Market Conditions Flashcards
Define market conditions
the relative attractiveness of the external market in which a business operates.
What does market conditions include?
- GDP
- market demands
- competitors
- rate of inflation
- business cycle
What is GDP?
GDP represents the total value of all goods and services produced within a country’s borders in a specific time period, usually a year.
What does GDP include?
- consumer spending on goods and services.
- government spending.
- business investments.
- net exports (exports minus imports).
Why is GDP important?
- shows how large the economy is.
- indicates whether an economy is growing or shrinking.
- helps compare different countries economies.
- used to make economic decisions by governments and businesses.
What are the two types of GDP?
- nominal GDP: calculated using current market prices.
- real GDP: adjusted for inflation to show true economic growth.
What is competition?
the success of any one business depends on its ability to match or surpass the popularity of products offered by its competitors.
Advantages of competition
- improved efficiency and therefore cost effectiveness.
- improved quality of goods and services.
Disadvantages of competition
- ‘race to the bottom’ is likely to impact on quality.
- huge resources used for marketing purposes.
- redundancy and unemployment.
What is the ‘race to the bottom’?
when companies lower cots to stay competitive.
What are the effects of the ‘race to the bottom’?
- can result in lower product quality and reduced worker wages.
- may lead to ethical compromises.
- short term gains but long term negative effects, eg poor working conditions.
Examples of competition
Costa vs Starbucks.
Nike vs Adidas.
Apple vs Samsung.
Pepsi vs Coke.
KFC vs McDonalds.
What are examples of competitive determinants?
- equipment and technology
- operational procedures
- use of marketing mix
- research and development
- financial planning and control
- incentive schemes for staff
- quality procedures
- staff skills, education and training
- enterprise/entrepreneurial skills
What is demand?
how much of a good or service a customer wants and is able to purchase. for a business, demand turns into revenue (sales).
What factors influence demand?
- price of product
- price of other products
- tastes and fashion
- government position and priorities
How could a business change their target market?
- advertising
- changing price range
- changing quality
- locations
- celebrity endorsement
- new products
What is the effect of changing income levels?
changes in income are likely to make only minor impacts on business costs, compared to the effect on the demand for goods and services.
What are the two types of income?
nominal income and real income
What is nominal income?
the income you receive without any adjustments for inflation. its the raw number, the actual amount of money you get.
What is real income?
the income you have, adjusted for inflation. it tells you how much your money can buy.
What factors other than household income affect customer spending (demand)?
- real disposable income
- employment and job security
- household wealth
- expectations and sentiment
- market interest rates
How does an ageing population affect demand?
greater demand for services to support older people, eg healthcare. increasing disposable incomes of older people reflected in higher demand for goods and services, eg holidays.
How does immigration affect demand?
higher costs of (but higher demand for) public services, eg education, healthcare, housing. increase in size of labour force - potentially keeping wage rates low.
What are the key factors that affect real income?
- interest rates
- price inflation
- wage growth
- employment levels
- government tax policy
