Marketing and the market
Contents: 10 sections
What marketing is for
Marketing is not another word for advertising. Advertising is one method inside one element of the marketing mix. Marketing is the whole job of finding out what customers want, then getting it to them at a price they will pay, in a place they will buy it, with enough persuasion that they choose this business rather than a rival.
The syllabus names five roles.
| Role of marketing | What the business actually does | Why it bothers |
|---|---|---|
| Identifying customer needs | Research the market: ask, watch, count | A product nobody wants fails however well it is made |
| Satisfying customer needs | Design the product, set the price, choose where to sell it | Sales only happen where the offer matches the need |
| Maintaining customer loyalty | Reward schemes, consistent quality, after-sales service | Keeping an existing customer costs far less than winning a new one |
| Building customer relationships | Reply to messages, handle complaints well, personalise offers | A customer who feels known buys again and recommends the business |
| Anticipating changes in customer needs | Track trends and change the product before demand shifts | Reacting late means selling what the market has already stopped wanting |
Two of these get confused. Loyalty is the result: the same customer buys again. Relationships are the method that makes it likely, the ongoing contact between purchases.
Anticipating is also not the same as identifying. Identifying is about the need a customer feels today. Anticipating is about a need they have not felt yet. A supermarket that stocks more vegetarian meals because shoppers keep asking for them is identifying. A supermarket that builds a vegetarian range now, because plant-based eating is spreading among younger shoppers, is anticipating, and it will have the shelf space ready when the demand arrives.
Why consumer spending patterns change
- Incomes. When incomes rise, people trade up to branded and premium goods and spend more on services such as travel and eating out. In a downturn they trade down to cheaper own-label products, and businesses selling luxuries suffer first.
- Tastes and fashion. What people want changes for no reason a business can control, and it changes fastest in clothing, music and food.
- The age structure of the population. An ageing population spends more on healthcare, home comforts and holidays and less on nightclubs and children's products.
- Technology. Streaming subscriptions replaced DVD sales, and mobile banking replaced trips to a branch. A business whose product is the old technology does not lose customers gradually; it loses them once the alternative becomes easy.
- Health, ethics and the environment. Sugar content, packaging waste and how workers are treated now move sales, especially among younger buyers.
- Prices. A rival's price cut, a tax change or a rise in the cost of a substitute all move spending between products.
Why some markets are becoming more competitive
Selling online has cut the cost of entering a market. A new seller needs a website and a delivery arrangement rather than a shop and a lease, so more businesses can enter. Cheaper transport and freer trade bring foreign rivals into markets that were once local. Comparison sites and reviews let a customer check five prices in a minute, so a business can no longer rely on customers not knowing. And a market where existing firms are visibly profitable attracts entrants for exactly that reason.
How businesses can respond
| Response | What it looks like | What it costs or risks |
|---|---|---|
| Develop new or improved products | Add features, launch a version for a new group of customers | Expensive and slow, and the new product may still fail |
| Change the price | Cut it to hold customers, or raise it and compete on quality instead | A price cut lowers revenue on every unit, not just the ones it wins |
| Increase or retarget promotion | Move spending to social media where the customers now are | Costs money now for sales that may not follow |
| Improve customer service and loyalty | Faster delivery, easier returns, a points scheme | Adds to running costs and is easy for rivals to copy |
| Move into a niche | Stop competing with large rivals and serve a smaller group very well | Sales volume falls, and the niche may be too small to cover fixed costs |
| Sell online or in other countries | Widen the market rather than fight for the existing one | New costs, new competitors and new legal requirements |
Which response is right is never decided by the list. It is decided by how much finance the business has, how fast the change is arriving, and what the rival is doing. That is the reasoning an evaluation mark is given for.
Market share and how to calculate it
Market share is the proportion of all sales in a market that one business takes. It is the honest measure of how a business is doing against its rivals, because sales revenue on its own rises when the whole market grows.
market share = (sales revenue of a business / total sales revenue for the whole market) x 100
Worked example. A bakery has sales revenue of $840,000. Total sales revenue for the whole bread market in its country is $6,000,000.
market share = (840000 / 6000000) x 100 = 14%
A year later the bakery's sales revenue has risen to $960,000, but the whole market has grown to $8,000,000.
market share = (960000 / 8000000) x 100 = 12%
Revenue rose by $120,000 and market share still fell, from 14% to 12%. The bakery grew, its rivals grew faster, and only the share figure shows it. That contrast is the single most useful thing to say about a market share calculation in an exam answer.
The formula also works backwards. If a business holds 25% of that $8,000,000 market:
sales revenue = (25 / 100) x 8000000 = $2,000,000
Rising market share matters because it gives a business more bargaining power with suppliers, makes its brand the one customers think of first, and is evidence to a lender or investor that the business is competitive rather than simply lucky in a growing market.
Turning a market share figure into marks
A calculation on its own is knowledge. Take a question worth 6 marks asking you to explain two reasons why a business wants to increase its market share. Each reason earns one mark for the point, one for using the business in the stem, and one for developing it.
- Point: a higher market share means the business sells more units than its rivals.
- Application: its share rose from 14% to 18% while the market itself barely grew.
- Development: selling more units spreads the fixed costs of the bakery over more loaves, so the average cost of each loaf falls and the business can either cut price or keep the extra as profit.
The third sentence is what separates a 2 from a 3. It does not add a new fact; it takes the first one forward to what it does to this business.
Mass markets and niche markets
| Mass market | Niche market | |
|---|---|---|
| What it is | A large market that most consumers are in, sold to as a whole | A small, specific segment within a larger market |
| Example | Standard soap powder | Soap powder for sensitive skin |
| Advantages | High sales volume, economies of scale, lower unit costs, brand awareness | Less competition, customers will pay more for something made for them, low promotion spending because the audience is easy to target |
| Disadvantages | Heavy competition, high promotion costs, products must suit everyone so they satisfy nobody fully | Small total sales, high unit costs, and the whole business depends on one group of customers |
A niche is a sensible answer for a small business with limited finance because it avoids a fight it cannot win. A large business with spare capacity usually needs the volume that only a mass market gives.
Market segmentation
Market segmentation means splitting a market into groups of customers with something in common, so each group can be offered a product, price and message that suits it.
| Segment by | Example of the split | How the marketing changes |
|---|---|---|
| Age | Children, teenagers, adults, older people | Toy packaging speaks to the parent, not the child |
| Income | Budget, mid-range, premium buyers | The same car maker sells a basic model and a luxury one |
| Location | Urban and rural, or country by country | Product names, languages and flavours change between countries |
| Gender | Products aimed at men or at women | Sports clothing ranges are designed and advertised separately |
| Lifestyle | Fitness, travel, environmentally concerned, time-poor families | Ready meals are sold on speed, gym food on protein content |
| Advantages of segmentation | Disadvantages of segmentation |
|---|---|
| Promotion reaches people likely to buy, so less money is wasted | Research and design for several segments costs more |
| The product fits the group better, so more customers are satisfied | Shorter production runs mean higher unit costs |
| Gaps in the market show up, and gaps are where new products come from | A segment can be too small to be worth serving |
| A business can charge more to a segment that values the product | Over-segmenting confuses customers about what the brand stands for |
Common mistakes
- Defining marketing as advertising, or as selling.
- Treating "maintaining customer loyalty" and "building customer relationships" as the same role.
- Saying a business is anticipating customer needs when the example given is research into what customers want now.
- Naming the business in the stem and calling that application. Application is a detail from the stem that changes the point being made.
- Giving a second reason where a third mark is for development. A second reason is more knowledge, not analysis.
- Saying market share has risen because sales revenue has risen. Share only rises if revenue grows faster than the whole market.
- Writing the market share answer without the % sign, or dividing the market by the business instead of the business by the market.
- Confusing a niche market with a small business. A large business can run a niche brand.
- Saying segmentation always increases profit, without mentioning the extra cost of designing and promoting several versions.
- Ending an evaluation with "there are advantages and disadvantages" instead of choosing and saying what the choice depends on.
What the syllabus asks for on this topicSyllabus points
Syllabus points
- The role of marketing: identifying customer needs, satisfying customer needs, maintaining customer loyalty, building customer relationships and anticipating changes in customer needs.
- Why consumer spending patterns may change.
- Why some markets are becoming more competitive.
- How businesses can respond to changing spending patterns and to increased competition.
- Calculate market share.
- The concepts of mass markets and niche markets, and the advantages and disadvantages of each.
- How markets can be segmented by age, income, location, gender and lifestyle.
- The advantages and disadvantages of market segmentation.
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