1.2 Spotting a Business Opportunity Flashcards
All 54 cards in this deck
What are the four customer needs in the Edexcel specification?
Price, quality, choice and convenience.
What does the customer need 'convenience' mean?
Customers want a product or service that is easy to access and use — e.g. opening hours, location or online ordering that suits them.
What does the customer need 'choice' mean?
Customers want a range of products or options to pick from so they can find what suits them.
True or false? Profit is a customer need.
False. Profit is a business aim; the customer needs are price, quality, choice and convenience.
True or false? Meeting the customer need for quality always means being the cheapest.
False. Quality is about the product meeting the standard customers expect; price is a separate customer need.
Why is identifying and understanding customers important to a small business?
It helps generate sales and supports business survival.
Give one benefit to a small business of understanding its customers' needs.
Any one of: it can set a suitable price so customers are more likely to buy (more revenue); it can develop product quality to gain a competitive advantage and a larger market share; it can offer more choice to attract customers.
How can failing to understand customer needs threaten a small business's survival?
Customers buy from competitors instead, so sales and revenue fall and the business may not cover its costs.
What does 'value for money' mean for a customer?
The customer feels the quality and benefits of the product justify the price paid.
What is market research?
The process of collecting information about the market or what customers want that might help a business be more successful and spot gaps in the market.
What are the four purposes of market research?
To identify and understand customer needs, to identify gaps in the market, to reduce risk, and to inform business decisions.
What is a gap in the market?
A place in the market where there is demand for a product or service that is not currently being met.
How does market research reduce the risk faced by an entrepreneur?
It gives evidence that customers want the product before money is spent, so the business is less likely to fail.
What is primary market research?
Research where a business collects new, first-hand data itself for its own purpose.
Name the four primary research methods in the specification.
Survey, questionnaire, focus group and observation.
What is a focus group?
A group of people brought together to discuss their views on a product or service.
Give one disadvantage to a small business of using a focus group.
Any one of: it is expensive as participants may have to be paid; the moderator can influence responses, leading to bias; it takes time to arrange.
What is observation as a method of market research?
Watching and recording how customers behave, e.g. how they move around a shop or which products they pick up.
What is secondary market research?
Using data that already exists, collected by someone else for another purpose.
Name the three sources of secondary research in the specification.
The internet, market reports and government reports.
True or false? A survey is an example of secondary market research.
False. A survey is primary research; the internet and market reports are secondary.
Give one benefit to a small business of using secondary market research.
Any one of: the research has already been carried out so it saves time; it is convenient when customers are hard to reach; government sources provide validated information.
Give one drawback of using the internet for secondary market research.
Any one of: it may not give focused information about the business's own idea; websites may be out of date and unreliable.
What is the difference between qualitative and quantitative data?
Qualitative data is non-numeric, based on opinions and views; quantitative data is numerical and can be measured and counted.
Give one disadvantage to a small business of using qualitative data.
Any one of: responses are opinions and vary a lot, making it hard to judge customer preferences; it is mostly non-numeric so it is difficult to analyse and make decisions from.
Give one advantage of using social media to collect market research data.
Any one of: it is cheap or free; it reaches huge numbers of local, national and international customers; results can be turned into graphs automatically, saving time.
Why is the reliability of market research data important?
Unreliable data leads to poor business decisions — e.g. out-of-date websites give a false picture of the competition.
True or false? Market research guarantees that a new business idea will succeed.
False. It reduces risk and informs decisions, but data can be unreliable or out of date.
What is market segmentation?
Dividing a market into groups of customers with similar characteristics so products can be targeted at them.
Name the five ways of identifying market segments in the specification.
Location, demographics, lifestyle, income and age.
What is a target market?
A group of customers which a business aims its products or services at.
Give one way a small business could use market segmentation to target customers.
Any one of: segment by gender and target different products at male or female customers; segment by income and develop a higher quality product for higher-income customers.
True or false? Revenue is a way of segmenting a market.
False. Revenue is the income from sales; segments are based on location, demographics, lifestyle, income and age.
What is a market map used for?
Spotting where there is a gap in the market, and showing where competitors are positioned.
Give one drawback of using market mapping to find a gap in the market.
The gap may exist because there is not enough demand, so the business targets a market that does not really exist.
True or false? A market map can be used to identify how many customers there are in a market.
False. A market map shows product positioning and gaps in the market, not the number of customers.
What are the steps to use a market map to find a gap in the market?
e.g. a shop mapping bikes
- Choose two features customers care about as the axes (e.g. low price–high price, basic–high performance).
- Plot each competitor's product on the map.
- Look for an empty space — that is a possible gap, e.g. low-priced high-performance bikes.
On which five factors does the specification say competitors' strengths and weaknesses should be judged?
Price, quality, location, product range and customer service.
How can a wide product range give a small business an advantage over competitors?
It can stock items no other shop has, attracting customers who want something different.
Give one way a small business could become more competitive.
Any one of: charge lower prices so customers switch to save money; improve product quality to build a better reputation than competitors.
How can customer service help a small business compete with large manufacturers?
It can offer personal help and advice and be flexible to individual customer requests, which large firms find hard to match.
Why do large competitors often find it easier to compete on price than a small business?
They benefit from economies of scale, so they have lower average costs and can also spend more on marketing.
How can increased competition affect a small business's pricing decision?
It may use a competitive pricing strategy, charging a similar or lower price, to maintain its market share.
How can increased competition affect a small business's location decision?
It may decide not to locate in an area with lots of competition because it would find it difficult to attract customers.
Give one advantage to customers of increased competition.
Any one of: lower prices as businesses cut prices to compete; more choice as more products become available.
What is market share?
The proportion of sales in a market made by one business.
True or false? Increased competition can force a business to lower its profit margins.
True. Cutting prices to keep customers reduces the profit made on each sale.
Give one advantage of primary market research over secondary research.
Any one of: it is up to date; it answers the business's own questions, so it is specific to its needs; it gives direct contact with customers.
Give one drawback of primary market research compared with secondary research.
Any one of: it takes longer to plan, collect and analyse; it usually costs more, which a small business may struggle to afford.
Give one cause of bias in market research data.
Any one of: leading questions that push people towards an answer; a sample that does not represent the target market; respondents saying what they think the business wants to hear.
How does sample size affect the accuracy of market research?
The larger the sample, the more accurate the results are likely to be, although a bigger sample costs more to collect.
Why is it useful to combine quantitative and qualitative market research data?
The numbers show what is happening, for example a fall in sales, while the opinions explain why it is happening.
Give one benefit to a business of segmenting its market.
Any one of: products can be designed to meet each group's needs more closely; marketing can be aimed at the right customers, so less is wasted; it builds closer relationships with customers.
When is a market highly competitive?
When many rival businesses are chasing the same customers, especially if their products are hard to tell apart.