NATURE OF
MARKETS
MARKET SIZE, MARKET SHARE
AND MARKET GROWTH
GED BUSINESS STUDIES
GRADE12
Definition of
Markets
Markets are where buyers and
sellers meet to engage in
exchange.
The term ‘market’ also refers to
the group of customers who are
interested in a product and have
the resources to purchase.
Industrial
markets and
consumer
markets
An industrial market deals with products
bought by businesses. These include
specialist industrial machines, trucks
and office supplies. A consumer market
deals with products bought by the final
users of the products.
These include mobile phones, holidays
and fashion clothing. The different
approaches that might be needed to sell
in industrial markets and consumer
markets
Local, national and international markets
Some businesses just
sell in local areas to
local customers. They
only operate in the
local market.
Examples of such
businesses include
laundries, florist
shops, hairdressers
and car repair garages.
Local, national and international markets
• Some businesses expand their operations to the national market,
selling their products to customers throughout the whole country.
This gives greater potential to increase sales compared to local
markets.
• Relatively few businesses, compared to the thousands that
operate just in local markets, will expand to selling in the national
market.
• Common examples include banks, supermarket chains and large
clothing retailers.
Local, national and international
markets
• Selling to the international market offers the greatest sales potential. The
rapid rise of multinationals that operate and sell in many different
national markets illustrates the sales potential from exploiting
international markets.
Customer (or market) orientation and
product orientation
• Customer orientation requires market research and market analysis to
measure present and future demand.
• Customers and their needs come first. The business will attempt to
produce what consumers want to buy.
• This approach has important advantages, especially in fast-changing,
volatile consumer markets.
• As consumers now have increasing awareness of competitors’ products
and prices, they must be offered products they really want to buy
The benefits of customer orientation
are:
• The chances of newly developed products failing in the market are reduced.
Effective market research helps to prevent product failures. With the huge cost
of developing new products, such as cars or computers, most businesses use
the customer-oriented approach to reduce the risk of failure.
• Products based on consumers’ needs will have a longer lifespan and be more
profitable than those that are sold using a product-led approach.
• Market research never ends. Constant feedback from customers will allow the
product and the method of marketing it to be adapted to changing tastes before
competitors get there first.
Product-oriented markets
• Traditional product-oriented businesses, which assume there will always be
a market for the products they make, are fast disappearing. However,
product-led marketing still exists to a limited extent:
• Product-oriented businesses invent and develop products as they believe
that they will find consumers to purchase them. Pure research into technical
innovations without consumer research is rare but still exists. This is true in
the pharmaceutical and electronic industries, for example.
• Product-oriented businesses concentrate their efforts on efficiently
producing high-quality goods.
• They believe quality will be valued above market fashion. Such quality-driven
firms do still exist, especially in product areas where quality or safety is of
great importance, such as in the manufacture of advanced medical
equipment or crash helmets.
Difference between product-oriented and
consumer-oriented businesses
Product Orientation
Market orientation
Less market research costs
High market research costs
Product emphasizes on quality and innovation
Product based on customer needs and preferences
Highly flexible to consumer changes
Adjusts based on market trends, may be less reactive
to individuals
Market size, market share and market growth
• The market size can be measured in two ways: by the quantity of sales
(units sold) or by the value of products sold (revenue) by all businesses in
the market over a given time period.
• Market size can therefore be defined as the total value of sales/revenue in
the entire market.
Importance of measuring market size
• It allows a marketing manager to assess whether a market is worth
entering or not.
• It allows a business to calculate its own share of the market.
• The growth or decline of the market over time can be identified.
Market growth
• Some markets are obviously growing faster than others and some are
declining rapidly.
• Sales of desktop computers, for example, have fallen greatly in recent
years.
• Is it better to be operating in a rapidly growing market? In most cases,
yes, but not always.
• There might be many competitors entering the market at the same time,
so market share and profit margins might be low.
Definition of market growth
• Market growth is defined as the increase in the size of a market over time,
often measured in terms of sales or revenue.
Factors affecting market growth.
• a country’s rate of economic growth
• changes in consumer incomes
• development of new markets and products that reduce sales in
existing markets and products
• changes in consumer tastes
• technological change, which can boost market sales following an
innovation
• whether the market is saturated because most consumers
already own the product.
Implications of a change in market growth
(Consequences of a change in market growth)
Market Share
• Market share is a key metric that represents a company's sales as a
percentage of total industry sales.
• If the market share of a business is increasing, then the marketing of its
products has been more successful relative to most of its competitors.
• The product with the highest market share is called the brand leader.
Implications(Consequences) of an increase in
market share
• Sales are rising faster than those of competing businesses in the same
market and this could also lead to higher profits.
• Retailers will be keen to stock and promote the best-selling brands. These
brands may be given the most prominent position in shops.
• The business producing the brand leader may be able to reduce the
discount rate to retailers (for example, 10% instead of 15%), below that
offered by the smaller, competing brands. The combination of this factor and
the higher sales level should lead to higher profitability for the producer of
the leading brand.
• The fact that an item or brand is the market leader can be used in advertising
and other promotional material. Consumers are often keen to buy the most
popular brands.
Implications of a fall in market share
• Sales are likely to fall unless there is rapid market growth.
• Retailers will be less keen to stock and promote the product.
• Larger discounts to retailers might have to be offered.
• The product may no longer be a brand leader, so promotions will not be
able to state this.
Consumer marketing (B2C) and industrial
marketing (B2B)
• The differences between selling to consumers and selling to other
businesses start with the type of products.
• Consumer products are often classified into:
• convenience products – purchased frequently, often bought on
impulse and sold to a large target market (e.g. sweets, soft drinks)
• shopping products – usually require some planning and research
by consumers before being purchased; consumers do not buy
these frequently (e.g. washing machines)
• specialty products – bought infrequently, often expensive and with
strong brand loyalty (e.g. cars and designer clothing).
Industrial products are often classified into:
• materials and components – needed for production to take place
(e.g. steel and electric motors for washing machines)
• capital items – equipment, machinery and vehicles (e.g. lathes, IT
systems and industrial buildings)
• services and supplies – business services and utilities (e.g. power
supplies and IT support/maintenance).
The key differences between selling to businesses
rather than consumers are:
• Most industrial products, such as equipment for power stations, are much more
complex than many consumer products so specialist sales employees and support
services will be more important with B2B selling.
• Industrial buyers often have much more market power and are better informed
than the average consumer. They need to be sold products by well-trained and
experienced sales employees.
• Industrial buyers will rarely buy on impulse. They will only purchase after long
consideration and detailed analysis of alternative products. A business selling B2B
needs to keep in regular contact with industrial customers.
• Traditional mass media advertising and sales promotion techniques are not used in
most industrial markets. Selling can be via trade fairs or direct contact with
industrial buyers, often, initially, via websites.
• Mass marketing in consumer markets is a common strategy but in most industrial
markets there are relatively few buyers. Products may need to be adapted to meet
the needs of a particular business buyer. An example of this would be a specialist
elevator system for a very tall hotel building.