5.2 Market Segmentation
The Market
A market can refer to:
- A geographical area where buyers and sellers come together to trade goods and services for payment (e.g. a high street)
- Competition to sell a certain type of product (e.g. the housing market)
- A type of customer demographic (e.g. the 18 – 21 age range)
Market Size
Market size includes:
- The number of potential customers
- The number of sellers
- The total value of products in the market
A businesses market share is their proportion of sales within that market
Calculating Market Size
To calculate its proportion of the market, a business first needs to know how big the market is.
The size of the market, or market volume, can be calculated by:
Market size = units sold x unit price
Remember: the number of units sold is by everyone in the market, not just one business.
Test yourself
The total number of products sold in a year was 2,000 and the unit price was £2.00. What is the market size?
Answer
Exam tip: Always write-out the formula – some mark schemes require it. Even if your maths is wrong, you can still get a mark
Calculating Market Growth
The size of the market can expand or contract. Market growth is expressed as a percentage.
The formula for calculating market growth is:
Test yourself
In 2021, the market size was £1.2m. In 2022, the market size increased to £1.5m. What is the market growth?
Answer
Calculating Market Share
A businesses market share is their proportion of sales within that market.
Test yourself
A market has four sellers: Seller A sold £400,000 worth of products; Seller B sold £750,000; Seller C sold £200,000; and Seller D sold £950,000. What is Seller A's market share?
Answer
Segmentation
Segmentation is when a business divides a market into different groups. For example, the summer holiday market:
- Some customers want a beach holiday
- Others want a city break
- Another group wants a cruise
- Some want an adventure break
By breaking-down a market into segments, the customer’s requirements can be better understood. This allows the business to better target each type of customer in terms of price and advertising.
Methods of Segmenting a Market
Age and gender – a type of demographic segmentation which considers characteristics of people
Location – the types of areas in which people live
Income – how much people can spend, based on their earnings and disposable income
Lifestyle – what sort of interests potential customers have
5.1 Identifying and Understanding Customers
5.3 The Purpose and Methods of Market Research
