Business AS Levels Flashcards
purpose of business activity
to satisfy the needs and wants of consumers
what is an entrepreneur
individual who has a new idea for a business and takes up the risk of starting up a business and benefits from the rewards
customer vs consumer
customer: individuals that purchases g/s from a business
consumer: individuals that purchases g/s for personal use
goods vs services
goods: tangible & physical goods that are sold to consumers that are not intended for resale
services: non-tangible products sold to consumers that are not intended for resale
factors of production + definitions
Factors of Production: the resources needed by a business in order to produce g/s
- Land: natural resources used in the production process
- Labour: the physical and mental efforts by workers in order to produce g/s
- Capital: finance and physical goods used to aid in production
- Enterprise: action of showing initiative to take the risk to set up a business
added value + adding value and examples
difference between inputs and selling price (eg. packaging, quality of service, features of product)
adding value: increasing this difference
branding
process of differentiating a product by developing a symbol, name, and trademark for it
opportunity cost & the economic problem
the next most desired option that is given up
unlimited wants & needs, limited resources
why do some businesses succeed (4)
- good understanding of customer needs
- efficient management of operations
- good adaptation to market changes
- sufficient sources of finance
why do some businesses fail (3)
- poor record-keeping
- lack of cash
- poor management skills
multinational business
business organisation that has its heardquarters in one country, but operates in other countries
intraprenuer
business employee who takes direct responsibility for turning an idea into a profitable new business
traits of an intrapreneur (3)
- has an idea for a new business
- accepts responsibility of managing the business
- accepts risk of failure
qualities of successful intrapreneurs (6)
- innovation
- commitment
- multi-skilled
- leadership
- self confidence
- risk-taking
barriers to entrepreneurship (4)
- lack of business opportunity (little demand for new products)
- lack of finance
- competition
- lack of customer base
business risk vs uncertainty
risk: the possible losses that may occur when running a business
uncertainty: events that cannot be foreseen or calculated, that may risk the closure of a business
role of enterprise in economic development (4)
- employment creation
- economic growth
- innovation & technological change
- exports
roles of an intrapreneur (3)
- drive innovation
- foster change for improvements in the business
- competitive advantage
business plan
written document that describes a business, its objectives, strategies, financial forecasts, and market its in
benefits & limitations of a business plan (2)
benefits:
- provides clear plan of action
- forces owner to critically analyse their business idea
limitations:
- based on forecasts
- does not guarantee success
economic sectors (4)
- primary sector: firms engaged in industries that extract natural resources so that they can be used and processed
- secondary sector: firms that manufacture and process products from natural resources
- tertiary sector: firms providing services to consumers and other businesses
- quaternary sector: businesses providing information services
industrialisation vs deindustrialisation
Industrialisation: The growing importance of secondary sector business activity and the reduced importance of primary sector business activity.
De-industrialisation: The growing importance of the tertiary sector and the reduced importance of the secondary sector
benefits & consequences of industrialisation (4)
benefits:
- increase in GDP
- increase standard of living
- job creation
- added value to national output
consequences:
- income inequality
- harm to environment
- housing issues
- imports often needed, increase costs of imports
public vs private sector
- Public sector: organisations accountable to and controlled by the state
- Private sector: businesses owned and controlled by private individuals
types of economies (3)
- Mixed economy: economic resources owned and controlled by both the public and private sectors
- Free-market economy: economic resources owned by private sector with very little state intervention
- Command economy: economic resources owned, planned, and controlled by the state
public corporation
business enterprise owned and controlled by the state
advantages & disadvantages of public corporations (2)
benefits:
- social benefits
- government support
- provide secure jobs
disadvantages:
- inefficiencies
- low motivation
unincorporated businesses
businesses that are within the private sector and have unlimited liability (business owners have full legal responsibility for the debts of the business)
types of unincorporated businesses
- Sole trader: business in which 1 person provides permanent finance and in return has full control of the business and keeps all the profits and has unlimited liability
- Partnership: business formed by 2 or more people with shared capital investment and responsibility with unlimited liability
incorporated businesses
businesses who have limited liability where owners and the business have a separate legal identity
corporated business and limited liability
- Limited liability: shareholders have seperate legal identity from the business and are only responsible for how much they have invested
- Private limited companies: limited company’s that do not sell shares to the general public
- Public limited companies: limited companies that sell shares to the general public
share & shareholder
percentage of ownership of a company which entitles the shareholder to dividends and shareholder rights
person or institution owning shares in a limited company
advantages & disadvantages of limited companies (2)
advantages
- easier to raise capital
- business continues after passing of shareholders
disadvantages
- complex to set up (legal)
- risk of takeover
advantages & disadvantages of private limited companies
advantages:
- limited liability
- continuity
disadvantages:
- cannot sell shares to the public
- complex to set up
legal formalities of setting up a company (2)
memorandum of association: legal document required for the incorporation of a company that outlines a company’s name, purpose, location, ownership, and rules for operation
articles of association: legal document that outlines the internal rules and regulations for running a company
other types of businesses (4)
- Franchise: the legal right to use the name, logo, and trading system of an existing business
- Cooperative: a jointly owned business operated by members for their mutual benefit
- Joint venture: 2 or more businesses agree to work together on a particular project and create a seperate business division
- Social enterprise: business with mainly social objectives that re-invests most of its profits back into the business and benefitting society and maximising returns to owners
advantages & disadvantages of: cooperatives, franchise, joint venture (2 each)
cooperatives:
- shared workload between members
- better decision making
- slow decision making
- limited capital
franchise
- get to use established brand
- advice & training offered by franchiser
- limited control for franchisee
- profit sharing & royalty payments
joint venture
- shared & responsibilities
- access to new markets
- conflict
- business failure of one business may risk failure of the project
size of business measurements (5)
- number of employees
- revenue (SP X Quantity sold)
- capital employed (total value of long term finances invested)
- market capitalisation (total value of issued shares)
- market share (sales of business/total sales of industry)
importance of small businesses (3)
- job creation
- may grow into bigger business
- create competition for larger businesses
advantages & disadvantages of being a small business (2)
advantages:
- little risk of losing control (owner owns business)
- easy to adapt to customer demands
- personal service easily given
disadvantages:
- limited finance
- few opportunities for economies of scale
advantages & disadvantages of family businesses (2)
advantages
- commitment & reliability
- knowledge continuity
disadvantages:
- continuity problem
- informality & tradition
types of business growth
Internal/Organic:
expansion of a business by means of opening new branches
External:
business expansion achieved via merging or takeover
merger vs takeover
merger: agreement by owners and managers of two businesses to bring together a new combined business
takeover: when a company buys 50% of the shares of another company and becomes its controlling owner
integration and types (5)
- horizontal: integration with same industry and stage of production
- vertical: integration with same industry
- forward vertical: integration with customer business
- backward vertical: integration with supplier business
- conglomerate: integration with different industry
why a merger or takeover might succeed/fail to achieve objectives (2)
succeed
- shared facilities
- economies of scale
fail
- integrated firm too big to manage
- culture clash
synergy
the assumption that chances of success are higher when businesses merge
strategic alliance
agreement between 2 organisations to commit resources to achieve specific objectives while remaining independent
business objective
a stated measurable target that a business plans to achieve
private sector objectives (6)
- profit maximisation
- growth
- profit satisficing
- increasing market share
- survival
- csr (when businesses take into account their operation’s effects on the community and the environment)
pressure group
organisations created by people with common interests or goals who put pressure on businesses and governments to change their ways
objectives of social enterprise
triple bottom line: 3 objectives of a social enterprises, social, economic, and environmental
objectives of public sector businesses (3)
- provide reliable service
- encourage economic & social development
- create employment
smart objectives
- specific
- measurable
- achievable
- realistic
- time specific
factors that influence a business’ objectives (3)
- business culture
- size and legal form
- years of operation (e.g. new business less risky)
business aims
a long term goal that a business hopes to achieve
mission statement
brief statement of the business’ core aims in order to motivate employees
advantages & disadvantages of mission statements
advantages
- informs external groups about the central aim & vision
- motivate & guide employees
disadvantages:
- too vague, lacking detail
- employees may ignore
business strategy
long term plan of action for a business, designed to achieve a particular objective
annual report
document that gives details of a company’s activities over the year including its financial accounts
tactic
short term plan as a part of an overall strategy
why do objectives change over time (2)
- already achieved an objective
- market changes
target
short term goal that must be reached before an overall objective can be achieved
budget
detailed financial plan for the future
benefits of communicating objectives (3)
- better understanding of objectives and overall plan
- employees share objectives
- easier to monitor progress
code of conduct
document outlining a company’s rules and guidelines on staff behaviour
stakeholders
individuals or groups that are affected or have interest in actions taken by a business
types of stakeholders + examples
external: individuals who are seperate from the business but are affected by or interested in its operations (customers, suppliers, government, lenders, local community)
internal: individuals who work within the business or own it and are affected by business operations (owners, employees, managers)
trade union
organisation of working people with the objective of improving the pay and working conditions and providing them with legal support
stakeholder concept
view that businesses and managers have the responsibility to a wide range of groups not just shareholders
conflict of stakeholder concept
meeting obligations will conflict with legal duty to shareholders (adding non-essential costs, reducing profits)
human resource management
the strategic approach to the effective management of employees so that they help the business gain a competitive advantage
- focuses on workforce planning and anything to do with employees
workforce planning and workforce audit
- workforce planning: forecasting the number of workers and skills required for an organisation to achieve its objectives
- workforce audit: check on the skills and qualifications of all existing workers/managers
labour turnover and formula
rate at which employees are leaving the business (no of employees leaving in 1 year/average number employed)
costs + benefits of high labour turnover (3)
costs:
- costs of recruiting
- poor output levels and customer service
- difficult to establish customer loyalty
benefits:
- may be replaced with better labour
- new ideas brought in
- reduce employee numbers
recruitment and selection
- recruitment: process of identifying the need for a new employee, defining the job to be filled and type of person that needs to fill it, and attracting a suitable candidate
- selection: series of steps by which candidates are interviewed, tested, and screened to choose the most suitable person for the job
recruitment agency
business that offers service of recruiting applicants
process of recruitment & selection (5)
- job description
- person specification
- prepare job advertisement
- shortlist
- select
job description & person specification
job description: detailed list of details about the job, including key tasks and responsibilities
person specification: detailed list of qualities, skills, and qualifications that a successful applicant needs to have
person specification
detailed list of qualities, skills, and qualifications that a successful applicant will need to have
application form
set of questions answered by an applicant to provide information to the employer (eg. work experience)
curriculum vitae
detailed document highlighting all of a person’s academic achievements, work experience, and awards
resume
less detailed than a CV which includes work experience, educational background, and special skills relevant to the job being applied for
reference
comment from a trusted person about an applicant’s character or previous work experience
assessment centre
a place where a range of tests is used to judge applicants potential abilities
types of recruitment
- internal: filling up a vacancy with someone already in the business
- external: filling up a vacancy with someone outside the business
employment contract
document containing terms and conditions of a worker’s job
redundancy vs dismissal & unfair dismissal
- redundancy: when a job is no longer required, the employee is dismissed through no fault of their own
- dismissal: being dismissed due to incompetence
- unfair dismissal: dismissing a worker for reasons that are deemed unfair by the law
morale vs welfare
employee morale: overall outlook, attitude, and level of satisfaction of employees while at work
welfare: health, safety, and level of morale at work
work-life balance
a situation in which employees are able to allocate enough time for work and their personal life
equality vs diversity policy
- equality policy: practices and processes aimed at achieving a fair organisation where everyone is treated equally and has the opportunity to fulfill their potential
- diversity policy: practices and processes aimed at creating a mixed workforce and placing positive value on diversity in the workplace
training & types (3)
- training: work related education to increase workforce skills and efficiency
- induction: introductory training programme to familiarise new recruits with the systems used in the business and the layout of the business site
- on the job: instruction at a place of work on how a job should be carried out
- off the job: training undertaken away from the place of work
multi-skilling
the training of an employee in several skills to allow for greater flexibility within the business
employee appraisal
process of assessing the effectiveness of an employee judged against pre-set objectives
benefits of cooperation between management & workforce (3)
- fewer industrial action
- easier to implement change
- increased efficiency
industrial action
measures taken by the workforce or trade union to put pressure on management to settle an industrial dispute in favour of employees
collective bargaining
process of negotiating terms of employment between an employer and a group of workers represented by a trade union official
trade union recognition
when an employee formally agrees to conduct negotiations on pay and working conditions with a trade union rather than bargain individually with each worker
motivation
internal and external factors that stimulate desires in workers to be continually interested and committed to doing a job well
theories of motivation (6)
- Taylor’s theory of economic man
- Mayo’s human relations theory
- Maslow’s hierarchy of human needs
- Herzberg’s 2 factor theory
- McClelland’s motivational theory
- process theories
Taylor’s theory of economic man + how to implement + suitability
people are only motivated by money
piece rate: payment to a worker for each unit produced
businesses with repetitive processes (mass production)
Mayo’s human relations theory + how to implement + suitability
workers are not only motivated by money, but also having their social needs met (making workers involved and caring about their welfare)
(service based & creative industries e.g. retail and design)
limitations of Mayo’s human relations theory (3)
- Overemphasis on Social Factors
- Ignores Individual Differences
- unsuitable for routine based jobs
Maslow’s hierarchy of human needs + examples
physical needs (food, water, shelter)
safety needs
social needs (acceptance and friendship)
esteem needs (respect from peers and status)
self-actualisation (sense of self-fulfillment in terms of skills and potential by what one has learned and achieved)
limitations of maslow’s hierarchy (3)
- not everyone has the same needs
- difficult to identify which needs have been and haven’t been met
- self actualisation is never permanently achieved
Herzberg’s 2 factor theory + how to implement + suitability
herzbergs theory: job satisfaction is driven by motivators, while job dissatisfaction is caused by hygiene factors, meaning eliminating dissatisfaction does not necessarily create satisfaction.
motivating factors : aspects of a worker’s job that can lead to positive job satisfaction (achievements and recognition)
hygiene factors: aspects of worker’s job that have the potential to cause dissatisfaction (pay and working conditions)
job enrichment: aims to use the full capabilities of workers by giving them the opportunity to do more challenging and fulfilling work
suitability: where job enrichment & satisfaction is important (e.g. schools, research)
limitations of Herzberg’s 2 factor theory (3)
- overlooks individual differences
- not applicable to all types of businesses
- ignores financial motivation
McClelland’s motivational theory + suitability
human behaviour is driven by 3 needs:
- achievement (desire to accomplish) (start ups, medicine)
- affiliation (desire to form interpersonal relationships and has to do with social needs) (customer service, non profits, schools, counselling)
- power (desire for authority and status) (where it is possible to get promotions)
limitations of mcclelland’s theory (4)
- ignores other motivators
- difficult to measure
- difficult to apply
- potential for conflict
process theories (vroom & expectancy theory)
individuals are motivated to act based on the expectation that their effort will lead to desired performance and outcomes
- valence (value an individual places on rewards such as pay or satisfaction)
- expectancy (the belief that effort will result into a specific outcome)
- instrumentality (confidence of employees that they will actually get what they desire)
financial motivators (9)
- time based wage rate (wage: payment made on daily/weekly basis)
- piece rate
- salary (annual income that is paid on a monthly basis)
- commission (payment to a salesperson for each sale made)
- bonus (payment made in addition to the contracted pay)
- performance related pay (bonus scheme to reward good performance)
- profit sharing (bonus based on profits made by a business)
- share-ownership schemes (scheme that gives employees shares in the company or to buy them at a discount)
- fringe benefits (benefits seperate from pay: insurance and pension)
non financial motivators (6)
- job rotation: allowing employees to switch jobs from one to another of similar difficulty
-job enlargement: increasing scope of tasks
- job enrichment: aims to use the full capabilities of workers by giving them the opportunity to do more challenging and fulfilling work
- job redesign: restructuring of a job to make it more interesting or challenging
- training and development: gaining of new knowledge and skills
- promotion and status: advancements of an employee within the business structure and adding responsibility and status
employee promotion & status
promotion: the advancement of an employee within a business to a higher level of responsibility & status
status: the level of recognition offered by an employer in terms of pay, responsibility, and benefits
employee participation & teamworking
- employee participation: active encouragement of employees to become involved in decision making within an organisation
- teamworking: production is organised so that groups of workers undertake complete units of work
benefits & limitations of teamworking (3)
benefits:
- form of job enrichment (being given decision making authority)
- motivation
- lower management costs (delayering, less middle managers)
limitations:
- not everyone is a team player
- develop values that conflict with company
- requires training
empowerment
giving of skills, resources, authority and opportunity to employees so that they can take decisions and be accountable for their work
benefits & limitations of empowerment (2)
benefits:
- quicker problem solving
- motivation
limitations:
- reduced supervision (poor decisions)
- costly
quality circles
group of workers who voluntarily meet regularly to discuss and resolve work related problems
benefits & limitations of quality circles
benefits:
- motivation
- encourages innovation
limitations
- time consuming
- not all employees want to be involved
manager
person responsible for setting objectives, organising resources, and motivating employees so that business objectives are met
management
organisational and coordination of activities in order to achieve the defined objectives of the business
theories of functions of management (2)
- feyol’s functions of management
- mintzberg management roles
feyol’s functions of management (5)
-planning (setting goals)
-organising (tasks & roles)
-commanding (leading)
-coordinating (ensuring all activities and departments work together well)
-controlling (monitoring performance)
mintzberg management roles (3 + 10)
categorizes manager’s responsibilities into 3 roles
interpersonal (motivating employees)
- figurehead (represents the business)
- leader (for anyone with subordinates)
- liaison (builds & maintains external & internal relationships e.g. with gov officials)
informational (acting as a source or transmitter of information)
- monitor (collects data)
- disseminator (shares the info)
- spokesperson (presents info)
decisional (taking decisions to meet an organisation’s objectives)
- entrepreneur (launch new projects and drives innovation)
- disturbance handler (manages crises)
- resource allocator, negotiator (with employees, suppliers, etc)
management styles (4)
- autocratic: one manager takes all the decisions with very little input from others
- democratic: encourages active participation in decision making
- paternalistic: view that manager is in better position to make decisions compared to workers
- laissez fairre: leaves much of the decision making to the workforce
benefits & limitations of each management style + suitability
autocratic
- suitable for industries needing strict supervision
- Quick decision-making
- strong control ensures efficiency
- low motivation
- lack of creativity & innovation
democratic
- suitable for creative industries with highly skilled workforce (tech, media)
- boosts motivation
- fosters creativity & innovation
- slow decision making
- risk of conflict
paternalistic
- suitable for family businesses
- employees feel cared for
- reduce conflict
- may be too controlling
- limits creativity
laissez fairre
- suitable for highly skilled industries (tech)
- encourages creativity
- boosts job satisfaction
- risk of lack of discipline
- lack of guidance
mcgregor’s theory x&y + suitability
- theory x (view that managers believe that employees are in need of constant direction) (structured, repetitive jobs)
- theory y (view that managers believe that employees are internally motivated and are prepared to take on additional responsibilities) (creative, professional industries)
management style depends on what factors (3)
- skills of workforce
- company size
- nature of business
marketing
process of identifying and meeting the needs of consumers by getting the right product at the right place, time, and location
marketing objectives
goals set for the marketing department to help achieve corporate objectives
marketing strategy
a plan of action giving details of how a business intends to achieve its marketing objectives by creating a competitive advantage
corporate objectives
goals that are set for the whole company
demand, supply, equilibrium & what it looks like
- demand: quantity of a product that consumers are willing and able to buy at a given price in a specific time period
- supply: quantity of product that firms are ready to provide for customers at a given price and time period
- equilibrium: when demand = supply
market segment
section of a market where consumers have similar characteristics
industrial vs consumer markets
industrial markets: selling of products by businesses to other businesses
consumer market: selling of products by businesses to the final consumer
customer/market orientation vs product orientation + suitability
customer/market orientation: basing product decisions on consumer demand, establised by market research (prioritizing customer needs and wants) (highly competitive markets e.g. mcd making diff menus for diff countries)
product orientation: business approach that emphasizes developing and improving products based on the company’s expertise and innovation, with less focus on customer needs or market demand (luxury & innovative industries)
market size & market growth
market size: total value of sale from producers within a market in a given time period
market growth: percentage change in the total size of a market in a given time period
brand leader
brand with the highest share of the market
market share formula
sales of business within time period / total market sales within time period x 100
implications of increase & decrease in market share (3)
increase
- sales are rising
- retailers are keen to stock and promote the brand
- less discounts to retailers
decrease
- sales fall
- retailers less keen
- more discounts to retailers
consumer vs industrial products
- consumer products: g/s sold to end users
- industrial products: g/s sold to businesses
mass vs niche marketing
mass marketing: selling standardised products in the same way to the entire market
niche marketing: identifying and exploiting a small segment of a larger market by developing differentiated products to suit that segment
advantages & disadvantages of mass marketing (2) + suitability
advantages:
- lower average costs
- clear brand identity
disadvantages:
- waste for people who arent interested
- high competition
suitability:
- essential or widely used products that don’t need customization
- high & stable demand
advantages & disadvantages of niche marketing (3)
advantages:
- less competition
- effective spending
- can be used to create status & prestige
disadvantages:
- no economies of scale
- difficult to scale without losing uniqueness
- small customer base
market segmentation + 3 factors
identification of different customer groups with common needs within a market and the marketing of products to those consumer groups (geographic, demographic, and psychographic factors)
consumer profile
picture of a business’ consumers regarding age groups, income levels, location, gender, and social class
advantages & disadvantages of market segmentation (2)
advantages:
- Better Customer Targeting
- competitive advantages
disadvantages
- r&d costs
- fewer potential customers
customer relationship marketing (CRM) + how to implement (2)
using marketing activities to build and establish good customer relationships so that loyalty would be maintained
customer service & targeted marketing (E.G. amazon using purchase history to make recommendations)
costs & benefits of CRM
costs:
- IT softwares needed
- existing customer base required
benefits:
- customer loyalty
- cheaper to retain customers than find new ones
market research
process of collecting, recording, and analysing data about customers, competitors, and the market
types of market research + sources
primary research: collection of firsthand data that is directly related to the needs of the business (surveys, interviews, observations, focus groups)
secondary research: using existing data that was originally collected for another purpose (government, articles, company reports)
advantages & disadvantages of primary & secondary market research
primary
- specific
- up to date
- time consuming
- limited sample size
secondary
- cost & time effective
- wide coverage
- outdated
- competitors also have access
sampling and sampling bias
sampling: process of selecting a group of respondents from a large population to be a representation of the overall market
sampling bias: when a sample is not a good representation of the whole population
benefits & limitations of sampling (2)
benefits:
- time saving instead of doing entire population
- + cost effective
limitations:
- limited scope
- sampling bias risk
types of averages
mean: calculated by totalling all the results by the number of results
mode: most common value in a set of data
median: value of the middle item in a data set that have been ordered (number of values + 1 / 2)
range
difference between highest value and lowest value of data
marketing mix
4 key decisions on product, place, price, promotion that must be taken in order to enable effective marketing
elements of marketing mix definitions
product: g/s that are the end result of the production process and are sold on the market to satisfy customer needs
price: how much a product is being sold for to consumers
place: how the product is being distributed to the consumers (distribution channels)
promotion: strategies used to communicate to consumers regarding the product
new product development + importance (3)
design, creation, and marketing of new goods/services
- increase competition
- retains interest
- technological advancement
usp vs product differentiation
usp: special feature of a product that makes it different from competitor’s products (one clear competitive advantage e.g. self driving cars)
product differentiation: distinguishing a product from others in the market through various attributes, such as quality, design, features, or branding, aiming to create a competitive advantage (multiple features that make it better e.g. custom toppings & different crusts)
product positioning
consumer’s view of a g/s compared to its competitors
product portfolio analysis
analysing the range of existing products of a business to help allocate resources effectively
product life cycle & extension strategy
product life cycle: pattern of sales for a product from launch to withdrawal from the market (introduction, growth, maturity, decline) (see diagram)
extension strategy: marketing plan to extend the maturity stage of a product
consumer durable
a manufactured product that can be re-used and is expected to have a reasonably long life
traits of each stage of the product life cycle (3)
introduction:
- high costs
- low profits
- heavy promotion
growth:
- rapid increase in sales
- stronger brand recognition
- more competitors
maturity:
- sales are stable
- high competition
- cost control become a priority
decline
- decline in sales
- replaced
- unprofitable
boston matrix
method of analysing the product portfolio of a business in terms of market share and market growth (see diagram) (cash cow, star, question mark, and dog)
benefits & limitations of boston matrix (3)
benefits:
- visual representation (easy to use)
- planning for existing and product launches
- for competitive analysis
limitations:
- oversimpplified
- ignores external factors
- some are difficult to categorise
pricing (groups 3 & types 4,3,3)
cost-based
- mark-up pricing
- cost-plus pricing
- contribution/marginal
- loss leader
competition based
- competitive
- price discrimination
- dynamic
for new products
- penetration
- market skimming
- psychological
cost based pricing methods (4)
mark-up: adding a fixed mark up to the unit costs of buying a product (price-cost)/cost
cost-plus: setting prices by calculating the total production cost and then adding a predetermined profit margin
contribution/marginal cost: setting prices based on variable costs
loss leader: setting low prices even below contribution in hopes that customers will buy other products to achieve positive contribution
competition based pricing methods (3)
competitive pricing: making price decisions based on competitors
price discrimination: charging different groups of consumers different prices for the same g/s
dynamic pricing: offering products at a price that changes according to level of demand and ability to pay
pricing methods for new products (3)
penetration pricing: setting relatively low prices to achieve high volume of sales
market skimming: setting high price when product is highly differentiated with low price elasticity of demand
psychological pricing: setting a price at a level which matches consumer views about a product’s perceived value
promotion
the use of promotion methods to inform and perusade customers to buy products
promotion methods (3)
advertising: paid for communication to inform and persuade consumers via media such as tv and newspapers (informative and persuasive via printing, broadcast, sponsorship)
direct promotion: promotional activities aimed directly at target customers (direct mail and personal selling)
sales promotion: incentives such as special offers to achieve short term sales increase
promotion mix
combination of promotional techniques a firm uses to sell a product
types of advertising + types (2) + methods (7) + suitability
- informative (for new & technical products) e.g. cars, laptops
- persuasive (competitive w brand loyalty) e.g. luxury bags
- print (newspapers, magazines)
- broadcast (tv & radio)
- outdoor (billboards, posters)
- product placement (features in films)
- geurrilla (surprising and unconventional advertising
- sponsorship
- digital
factors for type of marketing (4)
- cost
- audience
- message
- legal contraints
sales promotion methods (4)
- sale offers
- coupons
- customer loyalty schemes
- buy one get one free
direct promotion methods (3)
- direct mail
- telemarketing
- personal selling
how to measure success of promotion methods (3)
- sales performance
- consumer awareness
- response
channel of distribution
chain of intermediaries a product passes through from producer to final consumer
channels of distribution (3)
direct selling
single-intermediary channel (manufacture, retailer, consumer)
two-intermediary channel (manufacturer, wholesaler, retailer, customer)
digital vs physical distribution
digital distribution: delivery of digital media content such as audio, video, films
physical distribution: activities that combine to achieve the efficient movement of finished products to the final consumer
factors influencing distribution channel (3)
- nature of the product
- location
- customer preferences
integrated marketing mix
key marketing decisions that work together to give customers a consistent message about the product
intellectual capital + types (3)
intangible capital that includes:
- human capital (skills)
- structural capital (information systems)
- relational capital (relationships with customers and suppliers)
which contribute to competitive advantage
transformational process
activities that transform inputs, adds value to them, and turn them into outputs for customers
productivity, level of production, production
productivity: ratio of outputs to inputs during production
level of production: number of units being produced during a time period
production: transforming inputs into outputs
labour productivity
output produced in given time/number of workers
efficiency
producing output at the highest ratio of output to input
effectiveness
meeting the objectives of the business by using inputs productively
sustainability of operations
business operations that can be maintained in the long term and does not harm the surronding community or environment
labour vs capital intensive
labour intensive: work involving high levels of labour input as opposed to capital (construction)
capital intensive: work involving high quality equipment compared to labour inputs (car manufacturing)
operation/production methods (4)
- job
- batch
- flow
- mass customisation
job production + examples + advantage & disadvantage (2)
production of a one-off item specifically designed for the customer
examples: custom cake, jewelry, luxury bags, art
advantages:
- high motivation
- higher price
disadvantages:
- high unit costs
- time consuming
batch production + examples + advantage & disadvantage (2)
the production of a limited number of identical products where each item passes one stage of production before moving on to the next
examples: bakeries, clothing manufacturers, medicine
advantages:
- reduces waste
- easy to adjust batch size and details
disadvantages:
- downtime (cleaning machines)
- high storage costs
flow production + examples + advantage & disadvantage (2)
production of items in a continuosly moving process
examples: packaged foods, cars, electronics
advantages:
- low unit costs
- less labour intensive
disadvantages:
- high initial costs
- risk of breakdowns
mass customisation + examples + advantage & disadvantage (2)
use of flexible computer aided technology on production lines to make products that meet individual needs and wants of consumers
examples: custom shoes, cars, jewelry
advantages:
- lower costs that full customisation
- competitive advantage
disadvantages
- longer delivery
- logistical challenges
choosing between operation methods (4)
- size of market
- capital available
- available labour
- customer demands
inventory
materials & goods by a business that are required to allow for the production of products and their supply to the customer
inventory management
the process of ordering, storing, and using a company’s inventory
optimum order size diagram
check
economic order quantity
optimum level of stock to re-order taking into account all costs that come along with it (delivery and stock-holding)
inventory control charts and components (include diagram) (4)
buffer inventories: minimum level of inventory that should be held in order to ensure continuous production
re-order quantity: number of units ordered each time
lead time: time between ordering supplies and their delivery
re-order level: level of inventory that triggers a new order to be sent to suppliers
supply chain
the network of business and the activities involved in creating a product for sale, starting with delivery of raw materials and finishing with the delivery of the finished product
supply chain management
handling the entire production flow of a product to minimise costs and improve customer service
JIT
holding inventories by requiring supplies to arrive just as they are needed in production and completed products are produced to order
JUST IN CASE inventory control
aims to reduce the risk of running out of inventory to the minimum by holding buffer inventory levels
capacity utilisation
the proportion of maximum output capacity currently being achieved (output/max output)
levels of capacity (3)
full capacity: highest level of output that can be achieved
excess capacity: when current levels of output are less than full capacity
capacity shortage: when demand for a business’ products exceeds production capacity
outsourcing
using another business to undertake a part of the production process rather than doing it within the business
business process outsourcing
form of outsourcing that uses specialist contractors to take responsibility for certain business functions such as HR and finance
rationalisation
reducing capacity by closing factories/production units
start-up capital
capital needed by an entrepreneur to set up a business
working capital
capital needed to pay day-to-day running costs and raw materials (CA-CL)
short term vs long term finance
short-term finance: money required for short periods of time up to one year
long-term finance: money required for more than one year
profit & liquidity
profit: value of goods less costs
liquidity: ability of a business to pay short-term debts
administration
when administrators manage a business that is unable to pay its debts with the intention of selling it as a going concern
bankruptcy
legal procedure of liquidating a business which cannot fully repay its debts with available current assets
liquidation
when a business ceases trading and assets are sold for cash to pay back creditors
current assets vs current liabilities
current assets: assets that are likely to be turned into cash within 1 year
current liabilities: debts that have to be paid within 1 year
capital vs revenue expenditure
capital expenditure: purchase of nca that are expected to last for more than one year (buildings, machinery)
revenue expenditure: spending on all costs and assets (wages, salaries, inventory)
types of sources of finance
internal: raising finance from the business’ own assets or retained earnings
external: raising sources from outside the business (bank loan)
internal sources of finance (4)
retained earnings: profit after tax retained in a company rather than paid to shareholders as dividends
sale of unwanted assets
sale and leaseback of nca
reducing working capital
external short term sources of finance (3)
bank overdrafts: credit that a bank agrees can be borrowed up to an agreed limit
trade credit: delaying payment to suppliers
debt factoring: business sells its trade receivables to a third party for immediate cash.
external long term sources of finance (7)
hire purchase: buying an asset, paid in fixed repayments over an agreed time, ownership is only transferred after full payment
leasing: obtaining the use of an asset for some of time, avoiding long term need to buy an asset
bank loan: loan that doesnt need to be repaid within a year
debentures: loan not issued by bank
share capital: finance raised by a company through issue of shares
mortgage: loans to companies to buy real estate
venture capital: investors provide funding to businesses with high growth potential in exchange for equity in the business
collateral security
asset pledged by a borrower to a lender as a guarantee for a loan, which the lender can seize if the borrower fails to repay
rights of issue
existing shareholders are given discount to buy additional shares
addtional finance for unincorporated business (external) (2)
microfinance: financial services provided to low-income individuals or small businesses that lack access to traditional banking services
crowd funding: small amounts of money from a large number of people, typically via online platforms, to fund a business idea
cash flow, forecast, net cash flow
cash flow: sum of cash payments to and from a business
cash flow forecast: estimate of future inflows and outflows of a business
net cash flow: estimated difference between inflows and outflows
insolvent
business cannot meet short term debts
cash inflow & outflow
cash payments to a business
cash payments out of a business
opening and closing cash balance
opening cash balance: cash held by the business at the start of the month
closing: cash held at the end of the month and is next month’s opening balance
benefits & limitations of cash flow forecasting (2)
advantages:
- prevents shortages
- improves decision making
disadvantages:
- time consuming
- doesnt take into account external factors
causes of cash flow problems (3)
- lack of planning/mismanagement of cash
- poor credit control
- expanding too rapidly (increased operating expenses outpace incoming revenue)
credit control + bad debt
credit control: monitoring of debts to ensure customers don’t exceed credit periods
bad debt: unpaid customer bills that are now unlikely to be paid
overtrading
expanding a business too rapidly without obtaining all necessary finances
types of costs (2)
direct: costs that are dependent on the amount of output produced
indirect: costs that do not vary with output
BEP & BE analysis
break even point: level of output where there is no profit or loss made (rev=costs)
break even analysis: uses cost and revenue data to determine BEP of production
FC, VC, TC
fixed costs: costs that do not vary with output
variable costs: costs that vary with output
total cost: FC + TC
benefits & limitations of BE analysis (3)
benefits:
- helps set prices
- aids in decision making
- useful for planning
limitations:
- assumes that costs are represented by straight lines
- not all costs can be classified into one of the 3 types
- fixed costs are not always fixed
cost vs profit centre
cost centre: department of a business where the costs are incurred to
profit centre: division of a company that is responsible for generating revenue
full/absorption costing + suitability
method of costing where all costs allocated to the product, ensuring that each unit produced carries a share of all production costs
suitability: high fixed costs & LONG TERM DECISION MAKING
e.g. cars, electronics
NOT FOR SERVICE INDUSTRIES
pros & cons of absorption costing (2)
pros:
- true inventory value
- more accurate profit tracking (analyze which products are truly profitable by considering every expense involved)
cons:
- time consuming
- may overestimate profits through incorrect cost allocation
contribution/marginal costing + contribution cost + suitability
contribution costing: costing method that allocates only direct costs to cost and profit centres
contribution/marginal cost = SP-VC (additional cost of producing one more unit of input)
suitability: products that need flexibility and SHORT TERM DECISION MAKING
e.g. fresh produce, hotel bookings, holiday specific goods
margin of safety
level of output that exceeds BEP
average costs
total cost/units produced
budgeting
planning future activities by establishing finance related performance targets
budget holder
individual responsible for the initial setting and achievement of a budget
delegated budgets
budgets for which junior managers have some authority for setting and achieving
types of budgeting (3) + suitability
incremental: using last year’s budgets as a basis for this yeears budgets
- when business is stable & budgets are reliable
- banks, manufacturing
zero: sets budgets to 0 every year and budget holders need to argue their case for target levels to receive any finance
- when business needs to cut unnecesary costs
- major changes in strategy
- startups, non profits
flexible: cost budgets for each expense are allowed to vary if sales or output vary from budgeted levels
- when costs are highly variable
- demand fluctuates a lot
- hospitality & tourism
variance analysis + favorable & adverse
calculation of the differences between budgets and actual figures (need to learn)
favourable variance: a change from the budget that leads to higher than planned profits
adverse variance: a change from the budget which led to lower planned profits
