Welcome to "The Market"!
Hello there! Welcome to your study notes for the first part of the Marketing and People unit. In this chapter, we are going to explore how markets work, why they change, and how businesses figure out what customers want. Whether you are dreaming of starting your own brand or just trying to ace your exams, understanding the market is your first step to success. Don't worry if some of the economic graphs or formulas look a bit scary at first—we will break them down together step-by-step!
1. Mass Markets and Niche Markets
Imagine you are selling shoes. You could try to sell basic sneakers to everyone in the world (that’s a mass market), or you could sell specialized climbing boots only to professional mountain explorers (that’s a niche market).
Mass Markets
A mass market is a very large market where businesses sell products that appeal to almost everyone. Think of things like toothpaste, bottled water, or fast food.
• Characteristics: High volume of sales, usually lower prices, and heavy advertising to keep the brand famous.
• Pros: You can sell a lot of items and benefit from "economies of scale" (it’s cheaper to make things in huge quantities).
• Cons: Lots of competition and lower profit margins per item.
Niche Markets
A niche market is a small, specialized gap in a larger market. Think of organic, gluten-free, handmade dog treats.
• Characteristics: Smaller number of customers, but they are very loyal. Products are often high quality and high price.
• Pros: Less competition and you can charge a premium price (higher price).
• Cons: If the niche is too small, the business might not make enough money to survive.
Market Size and Market Share
How do we measure success? We use two main numbers:
1. Market Size: The total value or volume of sales in the whole market (e.g., "The global smartphone market is worth billions").
2. Market Share: The percentage of that total market that one business owns.
The Formula:
\( \text{Market Share} = \frac{\text{Sales of one business}}{\text{Total sales in the market}} \times 100 \)
Brands
A brand is more than just a logo. It’s the "personality" of a product that helps it stand out. Strong brands like Apple or Nike can charge more because customers trust them.
Key Takeaway: Mass markets are about "selling a lot to everyone," while niche markets are about "selling something special to a few."
2. Dynamic Markets
A dynamic market is one that is always changing. If a business stays the same while the market moves, it will fail (remember Nokia or Blockbuster?).
How Markets Change
• Online Retailing: More people shop on their phones than in physical stores now. This has forced traditional shops to change or close.
• Innovation: New ideas and technology create new products (like electric cars) and make old ones disappear.
• Market Growth: This happens when more people want a product or when the product becomes cheaper to buy.
Adapting to Change
To survive, businesses must adapt. This might mean investing in market research to see what customers want next, or using innovation to create something better than their competitors.
Quick Review Box:
Q: Why is the smartphone market dynamic?
A: Because technology changes every year, new brands enter the market, and customer tastes shift constantly!
3. Competition, Risk, and Uncertainty
Competition is when different businesses try to win the same customers. This is great for you (the customer) because it leads to lower prices and better quality. For businesses, it means they have to work harder to stay ahead.
Risk vs. Uncertainty
These two sound the same, but they are different in Business Studies:
• Risk: This is something a business can plan for. They can calculate the "odds" of it happening (e.g., the risk that a new product might not sell).
• Uncertainty: This is something a business cannot predict or control. Think of a sudden global pandemic or a natural disaster.
Key Takeaway: Businesses take risks to get rewards, but they try to minimize uncertainty through careful planning.
4. Demand
Demand is the amount of a product that customers are willing and able to buy at a certain price.
Factors leading to a change in Demand
What makes people want to buy more (or less) of something?
1. Prices of Substitutes: If Pepsi gets cheaper, demand for Coca-Cola might go down.
2. Prices of Complements: If the price of printers goes up, demand for ink cartridges goes down (because they are used together).
3. Consumer Incomes: When people earn more, they buy more "normal" goods.
4. Fashions and Tastes: Trends change! (e.g., the rise in demand for plant-based milk).
5. Advertising and Branding: Good marketing makes people want the product more.
6. Demographics: An aging population might increase demand for healthcare.
7. External Shocks: Things like wars or weather changes.
8. Seasonality: Demand for ice cream goes up in summer and down in winter.
Common Mistake: Don't confuse a "movement along the curve" (caused by a change in price) with a "shift in the curve" (caused by the factors above). If fashion changes, the whole demand curve shifts!
5. Supply
Supply is the amount of a product that businesses are willing and able to sell at a certain price.
Factors leading to a change in Supply
1. Costs of Production: If wages or raw materials get more expensive, supply goes down.
2. New Technology: Robots or better software make production faster and cheaper, increasing supply.
3. Indirect Taxes: Taxes on things like tobacco or petrol make it more expensive to supply them.
4. Government Subsidies: This is "free money" from the government to help businesses produce more.
5. External Shocks: For example, a bad harvest will decrease the supply of wheat.
Memory Aid: Think of Supply as Selling. Anything that makes it harder or more expensive to sell will decrease supply.
6. Interaction of Demand and Supply
When we put Demand and Supply together on a graph, they cross at a point called Equilibrium. This is the "perfect" price where the amount customers want to buy exactly matches the amount businesses want to sell.
• If Demand increases (shifts right), the price usually goes up.
• If Supply increases (shifts right), the price usually goes down.
Key Takeaway: The market is like a tug-of-war between buyers (Demand) and sellers (Supply). The price is where they meet in the middle.
7. Price Elasticity of Demand (PED)
PED measures how much customers react to a change in price.
Analogy: Is your demand "stretchy" (elastic) or "stiff" (inelastic)?
Calculating PED
\( \text{PED} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}} \)
Interpreting the Numbers
• Inelastic (Result is between 0 and 1): Customers are not very sensitive to price. Even if the price goes up, they still buy it (e.g., petrol or medicine).
• Elastic (Result is greater than 1): Customers are very sensitive. If the price goes up a little, they stop buying it (e.g., a specific brand of chocolate bar).
PED and Total Revenue
• If demand is Inelastic: Increasing the price will increase total revenue.
• If demand is Elastic: Increasing the price will decrease total revenue.
Did you know? Businesses with strong branding try to make their demand inelastic so they can raise prices without losing too many customers!
8. Income Elasticity of Demand (YED)
YED measures how much demand changes when a consumer’s income changes.
Calculating YED
\( \text{YED} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}} \)
Normal vs. Inferior Goods
• Normal Goods (Positive YED): As people get richer, they buy more of these (e.g., holidays, designer clothes).
• Inferior Goods (Negative YED): As people get richer, they buy less of these because they can afford better (e.g., supermarket own-brand basic bread or bus travel).
Key Takeaway for YED: If the number is positive, it's a normal good. If the number is negative, it's an inferior good.
Don't worry if the math seems tricky at first! Just remember: Elasticity is always about "Responsiveness." How much does one thing change when another thing moves? Keep practicing the formulas, and you'll be a market expert in no time!