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Business > Paper 3 > Flashcards

Paper 3 Flashcards

1
Q

Price skimming

A

High price when unique product is launched but as product life lengthens the price is reduced

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2
Q

Penetration pricing

A

Involves launching a product at a very low price to entice customers

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3
Q

Price skimming + -

A

+ high prices to create a desirable image for the product
+ early adopters will pay high price for exclusivity
+ high prices generate rapid profits

  • lower sales as seen as a rip off
  • Early buyers will be frustrated when price falls
  • image may suffer when price begins to fall
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4
Q

Penetration pricing + -

A

+ low price encourages lower risk product sampling
+ low price boosts sales - cutting production costs
+ high volumes persuade retailers to buy the product

  • product image seen as cheap
  • upmarket retailers may be unwilling to stock the product
  • create price sensitivity among customers - higher price elasticity
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5
Q

Price strategies for new products

A

Penetration

Price skimming

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6
Q

Price strategies for existing products

A

Cost-plus
Predatory
Competitive
Pyschological

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7
Q

Cost-plus

A

Deciding price by adding a desired percentage onto total costs per unit

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8
Q

Cost-plus + -

A

+ guarantee a profit is made per sale
- ignoring the market, may produce unrealistic price

Appropriate when firm is market leader and doesn’t need to worry about competition

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9
Q

Predatory

A

Price low enough to force a competitor out of business - usually on a local scale

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10
Q

Predatory + -

A

+ once rival has been pushed out, firm can rise prices
- illegal

Appropriate when firm is more financially more powerful

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11
Q

Competitive pricing

A

Charging a price at the market average or at a discount to the average market price

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12
Q

Competitive pricing + -

A

+ price wont be a factor to why a customer is put off
- little control over price they charge and revenue generated

Appropriate when a company is taking on more powerful rivals

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13
Q

Physiological

A

Fine tuned decisions on the price to charge, prices set just below major psychological levels, such as £9.99 instead of £10

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14
Q

Psychological + -

A

+ nudge customers make a purchase believing it is cheaper
- little affect on planned purchases and may annoy customers due to inconvenience

Appropriate when selling impulse purchases

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15
Q

Factors affecting pricing strategies

A

Levels of product differentiation - higher differentiation means higher price
Price elasticity of demand - inelastic demand means easy prices changes without impacting demand
Levels of competition
Strength of brand
Stage in the product life cycle - introduction high price but maturity lower price
Costs and need to make a profit

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16
Q

Changes in pricing to reflect social trends

A

Online sales - more sensitive due to price comparison websites
Price comparison sites encourager firms to be more price competitive so their best value show on their sites benefits all parties involved

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17
Q

Need to recruit because

A

Existing staff leaving
Growth of business
New activities needing new skills

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18
Q

Recruitment process

A
  1. Employee required
  2. Conduct job analysis on vacant role
  3. Create job description and specification
  4. Advertise vacancy internally and externally
  5. Draw up shortlist of candidates
  6. Decide on most suitable candidate
  7. Appoint most successful candidate
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19
Q

Decision on wether to recruit internal or external will depend on the

A

Cost of recruitment method
Size of recruitment budget
Location and characteristics of likely candidates

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20
Q

Internal recruitment + -

A

+ quicker and cheaper
+ chance of promotion boost motivation and productivity of workers
+ skills and attitudes already known by the business

  • limits potential number of candidates
  • fails to bring new ideas
  • creates vacancy elsewhere that needs replacing
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21
Q

Selection methods

A

Interviews - may be bias or prejudice
Testing and profiling - can screen out great candidates who do not fit the traditional role
Assessment centres - more expensive and more for senior partners

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22
Q

Costs of training+ -

A

+ higher skill levels can boost productivity and innovation
+ a wider range of skills can enhance business flexibility
+ motivates staff, who feel they have been invested in the business

  • large financial cost
  • operations of normal business can be interrupted
  • better trained staff are more attractive to other business who may poach them
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23
Q

On the job training + -

A

+ tailored to the company’s ways of working
+ mistakes can get instant feedback on
Saves time and cost of sending employees out

  • less knowledge acquired on methods used elsewhere
    May take a lower priority as staff focus on production targets
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24
Q

Capacity utilisation equation

A

Capacity utilisation = actual output/potential output x 100

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25
Q

Implications of under-capacity utilisation

A
  • reduces operating margins significantly
  • leads to fears of job security among staff, decreasing motivation
  • cause poor morale between managers
  • contribute to poor reputation for the business, especially in service sector = restaurant with spare tables
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26
Q

Implications of over-utilisation of capacity

A
  • firm may not be able to accept new orders, potentially turning away new customers to rivals
  • little to no time to carry out maintenance on machines or time for staff

Ideal is 85%

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27
Q

Ways of improving capacity utilisation

A

Increase current output - boost sales through marketing methods
Reduce maximum capacity - selling assets or laying off staff

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28
Q

Circumstances in which inflation has a major effect are:

A
  1. When rates of inflation are above 2%
  2. When prices are rising faster than incomes
  3. When UK inflation is higher than that in most other countries
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29
Q

Effects of inflation on businesses

A
  • a firm with a long term fixed price contract may find that if costs rise rapidly while the contract is being completed, the fixed price does not even cover their higher levels of cost, damaging profitability
  • firms with substantial long term borrowings will find the real value of the money they repay will be lower
  • Uk inflation higher than others than competitiveness is lost due to higher prices
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30
Q

Exchange rates on business

A

Strong pound = imports cheaper, exports expensive

Weak pound = imports cheap, imports expensive

31
Q

Effects of high interest rates on businesses

A

Consumers have less money to spend as mortgages and borrowing payments increase
Interest will rise increasing costs
Consumers are less likely to borrow money so expensive good demand such a cars will decrease
Business less likely to invest as money gained on interest is greater

32
Q

Taxation and government spending contributes

A

Publishers of textbooks
Road building firms
Pharmaceutical firms
Railway companies

33
Q

Effects of the business cycle of businesses

A

If economy slows, consumers on average will reduce spending
While in a boom period, consumers demand increases]
Changes in consumers incomes are result of changes in wages or even changes in the level of unemployment

34
Q

Effect of business uncertainty

A

Dictates investment wether it will generate profit

35
Q

Effects of consumer protection laws on business

A

Does the product do what it claims to do?
Is the product correctly labelled?
Is the product sold in the correct weight or measure?
The rights of consumers to refunds or to exchange faulty products

36
Q

Two major acts of parliament covering consumer protection is

A

Sale of goods act

Trade descriptions act

37
Q

Effects of employee protection on business

A

Fair pay
Sick pay
Maternity and paternity leave
Employment contracts
Relationships with trade unions
The ability of businesses to get rid of staff
The responsibilities of businesses to employees who are made redundant

38
Q

Key areas of employment law

A

Minimum wage = increased labour costs
Right to a contract of employment = employee security needs but less flexibility
Increased to sick, paternity and maternity leave = increased cost of paying for cover but feel more valued and less staff turnover and recruitment costs
Redundancy = becomes expensive due to statutory payments causing cash flow problems
Trade union rights = has pros and cons

39
Q

Effects of environmental protection on business

A

Materials used for products
Processes used to make certain products
Need to use recyclable materials for certain products
Landfill tax
Environmental risk assessments for different business activities

40
Q

Effects on competition policy on businesses

A

Competition and markets authority (CMA)

Investigates takeovers and mergers
Investigates anti-competitive practices
Investigates possible price fixing
Can bring criminal prosecutions against wrongdoers

41
Q

The work of the CMA should ensure that

A

Companies set competitive prices
Companies do not collude with others in their market to the detriment of consumers
Mergers and takeovers that will create overly powerful firms will be prevented

42
Q

Effects of healthy and safety on business

A

Health and safety act

Safe physical conditions
Precautions that firms are required to take when planning work
The way in which hazardous substances should be treated in the workplace

43
Q

Health and safety + -

A

+ prevent negative publicity
+ motivate employees due to safety
+ accidents can delay or haunt production

  • extra paperwork
  • Needs to pay for extra safety equipment
  • needs to pay to adjust physical work conditions
44
Q

Three methods of investment appraisal are

A

Payback
Net present value
Average rate of return

45
Q

Pay back calculation

A
  1. minus annual returns from investment to work out how many years it will take
  2. (Residual/ remaining payback) X12
46
Q

Define payback

A

the amount of time it takes for an investment to repay its cost.

47
Q

disadvantages of payback

A
  1. based on future predictions.

2. is a short term calculation and doesn’t consider money made after payback period

48
Q

Average rate of return calculation

A
  1. add positive cashflows
  2. takeaway initial cost of investment
  3. divide by the lifespan
  4. calculate as a percentage of investment
49
Q

ARR definition

A

calculates the rate of return as a percentage of the investment

50
Q

negatives ARR

A

doesn’t consider the future value of cash
Ignores time
Focuses on profit rather than cash flow
Not adjust for time-money

51
Q

Net present value calculations

A
  1. multiply each return by discount factor
  2. add all values up
  3. minus the cost of investment
52
Q

evaluation of investment appraisals

A
  1. the validity of the predictions (without past experience it may be biased)
  2. doesn’t account for external shocks
53
Q

what does theory suggest if the NPV is positive

A

the theory suggests that a business should go through with the project

54
Q

Stakeholders v shareholders

A

Stakeholders is someone who has interest in the business

Shareholders is someone who owns shares

55
Q

Stakeholder because

Shareholder because

A

Deal with them on day to day basis and encourage too continue that positive relationship

Maximise profits to keep shareholders happy and invest more

56
Q

Internal stakeholders

A

Manager
Employees
Owners

57
Q

External stakeholders

A 
Suppliers
Society
Government
Creditors
Shareholders
Customers
58
Q

Stakeholder objectives

A

Staff = growth, new technology and profit
Managers = growth, new technology and profit
Shareholders = rising profits in the short and long term
Suppliers = growth
Customers = quality of product/service, new innovative products
Bankers = stable profits
Local residents = clean, green production

59
Q

Some trading blocs are moving towards

A

Harmonisation of laws

Free movement of labour

60
Q

Attractions of trading blocs

A

Harmonisation of laws
Countries working together to combat techniques such as dumping
Boosts efficiency due to larger domestic market

61
Q

Expansion of trading blocs

A

Creation of trade blocs

New countries joining trade blocs

62
Q

Examples of trading blocs

A

EU

USMCA

63
Q

Impact on businesses of trading blocs + -

A

+ free movement of goods
+ external tariff against international competitors
+ governments provide infrastructure support
+ free movement of labour

  • competition increases domestically
  • new rules and regulations introduced
  • Neighbouring markets may reduce enterprise compared to new ones such as China
  • common problem such as low commodity prices
64
Q

Assessment of a country has a production location

A 
Cost of production 
Skill and availability of work force
Infrastructure
Location in trading bloc 
Government incentives
Ease of doing business 
Political stability 
Natural resources 
Return on investment
65
Q

Costs of production

A

Labour intensive
Capital intensive
Lower cost more attractive

66
Q

Skills and availability of workforce

A

Less skilled may not be able to manage machinery
Literacy will be a key factor
Shows development in an economy

67
Q

Infrastructure

A

Modern technology and utilities required in order to be reliable
Some MNCs will improve local infrastructure themselves

68
Q

Location in a trading BLOC

A

Being in a trading bloc is a pull factor

Avoids tariffs imposed by toner countries for the same product such as Toyota in the uk avoiding japan

69
Q

Government incentives

A 
Production facilities to:
Job creation 
Extra tax revenues
Boost in local suppliers
Increasing skill levels amount labour force 
Positive impact on balance of trade

Incentives include
Grants
Tax breaks
Investment in infrastructure and training

70
Q

Ease of doing business

A 
Days to start a business
Days to enforce a contract 
Days to import an item
Total tax rate of profit
Days to get electricity 
Days to wait for construction permits
71
Q

Political stability

A

Business plan head through stability

Investment in production location is higher so payback will be longer than selling in that market

72
Q

Natural resources

A

Large quantities of bulk resources to reduce importing materials
Near resources

73
Q

Return on investment

A

Cheaper location = smaller initial investment
Cheaper location can provide problems which causes more expense
More expensive will guarantee better return on investment due to producing better revenues in the long-term

Business (8 decks)

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