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business > paper 3 - 2022 > Flashcards

paper 3 - 2022 Flashcards

1
Q

define pricing strategy

A

a set of plans about pricing which help a business to achieve its marketing and corporate objectives

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2
Q

name the 7 pricing strategies

A
  1. skimming
  2. penetration
  3. cost plus
  4. competitive
  5. predatory
  6. psychological
  7. loss leader
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3
Q

penetration - price strategy

A

setting a low price to enter a market to gaining market share, then raising once established.
used for NEW products
+ encourages customer to develop the habit of buying the product
- the product’s image may immediately be seen as cheap

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4
Q

skimming - pricing strategy

A

setting a high price to enter a market, then lowering once development cost have been covered or/and sales have peaked
used for NEW products
+ early adopters will be happy to pay the high price in return for exclusivity
- some customers will be deterred if the price is seen as a rip off

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5
Q

cost plus pricing - pricing strategy

A

deciding a price by adding a percentage onto total cost per unit (mark up)
+ guarantees a profit will be made
- takes no account of market conditions

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6
Q

competitive - pricing strategy

A

charging a price at the market average
+ the price shouldn’t put customers off buying the product because there are so many substitutes
- the business has little control over the price it charges and therefore the revenue it receives.

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7
Q

predatory - pricing strategy

A

setting a price so low that it forces competitors out of business
+ removing a competitor from the market allows price to be raised
- the business has to be financially strong to pursue this strategy

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8
Q

psychological - pricing strategy

A

setting prices just below a certain price point £9.99
+help nudge the customer into believing they are paying less for the product
- it may have little effect on planned purchases

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9
Q

loss leader - pricing strategy

A

selling one product at a loss but selling a related product at a higher price
+ high profit margins can be achieved on related products
- the business needs to make sure there is enough product in stock

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10
Q

name 4 factors that will determine the most appropriate pricing strategy

A
  1. differentiation / USP
  2. price elasticity
  3. amount of competition
  4. brand strength
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11
Q

name 4 new pricing strategies that have come about from online sales

A
  1. dynamic ( price changes depending on demand - amazon)
    2, Auction sites (eBay)
  2. subscription pricing (Netflix)
  3. personalized pricing ( amazon charging different price to different customers)
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12
Q

how have price comparison sites affected the competitiveness of business

A

consumers can now shop around for the best deal (e.g. compare the market)

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13
Q

state 3 reasons a business may need to recruit new staff

A
  1. expansion
  2. promotion of existing staff to a new position in the hierarchy
  3. replacing staff e.g. those leaving/retiring
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14
Q

list the different stages in the recruitment process

A
  1. identify the vacancy
  2. create job description and person specification
  3. advertise the vacancy
  4. shortlist
  5. select ( interview/ testing/ psychometric test/ inbox exercises)
  6. appoint the best candidate
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15
Q

what is the difference between internal and external recruitment

A

appointing from within the business opposed to appointing from outside the business

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16
Q

two advantages of internal recruitment

A

+ already familiar with the procedures and working environment
+ candidates strengths and weaknesses already known

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17
Q

2 disadvantages of internal recruitment

A
  • smaller pool of candidates to choose from

- have to fill the vacancy of the promoted worker

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18
Q

2 advantages of external recruitment

A

+ new ideas/ innovations

+ refresh the culture of the business

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19
Q

2 disadvantages of external recruitment

A
  • much more expensive and time consuming - advert have to be placed
  • external candidated are unknown to the business
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20
Q

what is the purpose of induction training

A

train an employee quickly in the broad responsibilities of the job and introduce them to the system, polices and structure of the business

help new employees settle more quickly into their new role

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21
Q

define on the job training

A

training that takes place while the employees is still engaged with their work tasks

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22
Q

name 2 ways that a business could offer on the job training

A
  1. mentoring

2. shadowing

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23
Q

state 2 advantages of on the job training

A
  1. comparatively inexpensive

2. specific to the business and the workplace

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24
Q

state 2 disadvantages of on-the-job training

A
  1. productivity decrease for those doing the training (e.g. mentor)
  2. the person doing the training may need training
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25
Q

define off the job training

A

training that takes place away from the normal workplace

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26
Q

state 2 advantage of off the job training

A
  1. delivered by specialists

2. trainee can concentrate on the course, no workplace distractions

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27
Q

state 2 disadvantage of off the job training

A
  1. comparatively expensive

2. trainee is away from their workplace and so who does their work

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28
Q

name 2 stakeholders and explain how they benefit from training

A
  1. customer - well trained staff should offer a better service/better product quality
  2. managers - less need to supervise staff that are trained
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29
Q

define capacity utilization

A

the use a business makes of its resources

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30
Q

give the formula for capacity utilization

A

current output / maximum possible output x100 = capacity utilization

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31
Q

what is meant by under-utilization of capacity

A

where a business is producing at less than full capacity

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32
Q

name 2 drawbacks of under-utilization

A
  1. inefficiency as its unit costs wont be minimized as it is not making the most of its available resources - fixed costs wont be spread over the max units of output
  2. poor morale amongst workers - they may be sitting around idle or fear for their jobs
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33
Q

name 2 benefits of under-utilization

A
  1. can easily cope with an upswing in demand, this meeting customer needs
  2. less work related stress - reducing absenteeism as workers and managers will be more relaxed/conformable with their workload
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34
Q

what is meant by over-utilization of capacity

A

where a business is running at full capacity and straining resources

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35
Q

name 2 drawbacks of over-utilization

A
  1. stressed and tired employees -increased risk of accidents or breakdown in machinery with no time for staff training or maintenance work to be carried out
  2. unable to respond to increase in demand - poor reputation
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36
Q

name 2 benefits of over-utilization

A
  1. lower average costs, increasing competitiveness and profits
  2. happier and more motivated workforce, opportunities for overtime, safe job
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37
Q

name 3 measures a business could take if it has excess capacity

A
  1. rationalisation - reducing the excess capacity by getting rid of resources it doesn’t need
  2. increase sales - increase marketing, better promotional activity or decrease price
  3. take on outsourcing contracts for other businesses to make more effective use of its resources
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38
Q

name 3 measure a business could take to alleviate a lack of capacity

A
  1. outsource the extra work - make use of another business to complete the orders that can’t be done in house
  2. reploy workers - move worker from quieter parts of the business to where they are needed
  3. reduce sales by increasing prices - if the product is elastic, increasing the price will reduce demand
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39
Q

why is it important to look at whether the business has short-term or long-term problems with under or over utilization

A

a seasonal business will only have a short term problem so will address the problem differently to a business with a year round under-capacity
short-term = outsourcing contracts
long term = rationalisation

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40
Q

external influence on businesses

A
  1. inflation
  2. exchange rates
  3. interest rates
  4. taxation and government spending
  5. the business cycle
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41
Q

define inflation

A

the sustained rise in the price of goods and service in the economy over a given period of time

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42
Q

what is the current rate of inflation in the UK

A

6.2%

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43
Q

name and explain the 2 causes of inflation

A
  1. cost push - when rising costs, such as wages, push prices up
  2. demand pull - when there is too much demand for goods and services, usually due to rising consumer incomes
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44
Q

2 reasons why high and/or fluctuating inflation is damaging to businesses

A
  1. UK exports become more expensive

2. premium products may become too expensive so consumer swap to cheaper alternatives

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45
Q

define deflation

A

a fall in the general price level over a period of time

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46
Q

how is inflation measured

A

consumer price index - measured through a basket of goods

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47
Q

what is an index number

A

a figure for a time period that has been related to base figures of 100. if the index number is 90, this mean a fall of 10%, if the index number is 110, this means a rise of 10%

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48
Q

define exchange rate

A

the price of one currency compared to another currency

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49
Q

what is the difference between an appreciation and a depreciation of the exchange rate

A

appreciation - when one currency becomes stronger against another currency
depreciation - when one currency becomes weaker against another currency

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50
Q

what does the acronym SPICEE stand for

A 
S - Strong 
P - Pound 
I - Imports 
C - Cheaper 
E - Exports 
E - Expensive
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51
Q

exchange rate - depreciation affects

A

price of exports = decreases
demand for exports = increases
Price of imports = increases
demand for imports = decreases

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52
Q

exchange rate - appreciation affects

A

price of imports = decreases
demand for imports = increases

price of exports = increases
demand for exports = decreases

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53
Q

name 2 ways a business is affected by exchange rates

A
  1. uncertainty if the business cant plan ahead and so cant predict demand
  2. competitiveness - if £ is strong, become less competitive
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54
Q

define interest rate

A

the cost of borrowing or the reward for saving

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55
Q

what has happened to the UK base rare since 2011

A

low - under 1% for a decade. has moved from a record low of 0.1% during Covid to 0.75% now and likely to raised again to try and tame inflation

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56
Q

name 2 effects of rising interest rates on a business

A
  1. cost of borrowing too high, so firms stop investing

2. consumers will tend to save, rather than spend, reducing demand

57
Q

why might changes in interest rates have an effect on investment by a business

A

a business that uses loan capital to grow will have to pay more interest, thus making it less likely that they want to invest

58
Q

what is the difference between a direct and indirect tax

A

direct - taken directly from income

indirect - taken from spending on goods and services

59
Q

name 2 direct taxes

A
  1. income tax

2. corporation tax

60
Q

name 2 indirect taxes

A
  1. VAT

2. customs and excise duty

61
Q

what is the current rate of corporation tax in the UK

A

19%

62
Q

what is the current rate of VAT in the UK

A

20%

63
Q

name 2 taxed that will have an effect on consumer spending

A
  1. VAT

2. customs and excise duties

64
Q

name 2 taxes that will affect a business’s costs, revenue and profits

A
  1. business rates

2. customs and excise duties

65
Q

name 3 items paid for through government expenditure

A
  1. education
  2. NHS
  3. police
66
Q

name 2 effects on businesses of changes in government expenditure

A
  1. less demand for good and services if direct taxes rise

2. higher corporation tax means less profit left for reinvestment

67
Q

what does the business cycle represent

A

represents the fluctuations in a country’s gross domestic product

68
Q

what are the 4 stages of a business cycle

A
  1. boom
  2. recession
  3. slump
  4. recovery
69
Q

boom - business cycle

A

economy performing well,
high consumption of goods and services,
business may not be able to cope with demand

  • unemployment low, high wages but possible inflation
70
Q

recession - business cycle

A

recession - consumer incomes start to fall,
fall in demand,
stock many pile up,
business may experience financial problems
redundancies

71
Q

slump - business cycle

A 
GDP at a low,
interest rate likely to fall, 
business have to adapt with cheaper products,
new cheaper ranges, 
some businesses do very well
72
Q

Recovery - business cycle

A

business encourages to expand as consumer confidence increases,
new employment opportunities which increases consumer incomes

73
Q

what are the variables on a business cycle graph

A 
x = time 
y = real GDP
74
Q

name 2 effects of uncertainty on the business environment

A
  1. make forecasting really difficult and therefore PESTLE, SWOT really important
  2. business failure
75
Q

what is the main purpose of consumer protection

A

to ensure businesses act fairly towards customers and do not exploits them

76
Q

name 3 key consumer legislation acts

A
  1. trade description act
  2. consumer rights act 2015 - covering how good and service can be sold
  3. food safety act
77
Q

name 2 implications of consumer legislation

A
  1. compliance costs - to follow the laws but also if business break the law and have to pay fines
  2. training for staff
78
Q

what is the main purpose of employee protection

A

to ensure businesses act fairly towards their workers and do not exploit them.

79
Q

4 ways an employee is protected at work

A
  1. employment contract
  2. discrimination (equality act)
  3. unfair dismissal
  4. equal pay
80
Q

2 negative implications of employment legislation

A
  1. compliance costs - when hiring, ensuring wellbeing when employed, min. wage
  2. penalties - if businesses fail to comply, fines or prison
81
Q

name 2 positives effect on a business of having employment legislation

A
  1. reputation improves if workers treated well - attract potential workers, improve motivation
  2. creates a level playing field for all businesses as they should all be following the same laws
82
Q

3 activities of business that lead to an adverse effect on the environment

A
  1. pollution
  2. resource depletion
  3. traffic congestion
83
Q

2 environmental protection acts

A
  1. environmental protection act 2008

2. landfill tax

84
Q

2 benefits of environmental legislation

A

+ better reputation - good marketing tool - increased customers/sale -USP
+ can have a positive impact on costs if the business is driving to reduce waste

85
Q

2 drawback of environmental legislation

A
  • compliance cost, reduces profit margins, less to reinvest

- rising cost due to method of production or type of material used, higher price, less competitive

86
Q

what is the main purpose of competition policy

A

to encourage fair competition between businesses

87
Q

name the key piece of legislation relating to competition

A

competition act 1998

88
Q

2 anti-competitive practices

A
  1. collusion

2. restricting consumer choice

89
Q

positive impact of competition policy on businesses

A

encourages innovation and improves efficiency

to survive in a competitive market

90
Q

negative impact of competitive policy on businesses

A

acts as a constraint on business activity (CMA refusing a merger for example)

91
Q

which authority in the UK is responsible for competition policy

A

competition and markets authority (CMA)

92
Q

what is the main purpose of health and safety legislation

A

to ensure the safety of employees and customers within the workplace

93
Q

name the key piece of health and safety legislation

A

health and safety at work act 1974

94
Q

2 positive effects on businesses of health and safety legislation

A
  1. should prevent incidents that create negative publicity

2. helps employees feel safe, so should be motivating

95
Q

2 negative effects on businesses of health and safety legislation

A
  1. extra paperwork

2. extra costs of training, updating of procedures

96
Q

6 determinants of competitiveness

A
  1. number and size of businesses in the market
  2. extent of barriers to entry
  3. extent to which products can be differentiated
  4. knowledge that buyers and seller possess
  5. degree of interrelationship
  6. legal factors
97
Q

how is price impacted by a competitive environment

A

businesses have little control over the price they can set, prices likely to be forced down, need to find a USP to differentiate from competition

98
Q

how is profit impacted by competitive environment

A

profit has to be shared amongst a greater number of businesses, lower profit margins as prices generally forced down, business needs to operate more efficiently to cut costs in order to improve profit margins

99
Q

how is communication with customer is impacted by a competitive environment

A

businesses will be under pressure to meet customer needs. may carry out more market research or use social media. good customer service is very important to win business

100
Q

how is innovation impacted by a competitive environment

A

will be encouraged to gain interest from customers and gain a competitive edge

101
Q

how is product range impacted by a competitive environment

A

need to keep up with what competitors are doing to offer the same choice to customers to meet their needs

102
Q

how is marketing impacted by a competitive environment

A

quality and amount of money invested in marketing will be important to stand out from competition

103
Q

4 types of markets

A
  1. global markets
  2. national markets
  3. regional markets
  4. local markets
104
Q

name 2 reasons why operating in a large market is likely to be challenging

A
  1. constant need to watch competitors are doing and better it
  2. constant review of strategy/future direction to survive
105
Q

name 2 reasons why operating in a small market is likely to be challenging

A
  1. insufficient volume of sales

2. fear of a larger rival joining the market

106
Q

describe how you would calculate payback

A

inflow - outflows = net cash flow or net returns
deduct year 1 net cash flow from initial cost
keep going until the amount left to pay is less than the amount coming in the following year - this gives you the years
use the formula to find the months - amount left to pay divided by amount coming in the following year x12

107
Q

how would you interpret the figure? what would be a best case scenario
calculate payback

A

lower payback time = less risky

108
Q

describe how you would calculate average rate of return (ARR)

A 
inflow - outflows = net cash flow or net return 
add up all net cash flows 
deduct initial cost 
divide by number of years 
divide by initial cost 
x100
109
Q

how would you interpret the figure? what would be a best case scenario
average rate to return

A

the higher % the better. the business is making a larger % profit relative to the investment cost

110
Q

describe how you would calculate discounted cash flow (net present value)

A

inflows - outflows = net cash flow or net returns
multiply each net cash flow by the relevant discount factor
add up
deduct the initial cost

111
Q

how would you interpret the figures? what would be the best case scenario
discounted cash flow

A

the higher the £ the better. the business is making more actual profit £ relative to the investment cost

112
Q

why is the amount of the discount factor important when calculating NPV. e.g. A business setting a 3% or 10% discount factor

A

the higher the discount factor the larger the risk

the business may choose a project with a lower discount factor as it wishes to take less risk

113
Q

2 benefits of using investment appraisal as a decision-making techniques

A

+ provides quantitative data for the business to make a more informed decision
+ satisfy shareholders that investment is worthwhile

114
Q

2 limitations of using investment appraisal as a decision-making technique

A
  • figures are all estimated

- ignores qualitative factors that may be important in making a decision

115
Q

3 qualitative factor that a business should also consider when making an investment decision

A
  1. human resources (will it negatively affect employees)
  2. risk
  3. corporates objectives/ image
116
Q

define stakeholder

A

anyone with an interest in a business

117
Q

internal stakeholders - state an objective

A

employees - fair wages
managers - fair wages
owners - return on their investment

118
Q

external stakeholder - state an objectives

A

customers - value of money
suppliers - fair price for their products
shareholders - return on their investment/ dividends and share price increase
creditors - paid on time for their products
society - job opportunities, investing in local area, minimum impact on local area
environmental - avoidance of negative impacts on wildlife, atmosphere

119
Q

what is meant by a stakeholder approach

A

catering for the needs of all stakeholders - build positive relationship, improved reputation, being more long term rather than focusing on short term profits

120
Q

3 features of a stakeholder approach to business decisions

A
  1. loyalty from directors
  2. prefer actions to boost revenue and sales
  3. long term investment
121
Q

what is meant by shareholder approach

A

satisfying shareholder by maximizing profitability and shareholder returns, ignoring other stakeholders

122
Q

3 features of a shareholder approach to business decisions

A
  1. profit related bonuses
  2. cost cutting
  3. focused on profits
123
Q

3 conflicts that may arise between profit-based objectives (shareholders) and wider objectives (stakeholder)

A
  1. employees and shareholders - higher wages versus high dividends
  2. shareholders and customers - value for money versus higher dividends
  3. shareholders and environment - increased profits versus being ethical
124
Q

2 disadvantages of a stakeholder approach

A
  • adds to costs and so compromises short term profit objectives
  • very difficult to balance the needs of all stakeholders
125
Q

name 2 disadvantage of a shareholder approach

A
  • damage reputation due to negative publicity

- other stakeholders (employees, suppliers) unwilling to go the extra mile

126
Q

define protectionism

A

an approach used by a government to protect domestic producers

127
Q

3 reasons why a country might pursue protectionism (impose trade barriers)

A
  1. protect jobs
  2. protects infant industry
  3. prevent dumping
128
Q

what is a tariff

A

a tax on imports

129
Q

2 reasons why imposing a tariff is a good strategy

A
  1. make imports more expensive so puts consumers off

2. raises revenue for the government

130
Q

2 reasons why imposing a tariff is not a good strategy

A
  1. chance of retaliation by other countries

2. can restrict consumer choice if they are unable to buy the product

131
Q

why might imposing a tariff on a price inelastic product have limited impact

A

if inelastic, demand will not fall in proportion to the price increase

132
Q

what is a quota

A

a physical limit on imports

133
Q

give 2 reasons why imposing quota is a good strategy

A
  1. less threat of competition for domestic producers

2. domestic firms encouraged to increase production, hiring extra workers

134
Q

give 2 reasons why imposing a quota is not a good strategy

A
  1. no extra tax revenue is raised for the government

2. pushes up prices for domestic consumers

135
Q

what is an embargo

A

a complete ban on imports from a country

normally for political reasons e.g. Russian products banned at the moment due to the war

136
Q

name 2 other forms of protectionism

A
  1. government legislation (strict regulations and specifications)
  2. subsidies
137
Q

example of how government legislation can help to reduce imports

A

other countries may not have the same safety standards when manufacturing their products, so it will put them off trying to export them to countries with tougher laws

138
Q

give an example of how subsidies help to reduce imports

A

supports domestic firms’ competitiveness as subsidies reduce costs of production, so price can be lowered

139
Q

explain how protectionism will affect a country in the short term and long term

A

short term = reduces imports and helps domestic industries

long term = stifles competition, protects inefficient industries, provoke retaliation and lead to a trade war

business (7 decks)

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