The Market (Edexcel A Level Business)

• A market is any place where buyers and sellers can meet e.g. amazon.co.uk or a shopping mall
  
  
• Different markets have different characteristics and are affected differently by changes
  
  
• The aim of marketing is to help identify, anticipate and satisfy consumer needs and wants profitably
  • Needs are considered to be essential e.g. shelter or food
  • Wants are desires which are non essential, even if consumers consider them to be essential e.g Nike trainers
    
    
• Market research is essential in helping businesses to identify products/services they can develop in response to the needs and wants that their customers have
  • Market research is the process of systematically gathering data from consumers which can be used to influence the business decisions

The characteristics of markets

• In mass markets, products are aimed at broad  market segments e.g Kellogg's Corn Flakes is an example of a breakfast cereal aimed at the mass market
  
  • Market segments are groups of consumers who share similar characteristics e.g. age, lifestyle, etc.
  • Mass marketing occurs when businesses sell their products to most of the available market 
  • Production usually happens on a large scale
     
• In niche markets, products are aimed at a subset of the larger market e.g. gluten free products
  • Niche marketing occurs when businesses identify and satisfy the demands of a small group of consumers within the wider market
  • Production usually happens on a small scale
    
    

Characteristics of Mass Markets & Niche Markets

Market Size & Market Share

• The size of a market can be measured through  sales volume  or sales value
  • Sales volume is the number of products sold i.e the physical number of units sold
  • Sales revenue = price x quantity sold i.e the financial value of the units sold
     
• The market share that a business enjoys is the proportion of the total sales of a product/service compared to the market as a whole e.g. Tesco has 26% of the UK grocery market
    
• Market Share can be calculated as follows:   

Brands

• A brand is a name, image, or logo which helps one product/service stand out from its competitors
• Branding is one of the key ways in which businesses achieve product differentiation

Some famous brands
  

• Brands are unique and are protected by law
• Brands add value, often making the product/service more desirable to consumers
  • Adding value is the process by which firms increase the price that the consumer is willing to pay
     
• Brands influence the position of the business within its market
  • Businesses operating in mass markets use branding to stand out from the competition
  • Businesses operating in niche markets use branding to communicate their offering to a small, well defined group of consumers
  • Strong brands are more likely to be able to charge higher prices for their products than weaker brands
  • The perceived quality of a strong brands products is better than that of weaker brands

• A dynamic market is a market that is subject to rapid or continuous changes
• Many markets are becoming more competitive and change is inevitable
  • Those businesses which do not adapt are less likely to survive in the long run
  • The mobile phone market is a good example of a dynamic market
• Businesses with  monopoly power (e.g. Amazon) might not face the same dynamic pressures as businesses in more competitive markets
•  Many markets are dynamic but others change very slowly e.g. the market for eggs and milk has been relatively stable for years
    

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Changing technology ensures that the mobile phone market is dynamic

• There are four areas to consider when examining dynamic markets
  • Online retailing
  • How markets change
  • Innovation and market growth
  • Adapting to change
     

1. Online retailing

• Online retailing involves selling products via the internet
   

The Advantages & Disadvantages of Online Retailing for Firms & Consumers

2. How markets change

• Changing market conditions offer new opportunities for firms, but also pose threats
• The following changes cause markets to be dynamic
  • Changing consumer tastes and preferences e.g. consumers desiring electric vehicles in place of traditional petrol/diesel
  • Changing demographics e.g many developed countries have an increasingly older population who have different wants and needs to previous markets
  • The amount of competition e.g. international trade means larger market sizes but also more competition between an increasing number of firms
    • Competition can be direct i.e. the sale of similar products or indirect e.g. airlines compete with each other but also with other forms of transport such as trains
  • Changing legislation e.g. laws around environmental standards create new markets

3. Innovation and market growth

• Product innovation involves the adaptation or improvement of existing products e.g. improved video cameras on laptops
• Process innovation involves the adaptation or improvement of existing processes e.g. just in time stock control
  
  
• Market growth is the measurement of the change in the entire market, expressed as a percentage of the original size
  • The businesses market share does not necessarily increase automatically as the entire market continues to grow
     
• Market growth can be caused by numerous factors e.g.
  • Increasing population sizes can increase demand in certain markets
  • Increasing incomes can increase demand in certain markets
  • Changing tastes and preferences can cause the market to grow e.g. the growth in the electric car market

4. Adapting to change

• Recognizing and adapting to market changes allows businesses to thrive in dynamic markets
• Strategies to adapt to change include
  • Create flexible business structures, especially in terms of operations and people management 
  • Meet customer needs, by carrying out market research and communicating with customers
  • Invest in staff training, new products and processes
  • Innovate so as to gain the first mover advantage 

• Competition occurs when at least two businesses are providing goods/services to the same target market
  • The more businesses in the market, the more intense the competition
     
• Competition can be direct or indirect
  • Direct competition occurs when the business is targeting customers with the same product as a competitor
  • Indirect competition occurs when firms sell different products but compete with each other for the customers disposable income e.g. cinema and theatre companies are in indirect competition
     
• Competition results in many benefits for the customer, such as
  • Businesses offer lower prices
  • Businesses produce better quality products
  • Businesses provide better customer service
    
    

• However, the absence of competition reduces incentives for businesses to innovate, be efficient or offer consumers lower prices

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The difference between risk and uncertainty

• Risk is the potential threat to business success
  • Risks can be from inside the business (internal) or from outside the business (external)
  • Risks can be measured and prepared for using risk management
     
• Uncertainty is when outcomes are difficult to predict
    

Examples of Risk & Uncertainty