IS THERE A MARKET FOR THE BUSINESS IDEA?
IN THIS TOPIC YOU WILL LEARN ABOUT
Market size, growth and share
Types of market segmentation
Market Niches
MARKET SIZEMarket size – this is the total value or volume of sales in the market. It can be measured in money terms e.g. £20 million or by the amount sold e.g. 1 million cars
Market size:
Number of units sold x price = Market size
MARKET GROWTHMarket growth – this is the percentage increase in the size of the market
Market growth:
Change in size of market / original size x100 = Market growth
FACTORS INFLUENCING MARKET GROWTH
Economic growth - if a countries wealth is growing then sales are likely to rise
The nature of the product - luxury products = lower sales during downturn in economy and increase when economy is growing.
Changes in taste
Social changes
MARKET SHAREMarket share – this is the proportion of total market sales that a firm has.
Market share:
Company sales/Market sales x 100 = Market share
The market leader has the greatest market share.
MARKET SHARE - NIGHTCLUB DATA
Number of customers per week
Market Share
Ali’s 450 Guy and Toni’s 750 St Elmo’s Fire 1200 40Stephen Fry Experience
600 20
All Nightclubs
Insert the missing figures from the table above to show the market share of each of the nightclubs in the town
CUSTOMER NUMBERS AND SPENDING AT NIGHTCLUBS 2010-2012 2010 2011 2012
Sales Volume (no’s)
2600 2200 3000
Sales Value (£)
52000 48400 63000
Q1. Calculate the percentage growth in volume of nightclub customers between 2010 and 2012. Q2. Calculate the percentage growth in value of nightclub customers between 2010 and 2012. Q3. What happened to the amount paid per customers between 2010 and 2012?
TYPES OF MARKET SEGMENTATIONMarket segmentation occurs when the market is split into different categories in order to identify different types of consumer.
WHO DO EACH OF THESE PRODUCTS TARGET? http://www.youtube.com/watch?v=cuvW6f_IfBs
http://www.youtube.com/watch?v=TdrE1VMxzoE
TYPES OF MARKET SEGMENTATIONDemographic segmentation
Demographics looks at the social and economic characteristics of individuals and households. Market researchers will then attempt to create a clear picture of the type of consumer that will make up these segments.
Geographic segmentation
This is where market categories are based on where people live e.g. regions, cities or neighbourhoods. People in different geographical areas display different characteristics.
DEMOGRAPHIC SEGMENTATIONDemographic segmentation will include the following categories:
AGE
GENDER
LIFE CYCLE STAGE
RESIDENTIAL
LIFESTYLE
SOCIAL CLASS
(SEE HANDOUT)
BENEFITS OF MARKET SEGMENTATIONThere are a number of benefits for a firm that uses market segmentation as part of its market research:
Advertising can be targeted at specific market segments so that advertising spend is more effective
The most profitable and least profitable customers can be identified
Least profitable markets can be avoided
It becomes easier to identify new products
It helps the firm improve existing products and customer service
DISADVANTAGES
Difficulty in identifying the most important segments for a product
Knowing how to reach your chosen segment with your marketing
Recognising changes in the segments interested in your product – markets are dynamic and firms cannot assume that an existing segment will always stay loyal to a product.
Failure to meet the needs of customers not included in your chosen segment
ACTIVITY
How are each of the following markets segmented?
•Holidays
•TV Stations
•Houses
Justify your answer
Five terms will appear
They will disappear after 30 seconds
Your task:
(1)List the terms + (2) Define them
Primary Research
Market segmentation
Qualitative
Secondary Research
Marketing Share
Over to you!
Primary Research
Market segmentation
Qualitative
Secondary Research
Marketing Share
NICHE & MASS MARKETING
Niche marketing is targeting a product or service at a small segment of a larger market. E.g. the bear factory offer custom made teddy bears.
Mass marketing is aiming a product at all or most of the market.
MARKET NICHE VS MASS MARKET Niche market is a small segment of the population who have a similar set of wants, needs and characteristics.
Example: Walking boots
Mass market is a product that is advertised to and aimed at EVERYONE
Example: Toothpaste, cinema / films etc
MARKET NICHE CHARACTERISTICS A small market with unique characteristics
Tend to demand higher prices – more unique products – attracts a niche demographic
Fewer consumers / better quality
For example sky diving equipment – only needed by a small market therefore nicheProducts – which attract high prices for the specialist equipment
ADVANTAGES & DISADVANTAGES OF MASS & NICHE MARKETS
Activity
In pairs or groups of 3 sort out the statement into advantages and disadvantages of mass and niche marketing.
ADVANTAGES OF NICHE MARKETS
There may be fewer competitors as large companies are not as attracted to a relatively small market.
The lack of scope for economies of scale may mean that small firms can compete more effectively.
The limited demand may suit a small firm that would lack the resource to produce on a large scale.
A firm can adapt its products to meet the specific needs of the market rather than comprise between the needs of many different groups of consumers. This makes the product more attractive and is likely to allow the firm to charge a higher price.
It can be easier for firms to target customers and promote their products effectively when they are only selling to a certain type of customer.
DISADVANTAGES OF NICHE MARKETS
The small scale of the markets limits the chances of high profits. Even if a high price can be charged the lack of customers will affect the total profit made and the unit costs will be higher.
Small firms can be vulnerable to changes in demand. Firms are not able to spread their risks.
An increase in interest may be enough to attract lager firms into the market.
With only a small number of consumers there is a problem with swings in consumer spending.
ADVANTAGES OF MASS MARKETING
Large scale production is possible; this will help to lower costs per unit. This should improve profit margins.
The volume of customers enables companies to earn huge revenues.
Allows firms to use the most expensive marketing. Not only does this help to eliminate smaller rival but it can also act as a barrier to entry for new firms.
In industries such as pharmaceuticals it is necessary to appeal to large markets in order to be able to fund research and development costs.
DISADVANTAGES OF MASS MARKETING
High fixed costs are incurred. This will prevent many firms from operating
Firms in these markets are vulnerable to changes in demand. A fall will lead to unused capacity and increasing unit costs.
It can be difficult to appeal directly to each individual customer because products must be designed to suit all customers.
GLOSSARY – HOW’S YOUR VOCAB?1. Market mapping…
2. Niche marketing…
3. Adding value…
4. Market sampling…
5. Market segment…
6. Risk-taking…
7. Non-ethical…
Press escape key to view answers
SAMPLE QUESTION 1
In April 2006, The Daily Telegraph reported that ‘Polish food shops and restaurants are continuing to open up and thrive on Britain’s high streets’. This trend continued to 2009.
The establishment of Polish food shops and restaurants in Britain is evidence of
A market mapping
B niche marketing
C adding value
D market sampling
[4]
ANSWER QUESTION 1
Correct answer is B – niche marketing
- Definition of niche marketing (1)
- Because the Polish population of UK will be relatively small (1)
- Who have different tastes in food and other products (1)
- Market mapping and market sampling are techniques to support
product positioning (1)
- Adding value is providing a product or service with an increment
to provide customers with more for their money (1)
Any acceptable answer which shows selective knowledge/application
and/or development
NB up to 2 marks out of 3 may be gained for part (b) if part (a) is
incorrect.
Maximum 2 marks for explaining why distracters are incorrect.
SAMPLE QUESTION 2
B&Q and Jewson serve different segments of the market for building and decorating products.
Which of the following is not a market segment for the above businesses?
A Do It Yourself (DIY) enthusiasts
B Self-employed electricians
C Homebase stores
D Private sector landlords
[4]
ANSWER QUESTION 2
Correct answer is C Homebase stores
- Market segmentation is how you classify people within a
market according to age, gender, lifestyle, etc (1 mark)
- Market segments share same characteristics, e.g. same age
bracket (1 mark)
- DIY enthusiasts, landlords and electricians will probably get
supplies from B&Q/Jewson because of a regular need (1
mark)
- but Homebase stores is a retailer/distribution
channel/competitor of DIY products, not a type of buyer (1
mark)
SAMPLE QUESTION 3
Sue Russell decided that she would leave her job at Denby Potteries (UK) Ltd in order to set up her own business.
Which of the following is the most likely explanation for Sue’s decision to set up her own business?
A To develop a niche market
B To reduce risk-taking
C For non-ethical reasons
D To work independently
[4]
ANSWER QUESTION 3Correct answer d – to work independently
- Defines niche market or non-ethical (1 mark)
- Risk taking is naturally increased because she will be running her own business (1 mark) and no longer have the security of employment (1 mark)
- Denby Potteries Ltd is a private sector business (1 mark) and so is unlikely to be too concerned with social and environmental benefits (1 mark)
- Denby may already provide products for a niche market (1 mark) but Sue could not be in a position to actually develop the market (1 mark)
- This decision might enable Sue to earn more money (1 mark) than she received as a salary when employed (1 mark)
- Other reasons for selling in business, e.g. something new, make more money (1 mark)
SAMPLE QUESTION 4
In December 2009, it was reported that Ferrero chocolates, imported from Italy, are available only in niche shops in India.
Which of the following is not true about niche markets?
A Prices tend to be high
B Supply tends to be low
C The number of consumers tends to be low
D Effective demand tends to be high
[4]
ANSWER QUESTION 4
Correct answer is D Effective demand tends to be high
3(b) - Niche markets are small markets with distinctive specialist requirements (1 mark)
- Therefore there will be fewer consumers (1 mark)
- Prices tend to be high because the products being sold are either specialist or distinctive quality (1 mark)
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