paper 1 Flashcards
what is the boston matrix
a way of accessing where a product is in its lifecycle
the purpose of the boston matrix
helps market planning
identifies strategies using the 4p’s
4 different names for a product on the boston matrix
star
cash cow
problem child / question mark
dog
star
high market share in a growing market
has successfully reached the growth stage
neutral cash as still needs investment
problem child / question mark
low market share in a growing market
cash cow
high market share in a stable market
has reached maturity
high yield
generates high cash
dog
low market share in a stable market
in decline phase
4 strategies for products
milking
building
holding
divesting
holding
market spending to maintain sales
building
investing in the promotion and distribution of the product
milking
taking as much profit as possible with little investment
divesting
selling reaming stock
strategy for star
holding
strategy for problem child
building and sometimes divesting
strategy for cash cow
milking
strategy for dog
divesting
break even
is the point at which a business does not make a profit or loss
break even analysis
a technique that analyses the relationship between total revenue and total costs to determine profitability at various levels of output
contribution
looks at the surplus made on each product sold by the business. it shows how many products need to be sold to cover the fixed operation costs
margin of safety
the amount sales can fall before the break even point
advantages of break even
gaining funding- required for plans
selling revenue targets
decide appropriate pricing
disadvantages of break even
doesn’t give an insight into chances sales will meet this point
data may be unreliable
PED
the sensitivity of demand to a change in price
Elasticity
measure the extent to which demand will change
Elastic
describes demand that is very sensitive to a change in price
Inelastic
not price sensitive - price can be increased and demand won’t have a significant drop
Factors affecting PED
substitutes- lots of alternatives= elastic
proportion of income- small income= inelastic
legal protection- high income= inelastic
USP
brand loyalty
Necessity
Habit
most important factor affecting demand
price
differentiation
how you make your product stand out from other competitions using USP
how will differentiation affect the price elasticity of certain products
better differentiated product= more inelastic
nothing else in the market, so people will buy anyway
branding and brand loyalty
distinctive design that differentiates product in the market
why might branding and brand loyalty affect PED
more elastic
what happens to revenue if price of elastic product increases
decrease - price sensitive > more people will switch to different brands/products
strategies to reduces PED
increase product differentiation
reduce competition
YED
the sensitivity of demand to a change in income
gross incomes
amount the average employee receives before any deductions for tax/pension contributions
factors affecting YED
if product is a necessity
who buys the product
positive/negative elasticity
significance of YED
allow a balanced product port-folio
sales forecasting
financial planning
difference in PED and YED
PED- >1 income elastic, <income inelastic
YED- >0 normal good, <0 inferior good, +1.5= luxuary
subsidies role
can lower a firms average cost per unit, encouraging them to expand production
centralised organisational structure
when a small number of employees at the top of the hierarchy make all the important decisions in a business and often have the most experience and expertise
decentralised organisational structure
when more employees from different levels of the hierarchy are delegated to make decisions in the business and are closer to the day to day operations of the business
Advs of centralised
consistent decision across business
best positioned decisions (more experience)
operations and decisions are more closely controlled and managed
Disadvs of centralised
decisions can be slow
demotivates employees
decision makers don’t have the specialist knowledge of all the company’s functions when making decision based on them
Advs of decentralised
faster decisons
decisons are made with specialist knowledge
improves company motivation
Disadvs of decentralised
inconsistent decisions
some decisions not aligned with aims and objectives
lower experience staff could make ineffective decisions causing problems
maslow
explains our actions are motivated by certain physiological and psychological needs that progress from basic to complex (human motivation)
maslow motivation model
Self actualisation
self esteem
love and belonging
safety and security
physiological needs
main idea of maslow
the most basic needs must be met before people can progress up to the more advanced needs
budget
a spending plan based on income and expenses
types of budget
profit budget
income budget
expenditure budget
information needed for a budget
historical data
own knowledge
market research
benefit of budgets
makes sure businesses don’t spend money they don’t have
drawbacks or budgets
hard for a new business as they have no past data
risks of not budgeting
could end up running out of cash
expenditure budget
predict how much business will spend over a period of time
income budget
predicts how much money will come in from sales
adverse variance
when actual profit is lower than budgeted profit
favourable variance
when the difference between the budgeted and actual profit leads to a higher than expected profit
contingency cost
an amount included in a budget to cover any unexpected issues
GDP
gross domestic product
the value of all goods and services sold throughout the economy through a period of time, produced in the UK
job enrichment
involved adding new tasks to your employees existing told so they can contribute their full potential
why does labour productivity matter
labour costs
business efficiency and productivity
remain conpetitive
high labour productivity= lower lanky costs per unit
factors influencing labour productivity
extent and quality of fixed assets
skills, ability and motivation
methods of production organisation
trained workforce
external factors
how to improve labour productivity
measure performance
streamline production process
invest in capital equipment
invest in employee training
improve working conditions
problems in increasing labour productivity
potential ‘trade off’ with quality
potential for employee resistance
employers may demand higher pay for improved productivity
labour productivity
how productive your workforce is
stakeholder
individual or organisation with a vested interest in a business
shareholder
owner of the business, benefits from value increase
return on investment
stakeholders interest in profits and dividends
managers
interested in rewards, job security, and promotion
employees
interested in rewards, job satisfaction and responsibilities
customers
interested in value for money, product quality, and customer service
suppliers
interested in profitable trade and financial stability
bank and finance providers
interested in profitability, cash flows, and business growth
governement
interested in tax collection, business growth, and compliancd
society
interested in successful business and compliance with laws
distribution
delivering products to buyers; how a business gets its product to their customers
marketing mix
price
product
place
promotion
process
people
physical environment
promotional mix
the coordination of the various methods of promotion in order to achieve marketing targets
promotion
the process of communicating with customers or potential customers
branding
the process of differentiating a product from its competitors through a name, sign, symbol, design, or slogan
product
everything that the customer buys-brand features and benefits of a good or service
price
set to match the expectations of customers and features of the product
place
using the right channels to get the product to the customer
process
making the transaction convenient efficient and effective for the consumer
physical environment
matching the physical environment in which the transaction takes place to the product or brand
people
adding to the product by using the right people in the transaction
product life-cycle
the stages through which goods and services move from time they are introduced on the market until they are taken off the market
introduction
prices may be low to initial sales. have a promotion to cremate awareness. low number of product variations launched
growth
prices may increase with popularity. New varieties and distribution methods introduced. business must keep up with demand growth
maturity
consider cutting prices to maintain demand promotion slows as customers are aware of the product
saturation
or potential customers have the product and there are other better cheaper alternative
prices may be cut to maintain competitiveness
decline
further prices cut to maintain demand variety of products streamlined to the most popular business may consider discontinuing the product
influences on price
costs, the price elasticities of demand, competition, product life-cycle, branding, other elements of the marketing mix
price skimming
starting with the highest price possible so you generate the most amount of revenue and then gradually lowering price
dynamic pricing
adjusting the price to levels of demand such as hotel room
penetration pricing
this is starting with a low price to gain interest and then raise in the price to maximise revenue
influences on promotion
the target audience, competition, technology, the message, promotion budget
influences on place
control over promotion and pricing, expectations of customers, nature of the product, scope/scale
capacity utilisation
the extent to which the organisations maximum possible output is being reached
capacity utilisation is measured
by over a time period
ideal target for capacity utilisation is
90%
every percentage under 100% represents
unused resources
disadvantages of capacity utilisation
higher proportion of fixed costs per unit
lower profit
spare capacity
bored and demoralised workers
advantages of capacity utilisation
spare capacity, more space
less pressure and stress
allows a company to cope with a sudden increase in demand
unit costs of labour
the cost of employing labour per unit of output
capacity
a measure of how much output a company can achieve in a given period of time
how is capacity a dynamic concept
it can change
more working shifts= increased capacity
personal funds
main source of finance for sole traders and partnerships. consists of using their own money for the business
retained profit
the value of profits that the business keep after paying taxes and dividends to use within the business
sale or assets
selling dormant assets such as machinery
share capital
only applicable to limited liability companies. money raised from selling shares in the company
loan capital
obtained from commercial lenders such as banks
overdrafts
temporarily overdraw on its bank account. usually used when businesses have minor cash flow problems
trade credit
source of finance that allows a business to ‘buy now pay later’
grants and subsidies
government financial gifts to support business acitivities
hire purchase
allows the business to pay their creditors in instalments, perhaps over 12 or 25 months
debt factoring
financial service that allows a business to raise funds based on the value owed by its debtors
leasing
a form of hiring whereby a contract is agreed between a leasing company and the customer. where the lessee pays rental income to hire assets from the lessor, who is the legal owner of the assets
venture capital
high risk capital, usually in the form of loans or shares, invested by venture capital firms, usually at the start of a business idea
business angels
extremely wealthy individuals who choose to invest their money in business that offer high growth potential
debentures
a kind of loan capital
capital expenditure
investment spending on fixed assets such as the purchase of land and buildings
initial public offering
business converting its legal status to a public limited company by floating its shares on a stock exchange for the first time
external sources of finance
funds from outside the business
internal sources of finance
funds from within the business
sale and leaseback
external source of finance involving a business selling fixed assets
share issue
exists when an existing public limited company raises further finance by selling more shares
too much inventory
can result in high storage costs including heating, lighting, insurance etc
too little inventory
customer demand not fulfilled
stop production whilst waiting for inventories
maximum inventory level
the largest amount of items to be stored on site
minimum inventory level
the lowest amount of items to be stored on site
re-order quantity
the amount of stock ordered to restore inventory levels to their maximum point
re-order level
the level of inventory at which new stock is ordered
lead time
the amount of time it takes between ordering stock and the stock being delivered
buffer stock
stock held in case deliveries are held up or there is an unexpected large order
centralised inventory
inventory that a company holds in a single storage facility
economies of scale
the cost advantage of operating on a larger scale, buying more cheaply in bulk and reducing unit costs. this is an advantage to medium to large scale foodservice operations
working capital
this is money that a business can access immediately, rather than. key that is tied up in investments or property. the availability of working capital is critical to the day-to-day operation of a food service operation
cash
includes notes and coins of different amounts
standing order
an agreement by the owner of the bank account and their bank to allow a third party to withdraw a fixed sum of money from their account on a certain
direct debit
a written document instruction the bank to make a payment from on persons bank account to another bank
mobile banking
the ability to complete banking transactions on mobile devices and internet connected computers
store card
similar to a credit card but can only be used in certain stores. the owner can use the card to buy items from that store on credit
debit card
a card issued by banks to be used to purchase goods and services with payment taken directly from the users current accounts
electronic transfer
when financial payments are electronically transferred from one bank account to another
cheque
an agreement by the owner of the bank account and their bank to allow a third party to withdraw specific amount from their account
contactless card
a card which contains technology to enable it to be touched on a contactless terminal and for funds to be withdrawn
credit card
issued by financial institutions allowing goods and services to be purchased with payment delayed
opening balance
the amount of money a business starts with at the beginning of the reporting period.
it is the closing balance of the previous month
closing balance
the amount of money thi business has at the end of the reporting period
it is net cash flow + opening balance
net cash flow
a profitability metric that represents the amount of money produced or lost by a business during a given period
inflows
the money that the business receives over a certain period
outflows
the amount of money a business loses over a certain period
why is net cash flow important
keeps operations running, pays bills, and helps a company to grow
