everyone is selling the same thing
Why do business try to build up strong brand images?
In an attempt to make their brand seem unique and superior. Making your offer distinctive can bring advantages
State the 5 major sources of product differentiation
- Differences in quality, usually combined with differences in price
- Difference in functional features or design
- Ignorance of buyers about the essential features of the product
- Marketing by sellers, particularly advertising
- Differences in availability (e.g. timing and location)
What is the objective of product differentiation?
To develop a unique image/USP, as being able to stand out brings valuable advantages. Without this, businesses usually have less market power and profit
What do businesses have to do to make profit?
Use the factors of production, land, labour and capital in a way that products will sell for more than their total cost
What is the fundamental requirement for an entrepreneur?
To use the factors of production to transform the basic material inputs in to something that can be sold
What is adding value?
This occurs when factors of production are used to make material inputs more valuable to potential customers. It is the difference between the price paid and the total cost of the inputs needed to create the product
What does adding value reward?
The process of turning inputs into something for which consumers have effective demand at a profitable price
State the two main aspects of adding value
- The efficient use of inputs to control costs
- Ensuring the desirability of products to consumers, which often involves developing an image or design. It may also mean using better quality inputs, which will be fine if the sales revenue outweighs the costs
Where are businesses unlikely to have control over prices?
In a competitive market where products are similar or identical. They are driven towards competitive pricing, accepting the market price
Why are businesses often forced to accept the market price?
If they try to charge more, they will quickly lose out on sales because buyers will be looking to achieve the best possible value
Why is lowering prices a poison chalice in a competitive market?
They may increase sales, but rival firms could also make matching price cuts, leading to lower profits for all
What tends to happen if prices are cut in an extremely competitive market?
Profits tend to be extremely low anyway, so if this happens there tends to be a price war and the least efficient business may close
What is competitive pricing?
Takes account of prices charged for similar products competing in the same market. Prices will usually be the same or a little bit below that of the closest rival
List the factors that make market stability a relative concept
Changing populations, incomes, tastes and technologies as well as new business ideas. These factors mean that few markets stay unchanged for long
What are stable markets?
Markets that change slowly
What are dynamic markets?
Markets that keep changing rapidly
How has technology increased the pace of change?
By speeding up the process of information sharing
