Cambridge IGCSE0450

Marketing, competition and the customer

Business Studies 0450 Chapter Notes

What this chapter covers

Marketing, competition and the customer - The role of marketingMarketing, competition and the customer - Market changesMarketing, competition and the customer - Concepts of niche marketing and mass marketingMarketing, competition and the customer - How and why market segmentation is undertaken
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In this chapter

  1. 1What is Marketing and Why It Matters
  2. 2Understanding the Market
  3. 3Navigating the Competitive Landscape
  4. 4Mass Markets vs. Niche Markets

1. What is Marketing and Why It Matters

Marketing is the entire process of identifying, anticipating (predicting), and satisfying customer needs profitably. It's not just about advertising; it's a core business philosophy that guides everything from product development to customer service. Businesses can be either 'product-oriented', where they focus on creating a product they are good at making and then try to sell it, or 'market-oriented', where they start by researching what customers want and then design a product to meet those needs. In today's competitive world, a market-oriented approach is usually far more successful as it reduces the risk of making something nobody wants to buy. The main objectives of marketing are to increase sales revenue, build brand awareness and loyalty, and ultimately, generate profit.

Key term

Market Orientation: An approach where a business focuses on identifying and meeting the stated or hidden needs and wants of customers through market research.

Examiner insight

Examiners reward students who can clearly explain why a market-oriented approach is generally more successful than a product-oriented one in today's competitive environment, often by using examples.

Common pitfall

Confusing 'marketing' with just 'advertising'. Advertising is only one part of promotion, which itself is just one part of the wider marketing process that also includes product design, pricing, and distribution.

Fun fact

The phrase 'The customer is always right' was popularised by successful retailers like Harry Gordon Selfridge and John Wanamaker in the early 20th century to train staff to prioritise customer satisfaction – a core principle of market orientation.

Worked example 14 marks

Explain the difference between a product-oriented business and a market-oriented business. [4 marks]

  1. 1

    A product-oriented business focuses primarily on its product and production process. It develops goods based on what it is good at making and then tries to find a market for them. [1 mark]

  2. 2

    This approach assumes that if the product is of high quality, customers will automatically buy it. An example could be a specialist engineering firm that creates a new type of component. [1 mark]

  3. 3

    In contrast, a market-oriented business focuses on the customer. It conducts market research to find out what customers need and want before designing and producing a product. [1 mark]

  4. 4

    This approach puts the customer at the center of the business's decisions, which increases the chances of success because the product is tailored to customer demand. An example is a food company that researches popular flavor trends before launching a new snack. [1 mark]

Recap

  • Marketing is the process of identifying, anticipating, and satisfying customer needs profitably.
  • A market-oriented business researches customer needs first, then makes the product.
  • A product-oriented business makes the product first, then looks for customers.
  • Being market-oriented is generally more successful in competitive markets.
  • Key marketing goals include increasing sales, building brand loyalty, and improving market share.

Quick check

  1. Define the term 'marketing'.2 marks
  2. State one disadvantage of a product-oriented approach.1 mark

2. Understanding the Market

In business, a 'market' is not a physical place but refers to all the producers (sellers) and consumers (buyers) of a particular good or service. The 'market size' can be measured in two ways: by volume (the total number of units sold) or by value (the total amount of money spent). Markets are dynamic; they can be 'expanding' (growing) or 'contracting' (shrinking). A business's success often depends on its ability to adapt to these changes. A key metric is 'market share', which is the portion of total market sales that one business achieves. A higher market share usually indicates a stronger competitive position.

Market Share (%) = (Business's Sales / Total Market Sales) × 100

Key term

Market Share: The percentage of total sales in a market that is controlled by a particular business.

Examiner insight

Students who can calculate and interpret market share figures, and explain what they mean for a business's competitive position, score highly. Simply stating the number is not enough.

Common pitfall

Assuming that a business with high revenue is automatically a market leader. Market leadership depends on market share, which is relative to the size of the total market.

Worked example 12 marks

In 2023, the total UK market for breakfast cereals was valued at £1.8 billion. Kellogg's had sales of £540 million. Calculate Kellogg's market share for 2023. [2 marks]

  1. 1

    Formula: Market Share (%) = (Business's Sales / Total Market Sales) × 100. [1 mark for formula or correct values substituted]

  2. 2

    Calculation: (£540 million / £1,800 million) × 100 = 30%. Kellogg's market share was 30%. [1 mark for correct answer]

Worked example 24 marks

Explain two factors that could cause the market for holidays abroad to contract. [4 marks]

  1. 1

    One factor is a decrease in average household incomes. If people have less disposable income due to a recession or rising living costs, they will cut back on non-essential luxury spending like international travel, causing the market to shrink. [2 marks]

  2. 2

    Another factor is an increase in global uncertainty, such as political instability or health crises. These events can make people feel unsafe to travel or lead to government travel restrictions, causing a sharp fall in demand for holidays abroad. [2 marks]

Recap

  • A market consists of all the buyers and sellers for a specific product.
  • Market size can be measured by sales volume or sales value.
  • Market share is a business's slice of the total market sales.
  • Markets are dynamic and can grow or shrink due to factors like income, technology, and tastes.
  • Calculating market share helps a business understand its competitive standing.

Quick check

  1. What is the formula for calculating market share?1 mark
  2. State one difference between market size by volume and market size by value.2 marks

4. Mass Markets vs. Niche Markets

Businesses must decide which type of market to target. A 'mass market' is a large market where a business sells a standardised product to a wide range of customers. These products have broad appeal, like soap, bread, or petrol. Businesses targeting a mass market often benefit from economies of scale in production and can use mass media (like TV ads) for promotion. In contrast, a 'niche market' is a small, specialised segment of a larger market with specific needs. Examples include gluten-free foods, clothing for very tall people, or specialist vegan cosmetics. Operating in a niche allows a business to meet specific needs very well, often facing less competition and being able to charge higher prices. However, the number of potential customers is smaller, and the business is vulnerable if demand in that small segment falls.

Key term

Niche Market: A small, specialised segment of a larger market with specific needs and characteristics that are not being fully met by mainstream providers.

Examiner insight

High-scoring answers can not only define mass and niche markets but also analyse the strategic implications for a business when choosing to operate in one versus the other, often linking it to the marketing mix (product, price, place, promotion).

Common pitfall

Thinking that a niche market must be served by a small business. Large companies can also target niche markets, for example, a car giant like Volkswagen owning niche luxury brands like Lamborghini or Bentley.

Fun fact

The market for left-handed products is a classic niche. An estimated 10% of the population is left-handed, but they are often forced to use products designed for the right-handed majority. Companies like 'Anything Left-Handed' in the UK thrive by serving this specific group.

Worked example 14 marks

Explain two advantages for a small business of operating in a niche market. [4 marks]

  1. 1

    One advantage is that there is less competition. Large businesses may not find it profitable to cater to a small group of customers, leaving an opening for a small business to dominate that segment without facing intense rivalry. [2 marks]

  2. 2

    A second advantage is the ability to build strong customer loyalty. By focusing on the specific needs of a small group, the business can create a product and service that customers feel is perfect for them, leading to repeat purchases and positive word-of-mouth recommendations. [2 marks]

Worked example 23 marks

A company produces a single type of inexpensive, disposable pen sold in packs of 50 to offices and schools worldwide. Is it operating in a mass or niche market? Justify your answer. [3 marks]

  1. 1

    The company is operating in a mass market. [1 mark]

  2. 2

    The product is standardised and inexpensive, designed to appeal to a very broad range of customers (offices, schools, individuals). [1 mark]

  3. 3

    Its distribution strategy ('sold worldwide') and target customer base are large and not specialised, which are key characteristics of a mass market approach. [1 mark]

Recap

  • A mass market is large and involves selling a standardised product to many customers.
  • A niche market is a small, specialised part of a larger market.
  • Mass markets often involve intense price competition and large-scale production.
  • Niche markets can offer less competition and the opportunity to charge premium prices.
  • Choosing between a mass and niche market is a key strategic decision for a business.

Quick check

  1. Give an example of a product sold in a niche market.1 mark
  2. State one disadvantage of operating in a niche market.1 mark

End-of-chapter exercise

Test yourself on the whole chapter. Work through these before moving on.

  1. Define 'competition' and explain one reason why businesses compete with each other.3 marks
  2. Explain the difference between a mass market and a niche market, using an example for each.4 marks
  3. A business has sales of $5 million in a market where total sales are $80 million. Calculate the business's market share.2 marks
  4. Explain two ways a business could use non-price competition to attract more customers.4 marks
  5. Analyse one advantage and one disadvantage of a market-oriented approach for a new start-up business.6 marks
  6. Distinguish between direct and indirect competition, providing a clear example for each.4 marks
  7. Explain two factors that could lead to an increase in the size of the market for electric bicycles.4 marks
  8. Why might a business that is product-oriented struggle in a competitive market?4 marks
  9. A luxury watchmaker produces only 100 handmade watches per year, selling them for over $50,000 each. Do you think this business is targeting a mass or a niche market? Justify your recommendation.5 marks
  10. Evaluate the decision for a large supermarket chain to launch its own range of 'free-from' foods (e.g., gluten-free, dairy-free). In your answer, you should consider the concepts of niche markets and competition.8 marks

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