Markets, demand and segmentation

Marketing objectives are targets for the marketing department — raise market share to 15%, launch two products this year, grow sales in a new region — and they must serve the corporate objective. A business aiming for growth sets share and sales targets; one aiming to survive a downturn may target retention of existing customers instead.

Demand is the quantity customers are willing and able to buy at each price. It rises when incomes rise (for most products), when competitors’ prices rise, when complementary products get cheaper, with effective promotion, and with changes in taste and fashion. Supply is the quantity producers are willing to sell at each price; it rises when production costs fall, with better technology, and as more firms enter the market.

The two interact through price: excess demand pushes price up, excess supply pushes it down, until the market settles. The exam asks for one factor explained in context — name the factor, then say how it changes this business’s sales.

Markets differ: consumer markets sell to individuals, industrial markets to other businesses; and they can be local, national or international.

Their implications are what earn the analysis marks. Rising market share brings scale, bargaining power with retailers and brand strength. Market growth can lift sales even while share falls — a business whose sales grow 5% in a market growing 20% is losing ground. A growing market attracts new competitors; a shrinking one turns share into the only way to grow.

A product-oriented business starts from what it can make and then looks for buyers — workable where technology or quality is the selling point. A customer (market)-oriented business starts from market research into what customers want and designs the product around it. Customer orientation reduces the risk of making what nobody buys, but costs more in research and can miss breakthroughs customers could not have asked for.

B2C (business to consumer) marketing reaches many buyers making small, often emotional purchases — branding, advertising and retail distribution. B2B (business to business), or industrial marketing, reaches fewer buyers making larger, technical, negotiated purchases — personal selling, trade fairs, long-term relationships and contracts.

Segmentation divides a market into groups of customers with similar needs, so each can be targeted with its own marketing mix. The three methods on the syllabus:

• Geographic — by location: region, urban or rural, climate.
• Demographic — by population characteristics: age, gender, income, family size, occupation.
• Psychographic — by lifestyle, values, attitudes and personality: the health-conscious, the environmentally concerned, the status-seeking.

Advantages: products that fit customers’ needs more closely, promotion that wastes less, gaps in the market spotted, higher prices where a segment values the product. Disadvantages: research cost, several product variants raising unit costs, and the risk of targeting a segment too small to be profitable.

CRM aims to keep customers rather than repeatedly win new ones — using data on each customer to personalise offers, communication and service, building loyalty over a lifetime of purchases. Keeping a customer is usually cheaper than finding one. Its costs are the systems, the data handling and the staff time — worth it where customers buy repeatedly and are valuable (a bank, a gym), less so for occasional, low-value purchases.

On the 36 AS papers Quanta holds, 30 question parts test the nature of marketing, on 22 of the papers (13 on Paper 1, 17 on Paper 2). The command words they open with:

• Explain × 13
• Analyse × 5
• Define × 4
• Evaluate × 4
• Calculate × 3
• Identify × 1

By tariff — each size has its own technique:

• 1 × 1-mark, 4 × 2-mark, 16 × 3-mark, 1 × 5-markShort-answer questions (2, 3 and 5 marks) →
• 4 × 8-mark8-mark 'analyse' questions →
• 4 × 12-mark12-mark 'evaluate' questions →

Terms candidates have been asked to define or explain on this topic:

niche market ×2 · psychographic market segmentation ×2 · industrial marketing · demand · mass market · customer (market) orientation · demographic segmentation · market segmentation · market share · market growth

1. 1.Market growth calculated from the business's own sales

   Market growth is the change in the whole market, not in one firm’s sales.

2. 2.Rising sales read as rising market share

   Compare the business’s growth with the market’s. Share rises only if it grows faster.

3. 3.Niche market defined only as “a small market”

   It is a small, distinct segment of a larger market with specific needs — the specialised product is the point.

4. 4.Psychographic and demographic segmentation confused

   Demographic is who people are (age, income); psychographic is how they think and live.