Theme 1 LOAS Flashcards
mass market benefit
-produce product that appeals to range of demographics
-increased sales vol
-increased output
-increased orders from suppliers
-discount for bulk buying
-lower unit variable costs
-increased gross profit
mass market drawback
-less specialised in meeting needs of specific demographic
-reduced knowledge of customers
-less likely to meet needs
-price elastic
-as lack differentiation
-pressure to lower prices
-lower sales rev
-lower GP
niche market benefit
-can develop specialist understanding of target demographic
-effectively meet needs
-create holiday that it tailored to them
-more effective than mass market
-differentiation
-porter comp adv
-increased sales
niche market drawback
-focused on specific needs of specific segment
-suitable only to that segment
-limited protentional sales
-lower sales rev
-reduced inflows
-lower net cash flow
-reducing current ratio
-risk of liquidation
-less attractive to investors
online retailing benefit
-may be beneficial
-as product will be available to customers from anywhere in world without leaving home
-increases accessibility
-combined with rising popularity of purchasing online
-lead to increased SV
-more raw materials required
-purchasing EOS LOA
online retailing drawback
-may not be beneficial
-as customers can more easily find alternatives online
-can easily compare prices of products
-making them more sensitive to changes in price
-price elastic LOA
dynamic market benefit
-dynamic markets are fast changing
-meaning customer trends appear quickly
-if business is able to adapt to trends quickly
-may be able to differentiate
-by gaining first mover advantage
-allow them to charge higher prices
-whilst competitors are still trying to adapt
-leading to increased revenue
-increased GP + RP
-able to invest into market research to predict next change
dynamic market drawback
-dynamic markets change rapidly
-products and services need to change to keep up with trends in market
-requires high investment into r&d
-e.g paying high wages of scientists
-leads to increased outflows
-lower net cash flow
-reduced cash reserves
-poor liquidity
-may be unable to pay day to day bills
-forced to sell NCA
-unable to operate
product orientation benefit
-involves focusing on developing the product
-lots of interest into r&d of function of product
-improved innovation having unique features
-differentiate from competitors
-customers willing to pay higher prices
-price inelastic LOA
product orientation drawback
-can be expensive
-lots of investment into r&d is needed to innovate
-increased FC
-e.g paying high wages of scientists
-leads to lower OP
-reduced RP
-less capital to reinvest into further r&d
-may be unable to effectively differentiate
-unable to pursue porters differentiation strategy
market orientation benefit
-involves focusing on customer wants and needs
-allows business to create products based on customer trends
-and use market research to quantify demand
-allowing them to produce products which are likely to have high SV
-benefit from marketing EOS
-FC of market research spread more
-lower unit FC
-increased OP
-able to reinvest in conducting further market research
market orientation drawback
-however market research is needed to find out customer needs
-high amount of investment needed into market research
-e.g questionnaires and focus groups with large sample
-in order to find out wants and needs
-leads to increased outflows on wages
-lower net cash flow
-reduced cash reserves
-poor liquidity
-may be unable to pay day to day bills
-forced to sell NC
-unable to operate
primary research benefit
-involves collecting new data
-which is up to date and specific
-e.g. focus groups
-allows business to effectively identify customers wants and needs
-create product which meets needs
-building customer loyalty
-inelastic LOA
primary research drawback
-can be expensive
-may need to hire specialist researchers to conduct research
-e.g focus groups using large sample
-in order to find out wants and needs
-leads to increased outflows on wages
-lower net cash flow
-liquidity LOA
secondary research benefit
-research presented in report format
-has already been completed
-therefore doesn’t require researchers to be recruited
-as wont be requirement to do focus groups
-significantly reduces outflows
-improving net cash flow
-leading to increased current assets
-ability to pay debt and avoid failure
secondary research drawback
-research has been completed in past for a different purpose
-may not be time or business relevant
-making invalid suggestions on how business can improve
-leading to inappropriate product portfolio
-leading to low sales
-lower GP
-risking operating loss
-forcing business to use cash reserves to pay expenses
-lower liquidity
-less attractive to investors
-as suggests business may struggle to pay bills
-struggle to raise capital for future expansion
quantitative data benefit
-data collected in statistical form
-using closed questions
-these can be completed independently
-and easily analysed
-specialist researchers unlikely to be needed
-reducing costs of wages for conducting research
-cash can instead be invested into using larger sample
-leading to more reliable data collected
-more likely to produce product which meets needs
-purchasing EOS LOA
quantitative data drawback
-data presented in statistical form
-resulting in limited depth
-respondents cant explain why they made certain choices
-making it difficult to develop new ideas
-limiting innovation
-less likely to develop unique and competitive products
-elastic LOA
qualitative data benefit
-invites participant to give more detailed response
-can lead to deeper understanding of customer wants and needs
-resulting in business being able to produce a product that more effectively meet needs
-increasing customer loyalty
-inelastic LOA
qualitative data drawback
-gathering large volume of detailed responses will require significant number of researchers
-significantly increasing FC
-may mean that a lower volume of data is collected as business may not have cash to pay for researchers
-resulting in unreliable results as less people are asked
-resulting in wrong product being produced or wrong price being charged
-elastic LOA
market segment benefit
-through segmentation business can target market research at specific group
-rather than trying to create product for all customers
-can help business understand customer needs more effectively
-meaning they can adapt their design mix to better meet needs
-ensuring business product is more differentiated
-price inelastic LOA
market segmentation drawback
-need to create multiple products
-to meet needs of different segments
-e.g using geographical segmentation to create different products for customers in different countries
-unable to benefit from marketing EOS
-as each product will be targeted at smaller groups of customers
-FC or r&d to produce product spread over less
-higher unit FC
-lower OP
cost of production - factors leading to change in supply
-reduced cost of production
-increased profit margins
-increased incentive to supply
-increased supply of…
-rightwards shift in supply
external factors - factors leading to change in supply
-external factors
-prevent business from supplying
-reduced ability to supply
-fall in supply of…
-leftwards shift in supply
luxury goods drawback
-business is vulnerable to change in average incomes
-if many people lose their jobs incomes fall
-lead to significant fall in demand for goods as consumers switch to cheaper alternatives
-leading to fall in revenue + GP
-could lead to them making an OP loss putting pressure to reduce expenses
-may have to sell NCA
-reducing scale
normal goods benefit
-business sells normal goods is likely to have stable predictable sales
-when incomes change demand doesnt change much
-unlikely to see significant fall or rise in profits when incomes change
-unlikely to make a loss and can keep up with loan repayments
-could result in them getting low interest rates on loans leading to lower expenses
-business is attractive to banks and its a safe investment
inferior goods benefit
-when unemployment is high incomes will be lower and therefore demand of inferior goods will increase
-business may need to be flexible to able to respond to unexpected change in income so they can increase production on good to meet demand
-leads to an increase in GP
-flexibility to help reduce production when income rise again
-help ensure they can reduce operating expenses when demand falls therefore avoiding loss
benefit of using market map
-help to identify gaps in the market
-once identified can conduct r&d
-and design product that matches characteristics of
-product is likely to be unique
-lack of substitutes mean product will be inelastic
-inelastic LOA
market map drawback
-market maps are based on consumer opinions
-to ensure decisions on opinions are valid
-business needs to collect date from large sample
-may require large number of researchers
-to collect and analyse data and display in market map
-if business recruits researchers it will significantly increase outflows
-if outflows are greater than inflows
-may lead to negative net cash flow
benefit of design mix - aesthetic/function
-if business improves aesthetic/function of design mix
-through r&d into improved functionality or market research to identify trends
-product is likely to become differentiated
-gain comp adv according to porter
-inelastic LOA
drawback of design mx - aesthetic/function
-to improve aesthetics/function will require significant investment into r&d or market research
-increasing outflows
-if outflows exceed inflows
-negative net cash flow
-placing strain on cash reserves
-business has difficulty making payments to suppliers
-may have to sell NCA
-disruption to operations
benefit of design mix - economic manufacture
-if business designs product with economic manufacture as priority
-e.g through using less robust raw materials
-reduce cost of sales
-can pursue cost leadership according to porter
-gain comp adv
-can reduce SP
-significant increase in demand if elastic
-increasing sales
-purchasing EOS
drawback of design mix - economic manufacture
-if business designs product with economic manufacture as priority
-e.g using less robust raw materials
-may mean that product they design becomes less robust
-damage business reputation
-consumers may switch to alternative
decrease demand
-decrease sales + OP
-less profit to retain and reinvest
benefit of design mix - social trends
-changing design mix to reflect social trends
-product now aligned with social trends
-better meets needs
-customers more loyal
-inelastic LOA
drawback of design mix - social trends
-to identify relevant social trends
-requires significant investment into market research
-to ensure data is valid must be collected from large sample
-need to recruit specialist researchers to collect and analyse data
-increasing outflows
-placing strain on cash reserves
-liquidity LOA
benefit of concern over resource depletion
-business may e.g stop using rare wood when making product
-swap to more sustainable wood
-changing aesthetic of product due to concern over resource depletion
-aligning with customer values
-better meeting needs
-differentiated
-inelastic LOA
drawback over concern of resource depletion
-adapting design due to concern over resource depletion
-meaning business needs to find alternatives supplier for raw materials
-charge high price for new material
-increasing cost of sales
-reducing GP + OP
-less profit to retain
-less investment into…
above the line promotion benefit
-above the line such as tv advertising
-is more effective for large businesses
-as its accessible and appeals to wider audience
-across multiple market segments such as multiple geographical regions
-meaning its likely to generate higher SV
-FC of promotion can be spread over more units
-lower unit FC
-higher OP
above the line promotion drawback
-above the line such as tv advertising
-requires significant amount of cash as tv companies require payment upfront
-reduced net cashflow leading to lower cash reserves
-reduction in current assets
-struggle to pay current liabilities e.g suppliers
-pressure to sell NCA
-disruption to operations
ways to build a brand - USP through language
-effective use of language
-e.g using language which implies that product is superior from comp
-makes product inelastic
-business can set higher price
-inelastic LOA
ways to build a brand - advertising
-effective communication with customers
-e.g from case study - symbols/slogans
-improved brand awareness
-increased sales
-purchasing EOS
ways to build brand - sponsorship
-building association with an event or organisation which portrays shared image
-find example of what organisation represents
-explain how this can give positive brand image
-differentiated from other products who dont have that image
-inelastic LOA
changes in branding and promotion to reflect social trends
-grow in use of online use
-increased audience online each year
-communicate to them through social media influencers who are currently popular
-brand associated with popular influencer
-increased sales
-purchasing EOS
emotional branding
-appeal to someone’s emotions
-e.g empathy for animals
-by communicating how ethical company is
-differentiated
-inelastic LOA
price skimming benefit
-temporary high price for a price inelastic good at start of products life
-that will be paid by early adopters
-very high sales rev per item sold
-increased GP
-increased OP
-increased RP that can be used for investment in r&d
-superior products
-further increase sales and profit
-purchasing EOS
price skimming drawback
-high price
-lower demand particularly in elastic market
-lower volume sold
-FC of r&d associated with advanced product will be spread over less units
-higher unit FC for r&d
-making it less affordable
-potentially leading to less advanced r&d process
-less advanced good and lower demand
penetration pricing benefit
-low price of start at products life
-significantly increase in demand especially if elastic
-as % change in demand will be greater than change in price
-lead to increased volume sold
-increased brand awareness
-repeat purchases
-increased sales rev
-increased GP in long term
penetration pricing drawback
-price might be lower than cost of sales
-potential loss on each product sold
-gross loss
-OP loss causing business to pay expenses with cash reserves
-reducing cash in current assets
-reducing ability to pay current liabilities
-may have to sell NCA
-disruption to operations
cost plus pricing benefit
-mark up added to cost of production for each product
-prices are flexible when costs change
-so price will increase if cost of product increase in order to maintain profit margins
-leads to business ensuring they dont make a loss on products sold
-unlikely to experience OP loss
-cash reserves not strained
-able to maintain sufficient working capital
-able to keep up with day to day bills
cost plus pricing drawback
-however cost plus pricing doesnt consider external factors
-e.g in very elastic market a competitor could reduce their mark up
-in order to offer lower SP than business
-lead to significant number of customers switching to comp offering cheaper prices
-leading to fall in sales
-as cost plus pricing wouldnt respond to this
-fall in revenue
-fall in OP
predatory pricing benefit
-price is reduced in order to attract customers from comp
-who are then unable to compete
-leading to failure and them closing down
-reduces level of comp in market creating a monopoly
-customers have less choice
-making market price inelastic
-inelastic LOA
predatory pricing drawback
-involves setting extremely low prices
-which could be lower than cost of production
-would lead to very low GP or potential losses
-would strain cash reserves in order to cover day to day running costs
-leading to lower current assets and poor current ratio
-meaning business would have poor liquidity
-liquidity LOA
psychological pricing benefit
-using psychological pricing e.g £99
-may convince consumers that products are more affordable
-leading to increase in sales
-FC can be spread over more units
-lower unit FC
-increasing OP + RP
-improving competitiveness
psychological pricing drawback
-using psychological pricing may not be effective
-as it doesnt consider factors that can affect PED of products
-therefore choosing psychological price may lead to business setting price thats too high
-if product doesnt have high differentiation
-may result in significant decrease in demand
-reducing SV + OP
-can retain less and reinvest less
