How do firms compete?

Question 1

What types of market will be segmented?

Answer 1

Those where there are likely to be two or more variables influencing which segment the product is aimed at

Question 2

What is a gap in the market and why is it beneficial for firms?

Answer 2

• 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

Question 3

What is marketing often used to do?

Answer 3

Reposition a business

Question 4

Why might a firm look to reposition itself?

Answer 4

Sometimes a product loses its attractions in its target market or a business wants to expand to a larger market segment

Question 5

What is market mapping?

Answer 5

• 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

Question 6

What is market mapping used to do?

Answer 6

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

Question 7

What is repositioning?

Answer 7

Targeting a different market segment, one with more potential sales revenue or profit

Question 8

What is market positioning?

Answer 8

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

Question 9

What do market mapping and market segmentation aim to do?

Answer 9

Gain an edge over the competition by making the product stand out

Question 10

What is a competitive advantage?

Answer 10

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

Question 11

List the 9 different sources of competitive advantage

Answer 11

• Lower price
• Higher quality
• Customer service
• Extra features
• Reliability
• Uniqueness
• Convenience
• New and innovative technology
• Successful and high quality branding and advertising

Question 12

Define product differentiation

Answer 12

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

Question 13

What type of products are market positioning and competitive advantage less relevant to?

Answer 13

Commodity products where everyone is selling the same thing

Question 14

Why do business try to build up strong brand images?

Answer 14

In an attempt to make their brand seem unique and superior. Making your offer distinctive can bring advantages

Question 15

State the 5 major sources of product differentiation

Answer 15

• 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)

Question 16

What is the objective of product differentiation?

Answer 16

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

Question 17

What do businesses have to do to make profit?

Answer 17

Use the factors of production, land, labour and capital in a way that products will sell for more than their total cost

Question 18

What is the fundamental requirement for an entrepreneur?

Answer 18

To use the factors of production to transform the basic material inputs in to something that can be sold

Question 19

What is adding value?

Answer 19

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

Question 20

What does adding value reward?

Answer 20

The process of turning inputs into something for which consumers have effective demand at a profitable price

Question 21

State the two main aspects of adding value

Answer 21

• 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

Question 22

Where are businesses unlikely to have control over prices?

Answer 22

In a competitive market where products are similar or identical. They are driven towards competitive pricing, accepting the market price

Question 23

Why are businesses often forced to accept the market price?

Answer 23

If they try to charge more, they will quickly lose out on sales because buyers will be looking to achieve the best possible value

Question 24

Why is lowering prices a poison chalice in a competitive market?

Answer 24

They may increase sales, but rival firms could also make matching price cuts, leading to lower profits for all

Question 25

What tends to happen if prices are cut in an extremely competitive market?

Answer 25

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

Question 26

What is competitive pricing?

Answer 26

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

Question 27

List the factors that make market stability a relative concept

Answer 27

Changing populations, incomes, tastes and technologies as well as new business ideas. These factors mean that few markets stay unchanged for long

Question 28

What are stable markets?

Answer 28

Markets that change slowly

Question 29

What are dynamic markets?

Answer 29

Markets that keep changing rapidly

Question 30

How has technology increased the pace of change?

Answer 30

By speeding up the process of information sharing