Marketing, competition and the customer | IGCSE Class 10 Business Studies Notes

This note covers the role of marketing, customer needs and loyalty, changing spending patterns, competition, business responses, mass and niche marketing, and the methods and potential benefits of market segmentation.

What is marketing and how does it differ from selling?

Definition: Marketing involves identifying customer needs and organising activities that satisfy them through the exchange of goods and services. It includes work before production and after a sale.

A market consists of the actual and potential buyers of a product or service. Actual buyers already buy; potential buyers may buy. A market therefore need not mean a physical place where buyers and sellers meet.

A product is something offered to satisfy a need or want, including a physical good or a service. A customer buys a product; a consumer uses it. The buyer and user can be the same person.

Why does marketing start before production?

A business needs to understand what buyers want before deciding what to make. It gathers information, chooses suitable product features and plans how the product will reach customers. Producing an item first does not establish that customers want it.

Selling is the part of marketing concerned with securing purchases. Marketing is broader: it includes product design, pricing, communication with customers, distribution and follow-up support. Distribution means making products available to customers through suitable outlets and movement of goods.

What connects the activities?

The connection is customer satisfaction, meaning how well the offer fulfils the customer's needs and expectations. An attractive message cannot by itself make an unsuitable product satisfy a customer. Product decisions and communication need to support the same offer.

For a television, marketing includes deciding the model, price and outlets before the sale. Follow-up activities then help maintain the customer relationship. Thinking across these stages prevents marketing from being treated simply as a message sent after production has finished.

How does a business identify and satisfy customer needs?

A need is a feeling of lacking something. A want is the particular form in which a person seeks to satisfy a need, influenced by factors such as culture and personality. Hunger is a need; a preference for a particular food expresses a want.

The target market is the group of customers a business chooses to serve. Identifying it gives the business a focus. The aim is to understand these customers' requirements, rather than assume that every buyer wants the same features or service.

How does understanding become an offer?

A market offering combines the product's features, its price and where it is available. Price is the amount the customer pays. A good offer is developed after analysing the needs and preferences of potential buyers.

Customer value concerns the benefits a buyer perceives in relation to the cost of obtaining them. Customers compare the offer with alternatives. A feature has marketing value when buyers consider that it helps satisfy their requirements.

1. Identify the customers the business intends to serve.
2. Understand their needs and wants.
3. Develop products or services that satisfy those requirements.
4. Seek to satisfy them better than competing businesses.
5. Carry out these activities at a profit, the excess of revenue over total costs. Revenue is income from sales.

These activities connect customer satisfaction with the business's objectives. A business needs an offer customers value, but also needs to consider the costs of providing it. Customer focus does not remove the need to assess whether an offer is financially workable.

How can product features reflect needs?

A refrigerator can include a double door or a separate provision for a water cooler when customers want these features. The starting point is the requirement, followed by the design and a price customers are willing to pay.

The same reasoning applies to availability. A product must reach a location where customers can obtain it. Understanding the customer therefore affects more than the physical item: it also affects the purchase conditions and the support surrounding its use.

How can marketing maintain loyalty and build customer relationships?

Customer loyalty means a continuing preference for a business or its products, reflected in repeat buying. A customer relationship is the continuing connection between a business and its customers through purchases, communication and support.

Winning a sale and maintaining that connection involve related activities. Marketing continues after purchase because the customer's experience of the product and of the business can affect later buying decisions. Follow-up activities support good relations and repeat sales.

What support can a business provide?

Customer support services help customers obtain satisfaction from their purchase. They include after-sales services, complaint handling, maintenance, technical help and information. After-sales service is assistance provided after a customer has bought the product.

Customer support services are very effective in bringing repeat sales and developing loyalty to a product's brand. A brand is a name, sign or other identifying feature that distinguishes a seller's product from competing products.

Branding helps buyers distinguish an offer and supports loyalty. It works alongside the product and the service customers experience. Maintaining the relationship requires attention to what happens after the customer recognises the brand and makes a purchase.

Why should relationships respond to change?

Maintaining loyalty does not mean assuming that a customer's needs remain unchanged. A business needs to keep understanding the requirements of the people it serves. An existing relationship is useful, but a past purchase does not establish permanent satisfaction.

Listening and responding connect relationship building with identifying needs. Complaint information can reveal difficulties that need attention. The business can then consider whether the problem concerns the product, the information supplied or the support provided after purchase.

Why may customer and consumer spending patterns change?

Spending patterns describe how people allocate expenditure among products and services. A change can involve what they buy, how much they buy or when they buy. Businesses need to understand the cause before selecting a response.

Which changes can affect buying decisions?

Income, the money people receive, affects what they can afford. If income changes, customers may reconsider purchases or choose a different combination of products. Higher income does not imply that spending rises equally on every product.

Tastes and preferences describe what buyers like and favour. Changes in fashion or lifestyle can alter the features they seek. A previously suitable product may need adaptation if its target customers now attach importance to different benefits.

Technology, the practical application of knowledge in products and processes, can create new alternatives. Customers may prefer a new product or a different way to purchase. Businesses need to consider whether their existing offer still satisfies the relevant need.

Demand means the quantity buyers are willing and able to purchase at a given price over a specified period. Consumers usually purchase more units at a low price than at a high price. This is not a guarantee about every individual purchase.

Why does the timing of spending matter?

Fans and woollen clothes are examples of seasonal products. Their demand can be irregular across the year. A business may need to respond to the timing of demand as well as to a change in the features customers prefer.

A fall in purchases therefore needs interpretation. It may reflect changing preferences, affordability or a seasonal pattern. These explanations do not call for identical responses, and a business should avoid treating every fall as proof that customers no longer want the product.

Why have some markets become more competitive?

Competition is rivalry between businesses seeking customers. A competitor offers an alternative that buyers may choose. Competition concerns the appeal of the whole offer, including price, quality, features and the service customers receive.

How can customers gain more alternatives?

More sellers can enter a market, giving buyers additional choices. Existing businesses can also expand their range or improve their products. Competition can intensify because alternatives become more attractive, even when the number of sellers does not change.

International competition arises when businesses face alternatives supplied by sellers from other countries. Wider access to these suppliers can increase choice. This is a possible reason some markets become more competitive, rather than a claim that every market changes in the same way.

Online selling can allow buyers to reach suppliers beyond their immediate locality. Easier access to information can also help buyers compare offers. These developments may increase pressure on businesses to explain and deliver a reason for customers to choose them.

Why is product availability insufficient?

When many sellers offer quality products, simply making a product available may not secure sales or business growth. A business must consider how customers view its offer relative to the alternatives they can obtain.

Competitive advantage is a feature or capability that gives a business an advantage over rivals in attracting customers. Good product design can improve performance and provide such an advantage. The relevant advantage depends on what customers value.

Competitor comparison should examine prices, product quality and features. Before setting a price, a business also needs to consider competitors' likely reactions. A decision is made within a market where other businesses can respond to the same customers.

The explanation should connect the change to its effect: wider access to sellers gives buyers more alternatives, which can increase rivalry for their spending. Merely naming the internet or international trade does not explain why competition may become stronger.

How can businesses respond to changing needs and increased competition?

A useful response begins with the customer requirement and the competing offers. The business needs to decide what should change and why. A response that addresses affordability may be unsuitable when the main concern is product performance or support.

Which parts of the offer can change?

Product differentiation means creating a basis on which buyers distinguish a business's product from competitors' products. Design, features, branding and support can contribute. The distinction needs to matter to the intended customers.

Promotion means informing customers about a product and persuading them to purchase it. A business can communicate the benefits of an improved offer. Communication is most useful when it explains benefits relevant to the customers being addressed.

How should a response be assessed?

1. Identify the change in needs, spending patterns or competition.
2. Explain how it affects the customers the business serves.
3. Choose an adjustment that addresses that effect.
4. Consider the costs and the value customers would receive.
5. Review whether the response continues to suit the market.

A price reduction is not automatically the best response to stronger competition. Buyers consider benefits as well as cost. Better design or support may address their needs more directly, while the business still needs an offer that is financially workable.

A manufacturer of refrigerators can consider the requested double door or separate water-cooler provision when adapting its offer. The decision connects a stated customer requirement to a product feature, rather than assuming that any additional feature will improve customer value.

What are the advantages and limitations of mass marketing?

Mass marketing means directing a broadly similar offer towards a large market, with limited differentiation between customer groups. It emphasises needs shared by many buyers. It does not mean that every person will buy the product.

What advantages can a broad market offer?

A large potential customer base gives a business the opportunity to sell in high volumes. Sales volume is the number of units sold. Reaching many buyers may support growth when there is sufficient demand for the offer.

Economies of scale are reductions in average cost that can arise as the scale of operations increases. Average cost is total cost per unit of output. Large-scale production and broad promotional activity may create opportunities to spread some costs across more units.

Using a broadly similar offer can also reduce the need to develop a separate product and message for every group. A business may benefit from concentrating its efforts on a common customer requirement across a wide market.

What limitations must the business consider?

A broad offer may fit some buyers less well than a more specialised alternative. Where customer needs differ substantially, treating them alike can weaken the appeal of the product. A large potential market does not establish that the offer suits all its members.

Reaching and supplying a large market can require substantial resources. Resources are the money, people, equipment and other inputs available to the business. A business needs to assess whether it can provide the volume and availability its approach requires.

Attractive large markets can draw strong competition. Rivals may compete for the same broad group, so a business still needs customer value and effective delivery. The scale of the opportunity should be assessed alongside the pressure from competing offers.

Note: Mass marketing offers potential benefits from scale and reach. These benefits depend on sufficient demand and the business's ability to serve the market; they are not automatic consequences of choosing a large target.

What are the advantages and limitations of niche marketing?

Niche marketing means concentrating on a narrowly defined group with particular needs within a wider market. A niche is that specialised part of the market. The focus is on a distinctive requirement shared by the target customers.

What advantages can specialisation provide?

Concentration helps a business understand a particular group and adapt its product and service closely to that group's requirements. Specialisation means focusing effort on a narrower activity or need. It can provide a basis for differentiation from broader competitors.

A niche may face fewer direct competitors if relatively few businesses serve its particular requirements. A close fit between the offer and customer needs may also support loyalty. Neither benefit is guaranteed simply because the group is small.

Customers may be willing to pay a higher price when a specialised offer provides benefits they value. The business still needs to compare that price with the costs of supplying the offer and with alternatives available to the customers.

What limitations follow from a narrow focus?

A small customer base limits the potential volume of sales. Depending heavily on one group can also make the business vulnerable if that group's needs or spending change. A strong understanding of the niche does not remove this dependence.

Smaller production volumes may give fewer opportunities for economies of scale. Specialised requirements can also make the offer costly to develop or supply. A higher selling price therefore does not necessarily mean a higher profit.

The choice depends on the needs being served and the resources available. Neither approach is inherently best. The business should connect its choice to the breadth of demand, the required offer and its ability to supply customers effectively.

How can a business segment its market?

Market segmentation means dividing a market into groups of buyers with shared characteristics or needs. Each group is a market segment. Segmentation helps a business examine differences within a wider market before deciding which customers to target.

Which characteristics can distinguish groups?

Age segmentation groups customers by age. It can be useful where needs differ across age groups. An age category is a starting point for investigating requirements, not proof that every person of that age wants exactly the same product.

Socio-economic grouping classifies customers by social and economic characteristics, such as occupation and income. It can help a business consider differences in purchasing power, meaning the ability to afford goods and services.

Location segmentation groups customers according to where they live or buy. Gender segmentation groups customers by gender. Either method is useful when the characteristic is relevant to the product and to differences in customer requirements.

How does grouping lead to a decision?

A manufacturer choosing to make readymade garments for children up to the age of five has identified an age-based target group. The age limit is part of the stated customer definition. It does not describe the whole clothing market.

Segmentation and targeting are connected but distinct. Segmentation identifies groups; targeting means selecting the group or groups the business intends to serve. Recognising several groups does not require the business to supply all of them.

More than one characteristic may be relevant, but each should help explain the customer's needs. Adding categories without showing their relevance does not by itself improve the decision. The purpose is to understand meaningful differences and develop a suitable offer.

Why can segmentation help, and how should a method be chosen?

Segmentation can help a business understand particular customers more closely. It provides a basis for adapting products, prices, communication and availability to the groups selected. These are potential benefits, because the usefulness of a grouping depends on its relevance.

What potential benefits can follow?

A business can identify needs that a broad offer does not satisfy well. It can also focus its resources on the customers it intends to serve. This can reduce effort spent addressing people whose requirements are poorly matched to the offer.

Communication can become more relevant when it addresses the benefits a selected group values. Product planning can also become more focused. The business links its decisions to the segment's requirements rather than relying on an undifferentiated view of all buyers.

Segmentation can reveal an opportunity for a specialised offer, but a segment is not automatically a profitable niche. The business still needs enough potential demand and a workable way to serve that group at an acceptable cost.

How can a choice be justified?

1. Identify the customer difference that matters in the circumstances.
2. Select the segmentation method that captures that difference.
3. Connect the grouping to a product, price, communication or availability decision.
4. Explain the potential benefit to customers and the business.
5. Consider whether the business has the resources to act on the choice.

For the manufacturer serving children up to five, age is appropriate because the stated target is defined by age. Location or gender would require additional evidence showing why those distinctions matter. They cannot be justified from the age information alone.

A recommendation should therefore be conditional on the circumstances. If affordability is the relevant difference, socio-economic grouping may help. If place affects requirements or access, location may be more useful. The selected characteristic must explain a decision the business can make.

After choosing a group, the business must continue identifying and satisfying its needs. Segmentation organises understanding; it does not replace customer relationships or remove the need to respond when the market changes.

Glossary

• Marketing — Activities that identify customer needs and develop, communicate and deliver offers that satisfy them.
• Market — The actual and potential buyers of a particular product or service.
• Customer value — The benefits a customer perceives in an offer compared with the cost of obtaining them.
• Target market — The customer group or groups a business chooses to serve through its marketing activities.
• Customer loyalty — A continuing preference for a business or its products, reflected in repeat buying.
• Customer relationship — The continuing connection between a business and its customers through purchases, communication and support.
• Spending patterns — The way people allocate expenditure among products and services, including what and when they buy.
• Competition — Rivalry between businesses seeking customers who can choose among alternative offers.
• Product differentiation — Creating a basis on which customers distinguish a business's product from competing products.
• Mass marketing — Directing a broadly similar offer towards a large market, with limited differentiation between customer groups.
• Niche marketing — Concentrating on a narrowly defined customer group with particular needs within a wider market.
• Market segmentation — Dividing a market into groups of buyers with shared characteristics or needs.
• Socio-economic grouping — Classifying customers by social and economic characteristics, such as occupation and income.
• Economies of scale — Reductions in average cost that can arise as the scale of operations increases.

Common errors and misconceptions

• Misconception: Marketing begins once a product has been made. Correct: Identifying needs and planning suitable features begin before production, while support continues after a sale.
• Misconception: Selling and marketing mean the same thing. Correct: Selling forms part of the broader activity of identifying needs and providing a suitable offer.
• Misconception: A loyal customer will keep buying regardless of changes. Correct: Maintaining loyalty involves continuing satisfaction and attention to changing customer needs.
• Misconception: Cutting price is the best response to every competitor. Correct: A response must address the relevant customer requirement, which may concern features, quality or support.
• Misconception: A niche has no competition and guarantees high profit. Correct: A niche may have fewer direct rivals, but demand, costs and competing offers still matter.
• Misconception: Mass marketing means every consumer buys the product. Correct: It targets a broad market; the actual number of buyers depends on demand and the offer.
• Misconception: Every member of a segment has identical wants. Correct: Segments group shared characteristics, while individual requirements can still differ.
• Misconception: Any segmentation method is equally suitable. Correct: The method must connect a relevant customer difference to a useful business decision.

Exam-style questions with model answers

Q1. Define a market and a target market. [2 marks]

1. A market consists of the actual and potential buyers of a particular product or service.
2. A target market is the customer group or groups a business chooses to serve.

Q2. Identify and explain four roles of marketing in relation to customers. [4 marks]

1. Identifying customer needs establishes what buyers require, giving the business a basis for planning a suitable offer.
2. Satisfying customer needs connects product features, price and availability with the requirements of the people being served.
3. Maintaining loyalty involves continuing satisfaction and support that help encourage customers to buy from the business again.
4. Building relationships maintains a connection through communication and service, including attention to customers after they have purchased.

Q3. A manufacturer chooses to make readymade garments for children up to the age of five. Recommend a segmentation method and explain why it fits the stated target. Give three separate points. [3 marks]

1. Use age segmentation because the stated target is children up to the age of five.
2. Children's clothing sizes change as they grow, so grouping by age helps the manufacturer plan suitable garment sizes for this target.
3. Offering sizes suited to these children can meet their clothing needs more closely, increasing the likelihood that their parents or carers will buy the garments.

Q4. Explain three reasons why consumer spending patterns may change. [3 marks]

1. Income may change, altering what customers can afford and causing them to reconsider how they allocate their spending among products.
2. Tastes and lifestyle may change, so customers attach importance to different benefits or features and select different offers.
3. Seasonal needs may alter the timing of purchases, making demand for products such as fans or woollen clothes irregular across the year.

Q5. Compare mass marketing and niche marketing. Give six separate points covering their focus, potential benefits and limitations. [6 marks]

1. Mass marketing addresses a broad market with a broadly similar offer, whereas niche marketing focuses on a narrowly defined group with particular needs.
2. Mass marketing can provide a large potential customer base, creating opportunities for high sales volumes when sufficient buyers want the offer.
3. Large-scale operations may create economies of scale for mass marketing, reducing average cost if the business can use that scale effectively.
4. A limitation of mass marketing is that a broad offer may fit some customers less well than an offer adapted to their particular requirements.
5. Niche marketing can match specialised requirements closely and may face fewer direct competitors, although neither benefit is guaranteed by a narrow target alone.
6. A niche's limited customer base can restrict sales and increase dependence on one group's spending, while smaller volumes may limit economies of scale.

Q6. Explain six ways a business can respond to changing customer needs and increased competition, linking each response to its purpose. [6 marks]

1. Identify changing customer requirements so that decisions address what buyers now want instead of assuming that the earlier offer remains suitable.
2. Adapt product design or features to meet those requirements and provide benefits customers value when comparing the available alternatives.
3. Review price in relation to affordability, competitors and costs, so the business considers customer value alongside its ability to cover costs.
4. Improve customer support, including complaint handling or technical help, to increase satisfaction during use and strengthen the continuing customer relationship.
5. Communicate relevant product benefits through promotion, helping intended customers understand why the offer may satisfy their needs.
6. Review how and where products are available so that the intended customers can obtain the offer in locations suitable for them.

Q7. Explain four potential benefits of market segmentation to a business. [4 marks]

1. It can improve understanding of particular customer requirements by separating groups whose needs or relevant characteristics differ within the wider market.
2. It can guide product adaptation, allowing the business to connect features more closely with the needs of its chosen group.
3. It can make communication more relevant by focusing on benefits valued by the customers the business intends to serve.
4. It can focus resources on selected customers and reveal unmet needs, although the business must still assess demand and the cost of serving them.

Q8. Identify two customer support services and explain how each helps customers after purchase. [2 marks]

1. Complaint handling addresses problems customers raise about their purchases and supports their satisfaction.
2. Technical services help customers with technical aspects of using the product they have bought.

Key takeaways

• Marketing begins with understanding customer needs and includes product planning, selling and support after purchase.
• Customer value connects the benefits buyers perceive with the cost of obtaining those benefits.
• Support services and continuing satisfaction help a business maintain loyalty and build customer relationships.
• Spending patterns may change because of income, tastes, technology, prices and the timing of seasonal needs.
• Stronger competition requires attention to alternative offers and responses suited to the requirements of target customers.
• Mass marketing offers broad reach and possible scale benefits, while niche marketing focuses on specialised requirements.
• Age, socio-economic grouping, location and gender can provide relevant bases for dividing a market into segments.
• Justify a segmentation method by connecting the given customer difference to a useful business decision.

Test yourself

Why is marketing broader than selling?

Marketing includes identifying needs, planning an offer, arranging availability and providing support, as well as securing purchases.

How does a want differ from a need?

A need is a feeling of lacking something; a want is the particular form in which a person seeks to satisfy it.

What makes a customer relationship a continuing activity?

The business maintains contact and support after purchase, while continuing to understand and respond to the customer's requirements.

Why can more sellers make a market more competitive?

They give customers additional alternatives, increasing rivalry between businesses seeking those customers' purchases.

Why is a price reduction not automatically the best response?

The relevant need may concern features, quality or support, and the business must also consider whether its price covers costs.

What is a key risk of dependence on a niche?

A change in the needs or spending of the narrow target group can reduce demand for the business's offer.

How do segmentation and targeting differ?

Segmentation divides the market into relevant groups; targeting selects the group or groups the business intends to serve.

When is location a useful segmentation method?

Location is useful when where customers live or buy affects their requirements or their access to the product.