Paper 2 Flashcards
Market share
What percentage of the total market buys from your firm. e.g. Spotify have a 40% share of the music streaming market. Can be calculated by volume (number of items sold) or but normally by value (£ of sales).
Economies of scale
Where a business benefits from growth (being bigger). This is normally because cost per unit falls as they exploit their scale through: purchasing/bulk buying, technical, marketing, managerial/specialisation, risk-bearing, financial (all internal). Sometimes EoS can be external, where a business benefits from other firms being located in the area (easier to recruit staff, deliveries often cheaper, specialist suppliers locally etc.)
Diseconomies of scale
Where a business starts to lose out due to being ‘too big.’ Costs per unit start to rise due to problems with communication, keeping workers motivated, slow decision making etc.
Organic growth
Where a business grows without merger or takeover. Likely to be slower but also more secure / less risky.
Inorganic growth
Where a business grows using a merger (where it joins forces with another business e.g. T-Mobile and Orange) or a takeover (where it acquires another business e.g. JustEat buying Hungry House to try and compete with Deliveroo).
Horizontal integration
Where businesses at the same stage of the supply chain come together (e.g. Facebook and WhatsApp are both social media services but the latter more popular with younger users).
Vertical integration
Where a business joins forces with a business at a different stage of the supply chain (e.g. acquiring a raw material source (backward vertical) or buying a retailer (forward vertical) to sell the product into).
Conglomerate
A business that has interests in totally different, unrelated markets e.g. Tata produces tea and also steel. This diversifies risk.
Research and development
Investing in new ideas that either result in new, innovative products for the marketplace (product innovation) and/or reduced costs to give you competitive advantage (process innovation).
Differentiation
The process of making yourself different to rivals. This could be through quality, customer service, branding, price or the route to the customer (direct online, through retailers etc.) All of the list (except price) are known as non-price competition.
Product lifecycle
A series of five stages which typical products go through between development and eventual decline in sales.
Extension strategy
A way in which a business attempts to prolong the life of maturity phase of a product’s life cycle.
eCommerce / digital economy
The internet has had a huge impact on how business is done. Customers now have a lot more information (especially due to price comparison, review and blog sites), the use of social media for advertising (including viral marketing), the use of sales data for targeted micromarketing (Nectar, Clubcard etc.), online delivery meaning that whilst a significant investment is required in distribution networks there is a huge cost saving compared to high street locations (or even out of town shopping centres that still have products ‘on display’ with customer facing staff), competition from all over the world due to fast and cheap postage.
Creative destruction
The notion that innovation will inevitably result in the destruction (or at least disruption) of existing markets e.g. traditional cabs having to adapt to Uber, hotels adapting to Airbnb etc.
USP
Unique selling point – what makes you different.
Niche markets
Targeting a smaller group of consumers with specific requirements (rather than the generic mass-market) e.g. focussing solely on maternity clothes rather than clothes generally.
Pricing strategies
Choosing a price according to your objectives (cost-plus, mark-up, price skimming (for early adopters), penetration, predatory, psychological).
Efficiency
Using scarce resources in the best possible way.
Productivity
Measures efficiency in terms of resource inputs because it calculates how much output has been made from given inputs i.e. you are more efficient if you can produce more from a given input (or the same from a lower input) because you are more productive. Formula = output / input (where input is normally the number of workers so it really shows labour productivity).
Unit labour costs
How much it costs (in labour) to make each unit. This will fall if productivity increases because the same amount is spent on labour but more is made so each unit cost less to make. Unit labour costs can even fall if wages rise (as long as productivity rises faster than wages).
(increasing productivity –> Lower unit labour costs –> Competitive advantage (due to ability to offer lower prices))
(increased productivity can come training / education (increasing human capital) or either the augmentation of labour with capital or with capital substitution (replacing humans with machines))
Capital intensive
Where the production process relies heavily on capital (machinery).
Labour intensive
Where the production process relies heavily on labour.
Capacity utilisation
How much of total capacity a firm is currently using. Formula = (output / capacity) *100. E.g. Heathrow airport famously operates at 99% capacity i.e. practically every single take-off and landing slot is used all day, every day. NB: low figues are bad because FC will be high in proportion to revenue but 100% could actually be less desirable than 70% if equipment is unreliable.
Lean production
Any strategy that reduces waste (and therefore costs) in the production process. Includes: quality, JIT, Kaizen, cell production.
Quality control
Checking the product at the end of the process (so duff ones are removed and the saving is on customer complaint handling, warranty repairs, marketing to repair damage to reputation).
Quality assurance
Checking at each stage of production. As above but better because less cost spent on already faulty products e.g. why paint something if it is broken?
