theme 2 Flashcards
2.1: Internal - organic growth and why
New markets
new products
new technology
helps to:
increase market share
lower costs
results in more profit
2.1: advantages and disadvantages of internal growth
+ cheaper: financed through retained profits
+ less risky: no culture clash
+ keep control
- pace of growth is slower
- might miss out on tapping into skills and expertise of other businesses
2.1: External inorganic growth
merger
takeover: buy shares
2.1: advantages and disadvantages of external growth
+ demand will be increasing so right time to grow.
+ quicker
+ combined business benefits from shared resources and skills.
- Difficult to integrate two businesses together
- can be expensive
2.1: what is a PLC?
Public limited companies
raise capital through selling shares on a stock exchange.
private limited companies can become a PLC through stock market flotation
2.1: MNC
Multi national companies
a business which operates in more than one country.
+ wider target market
+ take advantage of cheap labour
+ spreads risk
- culture and language barrier
- can damage reputation if unethical
2.1: Sources of finance for PLC
Internal:
sales of assets: cheap and easy but may require later.
retained profit: cheap but cannot be used elsewhere
external:
loan: get instantly but have to repay with interest
share capital: can lead to takeober
2.1: changes in business aims
Internal
- culture
- change in leadership
- performance
external
- technology
- legislation
- market conditions
2.1: targets for a growing business
enter new markets
expand product variety
increase sales
increase market share
improved workforce
open new stores
2.1: targets for a struggling business
exit from markets
decrease product variety
aim for break even
improve efficiency
maintain market share
reduce costs
2.1: international trade
the flow of goods and services between countries.
importing and exporting
2.1: import and export definition
import - a good brought into the country (money leaving UK)
export - a good exiting the country (money entering UK)
2.1: globalisation definition
the increasing number of businesses that are operating on an international scale
2.1: proctectionalism
3 ways the government protects the businesses in their country.
- Tariffs: tax that raises prices of imported goods
- Quotas: a physical limit on the number of imports
- Export subsidy: government gives businesses money to help them.
2.1: benefits to UK businesses
- greater number of customers to sell in new markets
- lower costs of production in developing countries (cheap labour)
2.1: drawbacks to UK businesses
- threat from foreign businesses
- challenge of adapting products to meet foreign customer needs.
2.1: reasons for trade barriers
- protect jobs in infant industries
- protect jobs in domestic industries
- raise tax revenue from tariffs
- prevent dumping (lots of imports) which would affect prices.
2.2: definition of free trade and trade blocks
Free trade - no restrictions to buying and selling between customers (EU)
Trade blocks - an agreement between a set of countries to have free trade between them.
2.1: Adapting the marketing mix to compete globally.
change to PRICE
Different currencies
potential fluctuations in exchange rates
tariffs
different tax laws
different standards of living and average income
2.1: Adapting the marketing mix to compete globally.
change to PLACE
Availability to technology
cultural differences (where do people shop: mall or markets or streets).
2.1: Adapting the marketing mix to compete globally.
change to PROMOTION
language differences
cultural differences (connotations of certain things or colours)
2.1: Adapting the marketing mix to compete globally.
change to PRODUCT
Technological differences
tastes and cultural preferences
cultural or physical difference
(weight, height, family size)
2.1: difference between gloBalisation and gloCalistaion
Globalisation - when a global company operates understanding the local community needs
Glocalisation - tapping into global markets by tailoring the products to local needs
2.1: Ethics advantages and disadvantages
+ motivation of workers
+ crates a positive brand image
+ can charge premium prices for products
+ competitive advantage over rivals
- price
- costs to the business profit
2.1: ethics and pressure groups
An organised group that seeks to influence business behaviour.
Pressure groups can show businesses in a negative light and ruin their brand images
2.1; ethics and the marketing mix
product - ethically produced goods
price - fair waged to employees
place - doesnt exploit location
promotion - provides accurate information
2.1: ethics and trade offs
Trade offs - finding a balance between achieving two objectives
like profit and ethics
2.2 - Design mix
function
aesthetic
cost
2.2 - Marketing mix
price
place
product
promotion
2.2: product life cycle steps
Research and development (R&D) Introduction Growth Maturity Decline
2.2: Sales and profit during the product life cycle
Development and introduction - the firm spends money on research and promotion, but sales on the product are usually low. businesses will expect to make a loss during these stages.
Growth and maturity - the business will hope to earn enough money to pay back their initial investments and make a profit.
Decline - the firm will probably spend less money supporting the product.
sales will fall, it will begin to make a loss, unless it stops making the product.
2.2: extension strategy
Extending the product lifecycle by:
- Adding more or different features.
- using new packaging.
- targeting new markets.
- changing advertisements
- lowering prices
2.2: Internal factors affecting price
- technology
- method of production
- product life cycle
2.2: external factors affecting price
- competition
- market segments
- cost of raw materials
2.2 - pricing strategies
- price penetration
- loss leader pricing
- price skimming
- competitive pricing
- cost-plus pricing
2.2: price penetration
starts with very low prices when a product is new so people try it.
good way to establish market share
the product will make very little profit but once its established the firm increases the price.
2.2: loss leader pricing
Using loss leaders is a method of selling certain products at a loss or below market value to encourage customers to come into a business. The hope is that they will buy other full price items.
2.2: price skimming
Price skimming means setting a relatively high price to boost profits. It is often used by well-known businesses launching new, high quality, premium products
2.2: competitive pricing
Competitive pricing occurs when a firm decides its own price based on that charged by rivals. Setting a price above that charged by the market leader can only work if your product has better features and appearance.
2.2: cost plus pricing
Cost-based (cost plus) pricing - This method of pricing is based on calculating the cost of producing the item and then adding on the percentage profit required by the company. For example, if a cake costs £1 to make and the company wants to make a 50% profit, they will sell the cake for £1.50.
2.2: methods of promotion
- sponsorship
- newspapers
- magazines
- posters and billboards
- tv adverts
- internet adverts
- leaflets, flyers and business cards.
2.2: Sales promotion
Special offers
product trials
2.3 - Procurement and legislation
Procurement - the process of sourcing and buying stock.
Legislation - The organisation/management of the transport of stock.
2.3: A good supplier
- Flexibility with deliveries and payment
- Reliable
- Large discount for large orders (economies of scale)
- High quality goods
- Good prices
- Short lead times (available quickly)
2.3: Why is good supplier good?
- Late deliveries can hold up customers.
- If not reliable, might not get delivery.
- Supplier can influence the branding of business.
- Flexibility can help businesses to meet customer requirements.
2.3: Good quality definition
A product or service which meets the standards set by customers
2.3: Benefits of good quality
- can charge premium prices
- strengthens brand
- can give a USP/ competitive advantage
2.3: How might a business know if quality is lacking?
- Number of complaints from a customer.
- Product refunds or return
- Loyalty of customers
- mystery shoppers
- customer surveys
2.3: Quality control vs quality assurance
Quality control - the product would be tested at the end.
if the product doesn’t meet standards its made again or thrown away.
Quality assurance - tested at each stage of the process
2.3: Advantages and disadvantages of quality control
ADVANTAGES:
- less low quality to products
- cheaper
- less discipline
DISADVANTAGES:
- Too late to correct errors
- products have to be destroyed.
- wastes money.
2.3: Advantages and disadvantages of quality assurance
ADVANTAGES:
- Leads to zero defects
- customers
- focus on process
- target at the whole organisation
- aims for loyal repeat customer
- less wastage
- quality built into the product.
DISADVANTAGES:
- costs more
- takes time
- training
- employ more staff.
2.3: meaning of production
Production is the process of changing inputs such as raw materials and labour into food and services that can be sold.
2.3: Job production
The method of production where one-off specialised products are made (individually) for each customer.
Staff have to know how to do everything.
For example; hair dressers, tailors, architect, wedding dresses.
2.3: Job production Advantages and disadvantages
ADVANTAGES:
- products of high quality
- meet individual needs of customers
- higher prices may be charged as customers are willing to pay more for specifically designed products.
DISADVANTAGES:
- high cost of production
- high labour cost (requires skilled labour).
2.3: Batch production meaning
Mixture of flow and job production
similar products
like paint or cupcakes
2.3: Batch production advantages and disadvantages
ADVANTAGES:
- Meet customer needs
- Machinery used to lower labour cost.
DISADVANTAGES
- Less scope for customising products
- Takes time to switch between machinery, set up takes time.
2.3: Flow production/ mass production meaning
Making lots of things continuously
identical
2.3: Flow production/ mass production advantages or disadvantages
ADVANTAGES
- Cost of product is lowered
- use of machinery leads to very consistent, high standards of quality.
DISADVANTAGES
- Accidents are costly
- Basic product cant be changed easily.
- Worker motivation is low
2.3 - types of stock
Raw materials to make goods
finished goods to sell
2.3- problems with low stock
difficult to meet customer demand
loss of repeat purchases
ordering stock means you have to wait for it to be delivered
loss of business, customers buy from elsewhere
2.3 - problems of high stock
stock can be wasted or perished
high cost to store the stock
can go out of date
extra stock is a cost to the business if sales are low and not used.
2.3 - just in time`
+ cash not tied up in stock (improved cash flow)
+ stock will be fresh (especially for businesses that sell perishable goods)
- unforeseen circumstance can cause late deliveries
- Initial teething problems may drive away customers.
2.3 - just in case
+ never run out of stock
+ can meet surges in demand
+ benefit from economies of scale ( discount of bulk buying)
- Ties up cash which could be used elsewhere.
- Higher storage costs
- stock can perish
2.3 - buffer stock, re order level, lead time
buffer stock- the minimum stock level that is kept
re order level - when stock is re-ordered
lead time- the time it takes for stock to come
2.3: STEPS OF THE SALE PROCESS
- customer interest
- speed and efficiency of service.
- customer engagement
- response to customer feedback.
- post-sales service.
2.4: Sales revenue
Price x quantity sold
2.4: Variable costs
Cost of each product x numbers sold
2.4: Total costs
Total costs =
Fixed costs + Variable costs
2.4: ways a business can increase profit
- increasing revenue
- Lowering costs
2.4: Gross profit
Gross profit = sales revenue - variable cost
GP = SR - VC
2.4: Net profit meaning
The amount of money left over once all the expenses have been deducted.
2.4: Net profit formula
NP = SR - TC
Net profit = sales revenue - total costs
NP = SR - (FC + VC)
2.4: Gross profit margin and Net profit margin
GPM = GP/SR X 100
NPM = NP/SR X 100
2.4: Average rate of return meaning
When a business wants to decide between two or more projects they find out which one will make more profit.
2.4: Average rate of return
Total profit / number of years (average annual profit /
Cost of investment
x 100
2.4: Businesses use a variety in order to make and justify decisions.
These include:
- information from graphs and charts
- market data
- marketing data.
- financial data
2.4: Bar charts and graphs in general
They present information clearly in a way that makes it easy to understand.
You can interpret trends over time, or one data set with another such as comparing the sales figures of two rival businesses, or sales over a few years.
Can identify seasonal trends and variations.
Many businesses also use infographics to make info more visual.
2.4: pie chart
A pie chart shows different parts of a whole. E.g. a pie chart that shows how the market share of each car manufacturer
You can interpret direct rivalries or relative successes.
2.4: Scatter/line graphs
Useful in demonstrating the relationship between two variables.
E.g. the relationship between how much a business spends on advertising and it’s sales revenue.
2.4: Using and interpreting market data
Market data is data relating to the characteristics of the market in which a business operates. This might be the general market in a country or countries, or including demographic information such as population change, average income, migration and unemployment rates.
Market data can also refer to markets for specific products, such as cosmetics or food. This kind of market data can include data on a market size (for example the number of products sold or totl revenue in that market), the number of competitors the market and the average price data.
Market data can help inform a business about a new opportunity and areas of potential growth. A business will use this information to make decisions and justify them. For example, it could use market data to decide the location its next store or make decisions about the quantity of product that it produces.
2.4: Using & interpreting financial data
A Ltd or plc will have to prepare two types of financial statement at the end of the financial year
Balance sheet – this is a snapshot in time of what the business owes and what it owns
Income statement – this shows if the business has made a profit or a loss during the year
2.4: Financial information to understand business performance - LIMITATIONS
Financial information published buy a business is open to interpretation, which means lots of people can read it and they may all think different things
Accounts are produced by humans so its open to human error
There are also lots of ways of producing accounts, so they may vary from business to business
2.4: Using financial information
Owners and managers: can use the financial information to make important long term decisions for the business e.g. what new equipment will be needed next year or what new materials may be purchased
Suppliers can use the information to see if the business is credit worthy
The bank would use the financial information of a business to see if they will lend more money in the future
Government, The HMRC would look at the financial information to see if the correct amount of tax has been paid
