paper 2 Flashcards
internal growth (organic growth) definition
business grows by expanding its own activities
internal growth (organic growth) pros/cons
low risk but slow
external growth (inorganic growth) definition
usually involves a takeover (existing firm expands by buying more than half of the shares in another firm) or merger (two firms join together to form a larger firm)
external growth (inorganic growth) pros/cons
quick, but risky (less than half of takeovers/mergers are successful)
two methods of internal (organic) growth
-targeting new markets
-developing new products
4 methods of external (inorganic) growth
-join with a supplier
-join with a competitor
-join with a customer
-join with an unrelated firm
larger firms benefit from economies of sales; meaning what?
they use more resources, and so buy mor in bulk (cheaper) compared to smaller firms
larger firms also have diseconomies of sale; meaning what?
-more expensive to manage properly
-harder communication
-more complex coordination
(internal finance) retained profit definition
profits are reinvested into business after dividends (payment made to shareholders)
(internal finance) funding by fixed assets definition
selling old/unused machinery/buildings etc. If too many are sold, you can’t go onto trading.
(external finance) loan capital
money borrowed and used as an investment
(external finance) share capital
if company becomes limited company , it can raise finance by selling shares.
retained profits cons
larger companies are under pressure to give large dividends reducing retained profit
fixed assets cons
limit to how many asset that can be sold, if too many are sold you can’t go onto trading.
loan capital cons
-banks need security (usually assets such as properties where they could be sold to repay loan if things go wrong)
-larger firms can take out larger loans.
-established firms may be easier to get loan
-has to be paid back with interest
share capital pros
doesn’t have to be repaid
share capital cons
original owner’s get less profit/control
private limited company (PLC) definition
company shares are not available to public and are only sold if all shareholders agree
PLC pros
-more capital can be made than any other type of business
-expansion and diversification
-incorporated (separate legal entity to owners); limited liability
PLC cons
-hard to get lots of shareholders to agree
-someone could buy enough shares to take over company
-accounts are public
-can have 100s or 1000s of shareholders which split profit
aims/objectives examples
-survival
-growth
-enter/exit market
-change size of workforce
-change size of product product range
reasons to change aims/objectives
-new legislation (laws)
-changes in market condition (market growth/ shrink ect)
-change in tech
-company performance
-company internal changes
business aim definition
long term target
business objective definition
targets to build up to reach aim
globalisation definition
process where businesses/countries become more connected around the world (importation becomes easier/more common)
impacts of globalisation on a business
-more imports= variety and choice
-more exports
-multinationals (businesses operating on more than one country)
-business locations
international trade barriers
-tariffs (taxes on imports/exports)
-trade blocs (groups of countries with few or no trade barriers)
how might a business compete internationally
-e commerce (sell goods online)
-changes in marketing mix
cons of an ethical business
-high cost
-more difficult to find ethically sourced materials
-means for profit, the prices go up
pros of an ethical business
-marketing/brand image (eg; fairtrade certification)
-shareholder may be more likely to invest
-ethical staff treatment makes employees fell motivated (increase production), and may leave positive reviews.
how can a business reduce its impact on the environment
-less packaging
-recycle
-dispose of hazardous waste carefully
-efficient + quieter machinery
-renewable energy resources
pros of environmentally friendly business
-brand image/reputation
-competitive advantage
cons of environmentally friendly business
-expensive new equipment/processes
what is a pressure group
organisations which try to influence decisions of government and businesses. a business may follow them for brand image/reputation
four Ps of the marketing mix
Product
Price
Place
Promotion
differentiation business definition
making product/service distinctive in the market eg; unique selling point, low cost
three factors of the design mix
-function
-cost
-aesthetics
5 stages of product life cycle in business
1-research and development
2-introduction
3-growth
4-maturity
5-decline
what are extension strategies used for
to keep products selling once the product begins to reach decline
types of extension strategies
-add more/different features
-new packaging
-target new markets
-promotion/advert change
-lower price
internal factors influencing pricing decisions
-technology
-method of production
-product life cycle
external factors influencing pricing decisions
-competition
-market segments
-cost of raw materials
price penetration definition
initial low price, then increase
loss leader pricing definition
price is set below cost (eg consoles, then profit id made on games)
price skimming definition
initial high price, then decrease
competitive pricing definition
similar price to other firms
cost plus pricing definition
usually used when there’s no price competition- set price based on how much profit is intended to be made.
5 types of pricing strats
-price penetration
-loss leader pricing
-price skimming
-competitive pricing
-cost-plus pricing
business promotion methods
-newspapers
-poster/billboard
-magazine
-TV
-internet
-social media
-sponsors
-mail
-search history, targeted ads
sales promotion examples
-special offers
-product trials
2 methods of distribution
-high street retailers
-E-tailers
job production definition
one product at a time
batch production dfinition
multiple identical products produced simultaneously
flow production definition
continuous production and movement of goods
just in time (JIT) stock definition
stock is used, manufactured and sold when it arrives, and is only ordered when needed
pros of JIT
-do not have to store stock
-improve cash flow; no delay
cons of JIT
-requires a lot of coordination
-no economies of scale benefits (no bulk stock)
-can run out of stock easily if orders are late/don’t arrive
bar gate stock graph
procurement definition
buying things from outside the firm
logistics definition
getting goods/services from one part of supply chain to another
what reasons may a company need to choose a supplier
-quality
-trust
-availability
-delivery
-price
quality control definition
checking products as they are being made for faults before it reaches customer
quality assurance definition
checking quality is being maintained throughout each process
sales process list
-find potential new customers
-approach potential new customers
-assess customer needs
-presenting
-closing (agree to sale)
-follow up
pros of good customer service
-customer satisfaction
-more likely repeated purchases/loyalty
-customers encouraged to spend more
cons of poor customer service
-dissatisfied customers
-bad reviews/reputation
-poor brand image
-less customer loyalty/purchases
