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how market makers earn revenue | market makers are compensated for the risk of holding securities that they make markets for that may decline in value after they re purchased from sellers and before they re sold to buyers in addition they earn money from the aforementioned spread on each security they cover for example when an investor searches for a stock using an online brokerage firm it might observe a bid price of 100 and an ask price of 100 05 this means the broker purchases the stock for 100 then sells it to buyers for 100 05 through high volume trading a small spread can add up to a large amount of daily revenue market makers vs designated market makersmany exchanges use a system of market makers who compete to set the best bid or offer so they can win the business of incoming orders but some entities such as the new york stock exchange nyse have what s called a designated market maker dmm system instead previously referred to as specialists dmms are essentially lone market makers with a monopoly on the order flow of a particular security or securities because the nyse is an auction market bids and asks are competitively forwarded by investors 4here s how it works the dmm posts these bids and asks for the entire market to see and ensures they are reported in an accurate and timely manner they also make sure that the best price is always maintained that all marketable trades are executed and that order is maintained on the floor 4the dmm must also set the opening price for the stock each morning which can differ from the previous day s closing price based on after hours news and events they determine the correct market price based on supply and demand 4latest figure for the total market capitalization of domestic companies listed on exchanges in the u s 5market makers by exchangeas noted above market makers provide trading services for investors who participate in the securities market their activities through their entity trading accounts produce and boost liquidity within the markets exchanges throughout the world make use of market makers here are some of the most popular ones the nyse and nasdaq are the two main stock exchanges in the u s both are based in new york according to the nyse a market maker is an etp holder or firm that has registered to trade securities with the exchange 6over at the nasdaq a market maker is a member firm that buys and sells securities at prices it displays in nasdaq for its own account principal trades and for customer accounts agency trades 78some of the designated market makers in new york include the frankfurt stock exchange fra is one of seven stock exchanges in germany it is also the largest the exchange which is operated by deutsche b rse ag calls its market makers designated sponsors 10the following are some of the names of market makers on xetra which is the electronic trading platform of the exchange group london is home to one of the largest stock exchange groups in europe the london stock exchange lse is part of the london stock exchange group this group also includes the family of ftse russell indexes and the group s clearing services 12the following are some of the key market makers in this part of the world the tokyo exchange group combined the tokyo stock exchange and the osaka securities exchange into one unit in 2013 in addition to infrastructure and data the group provides market users with reliable venues for trading listed securities and derivatives instruments 14according to jpx the following are some of the key names among market makers toronto is considered to be canada s financial capital and it s the location of the country s leading stock exchange the toronto stock exchange tsx which is the country s largest exchange is owned by tmx group the tsx lists the following among its market makers market makers facilitate a smooth flow of market activity by making it easier for investors and traders to buy and sell without market makers there could be insufficient transactions and fewer opportunities to invest efficiently example of a market makerlet s say there s a market maker in xyz stock they may provide a quote of 10 00 10 05 or 100 x 500 this means that they bid they will buy 100 shares at 10 00 they ll also offer they will sell 500 shares at 10 05 other market participants may then buy lift the offer from the market maker at 10 05 or sell to them hit the bid at 10 00 | |
what s the role of a market maker | a market maker plays a key role in the securities market by providing trading services for investors and boosting market liquidity specifically they provide bids and offers for securities along with the market size | |
why do market makers matter | they matter because they ensure that the securities markets continue to function market makers must commit to providing markets for securities on both the buy and the sell sides | |
how do market makers work | market makers operate and compete with each other to attract the business of investors by setting the most competitive bid and ask offers in some cases exchanges may have designated market makers or specialists each of whom is responsible for making a market in specific securities the specialist process exists to ensure that all marketable trades are executed at a fair price in a timely manner the bottom linemarket makers provide assurance to the investment community that trading activities can operate smoothly whether an entity or individual market makers are obligated to provide bids and offers for securities that is to make markets so that markets retain some degree of liquidity and investors can continue to buy and sell | |
what is manipulation | market manipulation is conduct designed to deceive investors by controlling or artificially affecting the price of securities 1 manipulation is illegal in most cases but it can be difficult for regulators and other authorities to detect and prove market manipulation may involve factually false statements as well but it always seeks to influence prices in order to mislead other market participants 2manipulation methodsmanipulation is more difficult for the more liquid or widely traded securities it is much easier to manipulate a penny stock with a tiny typical daily trading volume than the share price of a large cap company with daily turnover valued in billions of dollars the pump and dump is a market manipulation often used to artificially inflate the price of a microcap stock before selling it less common is the inverse poop and scoop scheme in which false derogatory statements are made about a stock in order to buy it on the cheap there s also the short and distort variety essentially a poop and scoop executed by short sellers in order o profit while such schemes rely primarily on promotion or factual misstatements they are often supplemented by illegal trading tactics designed to deceive one common means is order spoofing which involves the placing of numerous buy or sell orders designed to move the price of the stock then canceling them once other traders have moved their own bids or asks accordingly 3 order spoofing has tempted staff at large wall street firms alongside shady daytraders and can take place in the bond and metals markets as well as in the stock market 4currency manipulationcurrency manipulation is an accusation often levied in trade or exchange rate disputes notably by the u s against trading partners who are sometimes alleged to set the exchange rate of their currency against the u s dollar artificially low to boost exports governments and central banks can be accused of currency manipulation if they fix the exchange rate or seek to affect it less openly with market transactions from time to time 5currency manipulation is a political term rather than a legal one because foreign exchange policies are set by sovereign countries currencies are fixed or allowed to float for a variety of internal and external motives while currency manipulation claims are almost always the result of dissatisfaction with trade flows as a result whether a currency manipulation is taking place or not is often a subjective judgement 67the u s treasury makes a semiannual report to congress on the macroeconomic and foreign exchange policies of major u s trading partners in accordance with the omnibus trade and competitiveness act of 1988 the report uses evaluation criteria spelled out in the trade facilitation and trade enforcement act of 2015 the december 2021 report concluded no major u s trading partner manipulated its currency s exchange rate against the u s dollar to gain an unfair competitive advantage in international trade while singling out vietnam and taiwan for additional scrutiny 8currency manipulation is a political claim rather than an illegal market deception example of currency manipulation claimon august 5 2019 the people s bank of china pboc set the chinese yuan s daily reference rate above 7 yuan per dollar for the first time in over a decade depreciating the chinese currency against the dollar and making chinese exports cheaper in dollar terms the rate was set after the announcement by the trump administration of new tariffs of 10 on 300 billion worth of chinese imports which went into effect sept 1 2019 9the same day the yuan exchange rate topped 7 per dollar the trump administration labeled china a currency manipulator a designation lifted a few months later 1011 the tariffs on chinese exports however remained in place as of january 2022 12 | |
what is market neutral | a market neutral strategy is a type of investment strategy undertaken by an investor or an investment manager that seeks to profit from both increasing and decreasing prices in one or more markets while attempting to completely avoid some specific form of market risk market neutral strategies are often attained by taking matching long and short positions in different stocks to increase the return from making good stock selections and decreasing the return from broad market movements understanding market neutralthere is no single accepted method of employing a market neutral strategy beyond the method mentioned above market neutral strategists may also use other tools such as merger arbitrage shorting sectors and so on managers who hold a market neutral position are able to exploit any momentum in the market hedge funds commonly take a market neutral position because they are focused on absolute as opposed to relative returns a market neutral position may involve taking a 50 long and a 50 short position in a particular industry such as oil and gas or taking the same position in the broader market often market neutral strategies are likened to long short equity funds though they are distinctly different long short funds simply aim to vary their long and short stock exposures across industries taking advantage of undervalued and overvalued opportunities market neutral strategies on the other hand focus on making concentrated bets based on pricing discrepancies with the main goal of achieving a zero beta versus its appropriate market index to hedge out systematic risk while market neutral funds use long and short positions this fund category s goal is distinctly different from plain long short funds types of market neutral strategiesthere are two main market neutral strategies that fund managers employ fundamental arbitrage and statistical arbitrage fundamental market neutral investors use fundamental analysis rather than quantitative algorithms to project a company s path forward and to make trades based on predicted stock price convergences statistical arbitrage market neutral funds use algorithms and quantitative methods to uncover price discrepancies in stocks based on historical data then based on these quantitative results the managers will place trades on stocks that are likely to revert to their price means a great benefit and advantage of market neutral funds is their big emphasis on constructing portfolios to mitigate market risk in times of high market volatility historical results have shown that market neutral funds are likely to outperform funds using other certain strategies except for pure short selling strategies market neutral strategies historically have the lowest positive correlations to the market specifically because they place specific bets on stock price convergences while hedging away the general market risk example of a market neutral fundbecause it is a market neutral strategy the vanguard market neutral investor shares fund vmnfx is a liquid alt fund that uses long and short selling strategies unlike the firm s other mutual funds which only buy and sell long positions the fund s strategy aims to minimize the impact of the stock market on its returns meaning the fund s returns may vary widely from those of the market 1although most funds that short stocks such as hedge funds do not disclose their short holdings because sec rules do not require them to the vanguard market neutral investor shares does publish its shorts it chooses short positions by evaluating companies in five categories growth quality management decisions sentiment and valuation then it creates a composite expected return for all of the stocks in its universe and shorts those with the lowest scores investing in market neutral specific funds is typically for high net worth individuals for example vmnfx has a minimum investment amount of 50 000 other funds may have extremely high expense ratios well above the investment ratios of passively managed funds 1 | |
what is a market on close moc order | a market on close moc order is a non limit market order which traders execute as near to the closing price as they can either exactly at or slightly after the market close the purpose of a moc order is to get the last available price of that trading day moc orders are not available in all markets or from all brokers all moc orders must be received at new york stock exchange nyse markets by 3 50 p m eastern time et unless entered to offset a published imbalance nyse markets rules also prohibit the cancellation or reduction in the size of any moc order after 3 45 p m et on the nasdaq all moc orders must be received at island by 3 55 p m et but may not be canceled or modified after 3 50 p m et 1understading market on close moc ordersa market on close order is simply a market order that is scheduled to trade at the close at the most recent trading price the moc order remains dormant until near the close at which time it becomes active once the moc order becomes active it behaves like a normal market order moc orders can help investors to get into or out of the market at the closing price without having to place a market order immediately when the market closes traders often place moc orders as part of a trading strategy for example some traders will want to exit at the close by either buying or selling a given financial instrument if a certain price level was breached during the trading day moc orders do not specify a target price but traders sometimes use moc orders as a limit order qualifier which means that a limit order will be automatically canceled if it isn t executed during the trading day using a moc order in this way ensures that the desired transaction is executed but it still would leave the investor exposed to end of day price movements although placing a market on close moc order can guarantee that your buy or sell order will occur at the close of trading it does not guarantee the price benefits and risks of moc ordersthere are a number of situations in which an investor might want to get the closing price of a security if you suspect that a company s stock might move drastically overnight as the result of a scheduled after hours earnings call or an anticipated news story for example then placing a moc order would ensure that your purchase or sale would take place before the news breaks the next day moc orders can also be convenient when an investor knows that they re not going to be available to execute an essential transaction like exiting a position at the end of the day being able to place market on close orders is also useful if you want to trade on some foreign exchanges that are not in your time zone an obvious drawback of moc orders is that if you will not be present at the close of the market then you really do not know at what price your order will be filled in addition to risking end of day price fluctuations moc orders can also risk being poorly executed because of end of day trading clusters though this is rare example of an moc ordersuppose a trader owns 100 shares of company abc which is expected to report negative earnings after the closing bell abc s earnings have failed to surpass analysts expectations for several quarters but its stock price has not displayed adverse price movement during the day in order to minimize losses from a selloff in abc s shares after its earnings call the trader places a moc order to sell all or part of their shares in abc | |
what is a market order | a market order is an instruction by an investor to a broker to buy or sell stock shares bonds or other assets at the best available price in the current financial market it is the default choice for buying and selling for most investors most of the time if the asset is a large cap stock or a popular exchange traded fund etf there will be plenty of willing buyers and sellers out there that means that a market order will be completed nearly instantaneously at a price very close to the latest posted price that the investor can see 1a limit order which instructs the broker to buy or sell only at a certain price is the main alternative to the market order for most individual investors understanding market ordersif you use an online broker clicking on the buy or sell button generally calls up an order form that the user is required to fill in it needs to know the stock symbol whether you re buying or selling and how many shares it also asks for a price type the default price type is generally market that makes it a market order the investor is not setting a price but is indicating a willingness to pay the current market price 2there are other options including market on close which indicates that you want the transaction at the last possible moment in the session and limit which allows you to buy only at or below a set price or sell only at or above a set price the market on close option is for people who think they ll get the best price of the day at the end of the day the limit order allows you to walk away from your laptop confident that an opportunity won t be missed if you think a stock will hit a level you find acceptable soon try a limit order if you re wrong the transaction won t take place a market order is the most common and straightforward transaction in the markets it is meant to be executed as quickly as possible at the current asking price and it is the choice of most stock buyers and sellers most of the time that s why it s the default option the market order is usually the lowest priced option as well some brokers charge more for transactions that involve limit orders the market order is a safe option for any large cap stock because they are highly liquid that is there s a huge number of their shares changing hands at any given moment during the trading day the transaction goes through immediately unless the market is wildly unsettled at that moment the price displayed when you click on buy or sell will be nearly identical to the price you get the market order is less reliable when trading less liquid investments such as small cap stocks in obscure or troubled companies because these stocks are thinly traded the bid ask spreads tend to be wide as a result market orders can get filled slowly and at disappointing prices market order vs limit ordermarket orders are the most basic buy and sell trades limit orders give greater control to the investor a limit order allows an investor to set a maximum acceptable purchase price amount or a minimum acceptable sales price while placing an order the order will be processed only if the asset hits that price limit orders are preferable in a number of circumstances limit orders are commonly used by professional traders and day traders who may be making a profit by buying and selling huge quantities of shares very quickly in order to exploit tiny changes in their prices transactions in big cap stocks like apple and microsoft tend to be fulfilled nearly instantaneously and without issue smaller and more obscure stocks might not example of a market ordersay the bid ask prices for shares of excellent industries are 18 50 and 20 respectively with 100 shares available at the ask if a trader places a market order to buy 500 shares the first 100 will execute at 20 the following 400 however will be filled at the best asking price for sellers of the next 400 shares if the stock is very thinly traded the next 400 shares might be executed at 22 or more this is why it s a good idea to use limit orders for some transactions market orders are filled at a price dictated by the market limit orders give more control to the trader as opposed to limit or stop orders which provide traders with more control a trade for a large number of shares can also be entered as a sweep to fill order that is broken into segments and executed at the best price special considerationsany time a trader seeks to execute a market order the trader is willing to buy at the asking price or sell at the bid price thus the person conducting a market order is immediately giving up the bid ask spread for this reason it s a good idea to look closely at the bid ask spread before placing a market order especially for thinly traded securities failure to do so can be costly this is doubly important for people who trade frequently or use anyone utilizing an automated trading system market order faqshere are the answers to some commonly asked questions about market orders a market order directs a broker to buy or sell shares of an asset at the prevailing market price it is the most common way to buy or sell stocks for most investors most of the time a market order by definition is an instruction for immediate purchase or sale at the current price it s a bit like buying a product without negotiating however in the financial markets a fair price at any given moment is determined by the vast volume of sell and buy orders being resolved you ll get the price that is fair at that moment traders have the option of making it a limit order rather than a market order a limit order sets a specific maximum price at which the investor is willing to buy or a specific minimum price at which the investor will sell the limit order will sit there until it is fulfilled or it expires in an online buy or sell order the good for day option will cancel the order at the market close if the price is not met a batch order is a behind the scenes transaction conducted by brokerages at the start of the trading day they combine various orders for the same stocks and push them through as if they were a single transaction batch trading is permitted only at the opening of the market and only with orders placed between trading sessions each batch order will consist of a number of market orders sent through sometime between that day s session and the previous close | |
what is market orientation | market orientation is an approach to business that prioritizes identifying the needs and desires of consumers and creating products and services that satisfy them companies that have a market orientation consider the opinions and needs of their target market as a critical component of their research and development r d for new products it may sound obvious but advocates of market orientation argue that the conventional approach to product development is the opposite that is marketing strategies focus on establishing key selling points to promote existing products rather than designing products that have the qualities consumers say they want | |
how market orientation works | market orientation is a customer centered approach to product design it involves market research aimed at determining what consumers view as their immediate needs primary concerns or personal preferences within a particular product category researchers use activity interest and opinion aio surveys along with demographic to gain insight into the target customer desires companies may also employ additional data analysis to reveal trends and consumer desires that are not specifically expressed a knowledge of these trends ideally can help product developers meet or even anticipate consumer needs they may even inspire improvements that the consumer was not aware of as being an option this allows a company to focus its product development efforts on the characteristics that are most in demand with an increasingly global economy and the proliferation of choices for consumers companies that adapt to a market orientation may benefit from a competitive advantage over other companies advantages of market orientationmarket orientation often includes improvements in customer service and product support geared to solving concerns raised by consumers this helps ensure customer satisfaction remains high with the company as a whole and promotes brand loyalty and positive word of mouth advertising to be successful companies need to ensure that all departments adopt and promote the market orientation approach so that it becomes an integral part of the corporate culture when effective market orientation can help a company increase customer retention and propel growth in new demographics at times market orientation may reveal customer desires that are simply not cost effective or practical to implement the business then must determine how to meet customer expectations in the best way possible at the very least impractical ideas may inform long term development strategies options that are not cost effective today may become quite possible down the line due to changes in technology science regulation or other market conditions market orientation vs other strategiesdevelopment focused on market orientation puts consumers desires first creating the product around their expressed needs and wants this contrasts with product orientation a business philosophy that emphasizes getting the consumer to become aware of and like the features and benefits of a particular product product differentiation often goes hand in hand with a product orientation approach with this approach the company employs an advertising strategy that aims at clearly identifying the attributes that distinguish a brand from its competitors sales orientation focuses on persuading the consumer into immediate action through means such as online ads social media television commercials in store demonstrations or direct response marketing any or all of these approaches may be required for a successful marketing strategy but most businesses focus on one or a few as their primary focus real world examples of market orientationamazon is an example of a market oriented company as it has grown and developed it has consistently added processes and features that clearly address concerns and desires expressed by consumers for example many consumers especially city dwellers worry about getting packages delivered when they re not at home the company responded with amazon locker a network of self service pickup boxes delivery charges no matter how reasonable are a chief irritant to consumers and a reason to buy locally instead of ordering online amazon prime charges an annual fee for the free delivery of most of its products coca cola is another company that is famous for its market orientation considerable research goes into identifying new flavors that consumers will actually like such as wild strawberry and lime but those new flavors won t help coca cola address the increasing health consciousness of consumers that s why the company acquired brands including dasani honest tea smartwater simply orange minute maid and vitaminwater | |
what is market penetration | market penetration is a measure of how much a product or service is being used by customers compared to the total estimated market for that product or service market penetration can also be used in developing strategies employed to increase the market share of a particular product or service investopedia jiaqi zhouunderstanding market penetrationmarket penetration can be used to determine the size of the potential market if the total market is large new entrants to the industry believe they can gain market share or a percentage of the total number of potential customers in the industry for example if there are 300 million people in a country and 65 million of them own cell phones the market penetration of cell phones would be approximately 22 in theory there are still 235 million more potential customers for cell phones or 78 of the population remains untapped the penetration numbers might indicate the potential for growth for cell phone makers in other words market penetration can be used to assess an industry as a whole to determine the potential for companies within the industry to gain market share or grow their revenue through sales revisiting our example the global cell phone market penetration is often used to estimate whether cell phone producers can meet their earnings and revenue estimates if the market is considered saturated it means that existing companies have the vast majority of the market share leaving little room for new sales growth a key component of market penetration is quantifying a company s market penetration this is done by calculating a firm s market penetration rate discussed below a market penetration rate is simply a ratio that compares a company s performance against the total market the market penetration rate is especially important because it allows companies to compare where they are currently where they have been where they want to be and how their competitors are performing the market penetration rate allows a company to set a smart goal that can be calculated and tracked over time | |
how to calculate market penetration | market penetration can be quantified as a rate that describes what proportion of the market has been saturated by the company to calculate market penetration you must know the number of customers a company has secured in addition to the total market size market penetration rate customers number ttms 100 where ttms total target market size begin aligned text market penetration rate frac text customers number text ttms times 100 textbf where text ttms text total target market size end aligned market penetration rate ttmscustomers number 100where ttms total target market size the number of customers will each be a unique customer that the company has secured business with some may choose to only use repeat customers to analyze the stronger consumer base others may choose any customer that has transacted in a given time period e g over the past five years the total market size may be difficult to define especially if the company has a broad geographical area or sells goods online the total market size is not necessarily the population of the area instead it is the total potential customers the company could have an alternative but similar way to calculate market penetration is to focus on dollars as opposed to people sometimes industries may be quoted as having a certain value or sales potential therefore companies can compare what they ve sold and compare it to this market potential market penetration rate total sales dollars ttmsp 100 where ttmsp total target market sales potential begin aligned text market penetration rate frac text total sales dollars text ttmsp times 100 textbf where text ttmsp text total target market sales potential end aligned market penetration rate ttmsptotal sales dollars 100where ttmsp total target market sales potential in this latter formula a company may care less about the number of customers it has secured this strategy may be important for companies that are striving to secure the largest customers or biggest market participants though they may receive a small market penetration rate when considering the number of people they serve companies that transact with the largest customers may be in better shape when using the second formula market penetration for companiesmarket penetration is not only used on a global and industry wide scale to measure the demand for products and services but is also used by companies to assess their product s market share as a metric market penetration relates to the number of potential customers that have purchased a specific company s product instead of a competitor s product or no product at all market penetration for companies is typically expressed as a percentage meaning the company s product represents a certain percentage of the total market for those products to calculate market penetration the current sales volume for the product or service is divided by the total sales volume of all similar products including those sold by competitors the result is multiplied by 100 to move the decimal and create a percentage market penetration is often cited as a percentage representing the total share of target customers attracted if a company has a high market penetration for its products they re considered a market leader in that industry market leaders have a marketing advantage because they can reach more potential customers due to their well established products and brands for example a market leader and manufacturer of cereal will have far more shelf space and better positioning than competitor brands because their products are so popular also market leaders can negotiate better terms with their suppliers because of their significant sales volume as a result market leaders can often produce a product cheaper than their competitors given the scale of their operation market penetration strategies | |
when a company tries to implement growth strategies there are often four ways of doing so developing new markets diversifying into new products penetrating existing markets or developing new products these four strategies are often depicted in an ansoff matrix | because the strategies that require new markets or new products are considered riskier market penetration is often the lower risk option for growth this is because the market has already been created and can be studied in addition the company may already be offering a product or a variation of the product using some of the techniques below a company may experience growth through market penetration more likely than not a company won t be able to increase market share by increasing its price however veblen goods do contradict the law of supply and demand and a company can more likely increase market penetration by increasing its prices for such goods for other goods it would need to lower prices this requires the company to sufficiently understand its input costs and profit margins it also requires an understanding of its consumer base and whether a lower price will attract the audience the company intends to have for the long term though market penetration often occurs with existing products a company may be able to solve a customer s problem in an innovative way with a new product though this riskier option does not guarantee market adoption a company may invest in research and development to study existing products analyze gaps in value detect where existing products fall short of consumer expectations and manufacture a new product with the proliferation of online sales many businesses may already have access to wider markets than they realize however for service companies that may be restricted to one geographic region the company may employ the market penetration strategy of moving developing and expanding to a new area without having to leave its original location the company may be able to fund operations in a new site by leveraging success at an existing site instead of seeking new places to operate companies may penetrate new markets by seeking new people to work with consider the barnes noble and starbucks partnership by agreeing to share in the success of internally operated cafes within bookstores starbucks was able to enter into a different market it otherwise would not have had access to in the example above it would have been critical for starbucks to consider how its brand image integrated with barnes noble without careful consideration customers may have been confused to see it within other types of stores i e consider a starbucks inside of a home depot though one strategy above entailed creating a new product sometimes companies simply need to revamp an existing good this is clearly evident with the frequent releases of updated smartwatches cellphones gaming consoles and other technological devices with each iteration a company can simply improve and offer new benefits plus existing customers who have already experienced the old devices may be further inclined to upgrade after a positive experience though partnerships entail two separate entities temporarily coming together to share in the success acquisitions result in two separate entities legally joining together by acquiring a company the acquirer may instantly have access to new products markets labor skill sets intangible assets like goodwill or research development for companies that do not want to permanently discount their prices companies can penetrate markets by offering temporary promotional opportunities this strategy lures consumers in by attracting them to low prices be advised that though this may result in short term success it is more likely to lead to the incorrect audience having been attracted especially if a company strives to be a higher quality and therefore higher price company companies may have everything they need to successfully bring a product to market however if they do not have the appropriate staff on hand their product may falter no matter how strong a manufactured product is a company must be able to bring it to the market communicate its value and close sales this may require a company to increase the headcount of sales reps or invest more heavily in stronger talent advantages and disadvantages of market penetrationfor most companies increasing their market penetration will increase sales that s because market penetration strategies often entail increasing the number of customers served or more deeply becoming engrained in the larger customers they serve companies may also experience other benefits from market penetration market penetration leads to higher visibility of products or services and markets may begin to better recognize the benefits a company may be able to offer this allows a company s brand equity to increase as public perception of a company is most often improved as the company penetrates new markets companies can also leverage successful market penetration by being more strategic with what they offer customers instead of being a price taker companies that have a deeper presence in a market are more likely to be able to set their own price and sale terms or enhance their products as they see fit in many ways market penetration can only occur through product differentiation and being able to convey unique benefits to consumers though market penetration may improve operations it also has the risk of backfiring when companies seek out new markets or offer new products they always run the risk of diminishing their existing image creating wrong public perceptions about their company or attracting a client base that does not align with their strategic plan as products become less popular companies may be forced to liquidate products by selling them at a discount if they no longer resonate with consumers in markets they penetrated though companies often perform market segmentation to attempt to attract the right customers market penetration may increase the risk of the wrong customers being served this can be detrimental to a marketing plan that strives to cater to a certain customer willing to pay certain prices for a certain quality of goods should apple accidentally attract consumers who want to pay the lowest prices in the market it will face a dilemma in trying to retain those customers or shifting its marketing plan market penetration may also sound like a single instance of garnering a deeper market presence but it is actually a company wide strategy that requires everyone to be on the same page consider how the manufacturing warehousing procurement or selling departments may not be aligned this puts undue pressure on some departments that may need to play catch up as markets are penetrated often leads to greater financial success through increased salesoften leads to greater financial success through greater quantities of customersimproves product visibility as more consumers are exposed to a company s goodsimproves a company s brand equity if the goods are appropriately received by the marketmay cause confusion about how one product relates to anothermay cause the company wide image to falter if the wrong type of consumer is attractedmay force a shift in marketing strategy if a different audience is attractedrequires all departments to be aligned otherwise undue pressure will cause certain departments to struggleexample of market penetrationas of the first quarter of 2024 apple inc aapl has a 17 market share of the smartphone market second to samsung which has a 20 market share 1apple has consistently introduced new versions of its iphone every year with added enhancements and upgrades making the phone a compelling product to buy for consumers as a result of its market penetration apple has maintained a large market share when compared to some other competitors such as xiaomi and vivo 1however the company still has opportunities to add to its customer base by targeting its competitors clients primarily samsung to woo them over to the iphone and grab further market share | |
why use market penetration strategies | market penetration strategies are used to ultimately increase the number of customers and sales dollars of a company market penetration is the act of gaining a deeper presence in a market by employing strategies to increase how deep a company is engrained in a market that company often has greater short term and long term financial health is better in tune with what its customers want and is often better positioned compared to its competition | |
what is the difference between market penetration and market share | though both terms are used interchangeably market penetration and market share are different market penetration is often used to describe just the percentage of target audience a company sells to while market share takes a more holistic approach and looks at the percentage of the total addressable market a company sells to | |
does market penetration increase market share | because market penetration is a more specific measurement of how much of a given market a company sells to increasing market penetration often increases market share potential for example consider apple moving into the smartwatch industry not only does this increase its market penetration potential but it is now part of an entirely new market and could potentially land parts of this new market share the bottom linemarket penetration is a measurement of how much of a product is used compared to a company s target audience there are many strategies a company can use to increase its market penetration including changing its pricing marketing manufacturing or operating strategies a company must be mindful to stay true to its target audience and broadly communicate penetration strategies across the company | |
what is a market portfolio | a market portfolio is a theoretical bundle of investments that includes every type of asset available in the investment universe with each asset weighted in proportion to its total presence in the market the expected return of a market portfolio is identical to the expected return of the market as a whole the basics of market portfolioa market portfolio by nature of being completely diversified is subject only to systematic risk or risk that affects the market as a whole and not to unsystematic risk which is the risk inherent to a particular asset class as a simple example of a theoretical market portfolio assume three companies exist in the stock market company a company b and company c the market capitalization of company a is 2 billion the market capitalization of company b is 5 billion and the market capitalization of company c is 13 billion thus the total market capitalization comes to 20 billion the market portfolio consists of each of these companies which are weighed in the portfolio as follows company a portfolio weight 2 billion 20 billion 10 company b portfolio weight 5 billion 20 billion 25 company c portfolio weight 13 billion 20 billion 65 the market portfolio in the capital asset pricing modelthe market portfolio is an essential component of the capital asset pricing model capm widely used for pricing assets especially equities the capm shows what an asset s expected return should be based on its amount of systematic risk the relationship between these two items is expressed in an equation called the security market line the equation for the security market line is r r f c r m r f where r expected return r f risk free rate c beta of asset in question versus the market portfolio r m expected return of the market portfolio begin aligned r r f beta c r m r f textbf where r text expected return r f text risk free rate beta c text beta of asset in question versus the market portfolio r m text expected return of the market portfolio end aligned r rf c rm rf where r expected returnrf risk free rate c beta of asset in question versus the market portfoliorm expected return of the market portfolio for example if the risk free rate is 3 the expected return of the market portfolio is 10 and the beta of the asset with respect to the market portfolio is 1 2 the expected return of the asset is expected return 3 1 2 x 10 3 3 8 4 11 4 limitations of a market portfolioeconomist richard roll suggested in a 1977 paper that it is impossible to create a truly diversified market portfolio in practice because this portfolio would need to contain a portion of every asset in the world including collectibles commodities and basically any item that has marketable value this argument known as roll s critique suggests that even a broad based market portfolio can only be an index at best and as such only approximate full diversification real world example of a market portfolioin a 2017 study historical returns of the market portfolio the economists ronald q doeswijk trevin lam and laurens swinkels attempted to document how a global multi asset portfolio has performed over the period 1960 to 2017 they found that real compounded returns varied from 2 87 to 4 93 depending on the currency used in u s dollars the return was 4 45 | |
what is market power | market power refers to a company s relative ability to manipulate the price of an item in the marketplace by manipulating the level of supply demand or both in doing so such a company can thereby control its profit margin and possibly the ability to increase obstacles to potential new entrants into the market firms that have market power are often described as price makers because they can establish or adjust the marketplace price of an item without relinquishing market share market power is also known as pricing power in a market where many producers exist that compete with each other to sell a similar product such as wheat or oil producers have very limited market power understanding market powermarket power can be understood as the level of influence that a company has on determining market price either for a specific product or generally within its industry take for instance apple inc in the smartphone market although apple cannot completely control the market its iphone product has a substantial amount of market share and customer loyalty so it has the ability to affect overall pricing the ideal marketplace condition is what is referred to as a state of perfect competition in which there are numerous companies producing competing products and no company has any significant level of market power in markets with perfect or near perfect competition producers have little pricing power and so must be price takers of course that is merely a theoretical ideal that rarely exists in actual practice many countries have antitrust laws or similar legislation designed to limit the market power of any one company market power is often a consideration in the government approval of mergers a merger is unlikely to be approved if it is believed that the resulting company would constitute a monopoly or would become a company with inordinate market power the scarcity of a resource or raw material can play a significant role in pricing power even more so than the presence of rival providers of a product for example various threats such as disasters that put the oil supply at risk lead to higher prices from petroleum companies despite the fact that rival providers exist and compete in the market the narrow availability of oil combined with the widespread reliance on the resource across multiple industries means that oil companies retain significant pricing power over this commodity an example of market power | |
when the iphone was initially introduced by apple the company had substantial market power as it essentially defined the smartphone and app market with the launch of the product for a short period of time it had a monopoly | at the time the cost to procure an iphone was high and could remain so because of a lack of rival devices thus iphone prices were set initially by apple and not by the marketplace even as the first competitor smartphones emerged the iphone continued to represent the high end of the market in terms of pricing and expected quality as the rest of the industry began to catch up in service quality and availability of apps apple s market power diminished the iphone did not vanish from the market as more entrants arrived apple began to offer new models of iphones in multiple variations including less expensive models targeted at more budget minded consumers monopsonies are markets where one buyer has all the market power this concept was developed by economist joan robinson in the 1933 book the economics of imperfect competition power structures of marketsthere are three basic marketplace conditions that exist in terms of market power as applied to either an overall economy or a marketplace for a specific item the first is the previously noted ideal condition of perfect competition with perfect competition in addition to a number of companies producing the same or a similar product there are also minimal or no barriers to new companies entering the marketplace agricultural markets are often pointed to as examples of relatively perfect competition markets since it is nearly impossible for anyone producer of an agricultural commodity to gain a substantial amount of market power the opposite of perfect competition conditions is a monopoly in which one company completely controls the market for a product or service or at least a portion of the total market and is able to adjust pricing at will limited monopolies are often allowed for utility companies but their ability to raise prices is usually limited by government authority an oligopoly refers to a marketplace dominated by a small number of companies and in which there are substantial barriers to new entrants in the market the companies in an oligopoly generally have combined but not an individual market power an example of oligopoly is the market for cellphone service controlled by a relatively small number of firms in which large barriers to new entrants exist | |
what is an example of a price competition | consider the way that a consumer might shop for fruits and vegetables they may browse produce sectinos at grocery stores farmer s markets superstores and discount retailers across their city because there are many firms that sell produce there will be some that set lower prices than others to entice shoppers this is a form of price competition who has market power in a competitive market in a non competitive market such as in a monopoly a single producer or multiple producers may hold disproportional power allowing them to set prices as they wish in a competitive market the opposite is true buyers have power and can respond to pricing changes by taking their business where they please | |
is price fixing legal | price fixing refers to a practice in which multiple firm collaborate to set prices that would otherwise be determined by supply and demand within a competitive market in general it is illegal in the u s and suspected instances of price fixing are subject to legal scrutiny and potential criminal prosecution 1the bottom linemarket power also known as pricing power refer to a company s relative ability to influence the price of products by manipulating supply demand or both it enables companies to increase their profit margins and and impose barriers to entry for other firms many countries including the u s have antitrust laws that aim to limit the market power of any one firm | |
what is market price | the market price is the current price at which a product or service can be bought or sold the market price of a product or service is determined by the forces of supply and demand the price at which quantity supplied equals quantity demanded is the market price the market price is used to calculate consumer and economic surplus economic surplus is the sum total of consumer surplus and producer surplus understanding market pricea shock to either the supply or the demand for a product or service can change the market price for a product or service a supply shock is an unexpected event that suddenly changes the supply of a good or service a demand shock is a sudden event that increases or decreases the demand for a good or service some examples of supply shock are interest rate cuts tax cuts government stimulus terrorist attacks natural disasters and stock market crashes some examples of demand shock include a steep rise in oil and gas prices or other commodities political turmoil natural disasters and breakthroughs in production technology in stock trading the market price is the most recent price at which a stock was traded stock market prices are the result of the interaction of traders investors and dealers for a trade to occur a buyer and a seller must agree on a price bids are represented by buyers and offers are represented by sellers the bid is the highest price someone is advertising they will buy at while the offer is the lowest price someone else is advertising they will sell at for a stock this may be 50 51 and 50 52 a buyer who no longer thinks that 50 52 is a good price may drop the bid to 50 25 the sellers may or may not agree a trade only occurs if a seller accepts the bid price or a buyer accepts the offer price bids and offers change constantly as buyers and sellers change their bids as sellers accepts bids the price drops and as buyers accept offers the price risess in the bond market the market price in the bond market is the last reported price excluding accrued interest this is called the clean price example of market priceassume that bank of america corp bac has a 30 bid and a 30 01 offer nine traders want to buy bac stock at the moment this represents the demand for bac stock five traders bid for 100 shares each at 30 three traders bid 29 99 and one trader bids 29 98 these orders are listed on the bid nine other traders want to sell bac stock at this moment this represents the supply of bac stock five traders sell 100 shares each at 30 01 three traders sell at 30 02 and one trader sells at 30 03 these orders are listed on offer say a new trader comes in and wants to buy 800 shares at the market price the market price in this case is all the prices and shares it will take to fill the order this trader has to buy at the offer 500 shares at 30 01 and 300 at 30 02 now the spread widens and the price is 30 by 30 03 because all the shares offered at 30 01 and 30 02 have been bought since 30 02 was the last traded price this is the market price other traders may take action to close the spread since there are more buyers the spread is closed by the bid adjusting upward the result is a new price of 30 02 by 30 03 this interaction is continually taking place in both directions and is continuously adjusting the price of the stock | |
what is the difference between market price and normal price | market price is the current price of a product or service at any given moment normal price is its prevailing price over time normal price is hypothetical it is the presumed cost of a product or service without the push and pull of supply and demand based on its cost over a long period | |
how did the covid 19 pandemic affect market prices | the covid 19 pandemic produced a classic example of the effects of supply and demand on the market prices of many products from 2020 until 2023 a breakdown in the supply chain disrupted the delivery of imported products from auto parts to gasoline to shoes a backup in delivery of products from warehouses to stores across the u s slowed delivery of staple products like toilet paper to top it all off a flood of government money directly to taxpayers increased demand for durable goods like refrigerators all of these factors reduced supply and drove up market prices the end result was an increase in overall inflation 1 | |
what causes market prices to change | the market price of a product or service is determined by the law of supply and demand if the amount supplied is roughly the same as the amount demanded the price will stay the same when the amount supplied exceeds the amount demanded or vice versa the market price will decline or increase the bottom linemarket price is the current cost of any product or service and it is by definition a moving target in any free market economy market price is determined by supply and demand changes in either of those factors will cause market price to increase or decrease | |
what is market research | market research examines consumer behavior and trends in the economy to help a business develop and fine tune its business idea and strategy it helps a business understand its target market by gathering and analyzing data market research is the process of evaluating the viability of a new service or product through research conducted directly with potential customers it allows a company to define its target market and get opinions and other feedback from consumers about their interest in a product or service research may be conducted in house or by a third party that specializes in market research it can be done through surveys and focus groups among other ways test subjects are usually compensated with product samples or a small stipend for their time | |
how market research works | market research is used to determine the viability of a new product or service the results may be used to revise the product design and fine tune the strategy for introducing it to the public this can include information gathered for the purpose of determining market segmentation it also informs product differentiation which is used to tailor advertising a business engages in various tasks to complete the market research process it gathers information based on the market sector being targeted by the product this information is then analyzed and relevant data points are interpreted to draw conclusions about how the product may be optimally designed and marketed to the market segment for which it is intended it is a critical component in the research and development r d phase of a new product or service introduction market research can be conducted in many different ways including surveys product testing interviews and focus groups market research is a critical tool that companies use to understand what consumers want develop products that those consumers will use and maintain a competitive advantage over other companies in their industry primary market research vs secondary market researchmarket research usually consists of a combination of primary research generally falls into two categories exploratory and specific research all market research is informed by the findings of other researchers about the needs and wants of consumers today much of this research can be found online secondary research can include population information from government census data trade association research reports polling results and research from other businesses operating in the same market sector history of market researchformal market research began in germany during the 1920s in the united states it soon took off with the advent of the golden age of radio 1companies that created advertisements for this new entertainment medium began to look at the demographics of the audiences who listened to each of the radio plays music programs and comedy skits that were presented they had once tried to reach the widest possible audience by placing their messages on billboards or in the most popular magazines with radio programming they had the chance to target rural or urban consumers teenagers or families and judge the results by the sales numbers that followed types of market researchfrom their earliest days market research companies would interview people on the street about the newspapers and magazines that they read regularly and ask whether they recalled any of the ads or brands that were published in them data collected from these interviews were compared to the circulation of the publication to determine the effectiveness of those ads market research and surveys were adapted from these early techniques to get a strong understanding of your market it s essential to understand demand market size economic indicators location market saturation and pricing 2a focus group is a small number of representative consumers chosen to try a product or watch an advertisement afterward the group is asked for feedback on their perceptions of the product the company s brand or competing products the company then takes that information and makes decisions about what to do with the product or service whether that s releasing it making changes or abandoning it altogether the man on the street interview technique soon gave way to the telephone interview a telephone interviewer could collect information in a more efficient and cost effective fashion telephone research was a preferred tactic of market researchers for many years it has become much more difficult in recent years as landline phone service dwindles and is replaced by less accessible mobile phones as an alternative to focus groups surveys represent a cost effective way to determine consumer attitudes without having to interview anyone in person consumers are sent surveys in the mail usually with a coupon or voucher to incentivize participation these surveys help determine how consumers feel about the product brand and price point with people spending more time online market research activities have shifted online as well data collection still uses a survey style form but instead of companies actively seeking participants by finding them on the street or cold calling them on the phone people can choose to sign up take surveys and offer opinions when they have time this makes the process far less intrusive and less rushed since people can participate on their own time and of their own volition | |
how to conduct market research | the first step to effective market research is to determine the goals of the study each study should seek to answer a clear well defined problem for example a company might seek to identify consumer preferences brand recognition or the comparative effectiveness of different types of ad campaigns after that the next step is to determine who will be included in the research market research is an expensive process and a company cannot waste resources collecting unnecessary data the firm should decide in advance which types of consumers will be included in the research and how the data will be collected they should also account for the probability of statistical errors or sampling bias the next step is to collect the data and analyze the results if the two previous steps have been completed accurately this should be straightforward the researchers will collect the results of their study keeping track of the ages gender and other relevant data of each respondent this is then analyzed in a marketing report that explains the results of their research the last step is for company executives to use their market research to make business decisions depending on the results of their research they may choose to target a different group of consumers or they may change their price point or some product features the results of these changes may eventually be measured in further market research and the process will begin all over again benefits of market researchmarket research is essential for developing brand loyalty and customer satisfaction since it is unlikely for a product to appeal equally to every consumer a strong market research program can help identify the key demographics and market segments that are most likely to use a given product market research is also important for developing a company s advertising efforts for example if a company s market research determines that its consumers are more likely to use facebook than x formerly twitter it can then target its advertisements to one platform instead of another or if they determine that their target market is value sensitive rather than price sensitive they can work on improving the product rather than reducing their prices market research only works when subjects are honest and open to participating example of market researchmany companies use market research to test new products or get information from consumers about what kinds of products or services they need and don t currently have for example a company that s considering starting a business might conduct market research to test the viability of its product or service if the market research confirms consumer interest the business can proceed confidently with its business plan if not the company can use the results of the market research to make adjustments to the product to bring it in line with customer desires | |
what are the main types of market research | the main types of market research are primary research and secondary research primary research includes focus groups polls and surveys secondary research includes academic articles infographics and white papers qualitative research gives insights into how customers feel and think quantitative research uses data and statistics such as website views social media engagement and subscriber numbers | |
what is online market research | online market research uses the same strategies and techniques as traditional primary and secondary market research but it is conducted on the internet potential customers may be asked to participate in a survey or give feedback on a product the responses may help the researchers create a profile of the likely customer for a new product | |
what are paid market research surveys | paid market research involves rewarding individuals who agree to participate in a study they may be offered a small payment for their time or a discount coupon in return for filling out a questionnaire or participating in a focus group | |
what is a market study | a market study is an analysis of consumer demand for a product or service it looks at all of the factors that influence demand for a product or service these include the product s price location competition and substitutes as well as general economic factors that could influence the new product s adoption for better or worse the bottom linemarket research is a key component of a company s research and development r d stage it helps companies understand in advance the viability of a new product that they have in development and to see how it might perform in the real world | |
what is market risk | market risk is the possibility that an individual or other entity will experience losses due to factors that affect the overall performance of investments in the financial markets that is to say it is risk of market price and interest rate movements investopedia yurle villegasunderstanding market riskmarket risk and specific risk unsystematic make up the two major categories of investment risk market risk also called systematic risk cannot be eliminated through diversification though it can be hedged in other ways sources of market risk include recessions political turmoil changes in interest rates natural disasters and terrorist attacks systematic risk or market risk tends to influence the entire market at the same time this can be contrasted with unsystematic risk which is unique to a specific company or industry also known as nonsystematic risk specific risk diversifiable risk or residual risk in the context of an investment portfolio unsystematic risk can be reduced through diversification market risk exists because of price changes the standard deviation of changes in the prices of stocks currencies or commodities is referred to as price volatility volatility is often presented in annualized terms and may be expressed as an absolute number such as 10 or a percentage of the initial value such as 10 publicly traded companies in the united states are required by the securities and exchange commission sec to disclose how their productivity and results may be linked to the performance of the financial markets this requirement is meant to detail a company s exposure to financial risk 1 for example a company providing derivative investments or foreign exchange futures may be more exposed to financial risk than companies that do not provide these types of investments this information helps investors and traders make decisions based on their own risk management rules other types of riskin contrast to the market s overall risk specific risk or unsystematic risk is tied directly to the performance of a particular security and can be protected against through investment diversification one example of unsystematic risk is a company declaring bankruptcy thereby making its stock worthless to investors the most common types of market risks include interest rate risk equity risk currency risk and commodity risk managing market riskif you are investing there is no single way to completely avoid market risk but you can use hedging strategies to protect against volatility and minimize the impact that market risk will have on your investments and overall financial health for example you can buy put options to protect against a downside move when targeting specific securities or if you want to hedge a large portfolio of stocks you can utilize index options use a variety of these strategies to manage market risk and protect your portfolio dollar cost averaging won t protect you against market risk but investing the same amount of money on a regular schedule can help you ride out ups and downs in the market taking advantage of periods of both low costs and high returns if you are investing in foreign markets pay attention to the currency profiles of the companies in which you invest industries that import more for example will be impacted by changes to the local currency industries that export more will be affected by changes to the value of the euro or dollar allocate your assets across a variety of industries to mitigate risk and invest in markets and companies backed by strong currencies to manage interest rate risk pay attention to monetary policy and be prepared to shift your investments to account for interest rate changes for example if you are heavily invested in bonds and interest rates are rising you may want to tweak your investments to focus on shorter term bonds | |
when markets are volatile you may have trouble selling or buying an asset within your price range especially when you need to exit a position in a hurry if the market is crashing liquidity may be difficult no matter what type of stocks you buy under more normal conditions though you can maintain your liquidity by sticking with stocks that have low impact cost the cost of a transaction for that stock to make trading easier | some industries tend to do well even when the overall economy is poor these tend to be utilities and businesses producing consumer staples that s because no matter what the economy is doing people still need to turn their lights on still need to eat and still need toilet paper and toothpaste by keeping some of your money in staples you can still see returns in a recession or a period of high unemployment no matter where you invest your money it is impossible to fully escape market risk and volatility but you can manage this risk and escape much of the impact of volatile markets by using a long term investing strategy you may want to make small tweaks in response to changes in the market but don t upend your entire investing strategy because a recession hit or a currency changed value in general short term traders are more impacted by volatility by contrast over time volatility tends to even out over time by approaching your investing systematically and sticking with a long term outlook and strategy you are more likely to see your portfolio bounce back from the impact of market risks measuring market riskto measure market risk investors and analysts often use the value at risk var method var modeling is a statistical risk management method that quantifies a stock s or portfolio s potential loss as well as the probability of that potential loss occurring while well known and widely utilized the var method requires certain assumptions that limit its precision for example it assumes that the makeup and content of the portfolio being measured are unchanged over a specified period though this may be acceptable for short term horizons it may provide less accurate measurements for long term investments var is a statistical measure that calculates the maximum potential loss a portfolio could experience over a given time period at a certain level of confidence so a var of 95 suggests that there is a 95 chance that the portfolio would not lose more than the calculated amount over the given time period the equity risk premium erp is a measure of market risk that reflects the excess return that investors demand for investing in stocks over and above the risk free rate of return in other words it is the implied additional compensation that investors require to hold an investment in the broader stock market which is inherently riskier than holding a risk free asset like u s treasuries the erp is calculated by subtracting the risk free rate of return usually the yield on a short term or midterm government bond from the expected return on the stock market for example if the expected return on the stock market is 10 and the risk free rate is 2 the erp would be 8 the difference between the broader market risk premium mrp and the equity risk premium comes down to scope the erp is specific to the stock market while the mrp is the additional return that s expected on a diversified portfolio of investments held among various asset classes that is above the risk free rate beta is another relevant risk metric that measures the relative volatility or market risk of a security or portfolio compared to the market as a whole it is used in the capital asset pricing model capm to calculate the expected return of an asset a beta of 1 0 indicates a stock has market risk identical to the broader s p 500 while a beta greater than 1 means that the asset is more volatile than the market beta can be used to estimate the market risk of a portfolio by calculating the weighted average beta of its constituent assets | |
what s the difference between market risk and specific risk | market risk and specific risk make up the two major categories of investment risk market risk also called systematic risk cannot be eliminated through diversification though it can be hedged in other ways and tends to influence the entire market at the same time specific risk in contrast is unique to a specific company or industry specific risk also known as unsystematic risk diversifiable risk or residual risk can be reduced through diversification | |
what are some types of market risk | the most common types of market risk include interest rate risk equity risk commodity risk and currency risk interest rate risk covers the volatility that may accompany interest rate fluctuations and is most relevant to fixed income investments equity risk is the risk involved in the changing prices of stock investments commodity risk covers the changing prices of commodities such as crude oil and corn currency risk or exchange rate risk arises from the change in the price of one currency in relation to another this may affect investors holding assets in another country | |
how is market risk measured | a widely used measure of market risk is the value at risk var method var modeling is a statistical risk management method that quantifies a stock s or portfolio s potential loss as well as the probability of that potential loss occurring while well known the var method requires certain assumptions that limit its precision beta is another relevant risk metric that measures the relative sensitivity of an asset to broader market movements the equity risk premium erp is the implied expected return that investors demand while holding market risk in the stock market above and beyond that of the risk free rate of return | |
is inflation a market risk | inflation can contribute to market risk by impacting business performance consumer behavior and investor confidence monetary policy may be used to counter inflation through higher interest rates which can in turn lead to a recession causing the entire market to slow down this is different from inflationary risk or the possibility that the rising prices caused by inflation could outpace the returns from your investment inflationary risk is not a specific type of market risk because it doesn t impact the overall performance of financial markets however it is a type of investing risk diversification investing early to take advantage of compound interest and investing more aggressively when you are younger can all help minimize inflationary risk the bottom linemarket risk is the chance of incurring losses due to factors that affect the overall performance of financial markets events such as changes in interest rates geopolitical events or recessions can bring on what is known as the pain trade it is called systematic risk since it cannot be eliminated through diversification specific risk on the other hand is unique to a particular stock or industry sector and can be minimized through diversification market risk can be measured using methods such as the value at risk var method risk premium or beta coefficient | |
what is market risk premium | the market risk premium mrp is the difference between the expected return on a market portfolio and the risk free rate the market risk premium is equal to the slope of the security market line sml a graphical representation of the capital asset pricing model capm capm measures the required rate of return on equity investments and it is an important element of modern portfolio theory mpt and discounted cash flows dcf valuation understanding the market risk premiummarket risk premium describes the relationship between returns from an asset portfolio and treasury bond yields the risk premium reflects the required returns historical returns and expected returns the historical market risk premium will be the same for all investors the required and expected market premiums however will differ from investor to investor based on risk tolerance and investing styles investors require compensation for risk and opportunity costs the risk free rate is a theoretical interest rate that is paid by an investment with zero risks long term yields on u s treasuries have traditionally been used as a proxy for the risk free rate because of the low default risk and have had relatively low yields as a result of this assumed reliability equity market returns are based on expected returns on a broad benchmark index such as the standard poor s 500 index of the dow jones industrial average djia real equity returns fluctuate with the operational performance of the underlying business historical return rates have fluctuated as the economy matures and endures cycles but conventional knowledge has generally estimated a long term potential of approximately 8 annually calculation and applicationthe market risk premium can be calculated by subtracting the risk free rate from the expected equity market return providing a quantitative measure of the extra return demanded by market participants for the increased risk once calculated the equity risk premium can be used in important calculations such as capm between 1926 and 2014 the s p 500 exhibited a 10 5 compounded annual rate of return while the 30 day treasury bill compounded at 5 1 this indicates a market risk premium of 5 4 based on these parameters the required rate of return for an individual asset can be calculated by multiplying the asset s beta coefficient by the market coefficient then adding back the risk free rate this is often used as the discount rate in discounted cash flow a popular valuation model | |
what is the difference between the market risk premium and equity risk premium | the market risk premium mrp broadly describes the additional returns above the risk free rate that investors require when putting a portfolio of assets at risk in the market this would include the universe of investable assets including stocks bonds real estate and so on the equity risk premium erp looks more narrowly only at the excess returns of stocks over the risk free rate because the market risk premium is broader and more diversified the equity risk premium by itself tends to be larger | |
what is the historical market risk premium | in the u s the market risk premium has hovered around 5 5 over the past decade 1 historical risk premiums used in practice have been estimated to be as high as 12 and as low as 3 2 | |
what is used for the risk free rate when measuring the market risk premium | in the united states the yield on government bonds such as 2 year treasuries are the most oft used risk free rate of return the bottom linethe market risk premium measured as the slope of the security market line sml is the difference between the expected return on a market portfolio and the risk free rate it provides a quantitative measure of the extra return demanded by market participants for an increased risk | |
what is market saturation | market saturation arises when the volume of a product or service in a marketplace has been maximized at the point of saturation a company can only achieve further growth through new product improvements by taking existing market share from competitors or increasing overall consumer demand causes and market trendsmarket saturation can be microeconomic or macroeconomic from a micro perspective market saturation is when a specific market no longer exhibits new consumer demand for a company s product this occurs when a company has competition or reduces the market s need for its product or service from a macro perspective market saturation occurs when an entire customer base has been serviced and cannot acquire new customers many companies design their products to wear down or need replacement at some point to stop saturation for example new iphone models encourage consumers to replace older models constantly market saturation can force companies to change their revenue models especially when product sales slow ibm changed its business model toward providing recurring services once it saw saturation in the large computer server market 1company strategiesmany companies operate with market saturation when a company operates in a saturated market its product or service has to be more innovative than its competitors to entice customers to buy a company can also pivot to become the low cost provider of a product or service or decide to operate as a premium option for the product or service each strategy requires competitive pricing against other companies that choose the same pricing structure however companies that operate in a saturated market usually end up waging price wars with each other continuously undercutting prices to attract customers effective marketing strategies also help a company stand out in a saturated market when a market is saturated with product and service options especially when those options are somewhat homogeneous effective marketing is often the difference maker for a company examples of market saturationfads or trends market saturation happens when products or services in a particular market are no longer in demand due to multiple offerings by competition or simply less in demand a consumer s interest or desire can wane as a trend or fad winds down real estate a realtor operating in a saturated market can be challenging residential real estate markets ebb and flow depending on many factors when the market is saturated it often causes a drop in house prices and in turn a hit for realtors salaries that may rely on a commission percentage new rules for the national association of realtors expected to take effect in july 2024 may lower commissions for home buyers and sellers if a federal court approves the changes the standard 6 commission ends and sellers no longer have to propose compensation to prospective buyers and their agents nar will also require brokers to enter into written agreements with their buyers to help consumers understand what services will be provided and at what cost 2 | |
what is a market segment | the term market segment refers to people who are grouped together for marketing purposes market segments are part of a larger market often lumping individuals together based on one or more similar characteristics corporations and their marketing teams use various criteria to develop a target market for their products and services marketing professionals approach each segment differently but only after they fully understand the needs lifestyles demographics and personality of the target consumer investopedia ellen lindner | |
how market segments work | a market segment is a category of customers who have similar likes and dislikes in an otherwise homogeneous market these customers can be individuals families businesses organizations or a blend of multiple types market segments are known to respond somewhat predictably to a marketing strategy plan or promotion this is why marketers use segmentation when deciding on a target market as its name suggests market segmentation is the process of separating a market into sub groups in which its members share common characteristics to meet the most basic criteria of a market segment three characteristics must be present common characteristics of a market segment include interests lifestyle age gender etc common examples of market segmentation include geographic demographic psychographic and behavioral companies that understand market segments can prove themselves to be effective marketers while earning a greater return on their investments examples of market segments and market segmentationthe banking industry provides a very good example of how a company markets to specific market segments all commercial banks service a wide range of people many of whom have relatable life situations and monetary goals if a bank wants to market to baby boomers it conducts research and may find that retirement planning is the most important aspect of their financial needs the bank can then market tax deferred accounts to this consumer segment if the same bank wants to effectively market products and services to millennials roth iras and 401 k s may not be the best option instead the bank may conduct in depth market research and discover most millennials are planning to have a family the bank uses that data to market college friendly savings and investment accounts to this consumer segment sometimes a company already has a product but may not yet have its target consumer segment in this scenario it is up to the business to define its market and cater its offering to its target group restaurants are a good example if a restaurant is near a college it can market its food in such a way as to entice college students to enjoy happy hour rather than trying to attract high value business customers | |
how are market segments used | commonly used in marketing strategies market segments help companies optimize their products and services to suit the needs of a given segment market segments are often used to identify a target market | |
how do you identify market segments | broadly speaking identifying a market segment requires the following three criteria to start the main needs of a sub group must be homogenous second the segment must share distinct characteristics finally the segment produces a similar response to marketing techniques prospective buyers are grouped into various segments often based on how much value they place on a product or service | |
what is an example of a market segment | consider a company that markets health and beauty products to both men and women these products such as razors or skin care are typically more expensive for women than they are for men the product packaging also differs products targeted to women having pinks and floral accents that align with gender stereotypes on the other hand the company s male targeted products are characterized by more rugged blacks and greys | |
what is market segmentation | market segmentation is a way of aggregating prospective buyers into groups or segments based on demographics geography behavior or psychographic factors in order to better understand and market to them investopedia matthew collinsunderstanding market segmentationcompanies can generally use three criteria to identify different market segments an athletic footwear company for example might have market segments for basketball players and long distance runners as distinct groups basketball players and long distance runners respond to very different advertisements understanding these different market segments enables the athletic footwear company to market its branding appropriately market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group the objective of market segmentation is to minimize risk by determining which products have the best chances of gaining a share of a target market and determining the best way to deliver the products to the market this allows the company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment roi market segmentation enables companies to better target the customers interested in buying their goods or services if done effectively it should generally result in a higher return from marketing investment and better revenues and profits types of market segmentationthere are four primary types of market segmentation however one type can usually be split into an individual segment and an organization segment demographic segmentation is one of the simple common methods of market segmentation it involves breaking the market into customer demographics such as age income gender race education or occupation this market segmentation strategy assumes that individuals with similar demographics will have similar needs example the market segmentation strategy for a new video game console may reveal that most users are young males with disposable income firmographic segmentation is the same concept as demographic segmentation however instead of analyzing individuals this strategy focuses on organizations and looks at a company s number of employees number of customers number of offices or annual revenue example a corporate software provider may approach a multinational firm with a more diverse customizable suite while approaching smaller companies with a fixed fee more simple product geographic segmentation is technically a subset of demographic segmentation this approach groups customers by physical location assuming that people within a given geographical area may have similar needs this strategy is more useful for larger companies seeking to expand into different branches offices or locations example a clothing retailer may display more raingear in their pacific northwest locations compared to their southwest locations behavioral segmentation relies heavily on market data consumer actions and the decision making patterns of customers this approach groups consumers based on how they have previously interacted with markets and products it assumes that consumers prior spending habits are an indicator of what they may buy in the future example millennial consumers traditionally buy more craft beer while older generations are traditionally more likely to buy national brands 1often the most difficult market segmentation approach psychographic segmentation strives to classify consumers based on their lifestyle personality opinions and interests this approach may yield the strongest market segment results as it groups individuals based on intrinsic motivators as opposed to external data points however it s also difficult to achieve primarily because the traits it focuses on can change easily and there may be a lack of readily available objective data example a fitness apparel company may target individuals based on their interest in playing or watching a variety of sports other less notable examples of types of segmentation include volume i e how much a consumer spends use related i e how loyal a customer is or other customer traits such as how innovative or risk favorable a customer is | |
how to determine your market segment | there s no single universally accepted way to perform market segmentation to determine market segments it s common for companies to ask themselves the following questions along their market segmentation journey benefits of market segmentationmarketing segmentation takes effort and resources to implement however successful marketing segmentation campaigns can increase the long term profitability and health of a company several benefits of market segmentation include the approximate percentage of company revenues that are spent on marketing according to the spring 2024 cmo survey 2limitations of market segmentationmarket segmentation also comes with some potential downsides here are some disadvantages to consider when implementing market segmentation strategies examples of market segmentationmarket segmentation is evident in the products marketing and advertising that people use every day auto manufacturers thrive on their ability to identify market segments correctly and create products and advertising campaigns that appeal to those segments for example different zip codes can have drastically different average incomes which impacts car buying budgets and terrain people living in a big city tend to prefer smaller cars while people living in the country may prioritize greater fuel efficiency and perhaps even off road capabilities cereal producers market actively to three or four market segments at a time pushing traditional brands that appeal to older consumers and healthy brands to health conscious consumers while building brand loyalty among the youngest consumers by tying their products to say popular children s movie themes a sports shoe manufacturer might define several market segments that include elite athletes frequent gym goers fashion conscious people and individuals who have health issues or who spend a lot of time on their feet in all cases the manufacturer s marketing intelligence about each segment enables it to develop and advertise products with a high appeal more efficiently than trying to appeal to the broader masses | |
what is market segmentation | market segmentation is a marketing strategy in which select groups of consumers are identified so that certain products or product lines can be presented to them in a way that appeals to their interests | |
why is market segmentation important | market segmentation recognizes that not all customers have the same interests purchasing power or consumer needs instead of catering to all prospective clients broadly market segmentation is important because it strives to make a company s marketing endeavors more strategic and refined by developing specific plans for specific products with target audiences in mind a company can increase its chances of generating sales and being more efficient with resources | |
what are the types of market segmentation | types of segmentation include homogeneity which looks at a segment s common needs distinction which looks at how a particular group stands apart from others and reaction or how certain groups respond to the market | |
what are some market segmentation strategies | strategies include targeting a group by location by demographics such as age or gender by social class or lifestyle or behaviorally such as by use or response | |
what is an example of market segmentation | upon analysis of its target audience and desired brand image crypto com has spent the past few years targeting younger bolder more risk accepting individuals with its fortune favors the brave slogan part of this strategy has involved using celebrities it thinks may appeal to its target audience in 2021 actor matt damon became the face of the brand then in 2024 rapper eminem whose rags to riches story is well publicized took over 34the bottom linemarket segmentation is a process companies use to break up their potential customers into different groups or segments this allows a company to allocate the appropriate resources to each individual segment resulting in more accurate targeting across a variety of marketing campaigns | |
what is market segmentation theory | market segmentation theory is a theory that long and short term interest rates are not related to each other it also states that the prevailing interest rates for short intermediate and long term bonds should be viewed separately like items in different markets for debt securities understanding market segmentation theorythis theory s major conclusions are that yield curves are determined by supply and demand forces within each market category of debt security maturities and that the yields for one category of maturities cannot be used to predict the yields for a different category of maturities 1market segmentation theory is also known as the segmented markets theory it is based on the belief that the market for each segment of bond maturities consists mainly of investors who have a preference for investing in securities with specific durations short intermediate or long term market segmentation theory further asserts that the buyers and sellers who make up the market for short term securities have different characteristics and motivations than buyers and sellers of intermediate and long term maturity securities the theory is partially based on the investment habits of different types of institutional investors such as banks and insurance companies banks generally favor short term securities while insurance companies generally favor long term securities a reluctance to change categoriesa related theory that expounds upon the market segmentation theory is the preferred habitat theory the preferred habitat theory states that investors have preferred ranges of bond maturity lengths and that most shift from their preferences only if they are guaranteed higher yields 2 while there may be no identifiable difference in market risk an investor accustomed to investing in securities within a specific maturity category often perceives a category shift as risky implications for market analysisthe yield curve is a direct result of the market segmentation theory traditionally the yield curve for bonds is drawn across all maturity length categories reflecting a yield relationship between short term and long term interest rates however advocates of the market segmentation theory suggest that examining a traditional yield curve covering all maturity lengths is a fruitless endeavor because short term rates are not predictive of long term rates | |
market sentiment is the current attitude of investors overall regarding a company a sector or the financial market as a whole the mood of the market is affected by crowd psychology it is revealed through buying and selling activity | in broad terms rising prices reveal bullish market sentiment while falling prices indicate bearish market sentiment understanding market sentimentmarket sentiment sometimes called investor sentiment does not correlate to fundamental changes in the market day traders and technical analysts rely on measurements of market sentiment since it influences the indicators used to measure and profit from short term price moves caused by the crowd psychology of active investors market sentiment is also important for contrarian investors who trade in the opposite direction of the prevailing consensus for example if everyone is buying a stock a contrarian would sell it in order to profit from the move upwards market sentiment is often described as either bearish or bullish when the mood is bearish prices are going down when it s bullish stock prices are going up emotion often drives the stock market so market sentiment is not related to the fundamental value of a stock changes in prices occur for many reasons beyond what a fundamental analysis would deduce market sentiment demonstrates broad concerns expectations and emotions about the market while fundamental value is about real business performance indicators of market sentimentmany investors profit by buying stocks that are wrongly valued due to market sentiment they use several indicators to measure market sentiment to help them determine the best stocks to trade including the cboe volatility index vix the high low index the bullish percent index bpi and moving averages the vix also known as the fear index is driven by option prices a crucial tool for traders the vix indicates the expected volatility of the s p 500 index high vix levels can signal heightened worries potentially a signal of a market bottom a low vix can suggest market complacency and is seen as a clue that a market may have peaked the high low index compares the number of stocks that have reached 52 week highs to the number of stocks that are at 52 week lows | |
when the index is below 30 stock prices are trading near their lows and investors have a bearish market sentiment when the index is above 70 stock prices are trading near their highs and investors are bullish | traders typically apply the indicator to a specific index such as the s p 500 or nasdaq 100 based on point and figure charts the bpi measures the number of stocks with bullish patterns neutral markets have a bullish percentage of about 50 when the bpi reads 70 or higher market sentiment is extremely optimistic which could signal that stocks are overpriced | |
when it measures 30 or below market sentiment is negative indicating an oversold market | investors typically use the 50 day moving average ma and 200 day ma when determining a market s sentiment | |
when the 50 day ma crosses below the 200 day ma this is called the death cross it suggests lower prices and bearish sentiment | the limits of using market sentimentthough a handy tool in financial markets market sentiment has limitations the herd mentality is swayed most easily by fear and greed it is not necessarily a reaction to the fundamentals of a stock or a market moreover short term news events worries and even rumors can sway market sentiment especially in fast paced high liquidity markets when everyone s riding a wave of optimism it might mean a peak is coming and the opposite is true when investors are in a doom and gloom mood as a result irrational market sentiment can lead to greater market volatility remember that the data on sentiment can be a bit of a wild card surveys social media and news reactions can be all over the map this makes it a challenge to pinpoint and interpret whether the underlying information is misleading or outright wrong it s important to keep in mind that market sentiment is like a sprinter in short term trading but not much of a marathon runner if you re in it for the long haul it s more productive to think about the big picture and diversify your portfolio real world examples of market sentimentan uncertain economic outlook often leads to wild swings in the stock market between bullish and bearish sentiments we can use an example from the early 2020s as you can see in the chart below fear picked up among equity investors at various points throughout 2022 leading to intraday volatility in the s p 500 not seen since the great recession of 2008 high inflation and the response of central banks were likely to blame in the traditional economic cycle when interest rates start rising significantly it s only a matter of time before the impact of higher borrowing costs causes a recession many investors grew alarmed that the economy was about to crash and started selling however a handful of others sought to capitalize on these jitters thinking a recession would be averted gradually the economic doom and gloom subsided in 2023 economists grew increasingly confident that the year would not end in recession despite earlier worries market participants keen to profit from equity markets priced to reflect an economic meltdown quickly turned bullish the s p 500 began its ascent again and the vix gradually dropped by september 2023 volatility as measured by the vix was at a three year low that suggests nerves grew calmer economic sentiment will shift again at some point over time as economic conditions evolve analysts and investors adjust their outlooks when the market starts to price in extreme scenarios like an economic meltdown sentiment can quickly turn bullish at the sight of any positive economic data market sentiment is inherently sensitive and can change rapidly after a period of optimism when valuation multiples reflect a positive outlook the market becomes vulnerable even minor negative news can shift the mood turning bullish investors bearish again | |
how does social media influence market sentiment | social media has become a significant factor in shaping market sentiment platforms like reddit can amplify market sentiment and the opinions of a few contrarians often leading to rapid sentiment driven moves in stock prices for instance a trending hashtag or a viral post about a company can quickly sway public perception impacting its stock performance | |
are there sectors that are more sensitive to market sentiment than others | yes some sectors are more sensitive to changes in market sentiment technology and consumer discretionary stocks have wide appeal to individual investors and generate far more chat positive and negative utilities and consumer staples are more stable for many reasons they attract less attention and create less noise on the internet can i use market sentiment indicators to predict stock market crashes market sentiment indicators like the vix can help decipher the mood and expectations of investors but they are not foolproof for predicting market crashes these indicators reflect current or short term expectations of volatility but cannot account for unforeseen events or long term economic trends the bottom linemarket sentiment is an example of crowd psychology optimism or pessimism grows and spreads as many market participants respond to the latest news rumors or projections generally rising prices indicate bullish market sentiment while falling prices indicate bearish market sentiment the long term investor would be wise to stay above the fray when the bears are in charge the bulls are just resting | |
what is market share | market share is the percent of total sales in an industry generated by a particular company market share is calculated by dividing the company s sales over the period by the industry s total sales over the same period this metric is used to give a general idea of the size of a company in relation to its market and competitors the market leader in an industry is the company with the largest market share investopedia candra huffcalculating market sharea company s market share is its portion of total sales in relation to the market or industry in which it operates to calculate a company s market share first determine a period you want to examine it can be a fiscal quarter year or multiple years next calculate the company s total sales over that period then find out the total sales of the company s industry finally divide the company s total revenues by its industry s total sales for example if a company sold 100 million in tractors last year domestically and the total amount of tractors sold in the u s was 200 million the company s u s market share for tractors would be 50 the calculation for market share is usually done for specific countries or regions e g north america or canada investors can obtain market share data from various independent sources such as trade groups and regulatory bodies and often from the company itself however some industries are harder to measure accurately than others market share total company sales total industry salesbenefits of market shareinvestors and analysts monitor increases and decreases in market share carefully as this can be a sign of the relative competitiveness of the company s products or services as the total market for a product or service grows a company that is maintaining its market share is growing revenues at the same rate as the total market a company that is growing its market share will be growing its revenues faster than its competitors gains or losses in market share can have a significant impact on a company s stock performance depending on industry conditions market share increases can allow a company to achieve greater scale with its operations and improve profitability a company can try to expand its market share by lowering prices using advertising or introducing new or different products in addition it can also grow the size of its market share by appealing to other audiences or demographics market share impactchanges in market share have a more important meaning in the performance of companies in mature and traditional industries where there is known and steady growth in line with the general economy in contrast changes in market share have less importance in companies operating in growth industries in these industries the total pie is still growing so companies can still be growing sales even if they are losing market share for companies in this situation the stock performance is affected more by customers and sales growth and profit margins if applicable more than factors such as market share in cyclical industries competition for market share is brutal economic factors play a larger role in the variance of sales earnings and margins more than other factors margins tend to be low and operations run at maximum efficiency due to competition since sales come at the expense of other companies they invest heavily in marketing efforts or even loss leaders to attract sales in these industries companies may be willing to lose money on products temporarily to force competitors to give up or declare bankruptcy once they gain greater market share and competitors are ousted they attempt to raise prices this strategy can work or it can backfire compounding their losses however this is the reason why many industries are dominated by a few big players such as discount wholesale retail with stores including sam s club bj s wholesale club and costco | |
how can companies increase market share | a company can increase its market share by offering its customers innovative technology strengthening customer loyalty hiring talented employees and acquiring competitors innovation is one method by which a company may increase market share when a firm brings to market a new technology its competitors have yet to offer consumers wishing to own the technology buy it from that company even if they previously did business with a competitor many of those consumers become loyal customers which adds to the company s market share and decreases market share for the company from which they switched by strengthening customer relationships companies protect their existing market share by preventing current customers from jumping ship when a competitor rolls out a hot new offer better still companies can grow market share using the same simple tactic as satisfied customers frequently speak of their positive experiences to friends and relatives who become new customers gaining market share via word of mouth increases a company s revenues without concomitant increases in marketing expenses companies with the highest market share in their industries almost invariably have the most skilled and dedicated employees bringing the best employees on board reduces expenses related to turnover and training and enables companies to devote more resources to focus on their core competencies offering competitive salaries and benefits is one proven way to attract the best employees however employees in the 21st century also seek intangible benefits such as flexible schedules and casual work environments lastly one of the surest methods to increase market share is acquiring a competitor by doing so a company accomplishes two things it taps into the newly acquired firm s existing customer base and it reduces the number of firms fighting for a slice of the same pie shrewd executives whether in charge of small businesses or large corporations always have their eye out for a good acquisition deal when their companies are in a growth model market share exampleall multinational corporations measure success based on the market share of specific markets china has been an important market for companies as it is still a fast growing market for many products apple inc for example uses its market share numbers in china as a key performance indicator for the growth of its business apple s market share in china s smartphone market has varied over the years for instance in q3 2022 it had 14 of the market in q4 of 2023 it controlled 21 of the market 1 | |
what is market share | market share shows the size of a company a useful metric in illustrating a company s dominance and competitiveness in a given field market share is calculated as the percentage of company sales compared to the total share of sales in its respective industry over a period a company s market share can influence its operations significantly namely its share performance scalability and prices that it asks for its products or services | |
why is market share important | simply put market share is a key indicator of a company s competitiveness when a company increases its market share this can improve its profitability this is because as companies increase in size they can also scale offering lower prices and limiting their competitors growth | |
what is market timing | market timing is the act of moving investment money in or out of a financial market or switching funds between asset classes based on predictive methods if investors can predict when the market will go up and down they can make trades to turn that market move into a profit timing the market is often a key component of actively managed investment strategies and is almost always a basic strategy for traders predictive methods for guiding market timing decisions may include fundamental technical quantitative or economic data many investors academics and financial professionals believe it is impossible to time the market other investors particularly active traders believe strongly in market timing whether successful market timing is possible is a matter for debate though nearly all market professionals agree that doing so for any substantial length of time is a difficult task understanding market timingmarket timing is not impossible to do short term trading strategies have been successful for professional day traders portfolio managers and full time investors who use chart analysis economic forecasts and even gut feelings to decide the optimal times to buy and sell securities however few investors have been able to predict market shifts with such consistency that they gain any significant advantage over the buy and hold investor market timing is sometimes considered to be the opposite of a long term buy and hold investment strategy however even a buy and hold approach is subject to some degree of market timing as a result of investors shifting needs or attitudes the key difference is whether or not the investor expects market timing to be a pre defined part of their strategy advantages and disadvantages of market timingfor the average investor who does not have the time or desire to watch the market daily or in some cases hourly there are good reasons to avoid market timing and focus on investing for the long run active investors would argue that long term investors miss out on gains by riding out volatility rather than locking in returns via market timed exits however because it is extremely difficult to gauge the future direction of the stock market investors who try to time entrances and exits often tend to underperform investors who remain invested proponents of the strategy say the method allows them to realize larger profits and minimize losses by moving out of sectors before a downturn by always seeking calmer investing waters they avoid the volatility of market movements when they are holding volatile equities for the average individual investor market timing is likely to be less effective and produce smaller returns than buy and hold or other passive strategies however for many investors the real costs are almost always greater than the potential benefit of shifting in and out of the market quantitative analysis of investor behavior a report available for purchase from boston research firm dalbar shows that an investor who remained fully invested in the standard poor s s p 500 index between 1995 and 2014 would have earned a 9 85 annualized return however if they missed only 10 of the best days in the market the return would have been 5 1 some of the biggest upswings in the market occur during a volatile period when many investors fled the market 1mutual fund investors who move in and out of funds and fund groups trying to time the market or chase surging funds underperform the indices by as much as 3 largely due to the transaction costs and commissions they incur especially when investing in funds with expense ratios greater than 1 1buying low and selling high if done successfully generates tax consequences on the profits if the investment is held less than a year the profit is taxed at the short term capital gains rate or the investor s ordinary income tax rate which is higher than the long term capital gains rate bigger profitscurtailed lossesavoidance of volatilitysuited to short term investment horizonsdaily attention to markets requiredmore frequent transaction costs commissionstax disadvantaged short term capital gainsdifficulty in timing entrances and exitscriticism of market timinga landmark study called likely gains from market timing published in the financial analyst journal by nobel laureate william sharpe in 1975 attempted to find how often a market timer must be accurate to perform as well as a passive index fund tracking a benchmark sharpe concluded that an investor employing a market timing strategy must be correct 74 of the time to beat the benchmark portfolio of similar risk annually 2and not even the professionals get it right a 2017 study from the center for retirement research at boston college found that target date funds that attempted market timing underperformed other funds by as much as 0 14 percentage points a 3 8 difference over 30 years 3according to research by morningstar actively managed funds have generally failed to survive and beat their benchmarks especially over longer time horizons in fact only 23 of all active funds surpassed the average of their passive rivals over the 10 year period ended june 2019 for foreign stock funds and bond funds long term success rates were generally higher success rates were lowest among u s large cap funds 4market timing faqsthe efficient market hypothesis emh states that asset prices reflect all available information according to the emh it is impossible to beat the market consistently on a risk adjusted basis since market prices should only react to new information while market timing has many benefits there are some drawbacks that should be kept in mind while adopting this approach in order to be successful at market timing it is necessary to keep a continuous check on the movement of securities funds and asset classes this daily attention to the markets can be tedious time consuming and draining each time you enter or exit the market there are transaction costs and commission expenses investors and traders who employ market timing strategies will have elevated transaction and commission costs market timing can also result in a higher tax rate because when stocks are bought and sold within a year the profit earned is taxed according to either the usual income tax rate or the short term capital gains rate finally market timing is a complex task determining the right entry and exit point can be challenging because the market and its trends keep changing constantly keith banks vice chairman of bank of america said the reality is it s time in the market not timing the market on cnbc s squawk box in march 2020 5timing the market is a strategy that involves buying and selling stocks based on expected price changes prevailing wisdom says that timing the market doesn t work most of the time it is very challenging for investors to earn big profits by correctly timing buy and sell orders just before prices go up and down investors often make investment decisions based on emotions they may buy when a stock price is too high only because others are buying it alternatively they may sell on one piece of bad news for these reasons most investors who are trying to time the market end up underperforming the broad market the biggest risk of market timing is usually considered not being in the market at critical times investors who try to time the market run the risk of missing periods of exceptional returns it is very hard for investors to accurately pinpoint a market high or low point until after it has already occurred for this reason if an investor moves their money out of stocks during a market downturn they risk not moving their money back in time to take advantage of gains from an upswing | |
what is mark to market mtm | mark to market mtm is a method of measuring the fair value of accounts that can fluctuate over time such as assets and liabilities mark to market aims to provide a realistic appraisal of an institution s or company s current financial situation based on current market conditions in trading and investing certain securities such as futures and mutual funds are also marked to market to show the current market value of these investments investopedia laura porterunderstanding mark to market mtm mark to market is an accounting practice that involves adjusting the value of an asset to reflect its value as determined by current market conditions the market value is determined based on what a company would get for the asset if it was sold at that point in time at the end of the fiscal year a company s balance sheet must reflect the current market value of certain accounts other accounts will maintain their historical cost which is the original purchase price of an asset companies in the financial services industry may need to make adjustments to their asset accounts in the event that some borrowers default on their loans during the year when these loans have been identified as bad debt the lending company will need to mark down its assets to fair value through the use of a contra asset account such as the allowance for bad debts a company that offers discounts to its customers in order to collect quickly on its accounts receivables ar will have to mark its ar to a lower value through the use of a contra asset account in this situation the company would record a debit to accounts receivable and a credit to sales revenue for the full sales price then using an estimate of the percentage of customers expected to take the discount the company would record a debit to sales discount a contra revenue account and a credit to allowance for sales discount a contra asset account in personal accounting the market value is the same as the replacement cost of an asset for example homeowner s insurance will list a replacement cost for the value of your home if there were ever a need to rebuild your home from scratch this usually differs from the price you originally paid for your home which is its historical cost to you in securities trading mark to market involves recording the price or value of a security portfolio or account to reflect the current market value rather than book value this is done most often in futures accounts to ensure that margin requirements are being met if the current market value causes the margin account to fall below its required level the trader will be faced with a margin call mutual funds are also marked to market on a daily basis at the market close so that investors have a better idea of the fund s net asset value nav examples of mark to marketan exchange marks traders accounts to their market values daily by settling the gains and losses that result due to changes in the value of the security there are two counterparties on either side of a futures contract a long trader and a short trader the trader who holds the long position in the futures contract is usually bullish while the trader shorting the contract is considered bearish if at the end of the day the futures contract entered into goes down in value the long margin account will be decreased and the short margin account increased to reflect the change in the value of the derivative an increase in value results in an increase in the margin account holding the long position and a decrease in the short futures account for example to hedge against falling commodity prices a wheat farmer takes a short position in 10 wheat futures contracts on november 21st since each contract represents 5 000 bushels the farmer is hedging against a price decline on 50 000 bushels of wheat if the price of one contract is 4 50 on nov 21st the wheat farmer s account will be recorded as 4 50 x 50 000 bushels 225 000 the farmer has a short position in wheat futures so a fall in the value of the contract will result in an increase in their account likewise an increase in value will result in a decrease in account value for example on day 2 wheat futures increased by 4 55 4 50 0 05 resulting in a loss for the day of 0 05 x 50 000 bushels 2 500 this amount is subtracted from the farmer s account balance and added to the account of the trader on the other end of the transaction holding a long position on wheat futures the daily mark to market settlements will continue until the expiration date of the futures contract or until the farmer closes out the position by going long on a contract with the same maturity note that the account balance is marked daily using the gain loss column the cumulative gain loss column shows the net change in the account since day 1 special considerationsproblems can arise when the market based measurement does not accurately reflect the underlying asset s true value this can occur when a company is forced to calculate the selling price of its assets or liabilities during unfavorable or volatile times such as during a financial crisis for example if the asset has low liquidity or investors are fearful the current selling price of a bank s assets could be much lower than the actual value this issue was seen during the financial crisis of 2008 09 when the mortgage backed securities mbs held as assets on banks balance sheets could not be valued efficiently as the markets for these securities had disappeared in april of 2009 however the financial accounting standards board fasb voted on and approved new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation starting in the first quarter of 2009 1 | |
how does one mark assets to market | mark to market is an accounting standard governed by the financial accounting standards board fasb which establishes the accounting and financial reporting guidelines for corporations and nonprofit organizations in the united states fasb statement of interest sfas 157 fair value measurements provides a definition of fair value and how to measure it in accordance with generally accepted accounting principles gaap assets must then be valued for accounting purposes at that fair value and updated on a regular basis 2 | |
are all assets marked to market | marking to market is the standard for the financial industry it is used primarily to value financial assets and liabilities which fluctuate in value the accounting thus reflects both their gains and their losses in value other major industries such as retailers and manufacturers have most of their value in long term assets known as property plant and equipment ppe as well as assets like inventory and accounts receivable not all of these assets will recoup 100 of their value they are recorded at historic cost and then impaired as circumstances indicate correcting for a loss of value for these assets is called impairment rather than marking to market | |
what are mark to market losses | mark to market losses are paper losses generated through an accounting entry rather than the actual sale of a security mark to market losses occur when financial instruments held are valued at the current market value which is lower than the price paid to acquire them the bottom linecertain assets and liabilities that fluctuate in value over time need to be periodically appraised based on current market conditions that includes certain accounts on a company s balance sheet and futures contracts mark to market essentially shows how much the item in question would receive if it were to be sold today and is an alternative to historical cost accounting which maintains an asset s value at the original purchase cost having an accurate up to date idea of what assets are worth serves many useful purposes however it can also be flawed for example during periods of economic turmoil market based measurements may not accurately reflect the underlying asset s true value | |
what is market value | market value is the price an asset would fetch in the market based on the price that buyers are willing to pay and sellers are willing to accept it may also refer to the market capitalization of a publicly traded company calculated by multiplying the number of outstanding shares by the current share price market value is easiest to determine for exchange traded instruments such as stocks and futures since their market prices are widely disseminated and easily available but it is a little more challenging for over the counter instruments like fixed income securities it is also difficult to get an objective market value for illiquid assets like real estate and businesses which may necessitate the use of real estate appraisers or business valuation experts | |
what is market value added | market value added mva is a calculation that shows the difference between the market value of a company and the capital contributed by all investors both bondholders and shareholders in other words it is the market value of debt and equity minus all capital claims held against the company it is calculated as mva v k | |
where mva is the market value added of the firm v is the market value of the firm including the value of the firm s equity and debt its enterprise value and k is the total amount of capital invested in the firm | mva is closely related to the concept of economic value added eva representing the net present value npv of a series of eva values investopedia sydney saporitounderstanding market value added mva | |
when investors want to look under the hood to see how a company performs for its shareholders they first look at mva a company s mva is an indication of its capacity to increase shareholder value over time a high mva is evidence of effective management and strong operational capabilities a low mva can mean the value of management s actions and investments is less than the value of the capital contributed by shareholders a negative mva means the management s actions and investments have diminished and reversed the value of capital contributed by shareholders | mva reflects commitment to shareholder valuecompanies with a high mva are attractive to investors not only because of the greater likelihood they will produce positive returns but also because it is a good indication they have strong leadership and sound governance mva can be interpreted as the amount of wealth that management has created for investors over and above their investment in the company companies that are able to sustain or increase mva over time typically attract more investment which continues to enhance mva the mva may actually understate the performance of a company because it does not account for cash payouts such as dividends and stock buybacks made to shareholders mva may not be a reliable indicator of management performance during strong bull markets when stock prices rise in general examples of mvacompanies with high mva can be found across the investment spectrum alphabet inc googl the parent of google is among the most valuable companies in the world with high growth potential its stock returned 1 293 in its first 10 years of operation while much of its mva in the early years can be attributed to market exuberance over its shares the company has managed to more than double it from 2015 to 2019 alphabet s mva has grown from 354 25 billion in 2015 to 606 20 billion in december 2017 to 809 01 billion in december 2019 to 1 19 trillion in 2020 1on the other end of the spectrum is one of the most established companies in the s p 500 index the coca cola company ko coca cola is one of warren buffett s favorite stock holdings because its management is so effective at increasing shareholder value at the end of the year 2019 the company s mva was 219 66 billion up from 158 52 billion in 2017 and 150 41 billion in 2015 and that does not include the roughly 6 billion annually in dividend payments to shareholders 23 as of 2019 coca cola has increased its dividends each year for the last five years by an average of 5 3 per year 4 | |
what is market value of equity | market value of equity is the total dollar value of a company s equity and is also known as market capitalization this measure of a company s value is calculated by multiplying the current stock price by the total number of outstanding shares a company s market value of equity is therefore always changing as these two input variables change it is used to measure a company s size and helps investors diversify their investments across companies of different sizes and different levels of risk investors looking to calculate market value of equity can find the total number of shares outstanding by looking to the equity section of a company s balance sheet understanding market value of equitya company s market value of equity can be thought of as the total value of the company decided by investors the market value of equity can shift significantly throughout a trading day particularly if there are significant news items like earnings large companies tend to be more stable in terms of market value of equity owing to the number and diversity of investors they have small thinly traded companies can easily see double digit shifts in the market value of equity because of a relatively small number of transactions pushing the stock up or down this is also why small companies can be targets for market manipulation investopedia julie bangcalculating market value of equitymarket value of equity is calculated by multiplying the number of shares outstanding by the current share price for example on march 28 2019 apple stock was trading at 188 72 per share as of this date the company s stock buy back program has lowered the shares outstanding from over 6 billion to 4 715 280 000 so the market equity of capitalization is calculated as follows stock price 188 72 x shares outstanding 4 715 280 000 889 867 641 600for simplicity people usually quote the above market value of equity as 889 9 billion the difference between market value of equity enterprise value and book valuemarket value of equity can be compared to other valuations like book value and enterprise value a company s enterprise value incorporates its market value of equity into the equation along with total debt minus cash and cash equivalents to provide a rough idea of a company s takeover valuation the market value of equity is also distinct from the book value of equity the book value of equity is based on stockholders equity which is a line item on the company s balance sheet a company s market value of equity differs from its book value of equity because the book value of equity focuses on owned assets and owed liabilities the market value of equity is generally believed to price in some of the company s growth potential beyond its current balance sheet if the book value is above the market value of equity however it may be due to market oversight this means the company is a potential value buy market value of equity and market profilein general there are three different levels of market capitalization and each level has its own profile companies with a market capitalization of less than 2 billion are considered small capitalization or small caps companies with a market capitalization of between 2 billion and 10 billion are considered medium capitalization stocks also referred to as mid caps companies with a market capitalization over 10 billion are considered large capitalization or large caps each level has a profile that can help investors gain insights into the behavior of the company small caps are generally young companies in the growth stage of development they are risky but have higher growth potential large caps are mature companies they may not offer the same growth potential but they can offer stability mid caps offer a hybrid of the two by owning stocks in each category investors ensure a certain amount of diversification in assets sales maturity management growth rate growth prospects and market depth | |
what are marketable securities | marketable securities are liquid financial instruments that can be quickly converted into cash at a reasonable price the liquidity of marketable securities comes from the fact that the maturities tend to be less than one year and that the rates at which they can be bought or sold have little effect on prices investopedia xiaojie liuunderstanding marketable securitiesbusinesses typically hold cash in their reserves to prepare them for situations in which they may need to act swiftly such as taking advantage of an acquisition opportunity that comes up or making contingent payments however instead of holding on to all the cash in its coffers which presents no opportunity to earn interest a business will invest a portion of the cash in short term liquid securities 1 this way instead of having cash sit idly the company can earn returns on it if a sudden need for cash emerges the company can easily liquidate these securities examples of a short term investment products are a group of assets categorized as marketable securities marketable securities are defined as any unrestricted financial instrument that can be bought or sold on a public stock exchange or a public bond exchange therefore marketable securities are classified as either marketable equity security or marketable debt security other requirements of marketable securities include having a strong secondary market that can facilitate quick buy and sell transactions and having a secondary market that provides accurate price quotes for investors 2 the return on these types of securities is low due to the fact that marketable securities are highly liquid and are considered safe investments examples of marketable securities include common stock commercial paper banker s acceptances treasury bills and other money market instruments 3special considerationsmarketable securities are evaluated by analysts when conducting liquidity ratio analysis on a company or sector liquidity ratios measure a company s ability to meet its short term financial obligations as they come due 4 in other words this ratio assesses whether a company can pay its short term debts using its most liquid assets liquidity ratios include cash ratio mcscurrent liabilitieswhere mcs market value of cash and marketable securities begin aligned text cash ratio frac text mcs text current liabilities textbf where text mcs text market value of cash and marketable securities end aligned cash ratio current liabilitiesmcs where mcs market value of cash and marketable securities the cash ratio is calculated as the sum of the market value of cash and marketable securities divided by a company s current liabilities creditors prefer a ratio above 1 since this means that a firm will be able to cover all its short term debt if they came due now however most companies have a low cash ratio since holding too much cash or investing heavily in marketable securities is not a highly profitable strategy current ratio current assetscurrent liabilities begin aligned text current ratio frac text current assets text current liabilities end aligned current ratio current liabilitiescurrent assets the current ratio measures a company s ability to pay off its short term debts using all its current assets which includes marketable securities it is calculated by dividing current assets by current liabilities quick ratio quick assetscurrent liabilities begin aligned text quick ratio frac text quick assets text current liabilities end aligned quick ratio current liabilitiesquick assets the quick ratio factors in only quick assets into its evaluation of how liquid a company is quick assets are defined as securities that can be more easily converted into cash than current assets marketable securities are considered quick assets the formula for the quick ratio is quick assets current liabilities types of marketable securitiesmarketable equity securities can be either common stock or preferred stock they are equity securities of a public company held by another corporation and are listed in the balance sheet of the holding company 5 if the stock is expected to be liquidated or traded within one year the holding company will list it as a current asset conversely if the company expects to hold the stock for longer than one year it will list the equity as a non current asset all marketable equity securities both current and non current are listed at the lower value of cost or market 6if however a company invests in another company s equity in order to acquire or control that company the securities aren t considered marketable equity securities the company instead lists them as a long term investment on its balance sheet marketable debt securities are considered to be any short term bond issued by a public company held by another company marketable debt securities are normally held by a company in lieu of cash so it s even more important that there is an established secondary market all marketable debt securities are held at cost on a company s balance sheet as a current asset until a gain or loss is realized upon the sale of the debt instrument 7marketable debt securities are held as short term investments and are expected to be sold within one year if a debt security is expected to be held for longer than one year it should be classified as a long term investment on the company s balance sheet | |
what is marketing | marketing refers to the activities a company undertakes to promote the buying or selling of its products or services marketing includes advertising and allows businesses to sell products and services to consumers other businesses and organizations professionals who work in a corporation s marketing and promotion departments seek to get the attention of key potential audiences through advertising promotions are targeted to certain audiences and may involve celebrity endorsements catchy phrases or slogans memorable packaging or graphic designs and overall media exposure understanding marketingmarketing as a discipline involves all the actions a company undertakes to draw in customers and maintain relationships with them networking with potential or past clients is part of the work too and may include writing thank you emails playing golf with prospective clients returning calls and emails quickly and meeting with clients for coffee or a meal at its most basic level marketing seeks to match a company s products and services to customers who want access to those products matching products to customers ultimately ensures profitability marketing is the activity set of institutions and processes for creating communicating delivering and exchanging offerings that have value for customers clients partners and society at large official definition from the american marketing association approved 2017 1 | |
what are the 4 p s of marketing | product price place and promotion are the four ps of marketing the four ps collectively make up the essential mix a company needs to market a product or service neil borden popularized the idea of the marketing mix and the concept of the four ps in the 1950s product refers to an item or items the business plans to offer to customers the product should seek to fulfill an absence in the market or fulfill consumer demand for a greater amount of a product already available before they can prepare an appropriate campaign marketers need to understand what product is being sold how it stands out from its competitors whether the product can also be paired with a secondary product or product line and whether there are substitute products in the market price refers to how much the company will sell the product for when establishing a price companies must consider the unit cost price marketing costs and distribution expenses companies must also consider the price of competing products in the marketplace and whether their proposed price point is sufficient to represent a reasonable alternative for consumers place refers to the distribution of the product key considerations include whether the company will sell the product through a physical storefront online or through both distribution channels when it s sold in a storefront what kind of physical product placement does it get when it s sold online what kind of digital product placement does it get promotion the fourth p is the integrated marketing communications campaign promotion includes a variety of activities such as advertising selling sales promotions public relations direct marketing sponsorship and guerrilla marketing promotions vary depending on what stage of the product life cycle the product is in marketers understand that consumers associate a product s price and distribution with its quality and they take this into account when devising the overall marketing strategy marketing refers to any activities undertaken by a company to promote the buying or selling of a service if there is a limited quantity of a product a company may market itself in an attempt to be better positioned as one of the few who get to buy something types of marketing strategiesmarketing is comprised of an incredibly broad and diverse set of strategies the industry continues to evolve and the strategies below may be better suited for some companies over others before technology and the internet traditional marketing was the primary way companies would market their goods to customers the main types of traditional marketing strategies include the marketing industry has been forever changed with the introduction of digital marketing from the early days of pop up ads to targeted placements based on viewing history there are now innovative ways companies can reach customers through digital marketing in 1978 gary thuerk sent a message to roughly 400 people using arpanet the first public packet switched computer network with that message the first ever recorded spam e mail message had been sent 2 | |
what are the benefits of marketing | well defined marketing strategies can benefit a company in several ways it may be challenging to develop the right strategy or execute the plan when done well marketing can yield the following results according to martech a digital marketing provider the world will spend 4 7 trillion on marketing by 2025 this estimate includes an increase of 1 1 trillion from 2021 to 2025 4 | |
what are the limitations of marketing | though there are many reasons a company embarks on marketing campaigns there are several limitations to the industry | |
what is marketing | marketing is a division of a company product line individual or entity that promotes its service marketing attempts to encourage market participants to buy their product and commit loyalty to a specific company | |
why is marketing so important | marketing is important for a few reasons first marketing campaigns may be the first time a customer interacts or is exposed to a company s product a company has the opportunity to educate promote and encourage potential buyers marketing also helps shape the brand image a company wants to convey for example an outdoor camping gear company that wants to be known for its rugged tough goods can embark on specific campaigns that embody these traits and make these emotions memorable to prospective customers | |
what is the purpose of marketing | an important goal of marketing is propelling a company s growth this can be seen through attracting and retaining new customers companies may apply many different marketing strategies to achieve these goals for instance matching products with customers needs could involve personalization prediction and essentially knowing the right problem to solve another strategy is creating value through the customer experience this is demonstrated through efforts to elevate customer satisfaction and remove any difficulties with the product or service | |
what are the 4 ps of marketing | a commonly used concept in the marketing field the four ps of marketing looks at four key elements of a marketing strategy the four ps consist of product price place and promotion | |
what are the types of marketing | there are dozens of types of marketing and the types have proliferated with the introduction and rise of social media mobile platforms and technological advancements before technology marketing might have been geared towards mail campaigns word of mouth campaigns billboards delivery of sample products tv commercials or telemarketing now marketing encompasses social media targeted ads e mail marketing inbound marketing to attract web traffic and more the bottom linemarketing is an essential part of any business it allows for a business s products or services to be known to consumers and it helps entice consumers to buy its product over a competitor s though marketing costs a significant amount of money companies create marketing budgets as a part of expenses in the hope that sales and profits will outweigh the marketing costs | |
what is a marketing campaign | marketing campaigns promote products through different types of media such as television radio print and online platforms campaigns are not solely reliant on advertising and can include demonstrations videoconferencing and other interactive techniques businesses operating in highly competitive markets and franchisees may initiate frequent marketing campaigns and devote significant resources to generating brand awareness and sales understanding marketing campaignsmarketing campaigns can be designed with different goals in mind including building a brand image introducing a new product increasing sales of a product already on the market or even reducing the impact of negative news defining a campaign s goal usually dictates how much marketing is needed and what media are most effective for reaching a specific segment of the population businesses operating in highly competitive markets may initiate frequent marketing campaigns and devote significant resources to generating brand awareness and sales types of marketing campaign activitiesthere are many ways to market products and services to customers from mailing brochures to coordinating a social media blitz small companies can email invitations to a special sale and offer a free product to every customer who brings the invitation larger companies can use paid advertising and professional agencies to reach a wider audience whatever the size of the company it s important that someone is dedicated to handling the influx of traffic that a marketing campaign generates if you are prompting customers to sign up for your email list you must make sure that the list is managed well and that new customers receive welcoming messages if visits to your website increase you must continually update your content to convert this traffic to profitable sales companies that lose sales due to major negative press often use marketing campaigns to rehabilitate their image one example is chipotle mexican grill which was investigated by the u s centers for disease control and prevention after dozens of customers became sick in 2015 from food safety issues related to e coli and norovirus 1 chipotle s sales dropped 30 in the first quarter of 2016 so to regain customer interest the company offered coupons for free food via direct mail and texts 2 chipotle also used online video to announce a 10 million grant to support local farmers 3examples of successful marketing campaignsthe long running aflac duck campaign is one example of a campaign that significantly raised brand recognition the company s brand recognition rate was just 12 when it launched the campaign in 2000 and more than a decade of advertising boosted recognition to 90 4lay s launched its first do us a flavor campaign in 2012 asking customers to suggest new potato chip flavors through texts and social media the company s sales increased 12 and its volume of social media followers tripled 5 | |
what types of media are used for marketing campaigns | different types of media such as television radio print and online platforms are used in marketing campaigns to promote products | |
do marketing campaigns rely entirely on advertising | no marketing campaigns can include demonstrations videoconferencing and other interactive techniques | |
what is the goal of a marketing campaign | it varies according to the campaign marketing campaign goals include the bottom linea marketing campaign promotes a product or products through different types of media the campaign s goal typically determines how much marketing is needed and what media are most effective | |
what is a marketing mix | a marketing mix includes multiple areas of focus as part of a comprehensive marketing plan the term often refers to a common classification that began as the four ps product price placement and promotion effective marketing touches on a broad range of areas as opposed to fixating on one message doing so helps reach a wider audience and by keeping the four ps in mind marketing professionals are better able to maintain focus on the things that really matter focusing on a marketing mix helps organizations make strategic decisions when launching new products or revising existing products subscribe to term of the day and learn a new financial term every day stay informed and make smart financial decisions sign up now | |
what are the 4 ps of a marketing mix | the four ps classification for developing an effective marketing strategy was first introduced in 1960 by marketing professor and author e jerome mccarthy 1 it was published in the book entitled basic marketing a managerial approach depending on the industry and the target of the marketing plan marketing managers may take various approaches to each of the four ps each element can be examined independently but in practice they often are dependent on one another this represents an item or service designed to satisfy customer needs and wants to effectively market a product or service it s important to identify what differentiates it from competing products or services it s also important to determine if other products or services can be marketed in conjunction with it the sale price of the product reflects what consumers are willing to pay for it marketing professionals need to consider costs related to research and development manufacturing marketing and distribution otherwise known as cost based pricing pricing based primarily on consumers perceived quality or value is known as value based pricing value based pricing plays a key role in products that are considered to be status symbols | |
when determining areas of distribution it s important to consider the type of product sold basic consumer products such as paper goods often are readily available in many stores premium consumer products however typically are available only in select stores | joint marketing campaigns are called a promotional mix activities might include advertising sales promotion personal selling and public relations one key consideration is the budget assigned to the marketing mix marketing professionals carefully construct a message that often incorporates details from the other three ps when trying to reach their target audience determination of the best mediums to communicate the message and decisions about the frequency of the communication also are important | |
what are other marketing tools | not all marketing is product focused customer service businesses are fundamentally different than those based primarily on physical products so they often will take a consumer centric approach that incorporates additional elements to address their unique needs three additional ps tied to this type of marketing mix might include people process and physical evidence people refers to employees who represent a company as they interact with clients or customers process represents the method or flow of providing service to clients and often incorporates monitoring service performance for customer satisfaction physical evidence relates to an area or space where company representatives and customers interact marketers take into consideration elements such as furniture signage and layout additionally marketers often study consumers in order to refine or update strategies related to services or products this requires a strategy for communicating with consumers in order to obtain feedback and define the type of feedback being sought traditionally marketing commences with identifying consumers needs and ceases with the delivery and promotion of a final product or service consumer centric marketing is more cyclical its goals include reassessing customers needs communicating frequently and developing strategies to build customer loyalty | |
what are the four elements of a marketing mix | the four primary elements of a marketing mix are product price placement and promotion this framework aims to create a comprehensive plan to distinguish a product or service from competitors that creates value for the customer often these elements are dependent on each other product refers to a good or service that meets a customer s needs here companies focus on features that differentiate it from its competitors an organization may also consider complementary products that fit within its suite of product or service offerings price represents the price point or price range for the product or service ultimately the goal is to maximize profit margins and return on investment while considering the price that customers are willing to pay placement refers to distribution channels specifically where is this product being promoted and how can you get it in front of your target audience promotion focuses on creating brand awareness around your product or service importantly it looks at how utilizing certain channels can drive sales | |
what are the 7 ps in a marketing mix | sometimes the marketing mix can extend beyond the classic four ps of product price placement and promotion established by professor e jerome mccarthy in 1960 these additional categories include people physical evidence and process in this way people represent the employees who interact with customers a company may consider company culture as it relates to its brand strategy this may include customer relationship management crm which aims to increase brand loyalty among customers physical evidence might include the packaging or the layout of a physical store which can reinforce a brand and create more value to the customer finally the process identifies areas often from a logistical standpoint that enable the customer to have the most seamless experience possible with a product or service this may include everything from delivery logistics and shipping to managing third party retailers | |
what is the purpose of a marketing mix | at its core a marketing mix is focused on promoting a product or service to generate revenue for a company on the whole it integrates key marketing strategies that create brand awareness build customer loyalty and drive product sales the bottom linethe development of a comprehensive effective marketing plan takes into consideration a marketing mix that includes several areas of focus typically the marketing mix refers to the four ps product or service its price placement and promotion this concept was developed in 1960 when marketing professor e jerome mccarthy first published it in a book entitled basic marketing a managerial approach however because not all marketing is focused on products customer service businesses rely on other marketing tools that might include three additional ps the people who interact with customers the process that creates a seamless customer experience and physical evidence or the area where customers and company representatives interact all of these tools are used to promote a product or service and build brand awareness and customer loyalty in order to generate revenue for a business | |
what is a marketing plan | a marketing plan is an operational document that outlines an advertising strategy that an organization will implement to generate leads and reach its target market it details the outreach and pr campaigns to be undertaken and for how long as well as the ways in which the company will measure the effect of these initiatives it reflects a company s overall marketing strategy understanding marketing plansthe terms marketing plan and marketing strategy are often used interchangeably because the former is developed based on an overarching strategic framework in some cases the strategy and the plan may be incorporated into one document particularly for smaller companies that may only run one or two major campaigns in a year the plan outlines marketing activities on a monthly a quarterly or an annual basis while the strategy delineates the overall value proposition the components of a marketing plan include the four most important social media networks in 2023 for global marketers were in descending order facebook instagram youtube and tiktok 1types of marketing plansthere are a variety of marketing plans that suit different businesses and their needs these include 2 | |
how to write a marketing plan | the mission and value proposition is a statement that articulates the value that a product or brand will deliver to a customer it should appear front and center on the company website and any branding materials the value proposition should delineate how a product or brand solves the customer s problem the benefits of the product or brand and why the customer should buy from this company and not another the marketing plan is based on it establishing your key performance indicators kpis will allow you to measure the success of your marketing plan in relation to your company s value proposition in other words they track the effectiveness of your marketing strategy for example if your goal is to engage with a certain demographic in a certain region you can track social media impressions and website visits there are a number of kpis that help you measure success including the search engine ranking click through rate cost per click return on investment roi and conversion rates which tracks the percentages of visitors to your website that make a specific action such as buying a product or becoming a newsletter subscriber in 2023 facebook and instagram were tied for having the highest roi across social media platforms for global marketers while youtube fell next in line 3the marketing plan identifies the target market for a product or brand market research is often the basis for a target market and marketing channel decisions for example whether the company will advertise via social media online ads or regional tv knowing to whom you want to sell and why is an extremely critical component of any business plan it allows you to focus your business and measure its success different demographics have different tastes and needs knowing your target market will help you market to them the marketing plan includes the rationale for these decisions the plan should focus on the creation timing scheduling and placement of specific campaigns and include the metrics that will measure the outcomes of your marketing efforts for example will you advertise on social media or tv what time will you schedule your marketing if they are through email newsletters the strategy may include flighting scheduling which includes the times when you can make the most of your advertising dollars a marketing plan costs money setting a budget will allow you to create a workable plan prevent runaway costs and properly allocate your funds a marketing plan can be adjusted at any point based on the results from its metrics if digital ads are performing better than expected for example the budget for a campaign can be adjusted to fund a higher performing platform or the company can initiate a new budget the challenge for marketing leaders is to ensure that every platform has sufficient time to show results without the correct metrics to assess the impact of outreach and marketing efforts an organization will not know which campaigns to repeat and which to drop in short maintaining ineffective initiatives wastes money digital marketing shows results almost immediately whereas tv ads require rotation to realize any level of market penetration in the traditional marketing mix model a marketing plan would fall under the category of promotion which is one of the four ps a term coined by neil borden to describe the marketing mix of product price promotion and place marketing plan vs business plana business plan is a roadmap that details how a business will operate and function in its entirety it should cover the goals missions values financials and strategies that the business will use in day to day operations and the achievement of its objectives among its many elements are an executive summary the products and services sold a marketing analysis a marketing strategy financial planning and a budget as mentioned a business plan should include a marketing plan which focuses on creating a strategy for creating awareness of the company s product or service reaching the target market and generating sales example of a marketing planconsider the following marketing plan framework that is designed to help direct marketing objectives | |
what is a marketing plan template | a marketing plan template is a guide for writing a marketing plan it contains all the important elements needed to create one including its goals and kpis marketing channels budget content type teams involved and design |
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