AS Business Studies

Unit 1 – Developing a Business Idea

Understanding markets

Market size, growth and share

What is a market?What do you think? A place where buyers and sellers come together.

Developments in communication methods has seen them alter e.g. postal service, telephone, internet

Firms need to recognise and understand the nature of the market they are in - McDonalds and T.G.I.Friday’s regard themselves as in the entertainment industry, redefining their market has seen the numbers of people ‘eating out’ rise rapidly.

Firms such as B&Q promote DIY as a leisure activity as well as home improvement

Methods of classifying markets

Markets can be classified on their location as well as the type of product they are:

Local Markets vs. National markets

Physical vs. Non-physical (electronic) markets

Market Size

The volume of sales of a product or the value of the sales of a product

e.g. UK Car market (2003) - 2.5 million cars sold or £30 billion

Market size can increase by either convincing consumers to buy more or pay more

Market Growth The percentage change in sales (volume or value)

over a period of time. To calculate percentage change.

The Difference = X 100The Original

Growing markets may mean higher sales but may attract more competitors

Factors influencing market growth.

Economic growth - If a country’s wealth is growing, sales are likely to rise

The nature of the product - Luxury products will grow in sales most when the economy is growing and suffer when people are more worried about their spending

Changes in taste - lifestyle changes, firms can influence what is popular through marketing

Social changes - the way people live their lives, an increase in working hours or people staying at home may mean pub sales fall

Fashion - fads, media influence, television shows making things popular such as cooking and DIY

Market share The percentage or proportion of the total sales of a product or service

achieved by a firm or a specific brand of a product.

Formula:

Market share = Sales of one product/brand/company x 100Total sales in the market

Measured as a % An excellent measure of a company’s success as it compares it with

its competitors Market share can only increase if you perform better than your rivals

and take some of their customers Firms often aim to be the market leader and have the highest market

share

Market Share

Market ShareMarket Share

4% 3%

31%

19%

19%

7%

17%Wrigley's

Terry's Suchard

Others

Nestle

Cadbury

Trebor Bassett

Mars

Question – If the market’s Value is £5.4bn. What is the value for each

company?

Market Share

http://walkers.corpex.com/CR15P5/trade/bars_why_walkers.asp

Student Activity

Task 1: Walkers Market share

Watch the Market Share video on Walkers.

Make notes

Task 2: Questions on Real Marketing Data 2007

Complete questions 1 & 2

Markets Recap…

Explain what is meant by the following terms:a) Market b) Market Sharec) Market Growth

Based on the data in the table complete the following questions: The average price per bag of compost this year is £3.30. Calculate

the market size by volume. Calculate the market share of Lexington 2 years ago and this year. Calculate the % sales growth in Darton since two years ago, and

compare this with the % market growth over the same period.

Markets Recap…

Explain what is meant by the following terms:a) Market

b) Market Share

c) Market Growth

A Market is place where buyers and sellers come together.

The percentage or proportion of the total sales of a product or service achieved by

a firm or a specific brand of a product.

The percentage change in sales (volume or value) over a period of time.

Markets Recap…

1. The average price per bag of compost this year is £3.30. Calculate the market size by volume.

2. Calculate the market share of Lexington 2 years ago and this year.

3. Calculate the % sales growth in Darton since two years ago, and compare this with the % market growth over the same period.

Volume: 5 million bags (£16.5m/£3.30)

2 years ago: 35%; this year 38.5%

Sales up by 25.5%, while the market has risen 3.1%

The Smooth Start - Up

Read the innocent drinks case study.

Then complete questions 1, 2, 3 & 4.

30 Marks

30 Minutes

Remember to use the assessment objectives to achieve full marks

The Smooth Start – Up1) Outline three factors that may have led to

Innocent’s growth in market share during 2004

Possible answers may include:

The passion of staff towards innovation and therefore new product ideas

The launch of the take-home carton

Innocent might have increased its advertising budget, with no corresponding reaction from PJs

Use the mark scheme to answer your response

The Smooth Start – Up2) What was the retail value of Innocent’s

sales in 2003, given that its market share for 2003 was the same as it achieved in

December of that year? (4 marks)

Market size in 2003 was £60m (1) Innocent’s share was 26.1% (1) So sales value was £60m x 0.261 =

£15.66m (1 for workings; 1 for right answer)

Total for £15.66m = 4 marks (allow £15.6 or £15.7 or £16)

Use the mark scheme to answer your response

The Smooth Start – Up3) As retailers were taking an average of 35%

of the sales value of Innocent’s smoothies, what was the company’s real sales revenue in

2003? (3 marks)

£15.66m * 0.65 = £10.18 million (1 for workings, 1 for numerical

answer, 1 for £m) Allow between £10 and £10.4m to

allow for rounding within the calculation.

Use the mark scheme to answer your response

The Smooth Start – Up4) To what extent do you believe Innocent

could continue to succeed if Coca-Cola decided to launch fruit Smoothies in Britain?

(15 marks)

Possible themes might include: Coca-Cola’s resources would allow for a huge TV-based marketing push, to

establish a more mass market Smoothie; this might take sales away from the less-committed current customers of Innocent (only research could give a figure, but every brand will have some customers who are not wholly committed)

More serious for Innocent might be Coke’s distribution muscle; this comes partly from its virtually 100% distribution in the retail trade, but more importantly from its grip on vending machines; if you could get your lunchtime Smoothie from a vending machine close by, you wouldn’t walk half a mile to the shop for an Innocent Smoothie.

BUT Innocent has had several years of building a hugely distinctive brand loved by wealthy townies and foodies; would they defect for a Coca-Cola smoothie? Of course, Coke would hide behind a natural-sounding brand name, but the foodies would know the parent

If Innocent can maintain its squeaky clean image as a provider of healthy, quirky products, it is unlikely to suffer a knock-out blow from the arrival of Coke; Coke will expand the market for Smoothies, but Innocent will still be able to maintain a profitable niche; the future for PJ might be a lot less comfortable; (so perhaps Coke would launch by buying PJ? Might be a clever move)

Use the mark scheme to answer your response

The Smooth Start – Up4) To what extent do you believe Innocent

could continue to succeed if Coca-Cola decided to launch fruit Smoothies in Britain?

(15 marks)

Use the mark scheme to answer your response