Understanding Markets

HideShow resource information

A market

A market exists where buyers and sellers combine to exchange goods and services.

A market is defined as all the current buyers of a product and/ or service, in addition to the opportunities to develop potential buyers for the market. 

It doesn't depend on the location or base of such buyers.

The market for goods and services is the total value or volume of products and services which provide a high level of satisfaction for a specific customer need.

Individual products and services in their own way can't be classified as markets.

However it's a collection of products and services which can satisfy a particular need.

The needs are those of the customer.

In trying got meet the needs of the customer who's interested in a specific market, there must be a combination of goods and services which together can optimally meet the client need.

There's a need for specificity and smaller collection of products that can satisfy the needs of the client.

1 of 7

National, Local and Electronic Markets

National markets are all over the country and international in scope. Customers needs are satisfied by businesses which provide a unique range of similar products and services across the country. Most high street retailers cater for the national market. Waterstones and WHSmiths are examples, have branches across the country. Non-high street business also have national presence and cater for the national market these businesses offer both tangible and intangible goods and services. Specific financial services products offered have specific market which they cater to.

Local markets made of small businesses and individuals that are within a geographic location of small businesses that can met the needs of these customers both other similar small businesses and individual. Businesses like electrical, building and roofing businesses tend to meet the customer needs for people and small businesses based in the same area in which it's located. Recent development has also made it possible for such small businesses to have an online presence, electronic and mail order presence which they use to have customers based not necessarily in the same geographical location.

Electronic markets provide intangible services across geographical boundaries which make it a more competitive market. Business can provide a wide variety of services over the internet, pay online and not have to physically go into a shop. Can generate an immense volume of customers, satisfy their needs.

2 of 7


Demand is a term that clearly defines the amount of products or services which customers are prepared to buy for a specific price set by the business. With a limitless desire of wants and needs, demand identifies with the reality of the scarce nature of goods and services. Focuses on the exact number of goods and services which will be sold instead of on perceived desires of the customers. This is a more accurate measure of the demand for a product or service because the sales figures provide factual evidence of the customer behaviour towards the products. Their willingness to pay for the product also helps reinforce the demand, it could be limited in supply, as long as people are prepared to pay for the product. It'd be available in the market, often at a premium.On the other hand, where there's a large amount of products or services available which exceeds demand. Will be sold at a low price so people can be attracted to buy the products.

Demand and price are inseparable when it comes to purchasing of products and services. With essential goods and services, the demand for these goods remains high despite the cost.These type of goods include food items like water, grocery items and other similar products. People need food to survive and a scarcity of food does not deter people from buying it. Although the price may be expensive it will be purchased.

Expensive products and services tend to have a lower demand, taking into consideration the market. In order to make such products attractive and stimulate the demand for such, businesses make available various long term payment plan options and also encourage the use of credit.

3 of 7

Intensity and Competition

The greater the intensity of competition in a market, the greater the impact on price.

Businesses innovate themselves in numerous ways to maintain high levels if demand and retain their customers.

With tough competition, established businesses with trusted brands that consumers are loyal to still thrive well in such environment. Brand loyalty.

As long as customers trust a brand they can pay a higher price for it as long as it provides them with the best value and satisfaction in the market.

Once the brand stops satisfying their needs, they will conveniently switch to another brand.

The main reason for such a switch in brand loyalty is the price.

Once there's a better value available, customers will go for it. Therefore competition between brands can affect demand.

Demand is also affected by close substitutes competing with each other for customers. Hence, when a customer moves between similar products to satisfy their need, then the demand is also affected.

4 of 7

Affects on demand

The ability of a consumer to spend money based on the amount they earn will affect the demand for products and services.

The higher a clients income, the greater will be the spending power of the consumer. However, when the income is lower, there will be a reduction in spending power. In effect, the amount a consumer is willing to spend on services and goods a like depends on their disposable income after deduction of tax and bills.

Net income is an individuals income after the deduction of tax. Generally, when the net incomes of customers fall, they tend to review and reduce their spending habits and prioritise what they need. On the contrary, with high net incomes, consumers are willing to spend more and get more luxuries.

In both cases, the demand is affected. Every business must be aware of the need to inform the market of its existence. Regardless of the high standard of quality of the goods, when the marketing strategy is poor, the product will remain unknown for a long period. During such a period, the demand will be relatively poor. 

Seasonal fluctuations also can affect demand. Due to the nature of certain businesses, periods during the year which are busier than others.

5 of 7

Market Segments

Market segmentation is the technique where the market is broken down into smaller sections with similar characteristics.

Businesses come up with a marketing mix which enables them to provide a variety of services for different segments in a market.

Market segments can be categorised- family size and type, age, rate of product use, psychographic- thoughts and reasons to make buying choices, lifestyle, location, economic and social group, gender, benefits.

The benefits of market segments include its high level of precision in clearly defining markets. Market segments enable the optimisation of market resources. Market segments are essential because they help discover potential opportunities in the market and how much market gaps can be filled.

Market segments have drawbacks which affect the business. A major one is the increase in the cost of production of goods and services. A business may have planned for a specific range or a few set products. With different segments, it'll have to customise it's product so satisfy the demands of the various segments. Market segments need to be sustainable over a long period so that the business can have definite guarantee that it's not in for the short term and may ultimately stand to lose out in a big way over a long term period. The ability of market segments to be profitable is important. No business would risk investing in a segment that's not going to bring any valuable returns to the business.

6 of 7

Market Growth and Size

Market growth is the percentage increment in the size of a market.

Market size measures the total sales by business that supply products or services to that particular market.

Just like the market size, the market growth can be measured by value and volume.

The measurement of value refers to the growth rate as being determined by the amount of units the business sold.

Measuring the units be value refers to the amount of revenue which the business generated. The volume is the numbers of items sold, amount spent is the value. 

Economic factors like interest rate, price of other products and services, disposable income of customer and inflation can affect the size and growth of a market.

Market share is in proportion of the total market which a specific product or business controls. Measured by volume or value. The market strategy of a business is evaluated by the amount of market shares which it holds.

The market share is usually used by businesses to ascertain its success or failure. In comparison to its competitors, a business would use the market share position to clearly see who the major performers are whether or not its in the league.

7 of 7


No comments have yet been made

Similar Business resources:

See all Business resources »See all Business Plans resources »