Theme 2 Flashcards
Business ethics
Moral principles that guide the way a business behaves. (environmentally friendly, cruelty free, pay workers well)
Promotion
Refers to raising awareness and desire for a product.
Why promote
To inform about existing/new products
To explain potential benefits
To persuade customers to buy the product
Sales promotion
special offers (free gifts, bogof), loyalty points, competitions, tactical
Branding
Creating an identity for your product which customers see as different from other products. (e,g. colour, packaging, theme tune)
Place
Refers to where the product is sold and how a business gets its products to customers (distribution)
Distribution
Making products at the right place, time in the right quantity
Distribution channel
Moves a product through the stages from production to final consumer.
(retailer, wholesalers ,sales agent/distributer, direct/e-commerce.)
Marketing Mix
how a business combines its products, price, uses promotion and the place of sale in order to be successful.
Competitive advantage
An advantage gained over rivals by offering consumers greater value either by means of lower prices or greater benefits.
Operations
Is the function that organises, produces and delivers the goods of a business.
Job production
Unique bespoke products, specialists, huge profit margins, focus on customer requirements
Batch production
Ability to mass produce a production in different flavours/styles ,using machinery.
Flow production
Mass producing the same product by machinery at a constant flow.
Organic growth
businesses grow by expanding their own operations
Benefits of organic growth
Less rick than external growth
Financed through internal funds (retained profit)
Builds on a businesses strengths
Drawbacks to organic growth
Growth may be dependent on growth of the overall market
Inorganic growth
Is achieved when one business joins another business by a merger or takeover, achieved through integration.
Merger
Two or more firms join to create a new business
Takeover
One business buys another
Types of integration
Horizontal
vertical
conglomerate
Horizontal integration
A business joins a business at the same stage of the production process
Vertical integration
A business joins with its supplier
conglomerate integration
a business joins a business in a different market
Benefits of inorganic growth
reduces competition and increases market shares
opportunity to diversity- enter new markets
Drawbacks of inorganic growth
if a business grows too quickly it may become inefficient
Resentment and clash of culture may occur
Retained profit (Internal)
A cheap form of finance as no interest has to be paid.
Can’t be used for unforeseen financial difficulty’s
Sale of assets (Internal)
Selling unwanted assets (land, buildings, machinery)
It’s a one off
Bank loan (external)
amount of money borrowed for a set period with an agreed repayment schedule.
Interest becomes a cost of the business.
Share capital (External)
Allows the business to raise large funds in the form of share capital that are not repayable.
Loss of control and have to share profit.
Stock market flotation (External)
Selling shares for the first time.
Globalisation
The process by which a business starts operating on an international scale.
Imports
An import is a product made overseas and brought into the UK
Why would a business import goods ?
Other countries make nice products that people would like to use.
A business doesn’t have to manufacture.
Exports
An export is a product the UK sells to overseas markets.
What does the UK export ?
Pearls and gems ect
Machinery
Vehicles
Aircraft
Multinational
Is a business which trades in more than one country
Tariffs
Is a tax places on an import to increase its price and decrease its demand.
Advantages of tariffs
UK produced goods don’t have to pay the tariffs and so are likely to be cheaper
Allows UK business to sell more because they gain a price advantage .
Disadvantages of tariffs
high import prices won’t put customers off
tariffs may just increase prices for consumers.
Trade blocs
Is a group of countries who make a trade agreement not to place tariffs on imported goods.
How businesses compete internationally
Can use the internet and can sell using e-commerce to trade internationally.
If they have the website translated into several versions available they can sell in different countries.
Ways a business can act ethically
Cruelty free
Treat workers well/ fair wages
environmentally friendly
Advantages of being ethical
Brand image
Motivate workers
Disadvantages of being ethical
Cost to the business
Reduces profit
Trade-off
Is a compromise between one thing and another
pressure group
Are organisations set up to try and influence what consumers think about the business and its environment
Product design
Is the process of creating new products or services for firms to sell
Product differentiation
Is making your product different to competitors
Market driven approach
Is one that listens and responds to the needs and wants of customers
The design mix
Function: the way the product works
Cost the design and features affect how much the product costs
Aesthetic: Product image
Procurement
Is the whole process of managing the ordering and receipt of the goods and services in the business
What does procurement involve ?
Deciding what is needed selecting supplier terms of payment managing logistics negotiating contracts between the business and supplier
Supplier
A business or individual that provides goods or services to a business
Gross profit
Revenue - cost of sales
Gross profit margin
gross profit
—————– x 100
revenue
Net profit
gross profit - total expenses
Net profit margin
net profit
————– x 100
revenue
Average rate of return
Average annual profit (total profit / no of years )
——————————————————————— x 100
cost of investment
Increasing the business’s sales revenue
- lowering the selling price may increase demand
- increasing the price may generate more revenue
- increase awareness of the product
lower the cost of sales
- Cut down on the price paid to suppliers
- Change suppliers if another supplier can offer cheaper price
- Could review their existing products and see if they could made more cheaply to cut costs
Improving the net profit margin
- Increase it’s sale revenue
- Lower expenses
- Freeze recruitment
- move to a cheaper location
- review salary structure
Tall structure
A business with more layers (hierarchy) but narrow span of control
Flat structure
Less layers/ wider span of control
Span of control
The number of subordinates a line manager is supervising
Organisational chart
Shows how employees are organised in a business
Chain of command
The route through which messages are passed
Delegation
The authority is being passed on to another person ( usually a subordinate )
advantages of tall structure
- Opportunities for promotion
- Narrow span of control
- Can spot areas/ departments to develop
Disadvantages of tall structure
- Creates a ‘them and us’ culture
- long chain of command
- messages can get distorted
Advantages of flat structure
- Team motivation
- creativity as more delegated
Disadvantages of flat structure
- More likely to be unorganised
- Mistakes as more work is delegated
Centralisation
Head office makes all the decisions about how the business is run
Decentralisation
Managers in local branches are given more decision making power
Advantages of centralised structure
- decision making and communication can be quick due to high levels of control
- vision of the whole organisation is clear
Disadvantages of centralised structure
- Stops creativity
- less delegated = less motivation
- job satisfaction may be lost as staff are not able to feel involved
Advantages of decentralised structure
- motivation for managers
- Increase sales through using local knowledge
Disadvantages of decentralised structure
- lose cost cutting opportunities through bulk buying
- damage brand name through poor decisions
Motivation
is essentially the commitment to do something. ‘the will to work’
Importance of motivation
- increased productivity
- lower absenteeism
- higher staff retention
- good reputation
- improve product quality
What motivates staff
Praise Pay Fringe benefits Promotion Responsibility Bonus Training Team Recognition
Job enlargement
Gives staff a greater variety off tasks to do, which makes the work more interesting
Job enrichment
Involves workers being given more responsibility and a wider range of more complex and challenging tasks
Training
Will motivate staff to do their existing job well, learn new techniques or be trained for future posts.
Autonomy
refers to how much freedom a member of staff has to make their own decisions and to shape the way in which they work
Logistics
A process which plans, implements and controls the distribution and storage of goods and services from when they are received from the supplier to when they are delivered to the customer
The sales process
The chain of events (from purchase to later customer service) where a business sells to a customer
Important aspects of the sales process
Speed and efficiency of service
Post sales service
Product knowledge
Good customer engagement
Benefits of good customer service
- Customer loyalty
- Increased spending
Dangers of poor customer service
- Dissatisfied customers are less likely to purchase a product again
- Customers are likely to share their negative experience giving them a negative image
Average rate of return
average annual profit ( total profit/ no of years)
——————————————————————– x 100
cost of investment
Infographics
A graphic representation of information to make it interesting and catchy
What businesses do with numerical data
- compare performance with rivals
- monitor performance
- Set goals or targets
- make decisions about production volumes
- anticipate needs of customers
Limitations of financial data
- It is historical (using old data to make decisions about the future)
- Statistics can be manipulated
- Qualitative factors could be more important - business reputation, employee motivation, why sales have fallen
Types of financial data
- ARR
- cash flow forecast
- break even point
- profit and loss
- Gross and net profit
Marketing data
Includes a businesses internal data, such as data on sales figures, marketing spending and primary market research
Market data
Is generally available through secondary data for the industry concerned and includes population information such as age distribution, income levels and employment and unemployment information.
