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A Level Business > Intro To Business > Flashcards

Intro To Business Flashcards

1
Q

What is profit maximising?

A

making as much profit as possible

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2
Q

What is profit satisficing?

A

making enough profit to maintain your interest in the business

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3
Q

Why might entrepreneurs set up their own business?

A

-ethical reasons
-independence
-to work from home
-financial motives

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4
Q

What are the roles of an entrepreneur?

A

-creating and setting up a business
-running and expanding/developing a business
-business innovation (improving products through R+D or enhancing customer service)

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5
Q

Describe the skills of an entrepreneur

A

-communication
-teamwork
–problem solving
-organisation
-numeracy
-information technology

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6
Q

Describe the characteristics of an entrepreneur

A

-creativity
-hard working
-resilience
-initiative
-self confidence
-risk taking

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7
Q

Write a LOA for why expanding a business is the most important role of an entrepreneur (7)

A

-expanding the business is the most important role of an entrepreneur
-(example- Nike opening more stores)
-entrepreneur can increase the capacity
-increase output
-increased sales volume
-increased sales revenue
-increased gross profit

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8
Q

Write a LOA for why creativity is the most important characteristic of an entrepreneur (9)

A

-creativity is one of the most important characteristics of an entrepreneur
-this will help them innovate and come up with unique product ideas
-differentiate them from competitors
-build a strong brand
-more loyal customers
-increase prices without a significant fall in demand
-increase in revenue
-increase in gross profit
-increase in retained profit to reinvest/use for dividends

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9
Q

What is intrapreneurship?

A

Once the business is up and running, entrepreneurs can encourage workers to be innovative and come up with unique product ideas. This is called intrapreneurship

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10
Q

Why might some businesses fail?

A

-being risk averse
-fear of failure
-legal barriers
-lack of entrepreneurial capacity

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11
Q

What is the equation for sales revenue?

A

units sold x selling price

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12
Q

What is the variable cost/cost of sales?

A

Costs that change when sales volume or output changes

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13
Q

Give some examples of variable costs

A

-cost of stock
-cost of raw materials
-cost of packaging
–work in progress
-finished/completed goods

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14
Q

What is the equation for total variable costs?

A

variable cost for one unit x number of units

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15
Q

What is a fixed cost/expense?

A

A cost that can change with time but doesn’t change with output

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16
Q

Give some examples of expenses/fixed costs

A

-salaries
-rent
-electricity for the lights
-insurance

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17
Q

What is the equation for calculating gross profit?

A

sales revenue- cost of sales

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18
Q

What is the equation for calculating operating profit?

A

gross profit - expenses

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19
Q

Describe the income statement headings (8)

A

Sales Revenue
Cost Of Sales
Gross Profit
Expenses
Operating Profit
Exceptional Items
Tax/Expenses
Net Profit

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20
Q

What can retained profit be used for?

A

Reinvesting profit back into the business for growth or to distribute to shareholders as dividends

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21
Q

Write a LOA about how an increase in sales can help a company grow (9)

A

-an increase in sales
-increase in sales revenue
-increased gross profit
-increased operating profit
-increased net profit
-potential increase in dividend payments
-increased incentive to the business
-attract more investment
-increased capital for growth

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22
Q

Define the term ‘Market Research’

A

Gathering information on how consumer’s purchase goods and services. Finding out what their wants and needs are and if they are currently satisfied by other organisations.

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23
Q

Give some examples of how market research can be conducted

A

-focus groups
-questionnaires
-observations
-company reports
-test marketing

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24
Q

What is market research used for?

A

-identify and anticipate customer wants and needs
-quantify demand (how much)
gain an insight into customer behaviour

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25
Q

What are the stages in the market research process?

A

-set your objectives
-find out what already exists
-choose your methods

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26
Q

What is Primary Market Research?

A

Market Research that does not already exist so you need to carry out/hire someone to carry out in order to find out new information.

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27
Q

What is Secondary Market Research?

A

Secondary Research is when research already exists so you can analyse the existing research to meet your goals.

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28
Q

Give some examples of Primary Research Methods

A

-focus groups
-surveys
-test marketing
-observations

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29
Q

Give some examples of Secondary Research Methods

A

-records of past advertising
-sales statistics
-loyalty card reports
-company reports

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30
Q

What is quantitative data?

A

data that is collected in statistical form, usually less detailed

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31
Q

What is qualitative data?

A

data that results in discussion/word form, usually more detailed

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32
Q

What is a focus group?

A

Groups of potential customers that are brought together to discuss their feelings about a product or market. Focus groups are a good way of getting detailed information about customer tastes and preferences, such as design.

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33
Q

What is test marketing?

A

selling a new product in a small section of the market in order to assess customers reactions.

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34
Q

What are questionnaires in market research?

A

consists of a list of questions, can be done by specialist researchers or done independently, on paper or online

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35
Q

What are observations in market research?

A

Watching how consumers behave to provide insights into what products consumers tend to select.

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36
Q

What is sampling?

A

Gathering an appropriate sample size to be representatives of the test market, usually a minmum of 100 (estimated cost-£10,000)and on average 1000 (estimated cost-£30,000) people.

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37
Q

Where may a business find bias within market research?

A

The researchers existing opinions (designing the research to favour one outcome)
OR
The participants/sample (the participants may not give their true opinions to:
-be accepted or liked
-may have pre existing opinions on the brand already- really like them or dislike them)

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38
Q

Give a LOA about primary research that links to the income statement (10)

A

-Primary market research involves collecting new data
-which is up to date and specific to the business
-e.g questionnaires and focus groups
–allows the business to effectively identify customer wants and needs
-develop a product that meets these wants and needs
-increased sales volume
-increased revenue
-increased gross profit
-increased operating profit
-increased retained profit

39
Q

Give a LOA for the drawback of primary market research that links to the income statement (8)

A

-however, primary market research can be expensive
-may need to hire specialist researchers to conduct research
-e.g questionnaires and focus groups using a larger sample size
-in order to find out customer wants and needs
-increased expenses
-increased fixed cost wages
-lower operating profit
-less retained profit to reinvest

40
Q

Give a LOA to describe the benefit of secondary market research that links to the income statement (10)

A

-the research presented in report format for example
-has already been completed
-therefore researchers do not need to be recruited
-as there will not be a requirement to do focus groups for example
-this lowers/reduces fixed costs
-can lower prices in your business
-increased demand
-increased sales volume
-increased revenue
-increased gross profit

41
Q

Give a LOA for the drawback of secondary market research that links to the income statement (9)

A

-seondary research has already been collected
-e.g from the government or other businesses
-may not be specific to the business or may be out of date information
-business may not effectively identify customer wants and needs
-business may not adapt a product correctly so it is less likely to meet customer wants and needs
-reduces customer loyalty
-decrease in sales volume and revenue
-decrease in gross and operating profit
-less retained profit to reinvest

42
Q

Give a LOA for the benefit of quantitative data (11)

A

-data is collected in statistical form
-using closed questions
-these can be completed independently
-and easily analysed
-therefore specialist researchers are unlikely to be needed
-reducing the cost of wages for conducting the research
-cash can instead be invested into using a larger sample size
-leading to more reliable data collected
-more likely to produce a product that meets customer needs
-increased revenue
-increased gross and operating profit

43
Q

Give the LOA for the drawback of quantitaive data (6)

A

-data is presented in statistical form
-resulting in limited depth
-respondents cant explain why they made certain choices
-making it difficult to develop new ideas
-limiting innovation
-less likely to develop unique and competitive products

44
Q

Give the LOA for the benefit of qualitative data (8)

A

-it invited participants to give a more detailed response
-this can lead to a deeper understanding of customer wants and needs
-resulting in the business being able to produce a product that more effectively meets their needs
-increasing customer loyalty
-able to increase prices without a significant fall in demand
-increased revenue
-increased profit margins
-more retained profit to reinvest

45
Q

Give a LOA for the key drawback of qualitative data (5)

A

-gathering a large volume of detailed responses will require a significant number of researchers
-this will significantly increase fixed costs
-this may mean that a lower volume of data is collected as a business may not have the cash to pay for researchers
-resulting in unreliable results as less people are asked
-resulting in the wrong product being produced or the wrong price being charged

46
Q

What is product orientation?

A

doing research and devlopment to improve a product or create a unique one.

47
Q

What is market orientation?

A

doing market research to find out customer wants and needs within the target market

48
Q

Give the LOA for the benefit of product orientation (10)

A

-product orientation involves focusing on developing the product
-lots of investment into R&D of the function of the product
-improved innovation by having unique features
-differentiate from competitors
-customers willing to pay higher prices
-increase prices without a significant fall in demand
-increased revenue
-higher gross profit margins
-increased retained profit
-able to invest in further R&D to continue innovating

49
Q

Give a LOA for the drawback of product orientation (9)

A

-however product orientation can be expensive
-lots of investment is needed into R&D to innovate
-increased fixed costs
-e.g paying high wages to engineers or scientists
-leading to lower operating profit margins
-reducing retained profit
-less capital to reinvest into R&D
-may be unable to effectively differentiate
-lower sales in the long term

50
Q

give a LOA for the benefit of market orientation (9)

A

-market orientation involves focusing on customer wants and needs
-this allows a business to create a product based on customer trends
-and use market research to quantify demand
-allowing them to produce products which are likely to have high sales volume
-increasing sales revenue
-increasing gross profit
-increasing operating profit
-increasing retained profit
–able to reinvest into conducting further market research

51
Q

Give a LOA for the drawback of market orientation (10)

A

-however, market research is needed to find out customer wants and needs
-high amount of investment needed into market research
-e.g questionnaires and focus groups using a larger sample size
-in order to find out customer wants and needs
-leads to increased cash outflows on wages for specialist researchers
-lower net cash flow
-reduced cash reserves
-may be unable to pay day to day bills
-forced to sell non current assets in order to cover payments
-business is unable to operate

52
Q

What is product differentation?

A

making the product or service different from competitors

53
Q

What are the 5 examples of differentation and give a brand that links with each?

A

-distinctive design (iphone)
-branding (nike)
-performance (mercedes)
-exceptional customer service
-ethical product/service

54
Q

What is a market map?

A

a visual illustration of how current businesses are perceived in the market from a customers point of view

55
Q

What can a market map help to do?

A

can help spot a gap in the market that could lead to differentiation if exploited properly or can help them identify where their competitors are

56
Q

What is a problem with using a market map?

A

it is based entirely on opinions from customers so it may not be fully accurate

57
Q

Give the LOA for the benefit of using a market map (7)

A

-market maps can help businesses identify gaps in the market
-once identified businesses can conduct R&D
-and design a product that matches its characteristics
–the product is likely to be unique
-lack of direct competition
-businesses can increase selling price without experiencing a significant fall in demand
-increased sales revenue and gross profit

58
Q

Give the LOA for the drawback of using a market map (8)

A

-market maps are based on consumer opinions
-to ensure decisions based on opinions are valid
-businesses need to collect data from a large sample
-this may require a large number of researchers
-to collect and analyse data and display it in a market map
-if businesses recruit researchers it will significantly increase cash outflows
-if cash outflows are greater than cash inflows
-it may lead to a negative cash flow

59
Q

What are the 4p’s that must be developed in line with the target market?

A

-product
-price
-promotion
-place

60
Q

What is market segmentation?

A

the process of splitting up the target market based on similar characteristics in order to create a product that is specifically aimed at them

61
Q

What are the 4 types of market segmentation?

A

geographic, demographic, psychographic and behavioural

62
Q

What is included in geographic segmentation?

A

-countries
-nations
-states
-regions
-cities
-neighbourhoods

63
Q

What is included in demographic segmentation?

A

-age
-gender
-sex
-family
-education
-income

64
Q

What is included in psychographic segmentation?

A

-hobbies
-beliefs
-attitudes

65
Q

What is included in behavioural segmentation?

A

-user status
-usage rate
-benefits
-occasions
-loyalty
-attitude

66
Q

Give the LOA for the benefit of market segmentation (7)

A

-through segmentation a business can target market research at a specific group
-rather than trying to create products for all
-this can help a business understand their customer needs more effectively
-meaning they can adapt their design mix to better meet their needs
-ensuring the business product is more differentiated
-so they can increase their prices without a significant fall in demand
-increasing their sales revenue

67
Q

Give the LOA for the drawback of market segmentation (9)

A

-need to create multiple products
-to meet the needs of different segments
-for example using geographical segmentation to create different products for customers in different countries
-therefore unable to benefit from marketing economies of scale
- at a smaller group of customers
-this means that the fixed costs of R&D to produce the product
-spread over less units
-leading to higher unit fixed costs
-lower operating profit margins

68
Q

What is a prototype?

A

an initial model or version of a product created to test and validate design concepts before full scale production

69
Q

What are the 3 parts of a design mix?

A

-aesthetics (the 5 senses)
-function (does it do what it is supposed to)
-economic manufacture ( making the product as cheap as possible)

70
Q

Give some examples of products that prioritise aesthetics in their design mix

A

-designer handbags
-high end perfumes (chanel)
-ben & jerrys ice cream
-coca cola
-mercedes

71
Q

Give some examples of products that prioritise function in their design mix

A

-rain coat
-bus pass
-office supplies
-cookware
-chairs

72
Q

Give some examples of products that prioritise economic manufacture in their design mix

A

-IKEA Furniture
-supermarket own brand food

73
Q

Describe economic manufacture as part of a design mix

A

-cheaper raw materials
-simple design with less features
-lower skilled workers
-simplify processes

74
Q

What are the 3 stages of research and development

A

-create a prototype
-test the prototype
-adapt the prototype

75
Q

Give a LOA for the importance of the design mix in terms of aesthetics/function (6)

A

-if a business improves aesthetics/function of products design mix
-through R&D into improved functionality or market research to identify consumer trends
-product is likely to become differentiated compared to rivals
-gain a competitive advantage
-can increase selling price without a significant fall in demand
-increase sales revenue and gross profit margins

76
Q

Give a LOA for the drawback of prioritising aesthetics/function in the design mix (8)

A

-to improve aesthetics or function it will require significant investment into R&D or market research
-increasing cash outflows
-if cash outflows exceed cash inflows
-results in a negative net cash flow
-places a strain on a businesses cash reserve
-business will have difficulty making payments to suppliers
-may have to sell non current assets
-disruption in business operations

77
Q

Give a LOA for the benefit of prioritising economic manufacture (8)

A

-if a business designs a product with economic manufacture as a priority
-e.g through using less robust raw materials
-reduces their cost of sales
-can pursue cost leadership according to Porter
-gain competitive advantage
-can reduce selling price
-increase in demand
-increasing sales

78
Q

Give a LOA for the drawback of prioritising economic manufacture (8)

A

-if a business designs a product with economic manufacture as a priority
-e.g through using less robust raw materials
-it may mean that the product they design becomes less robust
-damages the businesses reputation (now associated with being less robust)
-consumers may switch to alternatives
-decrease demand
-decrease in sales and gross profit
-less profit to retain and reinvest

79
Q

Give a LOA for the benefit of changing the elements in the design mix to reflect social trends (6)

A

-changing design mix to reflect social trends
-products now aligned with social trends
-better meets customer needs
-consumers more loyal to business
-can increase selling price without a significant fall in demand
-increase sales revenue and gross profit margins

80
Q

Give a LOA for the drawback of changing elements in the design mix to reflect social trends (7)

A

-to identify relevant social trends
-requires significant investment into market research
-to ensure data is valid,must be collected from a large sample
-businesses need to recruit specialist research to analyse and collect data
-increasing cash outflows
-placing strain on cash reserves
-less cash to pay for day to day operations

81
Q

Give a LOA for the benefit of a business adapting their design mix by changing to more sustainable materials, e.g wood (8)

A

-Business may ( adapt to whatever business it is) e.g stop using rare wood when making a product
-swap to more sustainable wood
-changing aesthetic of product due to concern over resource depletion
-aligning with customer values
-better meeting consumer needs
-product becomes more differentiated
-can increase selling price without a significant fall in demand
-increased revenue

82
Q

Give a LOA for the drawback of a business adapting their design mix to be more sustainable (8)

A

-adapting design due to concern over resource depletion (be specific to the business)
-meaning the business needs to find an alternative supplier for raw materials
-charge higher price for new material
-increasing cost of sales
-reducing gross profit margins
-reducing operating profit margins
-less profit to retain
-less profit to reinvest (be specific to the business)

83
Q

Define the term ‘business plan’ (3)

A

a document that illustrates the thought process of the start up business or the future planning of an established business
it will show what the business is expecting to sell and to who
it is usually designed to be persuasive to attract investments but also makes claims about how much profit the business expects to make

84
Q

Give a LOA for the benefit of a business plan (7)

A

-business plan involves carrying out market research
-such as a questionnaire
-which if based on a large sample size
-improves the validity of the results
-develops reliable sales predictions
-create a cash flow forecast
-convince the bank that they can make loan repayments

85
Q

Give a LOA for the drawback of a business plan (7)

A

-a business plan can quickly become out of date
-for example, there may be an unexpected change in social trends (relate to the case)
-causing an unexpected change in demand (of… relate to the case)
-making the market research in the plan invalid
-resulting in unreliable sales forecasts
-inaccurate cash flow forecasts
-therefore, any financial projections will be unreliable making the loan or the investment application unreliable

86
Q

Describe the parts of the business plan and what is included in each part (8)

A
  1. executive summary- a one page nutshell of your vision
  2. target market- who are your products intended for
  3. competitors- define your competitors, their strengths and weaknesses
  4. human resources-will you need additional staff to run your business
    5.vendors/suppliers- will you require outsid resources to operate
  5. marketing plan- how will you get the products in front of your clients
  6. operations- how are you going to run your business
  7. financial projections- how much money do you need to run the business
87
Q

What is a sales forecast?

A

an estimate of the likely number of products that will be sold by the business or market over a future period

88
Q

What factors can affect sales forecasts?

A

-consumer trends
-economic trends
-actions of competitors
-

89
Q

What are the methods of sales forecasting?

A
  1. correlation
    2.extrapolation
90
Q

What is PESTLE?

A

links to extrapolation (finish creating this flashcard later)

91
Q

What does PESTLE stand for?

A

-Political
-Economic
-Social
-Technological
-Environmental
-Legal

92
Q

Give a LOA for the benefit of sales forecasting (7)

A

-accurate forecasts will appropriately predict sales volume
-this will ensure the business can order the correct amount of stock
-this will reduce waste as the business will avoid over ordering
-reduced waste will decrease outflows
-this will improve net cash flow
-ensures the business can pay suppliers OR invest in R&D (choose one)
-(explain the impact)

93
Q

Give a LOA for the drawback of sales forecasting (8)

A

-accurately compiling a sales forecast requires significant investment into market research
-to accurately quantify demand for products
-to ensure data is valid, must be collected from a large sample size
-may require recruiting specialist researchers to collect and analyse data
-their wages will increase the businesses cash outflows
-placing a strain on their cash reserves
-less cash available to pay current liabilities
-may be pressured to sell non current assets

A Level Business (1 decks)

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