Paper 1 Past Paper Q Flashcards
Large business - introducing product of a niche market?
- products are only of interest to particular customers who are willing to pay more for products then for mass markets which can achieve high added value
- competition in niche markets are limited or are comprised of small firms that can’t match the price or marketing capabilities of a larger business
- May be a growing market that will expand
- may consist of consumers who are already loyal to the large business’s brand so marketing expenditure is low
Business has a decline in sales which led to redundancies - Maslow’s hierarchy of needs can be used to motivate remaining employees?
- redundancies negatively impacted security, social and restricted opportunities for self esteem needs
- employees will only be motivated by having their needs being met
- lower levels must be satisfied to enable higher level needs to act as mitivators
- managers must understand individual employee needs to motivate them e.g financial rewards for low level or job security for second level
Inevitable that a business will need to improve quality to achieve increasing profits?
- increase price to widen the gap between price and unit costs can help improve profitability which can be achieved by improving quality of products e.g. through its branding and improving brand loyalty. Customers will to pay higher prices if product quality improves
- cutting costs can increase added value and thus profitability if price stays the same which can be achieved through quality of manufacturing improving or it can be achieved through cheaper raw material costs or low wages
- Sales volume can be increased to increase profit by product quality increasing or improved marketing
- improving quality may not be the main focus of a business which chooses a low cost strategy but it may depend upon high quality processes to lower costs
- differentiation strategy means improved perception or USP which is likely dependent upon higher quality products but quality can also be through marketing rather than the product
Higher profits can be achieved through cheaper cost, enhanced image or creating barriers to entering a market. Profitability is also affected by other external factors such as economic or social changes even when quality isn’t changed. However quality can be an important influence on profitability but it is not inevitable that improved quality is needed to improve profitability.
Factors that cause share price to increase in a PLC
- rise in performance of business through increased profits will lead to an increase in willingness to purchase shares which leads to an increase in its demand for the shares
- change in dividend policy or increase in dividends returned to shareholders would increase demand for shares
- speculation of future value of a business to rise by investors due to improved market performance so an increase in demand for shares
Benefits of a newly established business producing a budget
- budget for costs allow controlling of spending on expenditure so costs remain in control. Planning of expected amount can be spent and if it’s accurate, the business does not overspend on materials so costs are down which is especially important for a newly established business who may find it hard to keep costs under control
- early stages of performance can be monitored by looking at spending and sales compared to the targets so the business can measure success which can help the business survive
Increasing levels of inventory held could impact profitability
- increased inventory held allows more branded goods to be available in store reducing complaints from customers, which improves online reviews leading to an improved reputation so prices can rise and profitability can increase
- larger discounts on goods due to bulk buying discounts which reduce the cost of sales and increase gross profit margins
- however there are larger storage costs and if it is a high street chain, it’s even higher which will cause fixed costs to increase and profit per unit decreases
Removing price match and focusing on free support
- price match is a tradition and if the business is widely known for this, it can lose customers. Having high costs than its online competitors and still increasing prices increases likelihood of customers leaving
- removing price match may be damaging to the market as a whole to sales but it depends upon the elasticity of the product. If inelastic, it isn’t price sensitive so increasing prices will have a small impact in customers.
- free support service needs specialist staff which creates additional costs which may be passed onto customers which will affect online price sensitive competitors
- growing demographics being over 60’s means this is the target market so they should be the focus. Removing price match will help the business spend more on resources to promote their support service and this is supported by over 60’s being price inelastic.
Online competitors having low cost means the business will have to provide extra services which means it is better to remove price matches to be profitable. Business is successful so far with older demographic who aren’t price sensitive so can find other USP’s appealing which competitors don’t offer
Implications of operational data on the prices a business can charge its customers
- poor productivity will mean higher cost per unit
- lead time being shorter than rivals can result in more cutomers willing to pay a hugher price to get the good quicker
- product returns being high compared to rivals when customers want reliable goods means customers expect lower pay for goods as they may need to be returned
Involving employees in the planning for a new production line
- employees may make better decisions which can help improve motivation which will improve the ethical reputation of the business. Customers expect high quality and ethics, and involving staff in planning decisions helps this
- labour productivity and quality increases when employees are involved in decision planning. Highly skilled staff maybe more knowledgeable than managers who don’t have production experience so it is beneficial. Staff can make decisions such as job enrichment so tasks are less repetitive increasing motivation and thus profitability
- however involving staff in the decision making may slow down shareholders from launching new products faster in a rapidly changing market leading to a loss in competition
- depends upon the production type e.g. for traditional cars and electrical cars. Highly skilled workers may not have experience so will make bad decisions which is costly.
Widening a managers span of control might affect labour productivity within the department she manages
- increasing span of control can reduce ability of managers to support subordinates or can lower morale which leads to lower labour productivity
- increased delegation and resposibility for subordinates so labour productivity decreases as they are motivated by responsibility and have relevant skills
- fewer levels of hierarchy which can speed communication
Labour intensive over capital intensive
labour intensive processes are likely to provide better outcomes than capital intensive processes when:
- the provision of tailor made or craft goods or services where machinery may lack the flexibility of a human
- businesses that depend on the skills of the workforce such as hairdressing are more likely to use kabour intesive methods
- capital expenditure needed for capital intensive processes is beyond the means of a specific business
- customer preferences like personal service while others prefer low cost which is easily achieved through capital intensive processes
Increased use of e commerce may lead to all retailers operating only online
factors causing online growth:
- online retailing reduces costs such as rents for city centre properties
Online ordering provides businesses with more accurate forecasts of demand
- flexible contracts allow businesses to call in the exact number of workers needed to process online deliveries but for shops, staffing levels are based on previous experiences so over staffing and understaffing is likely
- online ordering provides more data on customers so strategies can be effective
- lower costs can lead to lower prices for elastic goods and a higher profit margin for inelastic demand
- 24 hour retailing is more convenient for customers
- customers benefit from greater price comparisons online
Factors that restrict growth:
- decline in city centre retailing is likely to lead to lower rent’s making stores a more attractive proposition
- technology costs may dissaude small retailers from going online
- products like clothing have tactile experience to help customers decode on a product so shops are likely to remain
- services such as hairdressers cannot operate online
- customers may be concerned of the security of online retailing so use stores
It is unlikely that all retailers will become purely online
Supplier power and competitive rivalry increasing leads to decreased profits?
- increase in supplier power is likely due from fewer, larger suppliers so businesses have less choice. They will therefore have to pay higher costs for materials and quality is low which affect profit
- competitive rivalry increasing is likely to result from new competitors or greater intensity such as price wars which puts greater focus on marketing so profit margins decrease and costs increase
Profit falling depends upon the extent of the increase in supplier power and competitive rivalry. Some businesses may take over or merge with suppliers or competitors which reduces negative impacts. Market power increases with less rivals so higher prices and profits are made and takeovers strengthen bargaining power of a business so supplier power reduces
Employing more diverse workforce May increase profits of a business
- diversity increases number of applicants to jobs and thus enables a business to employ a more skilled workforce so labour productivity and innovation increases
- diversity improves morale and thus reduces inefficiency and costs relating to high labour turnover
- better customer service enhances revenue as there is better understanding of the diverse needs of the customer base enabling the business to widen its customer base
- greater willingness for employees to supply labour so lower wages when supply exceeds demand
Problems for a small business when digital technology grows
- high costs may prevent a small business from competing with latger businesses as they’re using inferior tech
- larger businesses use digital tech to reduce unit costs and gain a competitive advantage
- small businesses update tech less frequently so customers may perceive goods to be inferior or outdated
- larger businesses can use specialist skills to attract new customers as they know customer needs e.g. data mining so targeting customers is a competitive adv
