Understanding Markets

BUS 1
 What is a market?

A market is a place
where buyers and
sellers come
together

Traditionally markets were

physical places, often in the
centre of a community. Due to
developments in
communication, many markets
exist through the postal
service, telephone and internet
links
 Market classifications

Geographical classification
Local, national and international

Physical and non-physical classification

 Geographical classification
Local markets

• Most common form of market for consumer goods

• Individuals buy products within a limited geographical area, close to

where they live

• Traditionally the local market was centred on the high street of a

particular town or city, recently out-of-town shopping centres have
developed

• Although markets may be local the companies operating in them

may be large multinational organisations
 Geographical classification
National markets

• Can be classified in two ways; first a company would see itself

operating in a national market if it sold its goods/services
across all or most of the country.

• Secondly, many industrial and primary products e.g. building

materials are traded on a national or international scale.
Businesses that provide these products usually supply them to
other businesses .
 Physical and non-physical markets
Physical

• There is an actual place where buyers and

sellers meet, for example a marketplace, a
shop or a businesses own premises

• The product itself can be seen so the

purchaser can make a well-reasoned decision
 Physical and non-physical markets
Non-physical (electronic)
• Opportunities due to rapid advancements in
technology

• Telephone sales, internet (ecommerce), mobile

phone apps

• They are of particular significance to business start-

ups as it gives them the opportunity to compete in a
national market without high levels of capital
 Demand

Demand is the amount of a product or service

that consumers are willing and able to buy at
any given price over a period of time.
Factors influencing the demand for a
product
Price
Income and wealth of consumers
Tastes and fashion
Prices of other goods
Demographic factors
Marketing and advertising
Competitors’ actions
Seasonal factors
Government actions
 Market segmentation

The classification of customers or potential

customers into groups (market segments), each
of which responds differently to different
products or marketing approaches
 Market segmentation

Segmentation analysis is where a firm uses

quantitative and qualitative data or information
to try to discover who buys its products and why
 Remember!
Market segmentation is based on CUSTOMERS
rather than markets or products. It is a method
of putting different customers into categories, to
help a firm market its products
 Market segmentation
Geographic segmentation

Demographic segmentation

Psychographic segmentation

Behavioural segmentation
 Geographic segmentation
• May include looking at the region of a country
where consumers live and its nature i.e. rural
or urban
• Useful in large or culturally diverse markets
where buying patterns are influenced by
region
• A drawback may be that regional and national
boundaries become less important in
determining tastes
 Demographic segmentation
Splits people up into different groups according to
different characteristics:

• Age
• Gender
• Social class
• Income
• Religion
• Ethnic grouping
 What type of segmentation?

• Depends on the product/service being sold

• In general, organisations identify the market

segment(s) relevant to their products/ services

• Products/services and the organisation’s approach to

marketing is then geared to the targeted segments
 Benefits of market segmentation
To increase market share

To assist new product development

To extend products into new markets

To identify ways of marketing a product

Drawbacks of market segmentation
Difficulty in identifying the most important
segments for a product

Reaching the chosen segment with marketing

Recognising changes in the segments interested in

the product

Meeting the needs of customers not included in the

chosen segment.
 Market mapping
A technique that uses market segmentation to look at
the features that distinguish different products or firms.

Example: A car

• Suitable for family use

• Cheap to buy/run
• Environmentally friendly
• Fast
• Safe and secure

Features such as those listed can be ‘mapped’ in order to identify the

extent to which an individual care possesses them
The trick with a market map is to ensure that market research confirms whether or not
there is actually any demand for a possible “gap in the market”. There may be very
good reasons why consumers do not want to buy a product that might, potentially, fill a
gap.
 Market size, growth and share

Market size: the volume of sales of a product (e.g. the number of

computers sold) or the value of sales of a products (e.g. the total
revenue from computer sales).

Market growth: the percentage change in sales (volume or value)

over a period of time.

Market share: the percentage or proportion of the total sales of

a product or service achieved by a firm or specific brand product.
 How is a market measured?
Many markets are measured by VOLUME
because it is easier for people to identify with an
item than with a sum of money

Example: It is easier to identify with 2.5 million cars being sold rather
than £ 30 billion

However in some markets such as hair care products there

are many different products with huge variations in
price, therefore it is easier to measure the market in terms of
the value of the goods sold
 Market growth
• Market size can increase as a result of extra sales or
persuading customers to pay higher prices

• The market size indicates the potential sales for a

firm

• In growing markets there is more scope for increased

sales, but competition is likely to become fiercer.
 Factors influencing market growth

• Economic growth
• Nature of the product
• Changes in taste
• Social changes
• Fashion
Market share