3.7 External environment

Question 1

The EU Is a single market- trade between member states is easy

Answer 1

§ The European single market- very few trade barriers between EU member states
§ The single market smooths out price differences between member states.
§ The EU customs union means the same customs duties apply to all good entering the EU
§ There’s freedom of movement within the EU for all raw materials, finished goods and workers. EU citizens can
work in any country in the EU, businesses have the opportunity to expand into other EU countries

Question 2

Competition Laws:

Answer 2

§ Fair competition - companies are motivated to provide good quality products - reasonable prices. Competition
encourages companies to innovate, provide product differentiation
§ The competition Act 1998 sets out the laws on competition and what constitutes unfair business practices. CMA
responsibility to prevent breaking of laws

-business can’t fix prices
-can’t conspire to limit production to charge higher prices due to a shortage
-can’t divide up market to avoid comp. (e.g only supply in US and other only supply asia)

Question 3

Businesses have a dominant position if

Answer 3

market share is 50% or >25% working monopoly

Question 4

Laws to stop businesses doing this:

Answer 4

1. Dominant businesses can’t demand ‘exclusivity’ – that wholesalers or retailers only buy from them
2. Tying- stipulating that a buyer wishing to purchase one product must also purchase other products e.g. printer ink
   especially for that printer
3. Predatory pricing
   A monopoly is when one business has complete control over the market. The CMA can prevent monopolies from
   occurring by stopping takeover and mergers- have to use other strategies to expand their business
   Regulatory capture-regulating body is influenced by the company they’re regulating

Question 5

methods to induce competition

Answer 5

Competition- promotes dynamic efficiency
§ Anti- trust cartels- elimination of agreements that restrict comp including price-fixing by firms who hold a dominant
position
§ Market liberalisation- introducing competition in previously monopolistic sectors
§ State aid control
§ Merger control

Question 6

how does Environmental policy imp.

Answer 6

Businesses can turn these restrictions into USP- being the most environmentally friendly
§ Businesses have to ensure their production processes don’t cause pollution- pressure groups
§ Businesses must get authorisation before carrying out processes which create smoke or make noise. Environmental
health officers can force factories to stop making noise at night if its disturbing

Question 7

RW APP - environmental policy

Answer 7

RTN

§ The EU’s Emissions trading system gives greenhouse gas emissions allowances to businesses in the EU. Companies
can trade their allowances, they can sell some to a business that has run out
§ ‘green subsidy schemes’ pays businesses that use renewable energy to heat their buildings
§ The UK gov and EU fund organisation that encourage more efficient use of raw materials, such as the Waste and
Resources Action Programme (WRAP)- helps achieve a circular economy

Question 8

Employment Law

Answer 8

An employee has a legal right to fair treatment while at work, and also while looking for employment
The equality act 2010 protects employees from discrimination based on age, gender, race, religion, disability ‘protected
characteristics’

§ Direct discrimination- treating someone less favourably as they have a protected characteristic
§ Indirect discrimination – when everyone is treated the same but it has a worse effect on one group of people than
another. E.g. a rule that employees mustn’t wear head coverings

Question 9

Discrimination laws affect all aspects of businesses:

Answer 9

§ Recruitment, Pay, Promotions and redundancies
§ Avoiding discrimination when recruiting - businesses will recruit a more diverse workforce, wider range of
skills, talent and experience
§ Equal pay for both genders, same benefits too
§ Businesses can’t discriminate against young people for a promotion as they’re more likely to change jobs

Question 10

Employment tribunals settle disputes

Answer 10

§ If employees feel they’ve been treated by their employers they can make a claim to a tribunal
§ Employer may have to pay compensation or give the employee their job back in an unfair dismissal case

Question 11

+ve NMW

Answer 11

§ Introduced in 1999 to prevent employees being paid unfairly low wages. In 2016 the NLW was introduced to replace
the minimum wages for over 25’s
§ NLW- increase motivation, reduce absenteeism, allows company to market themselves as an ethical employer

Question 12

Employment contract

Answer 12

sets out the conditions of employment- legally binding agreement between the employer and
employee about duties and rights. Employees are entitled to receive a written statement of employment within 2
month of starting work

Question 13

Business and the political environment

Government policies encourage enterprise

Answer 13

§ New businesses increase productivity- creates new jobs. Gov is keen to promote enterprise in areas that need
economic regeneration- provides opportunities
Strategies for this:
§ Government schemes allow enterprises to borrow money at low I/R and encourage private investment in businesses.
The enterprise investment scheme is a gov scheme that offers tax incentives to people who invest in small businesses
§ To make It easier for small businesses to succeed they don’t pay business rates and an employment allowance means
their national insurance contributions bill is reduced by £2000

Question 14

Regulation

Answer 14

Privatisation- many state owned firms were sold into the private sector to improve efficiency and make a profit. E.g.
British gas, British telecom, British Steel and water companies
§ Some industries are natural monopolies. When privatising a natural monopoly the gov needs to build in regulation to
prevent the new owners from exploiting their position and raising prices

Question 15

Infrastructure

Answer 15

is made up of physical things, transport networks, pipes, wires that allow water, energy and information to
move about
Improvement in infrastructure - good for the economy – businesses more productive. This reduces costs of productions for
firms as transporting goods and services around the country and internationally becomes easier thus increasing efficiency
competitiveness which in the short and long run increases economic growth. Profitability for firms also increases as their
cost of productions reduce, this allows them to re-invest into their business and allow for their growth to persist over time.
Additionally, infrastructure improvements - allow for businesses to compete internationally, as they are more price and
quality competitive.

Question 16

infaustructre RW app

Answer 16

refer to notes

Question 17

Policy changes can make international trade easier or harder:

Answer 17

§ Tariffs (import taxes) discourage international trade. removing or reducing tariffs between countries provide
opportunities for business by making international trade easier and cheaper
§ Quotas are trade restrictions set by governments that put limits on imports and exports, using import quotas allow
countries to protect their own economies and jobs- protectionist policy. Two or more countries sign a free trade
agreement which removes quotas between them to encourage international trade
§ Trade embargoes ban trade with a particular country. Less extreme are sanctions

Question 18

GDP indicates the size of a nations economy

Answer 18

RTN
§ GDP growth = higher incomes, revenues and profitability for businesses
§ Gives the potential for economies of scale
§ Sustained growth increases confidence and helps businesses plan
§ Economic growth affects the type of strategic decisions the business makes. In periods of sustained growth
senior managers might decide to expand, launch new products
§ Fast growth may cause shortages of raw materials and labour= prices up
§ If growth is still to fast, usually followed by a recession, a general slowdown in economic activity

Question 19

Business and the economy

Answer 19

§ Rapid growth is usually followed by a recession- gov tries to keep growth at sustainable level
§ Boom- GDP is high. As production reaches capacity, shortages and price increases. Shortages of skilled labour
mean wages rise
§ Recession, incomes decrease, demand reduces, confidence is restored
§ In a slump, GDP is at a low. Redundancies= U/E is high. Businesses become insolvent and go bankrupt
§ Recovery- production increases and employment increases. People have more money to spend
§ How much a business is affected by this cycle depends on the YED. Businesses selling income elastic goods find
that demand shoots up in recovery and reduces in a recession. Income elastic goods aren’t affected much by these
changes

Question 20

Businesses deal with changes in economic activity locally and globally

Answer 20

§ During booms, businesses can raise prices= increases profitability and this slows down demand a bit
§ Long lasting boom- businesses invest in production facilities to increase capacity. Diversify- take advantage of
increased consumer income
§ Recessions- businesses may make workers redundant to save wage costs and increase capacity utilisation
§ Local recession, business can market their goods elsewhere. National recession- business can market h their product
overseas

Question 21

Inflation affects Business strategy:

Answer 21

§ Companies producing premium goods are most likely affected by inflation, customers look to cheaper alternatives.
Manufactures of premium products can react by reducing prices or by investing heavily in advertising
§ Periods of high inflation – good time to expand for firms- I/R lower- cheap to borrow money to invest in machinery.

The interest they’d earn on savings would be less than the amount prices would have gone up by in the same time-
makes sense to save rather than spend

§ Inflation can disrupt business planning and lead to lower capital investment
§ Rising inflation is associated with higher i/r this reduces economic growth and can lead to a recession
§ Difficult for businesses to plan when inflation is high
§ Deflation- increase i/r – increases cost of borrowing, increases savings- less consumption- businesses lower prices
to profit maximise- controls deflation

Question 22

Deflation is a sustained decrease in the general price level

efectcs of deflation

Answer 22

§ Causes a fall in productivity as companies wont keep endlessly supplying the market with goods nobody wants.
Low productivity means firms don’t need as many workers- rise in U/E, demand drops further and so do prices
§ Competitiveness is reduced by inflation as exports will cost more to buy and imports will be cheaper. Exp fall and imp
rise could create a deficit in the balance of payments and increase unemployment
§ Discourages saving because the value falls= more attractive to spend (demand pull inflation)
§ Reluctance to save creates a shortage of funds for borrowing & investment. If interest rates increase to reduce
inflation this will also reduce investment
§ Creates uncertainty as rising costs will reduce investment – harming future growth
§ Can cause shoe leather costs and menu costs
§ Extreme case is hyperinflation; often result of governments creating too much money
§ *Business competitiveness: A high relative rate of inflation can reduce competitiveness which will lower demand for
the country’s exports.
§ *Business uncertainty: High and volatile inflation is not good for business confidence partly because they cannot be
sure of what their costs and prices are likely to be. This uncertainty might lead to a lower level of capital investment
spending.

Question 23

Why is the rate of inflation so high:

Answer 23

THE OPPOSITEEEEE now

§ Falling global commodity prices, oil
§ Slow wage growth in labour market
§ Falling food prices
§ Sustained price deflation in tech products
§ Slower real economic growth
§ Still some spare capacity on the supply side of economy

Question 24

Exchange rate- is the value of one currency in terms of another currency

Answer 24

Determines how much of one currency has to be given up in order to buy a specific amount of another currency
Exchange rates affects foreign trade:
§ Some manufactures that are based in the UK and export to eurozone countries may consider relocating to those
countries so that their costs on euro- the same currency their customers pay in. They may also decided to pay U
supplier in euro

Question 25

Ways E/R impacts business activity:

Answer 25

§ Price of exports in international markets § Cost of goods bought from overseas § Revenues and profits earned overseas § Converting cash receipts from customers oversea

Question 26

Factors affecting significance of e/r:

Answer 26

§ How much they export § Whether domestic businesses face strong competition from overseas firms § PED § How much a business relies on importing goods

Question 27

What might cause an increase in the E/R

Answer 27

§ Increasing demand for exports= higher demand for currency § Lower demand for imports= lower demand for currency § Speculation- traders may bet that e/r will rise § An increase in I/R= more attractive to hold the currency § FDI= higher demand for the currency

Question 28

Cost in foreign currency/ exchange rate= cost in GBP

Question 29

Globalisation;

Answer 29

the process by which economies have become increasingly integrated and interdependent; § Is not inevitable- can reverse, indeed the growth of world trade in goods and services slowed in recent years § Businesses buy and sell internationally- increase use of e-commerce; adapt marketing mix. Packaging for cultural diff

Question 30

Pros of globalisation:

Answer 30

§ Easier to sell products abroad – wider target market, increase sales, inc rev, inc investment § Access to cheaper raw materials/ components. Countries specialised = lower prices= lower production costs, § Access to cheaper labour- comparatively higher uk wages. Outsource to LED’s with lower wage rates § Change locations- nearer to suppliers/ cheaper labour

Question 31

CONS OF GLOBALISATION

Answer 31

§ Increase competition from abroad- domestic consumers buy overseas- reduce profits § Exchange rates will impact sales. Strong pound – exports reduce, less price comp- less revenue § Uk WAGES are high- costs of production inc- reduce profit margins, § Risk of becoming unethical- worsen reputation 1. Small business- find to gain most from globalisation 2. Small business- in combination with tech are able to get access to int market

Question 32

Technological changes:

Answer 32

§ CAD- shortening lead times § CAM- made production more efficient Tech has provided access to greater information about consumers and their buying habits as well as access to wider markets

Question 33

New tech creates opportunities and threats:

Answer 33

§ Need to monitor the constant flow of new and updated tech to look for opportunities to grow, innovate or improve functional areas 1. The main threat is from even newer technology being brought out before you’ve made your money back on investment 2. Threat from competitors as new tech reduces barriers to entry for everyone- businesses need to be wary of businesses taking market share 3. Growth of e-commerce- customers relying less on physical shops- businesses close stores 4. Businesses that rely too heavily on digital tech- decrease productivity every time something breaks down- financial trouble

Question 34

Benefits of technological change:

Answer 34

§ Lower costs- improved efficiency and reduced waste, lower admin costs and distribution § Improved communication- quicker and easier- flexible business – more responsive to customer needs § Increased sales- access to wider markets is possible § Working environment- cleaner, quieter and safer § Quality- CAD and CAM have generally bought improvements in quality and reliability

Question 35

Problems of technological change:

Answer 35

§ Pace of change – Business must keep moving forward in order to stay ahead of competition, can prove costly § Competition – Technology has resulted in a more competitive market, not only because of globalisation but also as a result of the fact that smaller businesses have found it easier to access markets § Security– This is an increasing problem with hackers able to access confidential material and customer information. This result in the need for higher-security systems, adding further to costs.

Question 36

REFER TO OTHER FLASH CARDS AS WELL FOR SOME FOR DEETS AND RTN

Question 37

Environmental issues affect business strategy:

Answer 37

Customers, investors, and the government can put pressure on businesses to be more environmentally friendly- businesses need to respond- risk damaging brand loyalty/ reputation- share price impact

Question 38

what can business do to resolve environmental issues

Answer 38

§ Environmental audits- compare firms activities with laws and obj § Hire environmental consultants – please customers – conscious of environmental impact- satisfy investors as protected from fines § Gov makes businesses analyse energy usage and emissions (ESOS)- FORCES businesses to consider environmental impact when making strategic decisions

Question 39

Corporate social responsibility

Answer 39

responsibility - the idea that a company should go above and beyond what’s required by law to help society, its workforce’s quality of life and environment § Extent to which a business addresses the concerns and obligations to its wider stakeholder § Companies face pressure from public to comply with laws- act responsibly- consumers form pressure groups, boycott, or buy from competitors (more ethical) § CSR- part of business culture- publicise how they benefit environ and society- positive integral marketing tool

Question 40

CSR and ethics are an overlap

Answer 40

Both concern values, objectives and decisions based on something other than the pursuit of profit. Socially responsible firms must act ethically § Ethics concern actions which can be assessed as right or wrong by reference to moral principles § CSR is about the organisation’s obligations to all stakeholders- and not just shareholders

Question 41

The debate on social responsibility

Answer 41

§ Free market view- the job of busines is to create wealth for shareholders § Corporate social responsibility view- business should be concerned with social issues

Question 42

Advantages of CSR and ethical behaviour:

Answer 42

CSR should be integrated into a company’s operations and strategy- ignoring = l/t damage to profits and reputation- customers choose socially responsible companies. Advantages: § Competitive advantage- brand image and rep § Brand loyalty- attracts new and retains existing customers through positive publicity. Recognition. Ethical thing to do § Increase sales revenue § Attracts more talented employees- people choose to work for firms with goods CSR records § Employee morale – up= motivation § New sources of finance- e.g. ethical investors § Should embed to avoid the UK enforcing higher regulation. Correct social problem

Question 43

-ve of CSR and ethical behaviour

Answer 43

§ Shareholder conflicts- CSR as a misuse of funds= withdraw investment, pressuring firms to stop CSR activities § Expectation of CSR - small businesses, disadvantage- less likely to have funds for CSR projects or to employ someone -organise this § Only social responsibility of business- create shareholder wealth § Efficient use of resources - reduced if businesses are restricted in how they act § Businesses cannot decide what is in society’s interest § Extra costs -passed onto consumers. If market is price sensitive- sales fall § Unwelcome extra responsibility for businesses § Ethics- higher costs and overheads e.g. training § Danger of building up false expectations

Question 44

CSR – based on idea that the needs of business and society are interdependent

Answer 44

§ Need to recognise there’s interdependence – engage in CSR

Question 45

Conflicts with CSR

Answer 45

1. Stakeholder concept- social contract between business and society- mutual obligation that society and business recognise they have each other 2. Shareholder concept- maximisation of profit- Milton Friedman. Outcomes are same – communities are looked after- diff approaches

Question 46

Ethical principles and standards:

Answer 46

Ethical decision- one that’s both legal and meets the shared ethical standards of community Two key influences on business ethics 1. Individuals 2. Culture

Question 47

Approaches to business ethics

Answer 47

1. Moral business seeks to win at all costs § anything is acceptable 2. Legalistic business- will obey the law but no more than that 3. Responsive- accepts that being ethical can pay off 4. The ethical business- ethical practice is at the core of the business

Question 48

How to show ethical practices:

Answer 48

advertising, personal selling, suppliers, contracts (zero hour contracts, legal jargon), pricing (monop pricing, predatory pricing). A business cannot claim to be ethical if it ignores unethical practises by its suppliers e.g. child labour forced labour, production in sweatshops, violation of the basic rights of workers ignoring health, safety standards

Question 49

Ethical codes of practice:

Answer 49

Profitable for businesses- growing trend

Question 50

Influence of pressure groups- external stakeholders- +evaluation

Answer 50

common interest who organise to influence public opinion § Focus on activities and ethical practice of multinationals or industries with ethical issues § Combination of direct and indirect action can damage the target business or industry § Consumer action – boycotting - mass scale most effective § Pressure groups- forces business to think more carefully about social responsibility if profits are damaged § EV - Success of pressure groups depends on whether consumers have easy access to an affordable alternative

Question 51

Stakeholders and shareholders- conflicts on CSR

Answer 51

§ Traditionally – shareholder theory. Profits for shareholders are the most imp- short termism - § Businesses have to balance needs of all stakeholders during decision making process § CSR- general public a stakeholder-expects business to improve things for everyone § Profit is key HOWEVER survival of business is in the interest of stakeholders such as employees, suppliers and customer.

Question 52

Csr RW app

Answer 52

starbucks RTN

Question 53

Carroll’s CSR pyramid-

Answer 53

simple framework that helps argue how/ why organisations should meet their social responsibilities. integrated, unified whole § Intended to be seen from a stakeholder perspective with focus on the whole not the different parts, § Firms should engage in decision, actions, policies, and practices that simultaneously fulfil 4 components § Business is expected to fulfil all responsibilities simultaneously

Question 54

actual pyramid

Answer 54

RTN

Question 55

caroolss csr Economic- profitable

Answer 55

§ Operation efficiency § Maintain competitive advantage § Returns to owners/ shareholders § Economic responsibility to survive

Question 56

carol csr Legal responsibilities:

Answer 56

§ Minimum legal standards § Parents/ copyrights § Environmental laws § Consumer laws § Employment laws= employees

Question 57

carol csr Ethical Impact on all stakeholders:

Answer 57

§ Consider communities- green vehicles § Avoid price gauging- customers § Avoid overuse of zero hour contracts- employees § Fairtrade- suppliers

Question 58

carol csr Philanthropic responsibilities:

Answer 58

§ Help society- education, healthcare, volunteer work Economic responsibilities are the foundation § Trade-offs exist within § Overall sequential

Question 59

+-ve carolls csr

Answer 59

Advantages: § Separation of philanthropic and ethical responsibilities gives a clearer indication to what CSR should involve § Simple message- CSR had more than one element § Emphasises importance of profit in being able to effectively fulfil CSR Drawbacks: § According to shareholder value businesses should look after profits to survive. Disagree with the cost involved of ethical and philanthropic § Businesses don’t always do what they claim when it comes to CSR

Question 60

Demographic changes

Answer 60

changes in the structure of the UK population; age, sex, race

Question 61

Ageing population

Answer 61

§ Threat- proportion available to work is falling- struggle to attract cheap labour, fill vacancies, growth difficult § Opportunity- market size for private healthcare increases- profits rise. Retired people travel- holiday companies = rise in demand

Question 62

Demographic changes- influence on decision making:

Answer 62

§ More working parents- boost workforce- businesses need to provide flexible contracts § Increase in single occupancy households- increases demand for smaller houses and food packaged In smaller amount § Increase in senior citizens – prompt a business to offer special rates during weekdays (cinema)

Question 63

Changes in consumer lifestyle and buying behaviour – firms change strategic plans:

Answer 63

§ Consumers use the internet to research products – companies send products to relevant bloggers to review online- cheap, long-lasting promotion § Online social networking- promotion § Delivery services – drop parcels at convenient location to combat customers waiting In long queues. Businesses stay comp § Tablets and smartphones- not everyone wants physical products. Online membership. Saves customer money and reduces environmental impact of printing copies

Question 64

Urbanisation and Migration affect strategic decisions:

Answer 64

Urbanisation is an increase in the proportion of the population living in cities. Rural- Urban areas MEDC- already happening. Emerging economies (big trend) § New opportunities- cities exploit external economies of scale

Question 65

how does urbanisation and migration provide opportunites for companies

Answer 65

§ New markets with concentrated demand- businesses focus on distribution networks in these areas at the expense of wider distribution network § Infrastructure, housing and communication technology – needed= lots of opportunities for new and existing businesses to expand into industries § People have access to a higher level of education- workforce more skilled- businesses might move certain dept (e.g. finance) to these areas- take adv of labour supply

Question 66

Migration is

Answer 66

the movement of the population from one country to another- more people moving into the UK than moving out of the UK. Increase in labour force

Question 67

how does migration affect business

Answer 67

§ Shortage of labour- businesses struggle to grow. Migrants help businesses overcome labour shortages – allow to expand into new and current markets § Migrants create demand for certain products- new markets for business to move into § If too many skilled people emigrate – cause a ‘brain drain’. Businesses in that country struggle to get skilled workers – can force them to shut down § Benefits if skills are complementary

Question 68

Porters 5 forces shows

Answer 68

influences on an industry - Analyses state of market and helps managers of existing businesses to figure out best strategy to gain comp adv- decision making tool - Show potential market entrants how profitable market is- where best to position themselves - Being influenced by 5 competitive forces

Question 69

prts Threat of new entrants:

Answer 69

§ They will gain market share and rivalry intensifies § The position of existing firms is stronger if there are barriers to entry § If BTE are low- threat of new entrants= high § Investment cost- high cost deters entry, large businesses only can compete § Economies of scale available to existing firms- lower unit costs makes it difficult for smaller newcomers to break into the market § Regulatory and legal restriction- patent protection- harder for new entrants to sell similar products § Product differentiation (including branding)- existing products with strong USP’s increase loyalty- hard to compete § Access to suppliers and distribution channels- established businesses take control. Forward vertical integration- channel unavailable to new entrants § Retaliation by established products- the threat of price war will act to discourage new entrants but note that competition law outlaws actions like predatory pricing. Large existing businesses are likely to be benefitting from E.O.S – undercut prices of new entrants (predatory) § A market is likely to be easier to enter where brand loyalty is weak, there is easy access to suppliers, the stronger the buyer will be, there is common technology available and low thresholds to economies of scale

Question 70

prts Bargaining power of suppliers

Answer 70

If a firms suppliers have bargaining power they’ll: § Sell products at a higher price § Squeeze industry profits § If the supplier forces up the price paid for inputs, profits= reduced.

Question 71

Suppliers are in a powerful position if:

Answer 71

§ Only a few large suppliers § Resource is scarce. Customers - powerful § Cost to switch to alternative supplier-high § Product Is easy to distinguish and loyal customers are reluctant to switch § Supplier can threaten to integrate vertically § Customer is small and unimportant § There are no or few substitute resources available

Question 72

Strategies to influence supplier power:

Answer 72

§ Tie buyers into l/t contracts to make it harder to switch supp § Suppliers- forward integration to gain power- buy retail outlets § Develop new products and protect them with patents to gain supplier power- premium

Question 73

Power is determined by:

Answer 73

§ Uniqueness of the input supplied- necessity to business § Number and size of firms supplying resources- a few large suppliers exert more power over market prices that many smaller supplier each with a small market share § Competition for the input from other industries- great comp= stronger position for supplier § Cost of switching to alt sources- business may be locked in. changing supplier may mean changing production process

Question 74

Bargaining power for customers:

Answer 74

Powerful customers- exert pressure to drive down prices, or increase the required quality for the same price, = reduce profits

Question 75

Factors determining bargaining power of customers:

Answer 75

§ Number of customers- smaller= greater power § Size of their orders- larger= > bargaining power § Number of firms supplying the product- smaller alt suppliers, less opportunity for customers to shop around § Threat of integrating backwards- they will enjoy increased power § Cost of switching

Question 76

Strategies to influence buyer power:

Answer 76

- Backwards vertical integration - Similar businesses might come together- form a buying group, Better deals – help smaller B compete with larger B

Question 77

Threat of substitute product

Answer 77

The extent of the threat depends upon: § The extent to which the price and performance of the substitute can match the industry’s product § The willingness of customers to switch customer loyalty and switching costs If there is a threat from a rival product the firm will have to improve the performance of their products by reducing costs and therefore prices and by differentiation Strategies to reduce threat of sub: make it expensive or difficult to switch. Brand loyalty- differentiate.

Question 78

Overall degree of competitive rivalry: rivalry is intense with lots of equally sixed competitors

Answer 78

If theres intense rivalry it will encourage businesses to engage in * Price wars (competitive price reductions). Industries with standardised gods * Investment in innovation and new products * Intensive promotion

Question 79

Strategies to reduce effects of rivalry:

Answer 79

Try to make It easy for customers to switch between standardised goods. Businesses with a bigger promotional budget might do better in markets with intense rivalry

Question 80

Several factors determine the degree of competition rivalry; the main ones are

Answer 80

§ Number of competitors in the market § Market size and growth prospects- intense in stagnating markets. Slow growth- increased rivalry- firms fight for MS § Product differentiation and brand loyalty- greater loyalty= less intense the competition. Low diff= customers switch § Power of buyers and the availability of substitutes- if close substitutes are available- there’ll be intense competitive rivalry § Capacity utilisation- existence of spare capacity= intensifies competition § Cost structure of industry § Exit barriers- expensive to exit, firms will remain adding to intensity of comp

Question 81

Low profits are associated with:

Answer 81

- Strong suppliers - Strong buyers - Low entry barriers - Many possibilities for substitute products - Intense rivalry

Question 82

High profits are associated with:

Answer 82

- Weak supplier - Weak buyers - High entry barriers - Few possibilities for substitution - Little rivalry

Question 83

conc. proters 5 forcs

Answer 83

§ The collective strength of the five forces determine the industry’s profitability. § The stronger the forces the less likely an industry is to be profitable in the long run § These forces impact upon profitability through the impact on prices, costs and the investment required § Knowing the forces and how they impact upon the industry enables managers to decide on future policy

Question 84

Analysing the forces enables managers to:

Answer 84

§ seize opportunities § To counter threats § If appropriate, build barriers to entry or seek to increase power in relation to buyers of sellers § Improve the firm’s position in relation

Question 85

summarise forces and actions

Answer 85

RTN