Understanding Market Dynamics
The Market
Definition
Joint trading activities undertaken by buyers and sellers.
Types of Markets
Markets are categorized based on three factors: providers, applicants, and product. The common classifications include:
- Perfect Competition: Product homogeneity, numerous buyers and sellers, market transparency, and unrestricted market entry and exit.
- Imperfect Competition:
- Monopoly: One seller and many buyers.
- Oligopoly: Few sellers and many buyers.
- Monopolistic Competition: Many sellers and buyers.
Total Demand and Enterprise Demand
Demand is the quantity of products or services that buyers are willing to purchase within a specific timeframe.
Total market demand represents the aggregate purchases in a market.
Enterprise demand refers to a company’s purchases during a given period.
Potential market demand is the maximum sales a company could achieve within a specific timeframe.
Market Share
Market share is calculated as: (Company Sales / Total Market Sales) * 100
Market Study
A market study involves collecting, processing, and analyzing information about the general environment, competition, and consumers.
Phases of a Market Study
- Define objectives.
- Design the research model (internal company information, published statistical data, external research).
- Collect data (primary data collected specifically for the study, secondary data previously collected for other purposes).
- Classify and structure data.
- Analyze data.
- Present findings (problem analysis, methodology, results, conclusions).
Techniques for Collecting Primary Data
Surveys
Surveys aim to reach a large portion of the population. Data is collected and compiled from a sample group.
Types of surveys: Personal, postal, telephone, email.
Advantages: Fast and economical.
Disadvantages: May not be a representative sample.
Experimentation
Study consumer behavior and reactions.
Market Segmentation
Market segmentation involves dividing customers into homogeneous groups based on their needs. The chosen group, characterized by shared traits and a degree of homogeneity, is also known as the target audience.
Segmentation Criteria
- Sociodemographic: Grouping by gender, age, etc.
- Socioeconomic: Grouping by consumption level.
- Psychographic: Grouping by personality and lifestyle.
Statistics are a fundamental tool for market segmentation.
The Marketing Mix
Price
Price is the amount paid by the buyer for a good.
Price Setting
Prices are set to maximize profit. Buyers prefer low prices, while sellers aim for high prices.
Price-demand elasticity measures the relationship between changes in quantity demanded and changes in price.
Cost-Based Pricing
Unit Cost = (Variable Cost + Fixed Cost) / Units Produced
Competition-Based Pricing
Prices can be set similar to, below, or above competitors’ prices.
Pricing Strategies
- Price Skimming: High price targeting a premium segment.
- Penetration Pricing: Low price targeting a broader market.
Distribution
Distribution is the process of getting the product to the consumer.
Process: Product storage, physical distribution, invoicing, and collection.
Distribution Channels
Methods used to bring products to consumers.
Types: Direct channels, indirect channels (brokers).
Distribution Strategies
- Exclusive Distribution: Limited number of outlets.
- Selective Distribution: Carefully chosen outlets.
- Intensive Distribution: Wide availability.
Alternative Distribution Channels
Franchising, teleshopping, online sales, vending machines.
Promotion
Promotion aims to increase sales through publicity and image enhancement.
Advertising
Communicating the image to a mass audience.
Basic Principles: Attract attention, generate interest, and encourage action.
Sales Promotion
Activities to boost sales (e.g., discounts, 2-for-1 offers).
Sales Staff
Direct interaction with buyers to persuade them to purchase.
Public Relations
Activities to enhance the product’s image.
Point-of-Sale Marketing
Promotional materials at the point of sale (e.g., posters, product placement, displays).