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Factors affecting whether businesses market their products at a wide or narrow market A critical decision for many businesses is whether to aim for a narrow range of customers or a broad range. Both mass marketing and niche marketing strategies can meet most of a business’ marketing objectives. NICHE MARKETING Niche marketing is an attractive proposition for small firms, as there may be little competition in the segment. However, you do get many businesses involved in niche marketing which are actually actually owned by, or are large divisions of, larger organisations. It is not uncommon to have niche markets based on exclusive or high-quality high quality products, or may be located in more remote areas, where higher prices can be charged. Advantages Less competition – There may be fewer competitors as larger companies may not be attracted to the relatively smaller markets. Lack of competition means more customers, which equals more profit Costs – Smaller companies in niche markets don’t benefit from economies of scale, which means there is no cost reduction – which can put off the larger companies Small-scale production – Limited demand may suit a smaller business which doesn’t have the resources to produce products on a larger scale Tailor-made products – Niche businesses can adapt their product to the needs of the niche market, rather than compromise between the needs of many any different groups of consumers – this gives the products a USP and allows the business to charge more Targeting customers – It can be easier for businesses to target customers and promote their products effectively when they are only selling to a certain type of customer Disadvantage Disadvantages Limited Demand – Lack of customers in the market can lead to low profits Higher unit costs – Consumers may be put off by the higher selling prices that arisee due to not benefitting from economies of scale and from job production Attractive to competition – If the small bu business does well in the niche market, the larger companies may want a piece of the action and steal your market Changes in demand – Within such a specialist market, fluctuating demand can cause issues: when it increases, production may not be able to keep up; whe when it decreases, the business yields less revenues No risk spreading – Larger companies can spread the risks of failing products over their product mix – a small niche business only has one or two products, so it cannot spread the risk of one failing over the whole firm Case Study: Winter Melon Tea In order to compete against the imported drinks from mega-manufacturers mega manufacturers such as Coca Coca-Cola and the like, local companies in countries such as Hong Kong and Singapore have started to retail traditional Asian drinks sold in 33cl cans. Sales of these drinks began began at such a low level, but are quickly rising. The consumers of these drinks are led to believe, with the use of marketing, that their drinks (such as winter melon tea and grass jelly) are a healthier option to their imported competitors’. Other firms use use economic nationalism to sell their drinks to the niche market, such as “Asian heritage” in their advertising. Unfortunately for these small Asian companies, the multinationals have picked up on the sudden success and rising sales of these drinks, and in response have launched their own lines of traditional drinks. This is an example of a me me-too product (i.e. a product which has success, and so other business want some too) MASS MARKETING Many mass market businesses began by setting up to appeal to niche markets, and grew from there. Other firms have chosen to go straight into the mass market, but usually if this is the option they choose, they tend to begin in one geographical area and progress upwards rds from there. Mass market products aim to appeal to everyone, rather than a single specific market segment. www.asbusiness101 asbusiness101.wordpress.com Advantages Large-scale production – Whilst it may be expensive to get the machinery up and running, the money soon comes rolling in with heavy revenues due to mass purchases from the wide market you appeal to High revenues – The mass market opens you up to basically all consumers, and as you benefit from economies of scale, you can charge lower prices No barriers to entry – As a larger company, there are no barriers to entry in the mass market R&D – Having high revenues generated means that you can reinvest invest money into research and development, whereas niche markets avoid R&D due to its expense Brand awareness – It is quicker and easier to target the market considering it is essentially everyone – targeting nationally or even globally Disadvantage Disadvantages Fixed capital – The expenses of entering and running a business within the mass market are quite great Changes in demand – These affect the profits similarly to niche market businesses, however, mass markets cannot adapt to market changes as quickly as niche Standardisation – The effects of standardisation soon become clear if you have a standard product that perhaps not everyone wants Competition – There is almost always a lot more competition, and usually bigger, tougher competition, within the mass market Adding value – This becomes a lot more difficult in the mass market, for example, Tesco vs local stores In order to compete in a mass market, businesses need to differentiate their products from their competitors’. If the consumers value the difference in a business’ product, the firm will benefit in two ways: 1 2 Increased sales volume – the consumers clearly value the product, so brand loyalty will be established, and many customers will be encouraged to buy your product Greater scope for charging a higher price (associated with the USP system in the niche market) – this happens when you make a mass market product pro duct feel more like a niche market product, so you are able to charge the consumers more for it Product differentiation is achieved usually by employing elements of the marketing mix: design, branding and packaging to improve the product attractiveness clever ver promotional and advertising campaigns to boost the brand image and sales different distribution methods (e.g. AVON selling directly to consumer, “bringing it to you”) Many mass market businesses achieve product differentiation via product proliferation.. This occurs when a wide variety of products are produced to serve different tastes. In some cases, this might mean different products. www.asbusiness101 asbusiness101.wordpress.com