1.3.

1 Meeting customer needs

1 The market

a) Mass markets and niche markets

• characteristics
● Mass marketing is selling the same product to the whole market with no attempt to target
groups within it.
● Niche marketing is identifying and exploiting a small segment of a larger market where
customers have specific needs and wants
• market size and market share

• brands
b) Dynamic markets

• online retailing

• how markets change

• innovation and market growth

- Markets can grow over time, but the speed of growth depends on each market
- Market growth occurs for the following reasons:
● Economic growth: as the global population increases, so does the demand for
goods, thus markets grow
● .
• adapting to change.
- When businesses do not adapt to market changes, they are likely to lose market share
- The methods a business can adapt to change is mentioned below:

● Flexibility: Businesses need to be able to be flexible in their workplace and the products
they sell
⇒ Flexible working practices
⇒ flexible pricing (according to inflation, etc)
⇒ flexible shifts depending on when the customers like to purchase their products

● Investment: businesses should invest in R&D and new products to adapt to the demand
changes in the market

● Continuous improvement in the increasingly competitive environment: they should

ensure to keep identifying areas that they need to improve on and make changes (ex: if
their product quality is good, work on improving customer services)

● Develop a niche: if a market is in decline, and a business is unable to diversify, they

may be able to survive by forming a niche

c) How competition affects the market.

● Competition is the rivalry that exists between businesses in a market.

● Both businesses and consumers are affected by competition

Businesses:

● They have to encourage customers to purchase their products instead of their rivals
● They can do so by:
- Lowering prices
- Differentiating their products
- Offering better quality products
- Attractive advertising or promotions
- Offering extras such as high quality customer service
● These methods cost money and reduce a businesses profit
● Businesses can reduce competition by mergers and takeovers
● However, there are strict legislations to ensure that the restriction of competition is
reduced.

Consumers:
 ● Consumers will benefit from more choice
● Better quality
● Low prices
● Without competition, consumers will be disadvantaged as businesses will raise prices
and have reduced incentive to innovate

d) The difference between risk and uncertainty

● Risk and uncertainty is a challenge most businesses face

● Risk: owners of a business take actions where the outcomes are unknown
- They commit resources that can be lost
- In order to grow, businesses need to take risks to explore new ventures

● Uncertainty: this is when the business is unsure of how the external factors can affect
them financially. Examples include:
- A new competitor with a superior product
- Consumer tastes may change
- A new policy may be made by the government
- New technology might be invented
- There may be natural disaster such as flood
- Economy might go into recession
● Such factors are unpredictable so businesses will have to operate in a consistent
uncertain environment
● Uncertainty makes decision making difficult
2 Market research

a) Primary and secondary market research data (quantitative and

qualitative) used for the following reasons:
● Market Research: the collection, presentation and analysis of information relating to the
marketing and consumption of goods and services.
● Businesses spend money on market research as it helps reduce the risk of failure
● Products backed up wit market research is more likely to succeed

• Quantitative and qualitative research:

● Data can be collected both quantitatively and qualitatively
● Qualitative research: the collection of data about attitudes, beliefs and intentions
- It can be done through focus groups and interviews to gain qualitative data
- Example of qualitative research would be face to face interviews
- qualitative research has a high degree of interpretation
- This may result in disagreements within businesses trying to understand the
customers answers

● Quantitative research: the collection of data that can be quantified by a numerical

figure
- Surveys and use of government publications are common methods of collecting
quantitative research data.
- Example of quantitative research: how many people are in the market for dark
chocolate

• To identify and anticipate customer needs and wants

● It would benefit the business to know the exact needs and wants of customers
● Businesses usually obtain both qualitative and quantitative data to ensure that the exact
needs of the exact demographic of customers they are targeting

• to quantify likely demand

● Market research can also be done to identity how much of a product a business might
expect to sell in a market
● This type of research is quantitative as the business needs to find out if demand patterns
are high or low for the product. If it is low, then it will save the business with a lot of
money as they would know that launching a new product with low demand would be
ineffective.
 ● If demand patterns are high, the business can figure out how much they need to produce
and depending on that hire more workers, machinery,etc.

•To gain insight into consumer behaviour.

● Businesses will be more successful if they can identify and understand patterns of
consumer behaviour
● This type of research is qualitative
● For instance, a holiday hotel business can identify when customers are most likely to
take breaks for vacation, etc

b) Primary market research and it’s methods:

● Primary or field research: the gathering of ‘new’ information that does not already exist
● The information has to be collected by the researcher
● It can be carried out by the business themselves or a market research agency
● Most primary information is collected by asking consumers questions or observing their
behaviour
● It would be more accurate when the research is carried out on the entire population of
the target market, however most businesses only take a sample group due to their
budget.

• surveys/questionnaires
● They are usually a set of written questions that consumers have to answer
● A good questionnaire will have the following elements:
- Have a balance of open and close ended questions
- Contains clear and simple questions (without jargon, spelling mistakes, bad
grammar)
- Not contain leading questions: these are questions that indirectly suggests a
certain answer that the business may want the consumers to agree on
- Not be too long: consumers will give up their time

● Questionnaires can be used in different situations, example:

- Postal surveys: ones that are sent to consumers homes so that they can take
their own time to complete it.
⇒ However, the questionnaires usually are never returned, thus wastage of
resources
- Online surveys: they are much cheaper and can be easily accessed by
customers all over the world
• focus groups/consumer panels
● Focus Groups: this is a group discussion where a number of customers are invited to
attend a discussion about a product run by market researchers.
● Consumer panels: groups of customers are asked for feedback about products over a
period of time
● These methods are used when a business wants very detailed information from
customers.
● The group invited for the focus group should be a representative of the whole population
● Focus groups allows businesses to receive effective feedback for continual improvement
of their products

• face-to-face/telephone interviews
● Businesses may conduct face to face interviews in the street
● The advantage of this is that questions can be explained if a respondent is confused
● However, many people do not like being approached on the street
● telephone interviews are conducted via call, which is much cheaper than street
questioning
● People from a wider geographical area can be covered.
● However, many people may decline or even not answer calls from such market research
agencies

• product trials/test marketing.

● This is where consumers are encouraged to examine, use or test a product before it is
fully launched into the market
● This allows the business to make late adjustments to further attract customers
● Test marketing is also a similar process, where they sell their product to a very small
geographical area to test it before a wider launch.
● Customers provide feedback after they use the product and this helps businesses
reduce the risk of failure

• Advantages and disadvantages of primary market research

c) Secondary Market Research and its methods:
● Secondary research or desk research: the collection of data that is already in
existence
● This type of data can be internal data, which are records within the business or external
data from sources outside the business

• websites/social media
Websites
● Businesses can carry out secondary research by gathering data from the websites of
rivals.
● This way, a wide range of information can be gathered very easily and cheaply
● They can use comparison websites to observe the cheapest suppliers in the market

Social media
● Social media can provide a cost-effective and in depth tool for gaining insights into a
firm’s customers
● They allow businesses to analyse trends and conduct market research
● They can simply search latest posts and popular terms to gain insights to trending
demand patterns

Advantages of using social media for market research

• newspapers/magazines/TV/radio
Newspapers/Magazines
● Some businesses may be able to use written information for market research
● For instance a small business may use a newspaper to observe how many competitors
there are in the market (by analysing ads, etc)
● Magazines also consists of surveys which help businesses gain an insight on the
demand patterns of customers in the market
● Trade journals (publications produced by businesses) can be used by other businesses
for statistics they require

TV/Radio

● Programs on TV can be useful information for businesses (ex: shopping channels can be
used to observe the competitors products)
● Adverts on TV can also be used to gain information about rival products and marketing
methods

• reports
● Statistical reports of economical patterns are published by the government for free of
charge:
- Relative size of the primary, secondary and tertiary sector
- Number of people in different age groups
- Income levels
- Spending patterns
- Value of total output in industries (or GDP)
- Methods of transport used by people travelling to work

● Organisations such as the EU, World Bank, WTO, etc also produce reports that can be
beneficial for businesses (ex: interest rates, etc)

• databases
● Database: Organised collection of data stored electronically with instant access, search
and sorting facilities
● Information on a database is used by all businesses, and is constantly updated and
recalled when needed.
● The collection of common data is called a file
● A good database will have the following features:
- be user definable (having a function or meaning that can be specified by different
users)
 - File searching facilities
- File sorting facilities (ex: ascending order)
- Calculation features
● Many businesses buy banks of information in database to gain access to information
such as (customer information, cheap suppliers, etc)

• Advantages and disadvantages of secondary market research

d) Sampling methods:
● When carrying a survey, information could be gathered from every single member in the
target population
- This is a population that includes all people whose views a business wants to
explore
● However, it would be expensive to survey the whole population, thus, a sample of people
in the population is usually used for market research.
● Sample: A small group of people that must represent a proportion of a total market when
carrying out market research
● However, it is important that the behaviour and views of the sample are representative of
all those in the population.
● Large sizes of samples will result in more accuracy, however, there will be a trade off
with the cost incurred when surveying large groups.
● Usually, sample sizes require at least 10% of the population to be meaningful

• random
● Random Sampling: this is a type of sampling where respondents are selected for
interview at random
● Computers generate random numbers, and businesses select the specific customers to
interview.
● However, this method assumes that all members of the group are exactly the same
which is not the case
 ● It would also be expensive for the business to draw up a whole list of their customers for
the random generator
● Further, a large sample will have to be taken as a small sample may not be a
representative of the whole population

• quota
● Quota Sampling: respondents are selected in a non-random manner in the same
proportion as they exist in the whole population
● This is where target populations are being segmented into a number of groups that
share specific characteristics. (Ex: age and gender of population)
● Interviewers are then given targets to interview a certain number of people from each
group
● Once the target is reached, no more people are interviewed from each group
● The ratios of how many people of each type are there is used.
● This method is more cost effective and useful where the proportions of the different
groups within the population are known.
● However, since they are not randomly selected, it may not be statistically accurate to
represent the entire pop

• stratified
● Stratified Sampling: a method of quota sampling in which respondents are chosen at
random
● This is where businesses segregate the population into groups (such as based on
income levels). However, they then pick random people from those groups, instead of
strategically choosing the people to sample.
3 Market Positioning

a) Product and market orientation

● Product orientation: this is where the business focuses on the production process and
the design of the product rather than meeting the needs and wants of customers
- This is usually used in the technology industry or growing industries where they
can only focus on developing the product’s quality.
● Market Orientation: this is where the business focuses on making their product meet
the needs and wants of their customers
- These businesses often conduct market research to analyse and review
customer needs and wants
- Market oriented businesses need to:
1. Consult the consumer continuously
2. Design the product according to needs and wants
3. Distribute the product according to the delivery requirements of the
customer
4. Set the price where consumers are satisfied
5. Produce the quantity that consumers would want

- The advantages of market orientation:

It can respond quickly to changes cause of constant market research

It will have a competitive advantage

They will be more likely to anticipate market changes before they take place

A launch of their new product will be more successful

- advantages of product orientation:

1. Economies of scale
2. Quality improves
3. Technological investment
 - disadvantages of product orientation
1. Missed opportunities
2. Obsolescence and failure

● How a business decides whether they use market or product orientation depends
on the following:
● The nature of the product:
● Policy Decisions: a business will have certain objectives, if they are market share or
turnover, they are likely to focus on market orientation
● The views of those in control:
● The nature and size of the market: if the production costs are high, they are likely to be
more market oriented as they would not have more funds to spend on developing the
product and would rather spend it on promoting it to the customers.
● The degree of competition: higher the competition, the more market oriented a
business would be

b) Market Positioning and Market Mapping

• Market Positioning
● Market Positioning: The view consumers have about the quality, value for money and
image of a product in relation to those of competitors
● Market positioning refers to the place that a brand occupies in the minds of the
customers and how it is distinguished from the products of the competitors and differs
from the concept of brand awareness. This is achieved through the 4P’s
● In short, this is the consumer’s perception about a product (the image of the brand)
● The approaches a business takes to position their product in the consumer’s perception
are outlined below:
- The benefits offered by the product: (safety, style, etc)
- The characteristics/qualities of the product (usually by slogans)
- The origin of the product (if it was created in a high status position, it might have
more value)
- The classification name of the product

● As markets change, businesses may need to reposition their products

● This can be done through changing the features, target market or image of the product
• Market mapping (perceptual map)
● When a business wants to find where their product stands in the market position, they
can conduct market research
● It is the process of using a graph to plot competitors and their products to understand
competitor behaviour to spot a gap in the market. It also allows a business to see who
their competition will be and what other products and services are available in the same
sector.
● The results of market research can be displayed on market or perceptual maps
● Market maps or perceptual maps: typically a two dimensional diagram that shows two
of the qualities of characteristics of a brand and those of rival brands in the market

Advantages of market mapping

Accurately distinguishes the size and layout of the market or industry

Maps recruitment movements within the industry

Creates competitor profiles including incentives, company size and recruitment

activities

Maps the market movements and trends that can be exploited

Find specific information to inform operational decisions

Disadvantages of market mapping

They are 2 dimensional so only 2 product qualities can be analysed on the same map

They can be more relevant to individual brands and less helpful for a corporate brand

The information needed to plot the maps can be expensive to obtain (you need
primary market research)

There may be a difference between consumers perception of the brands benefits and
the actual benefits
c) Market segmentation
● Market segment: Part of the whole market where a particular customer group has
similar characteristics.
● Businesses need to segment their markets because customers differ in the:
- Benefits they want
- Amount they are able to or willing to pay
- Media
- Quantities they buy
- Time and space they buy

Advantages Disadvantages

Can define target market and earn high sales Promotional costs may be high as different
by targeting products advertisements might be needed for different
segments

Enables identification of gaps in the market - Extensive market research is needed

groups of customers that are not currently
being targeted

Small firms unable to survive in large markets R&D and production costs may be high as
can compete by selling specialised items they need to market different product
variation

Can increase prices ⇒ Profits increase Dependent on one or 2 limited market

segments

• Geographic and demographic segmentation

● Geographic segmentation: this is where customers are segregated depending on
where they live
- People in cold areas would purchase clothes to keep them warm, vice versa
● Demographic segmentation: this is where businesses divide markets according to age,
gender, income, social class, ethnicity or religion of the population
 - Socio-economic groups: a type of demographic segmentation where they
segregate the market depending on which occupation they have

- Ethnicity: people from different origins may spend their money more on different
thinfs

• Psychographic segmentation
● This is where businesses segregate the market depending on customer attitudes,
opinions and lifestyles
● Ex: clothes are often bought depending on customer attitudes (ex: if they like grunge
outfits)
● A disadvantage: its hard for businesses to measure consumer beliefs, attitudes and
lifestyle

• Behavioural segmentation
● This is where the business segregates the market depending on how a customer relates
to a product
 ● Ways behavioural segmentation is implemented:
- Usage Rate: the market is segmented depending on the frequency of usage
- Loyalty: market is segmented based on how loyal customers are
- Time and date of consumption: segregated according to when they consume
the product
● A drawback of this method is that consumers’ usage and loyalty can be hard to measure
therefore only segmenting the market according to behavioural segmentation may not be
beneficial

• Benefits of market segmentation

● Can get higher profits by charging high prices for different market segments
● Customers may be more loyal as products will be catered to them
● Businesses can reduce costs by avoiding promotion for segments of the market that
would not be interested in their products
● Businesses can target multiple

d) Competitive advantage of a product or service

● Competitive advantage: an advantage that allows a business to perform better than
their rivals
● The ways in which businesses can develop a competitive advantage:
- Product design: this will help differentiate their products to competitors
- Product quality: if the quality is better, customers may be willing to purchase
their product for a high price compared to their competitors
- Promotion: creative advertisements that are persuasive will attract customers
towards them
- Customer service: if the product relies on more customer care, a business will
be more competitive if they get adequate service
- Delivery times: customers will be more satisfied when they get fast delivery
- Economies of scale: it would lower their costs which will allow them to lower
their prices and thus be more competitive
- Flexibility: if a business can adapt to current needs and wants of customers
- Ethical stance: if firms implement ethics such as using eco-friendly material,
they are more likely to attract customers
- Focusing on a particular market segment: if they cater to a niche market they
may be more competitive by focusing on one audience
e) The purpose of product differentiation
● Product differentiation: an attempt by a business to differentiate their products from
their competitors
● Especially in competitive markets, firms will try to differentiate their product
● There are 2 types of differentiation: actual differentiation (physical difference) and
imagined differentiation (brand)
● Differentiation may include:
- Flexible pricing: if the price is relatively high to give value or elegance of a
luxury, it may be unique from their competitors
- Recognition: attractive and colourful packaging can help differentiate
- Extend product range: if a business can target a variety of market segments by
offering different forms of their product, it would differentiate their offer from
competitors
- Brand development: if a business creates a strong brand out of their product,
they would be able to differentiate their product
- Overcome competition: by increasing sales and earning a higher market share,
a business can lower costs and raise profits to innovate and differentiate

f) Adding value to products/services

● Adding value: offering extra features when selling a product which helps exceed
customer expectations
● Ex: a high quality customer service
● This is usually done in competitive markets
● The ways businesses can add value to a product or service is:
- Bundling: this is where a business may combine multiple services in a ‘package’
for customers to gain benefits (ex: a hotel and flight package)
- Customer service: if staff are caring and ‘go out of their way’ to help out
customers, it would impress customers and add value
- Speed of response to customers
- Packaging: attractive wrapping would perceive the customers into thinking that
the quality of the product is linked to the packaging
- Frequent buyer offers: if they provide services such as better pricing and free
products for loyal customers, it adds value
- Customisation: if a business can insert a customers name or logo,it would
distinguish their products from competitors and would meet the needs of
individual customers
• Benefits of adding value
● Can charge higher prices
● Can differentiate
● Adding value can protect a business t stay competitive even if competitors lower prices
● Can focus on target markets