Table of Contents
Introduction to the Market and Marketing
4.1 The Role of Marketing – Introduction
Lets begin with a minor IGCSE Re-cap
A business provides either a good or a service:
A ‘Good’ is a physical product manufactured and designed by the business
A ‘Service’ is a product offered in various forms, this can be: expertise, information, help etc.
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Customers (or people in general) have different needs and wants.
A ‘Need‘ is described to be an essential necessity that must be fulfilled. These are required for survival, for example food, shelter, warmth and water.
A ‘Want‘ is simply a desire and is not compulsory.
Customers can be private individuals (like you and me), other businesses or even the government! Generally, anyone who purchases is a customer. This isn’t the same as a consumer.
Markets that are specifically catered for private individuals are known as: Consumer Markets
Markets catered for organizations (i.e. businesses and the government) are: Commercial Markets (also known as Industrial Markets)
The department in a business that focuses on marketing is quite simply known as the Market Department.
They focus to:
– Make sure the correct products are supplied to fulfill needs and are distributed to the correct place
– Set the correct price so that the products sell and profit is earned as well as to decrease competition to a minimum
– Ensure that there is enough promotion and advertising such that customers are persuaded to purchase.
The Marketing Department also works in close relation to other departments in order to ensure success:
Production:
– Works together to create sales forecasts and schedules (usually from market research which can be secondary or primary)
– Works together in terms of Research and Development
– Possible conflict; Marketing managers aim to push the product to the market as fast as possible to begin earning profit whereas Production managers may want to spend more time developing the product and testing it.
Finance:
– Creates budgets to limit the Marketing department and ensure that they stay on task and are focused
– Conflict; Finance department will try to ensure all costs are covered and thus may try to set a high price for the market whereas the Marketing department may want to start with a low price (e.g. using penetration pricing) in order to have a key grasp of the market.
What is Marketing?
– Marketing is the process in which business’s aim to identify customer needs and anticipate to satisfy them in the most profitable way possible such that customers will come back to repurchase the product again in the future.
– Keywords in the definition: customer needs, satisfy, profitable
– By Marketing, businesses can
+ Create new customers (by attracting new ones)
+ Identify customer needs
+ Produce products that satisfy those needs
+ Inform customers about product & persuade them to purchase.
etc.
– Key things about Marketing:
+ It is a process and thus is continuous (It won’t have a start or an end unless the business dies)
+ It is not only about selling, it affects all aspects of the business
+ It is a business philosophy; it revolves around the way in which customer needs are satisfied.
What is a Market?
– A Market is a place where buyers and sellers meet
– Our economy is made up of different market segments for example: Food, Tourism, Electronics etc.
How is Market size defined?
Each specific market differs in size and some are larger than others. These depend on a various of factors.
– Number of customers (Means you have a larger target audience and thus the business is more likely to sell)
– Number of shops (location): Businesses like Subway and McDonalds have a huge number of shops globally distributed in major cities and district. This means that their size of market is not constricted to the domestic or local market.
– Barriers to entry: This refers to any restrictions given to the business (usually placed by the government) e.g. set up costs, economies of scale and other businesses. Sometimes it’s hard for a small business to set up of their market is dominated by a business with huge market power.
Market Growth
– The term ‘Market Growth’ quite obviously refers to the increase in size of a certain market per a certain period of time i.e. usually a year.
– This can be determined either by value or volume of sales in a market
– For easy comparison, this number is usually expressed as a percentage. This also helps indicate the extent of market growth.
– If a business were to have high market growth, it would help attract suppliers and potential investors as they are attracted to profit.
– This refers to the total value of sales a business has within a specific market and is also expressed in a percentage.
Formula: Market Share = ( Firm’s sales revenue/ Industry’s sales revenue ) x 100
– There is a positive correlation between market share and profits, however this is not always the case.
A small business can dominate the majority of a market share in a certain area, however due to various factors, it is possible that they could be making a loss.
– Examples of businesses that have a larger Market Share inculde: Coca Cola, McDonalds, Adidas and Nike etc.
– These businesses are also good examples of ‘Market Leaders’ as they dominate the market and can benefit from economies of scale with this higher status.
– Thus, increasing market share has become a common objective in this growing world, businesses hope that by having a high market share they can benefit from further economies of scale and have better pricing power so that they are less threatened by competition.
Market Concentration
– This is used to measure how much competition exists within a market by comparing the market share of the largest businesses in the industry.
– If you add the market shares together, a concentration ration can be given. E.g. If for a certain food industry with a three firm concentration ratio of 98% existed then it would mean that business A,B,C (the top 3 firms) account for 98% of this industry’s output. (Remember that output is measured by sales revenue over a certain period of time)
This would mean that the industry would not be highly competitive as the other firms only account for 2% of the total sales in the said market.
