business theme 3 Flashcards
what is the ansoff matrix?
A tool that helps businesses choose the market they want to operate in and what products they want to sell
what are the approaches to market penetration
build a brand image
increase repeat purchases by developing customer loyalty
increase promotional activities
incentivise customer affiliations (clubcard)
what are the approaches to product development?
conduct market research to identify areas for improvement
use product portfolio to manage product range
divert funds to research and development
benefits and limitations of market penetration
low risk
product and market are familiar
limited investment required
however
business becomes vulnerable if it doesnt innovate
possible limited growth potential
pros and cons of product development
pros: familiar w customers
responds to customer needs
cons: product development is costly and timely
product canbibalism
what are some approaches to market development
penetration pricing
heavy promotions
takeover of bu already in the market
pros and cons of market development
pros:
potential for growth
no need for PD
cons:
low understanding of customers needs
competing against established businesses
possible approaches to diversification
external growth / takeover
pros and cons of diversification
pros:
risk bearing EOS
cons:
very high risk
no reputation or expertise in the new market
what is diversification?
new market
new product
what is product development?
new product
existing market
what is market development?
new market
existing product
what is market penetration?
existing market
existing products
describe the star in the boston matrix
high market share; high growth
a leading brand in the market. effective distribution to ensure product availability
describe the cash cow in the boston matrix
low growth high market share
successful products in mature markets. Generate high revenue for a business that can be invested in other areas of the business. requires little promotion
describe the dog in the boston matrix
low market share; low growth
invest to revitalise or discontinue the product
describe the question mark in the boston matrix?
low market share: high market growth
fast growing but not an established product yet. usually requires heavy investment to ensure success. lots of competititon
what 3 strategies did porter say businesses should compete on?
cost leadership - lowest cost operator in the market
differentiation strategy - offer a unique product to the market
segmentation strategy - target a niche group in the market
pros and cons of cost leadership strategy
pros ;
help achieve profit
lower price and acquire market share
cons:
few businesses can operate as cost leader as multiple cant directly compete on cost
pros and cons of differentiation strategy
pros
gives them a usp
adds value- premium price
cons- may not be able to do this if a product isnt defensible (under copyright)
pros and cons of segmentation strategy
pros -
marketing can be focused on a narrow segment
develop a better understanding of customer needs
cons-
customer loyalty is vital to maintain sales
the market may dissappear if it shrinks in size
factors to consider when choosing a corporate strategy
anticipated returns
risk aversion
external environment
stakeholders
expected cost
what is the difference between strategy and tactic
a strategy is a long term business plan that businesses will take to achieve its objectives involving a major commitment to resources
tactics are the day to day decisions made to achieve the strategic direction of the business
what is a mission statement
a statement that communicates the aims and purpose to stakeholders in the business
what are functional objectives
e.g finance, operations and people
functional managers and directors set goals that contribute towards achieving the corporate objectives
what is swot analysis
tool that bsuinesses use to analyse their current position and external factors that may affect it
strengths weaknesses opportunities and threats
pros and cons of SWOT analysis
cons : subjective on opinions of managers. doesnt offer clear solutions . depends on perspectives
pros - assists thinking in a strategic structural way
low cost simple approach
what is PESTLE and what does it stand for
a way to analyse the external influences that impact a business.
Political
Economic
Social
Technological
Legal
Environmental
what are porters 5 forces
- competitive rivalry
- bargaining power of suppliers
- bargaining power of buyers
- threat of substitutes
- threat of new entrants
explain competitive rivalry
this is the level of competition between businesses in the market.
what are signs competition is fierce is a market
easy entry to market
easy for customers to switch
little differentiation of products
little growth or decline in the market
because profit margins are squeezed
how can businesses compete in competitive markets
- lower costs of production and prices to compete
- differentiate products
- takeover or merger
explain bargaining power of suppliers
this is the power suppliers have to negotiate terms and prices
their bargaining power will change if the supply of a commodity decreased
what are signs supplier power is high
there are few suppliers
suppliers product is essential for production
the supplier is able to integrate vertically forward and sell direct to the businesses customers
low availability of substitutes
what can businesses do when suppliers have high bargaining power
build strong relationships with suppliers
agree long term contracts of supply with favourable terms
backward vertical intergration
explain the bargaining power of buyers
this is the power buyers have to negotiate terms and prices
what are some signs that buyer power is high
theres little difference between products offered by competitors
products are price sensitive
customers buy products a lot or regularly
easy for buyers to switch between competitiors
what options can businesses consider when buyer power is high
develop a usp
lower prices to attract customers
forward vertical integration is the buyer is a business
explain threat of substitutes
a substitutes is an alternative product that may deliver the same benefits to the customer
substitutes may change w social trends
threats of substitutes are high if…
alternative products exist
alternative prices fail
customers can easily switch to a substitute
this means buyers have high bargaining power
what can businesses do when theres threat of substitutes
develop a USP
build switching costs into agreement
lower prices to attract customers
promote benefits in comparison to substitute products
what are the barriers to entry
physical, technological and intellectual factors that make it difficult for rival businesses to enter the market
existence of large businesses can create a barrier to entry because they dominate resources and networks
Name 2 factors that cause barrier to entry
capital investment to enter a business is high
existing brand loyalty
what can businesses do when there are barriers to entry
innvovation and development of new products can keep a business ahead of new competition
build strong relationship w buyers e.g loyalty and reward cards
use EOS to keep prices low and have competitive advantage
name 3 methods of organic growth
market penetration
product development
market development
name 3 methods of inorganic growth
mergers
takeovers
joint ventures
limitations of diseconomies of scale(business grows too much)
communication problems
control
flexibility
motivation
what is backwards vertical integration
taking over a supplier
what is conglomerate growth
a company diversifying its operations by acquiring businesses in unrelated industries.
what is horizontal growth
a supplier merging with a business at the same level of the supply chain
what is forwards vertical intergration
a supplier taking over a customer such as a retailer
what are the benefits of inorganic growth
faster growth than organic
greater profitability
risks of inorganic growth
regulatory intervention
resistance - can decrease morale and productivity
financial strain
what is franchising?
this incolves the business licensing individuals or companies to trade under their brand using the goods or services it provides
whats the difference between organic and inorganic growth?
organic growth occurs when a business grows naturally by selling more products and reinvesting the profit to expand into new areas e.g franchising
inorganic growth involves businesses joining together
advantages of organic growth
less risk
controlled pace
cheaper than external growth diseconomies of scale is minimised
disadvantages of organic growth
slow pace
external expertise
competition
what are the limitations of quantitative sales forecasting
short term- data loses value after 2 years
less valuable in volatile markets
cant predict the future
doesnt factor in external shocks
what is investment appraisal and give 3 examples of it
calculations that help businesses judge the desirability of investing in particular projects
e.g:
payback period average rate of return and net present value
how is average rate of return calculated
this measures the profit from an investment over time
income from investment - cost of investment = profit
total profit over years = average annual profit
average annual profit over initial cost x 100 is average rate of return
what is net present value (discounted cash flow) and how is it calculated
NPv takes into account the future value of money by discounting cash flows.
net cash flow x discount factor
what are decision trees
they are a way of tracing alternative outcomes from a range of business decisions
what is critical path analysis useful for
CPA can help a manager to complete a project in the shortest space of time possible and identify critical activities
always choose the biggest number to add or subtract
outline the nodes of a CPA diagram
the earliest start time is shown in the top right of the node
the latest finish time is the bottom right of the node
how to calculate float time of an activity
this is the amount of time an activity can be delayed without changing the finish date
float time = LFT - duration - ESt
what is the critical path
the route in which there is no float time and all activities are critical because if they overrun it will extend the duration of the project.
what are the benefits of critical path analysis
can effectively plan for strategies
can introduce deadlines on activities
allocate resources efficiently
what are the limitations of critical path analysis
doesn’t take into account qualitative issues like employee morale
it relies on estimations
it doesnt factor in external shocks
what are the influences of corporate decision making
timescales
ethics
corporate culture
stakeholder perspective
what is corporate culture
the norms and values in an organisation that makes up the way the business runs and the employees interact with each other
state and outline the 4 types of corporate culture
power culture - a few people make all the business decisions
role culture - people have clear roles / functions in the business
task culture -employees associate with a task or project
person - a lot of autonomy, not affiliated w a particular group
what are the problems with c=hanging corporate culture
its a long process that requires training
large organisations may have more than one culture across different regions
culture is deep set so its hard to change
what are ethics
the moral principles that guide the behaviour of a business
give some examples of ethical business practices
treating workers fairly
honest with customers
ethical sourcing of material
caring for the community/ environment
meeting government legislation
what are the 4 parts of the corporate social responsibility pyramid
philanthropic responsibility - good corporate citizen, contribute to the community
ethical responsibility - do what is fair and avoid harm
legal responsibility
economic responsibility - be profitable
what can we find out from a statement of comprehensive income
unusual incomes and expenses during the year
changes in cost of sales
profitability and management of operating costs
what stakeholders would be interested in the statement of comprehensive income
shareholders
managers - measure performance and set targets
employees - indicate
potential remuneration
the government - identify level of tax
what is the difference between statement of comprehensive income and statement of financial position
a company’s balance sheet provides information on what the company is worth from a book value perspective.
A company’s statement of comprehensive income provides details on the revenue a company earns and the expenses involved in its operating activities.
what is the statement of financial position also known as
balance sheet
what does a companies statement of financial position tell us
providing a clear picture of an organization’s financial situation.
It reports on an organization’s assets (what is owned) and liabilities (what is owed).
name the key points a company’s balance sheet will tell us
liquidity of a business
how a business has been financed
short and long term liabilities
current assets
what does ROCE show us and how is it calculated
how effectively the business was able to generate profit from the investment
it can improve its ROCE by reducing capitial employed or increasing profit
formula : operating profit over capital employed x 100
what does gearing ratio tell us
how a business has raised its finance. the ratio represents the proportion of a firms equity that is borrowed
ratio analysis: what does it mean if a business is highly geared
more than 50 % of its capital is in the form of loans
a highly geared business is vulnerable to increases in interest rates
ratio analysis: what does it mean if a business is lowly geared
they may have the opportunity to borrow funds in order to expand
they have the opportunity to borrow fund in order to expand
how to calculate absenteeism
number of staff absent for a period of time
over
total employees
how to calculate labour turnover
number of staff leaving in a year
over
average number of staff
name 6 ways to empower employees
communication - understanding their role increases security
regular feedback
extra training
delegate authority flexible working
provide resources
what are the causes of business change
size
pestle
transformational leadership
poor performance
new ownership
what is scenario planning
the business analyses their current and future environment and anticipates potential risks
once risks have been identified the business can formulate contingency plans and minimise the impact of risk
what is succession planning
to ensure any loss of personnel is covered and vital knowledge and skills are not lost from the workforce
