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9609 · 3.1.5

Mass marketing and niche marketing — practice questions

Practice and worked examples for 9609 Mass marketing and niche marketing. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

A small craft chocolate maker, 'ChocoLux', produces 10,000 bars a year. It is considering its marketing strategy. A mass-market chocolate bar sells for $2 with a variable cost of $0.80. ChocoLux's bars have a variable cost of $2.50 due to premium ingredients. A niche market strategy would allow a selling price of $7 per bar. The annual marketing budget (a fixed cost) is $15,000. Should ChocoLux pursue a mass or niche strategy? Use contribution to justify your answer.

Show solution outline

The key is to determine which strategy is financially viable and profitable. We can use the contribution formula to analyse this.

Formula: Contribution per unit = Price - Variable Cost per unit

Step 1: Analyse the Niche Strategy

  • Price = 7.007.00
  • Variable Cost = 2.502.50
  • Contribution per unit = 7.00−7.00 - 2.50 = 4.504.50
  • Total Contribution = $4.50 per unit × 10,000 units = $45,000
  • Profit = Total Contribution - Fixed Costs = 45,000−45,000 - 15,000 = 30,00030,000

Step 2: Analyse the Mass Market Strategy To compete in the mass market, ChocoLux would need to price its product competitively at 2.00.2.00.

  • Price = 2.002.00
  • Variable Cost = 2.502.50
  • Contribution per unit = 2.00−2.00 - 2.50 = -0.500.50 This strategy results in a negative contribution, meaning the company loses $0.50 on every bar it sells, even before accounting for fixed marketing costs.

Step 3: Recommendation Recommendation: ChocoLux must adopt a niche marketing strategy.

Justification: The niche strategy is the only profitable option, forecast to generate a profit of $30,000. The mass market strategy is not financially viable as it would lead to a significant loss. ChocoLux's high-cost, premium product structure is fundamentally incompatible with the low-price nature of the mass market. Its survival and success depend on commanding a premium price from a specific segment that values its quality.

Worked example 2

Urban Grow is a start-up launching a new smart indoor gardening kit. The total market is estimated at 500,000 units annually. The business is considering two strategies. Use the data below to calculate the forecast annual profit for each strategy and recommend a course of action.

Mass Market Data:

  • Target market share: 5%
  • Selling price: 120120
  • Variable cost per unit: 7070
  • Annual fixed costs (including mass promotion): 1,500,0001,500,000

Niche Market Data:

  • Niche market size: 10,000 units
  • Target market share: 60%
  • Selling price: 200200
  • Variable cost per unit: 8080
  • Annual fixed costs (including targeted promotion): 250,000250,000
Show solution outline

To advise Urban Grow, we need to calculate the potential profit from each strategy.

Formula: Profit = Total Revenue - Total Costs, where Total Costs = Fixed Costs + Total Variable Costs.

Step 1: Calculate forecast profit for the Niche Market Strategy

  • Sales Volume = 10,000 units × 60% = 6,000 units
  • Total Revenue = 6,000 units × $200/unit = $1,200,000
  • Total Variable Costs = 6,000 units × $80/unit = $480,000
  • Total Costs = 250,000(FC)+250,000 (FC) + 480,000 (TVC) = 730,000730,000
  • Niche Strategy Profit = 1,200,000−1,200,000 - 730,000 = **470,000∗∗470,000**

Step 2: Calculate forecast profit for the Mass Market Strategy

  • Sales Volume = 500,000 units × 5% = 25,000 units
  • Total Revenue = 25,000 units × $120/unit = $3,000,000
  • Total Variable Costs = 25,000 units × $70/unit = $1,750,000
  • Total Costs = 1,500,000(FC)+1,500,000 (FC) + 1,750,000 (TVC) = 3,250,0003,250,000
  • Mass Strategy Profit = 3,000,000−3,000,000 - 3,250,000 = -$250,000 (a loss)

Step 3: Recommendation Recommendation: Urban Grow should adopt the niche marketing strategy.

Justification: The calculations clearly show that the niche strategy is forecast to be highly profitable ($470,000 profit), whereas the mass market strategy is projected to result in a substantial loss (-$250,000). For a start-up, the lower fixed costs and capital investment of the niche strategy (250,000vs250,000 vs 1,500,000) also represent a significantly lower financial risk.

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