topic 3- understanding markets Flashcards
what is the definition of market research
- MR gathers info about consumers, competitors and distributors within a firms target market
- it is a way of identifying consumer’s buying habits and attitudes to current and future products
what is market research a way of finding about customers
-it is a way of identifying consumer’s buying habits and attitudes to current and future products
what is one of the biggest cause of business failure
-failure to understand the market (consumers)
why do businesses need accurate up-to-date information (4)
- changes in technology- enabling new products and new production processes
- changes in consumer tastes
- changes in the product ranges of competitors
- changes in economic conditions
what is the purpose of marketing research (3)
- gain a more detailed understanding of consumer’s needs
- reduce the risk of product/business failure
- forecast future trends
what 2 things do new businesses need to consider
- market size
- market share
what is secondary research
-collecting and analysing data that already exists
where can secondary research come from
- outside sources of info
- past data from the business e.g. financial records
give 5 examples of external secondary research methods
- commercial market research organisations
- the government
- competitors
- trade publications
- the media/ internet
what are the pros of secondary research (3)
- often obtained without cost (or can be cheap if you have to pay)
- can gain a good overview of a market
- usually based on actual figures
what are the cons of secondary research (3)
- data can be outdated
- data may not be tailored to the businesses needs
- can be expensive to buy reports of info
what is primary research
the process of gathering first hand, new data directly from people within your target market
what does market mapping illustrate
it illustrates the range of ‘positions’ that a product can take in a market based on 2 dimensions that are important to customers e.g. price and quality
when prices go up, to what extent will sales fall? (what does it depend on)
it depends on elasticity of demand
what is elasticity
a measurement of the extent to which buyers and sellers respond to any particular change in market conditions
how can we measure price elasticity of demand (PED)
the responsiveness of the quality demanded to a change in the price of a product (how much demand changes due to price change)
if demand falls by 20%, how do we write this in terms of PED
for each 1% increase in price, demand falls by -2%
what is the PED formula
% change in the price
in the PED formula what must the top bit of the fraction always be
negative if demand falls
or positive if demand goes up
a supermarket increases the price by 10%, the demand falls by 5% what is the PED?
(demand falls) -5
—– = -0.5
10
a 1% increase in price leads to a -0.5% fall in demand
what is the definition of price elasticity
a change in price results in a greater proportional change in demand
numerically how do we know if something is price elastic
if the number is greater (less than) than -1 e.g -2, -3
numerically how we do know if something is price inelastic
is any result is between 0 and -1 e.g. -0.1, -0.5
what does price inelasticity
a change in price results in a less than proportional change in demand
price elastic- demand changes ….
a lot
price inelastic- demand changes ….
not a lot- the change in demand will be smaller than the change in price
what factors determine the elasticity of a product (3)
1) the degree of product differentiation- the extent to which customers view the product as being different
2) the availability of substitutes
3) branding and brand loyalty
what happens when a product has many close substitutes
it tends to be price elastic
what happens when a product doesn’t have many substitutes
it tends to be price inelastic (people will deffos still buy your product especially if you are a monopoly)
the stronger the brand …
the lower the price elasticity- a little change in demand
what can data on PED be used for (2)
1) sales forecasting- allows the business to see how many products to sell etc
2) pricing strategy- allows to see how price may affect revenue
other than price what else can influence demand
household income
what is the formula for income elasticity of demand (YED)
% in income
if income goes up and demand goes up would the number be positive or negative
positive
if income goes up and demand goes down, would the number be positive or negative
negative
income elastic is called a …. good
a normal good
income elastic is a …. number
positive number
when do you know that a product is income ELASTIC
if the number is more than 1
if demand increases a lot in proportion to a change in income (price elastic) what type of good is it considered as
a luxury or superior good
as incomes go up and demand goes DOWN, what is the god considered as
an inferior good
what do luxury or superior goods have a YED of (number)
a positive number greater than 1.5
what number does an inferior good have to have
a negative number
what number does a normal good have
a positive number between 0.1 and 1.5
what is negative about PED and YED (2)2
- price and income elasticitites change over time- so consumer buying habits may change or competitors may change
- data may not be realistic
strong brands have ….
low price elasticity- as they have established strong consumer relationships
what is good about PED and YED (2)
- allows businesses to see what products would be sold well and not sold well
- allows you to make a target product for a specific market
what is market segmentation
-finding ways to divide a market up to identify untapped opportunities- offers possibility of new target markets and new positioning within the market
what does segmentation allow
offers possibility of new target markets and new positioning within the market
what is the benefit of segmentation
-increased customer satisfaction- willing to pay a higher price
what is the benefit of segmentation for small businesses
-it offers a valuable strategy for breaking into a market e.g. looking a what section of the market is successful or where there is a gap in the market
what is the benefit of segmentation for a large business
-possibly add one niche product to a product portfolio already dominated by the mass market
What are the 4 methods of segmentation
- demographic segmentation
- geographic
- income
- behavioural
What are the 5 influences on the marketing mix
- it depends on the type of market a firm is operating in
- sold online or face to face?
- a product targeted at consumers or other businesses
- the stage of the life cycle of the product or service
- what current market research reveals
What are the 7 parts to the marketing mix
- price
- product
- promotion
- place
-people, process, physical environment
What is niche marketing
where a business targets a smaller segment of a larger market, where customers have specific needs and wants
What is mass marketing
Where a business sells into the largest part of the market, where there are many similar products offered by competitors
The key features of a mass market (3)
- customers needs and wants are more general and less specific
- associated with higher production output and capacity and potential for economies of scale
- success usually associated with low-cost operation or market leading brands
Advantages of targeting a niche market (6)
- less competition “a big fish in a small pond”
- clear focus- target particular customers
- builds up specialist skill and knowledge
- can often charge a higher price
- profit margins are often higher
- customers tend to be more loyal
Disadvantages of targeting a niche (4)
- lack of economies of scale
- risk of over dependence on a single product or market
- likely to attract competition of successful
- vulnerable to market changes
Advantages of positioning maps(3)
- helps spot gaps in the market
- useful for analysing competitors
- encourages use of market research
Disadvantages of positioning maps (3)
- just because there is a “gap” it doesn’t mean there is demand
- not a guarantee of success
- how reliable is the market research?
Price elastic- value of PED
More than 1
Price inelastic- value of PED
Less than 1
What does price elastic mean
Change in demand is more than the change in price
What does price inelastic mean
Change in demand is less than the change in price
Limitations of using elasticities (4)
- difficult to get reliable data on how demand changes in relation to price
- other factors affect demand e.g. consumer tastes
- many markets subject to rapid technological change-make previous data less reliable
- competitors will react- pricing decisions can’t be taken into isolation
What income elasticity do inferior goods have
Inferior good have an INCOME ELASTICITY of LESS than 1 (price inelastic)
What are the 5 parts to the product life cycle (PLC)
- development
- introduction
- growth
- maturity
- decline
What is the PLC used for (3)
- forecast future sales trends
- helps with market targeting and positioning
- help analyse and manage the product portfolio
Key points of the DEVELOPMENT stage in the PLC (4)
- often complex and time-consuming
- cost of development rises as product approaches launch
- may not be successful
- can be a long lead time before sales are achieved
Key points of the INTRO stage in the PLC (5)
- likely to be a low level of sales- penetration pricing may help build customer demand
- low capacity utilisation and high unit costs
- usually negative cash flow
- distributors may be reluctant to take an u proven product
- heavy promotion to make consumers aware of product
Key points of the GROWTH stage in the PLC (5)
- fast growing sales, helped with wider distribution
- rise in capacity utilisation- should lower unit costs
- product gains market acceptance
- cash flow may become positive
- the market grows, profits rise but attracts the entry of new competitors
Key points of the MATURITY stage in the PLC (5)
- slower sales growth as rivals enter market
- high level of capacity utilisation
- high profits for those with high market share
- cash flow should be strongly positive
- profits and prices fall
Key points of the DECLINE stage in the PLC (5)
- falling sales
- market saturation and/ or competition
- decline in profits and weaker cash flows
- more competitors leave the market
- decline in capacity utilisation- switch capacity to alternative products
What is the boston matrix
It categorises the products