Economics Chapter 5 Quiz

Mass Market

• Refers to a large group of consumers with similar needs and preferences.
• Consumers are willing and able to buy at an affordable price.

Niche Market

• A small but specialized group of consumers with unique needs and preferences.
• A smaller segment of a larger market.

Mass Markets: Benefits

• Economies of scale, leading to lower costs per unit.
• Wider customer base for increased sales and revenue.

Mass Markets: Drawbacks

• Intense competition and price wars.
• Significant advertising and marketing expenses to reach a broad and diverse customer base.

Niche Markets: Benefits

• Less competition than mass markets.
• Easier to target customers.

Niche Markets: Drawbacks

• Higher unit costs, limiting economies of scale.
• Demand may not be constant, increasing risk.

Market Size

• The total number of potential customers or sales revenue for a specific product or service in a particular market.

Market Growth Calculation

• [(New market size - Original market size) / Original market size)] x 100

Market Share

• The percentage of total sales revenue/customers generated by a particular company for a specific product or service.
• Calculated by: (Company's sales / Total market sales) * 100

Brand

• A name, logo, or symbol that distinguishes a product or service from its competitors.

Strong Brand Benefits

• Increased customer recognition and loyalty, leading to higher sales and revenue.
• Ability to charge a premium price, improving profit margins.

Online Retailing

• The process of selling goods and/or services through a website or online platform to reach a wider customer base.

Online Retailing: Benefits

• Increased accessibility and convenience for customers, potentially leading to higher sales and reduced costs.
• Ability to reach a global audience.

Online Retailing: Drawbacks

• Increased competition from other online retailers.
• Potential for technical issues and security concerns related to online transactions.

Product Innovation

• The development or creation of new products not previously available.

Product Innovation: Benefits

• Increased customer satisfaction and loyalty, potentially leading to higher sales and market share.
• Ability to charge a premium price for unique and innovative products.

Product Innovation: Drawbacks

• High costs and risks associated with research and development.
• Potential for failure if the product does not meet customer needs or fails to gain market acceptance.

Dynamic Market

• Markets characterized by frequent shifts in consumer preferences, technological advances, and competitive forces.
• These changes create both challenges and opportunities for businesses operating in that market.

Responding to Market Changes

• Flexibility
• Conduct market research
• Develop niche markets.

Risk vs Uncertainty

• Risk: The possibility of a lower-than-expected profit or a loss.
• Uncertainty: The inability to predict external shocks or future events.

Market Research

• The process of collecting and analyzing data about consumer preferences, market trends, and competitive forces to inform business decisions.

Primary Research

• Collecting new and original data directly from consumers or the market.

Secondary Research

• Analyzing and using existing data from published sources or databases.

Quantitative Research

• Using numerical data collection and analysis techniques to measure and quantify consumer behaviors and preferences.

Qualitative Research

• Collecting and analyzing non-numerical data, such as focus groups, interviews, and observations, to gain insights into consumer attitudes, perceptions, and motivations.

Primary Research Methods

• Surveys/questionnaires
• Focus groups/consumer panels
• Face-to-face/telephone interviews
• Product trials/test marketing

Secondary Research Methods

• Websites/social media
• Newspaper/TV/Radio reports
• Databases

Sampling Methods

• Random
• Quota
• Stratified

Market Positioning

• The approach where businesses focus on understanding and meeting the needs and wants of specific customers, aligning strategies and activities accordingly.

Market Orientation

• An approach to business where the company prioritizes understanding and meeting customer needs and wants.

Product Orientation

• Companies prioritize the development and improvement of their products and processes, without necessarily considering customer needs and wants.

Product Orientation: Benefits

• Lower costs due to a lack of market research.
• Potential for high-quality products and innovations.
• Economies of scale.

Product Orientation: Drawbacks

• Ignores changing customer needs and preferences, potentially causing products to not be in demand.
• Risks being outcompeted by companies focused on customer needs.

Market Mapping

• A technique used to identify and visualize the position of a firm's products or services relative to competitors.

Market Mapping: Benefits

• Identifies market gaps and potential for product differentiation.
• Provides insights into how customers perceive products.
• Helps companies position themselves against competitors.

Market Mapping: Drawbacks

• Can be time-consuming and expensive.
• Data quality can limit accuracy in certain industries.

Market Segmentation

• The process of dividing a market into smaller groups of consumers with similar needs or characteristics.

Market Segmentation Methods

• Demographic
• Geographic
• Psychographic (Lifestyle)
• Behavioural

Competitive Advantage

• Ways a business differentiates itself from competitors (price, added value, innovation, reliability, quality, reputation/branding, convenience, customer service).

Product Differentiation

• Distinguishing a product or service from competitors.

Product Differentiation Purpose

• Creates competitive advantage
• Enables consumers to perceive differences and pay a premium price.

Production Differentiation: Benefits

• Gaining recognition
• Charging higher prices for perceived quality
• Creating USP (Unique Selling Proposition) and winning market share.

Production Differentiation: Drawbacks

• Higher production costs
• Limits market reach and potential customer base.

Added Value

• The difference between the selling price and the total cost of inputs required to create the product/service.

Adding Value Methods

• Packaging
• Customisation
• Speed of response to customers
• Customer service
• Frequent buyer offers

Adding Value Benefits

• Higher profit margins
• Competitive advantage
• Customer loyalty

Demand

• The willingness and ability of consumers to purchase a good or service at a particular price over a given period of time.

Factors Influencing Demand

• Changes in the prices of substitutes
• Changes in the price of complementary goods
• Changes in consumer incomes
• Fashions, tastes, and preferences
• Marketing, advertising, and branding
• Demographics
• External shocks
• Seasonality

Supply

• The willingness and ability of producers to sell goods and services at a particular price over a given period of time.

Factors Influencing Supply

• Costs of production
• New technology
• Indirect taxes
• Government subsidies
• External shocks

Market Equilibrium Price

• The price where demand equals supply.

Excess Demand vs. Excess Supply

• Excess Demand: Demand is higher than supply; creates a shortage.
• Excess Supply: Supply is higher than demand; creates a surplus.

Price Elasticity of Demand (PED)

• Measures how responsive quantity demanded is to a change in price.

PED Formula

• PED = (% Change in Quantity Demanded) / (% Change in Price)

Elastic vs. Inelastic Demand

• Elastic Demand: Quantity demanded changes significantly with a small price change.
• Inelastic Demand: Quantity demanded changes very little with a price change.

Factors Influencing PED

• Availability of substitutes
• Frequency of purchase
• Relative price/expense of a product
• Whether the product is a luxury or necessity
• Time

PED and Pricing Strategy

• Inelastic: Higher prices increase total revenue.
• Elastic: Lower prices increase total revenue.

Income Elasticity of Demand (YED)

• Measures how responsive quantity demanded is to a change in consumer income.

YED Formula

• YED = (% Change in Quantity Demanded) / (% Change in Income)

Normal Goods

• Demand increases as income increases.

Inferior Goods

• Demand decreases as income increases.

Luxury Goods

• Large increase in demand when income increases.

Necessity Goods

• Small increase in demand when income increases.

YED Values Interpretation

• Positive values indicate normal or luxury goods.
• Negative values indicate inferior goods.

Marketing Mix & Strategy

• The set of actions a company uses to promote its goods or services (product, place, price, promotion).

Marketing Objectives

• Increase market share
• Increase revenue
• Build a brand

Product Life Cycle (PLC)

• The stages a product goes through from development to decline.

PLC Stages

• Development
• Introduction
• Growth
• Maturity
• Decline

Extension Strategies

• Actions used to extend the life of a product.
• Examples include updating packaging, adding new features, changing the target market, running new advertising campaigns, or reducing price.

PLC Benefits & Limitations

• Benefits: Helps with effective resource allocation, adjusting the product to market needs, and understanding the competitor's activities.
• Limitations: Doesn't predict lifespan accuracy, all products don't follow the same life cycle.

Product Portfolio

• A range of products a company sells.

Boston Matrix

• A management tool for analyzing a company's product portfolio.
• Categories include Star, Cash Cow, Question Mark, and Dog.

Marketing Mix Elements

• Product
• Place
• Price
• Promotion

B2B vs. B2C Marketing Strategies

• B2B: Tailored, informative, relationship-building, lower prices based on volume.
• B2C: Focus on design, quality, branding, persuasive promotion, widespread distribution.

Customer Loyalty

• Continued repeat purchase of goods and services from a specific seller/manufacturer.

Building Customer Loyalty

• Communication (keeping customers informed)
• Customer service (good quality product/service)
• Customer incentives (loyalty rewards/special offers)
• Personalization/personalised service (attention to individual customers)
• Preferential treatment (VIP lounge)

Design Mix

• The key elements businesses consider when developing or improving a product or service.
• Elements include aesthetics, function, and cost of manufacture.

Social Trends Influencing Product Design

• Recycling
• Reuse
• Ethical sourcing

Ethical Sourcing

• Sourcing products from suppliers who treat their workers well, care for the environment, and operate responsibly

Ethical Sourcing: Benefits

• Good reputation
• Reduced risks of legal issues
• Competitive advantage

Ethical Sourcing: Drawbacks

• Higher costs
• Monitoring challenges
• Limited supplier options

Promotion

• Activities used to raise awareness about a product or service, attracting customers' attention.

Promotional Methods

• Personal selling
• Direct marketing
• Advertising
• Public relations
• Sponsorship
• Sales promotion
• Digital communication

Brand Benefits

• Increased value
• Charging premium prices
• Reducing price elasticity of demand (PED)

Building a Brand

• Creating a USP
• Advertising
• Sponsorship
• Social media

Social Trends Affecting Promotion

• Viral marketing
• Social media
• Emotional branding

Pricing Strategies

• Cost-plus: Profit margin added to cost per unit.
• Price Skimming: High initial price, reduced over time.
• Penetration Pricing: Low initial price, increased over time.
• Predatory Pricing: Below-cost pricing to eliminate competitors.
• Competitive Pricing: Similar or lower prices than competitors.
• Psychological Pricing: Prices are set to influence consumer perception.

Factors Influencing Pricing Strategy

• Number of USPs
• Price elasticity of demand
• Level of competition
• Brand strength
• Product life cycle stage
• Costs

Social Trends Affecting Pricing

• Online sales
• Price comparison websites

Channels of Distribution

• Methods a company uses to sell products to consumers or give them access.
• Examples can be retailers like stores, wholesalers, distribution networks to retailers, direct marketing (manufacturer to consumer).

Staffing

• Viewing employees as assets (long-term investment) or costs (to be minimized)
• Employees can be a source of innovation and creativity or a liability.

Flexible Working

• Options for employees to adjust work schedules/location.
• Can boost work-life balance, cost efficiency, and skill diversity.
• Drawbacks include reduced supervision/cohesion, coordination issues, communication problems.

Recruitment and Selection

• Recruitment: The process of attracting, sourcing, and hiring candidates for job vacancies.
• Selection: Reviewing and choosing the most appropriate candidate from the pool.

Internal Recruitment

• Hiring from within an organization through promotion or transfer.
• Pros include faster process, cost savings, loyalty boosts, familiarity with company.
• Cons include limited talent pool, potential stagnation.

External Recruitment

• Hiring candidates from outside the organization.
• Pros include diverse talent pool, fresh ideas, internal conflicts mitigated.
• Cons include higher costs, longer onboarding times, cultural fit challenges.

Training

• Induction Training: Introduction to an organization's culture, policies, procedures, and roles.
• On-the-job training: Hands-on learning within the workplace.
• Off-the-job training: learning outside the immediate work environment (courses, seminars, workshops).

Organizational Design & Structure

• The way an organization arranges its hierarchy, roles, and relationships to achieve its goals effectively.
• Structures include tall, flat, or matrix forms.

Tall Structure

• Multi-layers of management.
• Narrow spans of control.
• Clear reporting structures but slow decisions, less empowerment.

Flat Structure

• Few layers of management.
• Wide spans of control.
• Faster decisions and enhanced communication, but limited oversight.

Matrix Structure

• Employees report to multiple managers (e.g., functional and project).
• Allows for skill development but can lead to conflicting priorities and communication issues.

Leadership

• Inspiring and guiding individuals or groups to achieve common objectives.

Management

• Overseeing process, coordinating resources, and ensuring operational efficiency to achieve company objectives.

Leadership Styles

• Autocratic: Leader makes decisions independently.
• Paternalistic: Leader acts like a parent, considering employee welfare.
• Democratic: Leader collaborates with the team.
• Laissez-faire: Leader gives minimal guidance.

Entrepreneur

• Person who starts a business and takes risks to earn a profit or reward.
• Stages of setting up a business (Idea, Research, Planning, Location, Finance, Resources, Launch).
• Roles of an entrepreneur (Financial Management, Administration, Marketing, Managing People, Production).

Intrapreneur

• Employee who acts like an entrepreneur, fostering new ideas and driving innovation within a larger organization.

Barriers to Entrepreneurship

• Entrepreneurial capacity
• Access to finance
• Lack of training/know-how
• Fear of failure
• Lack of confidence

Other Business Objectives

• Survival
• Profit maximization
• Cost efficiency
• Market share
• Sales maximization
• Employee welfare
• Customer satisfaction

Opportunity Cost vs Trade Offs

• Opportunity Cost: The value of the next best alternative foregone when making a choice.
• Trade-Offs: When pursuing one objective may mean sacrificing another in the pursuit of another objective.

Business Objectives in Exams

• Expect questions comparing different objectives.
• Consider trade-offs, especially between profit, ethics, and social considerations.