Theme 1: Marketing and people
1.1 Meeting customer needs
1.1.1 The Market
a) Mass markets and niche markets
A market is a place or a virtual environment to exchange goods and services at a price.
A mass market targets the whole population with generic or undifferentiated products (e.g.
regular toothpaste)
↪ Uses the same marketing strategy (heavy advertising) e.g. coca-cola
○ The potential customers in a mass market are huge, therefore, many businesses adopt
mass marketing strategies to reduce costs and improve profit margins. Mass marketing
means businesses can produce large quantities at a lower unit cost by exploiting
economies of scale. Mass market succeeds through heavy investments in advertising
campaigns.
Features of a mass market:
○ Customers form the largest part of the market (wide potential customer base)
○ Customer ‘needs’ and ‘wants’ are more general
○ Associated with higher production output and capacity
○ Potential for economies of scale
○ Success usually associated with low-cost (highly efficient) operation or market leading
brands
○ Lower risk - resources focused on one large market
○ Low unit costs from economies of scale
○ Market research relatively low
↪ The key to success in the mass market is to have low unit cost and exploit economies of
scale, and to have a brand image (name of business/product).
★ Advantages:
○ Large scale production means economies of scale and lower average unit costs
○ Straightforward as everyone is equally targeted
○ Large volume of sales means high revenues
○ High revenues can be pumped into R&D
★ Disadvantages:
○ Lots of competition
○ Homogeneous products need to be differentiated through marketing which can
be expensive
○ High volume production not flexible to demand changes
,A niche market is a small market selling tailor-made and specialised products at a premium
price (e.g. Sensodyne toothpaste for sensitive teeth)
↪ LRAC - Long Run Average Cost
○ Involves selling to a small consumer group-specific or specialised products. A niche
market is attractive to small businesses because there is potential for high-profit margins
by charging premium prices for goods and services. It helps small businesses to avoid
competition, focus their resources on the needs of targeted customers and achieve
customer loyalty and satisfaction.
★ Niche market ‘Pros’:
○ Less competition
○ Clear focus
○ Builds up specialist skill and knowledge
○ Can often charge higher prices
○ Profit margins often higher
○ Customers potentially more loyal
★ Niche market ‘Cons’:
○ 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
b) Dynamic markets
Dynamic markets have to constantly change their prices, quality and availability, convenience,
etc. Businesses will add inward-looking quality, features, convenience, USP.
Online retailing is a dynamic market because it is constantly changing, developing, expanding,
and offering customers new products and new ways to shop
★ Advantages:
○ Shop is open round the clock
○ Orders can be taken automatically without the need for staff
○ Shop can reach international market easily
○ Low overheads, no needs for shop premises
○ Stock can be easily withdrawn or updated to keep up with dynamic
market changes in tastes
○ Easy to set up (ebay)
○ Flexible
○ Opportunities for growth
★ Disadvantages:
○ Issues with sending goods back may put customers off
○ Issues with online security
○ Very competitive, hard to drive traffic to sites
○ Owners and IT skills
, ○ Problems with fraud/spasm/viruses
c) How competition affects the market
d) The difference between risk and uncertainty
Risks in business are factors that are not expected but can be quantified, such as the risk of
your factory being flooded.
Uncertainty is being unsure of the factors influencing sales and therefore being unable to predict
what will happen to the business in terms of its profits or growth. A business might try to
minimise uncertainty by using market research to anticipate the likelihood its decisions will have
on its position in the market.
1.1.2 Market research
e) Product and market orientation
Market orientation
➢ Market orientation is an outward-looking approach to new product development where
the key focus is on what products the consumers want.
↪ informed by market research
Product orientation
➢ Product orientation is an inward-looking approach to new product development where
the key focus is on what products can be made and the production process.
↪ informed by scientific research and technical development (R&D)
Market measurement
➢ Market can be measured through market size (how big or small the market is) - volume
of sales of products/services. Value is the total revenue from sales generated from a
market at a particular period.
○ Market size can increase due to extra sales or by businesses persuading
customers to pay higher prices. Secondly, premium brands of certain products
and services also work to increase the volume of sales thereby increasing the
market size.
Market growth
, ➢ Market growth is the percentage change or increase in sales by volume or value over a
period of time. Therefore, a market grows in percentage terms. As a result, a growing
market offers potential for increased sales for businesses operating in that market,
however, there is also the potential for increased competition as businesses strive to
gain the highest market share.
Market leader
➢ A market leader refers to a firm with the largest market share in a market
○ Importance of market share
■ It is an excellent measure of a firm's success in a market because it
compares a firm’s sales to those of competitors.
■ Due to competition in a growing market it is possible for total sales in a
firm to increase, but its market share could be falling.
↪ In a competitive market, businesses compete on differentiation,
convenience, and quality by adding value.
f) Primary and secondary market research
Market analysis
➢ Market analysis refers to the study of market conditions to assist strategic planning and
decision-making in a firm. Market analysis can be qualitative or quantitative, sometimes
both.
Quantitative market analysis:
➢ Involves using statistical data or information in order to draw conclusions about the
nature of the market (collect information in the form of data, numbers and statistics)
Qualitative market analysis:
➢ This involves identifying reasons, feelings, values and nuances which influence certain
customer behaviours and actions in the market
Types of market research:
Primary market research refers to the collection of firsthand data or non-existing data for a
specific purpose.
★ Sources of data:
○ Experiment
○ Observation
○ Focus group
○ Survey
○ Questionnaire
○ Postal
○ Telephone
1.1 Meeting customer needs
1.1.1 The Market
a) Mass markets and niche markets
A market is a place or a virtual environment to exchange goods and services at a price.
A mass market targets the whole population with generic or undifferentiated products (e.g.
regular toothpaste)
↪ Uses the same marketing strategy (heavy advertising) e.g. coca-cola
○ The potential customers in a mass market are huge, therefore, many businesses adopt
mass marketing strategies to reduce costs and improve profit margins. Mass marketing
means businesses can produce large quantities at a lower unit cost by exploiting
economies of scale. Mass market succeeds through heavy investments in advertising
campaigns.
Features of a mass market:
○ Customers form the largest part of the market (wide potential customer base)
○ Customer ‘needs’ and ‘wants’ are more general
○ Associated with higher production output and capacity
○ Potential for economies of scale
○ Success usually associated with low-cost (highly efficient) operation or market leading
brands
○ Lower risk - resources focused on one large market
○ Low unit costs from economies of scale
○ Market research relatively low
↪ The key to success in the mass market is to have low unit cost and exploit economies of
scale, and to have a brand image (name of business/product).
★ Advantages:
○ Large scale production means economies of scale and lower average unit costs
○ Straightforward as everyone is equally targeted
○ Large volume of sales means high revenues
○ High revenues can be pumped into R&D
★ Disadvantages:
○ Lots of competition
○ Homogeneous products need to be differentiated through marketing which can
be expensive
○ High volume production not flexible to demand changes
,A niche market is a small market selling tailor-made and specialised products at a premium
price (e.g. Sensodyne toothpaste for sensitive teeth)
↪ LRAC - Long Run Average Cost
○ Involves selling to a small consumer group-specific or specialised products. A niche
market is attractive to small businesses because there is potential for high-profit margins
by charging premium prices for goods and services. It helps small businesses to avoid
competition, focus their resources on the needs of targeted customers and achieve
customer loyalty and satisfaction.
★ Niche market ‘Pros’:
○ Less competition
○ Clear focus
○ Builds up specialist skill and knowledge
○ Can often charge higher prices
○ Profit margins often higher
○ Customers potentially more loyal
★ Niche market ‘Cons’:
○ 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
b) Dynamic markets
Dynamic markets have to constantly change their prices, quality and availability, convenience,
etc. Businesses will add inward-looking quality, features, convenience, USP.
Online retailing is a dynamic market because it is constantly changing, developing, expanding,
and offering customers new products and new ways to shop
★ Advantages:
○ Shop is open round the clock
○ Orders can be taken automatically without the need for staff
○ Shop can reach international market easily
○ Low overheads, no needs for shop premises
○ Stock can be easily withdrawn or updated to keep up with dynamic
market changes in tastes
○ Easy to set up (ebay)
○ Flexible
○ Opportunities for growth
★ Disadvantages:
○ Issues with sending goods back may put customers off
○ Issues with online security
○ Very competitive, hard to drive traffic to sites
○ Owners and IT skills
, ○ Problems with fraud/spasm/viruses
c) How competition affects the market
d) The difference between risk and uncertainty
Risks in business are factors that are not expected but can be quantified, such as the risk of
your factory being flooded.
Uncertainty is being unsure of the factors influencing sales and therefore being unable to predict
what will happen to the business in terms of its profits or growth. A business might try to
minimise uncertainty by using market research to anticipate the likelihood its decisions will have
on its position in the market.
1.1.2 Market research
e) Product and market orientation
Market orientation
➢ Market orientation is an outward-looking approach to new product development where
the key focus is on what products the consumers want.
↪ informed by market research
Product orientation
➢ Product orientation is an inward-looking approach to new product development where
the key focus is on what products can be made and the production process.
↪ informed by scientific research and technical development (R&D)
Market measurement
➢ Market can be measured through market size (how big or small the market is) - volume
of sales of products/services. Value is the total revenue from sales generated from a
market at a particular period.
○ Market size can increase due to extra sales or by businesses persuading
customers to pay higher prices. Secondly, premium brands of certain products
and services also work to increase the volume of sales thereby increasing the
market size.
Market growth
, ➢ Market growth is the percentage change or increase in sales by volume or value over a
period of time. Therefore, a market grows in percentage terms. As a result, a growing
market offers potential for increased sales for businesses operating in that market,
however, there is also the potential for increased competition as businesses strive to
gain the highest market share.
Market leader
➢ A market leader refers to a firm with the largest market share in a market
○ Importance of market share
■ It is an excellent measure of a firm's success in a market because it
compares a firm’s sales to those of competitors.
■ Due to competition in a growing market it is possible for total sales in a
firm to increase, but its market share could be falling.
↪ In a competitive market, businesses compete on differentiation,
convenience, and quality by adding value.
f) Primary and secondary market research
Market analysis
➢ Market analysis refers to the study of market conditions to assist strategic planning and
decision-making in a firm. Market analysis can be qualitative or quantitative, sometimes
both.
Quantitative market analysis:
➢ Involves using statistical data or information in order to draw conclusions about the
nature of the market (collect information in the form of data, numbers and statistics)
Qualitative market analysis:
➢ This involves identifying reasons, feelings, values and nuances which influence certain
customer behaviours and actions in the market
Types of market research:
Primary market research refers to the collection of firsthand data or non-existing data for a
specific purpose.
★ Sources of data:
○ Experiment
○ Observation
○ Focus group
○ Survey
○ Questionnaire
○ Postal
○ Telephone
