A market is where buyers meet sellers; examples include eBay or Smithfield meat market. The key elements within every market are its size (how much is spent by customers every year), extent to which it can be subdivided, and the extent to which the market is dominated by one or two companies or brands.
Local vs National
Mots new small firms know and care little about the size of the national market. If you have just bought an ice cream van that you intend to operate in Chichester, it doesn't matter whether the size of the Uk market for ice cream is £500 million or £600 million a year. Your concern is the level of demand and the level of competition locally.
In the case of the market for ice cream in Chichester there are several things to consider:
- How do locals buy ice cream at the moment? (Multi-packs from supermarket or individual cones from ice cream vans)
- How many tourists come to the city? Do they come all year round? What type of ice cream do they buy? Where do they buy it?
- How much competition is there, what do competitors offer and charge at the moment? Are the gaps in the market that you can move to?
More and more markets are becoming electronic. Every market years ago use to physical, where a bidder had to catch the eye of an auctioneer and people had to meet to sell things. Nowadays with the likes of eBay auctions and the stock market (that only exists on computer screens), there are an increasing number of markets becoming electronic.
From a business point of view the key factors about electronic markets are that:
- They are very price competitive and therefore the companies supplying services have huge pressure to keep their costs as low as possible.
- They don't rely on physical locations - you can enter a electronic market in your bedroom if you wanted to!
- The market is easy and cheap to enter so new competitors can arrive at any time.
Demand is the desire of consumers to buy a product or service, when backed by the ability to pay. it is also known as 'effective demand' (i.e. only when the customer has the money is demand effective). There are several factors that determine the demand for a specific product/service.
This affects demand in three crucial ways:
- You may want to buy a £100,000 Ferrari but cannot afford it: the higher the price, the more people there are who cannot afford it..
- The higher the price, the less good value the item will seem compared with others ways of spending the money (opportunity cost).
- It should be remembered that the price tag put on an item gives a message about its 'value' (e.g. 99p being cheap).
Demand for British Airways' Heathrow - New York flights does not only depend on their price and the income of consumers. It also depends on the actions of BA's rivals. If Virgin Atlantic is running a brilliant advertising campaign, demand for BA flights might fall as customers switch to Virgin. Or if American Airlines pushes its prices up, people might switch to BA.
The Firm's Own Marketing Activities
Following the same logic, if British Airways is running new advertising campaign, perhaps based on improved customer service, it may enjoy increased sales. In effect its sales will rise if it can persuade customers to switch from Virgin and American Airlines to BA. One firm's sales increase usually means reduced sales elsewhere.
Most firms experience significant variations in sales through the year. Some markets boom in summer and slump in winter, such as ice cream, soft drinks, lager and seaside hotels. Others boom at Christmas, such as sales of perfume, liqueurs, greeting cards and toys. The variations are caused by patterns of the customer behaviour; nothing can be done about that. A well-run business makes sure it understands and can predict seasonal variations in demand, and then has a plan for coping.
Market share is the proportion of the total market held by one company or product.
It can be measured in volume, but is more often looked at by value. Market share is taken by most firms as the key test of the success of year's marketing activities. Market share is only affected by competitors, so firms can measure how well they are doing against there rivals.
There are many advantages to a business in having the top-selling brand (the brand leader). Sales will be higher than anyone else but also:
- the brand leader gets the highest distribution level, often without needing to make much effort to achieve it.
- brand leaders are able to offer lower discount terms to retailers than the number two or three brands in a market; this means higher revenue and profit margins per unit sold.
- the strength of a brand-leading name such as Walls Magnum makes it much easier to obtain distribution and consumer trial for new products based on that brand name.
- research into different types of customer within a marketplace (e.g. different age groups, gender, region, personality).
- see if they have common tastes/habits (e.g. younger readers may be more focused on fashion than older ones).
- devise a product designed not for the whole market but for a particular segment; this might achieve only a 1% market share, but if the total market is big enough, that might be highly profitable.