Markets Flashcards

Question

Explain the psychographic method of market segmentation

Answer 1

- Allows targeting of groups on personality and emotionally based behavior – attitudes, opinions and lifestyles. For example: Differentiating cars by emphasising different features – safety and capacity for the family car. * Personality and Lifestyle – people are grouped according the way they lead their lives and the attitudes they share – e.g. young professionals may drive sports cars to project their image. * Culture - Religion/Ethnic grouping – e.g. food, clothes. * Political voting preferences

Answer 2

* Segments must be recognisable. * Must be different enough from other segments to make producing for that segment worthwhile. * Segments must have a critical mass. This means that they must be big enough or produce enough sales value to make the production of products or services targeted at the segment worthwhile. * Segments have to be targetable. Having their own identity means that they can be promoted to, and have marketing directed towards them.

Answer 3

* receive a product that is closer to their expectations * can help them stick to their desired principles * can fit better with their budgets and lifestyle * can be superior to the competition * can make them feel that they are getting value for money * because marketing is targeted – the consumer is aware of new features of products.

Answer 4

* Businesses would hope to gain greater knowledge about its customers so that it can vary its products to suit their needs – the information will allow businesses to sell more products and make more profit. * Can identify requirements/match the needs of different groups more precisely – therefore allowing them to meet needs of different segments more effectively than the competition. * Can target their advertising to specific groups, thereby maximising its effect – avoids wasteful marketing activities that are not targeted. * To develop profiles of the different markets. * Can increase brand loyalty because customers appreciate that their needs are being met. * Higher profits – can develop premium segments in which customers accept higher prices. * Supports the development of niche markets. * Prevents products being promoted to the wrong people, which would waste resources and possibly lead to losses. * Can adjust the product to consumer preferences – thus maximising potential of market share.

Answer 5

* A single producer within a market – one business has 100% of the marketplace. This is known as a pure monopoly. * Likely to erect barriers to prevent others from entering their market. * Monopolists are called price makers as they have a significant influence on price. * UK and EU regard any business with over 25% of the market as having potential monopoly power.

Answer 6

* may be greater choice of provider * increased competition may force prices down * greater efficiency as a result of competition * isolated or non-profitable inaccessible locations may be denied a service * prices may rise, the businesses previous economies of scale may no longer apply.

Answer 7

- the situation in a market in which elements of monopoly allow individual producers or consumers to exercise some control over market prices. - Within every monopolistic market sector each business tries to offer something different and possess an element of uniqueness, but all are essentially competing for the same customers.

Answer 8

*A large number of relatively small businesses in competition with each other. * There are few barriers to entry. * Products are similar but differentiated from each other. * Brand identity is relatively weak. * Businesses are not price takers, however they only have a limited degree of control over the prices they charge.

Answer 9

* There are many businesses but only a few dominate the market. * Each business tends to have differentiated products with a strong brand identity. * Brand loyalty encouraged by the use of advertising and promotion. * Prices can be stable for long periods, short price wars do occur. * Some barriers to entry do exist. For example, high start-up costs in relation to manufacturing. ex. grocery market, clothing retail market

Answer 10

* large size leads to economies of scale * high profits means money for innovation and investment * oligopolies targeting a wide range of market segments provide variety and choice.

Answer 11

- When businesses in an oligopolistic market act together (collude), a cartel is formed. - Cartels try to keep prices high, whilst the businesses involved share the market between themselves. - This type of collusion has occurred in a wide range of industries. For example, the airline industry and the sports clothing industry. - This formal collusion is illegal.

Answer 12

a market in which many small firms produce virtually identical products at similar prices. With the ability to enter and leave the market freely. They don’t earn excessive profits. However remember that : These unrealistic conditions mean that perfect competition is merely a model. In reality, there is always some sort of branding or differentiation – whether it is the quality of products, price of products or the location of where products are sold. It has some use as the starting point to analyse the behaviour of other market structures in the real world.

Answer 13

* Large number of businesses competing and no one business is large enough to influence the activities of others. * There are no market leaders and no price leaders, so each business must accept the going price on the marketplace – they are price takers. * The goods sold are homogenous – there is no difference between the goods sold by one business or any other business. This means that there is no branding, no product differentiation, no way of telling goods apart. * Businesses have equal access to technology, meaning that they have equal levels of productivity and each business will benefit in the same way from any economies of scale that are available. * Consumers in a perfectly competitive market have full market information, they know what is being sold and the price the goods are sold at. They can access a wide number of suppliers to the market. * Businesses are free to leave or enter the market at any time: there are no barriers to entry or exit.

Answer 14

The relationship between consumers and producers is not a relationship that is based on a level playing field. The advantage in almost all purchasing and consumption situations lies with big business. * Businesses understand how to manipulate customers’ behaviour; they try to control price and competition in the market place and are in the position to produce goods and services that perhaps do not fully meet the expectations of the consumer. * Legislators and consumer protection groups argue that without a strong legal framework, businesses will operate in a way that will maximise their profits with little consideration of the impact this will have on customers. * This may seem extreme; after all there are many businesses that focus on brand value, customer satisfaction, quality of service and quality of product. Not all businesses would voluntarily keep to the highest of marketing principles, however.

Answer 15

Laws are needed to protect consumers and limit the worst excesses of capitalist behaviour. To assist in the protection of consumers there are two separate groups of regulations: * Legislation to protect consumers who enter into contracts with retailers or producers. A contract is made when goods or services are purchased. * Legislation with regard to competition policy. This is large-scale policy designed to control the way that markets operate.

Answer 16

When consumers purchase goods or services, contracts are formed between the consumer and the retailer and the producer of those goods or services. To clarify the nature of these contracts and to establish the requirements of producers and retailers, a series of laws have been passed.

Answer 17

* Designed to prevent and criminalise giving untrue or misleading descriptions of goods with regard to their content, size, weight and price. * Because of this legislation, manufacturers and retailers have to take a great deal of care about information presented on the packaging of their goods, or within advertisements and any other form of promotional material.

Answer 18

* The Act states that goods must be of merchantable quality, fit for their intended purpose, lasting for a reasonable amount of time and being as described. * This means that the goods must be capable of doing what they were designed to do and what the purchaser would reasonably expect them to be able to do.

Answer 19

* Controls the way that goods can be bought and sold on credit. * Under this act the use of APR was established. APR is the annual percentage rate of interest – this must be clearly stated when credit is being offered. * The use of APR allows consumers to easily compare competitive interest rates and to judge the true cost of borrowing. * This act established the use of ‘cooling-off’ periods, where in many cases consumers have 14 days in which they are able to change their mind about entering into a credit arrangement.

Answer 20

* Protects consumers who buy over the phone or online. If businesses break these regulations then the consumer is not bound by the purchase contract. * Provides the consumer with a cancellation period of 14 days (the ‘cooling off’ period), during which consumers are entitled to change their minds and cancel the contract and receive a full refund, regardless of whether the product is defective. * Consumers are not bound by charges they have not expressly agreed to, such as hidden delivery or card payment costs.

Answer 21

Being ethical in marketing is always a problem area for those businesses producing and marketing consumer products. It can be a difficult balancing act for businesses to try to maximise sales whilst, at the same time, marketing their products in a way that does not encourage overconsumption or excessive behaviour by customers. Some businesses have had to try to reinvent themselves because their marketing has been seen as unethical.

Answer 22

Product placement is when a company pays a TV channel or a programme maker to include its products or brands in a programme. This is allowed but there are rules from Ofcom (the broadcasting regulator) on how this is done. For example: * no product placement can be carried out on children’s TV programmes and certain products such as cigarettes and alcohol are not allowed. * it used to be standard for all supermarkets to have displays of sweets and chocolates next to checkouts: children would use ‘pester power’ to get their parents to buy sweets whilst they queued.

Answer 23

Controlling the power of big businesses. If businesses in a monopoly or near monopoly are able to hold a dominant market position, then they are likely to have control over price or the amount produced within the market. Governments will put in place laws and regulators to limit the potential abuse of market power thus protecting consumers. One role of the CMA is to examine situations where companies act together, forming an illegal cartel to limit the competition within an industry. Businesses, if they have a choice, will not compete on price and they may take the view that by creating a dominant market position by working with other large businesses, they can limit price competition. Because of the potential of cartels and collusion between businesses, legislation allows for guilty parties to be fined up to 10% of turnover for each year of illegal activity.

Answer 24

The amount of a product that consumers are willing and able to purchase at any given price. The law of demand : the higher the price, the lower the quantity demanded, and the lower the price, the higher the quantity demanded. *the demand curve goes top to bottom on graph

Answer 25

The amount of a product that suppliers will offer to the market at a given price. The law of supply : all else equal, an increase in price results in an increase in quantity supplied. *the supply curve goes bottom to top on graph

Answer 26

*Population *Advertising *Substitutes (price of) *Income – general level *Fashion and Taste *Interest Rates *Complements (price of)

Answer 27

*Productivity *Indirect Taxes *Number of Firms *Technology *Subsidies *Weather *Cost of Production

Answer 28

In a free market, demand and supply equal the equilibrium price. This is the price where quantity demanded is equal to quantity supplied.

Answer 29

*A normal good is a good whose demand increases when consumer income rises, and decreases when consumer income falls. -positive income elasticity less than one. Examples are matches, lemonade, newspapers.

Answer 30

*a luxury good is a product for which demand increases more than proportionally as consumer income rises. These goods are typically non-essential, associated with high status or exclusivity - positive income elasticity of demand greater than 1 Examples are holidays abroad, health club membership, sports cars.

Answer 31

*an inferior good is a product whose demand decreases when consumer income increases. These are cheap substitutes of products people prefer to buy when their income is reduced - negative income elasticity Examples are supermarkets own baked beans)

Answer 32

When prices change there is movement along the demand curve. But change in demand can cause the demand curve to shift. * If the demand increases the curve will shift outwards (right) * If the demand decreases the curve will shift inwards (left)

Answer 33

When demand changes there is movement along the supply curve. But change in prices can cause the supply curve to shift. * If the supply increases the curve will shift outwards (right) * If the supply decreases the curve will shift inwards (left)

Answer 34

The relationship between changes in demand, changes in price and income is known as the elasticity of demand.

Answer 35

measures the sensitivity of demand to a change in price. Price elasticity is always negative as the increase in price will lead to a fall in sales and, conversely, a reduction in price will lead to a rise in sales Calculated by : %change in demand / %change in price

Answer 36

measures how sensitive demand is to a change in income. Calculated by: %change in demand / %change in income

Answer 37

A value greater than 1 A change in price causes a bigger % change in demand - a product where a proportionate increase or decrease in price leads to a proportionately greater increase or decrease in the quantity sold Examples: Hovis bread, Heinz soup, Aero chocolate bar – they all have alternatives that can be bought

Answer 38

A value between 0 and 1 A change in price causes a smaller % change in demand - where a proportionate change in a products price leads to a proportionately smaller change in the quantity sold Such products tend to have high product differentiation, meaning that consumers perceive them as having no acceptable substitutes. Examples: Petrol, salt, tap water, cigarettes

Answer 39

help to predict future sales - manufacturer to make sure that the production capacity was sufficient to meet the anticipated demand. However it can be unreliable