The market

Question 1

Define the term ‘Mass Market’

Answer 1

The market that is aimed at the general population. For example, regular toothpaste.

A product is sold to all customers in the same way.

Many products can be sold on a global scale with just a few language tweaks- eg. Oreo cookies

Question 2

Define the term ‘Niche Market’

Answer 2

A subset of the main market which addresses a specialist need. For example, toothpaste especially for sensitive teeth.

Question 3

What are the benefits of mass marketing?

Answer 3

+ large scale production means good economies of scale and lower average unit costs
+ Mass marketing is straightforward as everyone is equally targeted
+Large volume of sales means high revenues- these can be pumped into research and design

Question 4

What are the drawbacks of mass marketing?

Answer 4

• Lots of competition
• Homogenous products need to be differentiated through marketing which can be expensive
• High volume production is not flexible to changes in demand

Question 5

Explain the importance of branding to businesses targeting the mass market.

Answer 5

It is important for differentiation as products in the mass market are homogenous (all the same).

Question 6

What are the benefits of niche markets?

Answer 6

+ Charge premium price
+ Easier to target customers
+ Small scale production can be flexible and follow trends.
+ Less competition

Question 7

What are the drawbacks of niche markets?

Answer 7

• Very risky as demand may not be constant

- No economies of scale

Question 8

Explain profitability in relation to niche markets.

Answer 8

Niche markets can be profitable markets to be in as premium prices can be charged because customers are willing to pay for exactly the right product. These profits can signal more competitors to enter the market however there is limited space for competition in the niche market.

Question 9

Define the term ‘market size’.

Answer 9

The size of the market is the total of all sales of all products in that market.

Question 10

How can market sales be measured?

Answer 10

1. Volume of sales- the quantity of products sold eg 90 million burgers every year.

2 Value- total amount spent by customers eg customers spent 3.28 billion pounds a year

Question 11

Define the term ‘market share’.

Answer 11

Market share is the proportion (%) of a market that is taken by a particular business, product or brand.

Question 12

What is the formula for calculating market share?

Answer 12

Sales of x
________________ x 100

Total sales in market

Question 13

What might a business do with the information about market size?

Answer 13

They can look at the data and decide if the market is expanding or contracting.

They can calculate their market share in relation to competitors.

They can look at other markets and decide if they are worth entering.

Question 14

What is a dynamic market?

Answer 14

A market that is subject to rapid or continuous change. Most markets are dynamic and businesses need to be one step ahead of the competition by predicting new trends.

Question 15

Why is online retailing a dynamic market?

Answer 15

Because it is constantly changing, developing, expanding and offering customers new products and ways to shop.

Shoppers now make 51 percent of their purchases on the web, and some retailers (known as clicks only) are only on the Internet where as some businesses were retail stores first and then developed websites (they are known as bricks and clicks).

Question 16

What are the advantages of online retailing?

Always from perspective of business, not customer

Answer 16

+ Shops are open around the clock and so don’t miss critical shopping times.
+ Orders can be taken automatically without staff
+ Shops can reach international markets easily
+ Low overheads- no need for a shop premises
+ Stocks can be easily withdrawn or updated to keep up with the dynamic market.
+ Easy to set up
+ Flexible for owner
+ Opportunities for fast growth

Question 17

What are the disadvantages of online retailing?

Always from perspective of business, not customer

Answer 17

• Customers may be put off my issues returning goods
• older customers reluctant to share bank details because of online security worries
• very competitive, hard to drive traffic to sites
• owners need IT skills
• problems with viruses/fraud
• allows competitors to be aware of owners business activity, prices etc

Question 18

How do competitive markets benefit the customer?

Answer 18

• Businesses need to be very efficient
• businesses need to listen to customer needs and wants and strive to meet them (market orientated)
• business must be less wasteful

Question 19

Define the term business risk.

Answer 19

Business risk is the possibility a business will have lower than anticipated profits or experience a loss rather than a profit.

Question 20

What is business risk influenced by?

Answer 20

Raw material costs
Competition
Overall economic climate
Government laws (eg minimum wage)

Question 21

Explain having a lack of job security as a risk.

Answer 21

When a person starts a business they may be leaving behind a secure job, this could result in stress and anxiety.

Question 22

Explain financial risk.

Answer 22

There are many financial risks in business.

If a business owner invests his own money and the business fails, he may lose this.

Businesses that are too highly geared (dependent on debt) may have difficulty if interest raises.

Cash flow management is important and businesses often fail because of it. Cash flow can be improved by making sure customers pay on time.

Question 23

Define uncertainty.

Answer 23

Uncertainty is when businesses are unable to predict external shocks or future events.

There is a degree of uncertainty in most business decisions as the future cannot be predicted 100%.

Uncertainty increases with time: a forecast for next week will be more accurate than one for next year.

Question 24

Explain the impact of uncertainty on spending decisions.

Answer 24

Households faced with uncertainty might opt to save money instead of spend it.

Customers might delay purchases of large items such as houses as these industries are most affected by uncertainty.

Companies may decide to delay an investment decision with a wait and see policy.

Question 25

How might a business protect itself from uncertainty?

Answer 25

A business might be worried about fluctuating business rates so take out a long term load at a fixed rate of interest making it easier to budget and plan.

Taking out insurance against risk eg a DJ may have public liability insurance in case anything goes wrong with their equipment.

Question 26

What are some reasons a market might grow?

Answer 26

• economic growth, living standards go up, people have more money to spend, therefore businesses can supply more as markets will grow
• innovation, can make your product easily available in more places eg the internet means you can buy from anywhere in the world, banking apps
• social changes, climate change, women’s movement all grow the market.
• changes in legislation, environmental legislated eg having to reduce pollution, increases costs- the law changed so they need new suppliers for things like ecofriendly packaging
• demographic changes, changes in the makeup and size of the population. in most countries, the population is aging which grows the market for old people stuff.