Edexcel Quazi Nafiul Islam

1

Market segment

•Which one is the most profitable?

The Market

• Is it growing? •How big is it?

Competetion

• Strengths •Weaknesses •How is it different?

Topic 3: Lesson 3

Positioning the business Idea

Learning objectives:

1. Identify and analyze the market competition for a certain product 2. Identifying the strengths and Weaknesses of existing suppliers of the same product 3. Learn how to use market mapping 4. Understand how suppliers differentiate themselves 5. Understand the competitive advantage of a product or service through market mapping 6. Understand the term adding value

Before a business starts selling its products, it must consider some key elements.

• It must be able to determine which market segment is best for its product, i.e. in which segment will its product make the most profit?

• Furthermore, as discussed before, the business will want to enter a growing market. This will allow the business to expand along with the market and experience the benefits of growth, such as economies of scale and more prestige for owners etc.

• The competition, basically identifying the strengths and weaknesses of rivals. How they are different to the firm’s products. What advantages, might they have over the firm? These may include, more finance, better marketing strategies, stronger brand image, better quality of product etc.

Edexcel Quazi Nafiul Islam

2

1. Identifying and analyzing the Competition

To analyze the competition, the main competitors to the firm’s products have to be identified. If you were launching a new sport shoe, then your main competitors would be:

Competitor Strength Weakness

• Market Leader • High Quality • Michael Jordan, appeals to

many basket ball fans • Specializes in Basket ball

shoes

• Expensive

• Recognized globally • Cheaper • Catered to Woman’s fitness • Shaq O’Neil, appeals to

many young 18-year olds • Has Serena Williams for

tennis promotion, one of the best tennis player in the world

• Seen as a lower quality to Nike

• Has lost a lot of market share in recent years

Note: These are not all the shoe manufacturers in the market

Figure 3: Reebok

Figure 1: Nike

Figure 2: Lotto football shoes Figure 4: Adidas

Edexcel Quazi Nafiul Islam

3

2. Market mapping

• Market mapping is basically using a diagram to illustrate gaps in the market. • This allows similar products to be mapped using two variables.

Figure 5: Thanks to A Murray for the diagram

An example of a market map:

Figure 6: Thanks to A Murray for Diagram

Edexcel Quazi Nafiul Islam

4

3. Differentiation

Differentiation is about making a product within a product range different from its competitors. It is about giving a product a unique selling point: the aspect or feature of the product that differentiates it from its rivals.

• The USP is often promoted in the business to show that their product is the ‘best’. o Different car manufacturers have different selling points. For example, Toyota’s USP is

that it has the most fuel efficient cars in the market. Other car manufacturers may advertise their products as being the safest, or the most comfortable.

o A coffee company’s USP may be that it provides fair trade products etc.

4. Competitive advantage

An advantage which the business has that gives it an ‘edge’ over its rivals.

There are two ways in which the business can gain a competitive advantage.

• Cost Leadership • Differentiation • Focus

o Cost focus o Differentiation focus

Cost Leadership: One way to gain an edge over rivals is to become to cost leader, i.e. provide a product at the lowest cost at a certain level of quality, which the consumer expects.

Differentiation: See section 3 for detailed understanding.

Focus: A third way is for a business to focus on a particular section of the market. Thus selecting and attacking a niche market.

• Cost Focus: When a business drives down the cost in a market segment in order to undercut competing prices.

• Differentiation focus: When a business sells a unique product in a market segment.

A focus strategy does not always guarantee success, as there are very highly competitive niche markets, e.g. Luxury cars, Sport cars etc. Equally, a business may find it very difficult to decrease costs as typically niche markets are small and thus profits have to be generated from fewer sales, and thus the price is very likely to be high. As a niche market has very specific needs, it will be equally hard for a business to come up with a differentiated product.

Target type Lower Cost Differentiation Broad Target Cost leadership Differentiation Narrow Target Cost focus Differentiation focus

Edexcel Quazi Nafiul Islam

5

Methods of obtaining a

competetive advantage

Product Design

Pricing: Value for money

Facilites

Location or Place in the marketing

mix

Quality of product

Customer service •Delivery •After Sales

service

Ethical stance for the

business

Brand Name

Edexcel Quazi Nafiul Islam

6

5. Adding Value and Added Value

• Added Value can be defined as the difference between the cost of the raw materials and selling price.

o 𝑽𝒂𝒍𝒖𝒆 𝒂𝒅𝒅𝒆𝒅 = 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑜𝑢𝑡𝑝𝑢𝑡 − 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑖𝑛𝑝𝑢𝑡 • Say you are building a house • The cost of the raw materials are £31,000 and after the construction and finishing of the

house, including all the expenses, like painting, digging, roofing, plumbing etc. you price the house as £89,000.

• Thus the value added is £89,000 − £31,000 = £58,000. • The Value added is not equal to the profit that the business makes. • Part of this will pay the wages of employees and business overheads such as insurance,

motor expenses and tax. • Adding value falls into the PROCESS part of the production.

• Adding Value to a product can be defined as the increase in the benefits of a goods or services, which are created at each stage of production.

• Methods include: o Changing raw materials

Using steel to make teaspoons o Packaging

Shaped perfume bottles Making the crayon covers more attractive, e.g. more color or being more decorative

o Branding Using famous personalities and Logos

Input •Land •Labour •Capital •Enterprise

Process •Using a production method •Adding Value •The business may try to raise the quality of its products in order to increase its future sales

Outputs •The goods or services provided by the business

It is by adding value that a business is able to make a profit. A business that does not add value will not be able to survive in the long term.