Understanding Customer Needs - Businesses want to provide products that customers will want to buy. This is called ‘market orientation’. They develop new products that will suit the needs of their customers, therefore ensuring sales and more revenue. They will develop a product depending on who is most likely to buy it.
Market Research - Companies find out what their customers want through market research. Market research answers questions such as: Who is the target market?, Where are they?, What do they want?, What are our competitors doing? and How can we do things better? Market research can be done in 2 ways: Primary Research and Secondary Research.
Types of Research - Primary Research -“Field Research”, Information that is newly created, Can be collected by research firms or by the business itself, Up to date, Can be expensive to collect, Takes longer to collect. This can be through: Observations, Interviews (telephone or group interviews), Consumer panels, Questionnaires.
Secondary Research - “Desk Research”, Involves using information that has already been collected, It is cheap and readily available, Information might be out of date or might not be relevant, Can be obtained from: Government statistics, Market Research companies, Newspapers, The Internet, Company’s past data.
Market Segmentation - DEFINITION: A part of a market that contains a group of buyers with similar characteristics. Groups of people are part of the business’ market, and are called market segments.
The target market for a business is the market segment that they are trying to sell their products to.
Market segmentation can be based on: Geographical/regional location, Age, Gender, Socio-economic groups and Lifestyle.
Market maps are a way of positioning products against two features to see where they lie on each scale.
Competitive Advantages - Businesses want to gain the most customers in order to make the most profit However there are other businesses who sell the same products or services. A business has to gain a competitive advantage over other businesses of the same type in order to keep selling their product or service. Competitive Advantage - An advantage that a business has over its competitors that allow it to generate more revenue and more sales.
Ways to Gain a Competitive Advantage - Taste – for edible products, each variety tastes different and businesses try to make theirs taste the best. Value for money – customers want to get the most they can for the smallest amount of money possible. Brand – customers have a certain image of a company in their heads and will buy certain brands just because of the name. Customer service – people will be more likely to buy a product if they are guaranteed good customer service, and also good after-sales care for expensive products. Quality – different types of customer want different qualities of products.
Competition - Businesses have two different types of competition: Direct competition – another business that sells exactly the same type of product at the same level of quality/price. They are often located near each other (economies of concentration) e.g. McDonalds and Burger King. Indirect competition – another business that sells the same type of product, but with a difference. They are often just alternative versions of the same product, or might serve the same general purpose e.g. McDonalds and Pizza Hut.
The Product - Once a product has been manufactured there are still many things that have to be done to get it on sale to customers. These are Input of Resources Add Value to Raw Materials Outputs Adding value is how to charge more for a product by making is more appealing to customers. DEFINITION: The increase in benefits of a good or service which are created at each stage of production. Examples are having packaging that makes products look different from their competitors and having brand names and brand images.
Franchises - A franchise is where a large company allows smaller businesses to trade under their name and brand. They have features such as: An agreement between a franchisor and a franchisee. The franchisor allows use of their business name for an agreed amount of time. The franchisor provides materials, training and advice.The franchisee must provide the money to start the business. The franchisee must make regular payments to the franchisor.
Advantages - There’s a good chance of success, It’s easier to borrow money because of proven success, Most problems have already been overcome, Support is available from the franchisor, Advertising is organised and paid for by the franchisor.
Disadvantages - Franchise can be removed, The franchisee cannot make all of the decisions,
Cannot sell the franchise without permission, Have to make royalty payments to the
franchisor, Supplies have to be purchased from the franchisor.