1.3 - Markets

• Definition of market

  any place where buyers and sellers meet to exchange goods/services usually at a set price
• Definition of competition

  number of firms that are operating in the market, they are competing to sell similar products to the same target market
• What is a global market + 5 advantages

  -selling goods/services to overseas markets

  • higher earnings - greater market share
  • spreads risks
  • economies of scale
  • survival
  • saturation of home markets
• What is a local market + example

  -selling to a smaller geographical location/ selling locally e.g local butchers
• What is a mass market? + examples

  -involves a business aiming its products at the whole market, rather than particular parts of them e.g tomato ketchup
• 2 advantages of a mass market

  -can produce large numbers of products - benefit from economies of scale -> lower operations costs

  -higher profits -> targeting the whole market = more sales
• 2 disadvantages of mass markets

  -expensive to set up - high cost of machinery + high waste costs

  -fierce competition from competitors in the markets -> may need to spend lots of money on advertisement + potential price wars + low prices
• What is a niche market? + examples

  -where a business targets a smaller segment of a larger market, where customers have specific needs and wants

  e.g The body shop / Lush
• 3 advantages of a niche market

  -businesses can charge higher prices as customers are prepared to pay higher prices for their products + are brand loyal

  -promotion costs can be kept lower as they are not attracting the whole market, customers may promote the product themselves

  -can avoid competition -> may be overlooked by mass market businesses as it's seen as too unprofitable to operate in
• 3 disadvantages of niche markets

  -cannot benefit from economies of scale

  -hard to expand + grow in a smaller segement + limited profit

  -as the market continues to grow, larger businesses may join -> resulting in high competition
• Types of markets - trade/consumer

  trade - selling to other businesses

  consumer - selling to private individuals
• Types of markets - product/service

  product - physical or tangible products e.g a car

  services - non-physical or intangible products e.g insurance companies
• Types of markets - seasonal + examples

  -sales peak at certain times of the year e.g holidays peak in the summer holidays or Christmas decoration peaks in the winter months
• what is market size + formula

  -the total volume of sales in the market

  number of units sold x price
• what does a high market size mean?

  -indicates there is a large number of customers = high potential of gaining customers

  ----->> likely to be lots of competition + high barriers to entry
• What is market share + formula

  -the proportion of total market sales that a particular firm has

  sales of firm A/total market sales x 100
• What does a high market share mean?

  -if a firm has a high market share it is likely they are to benefit from economies of scale -> greater efficiencey
• what is market growth + formula

  -the percentage growth in the size of the market, measured over a specific period

  change in sales over a period of time/ original sales x 100
• What does a high market growth mean?

  a growing market can indicate potential sales growth and more customers for the business
• Definition of market segmentation + examples

  -investigating how the market for a product/service is divided e.g gender, age ,income and geographical factors
• 3 benefits to a firm of market segmentation

  -can target their advertisements to a specific group -> maximising its effect

  -can adjust the product to consumer preferences ->which can increase brand loyalty as customers are more happy with the products

  -firms have better knowledge and understanding of their customers needs and wants -> can better match products to customer demands
• 3 benefits of market segmentation to customers

  -recieve a product that is closer to their expectations

  -can fit better with their budgets + lifestyles

  -because marketing is targeted customers are aware of products new features
• what is perfect competition? + 3 characteristics

  -large number of businesses competing and no business is large enough to influence the activities of another

  -no market leaders or price leaders -> price takers

  -goods are homogenous -> no branding/differentiation

  -there are no barriers to entry or exit -> businesses are free to enter or leave the market
• what is monopoly ? + 2 characteristics

  -a single producer dominates the market -> pure monopoly, any business with over 25% of the market

  -likely to erect barriers to entry to prevent others from joining

  -price makers
• what is oligopoly? + 3 characteristics

  -there are many businesses but only a few dominate the market

  -each business have differentiated products with a strong brand identity

  -brand loyalty is encouraged by heavy advertisement + promotion

  -some barriers to entry exists -> high start up costs
• what is monopolistic competition? + 4 characteristics

  -large number of small businesses competing with each other e.g hairdressers

  -few barriers to entry

  -brand identity is weak

  -products are similar but differentiated from each other

  -not price takers but have limited control over the prices they set
• Why do consumers need protection?

  -businesses understand how to manipulate customers behaviours -> try to control price + competition in the market

  -businesses are in the position to produce goods + services which are not fully meeting expectations of consumers
• Examples of legislation to protect customers from business exploitation

  -sale and supply of goods act ->states that goods must be of merchantable quality + fit for their purpose

  -trade descriptions acts -> designed to prevent misleading descriptions of foods with regard of their content/size/weight and price.

  -CMA -> control the power of big businesses in the market
• Definition of demand

  -amount society is willing and able to buy at a set price at a given point in time
• Definition of supply

  -the amount of a product that suppliers will offer to the market at a given price
• Definition of equilibrium

  -occurs when demand matches supply

  -> excess supply or demand is a 'disequilibrium'
• A demand graph

  
• A supply graph

  
• Factors that lead to a shift in demand

  -change in consumer incomes

  -change in price

  -fashion, taste and preferences changed

  -changes in prices of subsititutes

  -external shocks

  -advertising + branding
• Factors that cause a shift in the supply

  -productivity

  -technology

  -subsidies

  -weather

  -cost of production

  -indirect taxes
• Definition of price elasticity

  -measures the sensitivity of demand to a change in price

  ---->> price elastic + inelastic
• Definition of income elasticity

  -measures how sensitive demand is to a change in income

  --->> inferior, normal, luxury goods
• Nature of inferior, normal and luxury goods

  -inferior : these are cheap substitutes of products that people prefer to buy (normal goods) - bought when income is reduced

  normal : as real incomes increase, the demand increases

  luxury : these are more expensive items that people buy, a significant increase in income, results in more luxury items being bought