AS Business Studies

Unit 1 – Developing a Business Idea

Understanding markets

Market size, growth and share

 What is a market?
What do you think?
 A place where buyers and sellers come together.

 Developments in communication methods has seen

them alter
 e.g. postal service, telephone, internet

 Firms need to recognise and understand the nature of

the market they are in - McDonalds and T.G.I.Friday’s
regard themselves as in the entertainment industry,
redefining their market has seen the numbers of
people ‘eating out’ rise rapidly.

 Firms such as B&Q promote DIY as a leisure activity

as well as home improvement
Methods of classifying markets
Markets can be classified on their location
as well as the type of product they are:

 Local Markets vs. National markets

 Physical vs. Non-physical (electronic)

markets
Market Size

 The volume of sales of a product or the value of the sales

of a product

 e.g. UK Car market (2003) - 2.5 million cars sold or £30

billion

 Market size can increase by either convincing consumers

to buy more or pay more
Market Growth
 The percentage change in sales (volume or value) over a
period of time.
 To calculate percentage change.

The Difference = X 100

The Original

 Growing markets may mean higher sales but may attract

more competitors
 Factors influencing market growth.
 Economic growth - If a country’s wealth is growing, sales are
likely to rise

 The nature of the product - Luxury products will grow in sales

most when the economy is growing and suffer when people are
more worried about their spending

 Changes in taste - lifestyle changes, firms can influence what

is popular through marketing

 Social changes - the way people live their lives, an increase in

working hours or people staying at home may mean pub sales
fall

 Fashion - fads, media influence, television shows making things

popular such as cooking and DIY
 Market share
 The percentage or proportion of the total sales of a product or service
achieved by a firm or a specific brand of a product.

 Formula:

 Market share = Sales of one product/brand/company x 100

Total sales in the market
 Measured as a %
 An excellent measure of a company’s success as it compares it with its
competitors
 Market share can only increase if you perform better than your rivals and
take some of their customers
 Firms often aim to be the market leader and have the highest market share
Market Share
 Market Share
Market Share

4% 3%
17%
Wrigley's
Terry's Suchard
7% Others
31%
Nestle
Cadbury
19% Trebor Bassett
Mars
19%

Question –
If the market’s Value is £5.4bn. What is the value for each company?
Market Share

http://walkers.corpex.com/CR15P5/trade/bars_why_walkers.asp
 Student Activity
Task 1: Walkers Market share

Watch the Market Share video on Walkers.

Make notes

Task 2: Questions on Real Marketing Data 2007

Complete questions 1 & 2

 Markets Recap…
Explain what is meant by the following terms:
a) Market
b) Market Share
c) Market Growth

Based on the data in the table complete the following questions:

 The average price per bag of compost this year is £3.30. Calculate the
market size by volume.
 Calculate the market share of Lexington 2 years ago and this year.
 Calculate the % sales growth in Darton since two years ago, and
compare this with the % market growth over the same period.
 Markets Recap…

Explain what is meant by the following terms:

a) Market
A Market is place where buyers and sellers come together.

b) Market Share
The percentage or proportion of the total
sales of a product or service achieved by
a firm or a specific brand of a product.

c) Market Growth
The percentage change in sales (volume or value) over a period of
time.
 Markets Recap…

1. The average price per bag of compost this year is £3.30. Calculate the market size by volume.

2. Calculate the market share of Lexington 2 years ago and this year.
Volume: 5 million bags (£16.5m/£3.30)

3. Calculate the % sales growth in Darton since two years ago, and compare this with the % market
growth over the same period.
2 years ago: 35%; this year 38.5%

Sales up by 25.5%, while the market has risen 3.1%

The Smooth Start - Up

Read the innocent drinks

case study.

Then complete questions

1, 2, 3 & 4.

30 Marks

30 Minutes

Remember to use the

assessment objectives
to achieve full marks
 The Smooth Start – Up
1) Outline three factors that may have led to
Innocent’s growth in market share during 2004
Use the mark scheme to answer your response
Possible answers may
include:

 The passion of staff

towards innovation and
therefore new product
ideas
 The launch of the take-
home carton
 Innocent might have
increased its
advertising budget,
with no corresponding
reaction from PJs
 The Smooth Start – Up
2) What was the retail value of Innocent’s sales in
2003, given that its market share for 2003 was the
same as it achieved in December of that year?
(4 marks)

Use the mark scheme to answer your response

 Market size in 2003 was £60m (1)

 Innocent’s share was 26.1% (1)
 So sales value was £60m x 0.261 = £15.66m
 (1 for workings; 1 for right answer)
 Total for £15.66m = 4 marks
 (allow £15.6 or £15.7 or £16)
 The Smooth Start – Up
3) As retailers were taking an average of 35% of the
sales value of Innocent’s smoothies, what was the
company’s real sales revenue in 2003? (3 marks)

Use the mark scheme to answer your response

 £15.66m * 0.65 = £10.18 million

 (1 for workings, 1 for numerical answer, 1
for £m)
 Allow between £10 and £10.4m to allow
for rounding within the calculation.
 The Smooth Start – Up
4) To what extent do you believe Innocent could
continue to succeed if Coca-Cola decided to launch
fruit Smoothies in Britain? (15 marks)
Use the mark scheme to answer your response
Possible themes might include:
 Coca-Cola’s resources would allow for a huge TV-based marketing push, to establish a
more mass market Smoothie; this might take sales away from the less-committed
current customers of Innocent (only research could give a figure, but every brand
will have some customers who are not wholly committed)
 More serious for Innocent might be Coke’s distribution muscle; this comes partly
from its virtually 100% distribution in the retail trade, but more importantly from its
grip on vending machines; if you could get your lunchtime Smoothie from a vending
machine close by, you wouldn’t walk half a mile to the shop for an Innocent Smoothie.
 BUT Innocent has had several years of building a hugely distinctive brand loved by
wealthy townies and foodies; would they defect for a Coca-Cola smoothie? Of course,
Coke would hide behind a natural-sounding brand name, but the foodies would know
the parent
 If Innocent can maintain its squeaky clean image as a provider of healthy, quirky
products, it is unlikely to suffer a knock-out blow from the arrival of Coke; Coke will
expand the market for Smoothies, but Innocent will still be able to maintain a
profitable niche; the future for PJ might be a lot less comfortable; (so perhaps Coke
would launch by buying PJ? Might be a clever move)
 The Smooth Start – Up
4) To what extent do you believe Innocent could
continue to succeed if Coca-Cola decided to launch
fruit Smoothies in Britain? (15 marks)
Use the mark scheme to answer your response