Unit 5 Flashcards
What are internal sources of business ideas for entrepreneurs?
- Interests & hobbies: Entrepreneurs may turn hobbies into businesses.
- Unexpected events: A thought or idea provokes a good/service.
- Frustration: Lack of products in the market may inspire new creations.
- Skills & Knowledge: Existing skills or knowledge can be transformed into a business.
What are internal sources of business ideas for existing firms?
- Brainstorming: Collaboration among employees to generate ideas.
- Entrepreneurship: Ideas from employees through suggestion boxes.
- R&D: Specialized departments develop goods, services, and new features.
What is market research?
The process of collecting and analyzing information on a target market to identify trends and make marketing decisions.
What are the reasons for conducting market research?
- Identify consumer needs & wants: To produce goods that consumers will buy.
- Identify Competitors: Gather information on competitors in the market.
- Identify consumer trends: Recognize current and future trends.
- Identify size of market: Determine overall and target market size.
What are the types of market research?
- Primary (field) research
- Secondary (desk) research
What is primary research?
Involves gathering first-hand information directly from the market by making direct contact with potential consumers.
What are the forms of primary research?
- Observations: Watching consumer behavior.
- Surveys: Conducting interviews via phone, face-to-face, or online.
- Mystery shoppers: Anonymous shoppers evaluate customer service.
What is secondary research?
Involves gathering and reviewing existing information that has already been collected by others.
What are the benefits of market research?
- Identify target market: Reveals who buys your products.
- Reduces costs: Tailors products to consumer needs.
- Identify problems: Recognizes consumer issues before they damage reputation.
- Forecast future trends: Helps create products to meet future consumer needs.
What is the marketing concept?
Ensures a business focuses on the needs and wants of a consumer before developing a good or service.
What is marketing?
Business processes used to understand, anticipate and satisfy consumer needs now and in the future.
What does marketing require?
1- Conducting market research
2- Developing a marketing strategy and plan
3- Formulating a marketing mix
What is a marketing strategy?
Examining the overall business objectives and develops marketing activities to achieve these goals.
What are the results of a marketing plan?
Benefits business goals, shows finances for a business, benchmarking (standard to compare).
What is market segmentation?
Involves dividing a market into different sections to target products more effectively to consumers.
What are the types of market segmentation?
• Geographic - Location/area, e.g., Kilkenny people targeted to the county Kilkenny.
• Demographic - Age, income, gender, e.g., Tesco Finest for higher class, more wealthy.
• Psychographic - Beliefs, attitudes, lifestyle & social status, e.g., consumers concerned about the environment will only buy recycled packaged items.
What are the benefits of market segmentation?
• Increases sales - Products meet consumer needs & wants = increased sales.
• Increases market share - Allows a business to focus on a small section & slowly grow.
• Lowers costs - Not making products consumers won’t buy.
What is a target market?
Specific group of consumers who share common needs and wants. The business aims its products to these people, e.g., kids.
What is a niche market?
Small group of consumers within a larger market who have different needs & wants to the majority. They will pay a high price for products that meet their needs, e.g., vegan food.
What are the advantages of niche marketing?
• Less competition - Other brands focus on the larger market.
• Consumer loyalty.
• New products - Easier to make new ones as customers are loyal & willing to try.
What are the disadvantages of niche marketing?
• Economies of scale.
• Growth.
• Competition.
What is product positioning?
Creating a positive image of a product that remains in the consumer’s mind, increasing a firm’s sales.
What is involved with PRODUCT?
Product design, brand name, packaging, product life cycle.
What does product design include?
Function, materials, manufacturing, appearance, cost.
What is a patent?
Gives exclusive legal ownership rights to the inventor of a product or process. No other business can use this invention without the agreement of the patent owner.
What is a brand name?
A distinctive name given to a business and the goods and services it develops. A brand name is usually registered & cannot be used by others.
What is a brand logo?
Shapes, colours, symbols etc. used to identify a brand.
What are the advantages of a brand name for a business?
• Increased recognition - Brand names make products more recognisable.
• New products.
• Premium price - As brand names are associated with high quality, can charge high price.
• Increased consumer loyalty - Trust brand names & become loyal to the brand.
What are the advantages of a brand name for a consumer?
• Consumer image.
• Benefits of a product.
• Reduces disappointment.
• Higher quality products.
What are own brand products?
Products sold by retailers under their name, known as ‘retailers products’, e.g., Supervalu milk.
What are the advantages of own brand products for retailers?
• Product specification - Have control over colour, packaging etc.
• Increased profits - As products can be sold at low price.
• Consumer loyalty - Sell wide range & consumers become loyal.
• Different target markets: e.g., Tesco Finest people & value people.
What are the disadvantages of own brand products for retailers?
• Increased advertising.
• Business reputation.
• Cost.
• Economic conditions.
What does packaging include?
Product protection, image, convenience, information, recognition.
What is the product lifecycle?
Refers to the stages a product goes through from introduction to decline. It is used to track sales and the growth of a product over a period of time.
What are the stages of the product life cycle?
Introduction, growth, maturity, saturation, decline.
What is the introduction stage?
Low sales, invest in promotion, may generate a negative cash flow at the beginning.
What is the growth stage?
Sales increase and continued investment to meet the demand.
What is the maturity stage?
Sales and profits peak. There is a positive cash flow.
What is the saturation stage?
Sales and cash flow start to slow as new firms enter the market.
What is the decline stage?
Sales and profits reduce. Business must decide to retire or continue to sell the good.
What stage does the extended product life cycle not have?
Saturation.
How to extend the product life cycle?
• Product - Features or rebranding.
• Price - New strategy, e.g., lower cost.
• Place - New location, e.g., online.
• Promotion - New advertising campaign, e.g., Instagram.
What is rebranding?
A marketing strategy to change the name, logo, image or products of a firm. It can occur as a result of changes in the target market or advances in technology.
What is price?
The amount paid for goods or services by a consumer.
What factors determine selling price?
• Competitors price.
• Stage of product’s life cycle: e.g., price skimming may be charged at the start intro to recover R&D.
• Product image: High price for premium products.
• Cost: Price should cover firm’s costs (production, marketing, distribution).
• Demand: Higher demand = high price, e.g., hotels during concerts.
What are low pricing strategies?
• Penetration pricing.
• Predatory pricing.
• Loss leader.
What is penetration pricing?
Setting a low initial price on a new product to appeal immediately to the mass market.
What is predatory pricing?
Business sets product prices lower than competitors to drive them out of the market.
What is loss leader pricing?
Business sells product below cost price to encourage customers to buy more items.
What are high price strategies?
• Premium pricing.
• Price skimming.
What is premium pricing strategy?
Business charges a higher price than competitors, giving consumers the impression the product is high quality.
What is price skimming strategy?
High price is charged when a product is launched to recover from R&D costs. Can attract consumers willing to pay more.
What is psychological pricing?
E.g., 4.99 not 5. Appears product is cheaper.
What is markup pricing?
The business adds a profit % to the cost price of the item, e.g., 10%.
What is tiered pricing?
Consumers choose price level that fits their budget, allowing a business to appeal to more target markets, e.g., Tesco value and finest.
What is price discrimination?
Different segments of the market are charged different prices for the same product, e.g., Irish Rail - student fares vs adults.
What is bundle pricing?
Business sells multiple items together at a lower price than sold separately, giving the impression consumers are getting value for money, e.g., phone companies do family bundles.
What are wholesalers?
Firms that buy in large quantities from producers and sell in lower quantities to retailers, e.g., Musgraves.
What are agents?
Hired by a firm to sell their products in an area, e.g., abroad.
What are retailers?
Shops that buy from wholesalers or producers and sell either in person or online (e-trailers).
What is the channel of distribution?
The route a product follows and the businesses involved in moving a product from the producer to the final consumer.
What are the advantages and disadvantages of producer-wholesaler-retailer-consumer?
Benefits: large target market, consumer convenience, simplified distribution.
Drawbacks: cost, consumer feedback lacks, profits.
What are the advantages and disadvantages of producer-retailer-consumer?
Benefits: target market, lower prices, promotion.
Drawbacks: discounts, transport, copycat products.
What are the advantages and disadvantages of producer-agent-consumer?
Benefits: target market familiarity, lower cost, react to changes.
Drawbacks: loss of control, loyalty, costs.
What are the advantages and disadvantages of producer-consumer?
Benefits: profits, consumer feedback, consumer awareness.
Drawbacks: cost, expertise, time-consuming.
What factors affect the channel of distribution method chosen?
Cost, nature of product (shelf life), target market, business image (e.g., Nespresso), market size.
What is promotion?
Used to increase consumer awareness through techniques to persuade consumers to purchase a product.
What does the promotional mix include?
Advertising, sales promotion, public relations (PR), personal selling.
What is advertising?
Communicating information about a product to consumers to remind, inform and persuade them to buy this product.
What are the types of advertising?
• Informative.
• Reminder, e.g., Kellogg’s My Perfect Bowl.
• Persuasive.
• Generic (state organisations).
• Comparative.
What is informative advertising?
Advertising that provides information to consumers about a product, showing what the product does & giving factual information, e.g., TV ads like Flash showing how products remove stains.
What is reminder advertising?
Advertising that reminds consumers about the brand & its products, often used when a product is in decline, e.g., Kellogg’s My Perfect Bowl campaign.
What is persuasive advertising?
Advertising that persuades consumers that they need the product, can be used in introduction phase to gather interest & get consumers to buy, e.g., L’Oreal trying to persuade consumers to buy as they claim their products = healthier hair.
What is generic advertising?
Advertising a specific good/service in the industry, often for state-owned organisations, e.g., HSE, healthy eating campaigns.
What is comparative advertising?
Brand or product is advertised as superior to those of other competitors based on quality or price, e.g., Aldi & Dunnes.
What are the types of advertising medium?
Television, radio, newspapers, social media, business website.
What should be considered when choosing an advertising medium?
Cost, type of product, target market, stage in product life cycle.
What are sales promotions?
Short term gimmicks used to attract consumers to buy goods or services, helping to increase sales & profits, e.g., offers.
What are the types of sales promotions?
• Loyalty cards.
• Special offers.
• Free samples.
• Discount codes.
• Merchandising.
What is public relations?
Marketing technique used to create a positive public image for a business and the goods or services it sells. May have a PRO (public relations officer).
What are methods of increasing PR?
Sponsorship, endorsement, press communications, charities.
What is personal selling?
Face to face selling where staff use information, knowledge, and customer service approach to persuade consumers, e.g., Harvey Norman.
What are the two state bodies protecting consumers in relation to marketing?
CCPC (Competition and Consumer Protection Commission) and ASAI (Advertising Standard Authority Ireland).
What is unlimited liability?
The owner of a business is personally liable for all business debts. The owner may have to use their own savings/assets to pay debts.
Example: Car.
What is limited liability?
Owners in a business are not personally responsible for business debts if the business fails. They are only responsible for the amount they invested.
What is a separate legal entity?
A business exists as a legal entity separate from its owners, meaning the business can be sued and not the owner personally.
What does continuity of existence mean?
The business continues to exist even when the owner dies or retires.
What is a sole trader?
A business run by one person where the entrepreneur makes all the decisions. It is suited to small businesses, e.g., corner shops.
What are the advantages of a sole trader?
- Keep all profits
- Total control
- Easy to set up - Very few legal requirements unless a license is needed to trade.
Example: Pharmacy.
What are the disadvantages of a sole trader?
- Unlimited liability - Owner is personally responsible for all business debts.
- No continuity of existence - The business may close when the owner dies or retires.
- High stress - Sole traders may become stressed easily as they run the business and make all decisions.
What is a partnership?
A business with between 2-20 partners, e.g., doctors and solicitors. A deed of partnership must be drawn up to outline the rules.
What are the advantages of a partnership?
- Easy to set up - Just draw up a deed of partnership.
- Increased capital - More people to invest in the business.
- Improved decision making - Partners have a wide range of skills and knowledge.
- Continuity of existence.
What are the disadvantages of a partnership?
- Unlimited liability - Partners are responsible for all business debt.
- No separate legal entity - The partnership and business are not separate legal entities.
- Share all profits - Profits are shared according to the deed of partnership.
What is a deed of partnership?
A legal agreement signed by all partners of a partnership that sets out the rules of the partnership, e.g., how profits are divided.
What is a Private Limited Company (Ltd)?
A company owned by 1-149 shareholders that must be registered with the Companies Registration Office (CRO).
What are the advantages of a private limited company?
- Limited liability - Owners are not personally responsible for business debts.
- Continuity of existence - The business continues after a shareholder’s death.
- Separate legal entity - The company can sue and be sued in its own name.
- Access to finance - Can sell shares.
What are the disadvantages of a private limited company?
- Profits are shared among shareholders.
- Expensive start-up - More costly to set up than a sole trader or partnership.
- Longer start-up - Takes longer to begin trading until it receives a certificate of incorporation.
What does CRO stand for?
Companies Registration Office, where information on Irish companies and business names are stored and managed.
What is a certificate of incorporation?
Issued by the CRO when all relevant documents to start a company are processed, enabling the firm to begin trading.
Example: A private limited company.
What is a co-operative business (Co-op)?
A business owned and controlled by members rather than shareholders, operating for the benefit of its members.
What are the benefits of a co-op?
- Members have limited liability.
- Taxed under a 12.5% rate of corporation tax.
- Continuity of existence.
- Members have a say on how it is run - can raise issues at the AGM.
What are the disadvantages of a co-op?
- Lack of capital.
- Profits are shared.
- Registration - must register with a friendly society and include ‘Society’ and ‘Limited’ in its name.
What factors affect the location of a business?
- Staff - Access to skilled staff?
- Market - Easy access to a wide range of consumers.
- Land - Affordable land and buildings.
- Raw materials - Access to them, e.g., close to a quarry.
- Local environment - Clean, safe environment?
- Infrastructure - Well-developed transport for employees and distribution of goods.
- Government - Programs encouraging businesses, e.g., grants.
What are the three production methods?
- Job
- Batch
- Mass (Flow)
What is job production?
High quality unique products made to customer specifications, e.g., wedding dresses.
Characteristics include highly skilled and paid labor, flexible machinery, high costs, and high prices charged to customers.
What is production run?
The machinery in a factory is configured to make one product, and when completed, the machines are reset to enable another product to be manufactured.
What is batch production?
A limited number of identical items are made in a production run, e.g., bread.
Characteristics include less skilled labor, lower wages, flexible machinery, and lower costs than job production.
What is mass production?
Identical items are made continuously, e.g., Bic pens, produced for stock in large quantities.
Characteristics include unskilled assembly workers, low wages, repetitive tasks, and automated machinery.
What are the implications of changing production methods?
- High investment - Batch and mass production require significant machinery investment.
- Changes in stock control - More products necessitate better stock systems.
- Change in ownership structure - May need to change to raise funds.
- New marketing campaign - A revised marketing plan is needed for increased production.
What is a business plan?
A written document that includes information about a business, outlining the firm’s aims and objectives and the strategies used to achieve them, e.g., marketing.
What are the reasons for a business plan?
- Benchmarking - Measuring performance against standards.
- Obtain finance - Investors want to examine the business plan before granting finance.
- Identify problems - Helps identify future issues.
- Reduce risk of failure.
What are the elements of a business plan?
- Business details (Founders, what they do/sell)
- Objectives (Mission statement)
- Marketing Mix (Product, price, place, promotion)
- Production method (Job, batch, mass)
- Finance (Cashflow)
What challenges do new businesses face?
- Competition - Difficult to enter markets with established brands.
- High-quality staff - Hard to recruit skilled staff due to wage constraints.
- Obtaining finance - Difficult to secure loans.
- Production method - Must choose a suitable production method.
Why do businesses fail?
- Lack of finance.
- Competition - Market saturation.
- Poor management.
- Location - Small consumer base.
- Incompetent staff.
What is subcontracting/outsourcing?
A business employs another firm to manufacture or produce part of a product or a whole product.
Example: Samsung manufactures Apple’s OLED displays.
What is a memorandum of association?
A document used to form a company that includes the company name, objectives, and type of liability of shareholders.
What are the advantages of subcontracting?
- Reduces costs - Less money spent on machinery.
- Meet demand - Allows for quick and cheap production to meet consumer demands.
What is an articles of association?
A document that outlines the internal rules and regulations of running a company, including organizing general meetings, voting, and company closure.
What are recent trends in the structure of businesses?
- Increase in franchising - Seen as a greater chance of success, e.g., Subway.
- Increased strategic alliances - Providing services and reaching larger markets, e.g., Apple & Mastercard for Apple Pay.
- Irish companies becoming global - E.g., Glanbia.
- Increased privatization - E.g., Aer Lingus.
What are indigenous firms?
Irish businesses owned and managed by Irish citizens that provide goods and services to Irish consumers.
Example: Easons.
What are the benefits of indigenous firms?
- Consumer loyalty.
- Profit distribution - Firms reinvest profits in Ireland.
- Increase entrepreneurship - Encourages locals to start their own businesses.
Reasons for expansion
Psychological, Defensive, Offensive
Psychological reasons for expansion
Challenge: Entrepreneurs enjoy the challenge of setting up a business. Ambition: Some entrepreneurs aim for the biggest and best business, known as ‘Empire building’.
What is Empire Building?
An attempt to increase the size of a firm’s staff and assets to dominate the market locally, nationally, or globally.
What is Defensive expansion?
When a business expands to protect itself from competition.
Reasons for Defensive expansion
Reducing costs, Diversification, Protecting supplies.
What is Diversification?
When a business widens the range of goods and services it sells or enters new markets.
Example: Samsung - military hardware.
What is backward vertical integration?
When a business expands into the supply chain, e.g., an ice cream manufacturer buys a dairy farm.
What is forward vertical integration?
When a business expands forward into the market for its products, e.g., an ice cream manufacturer opens ice cream stores.
What is offensive expansion?
Business may expand in order to maximize profits and increase market share.
Reasons for Offensive expansion
Increasing profits, Asset stripping, Eliminating competition.
Summary of reasons for expansion
Ambition, Increasing sales & profits, Diversification, Eliminate competition, Economies of scale.
Methods of Organic expansion
Growing sales, Licensing, Franchising.
What is Organic expansion?
Internal growth that occurs when a business expands gradually over time using its own resources.
Methods of Organic expansion: Growing sales
Two methods: Existing product and New product.
Advantages of increasing sales of existing product
Lower costs, Product knowledge, Reduced risk.
Disadvantages of increasing sales of existing product
Obtaining finance, Slow sales.
Advantages of growing sales via new products
High profits, Consumer loyalty.
Disadvantages of growing sales via new products
High costs, High failure rate.
What is Licensing?
A business (Licensor) allows another firm (Licensee) to use its designs & products in return for a royalty payment.
Advantages of licensing
Low costs, Continuous income.
Disadvantages of Licensing
Business reputation, Loss of control.
What is Franchising?
A business (franchisor) allows another business (Franchisee) to use their name, logo & ideas in return for a share of profits.
Advantages of franchising for the franchisor
Low capital costs, Rapid expansion, Economies of scale.
Disadvantages of franchising for franchisor
Loss of control, Business reputation, High cost.
Advantages of franchising for Franchisee
Reduced risk, Advertising, Franchise support.
Disadvantages of Franchising for franchisee
High cost, Revenue costs, Strict rules.
What is Inorganic growth?
Growth occurs when a business expands by using resources outside of themselves via mergers, takeovers, or forming a strategic alliance.
Forms of inorganic growth
Merger, Takeover/acquisition, Strategic alliance/Joint venture.
What is a Merger?
Occurs when two or more businesses join together for mutual benefit and create a legal entity.
Advantages of a merger
Benefit from economies of scale, Increased profits, New products.
Disadvantages of a merger
Redundancies, Conflict, Slow decision making.
What is Horizontal Integration?
Two competing businesses merge.
What is Conglomerate integration?
Two unrelated businesses merge.
What is a Strategic alliance?
When two or more independent businesses work together on a project that benefits both firms.
Advantages of Strategic Alliances
Expand into new markets, Increased success.
Disadvantages of a strategic alliance
Slow decision making, Increased conflict.
What is a Takeover/Acquisition?
One business purchases 51% of another business.
What is a Hostile takeover?
One firm acquires another business despite management opposition.
Advantages of a takeover
Benefit from economies of scale, Increased profits, Prevents closure.
Disadvantages of a takeover
High cost, Redundancies, Industrial relations.
How is business expansion financed?
Equity capital, Debt capital, Retained earnings, Grants, Sale and leaseback, Venture capital.
Importance of business expansion for the economy
Provide employment, Increased tax revenue, Lower price for consumers.
Reasons businesses stay small
Easier to manage, Increased customer loyalty, Faster decision making.
Implications of business expansion on a business
Reduced profitability, Employee redundancy.
How is business expansion limited?
Irish law: CCPC, EU law: EU Commission.
