Paper 2 Flashcards
Everything you need to know for paper 2 from the advanced information 2022
What does the term public sector organisations mean?
Public sector organisations are owned and run by the government. They aim to provide services to the public, rather than making a profit.
What does the term private sector organisations mean?
Private sector organisations are owned and run by private individuals. They range from small sole traders to huge organisations. Most private sector organisations aim to make profit but non-profit organisations are also part of the private sector.
What is unlimited liability?
Unlimited liability means that the business and the owner are seen as one under the law. This means that the business debts become the personal debts of the owner. So traders can be forced to sell personal assets to pay off business debts
What is limited liability?
Limited liability means that the owners aren’t personally responsible for the debts of the business and have separate legal identities to the business
What is a sole trader?
A sole trader is an individual trading in his or her own name or under a suitable trading name. The owner is responsible for all business debts because they have unlimited liability
Give 4 advantages of being a sole trader
– Quick and easy to set up
– simple to run
– easy to close/shut down
– all profit entitled to owner
Give 5 disadvantages of being a sole trader
– Unlimited liability – harder to raise finance – vulnerability, business suffers if the owner becomes ill – limited expertise – long hours
What is a partnership?
Partnerships are started and owned by more than one person up to 25 people. There is a legal partnership agreement which covers areas such as: how profits are shared, how decisions are taken and what happens if a partner wants to leave. Partnerships still have unlimited liability
Give 4 advantages of a partnership
– Simple to run
– expertise an effort of more than one person
– partners can provide specialist skills
– greater potential to raise finance
Give 3 disadvantages of a partnership
– Unlimited liability
– poor decision by one partner can damage the interest of other partners
– complicated to sell or close business
What are the two kinds of limited companies?
There are private limited companies (LTDs) and public limited companies (PLCs)
Who own limited companies and how are they run?
Limited companies are owned by shareholders and run by directors. Shareholders have a part ownership of a company
Give 6 characteristics of a private limited company
– Can’t sell shares to the general public
– don’t have share prices quoted on the stock exchanges
– shareholders may not be able to sell their shares without agreement of other state shareholders
– they are often small family businesses
– there is no minimum share capital requirement
– they end their name with the “limited” or LTD
Give 6 characteristics of a public limited company
– Can sell shares to the general public
– their share prices can be created on stock exchanges
– shares are freely transferable and can be bought and sold through stock brokers, bank and share shops
– they usually start as a private limited company then go public later to raise more capital
– They need over £50,000 of share capital and if they are listed on the stock exchange, at least 25% of this must be publicly available
– they always have the initials PLC in their name
What is ordinary share capital?
Ordinary share capital is the original value of shares sold
What is market capitalisation?
Market capitalisation is the current total value of all the ordinary shares issued by a company
Formula for market capitalisation
Number of issued shares X current share price
Give 4 advantages of being a limited company
– Limited liability
– easier to raise finance
– stable form of structure – business continues to exist even when shareholders change
– less tax
Give three disadvantages of being a limited company
– Greater admin costs
– public disclosure of company information
– legal duties to follow
What is a not-for-profit organisation?
And not-for-profit organisation runs for the benefit of the community and have social aims. Examples include charities, housing associations and community development trusts
What is a shareholder?
Shareholders anyone who owns at least one share in the company
Who usually buy shares in a public limited company?
Individuals, companies and institutions (such as pension funds)
Who usually buys shares in private limited companies?
Family and friends of the original owners
Give 6 reasons why a shareholder would invest in a company
– To achieve a capital gain
– Shareholders may be paid a dividend in return for their investment
– Shareholders want to be involved in the running of the business
– They believe in the aims and objectives of the company and want it to succeed
Invest in order to help the company grow or survive
– Venture capitalist
Give 5 reasons why share prices fluctuate
– Performance of the company – speculation of rumours of new product launches and cost saving initiatives – current share prices – interest rates – State of the economy/external factors
What does “rights issued” mean?
– When a company issued existing shareholders the right to buy additional shares
– the company will offer the shareholder specific number of shares at a specific price
– the shares are often offered at a discounted price to encourage existing shareholders to take the company Apple their offer
– if not wanted, they will sell using the stock market as ordinary shares
What is the role of marketing?
The role of marketing is to identify, predict and satisfy the needs of the customer in a profitable manner.
The marketing function has 3 basic objectives, what are they?
- Determine what the market wants
- Develop the strategy to achieve the marketing and business objectives
- Deliver the marketing actions to achieve the objectives
What are marketing objectives?
Marketing objectives set out what a business wants to achieve from its various marketing activities. They need to be consistent with the overall aims and objectives of the business, this provides focus for the marketing department.
Give 5 examples of marketing objectives
Market size Market share Market growth Sales growth Brand loyalty
Define market size
The number of sales, by value or volume, in a market as a whole.
Define market share
The proportion of total sales that a particular firm controls in a market
Define market growth
The percentage increase in the size of the total market in terms of either value or volume
Define sales growth
The percentage increase in the size of the sales of a firm in terms of either value or volume
Give 3 examples of internal factors on marketing objectives
Corporate objectives
Finance
Human Resources
Give 4 examples of external factors on marketing objectives
Market
Technology
Competitors
Ethical / environmental factors
What are the 5 ways you can classify markets?
Geography Nature of the product Seasonality Development level Product destination
Give 4 ways a business can carry out market analysis
Sales growth
Market growth
Market share
Market mapping
Market growth formula
New market size - Old market size
————————————————– X 100
Old market size
Market share formula
Sales
———————— X 100
Total market size
Sales growth formula
Sales this year - Sales last year
———————————————- X 100
Sales last year
What is market mapping?
A market map is a diagrammatic technique that enables businesses to display the perceptions of customers.
It compares different variables regarding products and consumers; it can be used to analyse consumer buying habits.
It also highlights gaps in the market
What is market research?
Market research is the process of gathering data and information about the market. It supports businesses to spot opportunities and decide what to do next.
What is quantitative research?
Research concerned with data. Main method of collecting quantitative research is through surveys
What is qualitative research?
Opinions, attitudes, beliefs and intentions
Usually gathered through focus groups
What is primary research?
Business gathers new data themselves or employs someone to do it for them on their behalf
What is secondary research?
Analysing and utilising research that has previously been collected
What does sampling allow?
Sampling allows a business to gain an insight into the needs and wants of the customer in a cost effective manner
What impacts the value of information collected by sampling?
- The sampling technique
- How the sample was carried out
- The size of the sample
What does the size of a sample depend on?
- Budget available
- The importance of accuracy
- Degree of confidence in results
What should market research avoid?
Market research must as a whole avoid bias!
There should be no leading questions and no intimidating tactics during interviews and focus groups.
What are the 3 main types of sampling?
- Simple random
- Stratified
- Quota
What is time series analysis?
Times series analysis looks at data over time to reveal underlying patterns by recording and plotting data over time
What is a trend on a time series analysis graph?
Trends are the long term movement of a variable. Trends can be upward, constant or downward but there are usually fluctuations around the trend.
What are seasonal fluctuations?
Seasonal fluctuations are changes that repeat on a regular basis
What is extrapolation?
Using past data to extend an identified trend and extending it into the future
What is a disadvantage to extrapolation?
The past is not always a good indication of the future. Conditions and trends can soon change due to competitors’ actions, consumer tastes and market conditions
What is correlation?
Correlation is a measure of how closely two variables are related
What are confidence levels?
Confidence levels indicate how sure you are that the value for the population lies within the confidence interval
Why are confidence intervals useful for a business?
- A business benefits from the use of statistics in estimating or predicting future events
- A confidence interval helps a business evaluate the reliability of a particular estimate
Give 4 ways in which technology can be used to gather information about customers
- Loyalty cards
- Social networking sites
- Search engines
- WiFi signals
- (cookies)
Give 4 advantages of using software to do your marketing analysis
- gather and analyse large volumes of data quickly
- lower running costs
- track and interpret consumer spending habits
- store lots of information
Give 3 disadvantages of using software to do your marketing analysis
- higher fixed costs at the start
- you have to train staff to use new software
- takes time to update software or new technology
Define price elasticity of demand (PED)
Price elasticity of demand is a measure of how responsive demand is to a change in price
What does price elastic mean?
Price elastic demand means that a change in price will lead to a more than proportional change in demand.
ie demand is sensitive to price changes
What does price inelastic mean?
Price inelastic demand means that a change in price will lead to a less than proportional change in demand
ie demand is not sensitive to price changes
If the price elasticity of demand is greater than 1 (ignoring the negative sign), is the product price elastic or price inelastic?
Price elastic
If the price elasticity of demand is between 0 and 1 (ignoring the negative sign), is the product price elastic or price inelastic?
Price inelastic
Formula for PED
% change in quantity demanded
————————————————— = PED
% change in price
What happens to revenue if you raise or lower the price of a price elastic product?
If you raise selling price, sales revenue will decrease.
If you lower swelling price, sales revenue will generally increase.
What happens to REVENUE if you raise or lower the price of a price inelastic product?
If you raise selling price, sales revenue will increase.
If you lower selling price, sales revenue will decrease.
Give 6 factors which influence PED
- the availability of substitutes
- the price of competitor goods
- time
- branding
- income
- nature of the good
What does YED measure?
Income elasticity of demand measures the extent to which the quantity of a product demanded is affected by the change in income
If YED is more than 1, what type of good is it?
A luxury
If YED is less than 1 but greater than 0, what type of good is it?
A necessity
If YED is less than 0, what type of good is it?
An inferior good
Give 2 examples of luxury goods
- Expensive holidays
- Branded goods
Give 2 examples of necessity goods
- Staple groceries
- Own label goods
What does STP stand for?
Segment > Target > Position
What is segmentation?
Segmentation divides a market into groups of buyers. Each group will have different wants and needs and require a different marketing mix
What are the 4 ways you can segment a market?
1) Demographic
2) Geographic
3) Income
4) Behaviour
Why is segmentation useful?
It identifies new customers, markets and products. It can also help to indentify the best way to market a product
What is a disadvantage to segmentation?
It can cause companies to ignore the needs of potential customers. It can be difficult to break the market into obvious segments and even more difficult to find ways of marketing to specific demographics
After segmenting a market, what must a business then do?
Target
What are the 3 approaches to targeting a market?
1) Concentrated marketing
2) Differentiated marketing
3) Undifferentiated marketing
Explain concentrated marketing and what type of companies does this suit?
Involves targeting one or two segments. It is good for small businesses with limited resources. The segment must be big enough for a decent return and have potential growth.
Explain what differentiated marketing is and which companies this suits?
Where several markets are targeted and the product and marketing mix are adapted to appeal to each segment. This is only feasible for large companies with large budgets.
Explain what is undifferentiated marketing is and which types of products is this good for?
It is where segments are ignored and the company tries to reach the entire market with a single product to appeal to each segment. It makes sense for widely used products, eg toothpaste
What are the two markets that businesses can target?
Niche and mass markets
What should a business do after segmenting and targeting a market?
Position
What is positioning?
Positioning is creating an image of your brand or product in the mind of your target customer
Give 3 influences on the positioning of a business
1) State of the market
2) Company’s current products
3) Attributes of the company
List the 7p’s
Price Product Place Promotion People Physical environment Process
A business’ marketing mix must be…
Integrated
Give the 3 types of consumer product
Convenience
Shopping
Speciality
What is a convenient product?
Inexpensive, everyday items bought regularly by lots of people
What are shopping products?
These are things like clothes, computers and washing machines that are bought less regularly than convenience products. They are more expensive and are sold in fewer places than convenience products
What are speciality products?
These are products that are unique in some way. Percieved image and quality are more important to consumers than price for speciality products, so higher profits can be made from them
What does the Boston matrix analyse?
Product portfolio
What does the x-axis represent on a Boston matrix?
Market share
What does the y-axis on the Boston Matrix represent?
Market growth
What are the 4 quadrants of the Boston Matrix?
Stars
Question marks
Cash cows
Dogs
Give 3 reasons why it is beneficial to develop new products
1) Bring in new customers
2) They give a competitive advantage
3) They allow companies to maintain a balanced product portfolio
What are the 5 stages of the product life cycle?
1) Research and development
2) Introduction
3) Growth
4) Maturity
5) Decline
What extension strategies can a business implement to prolong the life of a product?
1) Product development
2) Market development
3) Change the distribution channels
4) Change the pricing strategy - offers and competitions
5) Promotions - new ad campaign
Give some factors that affect pricing decisions
1) Value of costs / mark ups
2) How price sensitive customers are
3) Price elasticity of demand
4) The stage of the products life cycle
5) Corporate objectives
6) The price of competitor products
Give the 7 types of pricing strategies
1) Price skimming
2) Price penetration
3) Predatory pricing
4) Competitive pricing
5) Psychological pricing
6) Loss leaders
7) Price discrimination
What is price skimming? And give an example
When new and innovative products are sold at high prices when they first reach the market. Consumers will pay more because the product has scarity value, and the high price boosts the products image and increases its appeal. An example of this is the launch of PS5
What is price penetration?
The opposite of skimming. It means launching a product at a low price in order to attract customers and gain market share. It is especially effective in markets that are price-sensitive
What is predatory pricing?
When a business deliberately lowers prices to force another business out of the market (this is illegal under EU and US laws)
What is competitive pricing?
When companies monitor their competitors’ prices to make sure that their own prices are set at an equal or lower level
What is psychological pricing?
Basing prices on customers expectations. A high price may make people think the product is high quality.
What are loss leaders?
Products that are sold at or below cost price. These products will lose money but they’ll make a profit for the business indirectly by enticing customers into the shop where they will buy full priced items
What is price discrimination?
When a company sells its product at different prices to different groups of consumers, eg theme park ticket prices will vary according to the age of the customer
What is the purpose of promotion?
Promotion is designed to inform customers about a product or service or persuade them to buy it
What is the difference between industrial promotion and consumer promotion?
Industrial promotion tends to be informative, whereas consumer promotion tends to be persuasive
Excluding advertising, what are the other types of promotion?
1) Merchandising
2) Direct mail
3) Personal selling
4) Relationship marketing
5) Event sponsorship
6) Shopping channels
What are the 4 types of distribution channels?
1) Direct selling (0 level channel)
2) Indirect selling (1 level channel)
3) Direct selling through an agent (1 level channel)
4) Indirect selling (2 level channel)
Describe the direct selling channel
Manufacturer => Consumer
Describe the indirect selling channel (1 level channel)
Manufacturer => Retailer => Consumer
Describe the direct selling through an agent channel
Manufacturer => Agent => Consumer
Describe the indirect selling channel (2 level channel)
Manufacturer => Wholesaler => Retailer => Consumer
The fewer intermediaries in the distribution chain, the more _ _ _ _ _ _ _ a business has over how its products are sold
Control
What are 5 examples of things that are included in physical environment?
1) Decor and appearance
2) Appearance of the website
3) Appearance of staff
4) Layout
5) Practicality and safety
What is opportunity cost in terms of stock?
The opportunity cost is the cost of investing money in stock instead of something else
What diagram can a business use to manage their stock?
Inventory control chart
Define buffer stock
The minimum level of stock so that a business won’t run out of raw materials or finished goods
What is lead time?
The time it takes for goods to arrive after ordering them from the supplier
What is the reorder quantity?
Is the amount of stock the company orders from its supplier
What is the reorder level?
The stock level at which a reorder is placed
Formula for reorder level
(Lead time X average daily usuage) + buffer stock level
Define outsourcing
Outsourcing is when businesses contract out some activities to other businesses rather than doing them in house
Benefits of outsourcing
- The business can accept contracts which they would otherwise have turn down
- They also benefit from the specialised knowledge of the businesses they outsource to
- The business doesn’t have to pay for permanent staff when they’re only needed occasionally, so it reduces costs
What is mass customisation?
A method of producing to order (products are made after the order is placed). It combines the flexibility of a custom-made product with the low cost of mass production
What is the main benefit of mass customisation?
It allows for an increase in customer choice without a corresponding increase in costs and it can lead to a competitive advantage
What is the main disadvantage to mass customisation?
It can be very difficult for a business to make mass customisation efficient and profitable. Customise products can be expensive and it can take a long time for them to be delivered to customers – this is acceptable for luxury items but not for every day things
What are 6 factors a business needs to consider when choosing their suppliers?
Price Payment terms Quality Capacity Reliability Flexibility
What are the four non-financial incentives for motivation?
– Job enlargement
– job enrichment
– empowerment
– team working
Define piecework
Staff are paid according to the number of items they produce
Define performance-related pay
A financial reward to employees whose work is considered to have reached a required standard and/or above average. Performance related pay is generally use where employee performance cannot be appropriately measured in terms of output produced or sales achieved
Define profit sharing
Profit sharing refers to any system whereby employees receive a proportion of the businesses profits
Define share ownership
Share ownership is a program in which a business distribute shares to its employees
Define fringe benefits
Fringe benefits are the additional benefits offered to an employee, above the stated salary for the performance of a specific service. Some fringe benefits such as a social security and health insurance are required by law, while others are voluntary provided by the employer.
Define salary
A salary is a fixed regular payment, typically paid on a monthly basis but often expressed as an annual sum, made by an employer to employee, especially professional or white-collar worker.
What are the six types of financial incentives to motivation?
– Piecework – performance related pay – profit sharing – share ownership – fringe benefits – salary
Which motivational theorist was known to have developed the first motivational theory?
FW Taylor
What was the one reason that Taylor believed that people worked for?
Taylor believed that people work for one reason only: money.
Taylor’s goal was to figure out the most efficient way to do a job, and then to make sure every single worker did it that way. What was this approach called?
This approach is called scientific management
In Taylors theory, in what way should you pay an employee to maximise motivation?
Taylor believed in paying workers according to the quantity they produced – the most productive workers got a better rate. He believed that financial incentives would motivate workers and raise productivity.
What did Maslow’s motivation theory consist of?
Maslow’s theory was based on a hierarchy of needs. Maslow said that people start by meeting the needs of the bottom of the pyramid. Once they have sorted out those needs, they can move on to the next level up.
What are the five levels of Maslow’s hierarchy of needs?
1) Physiological – food, water, shelter, clothes
2) Safety – safe work environment with job security
3) Social needs – friendship, teamwork
4) Self-esteem – achievement, self-respect, level of status
5) Self actualisation – intellectual needs, fulfilling potential, achieving targets
What is Herzberg’s two factor theory?
Hertzberg believed in a two factor theory of motivation. He argued that there were certain factors that a business could introduce that would directly motivate employees to work harder these are known as motivators. However, there are also other factors that would demotivate an employee if they are not met, these are called hygiene factors.
What does the UK government encourage?
The UK government encourages entrepreneurs to set up businesses because enterprise benefits economies – new businesses increase productivity and create new jobs. The government is especially keen to promote enterprise in areas that need economic regeneration – this provides lots of opportunities for new businesses
What are 4 strategies described in the business enterprise policy?
– Government schemes allow enterprises to borrow money at lower interest rates and encourage private investment in businesses
– To make it easier for small businesses to succeed, they don’t have to pay business rates and unemployment allowance means a national insurance contributions bill is reduced by £2000
– The great business website has been launched to advise people on setting up and running a business
– The government is backing initiatives to encourage young entrepreneurs
Why are improvements in infrastructure good for the economy?
Improvements in infrastructure are good for the economy as they make businesses more productive, e.g by allowing people, goods and raw materials to move about quickly, as well as making data transfer through broadband network quicker. In the short term, infrastructure improvements provide jobs to, for example in constructing new roads
What are four things that can make international trade easier or harder?
– Tariffs (import taxes?)
– Quotas to put limits on imports or exports
- Joining trade blocs such as the European Union
– Trade embargoes ban trade with a particular country
What is GDP?
Gross domestic product is the total market value of goods and services produced within a nation over a period of time
What does GDP indicate?
GDP indicates the size of nations economy
What is economic growth? And how is it measured?
Economic growth is an increase in the nation’s production of goods and services. It’s measured as the rate of increase in GDP
What are the two main things that economic growth is determined by?
Resources and productivity
How can governments encourage short-term growth?
Governments can encourage short-term growth by cutting taxes and interest rates. This encourages businesses to borrow money and invest in production. It also encourages consumers to borrow money and spend it on goods which increases demand in the economy
What are the benefits of economic growth?
– Growth in GDP means higher revenues and higher profitability for businesses
– Potential for economies of scale
- Increases confidence
What are the disadvantages to economic growth?
– Fast growth may cause shortages of raw materials and skilled labour
– If growth is too fast it’s usually followed by a recession
What are the typical characteristics of a boom?
– GDP is high
– As production reaches maximum capacity there are shortages and price increases
– Shortages of skilled labour mean wages rise
What are the typical characteristics of a recession?
In a recession, income start to go down, demand goes down and business confidence is reduced
What are the typical characteristics of a slump?
GDP is at a low. Businesses close factories and there are a lot of redundancies. Unemployment is high. A lot of businesses become insolvent or go bankrupt
What are the typical characteristics of a recovery?
In recovery, production increases unemployment decreases. People start to have more money to spend
What is inflation?
Inflation is an increase in the price of goods and services
What measures UK inflation?
The consumer price index
What is demand-pull inflation?
High inflation can be caused by too much demand. It happens when there is an increase in disposable income so people buy more and companies can’t supply goods quickly enough and increase their prices. This is demand pull inflation.
Excess demand when the economy is near its full capacity is called overheating. Demand pull inflation can actually make profits go up and businesses can put up prices in response to high demand without their costs going up buy as much
What is cost – push inflation?
Rises in inflation can be due to rising costs pushing up prices.
Wage rises can make prices go up – especially productivity isn’t rising.
Cost-push inflation can make profit margins go down businesses do not decide to put their prices up
What is deflation?
Deflation is the opposite of inflation – it’s when there’s not enough demand so companies reduce their prices
What does deflation cause?
Deflation causes a falling productivity because companies won’t keep endlessly working and supplying the market with goods that nobody wants. Lower productivity usually means firms don’t need as many workers so deflation often leads to rising unemployment. This makes demand drop further in cause firms to lower prices even more
What is an exchange rate?
Exchange rate is the value of one currency in terms of another currency
What two methods do the government use to try to keep the economy under control?
Fiscal policy and monetary policy
What does fiscal policy monitor and change?
Tax rates and the amount of government spending
Explain what is an expansionary fiscal policy?
An expansionary fiscal policy is implemented when there is economic slowdown and high unemployment.
It’s done by cutting taxes and/or raising spending.
Government borrowing increases and demand for goods and services increases
Explain what a contractionary fiscal policy is?
Contractionary fiscal policy is implemented when production is at 100% capacity and there is a risk of high inflation.
It’s done by raising taxes and/or cutting spending.
Government borrowing decreases and demand for goods and services also decreases
What does the monetary policy control?
Interest rates
What are the four aims of the monetary policy?
1) Control inflation
2) Control the overall rate of economic growth
3) Manage unemployment levels
4) Influence foreign exchange rates
What is protectionism?
Protectionism is when government protect domestic businesses and jobs from foreign competition by giving them subsidies, while imposing tariffs and quotas on imported products.
What must the government balance open trade with?
Protectionism
What is open or free trade?
Open trade is when imports and exports are not restricted. The World Trade Organisation (WTO) regulates trade between member countries
Give two advantages of protectionism
– Countries develop a variety of new industries, adding local jobs and boosting economic growth
– Allow small businesses to grow as they don’t have to compete with multinationals
Give two disadvantages of protectionism
– Prices of imported goods rise due to decrease supply – prices of domestic goods rise without a change in quality as there is less competition
– if you restrict a countries trading in your country, they may restrict your trading in theirs
Give 4 benefits of open trade
– Countries specialise in what they are good at
– countries benefit from economies of scale
– more choice and lower prices for consumers
– developing countries can export goods and increase their living standards
Give three disadvantages of open trade
– If you are local jobs as multinationals expand abroad
– employee skills are concentrated around certain jobs
– seven countries may use sweatshops and child labour to keep the cost down to compete internationally
What is globalisation?
Globalisation is the increase in how interconnected the world is
What is an emerging economy?
Emerging economies are developing countries was fast growing but not yet fully developed economies
Give four examples of the most significant emerging economies
China, India and Brazil
What is strategic direction?
Strategic direction is the general path of business takes, based on its missions and achieving its objectives
What are the key factors in settings to change direction?
Key factors in settings to change direction of the choices of which markets to compete in, what products to offer and which direction the business should grow in
What five factors influence the choice of market?
Type of product Level of competition External factors Internal resources Attitude to risk
What are five factors that influence products?
Research and development Competitors Technology Finances available External factors
What is Ansoff’s matrix used for?
Ansoff’s matrix is a tool for comparing the level of risk involved with the different growth strategies and it helps managers to decide on a direction for strategic growth
What are the two axes labelled as on the Ansoff matrix?
Products (existing and new) and markets (existing and new)
What are the four quadrants of the Ansoff matrix?
Market penetration
Product development
Market development
Diversification
What is market penetration? (Ansoff matrix)
Market penetration means trying to increase your market share in your existing market
What is product development? (Ansoff matrix)
Product development is selling new products in your existing markets
What is market development? (Ansoff matrix)
Market development is selling existing products to new markets
What is diversification?  (Ansoff matrix)
Diversification means selling new products to new markets. This is the most risky strategy
What are the four types of internal economies of scale?
Technical
Managerial
Purchasing
Marketing
What are technical economies of scale?
Technical economies of scale are related to production. Production methods for large volumes are often more efficient
What are managerial economies of scale?
Large businesses can employ managers with specialist skills to manage specific departments. They oversee plans and strategies which can result in work being done more quickly and efficiently
What are purchasing economies of scale?
Purchasing economies of scale are to do with discounts. Big businesses can negotiate discounts when buying supplies in large quantities. They can get bigger discount and longer credit period then they’re smaller competitors and they can also borrow money at lower rates of interest than a small business
What are marketing economies of scale?
Marketing costs are usually fixed, so a business with a large output can spread the cost over more units
When do external economies of scale happen?
External economies of scale happen when industries are concentrated in a small geographical area
Describe what the experience curve is?
In general, the production of any goods or services will follow the experience curve. As the total units produced by business increases, the cost per unit decreases at a constant rate
What are economies of scope?
Economies of scope arise when a business produces multiple products instead of specialising in one.
It’s cheaper for one business to produce many products than it is for many businesses to produce one product each
What are diseconomies of scale?
Diseconomies of scale make unit costs increase as the scale of production increases
Why do diseconomies of scale occur?
They happen because large firms are harder to manage than small ones.
How does a business prevent diseconomies of scale?
Strong leadership, delegation and decentralisation can all help prevent diseconomies of scale and keep costs down
What is retrenchment?
Retrenchment means that the business will have to downsize in some areas
How can a business retrench?
– Cut jobs
– reduce output
– withdraw from markets
– demerging (splitting the business up)
What is organic growth?
When a business grows from within
Give 4 advantages of organic growth over external growth
– Can maintain current management style, culture and ethics
– Less risk as it’s expanding what the business is good at and it’s usually financed using profits
– It’s easy for the business to manage internal growth and control how much the business will grow
- Less disruptive changes mean that workers efficiency, productivity morale remain high
Give 3 disadvantages of organic growth compared to external growth
– It can take a long time to grow a business internally
– Market size isn’t affected by organic growth. If the market isn’t growing, the business is restricted to increasing its market share of finding a new market to sell products to
– Businesses might miss out on opportunities for more ambitious growth if they only grow internally
Give 5 problems of growing in size
– Large companies can suffer from diseconomies of scale
– Growing companies find it more difficult to manage cash flow
– Fast growth increases the risk of overtrading
– When a company grows in size it will often change from UNLTD to a plc which can make the running of the company more complicated
– Businesses have to avoid growing so much that they dominate the market and become a monopoly
Give 4 reasons why a business owner may choose to restrict growth or retrench
– They may want to maintain the culture
– The business will become more complicated to manage as it gets bigger
– Growth requires the business to secure additional financial resources which can be complicated
– They may not want to put too much strain on their cash flow position
Who came up with a model for Growth?
Greiner
What are the 5 crisis’ stated in Greiners model of growth?
Leadership Autonomy Control Red tape Growth
What are the 5 types of growth in Greiners model of growth?
Creativity Direction Delegation Coordination Collaboration
What is a franchise?
A franchise is an agreement which allows a new business to use the business idea, name and reputation of an established business
What is the franchisor?
The franchisor is the establish business which is willing to sell, or license, it’s idea, name and reputation
What is the franchisee?
The franchisee is the business which buys into the franchise.
They usually pay the franchisor an initial fee plus ongoing payments – usually a percentage of their revenue or profit
Why is franchising good for growth?
Franchising allows a franchisor to grow quickly as most of the costs and risks are taken on by the franchisee
What are the three main types of external growth?
Mergers, takeovers and ventures
What is a merger?
Mergers are when two companies joined together to form one company. They might keep the name of one of the original companies or come up with a new name. The shares of the merged company are transferred to the shareholders of the old companies
What is the main motive for mergers?
Synergy – this is where the business after the merger is more profitable than all the businesses before the merger. This is a result of the match business generating more revenue or cost savings than the independent businesses could between them
What is a takeover?
Takeovers are when one business buys enough shares in another so it has more than 50% of the total shares. This is called a controlling interest and it means the buyer will always win in a vote of all shareholders.
What are takeovers also known as?
Acquisitions
What are the two types of takeovers?
Agreed and hostile
When do hostile takeovers occur?
Hostile takeovers occur when one plc buys a majority of the shares in another plc against the will of the directors of the company. It can do this because the plc shares are traded on the stock exchange and anyone can buy them
When does an agreed takeover happen?
Agreed takeovers happen when shareholders or other types of owners such as sole traders agree that they’ll sell the business to someone else. This is usually because the owners believe it would be beneficial for the survival of the business
What are ventures?
Ventures or small businesses or projects that are set up by existing businesses in the hope of making a profit. They are often set up to try and meet the needs that are not being met in the current market.
What is a joint venture?
If more than one business investor then it’s called a joint venture. In a joint-venture, businesses share their resources but there is no change of ownership for the businesses involved. When the joint-venture is terminated, bills are paid off, profits are shared and the businesses remain separate
What’s the advantage of a joint venture?
A joint venture can be a good way to set up a new business if you don’t have the capital to do it yourself and it can also be a good way for businesses to access markets in different countries
What is the main disadvantage of ventures and why are joint ventures often preferable?
Adventure often involves a lot of risk to the business setting it up – a joint venture is often preferable because the risk can be spread among the businesses involved
What are the four types of integration?
Horizontal
Forward vertical
Backward vertical
Conglomerate
Describe horizontal integration
Horizontal integration happens when a firm combines with another firm in the same industry at the same stage of production process
Describe vertical integration
Vertical integration occurs when a firm combines with another firm in the same industry but at a different stage of the production process
What are the two types of vertical integration?
Forwards and backwards
Describe forward vertical integration
Forward vertical integration is when a business combined with another business that is further on in the production process.
For example, a manufacturer merging with the outlets where its products are sold
Describe backward vertical integration
Backward vertical integration is when a business combined with another business at an earlier stage of the production process.
For example, a retailer taking over its suppliers
Describe what a conglomerate merger is
Conglomerate mergers are between unrelated firms – they aren’t competitors of each other and they aren’t each other suppliers or customers
What is a planned strategy?
Planned strategy is planned out before action is taken to implement it
What is an emergent strategy?
Emergent strategy develops over time, as a businesses actions lead to patterns of behaviour. Emergent strategy can be adapted as the business learns what works in the current environment
What is strategic drift?
Strategic drift is what happens when a strategy becomes less and less suited to the business environment. It happens when a business is strategy doesn’t do that to keep up with the changes in the environment
