Unit 3 - Market Analysis

Question 1

What is market analysis?

Answer 1

It is the process of collecting and interpreting data about customers and the market to help a business choose an appropriate marketing strategy

Question 2

Why do businesses carry out market analysis and market research?

Answer 2

To identify, anticipate and meet the needs and wants of existing/potential customers

Question 3

What are the two main types of data used in market analysis?

Answer 3

Quantitative and qualitative data

Question 4

What is quantitative data in market analysis?

Answer 4

It is numerical data that can be statistically analysed, such as average customer spending or income levels

Question 5

What is qualitative data in market analysis?

Answer 5

It is non-numerical data based on opinions, emotions, motivations and attitudes of customers

Question 6

Why are both quantitative and qualitative data important?

Answer 6

Quantitative data shows trends and patterns, whereas qualitative data explains the reasons behind customer behaviour

Question 7

How can market analysis influence marketing strategy?

Answer 7

It helps businesses adapt products, pricing and branding to changes in consumer income, preferences and loyalty

Question 8

How do changes in prices or incomes affect consumer behaviour?

Answer 8

Consumers may change how much they buy, switch to alternative products or continue buying a good even if the prices rise.

Question 9

Why is it important for businesses to know how prices affect changes in demand?

Answer 9

Because changing prices can affect demand levels and therefore total revenue

Question 10

What does basic supply and demand theory suggest about price and demand?

Answer 10

If prices rise, quantity demanded usually falls; if prices fall, quantity demanded usually increases, ceteris paribus

Question 11

What are real incomes?

Answer 11

Incomes adjusted for inflation, showing actual purchasing power

Question 12

How can businesses respond to changes in consumer income?

Answer 12

They can adjust prices and alter stock levels of different products

Question 13

How might income changes affect demand for luxuries and necessities?

Answer 13

Demand for luxuries tends to rise as income increases. On the other hand, necessities demand remains more stable

Question 14

What is PED and its formula?

Answer 14

PED (Price elasticity of demand) - measures the responsiveness of quantity demanded given a change in price.
PED = & change in qd/ % change in prices x 100
>1 - elastic
<1 - inelastic
1 - unitary elastic

Question 15

Why is demand likely to be price elastic in markets close to perfect competition and for luxury goods?

Answer 15

Because in near perfectly competitive markets, products are very similar, consumers can easily switch to cheaper alternatives if prices rise, making demand highly responsive to price changes. Luxury goods are also price elastic because they are not necessities, so higher prices lead to a large fall in demand while lower prices significantly increase demand

Question 16

Why is demand likely to be price inelastic for necessities, addictive goods and in markets with low competition?

Answer 16

Because when there are few close substitutes and consumers may feel they must continue buying the product even when prices change. Low competition and strong branding gives firms greater pricing power, so changes in price have little effect on the quantity demanded

Question 17

What is YED and its formula?

Answer 17

YED (Income elasticity of demand) measures the responsiveness of quantity demanded given a change in income
YED = % change in income/% change in prices x 100

> 1 - income elastic
0-1 - income inelastic

Question 18

Define income elastic products, income inelastic products and negative income elasticity products.

Answer 18

. Income elastic goods - This type of result usually applies to luxury goods and services.
. Income inelastic goods - this usually applies to normal goods and services
. Negative income elastic goods - This applies to inferior goods and services, whereby if incomes increase, then people switch to superior alternatives

Question 19

How does PED affect pricing decisions and sales revenue?

Answer 19

.EOIS (Elastic Opposite, Inelastic Same)
. If prices for elastic goods increase, then revenue decreases and vice versa
. If prices for inelastic goods increase, then revenue increases and vice versa

Question 20

Why is PED important for predicting profit and reducing business risk?

Answer 20

. With inelastic demand, higher prices increase revenue and reduce variable costs, leading to higher profits
. With elastic demand, profits only rise if the increase in revenue from higher sales is greater than the increase in costs
. Understanding PED helps businesses forecast demand, set prices and reduce uncertainty
. However, PED data may be unreliable because consumer behaviour is difficult to measure accurately

Question 21

Why is YED important for business decision-making?

Answer 21

. YED shows how demand changes when incomes change
. It helps businesses plan stock, allocate shelf space and manage product portfolios
. Knowing YED helps firms respond to economic changes and develop long-term strategy.