Introduction to Marketing
What marketing is, how markets are measured, and why market share matters.
- Define marketing and distinguish it from advertising
- Contrast product orientation and market orientation
- Calculate and interpret market share and market growth
- Evaluate the advantages and disadvantages of market leadership HL
What is Marketing?
Marketing is the management process of predicting, identifying and meeting the needs and wants of customers, usually in profitable ways.
Marketing encompasses:
- How marketing aims to influence consumer decision-making
- The factors that shape how consumers make choices
- How businesses use market research to understand customers
- How segmentation and targeting are used to reach different groups
- How products are designed to meet identified needs
Note: Marketing is not synonymous with advertising or promotion — it is the entire process of understanding and serving customers.
Product Orientation vs Market Orientation
A business prioritises research and development of products based on its own ideas, expertise, or technology, with less emphasis on market research and identified customer needs.
Advantages:
- Can create high-quality, innovative products
- May lead to a strong USP or patent
A business places customer needs and wants at the centre of decision-making and uses continuous market research to design products likely to be accepted by the target market.
Advantages:
- Lower risk due to strong product-market fit
- More likely to achieve repeat customers and long-term loyalty
Market Share
Market share is the proportion of total sales in a market held by one business or product. It is expressed as a percentage.
Formula (by revenue):
Market Share (%) = (Business Sales ÷ Total Market Sales) × 100
Formula (by volume):
Market Share (%) = (Units Sold by Business ÷ Total Units Sold in Market) × 100
- A business must clearly define both the market and the time period when calculating market share
- A business can increase its sales revenue but still lose market share if the total market grows faster
- Market share is relative — it depends on how you define the market
Market Growth
Market growth measures the percentage change in the total size of a market over a period of time.
Market Growth (%) = ((New Market Size − Original Market Size) ÷ Original Market Size) × 100
- A positive result = growing market
- A negative result = declining (contracting) market
Market Leadership HL
A market leader is the product or brand with the highest market share in its market.
Market leadership often reinforces itself through positive feedback loops — a larger share leads to advantages that make it easier to maintain or grow that share.
Advantages of Market Leadership for a Business
- Easier access to distribution channels — retailers prioritise stocking high-demand products
- Strong brand recognition and customer trust — consumers more likely to buy familiar brands
- Lower unit costs from economies of scale — bulk buying and spreading fixed costs
- Greater pricing power — the market leader can set the perceived "right" price
- Ability to invest in R&D — large revenues allow heavy reinvestment in innovation
Disadvantages of Market Leadership for a Business
- Risk of complacency and slow response to change
- Diseconomies of scale may increase costs as the firm grows
- High profits attract new competitors
- Leadership can be lost through disruption (e.g. new technology)
Disadvantages for the Economy, Society and Environment
- Reduced competition harms market efficiency and consumer choice
- Dominant firms may influence regulation in their favour
- Worker bargaining power may weaken
- Environmental and ethical risks may increase with less competitive pressure
Key Terms
- Marketing = identifying and meeting customer needs profitably; it is not just advertising
- Market share = business sales ÷ total market sales × 100
- Market growth = change in market size ÷ original size × 100
- A business can grow sales but lose market share if the market grows faster
- Market leadership has significant advantages but also risks of complacency and regulatory scrutiny
Question: A coffee shop earns $8,000 per month. Total coffee shop sales in the city are $200,000. Calculate the coffee shop's market share.
Step 1: Identify the values: Business sales = $8,000 | Total market sales = $200,000
Step 2: Apply the formula: (8,000 ÷ 200,000) × 100
Step 3: Calculate: 0.04 × 100 = 4%
Question: The total value of the electric car market was $150 billion in 2022 and $210 billion in 2023. Calculate the market growth rate.
Step 1: Change in size = $210bn − $150bn = $60bn
Step 2: Apply the formula: (60 ÷ 150) × 100
Step 3: Calculate: 0.4 × 100 = 40%
When asked about market share or market growth, always show your working step by step. Even if your final answer is wrong, you can earn method marks. Also watch for questions that give you volume data vs revenue data — make sure you use the right figures.
- What does market share measure, and why is it expressed as a percentage?
- Why must a business clearly define both the market and the time period when calculating market share?
- Can a business increase its sales revenue but still lose market share? Explain how this could happen.
- What is the difference between market share and market growth?
- Why might a business with a small market share in a fast-growing market be in a stronger position than one with a large share in a static market?
- A café earns $500 in daily sales. Total café sales in the area are $2,000. Calculate the café's market share.
- A company sells 40,000 units in a market where total sales are 160,000 units. Calculate market share based on volume.
- A firm's sales rise from $1.2m to $1.5m. Total market sales rise from $8m to $12m. Has the firm's market share increased or decreased?
- A market grows from $50m to $60m in one year. Calculate the market growth rate.
- Annual sales volume in a market falls from 200,000 to 170,000 units. Calculate market growth and state whether the market is growing or declining.
Show answers
- 500 ÷ 2,000 × 100 = 25%
- 40,000 ÷ 160,000 × 100 = 25%
- Original share: 1.2 ÷ 8 × 100 = 15%. New share: 1.5 ÷ 12 × 100 = 12.5%. Share has decreased even though sales rose.
- (60 − 50) ÷ 50 × 100 = 20%
- (170,000 − 200,000) ÷ 200,000 × 100 = −15%. The market is declining.
- Apple (iPhone development)
- McDonald's (menu localisation)
- A pharmaceutical company developing a new vaccine
- A fashion brand that surveys customers before each season's collection
- Why do these firms need to lead the market? What specific advantages does AI market leadership give them?
- What are the dangers of this race — for the businesses themselves, and for wider society?
- How might a new entrant challenge an established AI market leader? What would they need?