Theme 2, 2.1 Business Growth and Competitive Advantage Flashcards
Define Economies of scale
Long run increases in capacity and output can reduce average costs.
Define Diseconomies of scale
Increased unit costs as business grows and becomes less efficient.
Define External economies of scale (economies of concentration)
Involves unit cost reductions that are shared by a whole industry, rather than a single firm. Common when firms are concentrated in one location.
Define Internal economies of scale
Arises when a business invests in larger-scale production.
Define Technical economies
Involve overall cost savings when technology is used.
What are 2 types of economies of scale?
Internal and external economies of scale
Define Marketing economies
Involve advertising and promotion activities. Making an advert is a fixed cost which will not change as output increases.
Define Managerial economies
Focus on having specialists in management roles. As business size increases, it pays to use specialists.
Define Bulk buying economies
Allows larger firms to negotiate cheaper input costs, as seen with UK supermarkets.
Define Risk-bearing economies
The ability to take more risks due to the size and scale of the business.
Define Financial economies
Arise when banks see larger firms as more secure so charge lower rates of interest
Define Minimum efficient scale
Is the lowest level of output at which average or unit costs are minimised because the firm can make full use of economies of scale.
Define Monopsony
Refers to the market with a single buyer.
Define Monopoly
Refers to a market with a single supplier
Define Brand recognition
Measures the percentage of consumers who recognise a specific brand and associate it with product features.
Define Corporate Culture
Refers to the shared values, attitudes,standards, and beliefs that characterise members of an organisation and define its nature.
Define Organic Growth
Means expansion of a single business by extending its own operations rather than by merger or takeover. Organic growth is likely to be slower but also more secure.
Define Inorganic growth
Refers to expansion by merger or takeover, bringing sudden increases in business size. For example, in 2014 Dixons (Curry’s, PC world) merged with Carphone Warehouse.
Define Horizontal integration.
Firms with similar products at the same stage of production come together. This gives most scope for economies of scale and generates extra market share and perhaps market power from bringing two rivals together.
Define Vertical integration
A business strategy in which a company takes ownership of two or more key stages of its supply chain. A vertically integrated automaker,for example, might produce automobile components and vehicles and also sell directly to customers.
Define Forward Integration
Adding firms closer to final consumer in supply chain.
Define Backward integration
Adding firms closer to raw materials or other inputs.
Define Conglomerate
Businesses in unrelated activities.
Define Research and Development
Lead to innovation and attractive new products for the marketplace. This can also be applied to innovation in the production process.
Define Product innovation
Leads to the creation of new goods and services ( or improvements).
Define Process innovation
Means changing the way something is produced, normally to reduce average costs.
Define Product life cycle.
Is a series of 5 stages which typical products go through between their first introduction and the eventual decline.
Define Extension strategy
Is a way in which a business attempts for prolong the mature phase of a products life cycle.
Define Brand loyalty
Arises from distinctive features that give the product some uniqueness and attract customers to make repeat purchases, regularly choosing the product in preference to those of competition.
Define Brand recognition
Measures the percentage of consumers who recognise a specific brand and associate it with product features. A high percentage makes branding a valuable marketing tool.
Define Competitive advantage
Having an edge over your competitors that is difficult to copy.
Define USP
Unique Selling Point
Define economies of scale
Increases in capacity and output can reduce average costs.
Define SMEs
Small to Medium size Enterprises.
Define Asymmetric information
Occurs when one party to a transaction knows more than other party.
Define Viral Marketing
Encourages the spread of information and opinions about a product or service from one person to another. It can be particularly effective using online media.
Define E-commerce
Is an umbrella term for any online selling/business.
Define E-tailing
Specifies sales to consumers
Define Micro-marketing
Is a customised marketing strategy in which advertising efforts are focused on a small, well defined group of consumers.
Define Niche market
A small, specialised market for a particular product or service. Larger firms tend to ignore.
Define USP
Are distinctive features that no competing product can match precisely.
Define both types of economies of scale?
Internal- occurs when the firm grows larger and average cost of production falls.
External- Occurs within the industry.
What does “Really Funny Mums Try Making Pies”?
Risk- bearing
Financial
Managerial
Technological
Marketing
Purchasing
Describe financial economies of scale
When a firm grows larger, it is seen as less risky and so its eligible for larger loans from banks for lower interest rates.
Define the Longtail
Refers to a proliferation of choices, with increasing ability to match the precise niche market needs of individuals and small groups, reducing the dominance of standard hits.
Describe purchasing economies of scale
As output increases, firms can bulk-buy, meaning the cost per unit of output is reduced.
Give one way diseconomies of scale occur
As the firm expands, some workers may feel alienated from their more important counterparts, and therefore demotivated to work hard.
What is the lowest point on the LRAC curve called?
The minimum efficient scale
How do large firms have dominance over markets?
They have the ability to set prices and discourage other firms from entering the market
When does a firm have a competitive advantage?
When its goods/services are deemed better quality than its competitors by customers.
Why would firms try to ensure their employees are well looked after?
To boost employees’ motivation, which in turn increases productivity and output
What is inorganic growth?
When a business expands by merging and acquiring other firms.
What is organic growth?
This is when a business grows by increasing output, expanding their customer base and developing new products.
What are disadvantages of organic growth compared to inorganic growth?
It takes time to grow this way, and in this time other firms may gain competitive advantage over the market, which may become a problem for shareholders
Define vertical integration
This occurs when a firm merges with or acquires another firm in the same industry but different step in the supply chain.
Which vertical integration is closer to the producer? forwards or backwards?
Backwards vertical integration
Define horizontal Integration
occurs when a firm merges with or acquires another firm in the same industry and same stage of production.
How is horizontal integration beneficial for firms?
It gives them a competitive edge over the market as their market share increases, leading to increased output.
What is conglomerate integration?
The joining of 2 firms with no common connection (e.g. two different industries)
What is R&D?
Investment in research with the intention of improving goods, introducing new ones and improving methods of production.
How can R&D increase market power?
It differentiates products from their competitors, making them more unique and thus help increase brand royalty.
Why does the state often provide funding for R&D?
The positive externalities of R&D are not always fully understood, so the state intervenes to ensure more investment in R&D.
How has price comparison sites been beneficial to consumers?
They have helped reduce information gaps by increasing the quantity of knowledge consumers have about a good or service.
What is viral marketing?
A form of marketing whereby the good/service is promoted on social media, where it can be shared with friends.
What is micro-marketing?
Where advertising is focused on a small group of consumers, rather than the market as a whole.
What is the long tail theory?
Suggests consumers get a wider choice when it comes to online retailing.
Give two ways online stores have an advantage over their brick-and-mortar counterparts?
1.Online businesses are not restricted to physical space, so can target customers worldwide.
2.Online stores have lower costs, so can charge lower prices and therefore gain a larger portion of the market share.
What does the acronym USP stand for?
Unique Selling Point
Why can most small firms NOT benefit from economies of scale?
Since they are small firms, they do not produce enough output to lower their average costs.
How could small firms as as monopolists?
They can create a local, more personal service and a niche market.
