EDEXCEL&A&LEVEL&
BUSINESS&
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Essential&TopicAbyATopic&Study&Notes&
for&the&Edexcel&A&Level&Business&&
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... [Show More](AS)&Specification&Content&&
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!
What'You'Need'to'Know'
• Niche!and!mass!marketing!
• Market!size!&!growth!
• Market!share!
• Dynamic!markets!
• How!competition!affects!markets!
• Risk!and!uncertainty!
!
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”)!Topic:'The'Market'
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• 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'
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• 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'
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!•
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 [Show Less]