Theme 1 - Markets Flashcards
1
Q
Factors leading to a change in supply - Positive Effect
A
- Reduced cost of
production - Increased profit
margins - Increased
incentive to
supply - Increase in supply
of….
2
Q
PED Line of analysis?
A
- Due to poor customer service a businesses products may become more elastic
- Leading to customers being less loyal to the brand
- Therefore if price increases there will be significant fall in demand
- Leading to pressure to keep prices low
- Leading to lower revenue
- Reduced gross profit margin
3
Q
Price Inelastic Line of analysis?
A
- Through R&D (say how in the context)
- This would differentiate their products from rivals such as…
- Therefore, customers are likely to stay loyal as they can’t get the same from competitors
- Making them more price inelastic so they can charge higher prices without demand falling significantly
- Leading to increased revenue
- Leading to increased gross profit margin
4
Q
Benefit of a business selling normal goods,
(Line of analysis)
A
- If a business sells normal goods then they are likely to have stable, predicable sales
- This is because when incomes change demand does not change very much
- They are unlikely to see a significant fall or rise in profits when incomes change
- They are unlikely to make a loss and can therefore keep up with loan repayments
- This means the business is attractive to banks as it is a safe investment
- This could result in them getting low interest rates on loans leading to lower expenses
5
Q
Drawback of a business selling luxury goods,
(Line of analysis)
A
- Business is vulnerable to changes in average incomes
- If many people loose there jobs there will be a fall in incomes
- This will lead to a significant fall in demand for a business’s goods as consumers switch to cheaper alternatives
- Leading to a fall in revenue resulting in a fall in gross profit
- Could lead to the making an operating loss putting them under pressure to reduce their expenses
- Could involve selling their non current assets such as stores and factories
- Reducing scale
6
Q
Benefit of market segmentation.
(Line of analysis)
A
- Through segmentation a business can target market research at a specific research group
- Rather than trying to create a product for all customers
- This can help a business understand their customer needs more effectively
- Meaning they can adapt their design mix to better meet their needs
- Ensuring the business product is more differentiated
- And more price inelastic
- So they can increase their prices without a significant decrease in demand
- Increasing their sales revenue
7
Q
Drawback of market segmentation.
(Line of analysis)
A
- Need to create multiple products
- To meet the needs of different segments
- For example using geographical segmentation to create different products for customers in different countries
- Therefore unable to benefit from marketing economies of scale
- As each product will be targeted at a smaller group of customers
- This means that fixed costs of R&D to produce the good can be spread over less units over more
- Leading to higher unit fixed costs
- Lower operating profit margins
8
Q
Name all the factors leading to a change in supply?
A
- Changes in the cost of production (raw materials, legislation, wages etc.)
- Introduction of technology
- Indirect taxes (additional cost to pay)
- Government subsidies (money given to cover some costs of production)
9
Q
Benefit of using a market map?
(Line of analysis)
A
- Market maps help businesses identify gaps in the market
- Once identified businesses can conduct R&D
- Design a product that matches characteristics of missing gap
- Product is likely to be unique
- Lack of substitutes means product will be inelastic
- Business can increase selling price and not experience significant fall in demand
- Increased sales revenue and gross profit
10
Q
Drawback of using market map?
(Line of analysis)
A
- Market maps are based on customer opinions
- To ensure decisions based on opinions are valid
- Business needs to collect data from a large sample
- This may require a large number of researchers
- To collect and analyse data in a market map
- If business recruits researchers it will significantly increase outflows
- If cash outflows greater than cash inflows
- It may lead to a negative net cash flow
11
Q
Importance of design mix - aesthetic/function
A
- If a business improves aesthetics/function of products design mix
- Through R&D into improved functionality or market research to identify consumer trends
- Product is likely to become differentiated compared to rivals
- Gain a competitive advantage according to Porter
- Price inelastic
- Can increase selling price without significant fall in demand
- Increase sales revenue and gross profit margin.
12
Q
Drawback of prioritising element of the design mix aesthetic/function
A
- To improve aesthetics or function it will require significant investment into R&D or market research
- Increasing cash outflows
- Result in a negative net cash flow
- Placing a strain on a businesses cash reserves
- Business has difficulty making payments to suppliers
- May have to sell non-current asset
- Disruption in business operations
13
Q
Importance of design mix economic manufacture
A
- If a business designs a product with economic manufacture as priority
- E.g -Through using less robust raw materials – adapt this to business in extract
- Reduce their cost of sales
- Can pursue cost leadership according to Porter
- Gain competitive advantage
- Can reduce selling price
- Significant increase in demand if product is price elastic
- Increasing sales
14
Q
Drawback if prioritising economic manufacture
A
- If a business designs a product with economic manufacture as priority
- E.g -Through using less robust raw materials – adapt this to business in extract
- It may mean that the product they design becomes less robust
- Damage the businesses reputation (now associated with being less robust)
- Consumers may switch to alternatives
- Decrease demand
- Decrease in sales and gross profit
- Less profit to retain and reinvest
15
Q
Changes in the elements of the design mix to reflect social trends – must adapt to relevant social trend from extract - Benefit
A
- Changing design mix to reflect social trends (choose social trend and element of design mix relevant to business in question)
- Product now aligned with social trends
- Better meets customer needs
- Consumers more loyal to business
- Price inelastic
- Can increase selling price without significant fall in demand
- Increase sales revenue and gross profit margin.
