Seneca Paper 1 Flashcards
Mass market advantages
Having more customers.
Benefitting from economies of scale (due to higher output levels).
Can build a strong market presence.
Mass market disadvantages
Higher levels of competition.
Lower profit margins
Niche markets Benefits:
Less competition. Specific market. Can develop specific expertise. Higher profit margins. Customer loyalty.
Disadvantages niche
No economies of scale.
Vulnerability because they have an undiverse product portfolio.
What is a brand?
A brand is a good or service that has something which is unique & recognisable. This could be from the way that the product is designed or a different feature.
A brand is more likely to become strong if it is easily recognised and distinctive.
Strong brands
Strong brands usually benefit from higher customer loyalty. Customers support the brand and will continue to go and buy their products repeatedly.
A brand can create higher profitability by itself. Some consumers will pay higher prices for items with a certain brand logo on them (e.g. Nike or Apple).
Dynamic Markets
Dynamic markets are markets that experience rapid and continuous change.
Responding to the external
Market
Businesses must identify and respond to changes in the external market.
Businesses that operate within dynamic markets must be able to respond to changing customer tastes and preferences.
For example, Blockbuster failed to respond to changes in the streaming and download market and it lost its market share to rivals like Netflix.
How markets change
Innovation. Markets can change and develop as a result of advances in technology and as a result of the changing tastes and preferences of customers.
Impact of competition
Competition can affect a business’ costs and demands as the presence of competitors may reduce demand for a business’ product or service.
Competition can force businesses to reduce their prices or increase their sales & marketing spend.
How competition affects the market- Rising costs
The presence of a competitor can also increase business costs as a business may increase its spending on promotion and advertising or may invest in research and development to improve the products offered for sale.
Risks:
Risk of failure, Financial loss, Lack of security
Uncertainty
Uncertainty is when a business cannot know how a situation will turn out.
E.g. Brexit
Uncertainty vs risk
Uncertainty is where a business is unable to foresee problems.
Risk is where there is a chance that something could go wrong & not end up as expected.
With uncertainty, it is hard to even have any expectations of what the future will be like.
Market research- demand
Market research into customers’ demands is important for business success.
Insights into customers’ wants and needs can help a business to improve the product, spot market opportunities and stay competitive.
Insights into overall demand trends can help a business to spot opportunities for growth and potential threats from new products/technology.
Competition market research
Market research into competitors can help a business understand the major threats in the market and then prepare the business to deal with these threats.
Market research for established fashion labels like H&M would identify the threats that come from online platforms like ASOS or Boohoo.
Market research target market
Market research into a business’ target market will give the business insights into their customers’ wants and needs and how they are changing over time.
Qualitative research
Qualitative research generally collects information about opinions and views rather than things that can be quantified.
For example, research into whether customers think the customer service at Waitrose is good is qualitative research.
Quantitative research
Quantitative research collects factual information on things that can be quantified and recorded easily.
For example, research into the number of cans of Coca Cola sold in the UK last year is quantitative research.
Market research- sampling
When a business is carrying out market research, sampling may be used to reduce the costs associated with market research. Sampling occurs when a business selects a sample of the population to save collecting data from everybody in that population.
1 advantage and 1 disadvantage of sampling
Sampling reduces cost as a business can choose a cross-section of the population instead of collecting data from everybody. Sampling reduces cost as a business can choose a cross-section of the population instead of collecting data from everybody.
Method of market research- technology
Technology can be used to analyse market research data by completing calculations and creating graphs and charts which can be used by managers and leaders.
Market Segmentation
Market segmentation is the process of dividing potential customers into different groups based on characteristics like age, gender, income and much more.
Businesses use market segmentation for a variety of reasons: chioosing marketing mix
When choosing the product, geographic, promotional and price segmentation can help a business to understand its customers’ needs and wants.
For example, Next provides clothing aimed at infants and toddlers using its Next Kids range.
Businesses use market segmentation for a variety of reasons:choosing promotion
Advertising in a newspaper probably is not the best way to target teenage girls, but a teenage magazine like Bliss might be.
Segmenting a market can give businesses ideas about how best to promote their products.
Businesses use market segmentation for a variety of reasons:
Market mapping is a process to identify a gap in the market by looking at what competitors offer.
Focus groups
You get a bunch of people into a room, record them, and ask them about whatever you want. From these discussions, the organizer will try to pull out some insights, or use it judge the wider society’s view on something. Generally the participants will be chosen based on certain criteria, such as demographics, interests, or occupation.
Surveys
In survey research. survey questions are given to respondents (in person, over the phone, emailed, or an online form). Questions can be close-ended or open-ended. As far as close-ended questions go, there are many different types:
Dichotomous (two choices, such as ‘yes’ or ‘no’)
Methods of Market Segmentation- location
ustomers’ wants and needs often change based upon where they live or where they are born.
There are many supermarkets focusing on Polish food on some high streets in the UK.
It makes more sense for these supermarkets to locate where there are lots of Polish families living.
Methods of Market Segmentation: income
Certain products (luxury products) need to be aimed at people who earn a certain amount of money. For example, high-end kitchens (priced at £20,000) are more likely to be effective advertising in magazines like Ideal Home or the Sunday Times because these magazines tend to have readerships with high incomes.
Methods of Market Segmentation: Age
Products can be aimed at a specific age range.
A business is unlikely to advertise mobility scooters to people under 40.
Methods of Market Segmentation: Gender
Some products are aimed primarily at either males or females.
Boohoo.com is an online fashion retailer that primarily targets females. Advertising to lots of males may not be the most effective strategy.
What are the methods of segmentstion
Gender , age, income, location,
Causes of supply curve shifts
Changes in the price of inputs (these will affect the cost of production).
A discovery of a new technology (allowing the firm to produce at a lower cost).
Changes in Government policy.
E.g taxes, regulations and subsidies.
Incentive to expand production
When a firm’s profits increase, it is incentivised to produce more output. This is because the more it produces, the more profit it will earn.
So, when costs of production fall, a firm will be incentivised to supply a higher quantity at a given price.
This is shown by a rightward shift in the supply curve.
Subsidies can lower a firms average cost per unit, encouraging them to expand production also.
Effect of tax on supply
The U.S. government imposes a tax on alcoholic drinks that collects eight billion dollars per year from producers.
Taxes are treated as a cost by businesses.
Higher costs decrease supply.
So taxes decrease supply.
Factors Determining the Supply of Goods and Services
Price of the good, technology and production, productivity and tax
Factors Determining the Supply of Goods and Services- price of the good
A rise in price will almost always lead to an increase in the quantity supplied of that good or service. This is also called an extension in supply.
This is because the increase in price incentivises the firm to increase output.
Economists call this positive relationship ‘the law of supply’.
Factors Determining the Supply of Goods and Services- technology and production
A reduction in the costs of production will lead to an increase in supply because producer profits have risen.
Technological improvements can increase the efficiency of the productive process.
This will reduce the costs of production, shifting supply to the right.
Factors Determining the Supply of Goods and Services- productivity and tax
Increases in productivity means the output per input of a factor of supply increases, so supply shifts right.
An indirect tax on supply raises the overall cost of production, shifting supply left.
Equilibrium price
This is the only price where the amount consumers want to buy is equal to the amount producers want to sell.
If the market is at equilibrium, there is no reason to move away.
Supply and demand (market forces) dictate the equilibrium quantity and price in a free market.
Disequilibrium
Disequilibrium is when the market is not at a stable price and quantity.
If the market is not at equilibrium, economic pressure arises to move the market towards a stable price and quantity.
E.g if petrol prices were to rise above their equilibrium level, the market would respond and the quantity demanded would fall.
Excess supply and demand at disequilibrium
Excess supply and demand occur at disequilibrium.
The higher price makes it more profitable for petrol producers, so output expands.
The difference between the quantity demanded and quantity supplied is now the excess supply.
When quantity demanded exceeds quantity supplied, there is excess demand.
What does pressure to reach equilibrium lead to
The market price is unstable when there is excess demand or supply.
Excess supply will force producers to cut the price because it is better to sell at a lower price than not at all. Others will follow.
Excess demand will signal to producers they can generate more profit by raising the price and they will raise price.
So excess demand and supply can lead to price change.
Design Mix
Functionality, Aesthetics, price
Possible consequences of a business behaving ethically:
Behaving ethically could increase a brand’s reputation.
2
It could also provide a unique selling point, which increases competitiveness.
3
However, behaving ethically could increase a business’ costs, which would reduce profits. Alternatively, businesses could pass on these costs to the consumer by increasing the selling price
Promotional methods
Sales promotion, sponsorships, Social media, Product placements, Advertising, public relations
Advertising
Advertising is the most obvious promotional method. Advertising is sometimes called “above the line” promotion and it involves a business paying to have their product or service promoted in a public space. It aims to make consumers aware of a product and to get them to buy the product or service.
Types of advertising platform
Advertising can happen through various platforms, such as Newspapers, Magazines, Television, Internet, Billboards or Social Media.
The platform that a business uses depends on the target market of the product or service.
Choosing an advertising platform
The platform that businesses choose is important to make sure that they reach the right target market and have the maximum impact.
For example, social media or a TV programme may be a better way to reach young people than a broadsheet newspaper like The Times.
Public Relations
Public relations (PR) is all about a business’ reputation. PR involves maintaining a good public image.
PR involves managing the spread of information about the business.
The aim of PR is to make sure this information is as positive as possible and reaches the largest possible audience.
Examples of PR
An example of PR is the use of newspaper editorials, where people in a business manage the business’ relationships with different newspapers, sending them articles to publish about the business.
Businesses do not pay the newspaper for this coverage like they would for advertising.
Sales promotion
In sales promotions, businesses try to boost sales using a temporary promotion. There are lots of types of sales promotions:
Free gifts, samples, point of sales displays, competitions, discount coupons, value for money offers BOGOF
Promotional Mix
The promotional mix is the combination of different promotional methods that a business uses. For example, a business might advertise largely through TV, but also do some social media advertising and have sponsorship deals in place with athletes.
Factors influencing the promotional mix are:
Competitor actions, target market, finance available, the nature of the product or service the nature of the market
Factors influencing the promotional mix are: competitor actions
The promotional mix of competitors might influence a business because they may want to reach consumers using the same channel as rivals.
Factors influencing the promotional mix are: target market
A business’ target market for a product (or service) will affect the promotional method that they use because different types of people use different platforms more often.
A business wants to promote its product to its potential customers.
A business that produces women’s underwear will not usually want to promote their product to middle-aged men.
Factors influencing the promotional mix are: the nature of the product or service
The type of product (or service) will influence which promotional method needs to be used.
A technical product like a laptop may want to give consumers more information about their product, whilst a simple product like orange juice (Tropicana juice for example) may not need to give info.
A fashion label like Hugo Boss does not have much information to communicate. How their products look is more important.
Factors influencing the promotional mix are: the nature of the market
As a market matures, the rate of growth changes.
If a market is growing slowly, advertising may be less important.
If a market is growing quickly, then businesses will be battling for market share and are willing to spend more on advertising as it will affect sales by a larger amount.
Reasons for Promotion
To persuade customers to buy the product, To create or increase sales, To inform/remind customers about the product, To create or change the image of a product (or service)
The Long Pocket Strategy
Palich et al (2000) published a research paper describing the ‘Long Pocket Strategy’. Their research concluded that the business with the most money in the bank normally wins a price war between businesses.
Name 4ps
Price
Place
Promotion
Product
Product life cycle
Introduction, growth, maturity, decline
Distribution- Place
Place (or location) is about when and where a product (or service) is available to the people buying it.
advantage of wholesalers
Large network of buyers (Wholesalers already have a large network of buyers. This lets a business reach a lot of customers quickly.)
Disadvantage of wholesaler
Less interaction with customers- A downside of using wholesalers is that the business will not have much personal interaction with customers.
This can lead to worse customer service.
