Making The Business Effective

Question 1

Name 7 factors influencing location of the business

Answer 1

Raw materials
Labour
Competition
Nature of business activity
Costs
Communication links
Proximity to market (customers)

Question 2

What are the five pricing strategies

Answer 2

1. Skimming
2. Competitive
3. Penetration
4. Cost-plus
5. Loss leaders

Question 3

What is the skimming pricing strategy?

Answer 3

• A produce is priced high to begin with (desirability factor, novelty), means customers will want it when it’s new.
• The price can be lowered at a later date but is high to start with to skim the profit while the product is ‘hot’.
• Usually applied to technological items with a short product lifecycle (soon to be replaced with a new model) eg iPhones, iPads
  e. g iPhone, i Pad

Question 4

Positives and negatives of skimming strategy

Answer 4

+ very profitable
+ process suggests quality, supports brand
+ recoup expensive r&d costs
- early customers may delay purchase due to high price at launch
- high prices may put off customers

Question 5

What is the cost plus pricing strategy

Answer 5

• Calculating the total cost to produce the product or service and then profit is added on top.
• Often used in the food industry (exact costs of ingredients).
• Add a profit margin in £ or add % mark-up on top of the cost of making the product

Question 6

Advantages and disadvantages of cost plus strategy

Answer 6

+ makes sure costs are covered
+ helps to calculate breakeven and MOS
+ very flexible, adjust to cover rising costs of raw materials
- difficult to be accurate with all costs
- may have been able to charge a higher price
- doesn’t take other factors into account such as level of demand (was it sold too cheaply?)