Pearson Edexcel A-level Business

Topic: The Market Theme 1: Section 1.1 Meeting Customer Needs Niche and Mass Marketing One way of analysing the differences between markets is to make a distinction between niche and mass markets. This is a similar i ...

Topic: The Market Theme 1: Section 1.1 Meeting Customer Needs Niche and Mass Marketing One way of analysing the differences between markets is to make a distinction between niche and mass markets. This is a similar idea to market segmentation, although it is based more on the overall characteristics of a market (e.g. size, extent of product differentiation) than other ways in which customer needs and wants are different. Niche Marketing Where a business targets a smaller segment of a larger market, where customers have specific needs and wants Mass Marketing Where a business sells into the largest part of the market, where there are many similar products offered by competitors The key features of a mass market (reverse these to identify key features of a niche) are: • Customers form the majority in the market • Customer needs and wants are more “general” & less “specific” • Associated with higher production output and capacity + potential for economies of scale • Success usually associated with lowOcost(highly efficient) operation or market leading brands So, given that a mass market is a larger opportunity, why might a business want to target a niche? As with all marketing choices there are potential benefits and drawbacks: Advantages of Targeting a Niche Disadvantages of Targeting a Niche Less competition O a “big fish in a small pond” Clear focus O target particular customers Builds up specialist skill and knowledge Can often charge a higher price Profit margins often higher Customers tend to be more loyal Lack of economies of scale Risk of over dependence on a single product or market Likely to attract competition if successful Vulnerable to market changes – all “eggs in one basket” Market Size As the name implies, market size is a measure of the total available demand for competitors in a market. Key points to remember about market size are: • It indicates the potential sales for a firm (the “size of the prize”) What You Need to Know • Niche and mass marketing • Market size & growth • Market share • Dynamic markets • How competition affects markets • Risk and uncertainty Topic: The Market Theme 1: Section 1.1 Meeting Customer Needs • Normally measured in terms of annual sales or volume sold per year • Usually measured in terms of both volume (units) and value (sales) • Size of individual segments within the overall market can also be measured • Not normally a marketing objective – since a firm cannot influence it • Not always easy to measure, since how you define the market determines what you are trying to measure! Index numbers are a useful way of illustrating how market size changes over time: Year Market Size (£) Index Number (2012 = 100) 2012 5,000,000 100 2013 5,250,000 105 2014 5,600,000 112 2015 6,250,000 125 Market Growth Market growth measures the rate of change of market size, which might be rising, falling or remaining stable. Key points to remember about market growth are: • A key indicator for existing and potential market entrants – more businesses might be expected to try to enter fastOgrowing markets • Growth rate can be calculated using either value (e.g. market sales) or volume (units sold) • Market growth is usually expressed as a percentage change on the previous period • Growth is usually measured on an annual basis An example of how market growth is calculated is shown in the table below. In this example we’ve used volume sold as the measure of market size. The same kind of calculation would be applied to a revenueObased measure of market size. Year Units Sold [A] Change (Units) [B] Growth Rate (%) [B]/[A from previous year] x 100 2012 1,000,000 O O 2013 1,100,000 100,000 10.0% 2014 1,350,000 250,000 22.7% 2015 1,475,000 125,000 9.3% Market Share Market share is a really important measure and in many businesses it forms the basis for a key corporate objective. Key points about market share: • Expressed as a percentage • Explains how the overall market is split between the existing competitors • Tends to be calculated based on market value, but volume can also be used • Good indicator of competitive advantage: market leaders (with the highest market share) usually have some kind of advantage Topic: The Market Theme 1: Section 1.1 Meeting Customer Needs • Key is to look for significant +/O changes (for example a business that used to enjoy the largest market share but which has now lost its leadership position). Here is an example of how the market share is calculated.: Business Sales in 2015 (£) Cumulative Market Sales (£) Market Share (%) in 2015 A 250,000 250,000 12.5% B 400,000 650,000 20.0% C 900,000 1,550,000 45.0% D 175,000 1,725,000 8.75% E 275,000 2,000,000 13.75% Dynamic Markets All markets are dynamic – they all change! But the pace and nature of change varies considerably by market. Key sources of change include: • Customer tastes and preferences • Impact of technology on what customers buy and how they buy • Impact of new market entrants Some examples of highly dynamic markets include: • Film Industry • Disrupted by online streaming • E.g. Netflix • Taxi Services • Disrupted by mobile apps • E.g. Uber • Camera Market • Disrupted by sophisticated smartphones • E.g. Go Pro, iPhone How Competition Affects the Market You’ll look in more detail later in your studies at the role of competition in markets. For now the key points to remember are: • Battle for Market Share • A constant battle to gain or protect share • Threat of new market entrants always there • Pricing • Price wars a regular feature of intense competition • Stronger competitors often set the market price • Battle for Competitive Advantage • Product differentiation is a key part of competition • Can advantages be sustained? The challenge for all businesses in a market is to establish and sustain an edge over the competition – this is known as competitive advantage. Competitive advantage is: Topic: The Market Theme 1: Section 1.1 Meeting Customer Needs • The ability of a business to add more value for its customers than its rivals and attain a position of relative advantage • A situation where a business has an advantage over its competitors by being able to offer better value, quality and/or service The Role of Risk and Uncertainty in Markets The key points to remember are: RISK UNCERTAINTY The possibility that things will go wrong Risk can be assessed managed – e.g. through contingency planning The unpredictable and uncontrollable events that affect business Examples Risk in making business investments Managed through investment appraisal Risk of a product breaching health & safety regulations Examples Uncertainty about the sales success for a new product launch Unpredictable effects of launching a price war against the competition Key Terms Market size The overall size (value or volume) or demand for a specific market Market growth The percentage rate of growth in market size over a period Market share The proportion of market size held by each competitor in a market Niche market A smaller segment of a larger market, where customers have specific needs and wants requiring differentiated products Mass market The largest part of the market, where there are many similar, undifferentiated products offered by competitors Topic: Marketing Research Theme 1: Section 1.1 Meeting Customer Needs What is Marketing Research? Marketing research involves the gathering and analysis of research to help support the implementation of marketing strategy. The right kind of market research can provide important insights that aid marketing strategy and decisionFmaking. For example: • Dimensions of the market (size, structure, growth, trends etc.) • Competitor strategies (market share, positioning, USPs) • Needs, wants and expectations of customers (& how these are changing) • Market segments – existing and potential opportunities for new segments Product and market orientation A broad distinction can be made between a business that has a: Product orientation Business develops products based on what it is good at doing Market orientation Business responds to customer needs and wants – designs products accordingly It is generally agreed that having a market orientation is more likely to result in a successful, sustainable business. Market orientation is linked to marketing success because: Markets are much more dynamic E.g. Impact of technological change which is shortening product life cycles Customers are becoming much more demanding E.g. Expecting much higher level of customer service and able to share experiences via social media Barriers to market entry getting lower E.g. Many new entrants to consumer markets utilising online and mobile technology What You Need to Know Product and market orientation Primary and secondary market research data Quantitative and qualitative research Limitations of market research, sample size and bias Use of ICT to support market research Segmentation (covered in a separate presentation) Topic: Marketing Research Theme 1: Section 1.1 Meeting Customer Needs Primary and Secondary Research There are two main types of marketing research – primary and secondary: The main benefits and drawbacks of primary and secondary research are outlined below: PRIMARY RESEARCH SECONDARY RESEARCH BENEFITS Directly focused to research objectives Often free and easy to obtain Kept private – not publicly available Good source of market insights More detailed insights – particularly into customer views Quick to access and use DRAWBACKS TimeFconsuming and costly to obtain Can quickly become out of date Risk of survey bias Not tailored to business needs Sampling may not be representative Specialist reports often quite expensive The main formats of primary and secondary research are: PRIMARY RESARCH SECONDARY RESEARCH Focus groups Published market research reports Observation Internal transactional data Surveys Google Telephone interviews Official statistics (ONS) Test marketing Trade associations Experiments Media reports Competitor materials Topic: Marketing Research Theme 1: Section 1.1 Meeting Customer Needs More on the Main Methods of Primary Research Observation Watching how consumers behave provides many insights, but can leave questions unanswered. Observation works well in retail markets; sit outside a shop and watch how many people walk by, look at the window display etc. Postal surveys Sent to the address of potential customers who complete the form and send back in a preFpaid envelope. Relatively cheap, a postal survey can cover a wide geographical area and avoids the potential for interviewer bias. However, response rates (the proportion of people sending back a completed survey) are often very low and it can take be a long time before enough surveys are returned Telephone interviews Not to be confused with "telesales" (which is a method of selling), the telephone interview allows quicker feedback than a postal survey. However, potential customers are often wary of being called and may be reluctant to give anything other than short answers Online surveys Increasingly popular and relatively low cost, online surveys are widely used by small businesses as a way of capturing the views of existing and potential customers FaceLtoLface surveys Personal interviews conducted faceFtoFface. A costly, but good way to get detailed insights from an individual Focus groups Groups of potential customers are brought together to discuss their feelings about a product or market. Focus groups are a good way of getting detailed information about customer tastes and preferences Test marketing This involves selling a new product in a small section of the market in order to assess customer reaction. For example, a startFup could start by selling to a limited local area in order to ironFout product issues. Software firms often testFmarket their products by offering "beta" versions for testing by a small group of potential customers. Test marketing can be a good predictor of how a new product or service will be received by the larger market (provided that it can be kept secret from competitors! Quantitative v Qualitative Another useful way of categorising market research is to make a distinction between research that is based on hard data, and research that is based on views and opinions. This is what we mean be quantitative & qualitative research. Key points on quantitative research: • Concerned with and based on data • Addresses research questions such as “how many?” “how often”, “who?”, “when?” and “where?” • Based on larger samples and is, therefore, more statistically valid • Main methods of obtaining quantitative data are the various forms of survey – i.e. telephone, postal, faceFtoFface and online Topic: Marketing Research Theme 1: Section 1.1 Meeting Customer Needs Key points on qualitative research: • Based on opinions, attitudes, beliefs and intentions • Answers research questions such as “Why”? “Would? or “How?” • Aims to understand why customers behave in a certain way or how they may respond to a new product or service • Focus groups and interviews are common methods used to collect qualitative data The main benefits and potential drawbacks of qualitative research include: BENEFITS DRAWBACKS Essential for important new product development and launches Expensive to collect and analyse – requires specialist research skills Focused on understanding customer needs, wants, expectations = very useful insights for a business Based around opinions – always a risk that sample is not representative Can highlight issues that need addressing – e.g. why customers don’t buy Effective way of testing elements of the marketing mix – e.g. new branding, promotional campaigns The main benefits and potential drawbacks of quantitative research include: BENEFITS DRAWBACKS Data relatively easy to analyse Focuses on data rather than explaining why things happen Numerical data provides insights into relevant trends Doesn’t explain the reasons behind numerical trends Can be compared with data from other sources (e.g. competitors, history) May lack reliability if sample size and method is not valid Sampling in Marketing Research Sampling involves the gathering of data from a sample of respondents, the results of which should be representative of the population (e.g. target market) as a whole. Sampling is widely used in marketing research and it can provide statistically valid insights into the profile of the overall population (e.g. market) being analysed. The main benefits and potential drawbacks of sampling are summarised below: BENEFITS DRAWBACKS Even a relatively small sample size (if representative) can provide useful research insights Biggest risk = sample is unrepresentative of population – leading to incorrect conclusions Topic: Marketing Research Theme 1: Section 1.1 Meeting Customer Needs Using sampling before making marketing decisions can reduce risk and costs Risk of bias in research questions Sampling is flexible and relatively quick Less useful in market segments where customer tastes & preferences are changing frequently Growing Use of IT to Support Market Research The use of IT is now commonplace and essential in market research: • The capabilities of modern business IT has transformed market research • Now relative easy to learn about consumer preferences and buying habits by mining massive sets of quantitative data • Complex algorithms can uncover patterns and correlations that enable more effective marketing A great example is the increasingly widespread adoption of data mining: • Data mining is an example of secondary research • Relies on data that is already there • Key benefits – Quick & automated – Huge data sets can be analysed = reduced need for sampling – Data can be linked (e.g. transactional data with customer profiles) Another example is the use of social media to support market research: • Social media data is a source of both primary and secondary research • Software can quickly highlight what customers are saying about the product or brand (secondary research) • Surveys easy to set up and analyse results in realFtime • Wide range of powerful software applications to manage social media research & integrate with other business systems