markets

• what is a market?


  this is where buyers and sellers meet together to exchange goods and services for the money
• 6 types of markets

  • local market
  • national market
  • global markets
  • consumer markets
  • trade markets - B2B
  • seasonal markets
• mass marketing


  the largest part of the market, where there are similar products offered by competitors - customers have general wants
• niche marketing


  a smaller segment of the larger market - customers will have more specific wants and needs
• benefits of mass marketing

  • wider potential customer base - higher profit margin
  • lower risk
  • low unit cost - economies of scale
  • market research costs relatively low - more standardised products
• benefits of niche marketing

  • less competition
  • clear focus - target particular customers
  • can often charge a premium price
  • customers are often more loyal
• problems of niche marketing

  • lack of economies of scale
  • risk of over dependance on a single product or market
  • likely to attract competition if successful
  • vunerable to market changes
• market share


  this is the proportion of total sales in a market made by one business

  formula:

  sales of a business/ total sales in market x 100

  • important as it indicates the performance of a business in relation to competitors
  • high market share can lead to a business to meet its objectives and gives competitive advantage
• market segmentation


  this is the breaking down of a market into subgroups that share similar characteristics and identifying groups with similar needs

  demographics factors:

  • age
  • gender
  • income

  geographic factors - different regions of the country

  psychographic - targeting customers based on personality and emotionally-based behaviour

  • can also be split based on culture
• benefits of market segmentation 


  to customers:

  • products closer to expectations
  • fit better with consumer culture and/or lifestyle
  • feel they are getting value for money

  to firm:

  • gain greater knowledge about consumers
  • target their advertising
  • increased brand loyalty
• drawbacks of market segmentation

  • increased costs due to more research and development being needed
  • a business may lose focus on its core identity or products because of a wide product range - leads to a fall in quality
• 4 market structures

  • perfect competition
  • monopolistic competition
  • oligopoly
  • monopoly
• perfect competition


  this is where many small firms produce virtually identical products at similar prices

  characteristics:

  • no business can influence the activities of others
  • no market leaders - they are price takers
  • homogeneous goods
  • no barriers to entry or exit
  • unrealistic

  example - agriculture market
• monopolistic competition


  this a large amount of firms that sell differentiated products

  characteristics:

  • more price control
  • use of advertising and marketing to differentiate products
  • few barriers to entry and exit

  examples - restaurants, hair salon
• oligopoly


  this is where there are many businesses but only a few large ones dominate the market

  characteristics:

  • differentiated products
  • strong brand identity
  • price wars
  • some barriers to entry
  • businesses in this market may sometimes collude - cartel is formed

  examples - the UK supermarket industry
• monopoly


  this is where there is a single producer within the market - business has 25% of the market - pure monopoly is when it is 100%

  characteristics:

  • high barriers to entry
  • price makers
  • benefit from economies of scale - reduced prices for consumers
  • profit maximisation

  example - Royal Mail
• consumer protection


  this is the practice of protecting customers from products that do not reach a certain level of safety and advertisements that are misleading

  reasons for this:

  • safety
  • globalisation
  • fake goods
  • fitness for purpose

  unsafe and misleading practices must be monitored by Advertising Standards Authority (ASA) and Financial Ombudsman
• law of demand


  states that the higher the price the lower the quantity demanded, and if prices are lower then demand increases

  • downward sloping demand curve
• supply


  the quantity of a product that suppliers will offer the market at a given price

  • as the price of a product increases, the suppliers will aim to maximise profits by increasing the quantity on offer for sale
  • this results in upward sloping curve
• market equilibrium


  this is where the demand and supply curve intersect

  
• factors causing a shift in the demand curve


  PASIFIC

  • population - age and size can impact demand
  • advertising - increasing this will increase demand
  • substitute goods - as well as the price of substitutes
  • income - e.g changes in minimum wage
  • fashion and tastes
  • interest rates - if rates rise people are likely to have less disposable income
  • complements - goods that go alongside another e.g toothbrush and toothpaste
• factors causing a shift in the supply curve

  • changes in cost of production - this could be cost of raw materials or cost of labour
  • exchange rates - a stronger £ will lead to cheaper imports
  • weather or climate - e.g agriculture
  • new technology - can increase productivity
  • legislation - e.g anti-pollution legislation
  • government subsidies
  • amount of competition - more competition means more supply
• price elasticity of demand


  the relationship between changes in demand and a change in price of a product
• elastic demand


  this is where the change in price is more than proportional change to the change in quantity demanded

  • goods are highly undifferentiated
  • there is likely to be a cheaper substitute
• inelastic demand


  this is where a change in price causes a less than proportional to the change in quantity demanded

  happens when:

  • the levels of competition are low
  • few substitutes
  • the goods are necessities
• why is elasticity of demand for decision making

  • can predict the effect of change in price on total revenue and expenditure
  • decide whether or not to enter a price war
• income elasticity of demand


  this shows the relationship between changes in quantity demanded and the change in real incomes

  • can be negative
• why is YED useful?

  • planning production capacity
  • planning stock levels
  • workforce planning
  • sales forecasting
• normal goods

  • positive income elasticity
  • everyday goods such as fresh fruit, coffee fruit juice, rail travel
• luxury goods

  • positive income elasticity greater than 1
  • e.g holidays abroad, sports car and designer clothes
• inferior goods

  • negative income elasticity
  • usually cheap substitute products
  • e.g frozen veg, supermarket own brand products