Markets (Cambridge International AS Business)

Consumer and industrial markets

• An industrial market is where businesses sell their products or services to other businesses

  • Goods are not usually for final consumption, but are used to help make other products or to support business operations

  • It is also known as B2B (business-to-business) selling

    • E.g. a company that produces steel may sell it to a car manufacturer

• A consumer market is where businesses sell products or services directly to individuals for their own personal use

  • It is often called B2C (business-to-consumer) selling
  • These include markets for goods and services such as clothing, smartphones, fast food or video streaming platforms

Key differences between consumer and industrial markets

Local, national and international markets

• A local market is where goods and services are bought and sold within a small geographical area, such as a town or city

  • They serve nearby consumers and are often run by small businesses

    • E.g. a local bakery selling fresh bread to people in the same neighbourhood or a hairdresser serving clients in their local town

• A national market is where a business operates and sells its products or services across the entire country

  • Customers can come from anywhere within that country, and businesses use websites, advertising and delivery services to reach a wider audience

    • E.g. Ale Hop sells gifts, stationery and homewares through stores and online across the whole of Spain

• An international market is where businesses sell their products or services in more than one country

  • Businesses operating in these markets have to deal with different languages, cultures, laws and currencies

    • E.g. Coca-Cola sells drinks globally and Samsung sells electronics in many different countries

Product orientation and customer orientation

Product orientation

• A business with a product orientation focuses primarily on manufacturing a product rather than the needs of the consumer

  • The emphasis is on creating a product first and then finding a market

  • Over time, being too product orientated means the business may move further and further away from what the market is looking for, thus increasing the risk of business failure

    • E.g. Gillette's razors can be classified as a product-orientated business as the business focuses on the quality of its products and regular innovations aimed at increasing sales

*Product orientation is an approach often used by inventors who research, test and produce a product well before market research has taken place *

Benefits of product orientation

• Focus on quality and innovation

  • Businesses can develop high-quality or unique products by concentrating on design and production

• Strong brand image

  • Offering something distinctive or well-made can build a strong reputation and brand loyalty

• Less need for constant market research

  • Product-oriented firms rely more on internal expertise than customer feedback

• Efficient production

  • Standardised products allow for* economies of scale* and streamlined processes

Customer (market) orientation

• Customer (market) orientation is a business approach that focuses on the consumer demand and designs products that meet customer needs

  • Consumers are at the centre of marketing decisions

  • Products are designed to meet consumers' needs

    • E.g. Universities often develop new courses based on the feedback they receive from students and employers

Tools of customer orientation include market research, market testing and customer focus

Benefits of customer orientation

• Better customer satisfaction

  • Products are developed based on what customers actually want and need

• Stronger customer loyalty

  • Meeting customer expectations can lead to repeat purchases and positive word-of-mouth

• Faster response to market changes

  • Businesses can adapt quickly to changes in tastes, trends, or demand

• Higher sales potential

  • Products are more likely to succeed when they’re tailored to the target market

Market share and market growth

• Market share is the proportion of the total sales of a product or service compared to the market as a whole

  • e.g. Tesco has 26% of the UK grocery market

• Market share can be calculated using the formula

$\mathrm{Market} \mathrm{share}=\frac{\mathrm{Sales} \mathrm{of}a\mathrm{business} \mathrm{in}a\mathrm{time} \mathrm{period}}{\mathrm{Total} \mathrm{market} \mathrm{sales} \mathrm{in}a\mathrm{time} \mathrm{period}}\times100$

Worked Example In 2024, the UK coffee shop market was worth £4.8bn. Sales of Starbucks Coffee were £526m in 2024. Using the data, calculate, to 2 decimal places, the market share of Starbucks Coffee in the coffee shop/café market. You are advised to show your workings.

(3)

Step 1: Identify annual sales of Starbucks Coffee

£526m

Step 2: Identify total market sales in the coffee shop market

£4.8bn

Step 3: Substitute figures into the formula

****$= \frac{\pounds 526 \mathrm{m} }{\pounds 4.8 bn} \times 100

= 10.96 %$**** [3]

• Market growth is the increase in the overall size, value or volume of a market over a period of time, usually expressed as a percentage

  • This metric considers the size of the whole market/industry as opposed to a single firm's share of the market

• Some common ways to measure market growth include sales revenue, sales volume or the number of customers

• Market growth is calculated using the formula

$\mathrm{Market} \mathrm{growth}=\frac{\mathrm{This} \mathrm{year}'s\mathrm{market} \mathrm{sales}-\mathrm{Last} \mathrm{year}'s\mathrm{market} \mathrm{sales}}{\mathrm{Last} \mathrm{year}'s\mathrm{market} \mathrm{sales}}x100$

• If the growth rate is positive, the market is getting bigger (expanding)
• If the growth rate is negative, the market is getting smaller (contracting)

Worked Example In 2023, worldwide sales of plug-in hybrid vehicles was 4.27 million units. By 2024 sales had increased to 6.51 million units.

Calculate the rate of market growth in the plug-in hybrid vehicles market.

(2)

Step 1 - Deduct 2023's sales from 2024's sales

$=6.51\mathrm{million}-4.27\mathrm{million}\,\,=2.24\mathrm{million}$

Step 2 - Divide the outcome by 2023's sales

$=\frac{2.24\mathrm{million}}{4.27\mathrm{million}}\,\,=0.5246$ [1 mark]

Step 3 - Multiply the outcome by 100 to find the percentage growth rate

$= 0.5246 \times 100

= 52.46 %$ [1 mark]

• Market growth provides an incentive for businesses looking to expand, increase sales and generate higher revenue
• Businesses are often attracted to the potential of growing markets, and they can become increasingly competitive quite rapidly

Factors affecting the rate of market growth

Implications of changes in market share and market growth

The implications of changes in market share and market growth

Increasing market share

• Strong brand recognition and customer trust

  • As a business gains a larger share of the market, more people become aware of the brand, making it easier to attract and keep loyal customers

• Greater power over prices, especially in less competitive markets

  • A business with high market share may be seen as a market leader, giving it the ability to charge higher prices without losing many customers

• Can benefit from economies of scale

  • Producing and selling more units often reduces the cost per unit, allowing the business to be more efficient and more profitable

• Attracts more investment and partnerships

  • Investors and other companies are more likely to work with businesses that dominate the market, as they appear more stable and successful

• More influence over suppliers and retailers

  • A larger market share gives the business stronger negotiating power, which can lead to better deals from suppliers and more shelf space in stores

Falling market share

• Harder to compete with larger rivals

  • When a business loses market share, it may struggle to keep up with competitors who have more resources and customer loyalty

• May need to lower prices to attract customers

  • To win back customers, the business might have to cut prices, which can reduce profit margins

• Lower profits due to fewer sales and higher costs per unit

  • Selling fewer products often means each one costs more to make, while total revenue drops, leading to lower profits overall

• Less visibility in the market

  • A declining market presence can make the brand less familiar to consumers, reducing interest and trust in the product

• Might struggle to access good suppliers or distribution channels

  • Suppliers and retailers may prioritise businesses with higher sales, meaning those with falling market share may get worse terms or less exposure

Implications of changes in market growth