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
... [Show More] 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 [Show Less]