Theme 1: 1, 1.2, 1.5 Flashcards
What is a market?
Any place where buyers and sellers will come together to exchange goods or services.
What is marketing?
The department tasked with targeting the right product for the right target market using the right combination of price, promotion + place
- it’s about understanding and meeting the needs and wants of customers
What is a marketing strategy and marketing objectives?
A Marketing strategy is the actions or plan needed to achieve a corporate objective
A Marketing objective clarifies the goals that the marketing strategy aims to achieve for a business.
What is a mass market and what examples are there?
A mass market refers to a large, undifferentiated market of consumers with widely varied backgrounds.
Mass marketing is where products are targeted at the whole market.
e.g. HandM, Zara, Adidas
Why may a mass market producer struggle to make profits?
- competition is fierce so the battle may have to be on the basis of price meaning its hard to make satisfactory profits
What is a niche market and what examples are there?
A niche market refers to a small, specialised market where consumers have particular backgrounds and needs.
Niche marketing is where products and services are targeted towards a specific segment of a market.
e.g. Rolex, Fendi, Versace
What are the differences between niche and mass markets?
- product quality is higher in a niche market as it is expensive to make and there is a lower quantity produced
- mass markets usually have lower prices due to large competition whereas niche markets have higher unit costs but can charge higher prices due to distinctiveness - therefore have a more premium price
- mass markets may use flow production (assembly line/factory) whereas niche markets may use bespoke job or batch production
- mass markets can take advantage of E.O.S
- mass markets use retailers who sell the products to the end customer whereas niche markets may sell more directly as they want to protect their brand + relationship they have with their customers
(they may use retailers however to access a larger no. of people and decrease costs)
How is marketing different for mass and niche markets?
- promotion for mass markets takes place on mass media e.g. popular videos, Tv programmes, billboards e.g. Mars at the Olympics
- whereas promotion for niche markets takes place on niche media more tailored to the needs of the consumer e.g. at Rolex at horse racing
What are the advantages of mass markets?
> gain from E.O.S
> lots of potential customers so higher potential for revenue
What are the disadvantages of mass markets?
> high levels of competition so hard for start-ups
volatile sales
lower loyalty so have to spend more money to ensure this
higher PED, products need to be differentiated
higher marketing costs as a result
What are the advantages of niche markets?
> fewer competitors
strong brand
USP + differentiated so can charge higher prices
low PED (lower marketing costs)
small scale production can be flexible + follow trends easily
What are the disadvantages of niche markets?
> higher cpu and production costs
lower E.O.S
risky as demand may not be constant
less access to people/smaller market so lower potential for revenue
What is Market Size and how is it calculated?
Total value or volume of sales in the market in monetary terms or by amount sold.
- Number of units sold x Price
What is Market Share and how is it calculated?
The proportion of total market sales that a firm has.
- (Sales of one firm/total market sales) x100
What is a monopoly market?
This is when there is only one sole business trading in a market so they face no competition and can charge high prices.
How can you increase your market share?
It is very difficult……
> grow your market: PRODUCT DEVELOPMENT
> diversity and enter and new/different market - MARKET DEVELOPMENT
> eliminate competiton
What is a Dynamic Market?
A market that is constantly changing.
Sellers respond to the changing needs of buyers by improving existing products or service or introducing new ones.
4 reasons the environment is dynamic
> social trends e.g. hairstyles
changes in technology e.g. smartphones
competitive environment e.g. fashion
consumer tastes e.g. fashions
What is Innovation?
It is about putting a new idea or approach into action
e.g. Apple have innovated with their face recognition to get rid of passwords making access easier + quicker
What can innovation do?
- spur market growth
2. can help a business gain market share
What is the difference between innovation and invention?
invention is the formulation of new ideas
but innovation is the practical application of these ideas/inventions into marketable products or services
What are the two types of innovation?
- Product innovation = launching new or improved products or services
- Process innovation = finding better or more efficient ways of producing existing products or delivering existing services
Benefits of product innovation?
> competitive advantage
first mover advantage
improve brand image
increased market share due to differentiation
demand will be more inelastic as you are the first mover - monopoly so higher prices
positive PR
opportunity to build early customers loyalty
Benefits of process innovation? e.g. MINI, AMAZON, MCDONALDS
> more efficient so unit costs decrease so prices are lower: PRICE COMPETITION so can compete
more convenient and accessible so appeals to a wider range/different range of people: NON PRICE COMPETITION
improved quality
greater flexibility
What are the factors to consider when adapting to change?
- Implications of change on workforce planning: 0 hour contracts, flexible working, you can quickly scale up and down
- React to change or ‘be the change’ : first mover advantage
- How do you know if change is permanent?
- How does a big business stay nimble: delayering, leadership styles
- Role of market research: understand competitors, understand customers needs + wants, understand technology
How does competition affect businesses in the market?
> competition is pressurising for businesses so it keeps them from getting careless + complacent
competition makes it hard to charge high prices unless the customers perceive the business as offering outstanding products/services
competitions therefore encourages companies to be innovative and creative
What are the 5 causes of uncertainty?
- The economy
- Dynamic markets
- The government
- Actions of competitors
- Geopolitics
What is market orientation?
When businesses react to what the customers within the market want and decisions made are based around information about a customer’s needs and wants rather than the business’s thoughts
- > (the most successful businesses use this approach)
e. g. AUDI
What is product orientation?
When businesses develop products based on what it is good at making and doing, rather than what customers want.
- > (usually criticised because it leads to unsuccessful products in well established markets)
e. g. APPLE
What is market orientation informed by?
- market research
- reduces risk of product failure but does not eliminate it
What is product orientation informed by?
- scientific research and technical development: R&D
- Businesses will concentrate on producing high quality products and then find markets for them
- most common with technologically advanced products
What are the benefits of market orientation?
> encourages customer loyalty
reduces risk and increases chance of success
gives the business a competitive advantage and a USP
may be able to charge a higher price due to inelastic demand
What are the benefits of product orientation?
> cheaper and quicker due to less market research spending
first mover advantage
harder for rivals to copy due to high innovation levels
What are the drawbacks of market orientation?
> market research is expensive
costs associated with training and adapting production techniques
costs of developing and launching products
What are the drawbacks of product orientation?
> high risk - demand may not be there
high R&D costs
unsuccessful products
Why would a business collect data?
1) to assess potential demand to see if a product or service will sell
2) assess pricing options and see which promotions would best suit the launch of the product/service e.g. introductory price
3) to build a customer profile
4) to assess the competition and understand substitute and complimentary goods
5) to find out about the market and its behaviours
Benefits of collecting data?
+ competitive advantage
+ can become market orientated - higher chance of success
+ they can develop a marketing strategy based on 4 P’s
+ reduces risk of product failure
+ means they can more easily adapt to change (dynamic market, reduce uncertainty)
What is primary research?
It is original and brand new data gathered by the researcher/business that does not already exist - cannot be found online or anywhere else
They use this data to make specific decisions about the business.
What are the 7 methods of primary research?
- Questionnaires / surveys
- Observations
- Interviews
- Loyalty cards
- Focus groups
- Consumer panels
- Test marketing
Benefits of Primary research?
> directly focused on research adjectives = fit for purpose and questions can be tailored
up to date/latest info from the marketplace
gives more detailed insights, particularly into customer views - can assess the psychology of the consumer
Drawbacks of Primary research?
> expensive and time consuming e.g. focus groups
risk of survey bias - questionnaire + interviewer bias
research findings may only be useful if comparable back data exists
risk that your sample size may not be representative of the whole population
What is Secondary research?
It is research data that has been previously gathered and already exists as it has been collected for a different purpose.
Benefits of Secondary research?
> often obtained without cost and is easy to find + access
often provides a good overview and insight into a market - shows the key trends
usually based on actual sales figures or research on large samples
Drawbacks of Secondary research?
> data may not be updated regularly - quickly out of date
it can be expensive to buy specialist reports, especially for many market places
not always tailored to specific research needs (you may have to perform primary research to obtain more details)
What are the 7 methods of secondary research?
- Annual reports
- Internal data
- Government sources
- News
- Trade journals/press
- Market research reports
- EU and international sources
What is Trade press?
What is Market research reports?
- Trade press is industry specific magazines and news papers, with news specific to the industry, give info on competitor activity like promotions
e. g. The Grocer - Market research reports are specialist market research companies who collect data
e. g. MINTEL who have. global team of trend analysts assessing changes in society, culture, economy - reports are expensive
What are Annual reports?
- Annual reports contains financial data, provided for investors and are a legal requirement for firms with shareholders
- gives investors a good idea about the financial health of a business
What is internal data?
- Internal data is data from inside the business that has been collected from years of trading
- sales figures are useful for forecasting future sales
- can identify trends and seasonal changes
What are government sources?
What are EU + international sources?
- Government sources e.g. ONS (office of national statistics) containing info on employment, the economy
- can see how these factors will affect their business
e. g. info could be used to make decisions about expanding overseas - EU and International sources include World Bank, IMF, WTO
- Eurostat contains many useful statistics on Europe, could be used by a business looking to expand into the European market
- > infographics produced can help businesses to visualise large amounts of data
What is test marketing used for?
To launch a product that is in a restricted area to see if it is successful before spending money on a national launch
What is the difference between a focus group vs. consumer panel?
Focus group is a one off to find in depth opinions on a specific topic vs. consumer panels which happen multiple times, they regularly feedback on aspects of the marketing mix
What is Qualitative data?
What is Quantitive data?
- research that describes based on opinons, attitudes, beliefs, intentions, aims to understand why customers behave in certain ways or how they may respond to a new product/service
e. g. WHY,WOULD,HOW - research concerned with numerical data, often on large samples so provides statistically valid data
e. g. HOW OFTEN, WHERE, WHEN, HOW MANY, HOW MUCH
What are the methods of collecting qualitative research?
1) Focus groups = groups of people asked to discuss their perceptions, attitudes and opinions towards a product/service/concept/ad/packaging
- they reveal consumer psychology and may reveal a problem or opportunity the business had not thought of
2) Interviews = informal, in depth interviews with consumers. - avoid the risk that the group opinion will be swayed by one influential person
What are the methods of collecting quantitative research?
Various forms of survey
- telephone
- postal
- online
- face to face
Benefits and limitations of Qualitative research?
+ essential for important new product development and launches
+ focused on understanding customer needs + wants, expectations - v useful insights
+ can highlight issues that need addressing e.g. why customers don’t buy
+ can test elements of marketing mix
- based around opinion, subjective, not always representative
- expensive to collect and analyse, require specialist research skills
Benefits and limitations of Quantitative research?
+ easy to analyse
+ numerical data can show relevant trends
+ can be compared with data from other sources (e.g. competitors, history)
- focused on data rather than exploring why; hard to know how to change
- doesn’t explain reasoning behind numerical trends
- may lack reliability if sample size and method is not valid
3 limitations of market research?
1) BIAS: does the sampling method used represented the whole population you are interested in?
Was the data produced by someone with a vested interest in a particular result?
2) RELIABILITY: can you trust the data/original source? Is the sampling method clear + consistent
3) VALIDITY: does the data match what you were looking for? (could be an issue for secondary research esp.)
What are the 3 ICT uses for Market research?
> Social networking
Databases
Websites
Sources of big data?
1) social media
2) cookies
3) GPS
4) Delivery
5) Reviews
- help to understand your customer so you can tailor your promotional strategies to customers
How is social media used for MR?
+ Tracks what customers are saying about your brand
+ allows greater involvement with your customers, can interact w them and listen to consumer conversations
+ stronger relationship and social presence
+ tailor when you post to harness a wider reach of customers
e.g. sprout social gives you info on trends for a specific market and helps streamline social media
shows how to maximise social performance
How are data bases used for MR?
+ secondary research example
+ quick and automated
+ huge data sets can be analysed = reduced need for sampling
+ data can be linked (e.g. transactional data w customer profiles)
What is a market segment?
= a group of people with similar needs and wants
What are the 4 different ways of market segmenting?
1) Geographic: by region/country/climate
2) Demographic: by age/gender/income/occupation
3) Psychographic: by attitudes/personality/lifestyle and values (intrinsic traits)
4) Behaviour: by what benefit you seek from buying a product/when you buy it/usage rate (habits)
Why market segment?
- more effective advertising
- more sales
- higher demand
What is market positioning?
= an Effort to influence customer perception of a brand or product relative to the perceptions of competitors.
May stem from price, marketing and quality.
What is product differentiation?
When businesses make their products different from competing products. (degree to which consumers perceive your brand is different from others)
A highly differentiated product is one viewed as having unique features. They may have substitutes but it should be so strong that consumers don’t bother considering these when purchasing.
What do Market Maps do?
Use of a grid with two factors/variables on it in a specific market e.g. price and quality
Then individual brands or products are added to it.
> can show gaps and potential niches in the market
> A ‘gap’ is a business opportunity that is not yet being fulfilled by anyone where there is demand available (must be commercially viable)
Benefits of market maps?
> can see market gaps
> can help businesses to know who their competitions are and therefore differentiate products and market position
Drawbacks of market maps?
> maybe disagreements - subjective
can be hard to categorise the same products and services
identifying a gap does not mean there is need for a product ( need for more Market Research!)
Reasons to market position?
- leads to higher profits
- higher customer loyalty
- increase market share
What is Added Value and how can it be added?
The value of the finished good or service over and above the cost of achieving it. Increasing the worth of inputs by creating a new output.
> added through customer service, marketing, manufacturing, branding, logos, convenience, technology, exclusivity
Benefits of Added value?
- competitive edge (protects from competitors trying to steal customers through lower prices)
- can charge a higher price
- customer satisfaction + loyalty
Why might excessive product differentiation be negative?
could become too niche to have a profitable future
What is demand?
= the amount of a product to be bought at a given price.
What is the general relationship between the price and quantity demanded?
Negative relationship
Low demand = high price
High demand = low price
What does the area underneath a demand graph represent?
Sales revenue
How do changes in demand affect movement of a graph?
- Increase in demand is a shift to the right
- Decrease in demand is a shift to the left
What is a contraction on a graph?
A movement along the curve up or down
What 7 factors affect demand?
> change in the price of complements and substitutes
Consumer incomes e.g inferior and normal goods
Fashions, tastes + preferences
Advertising and branding
Demographics
Seasonality
External shocks
What is a substitute?
What is the relationship between the price of a substitute and demand?
An alternative to a product
Positive relationship - as it’s substitute drops in price, demand drops for the good
As it’s substitute price rises, demand rises for a good
How do fashions, tastes and preferences affect demand?
- very few brands stay in fashion forever
- food can be a fickle market
- diet culture
- social media trends
- heavy spending on marketing and advertising can help to bring about changes in consumer tastes
How does advertising and branding affect demand?
- advertising spending can boost demand
- branding can be important as it can allow a business to command a higher price for their goods
How do demographics affect demand?
- large area for demographic opportunities in the elderly, target different goods and services
- ageing populations
- an increase in population can affect demand
- middle class consumption
How does seasonality affect demand?
- certain goods are highly demanded in certain seasons due to the weather e.g. ice cream
- businesses can predict seasonal variations and cope with them
- some products have less obvious seasonal demand e.g. cars
What external shocks affect demand?
- changes in the law
- natural disasters e.g. flooding on farming
- an unexpected change of mind by a major consumer or supplier particularly affects small firms selling to large TNCs e.g. Tesco
What is supply?
= the number of goods and services producers are willing and able to supply at any given price
What are the determinants of supply in a supply curve?
A change in any factor other than price is shown by a shift in the curve
> e.g new technology
> changing production costs
> government policy e.g taxes and subsidies
> other factors
How do costs of production change supply?
> Lower costs of production mean that a business can supply more at each price, cost savings can be passed through the supply chain resulting in lower market prices for consumers
Higher production costs e.g. a rise in the price of raw materials or higher wages for workers will mean a business will not be able to supply as much at the price, causing an inward shift of the curve
How does new technology change supply?
> In industries where change is rapid there are increases in supply and lower prices for the consumer
How does government policy change supply?
Subsidies bring about a fall in supply costs, supply shifts outwards
Regulations and Indirect taxes increase production costs, supply shifts inwards
What other factors can change supply?
> Climatic conditions for agriculture
for commodities, changes here can have a great influence on market supply
favourable weather will provide a bumper harvest and increase supply
Drought could lead to lower yields and a decrease in supply
How can the supply and prices of other products affect supply?
Commodities are often used as ingredients in the production of other products so change in the supply of one can affect supply and price of the other
e.g. Coffee prices rise, and coffee cakes prices also rise
What is equilibrium on a supply + demand curve?
The only point where supply and demand are equal, at output Q1 and price P1
-> supply meets demand
What is Price elasticity of demand (PED) and Elastic/Inelastic demand?
a measure of how sensitive customers are to a change in price.
Elastic demand = a customer is sensitive
Inelastic demand = a customer is not sensitive
Calculation for PED?
% change in quantity demanded / % change in price
- the answer will always be negative as there is a negative relationship between price and demand
- it will be a decimal
Calculation for Percentage Change?
(New-Old) / Old x 100
- (NOO)
Why do businesses need to know the PED of their products?
- so they can forecast what will happen to sales volumes and revenues if they changed prices
- allows revenue budget to be achieved
- allows them to predict the effect of change of an indirect tax e.g. VAT on demand and wether some or all of this tax can be passed onto the consumer
- helps with planning for promotions or pricing strategies to see how responsive customers will be to these tactics
- see the likely price volatility in a market following changes in supply
What are the Inelastic values for PED?
Value of less than -1
> as the quantity demanded changed by proportional less than the change in price
e.g cigarettes, petrol = necessities
What are the unitary values for PED?
Value of exactly -1
> as % change in P was exactly the same as % change in Q
What are the Elastic values for PED?
Value of -1 to - infinity
> as quantity demanded changed proportionally more than the change in price
e.g luxuries, goods with little brand loyalty and substitutes
What factors affect PED?
> Availability of consumer substitutes
Necessity or luxury
Proportion of income spent (e.g larger amount spent = more affected by price change due to budgets ect.)
Loyalty
Time + Habits (e.g convenience and accessibility)
How does the availability of consumer substitutes affect PED?
If there is large access to good substitutes then PED is more elastic as consumers can go elsewhere to other brands if needed
Why would a good being a necessity or luxury affect it’s PED?
- if a good is a necessity, then it is more inelastic
- if a good is a luxury, then it is more elastic
Steps for calculating the impact of price changes on revenue?
- Work out the total revenue
- Work out change in price or quantity demanded
- Calculate the new sales volume
- Calculate the new total revenue
How does an increase in price affect revenue with elastic demand?
Sales revenue will decrease
How does an increase in price affect revenue with inelastic demand?
Sales revenue will increase
- roughly the same no. of customers
What are the potential problems with the concept of PED?
- just an estimate and so may change over time
- customers become more aware of pricing information, tastes and preferences change
- new methods of distribution are developed
How do time and habits affect PED?
Customers may become less sensitive to the price of goods because their default position is to buy the same products at regular intervals
What is Income elasticity of demand (YED)?
a measure of responsiveness of demand to a change in income (y)
Calculation for YED?
% change in quantity demanded / % change in income
What are the range of values for YED?
>
- infinity = inferior good
> + infinity = normal good
What is an Inferior good?
One where demand falls as income increases
Demand rises as income decreases
e.g McDonalds
they have - YED
What is a Normal good?
One where demand rises as income increases
Demand falls as income decreases
e.g Pizza Express
they have + YED
What is an Income elastic value?
Changes in income lead to a big change in demand
- high number >1 e.g 2
What is an inelastic value?
Changes in income lead to a small change in demand
- low number <1 e.g 0.5
Why is YED significant to businesses?
> may mean firms diversify their product ranges so they are selling both inferior and normal goods, allowing them to be more protected against income changes
helps them to decided whether to produce and advertise value ranges or luxury ranges e.g. within Tesco
helps them to better cope with economic downturns/changes
Why may a product’s YED rise over time? (become more elastic)
- People start treating the item as a luxury item, maybe as price has risen over time.
Why may a product with a high YED not have a high PED?
- PED is about competition + differentiation whereas YED is about luxury
e. g. Bentley has a low PED (inelastic) but a high YED (elastic)
What is a Commodity market?
A market that trades in the primary economic sector rather than manufactured products
- trades raw materials e.g. coffee, sugar
- hard commodities are natural resources, soft commodities are agricultural goods and livestock
Why can it be beneficial to have Inelastic YED/ negative YED?
- gives your company some protection against periods where people are worse off, for example recessions
Why may selling normal goods instead of inferior goods be better in the long run?
- Recessions are unusual
- income is more likely to rise over time
- always will be a section of people with high incomes
Why are consumers better off buying price elastic goods?
- the close rivalry between suppliers ensures efficient, value- for- money products
What YED do necessities have?
- Income inelastic (low YED)
- but they are normal goods (+ YED)
What factors does YED depend on?
- whether the good is a luxury or necessity
What is a Entrepreneur?
= a person who oragnises, operates and assumes the risk for a business venture. (take the risk of starting a new business)
What is a Startup?
= a new business enterprise, formed by one or more entrepreneurs
What are the roles of entrepreneurs?
- spots a business opporutntiy
- take calculated risks in order to gain possible returns
- acts as a catalyst for the creation and growth of new enterprises
How do Entrepreneurs get ideas?
- business experience
- personal experience = using everyday frustrations to solve problems
- brainstorming
- analysis of opportunity
- market mapping
What are the benefits and negatives of using business or personal experience or brainstorming for entrepreneurial ideas?
Business experience
+ good way of getting insight into what works
+ less need for market research
+ more realistic business plan
- original business could do the same as an ex employee
Personal experience
+ has consumer insight element
- not everyone will think the same/ have the same frustrations
Brainstorming
+ could generate innovative ideas
- still need to understand the market
What is Intrapreneurship?
= involves people within the business creating or discovering new business opportunities, leading to creation of new parts of the business (or even new businesses)
example is Gmail within Google
How is intrapreneurship different to entrepreneurship?
Intrapreneurship is where risks are taken by the company, rather than an individual
most of rewards go to the company rather than the entrepreneur
it is entrepreneurial acitivies taken on by employees + managers
How can intrapreneurship be encouraged?
Why may it be hard in large companies?
- look out for and encrouage ( by rewarding) entrepreneurial acitivity
- give employees ownership of projects
- make risk taking/failure acceptable
- give employees time outside of the confines of job description
- encrouage networking + collaboration
In large companies
> there is complacency, beauracracy
> reward systems do not provide an incentive to innvoate
> short termism approach by leaders
What are the potenial benefits to intrapreneurship?
- Helps to drive growth + innovation within a business
- helps to provide solutions to problems e.g. improve efficiency, cut wastage
What are some economic or financial barriers to entrepreneurship?
> market entry regulations
taxation
> lack of start up capital
lack of cheap labour
lack of investment because of the 2009 financial crisis, banks less willing to lend to small firms regarded as risky + unprofitable
What are some personal barriers to entrepreneurship?
> lack of contacts and technical skills or knowledge > risk adverse attitude > fear of failure, lack of self esteem > no viable idea > gender
What is uncertainty?
= when buinesses are unable to predict external shocks or future events
What is risk? What are some examples of risk for an entrepreneur?
= the probability that hoped outcomes will not occur
- chance that the money invested will be lost
- possiblilty that they will be personally liable for debts incurred
- risk of failure and not finding another job
How do entrepreneurs deal with risk + uncertainty?
- they take calculated risks and understand them (rather than taking a gamble)
- they spread risk by diversifying
- they persist despite adversity
What are characteristics of a good entrepreneur?
- resiliance as they need to take responsibility and bounce back
- determination as business is difficult + competitive
- risk taking but they take calculated risks, weighting up rewards ect.
- passionate as they don’t just want to make money but want to achieve something
What are the main skills needed for an entrepreneur?
- problem-solving skills
- financial skills as they need to be able to understand key documents e.g. cash flow forecasts
- networking skills to benefit from crowdfunding
- persuasive skills
What are the financial entrepreneurial motives?
> Profit maximisation = making as much profit as possible
thinking long term, this may not be the best idea as profit satisficing now could help make a higher profit later
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Profit satisficing = making enough profit to be content, finding the ‘right’ profit and the ideal blend between different pressures (work-life balance)
What are the non-financial entrepreneurial motives?
> Homeworking = some need the practical flexibility of being at home and an online world is good for this, match family commitments to work
Ethical stance = providing a good/service that meets certain beliefs, gives a large amount of control if they find it difficult to accept the ethical environment within a large organisation
Independence = want to be their own boss, make decisions, they have the confidence + money
Social entrepreneurship = motivated by supporting a cause rather than making profit, revenue made to further support the cause
What is a business objective?
= a target which the business adopts in order to achieve its overall corporate aims
What is the purpose of business objectives?
- > focus for all activity
- > means of measuring performance
- > provide a sense of unity
- > provide a clear focus when decision making
- > motivate employees
What are the main business objectives?
Survival – a short term objective, probably for small business just starting out, or when a new firm enters the market or at a time of crisis.
Profit maximisation – try to make the most profit possible – most like to be the aim of the owners and shareholders.
Also: Sales maximisation, customer satisfaction, social objectives, market share, employee welfare, cost efficiency
What is a Sole Trader?
= a business that is set up and run by a single entrepreneur
What is a Partnership?
= a bsuiness that is set up and run by 2-20 partners who pool resources and share profits
- have specific rules that they have to folloe
- set up with a DOP: deed of partnership
What is a Private limited company?
= a company where specifically chosen shareholders own the business and so shares cannot be sold to the public
- states LTD after company name
What is are the pros and cons of being a sole trader?
+ keeps all the profit
+ full control and responsibility
+ can keep business affairs private
- suffers from unlimited liability
- sole responsibility
- long working hours, limited manigerial skills
- less sources of finance to access (no shares)
What are the pros and cons of being in a partnership?
+ share profits, can use shares for finance
+ share resources and expertise
- potenital conflict due to clashes of interest
- liabile for each others actions so liable for own AND whole partenership debts
What is a Public limited company?
= usually a bigger organisation owned by shareholders where their shares are traded on the stock market
Why would a company make the decison to float shares on stock market and turn to a PLC?
It increases their access to share capital
and enables them to considerably expand
provides a sudden cash injection
What are the pros and cons of being a public or private company?
PLC:
+ have the confidence to expand
+ limited liability, more finance available through the selling of shares
- loss of control, can’t choose shareholders
- more complicated legally
- have to make financial info available publically
LTD:
+ limited liability
+ finance of shares
+ possible to maintain closer control over the way the business is run, decions made
- dividends
- have to publish accounts (competitors can see, accountancy costs )
- limited finance thar can be raised, no flotation
What is a social enterprise?
= a business that trades for a social or environment purpose in order to benefit the community
have social aims as well as financial aims
- a cooperative is an example
What is a lifestyle business?
aim is to provide a good quality of life for the owner
start it hoping to sustain a certain level of income whilst sustaining the lifestyle they want
- a family run B&B is an example
What is an online business?
- easy to set up and can be managed anyrwhere
- always available to the customer
- financial risk are lower
What is a franchise?
= a business that gives legal rights to a existing firm to use their name and sell their products
What is a franchisee? What is a franchisor?
FRANCHISEE = buys the rights from a franchisor to copy business format FRANCHISOR = grants a licence to another business to allow it to trade
What are the benefits/drawbcks of being a franchisor or franchisee?
FRANCHISOR:
+ fast form of growth for them, expansion to other locations
+ keep control and consistency but don’t have to manage them all
+ motivated franchisees who want to succeed
+ better if you don’t know about local markets
- poor performance from one brand can affect entire brand
- don’t always agree, can’t have full control
- have to support talent
FRANCHISEE:
+ have a level of support
+ may lack industry knowledge, can receive training
+ gets marketing benefits -> cheaper
+ has access to pre-exisiting brand assets and an already successful business
- no guaranteed success
- some lack of control
- franchisor can change terms if they deem fit (have it taken away for non-compliance)
What are the personal opportunity costs for an entrepreneur?
- an entrepreneur may miss out on a regular income as a consequence of starting their own business
- investment will occur in assets at the expense of personal investement
- long hours could be worked at the expense of family time
What is an opportunity cost?
= the cost of missing out on the next best alternative when making a decision
What are the opportunity costs of decision-making?
- one idea is chosen, another is sacrificed
- cost of launching an idea at the expense of further development
- committing capital to investment in assets, may restrict other opportunities
What do choices need to be based on?
Business rescources: - finance - time - capacity - skills + capabilities Need to be made based on how scarce resources will be used
What are the factors influencing decision making?
> considering potential sales from each idea
considering the cash/financial commitment required
whether the timing is right
whether you possess sraff with the right skills
market and scientific research
What is a trade off?
= a consequence or compromise made by a business from a choice (benefits of one option are reduced in return for increased benefit of another)
e.g. less market research -> less successful project launch
When may entrepreneurs have to make a trade off?
they may have to trade off aspects of the business that they enjoy to focus on those that are the most profitable
What are some difficulties of moving from an entrepreneur to a leader?
ADAPT MINDSET, SHARE CONTROL, DEVELOP LEADERSHIP SKILLS
- Learning to delegate as will not be able to complete all tasks by themselves, need to focus on more strategic areas
- trusting others when hiring employees or business partners, communication with them is key
- listening to others as leaders have to have open discussions
- open mind to accept new suggestions, comments and ideas, and be open to learning new skills to develop the business
- develop emotional intelligence as they need self awareness, self management and social awareness in order to have good relationship management
- less reactive and more proactive
Why will an entrepreneur eventually move to become a leader?
their business will grow, and with it the number of projects, employees, customers and level/range of communication needed to sustain this
What is a Brand?
= a unique sign/symbol/logo which makes a product or service recognisable and differentiates it from competitors
What is Market growth?
= an increase in demand/sales for a particular product/service
What can a business do with information about market size?
- see if the market is expanding or contracting
- calculate their market share compared to competitors
- see whether markets are worth entering
Why is online retailing a dynamic market?
- more high street shops are using the online retail market
- More convenience and efficiency with faster delivery times (one day/same day)
- offers customers new ways to shop
> Why: changes in trends like fashion, the innovation of tech, rising affluence means more phones + increased connectivity
What are the benefits and drawbacks of online retailing?
+ no need for staff, low overheads due to no stores
+ more convenient, orders 24/7
+ easy to set up and flexible (owner can be anywhere)
+ can reach international markets, can grow fast
+ stock can easily be withdrawn or updated
- issues with returns or fraud may be offputting
- very competitive, how to drive traffic to your site?
- competitors more aware of pricing etc.
- owner needs IT skills
How does competition affect consumers in a market?
- businesses have to listen more to what consumers want and need in order to meet those needs (move away from being product orientated)
- comparison websites have formed
