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Meeting Customer Needs Model Answers

Section 1.1 — Annotated model answers for market segmentation, customer needs, and product differentiation.

These model answers demonstrate how to structure responses for Edexcel International A-Level (IAL) Economics and Business exams. Each answer includes a mark scheme breakdown, PEEL structure (where applicable), annotated paragraphs, and examiner commentary explaining what earns marks at each band.
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4 marks
Unit 1 · 1.1 Meeting Customer Needs · Knowledge & Application
Explain: what is meant by market segmentation and why it is useful to a business.
Mark Scheme Breakdown
1–2 marksDefinition of market segmentation (dividing a market into distinct groups of consumers)
3–4 marksApplication of why segmentation is useful (targeted marketing, better meeting customer needs)
KKnowledge/Definition
AApplication
Model Answer
Market segmentation is the process of dividing a market into distinct groups of consumers who share similar characteristics or needs. K Markets can be segmented by age, income, location, lifestyle, or buying behaviour. K

Segmentation is useful because it allows a business to target its marketing mix more precisely at each group, rather than adopting a one-size-fits-all approach. A For example, a car manufacturer can design and promote different models for families (MPVs with large boot space), young professionals (sporty hatchbacks), and luxury buyers (premium saloons with high-end features). A By tailoring products and marketing to each segment's specific needs, the business increases the likelihood of sales and can build stronger customer loyalty, ultimately boosting revenue and market share. A
Examiner Commentary

Full marks require a clear definition of market segmentation and a developed explanation of why it benefits a business. Candidates should go beyond simply listing segmentation bases (age, income, etc.) and explain the advantage — targeted marketing leads to better customer satisfaction and higher sales. A concrete example, as shown here with the car manufacturer, earns the application marks.

Likely Score4 / 4
8 marks
Unit 1 · 1.1 Meeting Customer Needs · Analysis
Analyse: the advantages and disadvantages of operating in a niche market.
Mark Scheme Breakdown
1–2 marksKnowledge: definition of niche market
3–4 marksApplication: named niche market example
5–8 marksAnalysis: developed advantages (premium pricing, less competition) and disadvantages (limited scale, vulnerability)
PEEL Structure
P
Point

Niche markets allow firms to charge premium prices and face less competition, but limit growth potential.

E
Evidence

E.g. Lush operates in the niche of handmade, ethical cosmetics.

E
Explain

Less competition means higher margins, but a small customer base makes the firm vulnerable to changes in consumer tastes or new entrants.

L
Link

Whether niche is advantageous depends on the firm's ability to build loyalty and defend its position.

KKnowledge
AApplication
AnAnalysis chain
Model Answer
Para 1
A niche market is a small, specialised segment of a larger market that targets customers with specific needs or preferences. K Lush, for example, operates in the niche of handmade, ethically sourced cosmetics — a segment too small for mass-market giants like Unilever to prioritise. A
Para 2
A key advantage is the ability to charge premium prices. Because niche products are differentiated and face fewer direct substitutes, customers are willing to pay more — increasing profit margins. An There is also less direct competition, as large firms often ignore segments that are too small to justify mass production. This gives the niche firm a more defensible market position. An
Para 3
However, niche markets have significant disadvantages. The limited customer base means the firm may struggle to achieve economies of scale, keeping unit costs high. An The firm is also vulnerable to changes in consumer tastes — if the trend shifts away from ethical cosmetics, Lush's entire business model is at risk. A If a large competitor decides to enter the niche (e.g. The Body Shop expanding its ethical range), the niche firm may lack the resources to compete. An
Examiner Commentary

Balanced answer with clear advantages and disadvantages. Lush provides consistent application throughout. The vulnerability point — large competitors entering the niche — shows strong analytical thinking. For top marks, link back to the question by concluding whether niche is net positive for this type of business.

Likely Score7–8 / 8

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