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Business - Themes 1-4 > Theme 1 - Chapters 1-25 > Flashcards

Theme 1 - Chapters 1-25 Flashcards

1
Q

What is the difference between a mass and niche market?

A

Mass - when a business sells the same products to all customers and markets them the same way

Niche - selling to a specific customer group with specific needs

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2
Q

What are the characteristics of mass and niche markets?

A

Mass:
- high competition
- number of products sold is incredibly high
- can produce higher quantities at lower unit costs (EOC)

Niche:
- may avoid competition
- easier to focus on customer needs
- may be able to charge premium prices

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3
Q

How is market share calculated?

A

sales of a business / total sales in a market x 100

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4
Q

What is meant by a dynamic market?

A

Dynamic market - they are likely to change, e.g. grow, shrink, fragment, emerge, or completely disappear. For example, no longer a market in the UK for cassettes as DVDs were produced.

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5
Q

Why might market growth occur and what is the impact of it?

A
  • Changing consumer needs
  • Products become obsolete
  • New products

Impact: can lead to collapse of business if they can’t/don’t adapt

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6
Q

What is market orientation?

A

Placing needs of consumers at centre of business decisions

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7
Q

What are the benefits of market orientation?

A
  • Can respond quicker to changes in the market due to vast market info
  • More confidence in sales when releasing new products
  • Can meet challenge of new competition entering market
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8
Q

State two benefits of market segmentation.

A
  1. Customers may be more loyal to businesses that tailor products specifically to them
  2. Increased revenue - car business making several different models targeted at different segments OR airlines charging 1st class much more to maximise revenue
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9
Q

State 4 sources for secondary market research.

A

Internal data - from records within the business:
- Existing market research reports
- Sales figures - if broken down to market segments, can be very useful
External data - from sources outside the business e.g. other businesses/competition
- Info from competitors
- Government publications

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10
Q

State two disadvantages of perceptual maps

A
  1. Perceptual maps are 2D - only 2 aspects of a business can be reviewed at once
  2. Info to create perceptual maps is expensive - likely requires primary research (increases cost)
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11
Q

Why might a business choose to reposition their products? Give an example.

A

To keep up with changing consumer needs - may change target market, features or image of the product to differentiate from competition.

Laundry detergent for nappies crashed when disposable nappies were invented - business repositioned their detergent to be for general tough stains.

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12
Q

State 3 ways in which a business might add value to their products.

A
  1. Bundling - may put together bundle or package of gifts/services for consumer e.g. flights, accommodation, transfers and insurance all under one price (convenient for consumer)
  2. ‘Frequent buyer’ offers - repeat purchases = rewards e.g. 6 purchases = 50% off AND more air miles with certain airlines can get free flights or 1st class (promotes loyalty)
  3. Packaging - may gift wrap jewellery for consumer so that they don’t have to do it themselves (convenience)
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13
Q

What is the relationship between price and the quantity demanded?

A

If price goes up, demand falls

If price goes down, demand rises

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14
Q

What is an inferior good and a normal good?

A

Inferior good - rise in income = fall in demand // fall in income, rise in demand

Normal good - rise in income, rise in demand // fall in income, fall in demand

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15
Q

What is a complementary good and a substitute good?

A

Complementary good - goods that are puchased together as they are consumed together e.g. hot dog + hot dog buns

Substitute good - goods that can be bought as an alternative ton others but perform the same function e.g. Pepsi and Coke.

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16
Q

If a business increases its spending on advertising, how will this affect the position of the demand curve?

A

It will likely shift to the right

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16
Q

Define supply.

A

The amount of a product that suppliers make available to a market at any given price in a given period of time.

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17
Q

Define subsidy.

A

A grant given to producers, usually to encourage production of a certain good

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17
Q

What impact does the introduction of new technology have on supply of goods and services?

A

New tech is likely more efficient - will help to lower production costs - supply increases.

Therefore supply curve shifts to the right

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17
Q

How can government legislation affect supply?

A

VAT is an indirect tax imposed by the government.
- Taxes are a cost for business and so when increased or imposed, the supply curve will shift to the left.
- However, when taxes are reduced, the supply curve will shift to the right.
- If an indirect tax is imposed and demand is inelastic, the consumer will bear a greater burden of the tax.

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17
Q

What is meant by equilibrium price?

A

The price where supply and demand are equal.

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18
Q

What would cause excess demand in a market?

A

Excess demand - the position where demand is greater than supply at a given price and there are shortages in the market.

Excess demand may be caused by products prices being lowered, creating disequilibrium in the market as the supply is lesser than that of demand at a lower price.

19
Q

What would happen to the equilibrium price if there is both an increase in demand and a fall in supply?

A

The price increases and the amount sold/quantity in the market falls. This is shown by a shift to the right in the demand curve, and a shift to the left in the supply curve, bringing price up and quantity down.

20
Q

What is meant by price elasticity of demand?

A

A change in price results in a greater change in demand.

21
Q

Give two examples of products that might have inelastic demand.

A
  1. Petrol
  2. Utilities (electricity, gas)
22
Q

What is the formula for calculating price elasticity of demand?

hint: percentage change in…/percentage change in…

A

Percentage change in quantity demanded / percentage change in price

23
Q

State four factors that affect price elasticity of demand for a product.

A
  1. Whether it is a luxury or necessity
  2. Availability of substitutes
  3. The proportion of income spent on the good
  4. How much time has elapsed since the price of the product changed.
24
Q

The price elasticity of demand for a product is -0.67. What will happen to total revenue if price is reduced?

A

Total revenue will increase - this is because 0.67 indicates that the product is price inelastic, meaning demand will remain fairly consistent regardless of changes in price. However, a drop in price usually leads to an increase in demand, as customers are more willing to buy the product at a cheaper price.

25
Q

Give three examples of goods that might be income elastic.

A
  1. Designer clothes (Gucci, LV etc)
  2. Smart TV
  3. Luxury watches
26
Q

The price elasticity of demand for a product is 1.7. What will happen to total revenue if price is raised?

A

Total revenue will decrease. This is because a PED of 1.7 indicates that the product is price elastic (likely a luxury). A high PED causes high sensitivity to price changes for customers, and therefore a price increase will deter customers from buying the product

A price elasticity of demand of 2 means that for every 1% increase in price, the quantity demanded will fall by 2%. Thus, for a 10% increase in price, we expect the quantity demanded to fall by 20%.

27
Q

What does it mean if a good is income elastic?

A

This means that the demand for a product relies on the income of the consumers.

28
Q

What is the formula for calculating income elasticity of demand?

A

percentage change in quantity demanded / percentage change in income

29
Q

If incomes rise by 10% and demand rises by 20%, what is the income elasticity of demand?

A

Income elasticity of demand = 2

30
Q

A good has an income elasticity of -0.9. Is this good normal or inferior?

A

This would be a inferior good, as an increase in incomes would lead to a decrease in demand.

A 10% increase in incomes would cause a 9% decrease in demand.

31
Q

What does a positive or negative IED indicate?

A

A positive IED indicates that an increase in incomes would lead to an increase in demand.

A negative IED indicates that an increase in incomes would lead to a decrease in demand.

32
Q

What does an IED of >1 indicate?

What does an IED of <1 indicate?

A

An IED of >1 indicates that the product is price inelastic.

An IED of <1 indicates that the product is price elastic.

33
Q

State two impacts of income elasticity for a business.

A

An increase in incomes means that consumers have more money to spend, and therefore the business benefits as sales increase.

A decrease in incomes means that consumers will spend less, and therefore the business generates less sales, negatively impacting them.

34
Q

State two examples of products where aesthetics is particularly important in the design mix.

A
  1. Luxury cars
  2. iPhones
35
Q

State two examples of products where functionality is of main importance in the design mix.

A
  1. Vacuum cleaner - Dyson put bag on the back of vacuum to collect and dispose of debris easier
  2. Folding bicycle - can fold up and carry bike around/indoors etc. Don’t have to chain up bike or wheel it around.
36
Q

Explain one way in which the government might affect the design of products.

A

The government may pressure businesses to recycle more materials from products in order to reduce/minimise waste production.

37
Q

State 3 examples of products that are likely to be ergonomically designed.

A
  1. Office chair - proper headrest, main seat, adjustable height and arm rests to maximise comfort and minimise aches and pains from sitting down.
  2. Laptop stand - prevents employee from long hours of looking down which can cause neck pain.
  3. Wrist rest - comfort when working/typing on keyboard.
38
Q

State 4 sources of advertising media.

A
  1. Television
  2. Radio
  3. Newspapers and magazines
  4. Cinema
  5. Internet
  6. Posters and billboards
39
Q

What is meant by above the line promotion?

A

To place adverts using the media.

40
Q

What is meant by below the line promotion?

A

Any promotion that does not involve using the media.

41
Q

State 3 different types of branding.

A
  1. Manufacturer brands - created by the producers of goods and services. These typically bear the producers name, e.g. Gilette’s razors, Kellogg’s corn flakes, Dell computers.
  2. Own-label brands - manufactured for wholesalers or retailers by other businesses, however they are sold under the wholesalers/retailers name. E.g. Tesco’s baked beans (sold under Tesco’s name but manufactured elsewhere).
    Another example - F&F by Tesco.
  3. Generic brands - only contain the name of the actual product category rather than the company name - e.g. aluminium foil, carrots or aspirin.
42
Q

Why can businesses with strong brands charge premium prices? Give an example.

A
  • Customers with strong brands typically have higher prices than those of competitors. This is because of the customer loyalty that has been built up over time.
  • E.g. Heinz beans charge higher prices than that of competitors, however have a similar or negligible difference to competitors products. Although, consumers perceive Heinz to be superior, and so are willing to pay premium price.
43
Q

Give 3 examples of below the line promotion.

A
  • Free samples/gifts
  • Loyalty cards
  • BOGOF offers
  • Coupons/vouchers
  • Money off deals
44
Q

Give 3 factors that must be taken into consideration when deciding which method of promotion to use.

A
  • Cost of promotion - not all businesses can afford to advertise on national TV, must find suitable form of advertisement
  • Market type - local business would advertise in local area, global business needs to advertise globally (TV, national radio)
  • Product type - certain products are better suited for certain types of promotion, e.g. car manufacturer won’t use coupons or BOGOF deals, they would use billboards or cinema adverts
  • Stage of product in the product life cycle - public relations (PR events) are frequently used at the launch of a product, whereas promotion methods differentiate later in the product cycle
  • Competitors’ promotions - businesses might copy successful promotion strategies used by rivals, e.g. slogans/catchphrases ‘finger lickin good’ = ‘im lovin it’
  • Legal factors - in the EU, tobacco products cannot be advertised on TV
45
Q

In competitive markets some firms are price takers. What does this mean?

A

A business that is too small/weak to influence the price of goods and services must fall into line with other brands, selling at a similar price to the competition.

46
Q

What are the main disadvantages of cost plus pricing?

A
  • It ignores market conditions - if a business sells all products at a much higher level than competitors, it may result in low sales
  • It may be difficult to identify the exact markup of each product in relation to its production price - may result in over charging - particularly for a multi product business like Tesco’s
47
Q

If a product costs $500 and sells for $600, what is the markup percentage?

A

20%

48
Q

What is the difference between penetration and predatory pricing?

A

Penetration pricing - selling products at a low cost compared to competition in order to break into a new market.

Predatory pricing - selling products at a lower cost than competition for extended periods of time in order to force competition out of business/the market.

49
Q
A

Business - Themes 1-4 (2 decks)

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