3.1.4 Impact of external influences

Question 1

define porters five forces

Answer 1

a framework for analysing the nature of competition within an industry that assesses profitability and attractivness

Question 2

what does the model consist of?

Answer 2

Bargaining power of suppliers
Bargaining power of customers
Threats of new entrants
Threats of substitutes
Rivalry amongst existing businesses

Question 3

how can the bargaining power of suppliers change?

Answer 3

lots of suppliers = less power as firms can choose to have multiple suppliers to keep prices low
few suppliers = more power, firms only have few choices, suppliers can charge higher prices due to the high cost of switching

Question 4

how can we overcome the change in bargaining power of suppliers?

Answer 4

look for new suppliers
choose backward vertical integration and takeover/merge the supplier

Question 5

explain how the bargaining power of customers can change?

Answer 5

if there is a specialised product -> only few sold -> less power to customer as limited choice
if widely produced -> high amount of power to customer -> lots of choice to shop around for cheaper prices

Question 6

How can we overcome bargaining power of customers

Answer 6

make it too expensive for customers to switch by keeping prices low
forward vertically integrate

Question 7

explain the change of threats of new entrants

Answer 7

high barriers due to high set up costs etc -> less threat -> less competition -> high profits
low barriers due to low set up costs etc -> high levels of threat -> more competition-> low profits

Question 8

how can we overcome the threats of new entrants?

Answer 8

create barriers to entry -> less attractive to customers
heavy advertising
build strong brand presence and loyalty
economies of scale
make customer switching costs high
increase access to tech and R&D

Question 9

explain the change in threat of substitutes

Answer 9

buyers wiliness to buy a substitute depends on the price and the performance of the substitute
& cost of switching

Question 10

how can we overcome the threat of substitutes?

Answer 10

continously investing in R&D
develop patents
buy up patents of rivals

Question 11

explain the change of rivalry amongst businesses

Answer 11

perfect rivalry = monopoly
intensity will impact on the business trying to trade
can mean larger businesses buying up rivals through horizontal integration, introducinh new products to market
heavy advertisment

Question 12

are the profits of a business determined by the competitive structure of the industry?

Answer 12

yes it is determined by the competitive structure.

Question 13

define monopoly

Answer 13

a marked dominated by a single business

Question 14

define oligopoly

Answer 14

a market dominated by a few large businesses

Question 15

define pestle analysis

Answer 15

analysis of the external political, economic, social, technological, legal and environmental factors affecting a business

Question 16

what does pestle stand for?

Answer 16

Political
Economic
social
technological
Legal
Environmental

Question 17

is the competitive environment dynamic or not and why/how?

Answer 17

yes as the environment changes over time and porters forces & pestle analysis must be revisited
-the two analysis methods only provide info for the current period

Question 18

how can political inf effect a business?

Answer 18

policies on tax which encourage new business’ to encourage lower corporation tax -> offer incentives like subsidy payments to help with start up costs
-gov can introduce high tax on unhealthy products like cigerettes -> improve health of nation

Question 19

how can economic influences affect a business?

Answer 19

inc changes like consumer spending, interest rates, exchange rates and economic growth
strongy economy -> low levels of unemployment -> steady consumer income -> confident in buying non essential goods
weak economy -> high levels of unemployment -> lower consumer income -> less confident in buying non essentials

Question 20

how can social influences affect a business?

Answer 20

changes in trends -> change in demand
concern w health -> less demand for sugary drinks and sweets -> need to reconsider their design mix
pop. changes -> impact demand levels e.g. increased demand for residential care homes.

Question 21

how can techonological inf affect a business?

Answer 21

-change inf decision making
can delay in deciding to invest in new tech as tech is expensive -> disadvantages a business
reconsider changes in design mix as new production processes are now available

Question 22

how can legal inf affect a business?

Answer 22

impacts business activities
global concern on effects of pollution -> legal deadlines of banning diesel and petrol engines -> fall in demand levels for new petrol and diesel vehicles.
-> result is more focus on hybrid cars -> less polluting

Question 23

how can environmental inf affect a business?

Answer 23

more concern in protecting environment
-> to retain customers, bus. need to reduce environmental impact e.g. changing to paper bags,
-> if bus dont adaopt will lose customers due to customers strong belief in reducing plastic waste