3.1.3 Understanding that businesses operate withing an external enviroment Flashcards
What is external enviroment?
Anything outside of the business that may have an impact on the way it operates.
What are PESTLE factors?
Political Economic Social Techonological Legal Enviromental
Political impact on cost includes:
Corporation tax, VAT, higher rates in taxation means more money for the governemnt and lower profits for businesses
Politcial impact on demand includes:
Protectionist policies e.g. tarrifs and quotas
Raises prices for UK customers so they are less likely to demand foreign goods.
Economic impact on cost includes:
Growth in the economy means consumer confidence grows so more staff will be employed but in a recession staff may be made redundant.
Economic impact on demand included:
GDP, Inflation, Interest rates, Exchange rates.
Social impact on cost includes:
Increase in migrant workers means prodicers will have a large supply of workers prepared to work for minimum wage meaning the costs will be lowered.
Social impact on demand includes:
Trends and tastes which change over time, demand can change depending on what influencial people wear, drink or use (on social media)
Technology impact on cost includes:
Automation, e-commerce, R&D
Technology impact on demand includes:
Inovations can provide consumers with more ways to connect with eachother and buy online- increase in demand for wifi/broardband.
Legal impact on cost includes:
Consumer laws, employment laws, environmental laws. Each time laws are brought out the business must make sure it complies meaning costs increase.
Legal impact on demand includes:
If businesses don’t comply with the consumer rights act 2015 customers will complain and the reputation might be impacted so demands will fall. Another example is hygiene laws (especially after covid)
Enviromental impact on cost includes:
Being enviromentally friendly is expensive, sustainable materials cost more, more expensive products means demand falls, so no economies of scale and prices remain high.
Environmental impact on demand includes:
Enviromental impact might worry customers:
88% of customers will be more loyal to a company that supports social and environmental issues. 92% will be more likely to trust a company that supports social or enviromental issues.
Factors that influence cost and demand:
Competition, market conditions, incomes, interest rates, demographic factors, enviromental issues and fairtrade.
Why does competition influence on cost and demand?
As there are many competitors demand is high and they try and keep costs low or customers will switch to alternative brand or suppliers.
What happens when there is high competition? (cost and demand)
In a highly competitive market there are many producers who want to supply the same customers with the same goods but no one company can set the prices.
What are maket conditions?
Market conditions can be defined as the type of market which a business is going into.
What effect does income have on cost?
If incomes raise then wages might have risen which means the costs of a business will have risen.
What effect does income have on demand?
If incomes rise then customers will have more disposable income so demand willr ise for products and services.
What are interest rates?
In the UK they are thecosts of borrowing money
What effect does interest rate have on demand?
If interest rates increase then customers will not be able to afford to borrow on a credit card or loan to buy the goods so demand will fall.
What effect does interest rate have on cost?
If interest rates go up then business selling the goods will also be impacted as the cost of repaying any business loans will increase.
What effect does demographic factors have on demand? (mobility products)
A shift in demographics in the UK has an older population which means that the deman for some mobility products has increased.
What effect does enviromental issues have on cost?
If a business is more eco friendly they end to have higher costs.
What effect does enviromental issues have on demand?
Being eco friendly means that they can experience higher demand as customer perception has improved.
Using enviromental issues how can businesses improve its customer perception?
Conserving water, reduce single use plastic packaging, recycling, using solar power or going paperless (online).
What is fair trade about?
Acording to the fairtrade foundation its is about better prices, decent working conditions, local sustainability and fair terms of trade for farmers and workers in the developing world.
What does fairtrade require companies to do?
It requires companies to pay prices no lower than the market price to protect the weakest and poorest farmers in developing countires.
What happens to the prices of fairtrade products?
Prices will increase but customers are aware of fairtrade and are prepared to pay a little more for it.
