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4.1

Introduction to marketing

Unit 4 · Marketing · SL and HL

Marketing is about identifying what customers want and meeting that need profitably. This page covers the two broad orientations a business can take, how to calculate and interpret market share and market growth (a common Paper 2 calculation), and at HL why market leadership matters.

🎯What you need to be able to do

  • Explain market orientation and product orientation.
  • Calculate and explain market share and market growth.
  • HL Evaluate the importance of market share and market leadership.

📚The business management

What is marketing?

Marketing is the process of identifying, anticipating and satisfying customer needs and wants profitably. It includes market research, planning, product design, pricing, promotion and distribution: far more than advertising.

A market is where buyers and sellers exchange goods or services. Markets can be consumer (B2C, selling to individuals) or industrial (B2B, selling to businesses), and physical or online.

Market orientation and product orientation

Market orientation
the business starts from customer needs: it researches what customers want and designs products to meet them. Advantages: products more likely to sell; responsive to change; loyal customers. Disadvantages: research is costly; customers cannot always imagine radically new products; chasing trends may dilute the brand.
Product orientation
the business starts from what it can make and focuses on quality, efficiency and innovation, then looks for buyers. Advantages: strong on quality and technical innovation; can create new markets (many technology breakthroughs); efficient. Disadvantages: risk of making things nobody wants; slow to respond to changing tastes.

Most businesses combine both; product orientation remains common where technical expertise leads (pharmaceuticals, engineering, luxury craftsmanship).

Market share and market growth

\[ \text{market share} = \frac{\text{firm's sales}}{\text{total market sales}} \times 100 \]
\[ \text{market growth} = \frac{\text{market sales this year} - \text{market sales last year}}{\text{market sales last year}} \times 100 \]
A pie chart of a 120 million dollar market: Brand A 42 million, 35 per cent; Brand B 27 million, 22.5 per cent; our brand 18 million, 15 per cent; others 33 million, 27.5 per cent.
Market share compares a firm’s sales with the whole market.

Market share can be measured by value (revenue) or by volume (units). A firm’s sales can grow while its share falls, if the market grows faster; and a falling market can hide a rising share.

Market share and market leadership HL

The market leader has the largest market share. Benefits: economies of scale and lower unit costs; brand recognition and customer trust; bargaining power with suppliers and retailers (better shelf space, better terms); ability to influence prices; higher profits to fund R&D and marketing; attractive to investors. Limitations: leadership invites competition and regulators’ attention; defending it is costly; a large share of a shrinking or unprofitable market is little comfort; complacency can let innovative rivals overtake (many former leaders in mobile phones and cameras).

✏️Worked example

A kombucha brand’s sales rose from $15 million to $18 million, while the total market grew from $90 million to $120 million. (a) Calculate market growth and the brand’s market share in each year. (b) Comment.

(a) Market growth = (120 − 90) ÷ 90 × 100 = 33.3%. Share last year = 15 ÷ 90 × 100 = 16.7%; this year = 18 ÷ 120 × 100 = 15%.

(b) The brand’s sales grew by 20%, but the market grew by 33%, so it lost market share (16.7% to 15%). Rivals or new entrants are capturing more of the growth. The brand should investigate why, perhaps with market research, and review its marketing mix.

Check it. Compare the firm’s growth (20%) with market growth (33%): whenever the firm grows more slowly than the market, its share falls.
Calling growth in sales “growth in market share”. They are different measures; always check the total market.

📝Practise

Work through these on paper, then reveal the answer.

1. [2 marks] Define the term market orientation.
An approach in which a business identifies customer needs and wants first, through market research, and designs products to satisfy them.
2. [2 marks] A firm sells $4.2 million in a market worth $28 million. Calculate its market share.
4.2 ÷ 28 × 100 = 15%.
3. [2 marks] A market grew from 2.4 million units to 2.7 million units. Calculate market growth.
(2.7 − 2.4) ÷ 2.4 × 100 = 12.5%.
4. [4 marks] Explain one advantage and one disadvantage of product orientation for a firm making high-end electric bicycles.
Advantage: focusing on engineering quality and innovation can create a superior product with a strong reputation, justifying premium prices. Disadvantage: it may design features customers do not value or miss changing preferences (style, price, service), so sales fall short.
5. HL [4 marks] Explain two benefits of being the market leader for a snack food company.
(1) Economies of scale in buying ingredients, production and advertising lower unit costs and raise margins. (2) Bargaining power with retailers: supermarkets and minimarkets want the leading brand, so it gains better shelf positions and terms, reinforcing sales.
6. [10 marks] Discuss whether a small business should aim to increase its market share.

For: economies of scale, stronger brand, bargaining power, security against competitors, more revenue.

Against: costly (price cuts, marketing) and may reduce profit; strains cash flow and capacity; large rivals may retaliate; a small firm may do better focusing on a profitable niche with loyal customers.

Judgment: depends on objectives, finance, the market’s growth and whether scale matters in the industry. A niche strategy (Porter’s focus, toolkit) may be more realistic than chasing overall share.

🔗Go deeper — other people’s work

These are external resources, not mine. If one stops working, tell me and everything above it on this page still stands.

  • Philip Kotler, Principles of Marketing — the classic textbook.
  • Statista and industry reports — market share data for many industries.
  • Tutor2u — revision notes on market orientation and market share.