Mass markets and niche markets

A market is anywhere buyers and sellers exchange goods and services. Edexcel wants you to distinguish two strategic positions:

• Mass market: a standardised product aimed at the whole (or most of the) market. High volume, low unit price, low margins, heavy price competition, but large potential economies of scale. Example: a supermarket own-label cola.
• Niche market: a small, specific segment within a larger market. Low volume, but the product is differentiated, so the firm can charge a premium price and earn high margins. Example: a gluten-free craft bakery.

Evaluation: niches are not automatically safer. They are vulnerable if a mass-market giant enters and copies the idea, and they have limited scope for growth. Mass markets are lower-risk in volume terms but the firm must compete on cost. The right answer depends on the firm's resources, its brand and the barriers to entry.

Market size, market share and brands

Two quantities you must be able to calculate:

A brand is the identity that makes a product recognisable and distinct. Strong brands add value, allow premium pricing and reduce price elasticity of demand — customers are less willing to switch away when the price rises.

Your turn — market share

Your turn — market size by value

Interpreting market share

Dynamic markets, competition, risk and uncertainty

Markets are dynamic — they change continuously. Edexcel highlights online retailing, innovation and market growth, and the need to adapt to change (new distribution channels, new customer expectations, new entrants).

More competition tends to push prices down, raise quality and choice, squeeze margins and force differentiation or cost leadership.

Exam application: a firm can plan for the risk that a product launch fails (assign probabilities, use a decision tree). It cannot plan a probability for the uncertainty of a rival inventing a technology that makes the whole product category obsolete — it can only build flexibility and scenario plans.

Risk or uncertainty?

Product orientation, market orientation and research data

Product orientation: the firm starts with the product it can make well and then looks for buyers (common in R&D-led or luxury markets). Market orientation: the firm starts with customer needs found through research, then designs the product.

• Primary (field) research: collected first-hand for this purpose — surveys, focus groups, observation, test marketing. Up to date and specific, but expensive and slow.
• Secondary (desk) research: already exists — ONS data, competitor accounts, trade press, internal sales records. Cheap and fast, but not tailored and may be out of date.
• Quantitative data answers how many / how much (numbers). Qualitative data answers why (opinions, motivations).

Limitations: a small sample size raises sampling error; a badly chosen sample causes bias (asking only existing customers hides why non-customers stay away); questions can lead respondents; and people do not always do what they say they will do.

Classify the research

Tap a research activity on the left, then the correct classification on the right.

ICT and market segmentation

ICT in research: websites and analytics (click-through, dwell time, abandoned baskets), social networking (sentiment, listening, cheap panels) and databases (loyalty-card data linking who buys what, when, at what price). Big data lets firms anticipate needs rather than just record them.

Segmentation splits the market into groups with similar characteristics: demographic (age, gender, income, life stage), geographic, psychographic (values, lifestyle, attitudes) and behavioural (usage rate, loyalty, benefit sought).

Segmentation lets a firm target a group precisely, tailor the mix to it, and avoid wasting promotional spend on people who will never buy.

Sampling and bias

Market mapping and competitive advantage

A market map (positioning map) plots brands against two variables customers care about — for example price (low to high) against quality or age of target market.

Competitive advantage is a sustainable reason for customers to choose you: lower cost (so you can undercut) or genuine differentiation (so you can charge more).

Reading a market map

Product differentiation and adding value

Product differentiation makes the offer distinct in the customer's mind — design, quality, USPs, service, brand image, packaging, ethics. Its purpose is to reduce the customer's willingness to substitute, i.e. to make demand less price elastic, so the firm can protect price and margin.

Chain of reasoning to use in the exam: differentiation → weaker substitutes → more inelastic demand → the firm can raise price without a proportionate fall in demand → total revenue and contribution rise → higher profit, provided the cost of differentiating is less than the extra revenue it generates.

Your turn — market growth

Mass, niche or both?

Tap a card, then tap the market strategy it best describes. Some features are true of both.

Adding value

The big ideas to know

You have now covered 1.1.1 the market, 1.1.2 market research and 1.1.3 market positioning. Press Finish to see your score.