AS Economics and Business Small is beautiful Unit 2B

1. AS Economics and BusinessSmall is beautifulUnit 2B By Mrs Hilton For revisionstation

2. Spec

3. Lesson Objectives • To be able to discuss why small businesses exist and flourish despite lack of economies of scale • To be able to discuss micro marketing • To be able to discuss niche marketing • To be able to answer a past paper question on micro marketing

4. Starter • What’s in your e-mail junk box lately any marketing spam?

5. Definition of micro marketing • Micro marketing is marketing that is very precisely targeted at individuals and small groups

6. General, large-scale marketing to cover a large number of potential customers is no longer succeeding, according to latest research reports. • Experts are now advising that companies must take a more individual approach to customers and sell in a more targeted and personal manner • organisations use marketing skills that are more quantitative and analytical than traditionally artistic and creative. • It is thought that this is in response to the fact that the media has become more fragmented which has caused companies to shift from mass marketing to focussed techniques. • Corporate messages are now being tailored to individuals or households which is positive for companies which have a detailed understanding of their target audience.

7. Micro marketing vs micro business • Micro marketing is focussing attention on a very small segment of the population • Micro business is a small business that may be able to benefit from being smaller through shorter lead times to make products, more flexibility, customer service etc

8. Niche markets

9. Niche marketing • Ways of segmenting the cruise market:

10. Niche vs Mass • Niche marketing targets a specific segment of the market e.g. A rolexwatch aimed at the very rich luxury brand market • Mass market targets everyone – an advert in the middle of x factor for fast food / junk food e.g. KFC

11. Benefits of niche marketing • Businesses can often charge a higher price when its to a smaller market • May be specialist goods or services with few competitors so prices can remain high • High prices can lead to high profit margins • Niche consumers may be looking for an additional extra benefit or status from buying the product • Competitive advantage / USP may be gained through quality and attention of customer service

12. Long tail • The term long tail has gained popularity in recent times as describing the retailing strategy of selling a large number of unique items with relatively small quantities sold of each—usually in addition to selling fewer popular items in large quantities e.g. Amazon • As our world is transformed by the Internet and the near infinite choice it offers consumers, so traditional business models are being overturned and new truths revealed about what consumers want and how they want to get it.

13. Small business – vital to the economy • Small businesses are vital to the success of the economy. Not only as they provide the success stories of the future, but also because they meet local needs (e.g. hairdresser, financial consultant, emergency plumber). • They serve the requirements of larger businesses e.g. for photography services, printed stationery, catering and routine maintenance.

14. Small business – some statistics • Most UK businesses today are small. • Two thirds are owned and run by one person. Nearly 90% employ less than 6 people. • They are also an important source of employment. Just over 2.5 million UK workers are self employed; one in eight of all workers. • It is from these small companies that tomorrow's big names will probably arise.

15. Benefits of small business 1) • Developing personal relationships - small businesses are well placed to build personal relationships with customers, employees, and suppliers. • With a small business you know who you are dealing with; you can 'put a face' to the person you are in contact with. • Person-to-person interaction is as important as ever in building strong relationships.

16. Benefits of small business 2) • Responding flexibly to problems and challenges - in a small business there is little hierarchy or chain of command. • Large businesses may have set ways of operating and establish procedures that are hard to change. Small businesses are often far more flexible. • It can also reach a quick decision on whether or not it can do what is required.

17. Benefits of small business 3) • Inventiveness and innovation - small businesses are well positioned to introduce and develop new ideas. • This is due to their owners not having to report or seek approval from anyone else. • For example, when Anita Roddick set up The Body Shop, she developed a range of environmentally friendly cosmetics in unsophisticated packaging. This would have been frowned on in a conventional cosmetics company.

18. Benefits of small business 4) • Low overheads - due to the small scale of operation, small businesses have lower overhead costs. • They operate in small premises with low heating and lighting costs, and limited rent and rates to pay. • Low costs result in lower prices for consumers.

19. Benefits of small business 5) • Catering for limited or niche markets -large firms with high overheads must produce high levels of output to spread costs. • By contrast, small firms are able to make a profit on much lower sales figures. • They can therefore sell into much smaller markets: e.g. a local window cleaner serving a few hundred houses, a specialist jewellery maker with personal clients.

20. Niche markets

21. Niche market • A niche market is a small segment of a much larger market • Niche marketing involves identifying the needs of the consumers that make up that market • Low volume • Higher price • Distribution through specialist retailers or e-tailing • Niche must be large enough to support a profitable business and break-even

22. Niche market continued • Lack economies of scale to compete with larger established operators • So must find a profitable niche that will generate enough profit for the niche business but not enough to attract the attention of the large business Rubicon is successful and profitable but with a market share at 1% coca cola will not be interested

23. Specialised differentiated products • Designed to appeal to their specific target market • Can exploit low price sensitivity due to product differentiation • If a price increase happens there will only be a small change in demand and therefore they can do this to increase revenue http://percys-t.com/

24. Micro marketing

25. Definition of micro marketing • The activity of marketing products or services directly to highly targeted particular groups of people based on information that has been collected about them http://www.youtube.com/watch?v=1d-liLtxWb0 • Culture changed from mass culture to thousands of micro cultures (TV channels)

26. How do small brands accomplish this through social media and the web? • Example micro breweries http://derbybrewing.co.uk/ • Smaller budget • Limited resources so focus • Target locals • Free samples to local newspapers • Flyers • Food fairs

27. Final word • Micromarketing was first referred to in the UK marketing press in November 1988 in respect of the application of geodemographics to consumer marketing. • The subject of micromarketing was developed further in an article in February 1990, which emphasised understanding markets at the local level, and also the personalisation of messages to individual consumers in the context direct marketing. • Micromarketing has come to refer to marketing strategies which are variously customised to either local markets, to different market segments, or to the individual customer.

28. Sample question 1 • Amazon.com, the world’s biggest online book store, makes effective use of micro • marketing. • Micro marketing is • A marketing by small firms. • B marketing on a limited budget. • C marketing for computers. • D marketing to individuals or very small groups.

29. Answer question 1 • Answer – Marketing to individuals or very small groups (D) • Micro marketing is marketing that is very precisely targeted at individuals and small groups (1 mark) • Amazon records what each customer buys and then makes recommendations based on these previous purchases only to interested customers. (1 mark) • It is the opposite of mass marketing (1 mark) • By its nature it is selective and specialised (1 mark) much more so than • in conventional niche markets (1 mark) • It may or may not be undertaken by small firms and it has nothing to do with budgets or the computer industry (2 x 1 mark)

30. Sample question 2 • Charles Tyrwhitt is known for its high quality men’s shirt brand in Britain. In 2009, the company had a turnover of £65 million in a profitable niche selling exclusive office wear. • Operating in a niche market is most likely to lead to: • A economies of scale • B less competition • C lower prices • D lower profit margins

31. Answer question 2 • Answer: B (less competition) • Niche markets are smaller but profitable segment of a market (1 mark). • A niche market involves specialist goods or services with relatively few or no competitors (1 mark). • Niche consumers often look for exclusiveness or some other differentiating factor such as high status (1 mark). • Alternatively, they may have a specific requirement not satisfied by standard products which Charles Tyrwhitt caters for (1 mark). • Economies of scale are unlikely to be gained due to the small nature of the niche (1 mark). • Some niche markets charge higher prices rather than lower prices due to the exclusivity of the niche (1 mark). • Profit margins can be higher rather than lower due to the higher prices (1 mark).

32. Sample question 3

33. Answer question 3 • Answer – (B) has sales across a wider range of musical styles • The long tail is the name given to the shape of the graph showing sales of products when ranked in order of sales volume. (1 mark) • There will be an increase in the number of specialist music products as the Internet has enabled niche products such as special interest music to be purchased. (1 mark) • This has lead to the tail has becoming longer. (1 mark). • There has been a rise in consumer choice rather than fall due to the increase in the number of online retailers. (1 mark) • The rise in the use of the Internet to purchase music has seen a decrease in the number of high street stores. (1 mark) • This is because they cannot stock such a wide range of music. (1 mark) • Contextualised diagram of the long tail (1 mark)

34. Sample question 4 • Analyse two reasons why a micro business are able to survive in a business dominated by large businesses? • [8]

35. Answer question 4 Knowledge/understanding: up to 2 marks are available for identifying reasons e.g. customer service, differentiated products, short product development lead time, community supporting local businesses (1 mark per reason), diseconomies of scale (1 mark), batch production (1 mark) Application: up to 2 marks are available for contextualising the response by referring to a micro business/large businesses e.g. the business sells menswear clothing (1 mark); the business manufactures from old fabrics (1 mark); the business operate in a niche market (1 mark); Primark operates in a mass market (1 mark) Analysis: up to 4 marks are available for giving a reason/cause/consequence of the business surviving e.g. the business may charge a premium price for its garments which may ensure sufficient revenues/profits (1 mark) and therefore survival/growth (1 mark); The business produces unique designs for more specific tastes (1 mark) which limits competition (1 mark); the business may have better customer service than a mass clothing retailer (1 mark) which gives it a USP (1 mark); They may have lower costs (1 mark) due to smaller batch production methods (1 mark);the business can respond to changes in consumer tastes and preferences (1 mark) because it has a more flexible batch production process (1 mark)