Paper 1 Flashcards
What is a market?
A place where buyers and sellers come together to buy and sell goods/ services in return for money
What is marketing?
The process of identifying, anticipating and satisfying customers needs and wants profitably
What is a mass and niche market and there characteristics?
Mass : A large market where the most popular products are targeted
- Sells goods to all consumers and markets them in the same way
- Large number of customers
- Businesses can exploit economies of scale
Niche - A smaller market within a larger market
- Markets in a different way to mass marketing
- Sells to small customer group
- Easier to focus on the needs of the customers
- Can charge premium prices if competition is low
What is the difference between risk and uncertainty?
Risk - When the potential outcomes from a decision are known
Uncertainty - When none of the outcomes are known in advanced
How does competition impact customers?
Customers generally benefit from competition. They may have a wider range of products to choose from.
How does competition impact Businesses?
- Provide lower prices
- Provide better marketing
- Businesses start to listen to customers
- Forces the business to produce higher quality goods/ services
- A business may becomes less wasteful
What are the different types of markets?
Consumer Goods Market - Eg food, clothes, magazines
Market for services - Eg services for individuals
The housing market - Eg buying and selling property
Commodity Markets - Eg where raw materials are traded (oil, copper, coffee)
Financial Markets - Eg where currencies and financial products are traded (stock market)
What should a business do to adapt in a (dynamic) market?
- Be flexible in the the way they operate
- Carry out market research
- Invest in new product development
- Make continuous improvements
- Develop a niche
What is a dynamic market?
Markets that experience rapid or continuous changes
What is the formula for market share?
(sales of a business / Total sales in the market) * 100
What is market research?
The process of gathering, presenting and analysing information about the market and consumption of goods and services
What is primary and secondary research and the advantages and disadvantages?
Primary - Research collected first hand
+Up to date and reliable
+Better if you want to collect qualitative data
- Time consuming
- Difficult to conduct a large sample size
Secondary - Research that already exists
+Fast
+Often better if you want to collect quantitative data
- Can be expensive
- Not always up to date or tailored to the business
What is product orientated and the advantages and disadvantages?
When the product is the businesses main priority. They develop products based on what they’re good and and not what the customers want.
+Allows the business to focus on the products quality
+Economies of scales can develop more easily
What is market orientation and the advantages and disadvantages?
When the customer is the businesses main priority. They develop products based on what customers want.
+Increased customer satisfaction and loyalty
+Increased sales revenue
- Lack of innovation as the business would be focused on reacting to market trends
- Customers desires can change rapidly
What is a brand?
Characteristics that allows consumers to identify the goods and services of a business
What is a brand used for?
- Differentiate their product
- Create Customer Loyalty
- Develop an image
- Help with product recognition
- Charge premium prices
What is online retailing and the advantages and disadvantages for both businesses and customers?
Having businesses transactions online through buying and selling goods/services
Businesses \+Lower overheads \+Reach a wider market -Website crashes -Highly competitive -Less trust from consumers
Customers \+Fast/ convenient \+Often cheaper -Cant test the product before buying -Shipping times
In what ways do markets change?
Size of market-
Nature of markets- Some markets are constantly changing
New Markets- advancements in technology can lead to new markets
What is primary and secondary research used for?
- Identify and anticipate customers needs and wants
- Quantify likely demand
- Gain insight into customer behaviour
What is market segmentation?
Dividing your target market into similar groups
What are the limitations of market research?
- Can be costly
- Time consuming
- Human behaviour can be unpredictable
- Questions/ interviewer may have misleading questions
- The sample size may not be an accurate representation of the whole population
What is market positioning?
Factors a business may consider when positioning a product in market maps
- Attributes of the product
- The Origin of the product
- The reputation of the business (The classification of the product)
Name the competitive advantages a business can have
Product design - Product quality - Promotion - Customer service - Delivery times - Economies of scale - Flexibility - Ethical stance - Focusing on a particular market segment-
What is the purpose of product differentiation?
To gain a competitive edge over their competitors. In competitive markets firms will try to make their product unique
What is the 5 reasons for product differentiation?
Flexible pricing- Recognition - Extend product range - Brand development - Overcome competition -
What is market size (how is it estimated) and market share?
Market size can be estimated by either the market value (total amount spent) or volume (physical products sold)
Market Share - the proportion of a particular market held by a business
What are the reasons why a market may grow?
Economic Growth - Global living standards tend to rise overtime
Innovation - Innovation can grow a market
Social Changes -
Changes in legislation - Laws can affect markets
Demographic Changes -
What is adding value?
Extra features that may be offered by the business
What is the purpose of product differentiation?
- Have flexible pricing
- Recognition
- Out compete competitors
What are the advantages of using social media for market research?
- Can reach millions of people around the world
- Allows specific groups of people to be targeted
- Free or relatively low cost
- Data can be collected fast
- Takes little IT skills
How is ICT used to support market research?
Company website - Create online service
Social Networking -
Database - Storing users info
What is demand?
What customers are able and willing to buy at a given price
What is supply?
What firms are willing to produce at a given time
What are the 7 factors that lead to a change in demand?
Substitutes - Eg buying Pepsi over coca cola
Complementary - Eg Buying milk with cereal
Consumer income - Inferior / normal goods
Preferences - Changes in consumer tastes
Advertising & Branding -
Demographic -
External stocks -
Seasonality - Eg garden furniture demand rises during spring
What are the 6 factors that lead to a change in supply?
Cost of production - Eg wages, maintenance, raw materials, energy, rent
Introduction of new technology - help lower costs
Indirect taxes - Eg VAT
Government subsidies - Money given to a firm from the gov
External stocks - Factors beyond the control of the business eg weather
Price of related goods - The price of the good could encouraged supply
What are inferior and normal goods with examples?
Normal goods - Increased income leading to an increase in demand
Eg cars, clothing , luxury goods
Inferior goods - Increase in income leading to an decrease in demand
Eg public transport, Tesco deals
What is equilibrium price?
When supply and demand are equal
What are firms likely going to do when the market price increases or decreases?
Increase - Firms will extend supply to the market
Decrease - Firms will contract their supply of a product
Which direction does a supply and demand cure face?
Demand slopes down and supply slopes up
What is the design mix and the three elements?
Three key elements that help a business find a gap in the market.
Aesthetics, Function, Cost
What are the ways to build a brand?
- USP - helps be unique
- Advertising - spreads awareness
- Sponsorship
- Use social media
What is distribution and the aim of it?
Evolves where consumers are able to purchase products from.
Aim: To make the products as convenient as possible for consumers to buy
What are distribution channels?
The stages the products have to go through to get from the producer to the consumers
What are intermediary’s?
A link between the producer and consumer
What are the 5 types of an intermediary?
- Retailers
- Wholesaling
- Agent/Brokers
- Dealers
What is multi channel distribution?
When a business uses more than one distribution channel
Eg you can buy apples products many different ways(pc worlds, O2 ect)
What is direct selling?
When a producer markets their products directly to consumers
What are the 4 main factors to consider when choosing the appropriate distribution channel?
- The nature of the product (Some products may be inappropriate)
- Cost
- The Market (Mass markets typically use intermediaries)
- Control (don’t want to damage their image)
What is online distribution?
Also known as e-commerce involves the use of electronic systems to sell goods and services
What is the two types of online distribution?
Business to consumer (B2C)
Business to business (B2B)
What benefits do consumers have because of online distribution?
- Cheaper
- Can shop 24/7
- Large amount of choice
- Can shop from anywhere
What benefits do businesses have because of online distribution?
- Lower start up costs
- Lower processing costs
- Less paper is needed to document
- Can offer global shipping
- Business can locate anywhere
What changes in the design mix that reflect social trends and what is ethical sourcing?
- Design for waste minimisation
- Design for reuse
- Design for recycling
Ethical sourcing - Only using materials, services ect from suppliers that respect the environment, treat workers well and provide a safe working environment
What is an entrepreneur?
People who have a business idea and want ti make money working for themselves
What is the roles of entrepreneurs?
Decision making
Innovating
Risk taking
Organising
What is an intrapreneur?
Employees who use entrepreneurial skills to find and develop ideas that’ll have financial benefits for the business
What are the advantages of the intrapreneurs?
Increase innovation in the business
Awards can be won if unique products are made - Improves business image/ reputation
What are the financial and non financial reasons of people starting a business?
Financial
- Profit maximisation
- Profit satisficing (making enough to satisfy the needs of an business owner)
Non-Financial
- Ethical stance
- Social entrepreneurship (charity)
- Independence
- Home working
What are entrepreneur characteristics?
- Self confidence
- Self determination
- Perseverance
- Commitment
- Initiative
- Judgment
- Being a self starter
What are the required skills of an entrepreneur?
- Communication
- Financial management
- Organising
- Decision making
- Negotiating
- IT skilss
What is a sole trader and the advantages and disadvantages?
When a business is owned and run by one person
+Owner keeps all profits
+Owner has complete control
- Unlimited liability
- May struggle to raise finance as investors many think they’re too risky
What is a partnership form of business and the advantages and disadvantages?
A business that has more than one owner
+Can raise more capital
+Shared responsibility
- Unlimited liability (They can become a limited partnership)
- Shared profits
What is a private limited company (LTD) and the advantages and disadvantages?
A business owned by shareholders protected by limited liability
\+Limited liability \+Control over who buys shares \+Perceived as more reputable \+Raising capital \+ Financial documents don’t have to be published
- Shared profits
- Shares can only be traded privately
- costly to start up
What is a public limited company (PLC) and the advantages and disadvantages?
A business owned by public shareholders on the stock market who are protected by limited liability
+Raise large amounts of capital
+Has greater media exposure
+Business isn’t reliant on one person ie if someone dies
- Volatile share prices
- Directors are accountable to thousands of shareholders
- PLCs news can spread fast (negative or positive)
What is a franchisee and the advantages and disadvantages?
A business that is allowed to use another businesses identity
+Lower risk as they are using someone else’s idea
+Are supported from the franchisor
+Start up costs are predictable
+Can benefit from the franchisors marketing
- Have to pay royalty (Pay the franchisor their share)
- Have to sign contacts which may reduce their independence
- Can have high start up costs
What is a franchisor and the advantages and disadvantages?
A company that owns the franchise and allows other business to use there identity
+Fast growth
+Less expensive as the franchisee takes some of the financial risk
- Less profits as its shared with the franchisee
- Franchisee may damage the reputation
- Cost to support the franchisee may be high
What are social enterprises?
Businesses that trade with the aim of improving human and environmental well being. (Just think of a charity)
What is a lifestyle business?
A individual who aims to make enough money to sustain a particular lifestyle
-Small
What is the stock market floatation?
When a business goes public and offers shares to the public for the first time
What are the advantages and disadvantages of stock market floatation for a business?
+Can raise large amounts of capital as it is easy for the public to buy shares through a stockbroker or bank
+Shares don’t have to be repaid and no interest is applied
+The business can also gain recognition through this method
- Time consuming
- Expensive
What are the cost/ process associated with the stock market floatation?
Lawyers
Business must have a minimum of £50,000 share capital
(Basically a lot of documentation is required)
What is an emerging market?
An economy with low to middle per person income
A nation of a nation whose economy mimics that of a developed nation but does not fully meets the requirements to be a classified as one
Tries to transition from a closed market to an open market
What are the advantages of merging markets?
- Investors like merging markets
- Better potential for returns
- First mover advantage
- They hope to invest early so that they benefit from rapid growth
- Related to increasing incomes and an expanding middle class
What are the 2 implications of economic growth for individuals and businesses?
Trade opportunities for businesses - consumption may be growing and is likely that consumers have more disposable income.
Employment patterns - unemployment rates, labour cost and productivity are good indicators for businesses. High unemployment rates in a country may not be worth exporting products to, however, they may be good for factory work.
What is Trade Opportunities for businesses?
Consumption may be growing and is likely that consumers have more disposable income.
What are the indicators of growth?
Gross Domestic per person (GDP) - A measure of economic activity. Can be hard to compare against other nations with different currencies
Literacy - educated employees lead to better quality workforce and products and service
Health - indicates living standards of people and how much money they may have
What is growth rate?
Is the rate at which a nations (GDP) grows from one year to another
What does a literate labour force offer?
They can work in white collar jobs and professions
They will make better Human Resources - can do more complex jobs and increased efficiency
They are successful and earn more - contributes more to the national income
What is the equation for Net export?
Exports - Imports
What is imports with examples?
Binging good and services from another country to the home county
Eg Foods: apples
What is exports with examples?
Selling goods and services from the home country to other countries
Eg tourism: London
What is the advantages and disadvantages of imports?**
+fulfils the demand of goods and services that are lacking or not available in the home country
+
What is the advantages and disadvantages of exports?**
+creates more foreign income from the selling of home country products and increases the global presence of home country products and services
+benefits the home country since it increases the foreign income to the home country
Why do we need to export and import?
- Countries have specific natural recourses and lack others
- Countries need foreign currency in order to grow
- Countries access wealth from customers in other countries
- Firms can get cheaper costs by importing raw materials
- Increases sales potential (first mover advantage)
What is specialisation?
When a business or country concentrates on a product or task but produces them at a higher quality and cost
What is the Foreign Direct Investment?
When an investment is made by a company or individual from one country to another
Eg a person buying a company in another country
What is the advantages and disadvantages of Foreign Direct Investment?**
+Gain access to new markets
+Get access to resources
+Reduce the costs of production
+Tax benefits
What is globalisation?
The growing integration of the worlds economies (Goods and services are being traded around the world)
What is trading blocks?
A group of countries that have signed a regional trade agreement to reduce or eliminate tariffs, quotas and other protectionist barriers
What are employment patterns for growing economies?
Unemployment rates tend to fall
What are the 8 factors contributing to increased globalisation?
Reduction of international trade barriers -
Political Change -
Reduced Cost of Transport and Communication -
Increased Significance of global companies -
Increased Investment Flows -
Migration -
Growth of the Global Labour Force -
Structural Change -
What are the advantages of trading blocs?
- Opportunities to expand into new markets
- Allows businesses to benefit from comparative advantage - cheaper and better quality products
- Makes it easier to source labour if free movement is permitted
- Aligns international legislation making markets more efficient
What are the disadvantages of trading blocs for a business?
What are the different types of trading agreements?
Customs Unions - Free trade between members but an agreed set of tariffs against non members
Common Markets - free trade and free movement of labour and capital
Preferential Trade Areas - Certain products from certain countries receive reduced tariff rates
Free Trade Areas - No trade barriers between countries
Single Markets - Free trade and common laws are adopted to harmonise standards and tax
Economic Unions -
What is the definition of push factors?
Negative factors within the uk that push a uk business to look overseas
What are 6 push factors?
- Saturated domestic markets
- Competition
- Low growth opportunities
- End of the product lifecycle at home
- Need to diversify
- Need to reduce risk
What is the definition of pull factors?
Positive factors overseas that entice a uk business to look outside the uk
What are the 5 pull factors?
- Risk spreading
- Opportunity to gain EoS by expanding overseas
- Attraction to new overseas markets in emerging economies eg Brazil
- Opportunity to exploit competitive advantages in new markets
- Ways to expand the product lifecycle
What is offshoring?
The moving of operations of a business to another country with lower costs
Eg Apple moving their manufacturing operations to china
What are the potential risks associated with offshoring?
- Language difficulties
- The process may increase management costs
- Reduce efficiency or quality
What is outsourcing?
This is where a business function, such as payroll, is contracted out to a specialist external provider
Why outsource?
- Reduce costs
- Specialise areas of the business ie focus on core areas
- Comply with rules or regulations
What are the 5 reasons for global mergers or joint ventures?
Spreading risk over different countries/regions -
Entering new markets/trade blocs -
Acquiring national/international brand names/patents -
Securing resources/supplies -
Maintaining/increasing global competitiveness -
What is global competitiveness and how can it be done?
The ability of a business to perform better than its rivals across markets in different countries
Measures a business’s ability to compete both at home and abroad against foreign firms
Through
- Cost competitiveness
- Differentiation
Why may a business off-shore?
A business could:
- Reduced cost
- Hire workers with particular skills
How might a business use the product life cycle (Consider the Offshoring)?
If a product has reached its declined stage in one market it may be in the introduction stage in another therefore a business may move operations to another market (country) in order to reduce cost/expand market share etc
What is the impact of changes in exchange rate on a business?
Cheaper import costs and more expensive exports if the pound became strong.
What is economy of scale?
It’s benefits businesses gain as they grow
What are the problems with Growth?
Overtrading - Running out of cash
Diseconomies of scale - Average costs rise as output rises
Internal Communications - hard to communicate between departments
What are the two types of growth?
Internal/ organic growth and external/ inorganic growth.
What are the types of external growth and what do they mean?
Mergers and takeovers.
Merger-when two businesses have agreed to unite as one new company
Takeover(friendly/hostile)-when one firm gains control over another by buying 51% of shares
What is horizontal integration?
When two firms in the same market and stage of production merges together
What is vertical integration and the two different types?
When two firms in different stages of development joins together.
Backwards ie apple taking over a manufacturer
Forward ie apple taking over a retailer
What is conglomerate?
When a firm merges/ takes over an unrelated business
Ie Apple and Cadbury
What are the problems with rapid growth?
Outgrows premises, potential shortage of cash, potential increase in staff turnover and decrease in motivation
What is a merger?
When two businesses have agreed to unite into one new company
(PLC Only)
What is a takeover and the two types?
When one firm gains control over another by buying 51% of shares
Hostile - Both businesses are happy
Volatile - Resistance
What is the financial risk of external growth?
Original cost
Costs of changing into a new business
Redundancies of duplicate staff
Opportunity cost - what if it all goes wrong
What is the financial reward of external growth?
increased revenue
Economies of scale
What is economy of scale?
It’s benefits businesses gain as they grow
What are the objectives of growth?
Economies of scale
increased market power - business can charge higher price/ demand lower costs from suppliers
Increased market share/ brand recognition & power -
Increased profitability - greater returns
What are the problems with Growth?
Overtrading - Running out of cash
Diseconomies of scale - Average costs rise as output rises
Internal Communications - hard to communicate between departments
Give examples of internal economies of scale
- Purchasing and marketing economies, marketing becomes cheaper
- Technical economies,
- Specialisation and managerial economies, can afford higher skilled workers
- Financial economies, Can raise finances easier
- Risk bearing economies, reduced risk as they can carry out more intensive research
Give examples of external economies of scale
- Labour, if schools offer training courses that are aimed at the industry
- Lower transport costs
- Ancillary and commercial services,
- Co-operation
- Disintegration
What are the 4 factors to consider when controlling MNCs?
Political Influence -
Legal Control -
Pressure Groups -
Social Media -
What are impact of MNCs on the local economy?
Advantages
- Offer good stable employment, prospects (advantages) for promotion and training
- Local labour, wages, working conditions and job creation
- can cause a multiplayer effect
- Local community can learn new skills
- Local businesses tend to operate in the surrounding area
- Improve local infrastructure
Disadvantages
- Risk to the local environment
- Could be exploiting local areas by paying them less
- May not hire locally and bring foreign workers
What are the impact of MNCs on the national economy?
FDI Flow - Balance of Payments - Technology and Skills Transfer - Consumers - Business Culture - Tax Revenues and Transfer Pricing -
What is a joint venture?
Involves two separate businesses collaborating to achieve a shared goal
What are the barriers to entry for global mergers and joint ventures?
Low brand awareness
Cultural and language difference
Knowledge of the market
Additional cost through exporting
