Paper 1 Flashcards
mass market characteristics
generic products - similar in function. STandardised
Example mass market
Bic pens, Primark clothes
niche market characteristics
Specialist products and services. Change in taste and preferences can be devastating to demand
Example niche market
Nespresso, Ferrari,
PESTLE FACTORS
Political, Economic, Sociological, Technological, Legal and Environmental
Market share formula
total sales of company divided by total sales of the market x 100
growth rate formula
final value- initial value divided by initial value
impact of more competition
Impact of more competition:
Reduce prices = impact on revenue
Increase marketing to retain customers = increase in costs
Increase quality = increase in costs
Improve customer service
Impact of less competition
Higher sales due to few options
Can raise prices as a result - revenues will be higher
Higher profits = higher investments and dividends (if shareholders are present)
Opportunities from ⬆profits for ⬇ competition:
⬆ investment - capital e.g. machines = EOS/⬇cost per unit
Dangers from ⬆profits for ⬇ competition:
Become lazy or complacent
May not invest
Rivals enter the market and offer something better than you
Product orientation
business worries about the internal factors before worrying about changes in the market
Businesses can maybe make revolutionary breakthroughs that the market may not have expected
BUT is the product adapted so customers want it? A business focusing on a solar powered car is great but how many people want it?
Market orientation
Marketing is easier to establish here as the customer is at the heart of the product.
BUT market research is needed which can take time and money - what if the rivals get their first and you are playing catch up
advantages of primary data
Addresses specific issues that the business wants to know
Up to date
Can understand customer feelings better
advantages of secondary research
Ofter free - Google search
Provides a good overview of the market
Large scale, reliable research - usually anyway
disadvantages of primary research
Expensive - can cost thousands to do properly
Risk of bias - leading questions
May need to look at other data to understand the findings
disadvantages of secondary research
Out of date
Generic - not tailored
Can be expensive depending on what you use - Mintel reports cost 2-3k
limitations of research
There are 2 main limitations to conducting market research:
Sample size is too small: This means the results may not be representative of the whole market and so incorrect decisions could be made.
Sample bias: The respondents selected may mean that certain types of people are over represented in the sample - their views may skew from those of the whole market
pros of market segmentation
Meet customers needs better
⬆ Brand loyalty
⬆Repeat customers
Price sensitive customers = ⬆prices
⬆Revenue and profits. Margins increas
cons of market segmentation
Higher costs
R+D
Production - lower units produced = ⬆cost per unit
Marketing - need to market to each customer differently
⬆Product range = EOS exploited.
Market Positioning
Deciding on how you want customers to perceive you products. This can be done by market mapping, adding value, competitive advantage and differentiation
two ways to achieve competitive advantage
Lowest cost producer - cost competitiveness
Differentiation
how is lower costs achieved
Producing more efficiently
Use of machinery to produce more
Lowest quality (that is accepted by consumers)
Lowest price
how is differentiation achieved
Accrual differentiation
Design
Functions
Taste
Performance
Perceived differentiation
Branding
Advertising
Sponsorship
Increase in Demand is caused by:
Price of substitutes rising
Price of complements falling
Income of consumers rising
Expectations that the price will rise in the future
Tastes, fashion and preferences
Increased Advertising in a market
Population increasing
Seasonality - energy in the winter
Increases in Supply are caused by
Factor input costs falling
Technology increasing
Indirect Taxes falling
Subsidies increasing
Good Weather
New firms entering the market
Decrease in Demand is caused by:
Price of substitutes falling
Price of complements rising
Income of consumers falling
Expectations that the price will fall in the future
Tastes, fashion and preferences - outdated
Decreased Advertising in a market
Population falling
Seasonality - energy in the summer
Decreases in Supply are caused by:
actor input costs increasing
Technology falling
Indirect Taxes increasing
Subsidies falling
Bad Weather
Firms leaving the market
Price inelastic
number is less than 1
price elastic
number is greater than 1
Determinants of PED
Substitutes
Nessecity
Addictive
Percentage of income
Normal/Luxury Good
positive number, as income rises, demand for these goods increases.
Inferior Good
negative number,as income rises demand for these goods decreases
Determinant of YED
Type of good - luxury of necessity - Luxuries will have a bigger demand change when incomes change
Income spent of the good/proportion of income - the more it takes up the more elastic in demand it will be. Houses are a big price and so a fall in income = a larger change in demand for houses
Confidence/expectation - how long will incomes fall for? Temporary blip = no impact. Low confidence in the economy e.g. recession = bigger change in demand.
social trends influencing product design
Sustainability
Waste minimisation and reuse
Recycling
Ethical sourcing
pros of price skimming
High prices to create desirability
Early adopters will pay a high price
Rapid profits to pay off costs of innovation
Appropriate when selling unique products/innovative ones
cons of price skimming
WIll deter buyers who think its a rip off or will wait till it drops in price
Early buyers frustrated when price falls
Image suffers
pros of price penetration
Low prices = low risk sampling (customers try it)
Low price = high sales volume = low cost per unit
Helps to develop a habit for buying it - may pay higher price later
Appropriate when selling standardised products.
cons of price penetration
May translate to a cheap image
Customer expect lower prices - price elastic
pros of cost plus pricing
uarantee profit to be made
Appropriate when no worry about competition
cons of cost plus pricing
Unrealistic price may be charged if market changes
pros of predatory pricing
Once rivals leave, prices can be increased to the max
Appropriate when firms are more powerful than local ones
pros of competitive pricing
Customers shouldn’t be put off buying the product
Appropriate when taking on powerful rivals
cons of predatory pricing
It can be illegal
pros of psychological pricing
Help nudge customer into make a purchase if they are thinking about it
Appropriate when selling impulse purchase products
cons of competitive pricing
Little control over price so could impact revenue and profits
cons of psychological pricing
Only effective on impulse purchases
what influences pricing strategies
PED
LEVEL OF DIFFERNTIATION
NEED TO MAKE PROFIT
STAGE OF PRODUCT LIFE CYCLE
Development stage
R+D. Getting the product ready. No sales
introduction stage
sales are low
maturity stage
growth in sales slows and reach their peak
decline stage
Sales begin to fall until the product is withdrawn or extension strategies used
issues with the lifecycle
t can encourage managers to make rash decisions that move the product too quickly through the cycle e.g. we are expecting the product to go into decline as sales dip so we slash the promotion used. This speeds up sales dropping and so falls into decline much quicker than expected
extension strategies
changes to product
changes to promotion
question mark
May be successful. May just been introduced in a rapid growing market. Heavy investment to boost sales
rising star
The future money makers in a rapid growing market with high market share. High spending to maintain this but to fight off rivals attracted to this market
cash cow
in a stable market with high market share. Generate money through low marketing spend. Profits used to invest in previous two.
dog
low share and low growth - unattractive. May be removed
internal recruitment pros
Quicker/CHeaper
Promotions = morale
SKills already known
external recruitment pros
Bigger pool of applicants
New ideas can be gained - innovation
Better skills
Benefit of training
Higher skills = boost in productivity and innovation
Wider skill range = flexibility
Motivates staff to staff
On the job training
Issues
Less knowledge of methods used elsewhere - may need to be trained again
With targets to be met, training may take less of a priority
Costs of training
Large financial cost
Normal operations may suffer (short term costs)
Staff may not be more attractive to other businesses (head-hunting)
On the job training
Tailored to the companies way of working
Can gain feedback on mistakes from workers
Saves time and workers are working at the same time
Ways to select staff:
Interviews
Common method where you ghetto know the staff member on a better level BUT bias on behalf of the interviewer
Tests and profiling
Aptitude tests are used to judge the skill levels if high skills are needed. Profiling helps to identify the personality traits BUT is subjective
Assessment centres
Better assess all skills with all candidates within a series of tasks BUT expensive
pros of tall structure
Close supervision
Communication between teams will be strong
Promotions
cons of tall structure
Staff feel over-supervised
Overall communication may be poor
Less innovation
pros of flat structure
Increased delegation - motivation
Innovation may happen
Less layers = lower costs
cons of flat structure
More mistakes - are workers trained enough
Less promotions
Taylor characteristic’s
Money motivates
Division of labour
Paid for your output
Workers complete one task again and again
mayo characteristics
Linked to Taylor
Money wasn’t just the main motivator
Importance of teamwork and freedom of work
Productivity improved
maslow charcteristics
Looked at what influenced our motivation
5 stages (see next slide
Each need must be met to improve motivation
The need to use different techniques for different stages and workers
herzberg characterisitics
Motivated workers want to do the best at all times and accept change
He said that there are a few motivators that genuine will motivate workers
The businesses needs to have in place a set of hygiene factors in order to allow motivation to happen
Meeting both needed = employee offer their best.
stages of malow
self actualisation
self-esteem
love/belonging
safety
pyscholgical needs
roles of an entreprenuer
Creating a business idea
Spotting an opportunity
Market research
Running and expanding the business
why we set up businesses
Profit max - make as much as we can but could cause issues in the long term - customers and quality
Profit satisficing - sacrifice short term profits to build a long term brand
Work from home
Independance
Ethical/social stance
Unlimited Liability
if the business ceases trading and the value of the assets in the business does not equal the debt - personal assets are taken
Limited Liability
opposite to unlimited liability - more likely to take risks and attract shareholders
sole trader
All MNCs started life as this or partnership.
Owner has full control over decisions
Owner keeps all profits
Easy to set up as a business
BUT
Unlimited liability
Hard to raise finance
Common error: Sole traders do employ staff.
Partnership
A business may start with a group of people -collective idea
Shared burden of responsibility
Easier to raise finance between you
BUT
Unlimited liability
Maybe disagreements
Private Limited (Ltd
As sole traders and partnerships grow - the need to access higher finance and grow is needed. May turn to become Ltd
Limited liability gained
Attracts shareholders - bigger finance/experience
Take more risk
BUT
Lose control
Public Limited (PLC)
Businesses that wish to grow globally may need major sources of finance - the stock market is where you can gain this
High rates of capital gained
Limited liability
BUT
Loss of control
Increase cost to be on the stock market
Focus on profit
Common Business issues
Matching production to demand
Growing the business and your customers find empty shelves as you couldn’t increase production is business suicide
Financing growth
Growth will require added finance costs due to more workers, new spaces to produce. Finding the right finance that doesn’t have excessive costs is key
Overtrading
A boom in sales could catch you off guard and so you have to make big capital investments and as such have higher cash outflows = cash flow crisis
Delegating
WHereas once the entrepreneur made all the decisions - now as a leader they will need to delegate to ensure efficiency - control is hard to give up
Communication
When growth happens, good communication is vital! The owner will need to still know what is going on to make the correct decisions - workers may be resistant to tell managers what problems there are
Coordinating more people
With more people comes more responsibilities. All staff need to know what to do. The leader wants to achieve their objectives and so need to be able to steer people in the right direction. Can they keep them motivated and productive?
implications to businesses economic growth
New export opportunities
UK businesses should target China and India as the UK economy has slowed down
Offshoring production
Able to lower production cost and boost profit margins
Increased domestic competition
Growth in other markets may increase domestic businesses in those markets to export to the UK, increasing competition
mplications of economic growth
Implications to customers
Increase in skill level as the types of jobs shift from primary to secondary jobs
Increase in need for managers and so expanding income levels
Loss of jobs as businesses look to offshore
Access to more choice and lower prices
benefits of fdi
Avoid problems when exporting
If you make a product in a country you will sell in then it removes the hassle of organising onward transport to get the good to the final customer
Avoid transportation costs
Moving products around the world to sell is a big cost - more so when they are large like a car
AVoid trade barriers
No impact of import tariffs if made in that country - hence why Nissan make cars in the UK to send to the EU pre-BREXIT
Lower operating costs
Land and labour may be less compared to the home country
factors contributing to increased globalisation
Trade Liberalisation:
Removal of trade barriers has led to businesses being able to have cheaper imports and higher demand for exports e.g. China
Reduced cost of transport/communication
Containerization has led to the ability to charge lower prices due to the high volume of goods that can be shipped. EOS. Better communication has allowed global growth to be more efficiently managed
Growth of global labour force
High skills at a lower cost has led to more offshoring and outsourcing. Helped to overcome skills shortages
Migration
Access to works from all over the world. SUpport economic growth
Increased significance of TNC/MNCs
MNCs become a threat to local businesses. These have hi8gh EOS and look to seek higher sales.
pros of trade blocs
Higher demand pushes up production and allows for EOS but protects from foreign MNCs outside the bloc. As well, cheaper import costs of materials if we can get from inside the bloc
Free movement of labour (iff applicable) = higher skills
cons of trade blocs
Stiffer competition for domestic producers - may lag behind and lose out to producers who are lower cost than us
If we import from outside the bloc, this will increase costs - May not be able to get resources still but have to have common external tariffs - cannot make your own deals
Push Factors:
Saturated markets
New customers may need to be found if all customers have been exhausted in the current market. Either widen the range or new markets
Competition
If MNCs enter the market and can competed better than you, it may be time to look at newer markets with less competition to survive
Extending the product life cycle
As a product starts to decline, moving it into a new market may create extension strategies/restart it
Pull Factors:
Economies of Scale
Boosting unit sales globally will in turn help to achieve economies of scale. Focusing production in a few locations that help reach global customers help to keep unit cst lower and boost profit margins/competitiveness
Offshoring/Outsourcing
The lure of lower costs of operation overseas is a great pull factor. This could be setting up production or moving production to a third party (pros/cons on next slide)
Risk spreading
The lure of selling in more countries where demand is mitigates against one economy entering recession
Indicators used to assess a new market
GDP per capita
Annual economic growth
Ease of doing business
Political stability
Population
indicators used to assess a new production location
GDP per capita
Location in a trade bloc
Geographical location
Raw materials
Ease of doing business
reasons for global mergers and joint ventures
spread risk
entering ne markets
aquiring new brands
securing resources
global competitiveness
POLYCENTRIC APPROACH (LOCAL MARKETING)
You adapt fully to the market you are going into. New name, new brand.
ETHNOCENTRIC APPROACH (GLOBAL MARKETING)
You take your successful domestic brand and enter new markets with it.
No changes.
GEOCENTRIC APPROACH (MIXED MARKETING)
he use of a standardised approach (Ethno) but catering to the needs of the market (Poly). Happy medium.
what affects global marketing
Depends on the…product sold
Commodities sell without needing to adapt to local needs/marketing. Businesses reliant on marketing need to adapt, e.g. services.
Depends on the…country
Going into China/India you will need to adapt to culture; especially food companies to meet religious needs, e.g. no beef in India.
Why control MNCs?
Safety concerns
MNCs use lax regulations to get away with unsafe production
Short term mineral extraction
Host countries should be compensated for this
Weakening local cultures
Mcdonalds and KFC making chinese people switch from local food to fast food
Lack of commitments
MNCs will leave when the country gets weaker/MNC has got all the benefits
ways to control mncs
political influence
social media
pressure groups
legal control
