T1.3 Market conditions

Question 1

Market conditions

Answer 1

• These are the features of a market at any given time and include things such as market share, growth, rivals, market position, sales, prices and demand

Question 2

Market conditions, a good businesses response

Answer 2

• A flexible and reactive business is one that can adapt and change in response to external market conditions. In order to do this owners need to be aware of:
  –>Strengths and weaknesses of their business (skills of staff, equipment)
  –>Opportunities and threats that are in an external environment

Question 3

SWOT analysis

Answer 3

the plans to deal with the factors: Strengths, Weaknesses, Opportunities, Threats

Question 4

Why market conditions get tough?
Countrywide, localised, changes in taste

Answer 4

• Results of difficult conditions or uncertaity
• Might be countrywide: such as recession, a pandemic, period of bad weather or industrial unrest
• Can be localised to a geographic or industry sector, for example if the stock market is volatile then investors often swap to investing in gold, which can boost the precious metals sector of the economy
• Changes in consumer taste can also affect industry: change in habit or fashion. For example, interest in vegan food has recently become a lot more popular- meaning more skincare, cosmetics etc
• Market structure can also affect the way a business operates, for example popularity of pay-to-view streaming services have caused problems for traditional TV services like BBC or ITV

Question 5

Disruptive innovation

Answer 5

Affects how businesses operate. Term describes innovations that are created to reach a new market of customers, as opposed to improving existing products. They’re using innovative technology and starts at the bottom of a market, quickly redefine a product until it gets a foothold. Eg Zoom, Spotify, Uber, Twitter…

Question 6

Virtuous economic cycle

Answer 6

when there’s confidence about the economy businesses flourish because the feel-good factor spreads.
-> Higher output -> increased investment-> Higher productivity ->Customer confidence-> Rising consumer demands -> Increased sales -> Economic growth -> Increased income ->better cashflow ->Reduced cost->

Question 7

Business cycle

Answer 7

• All businesses will need to be able to survive each stage of business cycle
• Business cycle: describes how the economy performs over a period of time. It has four distinct stages: recession, trough, recovery and peak
  –> The length of each stage lasting will differ
• when markets are in recession, pressure on businesses. As sales and profits decline they cant invest, buy new equipment, invest in research, increase marketing etc. Some dont survive
  –> Knock on effect as people become unemployed or have to take wage cuts, people dont spend money because of fall in their incomes. This causes businesses to buy less stock and potentially default on their loans
• In recession, reverse of virtuous economic circle happens, a spiral of decline begins that is hard for the country to recover from
• During the recovery stage an economy will start to recover because of a number of factors: banks start lending money again at affordable rates, which means businesses can finance growth, hire extra people, and develop new products and services. Then the public have more money to spend and virtuous circle starts again

Question 8

Important factors affecting market conditions

Answer 8

• Customer taste and fashion
• Disruptive change: resulting from radical innovation or new tech
• Competitive structure: for instance if Mars bought Ferrero of Italy, disruption to the structure of chocolate

Question 9

Competitive advantage

Answer 9

• being better than your rivals, businesses that are best at this will be doing: Different activities to others in the same line of business, or The same activities as others but in a different way
• In a competitive market there’s less chance of business or consumers dictating how market operates, its the market pressures that determine price so businesses that aren’t affected by market pressures are said to have ‘pricing power’.
• When economic conditions take downturn there’s more pressure on prices because surplus mean stock gets discounted, in order to improve cash flow. Employees aren’t getting wage rises and price of energy usually falls because of production, costs go down
• Competitive advantage is about whole business model that organisation uses instead of just products and services. Organisations that have powerful competitive advantage tend to see off rivals and are able to grow and make money
  –> Companies that provide investors with best long term investment through ups and downs of market conditions are the ones with competitive advantage because it protects business

Question 10

Incomes

Answer 10

• important for businesses to look at household incomes as part of strategy planning because they’re the biggest factor that affect economic demand. It depends how much things like rent, council tax and utilities cost as to how much disposable income homes have to spend on products

Question 11

Incomes rise

Answer 11

• When incomes rise the sale of normal and luxury goods rise, while the sale of cheaper goods fall. However rise in Aldi and Lidl haven’t fallen since 2008-9 because of good value for money and popular in demand
• 2020 ONS reported record number of young adults living with parents. Reason is because of cost of living and buying their own place. However this does increase the household income as there will be multiple paychecks to cover house bills leaving more money to be disposable

Question 12

Incomes fall

Answer 12

• When real household income falls, supermarkets face unprecedented fall in sales volumes
• Shoppers switch to discount stores to try and maintain their lifestyle

Question 13

Household income is affected by

Answer 13

• Changes in real incomes of breadwinners
• Number within the household who work. One reason consumer spending doesnt fall further in recession is number of young adults leaving home decreases, instead of two households and bills- money is shared in one
• Impact of government decisions on taxation and benefits, tax changes are neutral when there’s disruption but cutbacks in benefits affect a lot of people. 2014 Trussell Trust reported use of food banks rose from 346,992 in 2012-13 to 913,138 in 2013-14

Question 14

Index numbers

Answer 14

• Both economic and business data are analysed using index numbers. Index means converting a series of data into figures that all relate to a base period where data is equal to 100. This allows users to see the percentage change in data and its trends. Another benefit is that they enable direct comparisons to be made in different series

Question 15

Interest rates

Answer 15

the cost the bank charges you to borrow money and are expressed as percentage of the amount borrows. If you’re saying mortgage for a house, bank might say 2% interest on top of yearly loan
- Interest rates will have an impact on business trading in UK because if firms have borrowed money, a rise in interest rates will increase their total costs and therefore reduce their profit levels
- High interest rates make businesses think twice before investing as they need to have the confidence to pay the bank back. Means we have countries who dont loan because of the rates

Question 16

Interest rates
Impact on customers

Answer 16

• Consumers who have bank loans, mortgages and other debts will see their repayments increase when interest rates go up so they will have less to spend in the economy- leads to lower sales and falls in revenue of businesses because consumers have less disposable income to spend
• ‘Bank of Englands Monetary Policy Committees’ meets monthly to set interest rates. The aims they set meet the governments 2% inflation target. It works on a ‘one member one vote’ system
• Inflation is another way of saying increasing price levels. If prices increase, cost of living increases- money buys less. This is why Bank of England has set a 2% rate
• In UK people prefer to own a house rather than rent. These levels of ownership mean our economy is closely linked to what happens in the housing market and changes in mortgage interest rates take away peoples spending power

Question 17

Demographics

Answer 17

-Demographics look at makeup of popularion, usefully starts with population size
- Population growth is positive for UK businesses because their customer base expands along with supply for more potential employees
- Important to also know where else in the world populations are growing because they are markets to target. Exporting isnt for just big businesses; e-commerce has made it easier and cheaper for small businesses to sell products abroad

Question 18

Market segmentation

Answer 18

• As part of a businesses marketing exercise it needs to look at market segmentation because this will identify the subsets of consumers and businesses to target with products and services. The consumption and buying power of each of the subsets is important because it will provide a breakdown by age, gender and ethnicity of potential customers
  –> According to ONS 1 in 5 are over 65 in UK in 2019, projected to rise to 1 in 4 in 2050. They have disposable income to spend. Isnt good for public sector organisations like NHS and pension providers
  –> 2011 census shows rising numbers of UK residents 14% identify as BAME
  –> House of Commons briefing paper, 72.6% female employment alongside 80.1% for male
  These all have implications for businesses, eg working mothers need child day care, different ethnicities require different diatery products, cosmetics…

Question 19

Environment

Answer 19

• Pressure from government and consumers to operate environmentally friendly businesses
  –> Pressures include: direct impact on the environment, sustainability, global warming and fair trade
• Big businesses cant ignore the environment and fair trade as business measures as they impact on brands, consumer confidence and bottom line

Question 20

Fair trade

Answer 20

• Fair trade is about buying fairly from suppliers by giving them better prices, decent working conditions and fair terms of trade for their farmers and workers
• If business meets Fairtrade Standards then people pay more because they can show that logo- Coop does this

Question 21

Impact on environment: areas

Answer 21

1. Waste: big cost to any business so moving to energy efficient equipment and sources is good business sense. Many forms are offering businesses solar energy installation for free and then they share the energy savings with them as a payback
2. Energy consumption: big cost to any business so moving to energy efficient equipment and sources is good business sense. Many forms are offering businesses solar energy installation for free and then they share the energy savings with them as a payback
3. Environmental damage: Businesses can be a source of pollution and nuisance; include things like harmful emissions, noise, hazardous substances and destruction of forests. There is a big move in distribution industries to move products around more efficiently to reduce carbon emissions. This will reduce cost of production because transport has to be taken into account when pricing products
4. Sustainability: Making sure business meets the needs of present without compromising the future. Not just about environment, also about being economically efficient, being concerned about social equity and being environmentally accountable.
   –> Cannot be achiveed without looking at business efficiency and productivity. Eg business achieves 0 wastage is going to save money on time and resources
   –> Businesses that use lean processes cut out unnecessary steps in their production. Supporting green thinking