Business Sears Flashcards

Question

Benefits of starting a limited company

Answer 1

- Limited liability so only money invested can be lost which protects the shareholders - Easier to raise finance through the sale of shares and also easier to raise debt - Stable form of structure, the business continues to exist even when shareholders change

Answer 2

- Longer to establish and set up the business - Great admin costs - Public disclosure of company information - Directors have level duties (documents and statistics must be produced yearly)

Answer 3

Risk- what could go wrong and what are you prepared to loose How many people- partnership must be more than one Tax- different tax rules for companies (LTD) Finance- might want to raise money by selling shares Hassle- solve trader is easier to set up What are your future plans- exit strategy, much easier to sell a company Legal obligations- LTDs need to produce documents of yearly statistics

Answer 4

-e.g. Royal bank of Scotland (nationalised), Network rail. Only a relatively small number of companies are owned or controlled by the government

Answer 5

-There are many more organisations that provide goods and services which are owned and operated by public bodies -These are funded by central and local government, but still have charges for some services -e.g. NHS, Highways Agency, Teachfirst

Answer 6

-Businesses that trade in order to benefit the community -These businesses have social and ethical aims as well as trying to make a financial return -e.g. providing community services, reducing pollution, producing more sustainable products and creating employment opportunities

Answer 7

-Businesses that put the interests and the planet ahead of shareholder gain -These businesses are driven by an environmental/ social mission and re-invest profits into creating positive social change -e.g. housing associations, community development trusts

Answer 8

-Ordinary share capital is the money raised by a business through the sale of new shares to shareholders

Answer 9

Market capitalisation represents the total market value of the issues shared capital of a company. It is a measure of the size and value of a company, and it can be used to compare companies within the same industry as well as assessing the company’s potential for growth

Answer 10

Private owned businesses valued over $1billion

Answer 11

Dividends are payments made by a company to its shareholders from the profits made by the company. Dividends are therefore, one part of the return on investment received by shareholders

Answer 12

-They are responsible for appointing the board of directions (the people who are responsible for the day to day running of the business) -In a LTD, the shareholders and board of directors may be the same people -In a PLC, there are likely to be more shareholders and so the board of directors may be separated from the owners (divorce of ownership or control)

Answer 13

-Shareholders invest in limited companies to earn returns -There are two parts of the return: dividends, and any increase in the share price -The level of dividends is decided by the business, but higher dividends may increase the attractiveness of investment to potential shareholders -Shareholders can also earn a return if the share price increases above the price that they paid for them

Answer 14

-A share price is determined by the interaction of supply and demand -If demand for a share is greater than supply (more buyers than sellers) then the share price should rise -A falling share price indicates excess supply (more sellers than buyers)

Answer 15

-Financial performance (e.g. profit growth) -Dividend policy -Relationship with key investors (including communication) -Management reputation

Answer 16

-State of the economy -General market sentiment (attitude of investors) -Whether the company is a takeover target -Alternative investments in the company’s sector

Answer 17

Share price is significant because : -it affects the market capitalisation of the company -is an indicator of the company’s financial performance, its growth prospects, and the overall state of the economy

Answer 18

-Sole traders are often small organisations and the owner is heavily involved in the day to day running of the business -The objectives of a sole trader are likely to focus on survival, given that a large proportion of start ups fall within the first few years -They can make all their own decisions as they do not have shareholders to consider -Sole traders can set their mission and objectives

Answer 19

-Shareholders in an LTD are likely to be involved in the running of a business -This may allow for a longer-term view, so will likely focus on market share, customer satisfaction or revenue growth instead of profit maximisation -In a PLC, shareholders are often interested in higher dividends and rising share prices to maximise returns on their investments -Therefore, objectives may be more ambitious relating to profit maximisation

Answer 20

Political e.g. Britain leaving the eu limited trade Economic e.g. rise in minimum wage Social e.g. vegan or plant based foods Technological e.g. dynamic pricing, threat of AI Legal e.g. employment law's Ethical/environmental e.g. tax, sustainability

Answer 21

Refers to a number of features of a market such as the level of sales, the rate at which they are changing and the number and strength of competitors

Answer 22

Is a term used to indicate the amount of a particular good or service that consumers or organisations want, and can afford, to buy at given prices. Shows the level of sales that businesses can expect

Answer 23

Economic growth and GDP

Answer 24

- Increase in jobs, increase in spending and increase in profits mean that a business can grow - A growing economy can give businesses an increase in confidence

Answer 25

It is the size and growth rate of market and an indicator to market conditions: 1) fast growing market- can encourage new entrants as well as benefit existing competitors 2) slow growing market- market conditions are much tougher, competitors are fighting for their share of weak demand

Answer 26

- creates competitors with significant market share or faster growth than the market - influence of disruptive technologies increases the risk of new competitors - consolidation of a market with creates more powerful competitors e.g. takeovers - spare or surplus capacity in the market/industry which reduces industry profits and makes price wars more likely - investment in innovation and new product developments by close competitors

Answer 27

- Real incomes measure the amount of disposable income available to consumers (e.g. households and individuals) take into consideration inflation

Answer 28

It is a general increase in prices and a fall in spending power and the value of money, 3 years ago inflation was at 11%

Answer 29

- price inflation - wage growth - employment levels (lots of unemployed people would decrease wage growth creating smaller real incomes) - interest rates - government tax policy (increase in tax decreases disposable incomes with lower real incomes)

Answer 30

- luxury electrical items - restaurant meals - long haul holidays - household furniture - jewellery

Answer 31

- bread, milk and other basic foods - water - lottery tickets - cigarettes and tobacco - petrol

Answer 32

Income levels rise, wages also rise, businesses face sharp increase in costs, difficulties in maintaining competitiveness in terms of prices

Answer 33

An interest rate is the reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed

Answer 34

- Interest rates in savings in the bank and other accounts - Borrowing interest rates e.g. mortgage interest (housing loans) or credit card interest rates - The Bank of England uses policy interest rates to help regulate the economy and meet economic policy objectives (to control inflation)

Answer 35

- actual and expected demand - expected profits and business taxes - interest rates and availability of business finance - business confidence

Answer 36

Costs of loans or debts is reduced- boosting spending power Consumer confidence increases- leading to more spending Effective disposable incomes rises- lower mortgage costs Business investment should be boosted e.g. prospect (for the possibility) of rising demand Housing market effects- more demand and higher property prices Exchange rate and exports- cheaper currency will increase exports

Answer 37

- Demography is concerned with the size and composition (i.e. age) of a population - Changes in population dynamics occur slowly but can be significant for businesses

Answer 38

Ageing population - greater demand for services to support older people (e.g healthcare) - increasing disposable incomes of older people are reflected in higher demand for goods and services (e.g. holidays) Continued high net immigration - higher costs of (but greater demand for) public services (e.g. education, health, housing) - increase in the size of the labour force keeping wage rates low (minimum wage)

Answer 39

Carbon emissions Sustainability A “green” supply chain Minimising packaging Promoting environmental policies Complying with environment laws Waste disposal

Answer 40

A social movement that exists to promote improved trading terms and living conditions for producers of products in less-developed countries

Answer 41

Better prices Safer working conditions Local sustainability Fair terms of trade

Answer 42

Positive: Allows businesses to charge higher prices Without an unacceptable loss in sales Negative: May limit selling to smaller groups of consumers Likely to increase costs

Answer 43

A market occurs when there are buyers and sellers

Answer 44

“The process of identifying, anticipating (predicting), and satisfying customer needs profitably”

Answer 45

Ensures financial activities are consistent with corporate objectives Provides a focus for marketing, decision- making and effort Provides incentives for the marketing team and a measure of success/ failure Establishes priorities for marketing resources and effort

Answer 46

Fast-changing external environment- e.g new changes in legislation impacting the whole market, e.g new competitor enters the market Potential conflict between marketing objectives- e.g trying to increase market share by cutting prices may damage objectives for brand perception Easy to be too ambitious with marketing objectives- e.g growing market share without putting necessary resources in place to achieve it

Answer 47

Sales volume and sales value Market size Market and sales growth Market share Brand loyalty

Answer 48

Indicates potential sales for a firm Measure in terms of both volume (units) and value (sales) Not normally a marketing objective, a firm cannot influence it

Answer 49

Key indicator for existing and potential market entrants Growth rate calculated using either value or volume

Answer 50

Explains how overall market is split between existing competitors Calculated based on market value (volume could be used) Good indicator of competitive advantage Look for significant +/-

Answer 51

Corporate objectives- They are the most important internal influence. A marketing objective should not conflict with a corporate objective Finance- The financial position of the business (profitability, cash flow, liquidity) directly affects the scope and scale of marketing activities Human Resources- For a service business in particular, the quality and capacity of the workforce is a key factor in affecting marketing objectives. A motivated and well-trained workforce can deliver market- leading customer service and productivity to create a competitive marketing advantage Operational issues- Operations has a key role to play in enabling the business to compete on cost (efficiency/productivity) and quality. Effective capacity management also plays a part in determining whether a business can achieve its revenue objectives Business culture- e.g. a marketing-orientated business is constantly looking for ways to meet customer needs. A production- orientated culture may result in a management setting unrealistic or irrelevant marketing objectives

Answer 52

Economic environment- The key factor in determining demand e.g. marketing objectives changed as a result of the recession. Factors such as exchange rates would also impact objectives with international marketing Competitor actions- marketing objectives have to take account of likely/ possible competitor response, e.g. an objective of increasing market share by definition means that competitor response will not be effective Market dynamics- market size, growth and segmentation. Slow growth is less likely to support objective of the new product development Technological change- many markets are affected by rapid technological change, shortening product cycles and creating great opportunities for innovation Social and political change- changes to legislation may create or prevent marketing opportunities. Change in the structure and attitudes of society also have major implications for many markets.

Answer 53

The benefits they want The amount they are able to or willing to pay Media (e.g. television, newspapers, websites and magazines) they see Quantities they buy Time and place that they buy

Answer 54

Data collected first-hand for a specific purpose

Answer 55

Data that already exists and which has been collected for a different purpose

Answer 56

Benefits- Directly focused on research objectives Kept private (not publicly available) More detailed insights (particularly into customer views) Drawbacks- Time consuming and costly to obtain Risk of survey bias Sampling may not be representative of

Answer 57

Benefits- Often free and easy to obtain Good source of market insights Quick to access and use Drawbacks- Can quickly become out of date Not tailored to business needs Specialist reports often quite expensive

Answer 58

Observation Postal surveys Telephone surverys Online surveys Focus Groups Face-to-face surveys Test marketing Experiments

Answer 59

Google Government departments Trade associations Trade press & magazines Competitor websites & marketing materials Market research reports

Answer 60

Concerned with data and addresses questions such as who? how often? when? and where? Based on large samples and is therefore more statistically valid

Answer 61

Based on opinions, attitudes, beliefs and intentions Answers questions such as why? would? or how? Aims to understand why customers behave in a certain way or how they may respond to a new product or service

Answer 62

Benefits- Essential for important new product development and launches Focused on understanding customer needs, wants and expectations = very useful insights for a business Can highlight issues that need addressing e.g why customers don’t buy Effective way of testing elements of the marketing mix e.g new branding, promotional campaigns Drawbacks- Expensive to collect and analyse, requires specialist research skills Based around opinions, always a risk that sample is not representative

Answer 63

Benefits- Data relatively easy to analyse Numerical data provides insights into relevant trends Can be compared with data from other sources e.g competitors, history Drawbacks- Focuses on data rather than explaining why things happen Doesn’t explain the reasons behind numerical trends May lack reliability if sample size and method is not valid

Answer 64

Sampling involves the gathering of data from a sample of respondents, the results of which should be representative of the population (e.g target market) as a whole

Answer 65

Every member of a population has an equal chance of being selected Respondents are selected ‘at random’ Random sampling does not target any specific segments of the market It is quick and easy to select respondents and there is less chance of bias But the sample may not represent the target market

Answer 66

Respondents are selected based on specific characteristics such as age, income or location The required number of respondents (the quota) is then drawn from each segment of the population Quota sampling is more likely to be representative of the whole market and might require fewer respondents than random sampling However, it is not random and so there may be greater risk of bias in the selection process

Answer 67

The researcher divides or ‘statifies’ the target group into sections, each representing a key group (or characteristic) that should be present in the final sample Then each of those sections is sampled individually. The samples thus created should contain members from each key characteristic in a proportion representative of the target population

Answer 68

Benefits- Even a relatively small sample size (if representative) can provide useful research insights Using sampling before making marketing decisions can reduce risk and costs Sampling is flexible and relatively quick Drawbacks- Biggest risk = sample is unrepresentative of population, leading to incorrect conclusions Risk of bias in research questions Less useful in market segments where customer tastes & preferences are changing frequently

Answer 69

Product life cycle Pace of technological innovation Growth of the global economy Rise in middle class emerging economies Market Saturation (e.g. everyone already has one, sales don’t keep increasing, for example smartphones)

Answer 70

Extrapolation uses trends established from historical data to forecast the future

Answer 71

Benefits- Not much data required A simple method of forecasting Quick and cheap Drawbacks- Unreliable if there are significant fluctuations in historical data Ignores qualitative factors (e.g. changes in tastes and fashions) Assumes past trend will continue into future- unlikely in many competitive business environments

Answer 72

Correlation looks at the strength of a relationship between two variables

Answer 73

A positive relationship exists where as the independent variable increases in value, so does the dependent variable

Answer 74

A negative relationship exists where as the independent variable increases in value, the dependent variable falls in value

Answer 75

There is no discernible relationship between the independent and dependent variable

Answer 76

The higher the figure, the stronger the correlation -1 = perfect negative correlation 0= no correlation +1= perfect positive correlation The line of best fit indicates the strength of the correlation: points closer to the line = strong correlation, points further from the line = weak correlation

Answer 77

The percentage probability that the research findings are correct

Answer 78

The possible range of outcomes for a given confidence level (e.g. 95% confidence level that the sales will be between £50 and £70 (interval)). A confidence interval helps a business evaluate the reliability of a particular estimate and understand whether or not to act on them. (Estimates)

Answer 79

The size of the sample; the bigger the sample, the more likely it is that the findings will reflect the population How the sample was constructed; for example, were the people involved selected randomly?

Answer 80

Budgeting, Forecasting, Quality management, Market research, Risk management

Answer 81

Elasticity measures the responsiveness of demand to a change in a relevant variable; price or income

Answer 82

Price elasticity of demand measures the extent to which the quantity of a product demanded is affected by a change in price

Answer 83

Always negative correlation Elastic PED= more than 1, change in demand is more than the change in price Inelastic PED= less than 1, change in demand is less than the change in price Unitary price elasticity= exactly 1, change in demand is equal to the change in price PED= always negative correlation

Answer 84

Brand strength- Products with strong brand loyalty and reputation tend to be price inelastic Necessity- The more necessary a product, the more demand tends to be inelastic Habit- Products that are demanded and consumed as a matter or habit tend to be price inelastic Availability of substitutes- Demand for products that have lots of alternatives tends to be price elastic Time- In the short-run, price changes tend to have less impact on demand than over longer periods

Answer 85

Income elasticity of demand measures the extent to which the quantity of a product demanded is affected by a change in income

Answer 86

normal good- Positive number = positive correlation inferior good-Negative number = negative correlation Inelastic YED= less than 1, the % change in quantity demanded is less than the % change in income Elastic YED = more than 1, the % change in quantity demanded is more than the % change in income

Answer 87

Limitations- Can be difficult to get reliable data Other factors affect demand (e.g. consumer tastes) Many markets are subject to rapid technological change (which make previous data less reliable) Competitors will react- so pricing decisions cant be taken in isolation! Evaluative points- Elasticities provide useful insights for management in decision- making Firms tend to like to have products with inelastic demand Building strong brands and product USP’s is a good strategy for making demand more price inelastic

Answer 88

Demographic segments- e.g. magazines for gender, radio stations for age Geographic segments- e.g. McDonalds, in Germany they serve beer and more meet, India they don’t have beef and there is a McSpicy Paneer Income segments- e.g. watches, Waitrose/lidl Behavioural segments- shoes: marathon, sprinting, football, occasions- Halloween, Easter, Christmas

Answer 89

Involves dividing a market into parts that reflect different customer needs and wants

Answer 90

Where a business targets a smaller segment of a larger market, where customers have specific needs and specific wants

Answer 91

Benefits- Focuses on parts of a market where the business can succeed Allows a business to grow share in markets to “ride the wave” of fast-growing segments Helps with new product development- focused on needs of customer in the segment Helps make the marketing mix more effective e.g. better targeting of promotion Drawbacks- Segmentation is an imprecise science- data is not always available, up to date or reliable Just because you can identify a segment doesn’t mean you can reach the customers in it Markets are increasingly dynamic- fast-changing; so too are the segments

Answer 92

Advantages- Less competition- a “big fish in a small pond” Clear focus- target particular customers Builds up specialist skill and knowledge Can often charge a higher price Profit margins are higher Customers tend to be more loyal Drawbacks- Lack of economies of scale Risk of over dependence on a single product or market Likely to attract competition if successful Vulnerable to market changes- all “eggs in one basket”

Answer 93

Where a business sells into the largest part of the market, where there are many similar products offered by competitors

Answer 94

-Customers form the majority in the market -Customer needs and wants are more “general” and less “specific” -Associated with higher production output and capacity + potential for economies of scale -Success usually associated with low-cost (highly efficient) operation or market leading brands

Answer 95

Dominos, coke, McDonalds, Levi jeans

Answer 96

A target market is the set of customers sharing common needs and wants that a business decides to target

Answer 97

Heigene e.g. LYNX- teenage boys, DOVE- sensitive skin

Answer 98

Vegan food, foreign food

Answer 99

Having chosen which segment to target- businesses need to decide how to compete in those segments. Marketing people call this value proposition. Market position is defined by customers- the place a product occupies in customer minds relative to competing products

Answer 100

A market (or positioning) map illustrates the range of “positions” that a product can take in a market based on two dimensions that are important to customers

Answer 101

Advantages- Helps spot gaps in the market Useful for analysing competitors Encourages use of market research Disadvantages- Just because there is a “gap” doesn’t mean there is demand Not a guarantee of success How reliable is the market research?

Answer 102

Customers choose products based on value proposition. Providing superior value than the competition is a source of competitive advantage (if it can be sustained). There are various possible value differences which can deliver competitive advantage

Answer 103

Offer more for less- Aldi: good quality at low prices Offer more for more- high priced luxury products with prestige value Offer more for the same- introduce new features & better performance for the same price Offer less for much less- no frills low cost flying and hotels; good quality, back to basics & low price

Answer 104

Deliver things that are important to customers Distinctive- compared with the competition Communicated and visible to customers Not easily copied by competitors Affordable Profitable

Answer 105

The marketing mix is the combination of the elements used by a business to enable it to meet the needs and expectations of customers. Elements of the mix should work together to achieve the desired effect

Answer 106

Product- The product or service that the customer buys e.g. luxury motor vehicles, tailor made holidays Price- How much the customer pays for the product e.g. discount supermarkets, low-cost airlines Place- How the product is distributed to the customer e.g convenience stores, coffee shops Promotion- How the customer is found & persuaded to buy e.g. soap powders, furniture retailers People- The people who make contact with customers in delivering the product Process- The systems and processes that deliver a product to a customer Physical environment- The elements of the physical environment the customer experiences

Answer 107

Achieves marketing objectives Meets customer needs Is balanced and consistent Creates a competitive advantage Consistent with the chosen target market and positioning

Answer 108

Segmentation, Targeting, Positioning, Marketing Mix

Answer 109

B2C They are goods bought for consumption by the general public ( thousands/ millions of customers being targeted, impacts promotional activities)

Answer 110

B2B They are goods bought for use in business process (They are less interested in packaging/ branding, more interested in quality and technological performance) (You get value for money)

Answer 111

The Boston Matrix

Answer 112

Product portfolio analysis assesses the position of each product or brand in a firm’s portfolio to help determine the right marketing strategy for each

Answer 113

Where do they lie on the Boston Matrix?They have a low share of a rapidly growing market Cash flow is negative Could either become a star or a dog What could be the strategy for these types of products? Invest to increase market share Substantial investment to achieve growth at the expense of powerful competitors Invest in promotion and other aspects of marketing Build selectively

Answer 114

Where do they lie in the Boston Matrix? High share of a rapidly growing market Net cash inflow is neutral or at best modestly positive They require high marketing spending because competition is high so promotion must be high so others don’t steal their market share What could be the strategy for these types of products? Investment to sustain growth Build sales and/or market share Invest to maintain or increase leadership position Repel challenges from competitors

Answer 115

Where do they lie on the Boston Matrix? High share of a slowly growing market Large positive cash flow Little potential for growth Mature stage in the product life cycle Successful product What could be the strategy for these type of products? Defend market share Little need for investment Little potential for further growth Use profits from cash cows to invest in new products Aim for short term profits

Answer 116

Where do they lie on the Boston Matrix? Low share of a slowly growing market Not going anywhere & no real potential They are either products that have failed or are in the decline phase of their life cycle What could be the strategy for these types of products? Phase out of sell off (divest) Not worth investing in Any profit made has to be re-invested just to maintain market share Uses up more management time and resources than can be justified

Answer 117

It is a useful tool for analysing production portfolio decisions But it is only a snapshot of the current position It has little or no predictive value (doesn’t help people predict market in future) It focuses on market share and market growth and ignores issues such as developing sustainable competitive advantages If all products are cash cows, managers may worry about future success due to sales growth being slow

Answer 118

A theoretical model that describes the stages a product goes through over its life Key uses: - used to forecast future sales trends - helps with market targeting and positioning - helps analyse & manage the product portfolio

Answer 119

Technological advance Changes in consumer tastes and behaviour Increased competition Failure to innovate and develop the product

Answer 120

An extension strategy occurs when a business attempts to prevent sales of a product from falling and avoid or delay the decline stage of the product life cycle

Answer 121

Lower price Change promotion (e.g. new promotional message) Change product (re-styling and product improvement) Look for alternative distribution channels Develop a new market segment (e.g. product that’s for women you advertise saying good for men as well) Find new uses for the product Reposition the product

Answer 122

The shape and duration of the cycle varies from product to product Strategic decisions can change the life cycle It is difficult to recognise exactly where a product is in its life cycle Length of the products life cycle cannot be reliably predicted Decline is not inevitable (doesn’t happen in some cases)

Answer 123

A model or method used to establish the best price for a product or service

Answer 124

Stage of the product’s life Costs PED Positioning Other elements of the marketing mix Competitiveness of the environment

Answer 125

Penetration pricing Price skimming

Answer 126

A product that a company makes a loss on but people end up buying more as they are there, so it is positive

Answer 127

This occurs when a business charges a low price to gain market share Most suitable when demand is sensitive to price A low price can gain high sales and enable the business to benefit from producing on a large scale The price could be increases once the target market share is reached

Answer 128

This occurs if a relatively high price is charged when a product is launched Most appropriate when demand is price inelastic e.g. if the product is heavily branded Best used in introduction or early growth stage of product life cycle The price may be slowly decreased as time goes on

Answer 129

A pricing strategy in which businesses set flexible prices for products or services based on current market demands