Understanding Markets

Markets can be understood using market research data. There are three main types of markets that exist.

  • Local Market – Businesses have a good understanding of their customers needs and wants due to a close relationship. Reputation, good or bad, will spread quickly and it will be easy to collect primary market research. The market is limited in terms of growth.
  • National Market – Business communication with customers is slower, there will be other competitors who will be nearer to the customers. Distribution of products or services to customers is more costly but the business will have economies of scale. Reputation, good or bad, will spread slowly and there is a larger potential market.
  • Electronic Market – A business without a physical presence, reputation is slow to spread and customer view this method of purchasing as risky. Can be cheap and easy to setup, some companies provide tools to make your own site.

Demand

In order to sell products you need to have a demand for them. Market research data can be can be used to assess the most likely factors of demand for a product. Some examples are:

  • Price – Some products and services have a demand that is very sensitive to price changes
  • Competition – The actions of competitors changing their price and product features.
  • Incomes – Some products / services will be very sensitive to peoples incomes
  • Marketing – There is a relationship between the money spent on marketing and the demand for a product.
  • External Factors – What season you are in can affect the demand for a product as well as the current weather.

Market Segmentation

It can be very useful to segment the market to perform market research and determine how different segments might be treated by the business. The most frequent method used to segment a market is demographic segmentation. This breaks the market down according to characteristics of the customers such as age, socio-economic group, income, family characteristics or ethnicity. Others can include, lifestyle or personality or geography.

Benefits

-A greater understanding of the needs of the segment and therefore a better chance of meeting those needs. -Generally less expensive to develop a product or service that meets a more distinct need. -Less wasteful than trying to sell a product to everyone (more targeted) -Segmentation allows differentiation from competition and allows a higher price to be charged.

Drawbacks

-Depends on the entrepreneurs knowledge of the market and their level of market research. -Segmentation is only an approximation, not everyone will behave in the same way -May not be appropriate for small businesses with limited markets.

Positioning Map

A positioning map (or market map) can be a useful way to represent segments of a market in a graphical format The chart below shows the market segments for sportswear. It shows the percentage of sportswear bought by certain ages and genders as well as potential Internet sales.

Numerical Techniques

One way a value can be represented is in terms of how much a value is in relation to a total. This is a proportion of a market and can be used to display information about many different market factors. Proportions are normally displayed graphically so that they are easier for people to comprehend they are always displayed as percentages.

Market Share and Market Growth

Market Share

By knowing the sales you have in a market and the size of the market as a whole, you can calculate the market share. For example, say the total market is £100 million and your sales are £6,750,000 your market share would be 6.75%

Market Size and Growth

It is also possible to calculate the growth of a market. Suppose a business had sales last year of £300,000 and this years sales were £425,000 the growth would be 41.6%


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