Theme 1 Flashcards
(114 cards)
1
Q
Mass market
A
> generic products
large firms can operate successfully with low market share
brands can develop differentiation with their name/logo
2
Q
Niche market
A
> specialist products (changes in consumer preferences can be rapid)
smaller markets
differentiation is achieved through product features and functions
3
Q
How markets change - PESTLE
A
Political - Brexit has led to a change in importing and exporting
Economic - recession can lead to price conscious shopping
Social - increase desire in
convenience has led to a rise in online retailing
Technological - the effect of Uber on taxi services
Legal - growth in the market of vapes is being affected by new laws about selling them
Environmental - the car industry is facing changes in order to minimise the impact of exhaust fumes
4
Q
Adapting to change
A
> identifying subtle changes in consumer behaviour allows businesses to adapt their product to better suit their needs
changing earlier than rivals offers a competitive advantage (leading change)
5
Q
Increased levels of competition create various pressures for businesses:
A
> the need to drive down costs
to maintain competitive prices
to develop innovative products
to maintain high quality products
6
Q
Primary research + -
A
+ addresses specific issues the business is interested in
+ data is up to date
+ can help to understand customer psychology
- expensive to do properly
- risk of bias from questionnaire and interviewer
- may need to compare results in order to understand them
7
Q
Primary research (examples)
A
> surveys
retailer research
observation
group or individual discussions
8
Q
Secondary research + -
A
+ often free
+ provides a good market overview
+ based on large-scale reliable research , usually
- information may be out of date
- not tailored for the particular business
- can be expensive to buy published research reports
9
Q
Secondary research (examples)
A
> internet
trade press
government statistics
past internal sales figures
10
Q
Limitations to market research
A
> sample size too small - there is more chance that respondents who don’t reflect the majority views are over-represented
sample bias - the way that respondents are selected may cause certain types of people to be over-represented
11
Q
Market segmentation +
A
splitting markets helps to target groups who share similar needs and wants
+ products and services can be tailored
+ meeting customer needs precisely allows for a higher price to be charged
+ promotional activity is easier to target
12
Q
Product differentiation (actual)
A
> design
different functions
taste
performance
13
Q
Product differentiation (perceived)
A
> branding
advertising
sponsorship
celebrity endorsement
14
Q
Demand
A
the level of interest customers have in a product.
effective demand is interest backed by the ability to pay.
15
Q
Price
A
higher prices lead to lower effective demand.
price also affects consumers’ decisions on relative value of the product compared to alternatives.
on the other hand, lower prices may damage the perception of quality.
16
Q
Substitutes and complements
A
a substitute is a similar, rival product that consumers may choose instead.
if the price of a product falls, demand for the substitute falls as consumers switch to buying the cheaper option.
a complement is a product whose use accompanies another.
if the price of a product rises, demand for the complementary falls as they are often bought together.
17
Q
Changes in consumer income
A
> income levels rise, demand for most products rise in line (normal goods)
demand for luxury goods will rise faster than income
during a recession incomes will fall as well as demand for normal and luxury goods
demand for inferior goods increases when the consumer is trying to save money.
18
Q
Supply
A
the profit a business can make by supplying, the more they are willing to supply.
if the cost of making a product changes, the amount that a business is wiling to supply will adjust accordingly.
the main cause for change in production costs is changes in the costs of resources, such as materials and labour.
19
Q
Government subsidies
A
when the government wants to encourage the supply of a product, it may offer subsidies to businesses producing this product.
20
Q
Supply and demand
A
if demand is higher than supply, the price of the product will rise, until demand falls back to the level of supply.
if supply is higher than demand, price will fall, stimulating more demand to ensure that all that is supplied is sold.
21
Q
PED (calculation and definition)
A
PED = % change in demand / % change in price
PED measures the responsiveness of demand for a product to a change in its price.
22
Q
PED (analyse)
A
> if price elasticity is between 0 and -1 the product is price inelastic.
if price elasticity is a negative number greater than 1 the product is price elastic.
price elasticity can help in forecasting sales, by considering the likely impact of planned future price changes
23
Q
Factors influencing price elasticity
A
> degree of product differentiation
availability of direct substitutes
branding and brand loyalty
24
Q
Yed (calculation and definition)
A
Yed = % change in demand /
% change in income
Yed measures the responsiveness of demand for a product to a change in income.
25
Promotion (long-term methods)
> persuasive advertising
> public relations - create publicity
26
Promotion (short-term methods)
> buy one get one free
> seasonal price - cutting promotions
27
Individual brand
these are single product brands.
these brands may make little or no attempt to push their company name , focusing instead on the single brand.
28
Brand family
this is a brand name used across a range of related products. (Apple)
The benefit of this is the ability to use the umbrella brand name to encourage sales of each product through association with others
29
Corporate brand
using the company name as a brand can convince consumers that all products across the entire range ashore similar benefits (or drawbacks)
30
Ways to build a brand
> advertising - reinforcing the message the company wants to send
> USP - provides the key stimulus that launches a brand, which may eventually be copied by rivals
> sponsorship - brand building by association.
> digital media - using social media to build relationships with consumers and google Adwords to pop up every time a particular search is carried out
31
Price skimming (for new products) + -
launching a brand new product at a high price while it is unique.
+ high price helps to create a desirable image for the product
+ early adopters will pay the higher price in return for exclusivity
+ high prices generate rapid profits
- some customers may view the price as a 'rip-off'
- early buyers may be frustrated once prices start to fall
- image may suffer when price begins to fall
32
Price penetration (for new products) + -
launching a new product at a low price to entice customers.
+ low price encourages lower risk sampling
+ low price boosts sales volume
+ high volumes may persuade retailers to buy the product
+ encourages customers to develop the habit of buying the product
- products image may be cast as 'cheap'
- upmarket retailers may be unwilling to stock the product
- likely to create price sensitivity among customers
33
Cost plus (for existing products) + -
deciding price by adding a desired percentage onto total costs per unit.
(used when the firm is a market leader with little need to worry about competition)
+ should guarantee a profit is made on each unit sold
- ignoring the market may mean an unrealistic price is generated
34
Predatory (for existing products) + -
sets price low enough to force a competitor out of business.
(used when a firm is clearly more financially powerful than smaller rivals)
+ once a rival has been forced to close, prices can be pushed back up
- if proven to be specifically designed only to drive rivals out, predatory pricing is illegal
35
Competitive (for existing products) + -
charging a price at the market average or at a discount to the average price to the market.
(used when a company is trying to take on more powerful rivals)
+ should ensure that price will not put customers off buying the product
- firms have little control over the price they charge and therefore the revenue they make
36
Psychological (for existing products) + -
a tactic used to make fine-tuned decisions on the price to charge ($9.99)
(used when selling impulse purchases to customers)
+ help nudge customers into making a purchase by helping them to believe they are not white spending $10
- may have little effect on many planned purchases and may annoy customers
37
Online sales + -
+ pricing levels may be lower as running an online business generate lower fixed costs than stores
- pricing online may be more sensitive as online consumers can compare prices more easily
38
Product life cycle
> introduction - sales are low and rise slowly
> growth - sales begin to rise more quickly
> maturity - growth in sales slows and sales stabilise at their highest
> decline - sales of the product begin to fall, until then product is phased out or an extension strategy is launched
39
Changes to the product (extension strategy)
> adding extra functions or features
> changing ingredients or materials
> launching slightly different variants of the product e.g. size
40
Changes to promotion (extension strategy)
> targeting a different market segment
> finding new uses for the product
> increasing use of the product among existing customers
41
Problem child (Boston matrix)
may be successful in the future but currently have low market share.
being sold in rapidly growing markets offering the chance of rapid sales growth.
42
Rising star (Boston matrix)
in rapidly growing markets with high market share and are the future money makers.
although these products will need a lot of investment in order to fight off competitors.
43
Cash cow (Boston matrix)
in stable markets with high market share, and generates relatively high sales with relatively low expenditures.
44
Dog (Boston matrix)
low market share of a low growth market and are usually the first products to be killed off.
45
Treating staff as an asset
> permanent contracts
> develop staff skills with training
> pay staff a salary
> builds loyalty from staff
46
Treating staff as a cost
> flexible contracts, perhaps zero hours
> minimal training offered
> low pay, often at hourly rate
> often leads to a high staff turnover rate
47
Flexible workforce
refers to the ability of a business to adapt its operations to changes in patterns of demand.
48
Multi - skilling
> using training to ensure that staff can perform a range of different roles.
> employees that are multi-skilled can cover for absent colleagues
> also brings motivational benefits, staff may enjoy the variety of work offered
> employees may feel more valued as they receive greater trining and skill development
49
Part-time and temporary
> 1/3 of the uk's workforce are employed in part-time jobs
> allows people to fit work in alongside other commitments
> this can help to bring people into the workplace who may offer excellent skills but cannot commit to full-time work
> temporary staff are employed on short-term contracts, so if they are no longer needed, the contract is not renewed
50
flexible hours and home-working
> for companies that treat there employees as an asset, staff may be allowed to choose when they work as set number of hours
> flexibility can be increased by allowing employees to work at/from home
> developments in technology allow for greater flexibility with immediate forms of communication
51
Outsourcing + -
contracting another business to perform certain business functions, allowing significant increases in capacity when needed.
+ ongoing fixed costs can be kept at s low level within the business
+ sudden surges in demand can be met quickly
+ companies to whom work is outsourced can offer high-quality services
- the company to whom work is outsourced needs to make its own profit, adding to costs
- outsourcing arrangements may take time to work out
- the company ti whom work is outsourced may not reach the required quality standards
52
Dismissal Vs redundancy
> getting rid of staff is due to wither a reduction in demand, incompetence or disruption from staff
> although making redundancies will reduce costs, business must compensate those made redundant
> dismissal occurs when an employee is deemed 'not up to the job' - in tis case no payments or compensation are given
53
Collective bargaining
occurs when a employer deals with one or a few representatives for the whole workforce when discussing problems, or negotiating pay rises or changes to working conditions.
+ employers only need to negotiate with one or two people on behalf of the whole workforce, thus saving time
+ employees benefit because acting together gives them more power in their relationship with the employer
54
Individual approach
allows employees to be treated on an individual basis, with stars singled out for better treatment.
However, it is far more time-consuming for the employer.
the employer is in a stronger position is an employee is unable to call upon threats of strike action from their colleagues.
55
Internal recruitment + -
filling a job vacancy with somebody who already works for the business.
+ quicker and cheaper than external recruitment
+ chance of promotion may help boost morale within a business that frequently recruits internally
+ the skills and attitude of the internal candidates will already be known
- limits the number of potential applicants
- fails to bing in new ideas from outside the business
- creates a vacancy elsewhere in the business that will need to be filled externally
56
External recruitment
filling a job vacancy with somebody who does not currently work for the business.
57
Interviews
> can take place face to face or by telephone
> they offer the chance to hold a conversation, allowing follow up questions and some freedom of which areas to probe
> bias or prejudice o behalf of the interviewer may skew the results
58
Testing and profiling
> attempting to bring objectivity to the selection process
> aptitude test can uncover a candidate's skill level in certain tasks
> profiling helps to identify the personality type of the candidate
> can screen out great candidates who do not meet the 'traditional profile' for the job
59
Assessment centres
> where a range of selection methods can be combined to better assess the candidates abilities and performance in a simulated environment
> tends to be a more expensive method and is more likely to be used for more senior positions
60
On the job training + -
+ tailored to the company's own ways of working
+ after a mistake, can get instant advice from fellow workers
+ saves the time and cost of sending employees out
- less knowledge acquired on methods used elsewhere
- may take a lower priority, as staff focus on production tasks
61
Centralised structure
> decisions made at the top
> ... restricting autonomy for local managers
> ... but giving consistency to customers
62
Decentralised structure
> decisions made locally, closer to customers
> ... giving local managers more responsibility
> ... probably making them (and staff) more motivated
63
Tall and narrow + -
+ allows close supervision of staff
+ communication within the immediate team is likely to be excellent
+ many layers of hierarchy means plenty of opportunities for promotion to the next level
- staff may feel over-supervised and not trusted by their management
- communications as a whole may be poor with so many layers for messages to pass through
- with narrow spans , there may be little scope for staff to use their own initiative
64
Flat and wide
has fewer levels within the hierarchy, but wider spans of control:
> forces increased delegation by managers who are unable to closely supervise far higher numbers of subordinates
> this can result in mistakes but can also lead to far greater motivation from staff, who are expected to use their own initiative
> reducing the number of layers may make it easier for senior managers to develop an understanding of day-to-day challenges faced by staff dealing with customers
> this can increase the ability of the firm to respond to changes in customers' tastes, boosting compeitiveness
65
Matrix structure + -
staff may have two or more line managers.
cross-functional project teams are formed with staff form different departments working together on a project, under the leadership of the project leader
+ working together allows expertise from each department to be immediately available, preventing possible delays.
+ the focus of the project team should be on success of the product, rather than making their functional department more important than others
+ learning from the views of colleagues in other departments helps to develop each team member
- each project team member will have at least two bosses which may make it unclear whose orders should take priority
- getting staff form different functional areas to agree can be difficult
66
Impact of structure on efficiency
effects on efficient and therefore unit costs :
> poor communication leading to mistakes
> duplication of tasks
> tasks being overlooked and not done
> departments failing to work together effectively
67
Impact of structure on motivation
structure can affect motivation by encouraging or preventing the following :
> scope to show initiative
> delegation
> responsibility
> gathering of all information required to perform a job
> opportunities for promotion
68
F.W. Taylor (scientific management)
theory suggests that people only work in order to maximise their own income.
money should be used as an incentive (or removal of money as a threat)
taylor's beliefs of organisation:
> observe workers at work
> identify the most efficient workers
> break task down into simple, repetitive parts
> devise equipments designed to speed up process
> set out clear instructions for each employee
> design a payment system that rewards each worker each time they complete a task
69
Elton Mayo (human relations theory)
discovered that there were more factors affecting workplace performance than money.
Mayo's findings centred on the importance of interpersonal relations as a factor affecting productivity.
> workers gain satisfaction from a certain level of freedom and control and over their working environment
> workers who feel they belong to a tram tend to work more efficiently
> group norms tend to have a strong influence over workers' behaviour and productivity
> communication between workers and between managers and workers improves morale
> managers taking an active personal interest in their employees has a beneficial impact on workers performance
70
Maslow (hierarchy of needs)
believes that all humans have five sets of needs :
> self actualisation - scope to develop new skills and meet new challenges.
> esteem needs - status, recognition for achievement, power
> social needs - team working, communication, social facilities
> safety needs - job security, clear role, clear lines of accountability
> physical needs - pay levels and working conditions
basic needs for life are at the bottom and the higher level need are at the top.
meeting each level of needs is a priority until they are met, and then the focus is on the next unsatisfied need.
71
Frederick Herzberg (two-factor theory)
relies on accepting his definition of motivation - doing something because you want to do it.
factors affecting people at work can be grouped into 'motivators' and 'hygiene factors'
motivators :
> achievement
> recognition for achievement
> meaningful / interesting work
> responsibility
> advancement - sense of growth as a person
motivators relate to the work an employee is actually asked to do
hygiene factors:
> company policy and administration
> supervision
> pay
> interpersonal relations
> working conditions
hygiene factors create the context, or environment in which an employee is expected to do their job.
72
Piecework (financial rewards) + -
paying each member of staff a set amount of money each time they repeat a task.
+ encourages speed, as the quickest staff earn the most money
- lead to quality problems as staff rush to complete as many tasks as possible
73
Commission (financial rewards) + -
paying staff a certain percentage of the revenue they generate, usually on top of low basic salary or hourly rate.
+ this incentivises staff to sell as much as they can
- lead to mis-selling as staff try to sell more expensive products or services to maximise their commission
74
Bonus (financial rewards) + -
paying a lump sum of money as an additional reward to staff if a target is hit, usually once a year.
+ excellent way of offering a valued thank you
- large bonuses can distort staff behaviour, emphasising the need to meet a target by whatever means possible
75
Profit-sharing (financial rewards) + -
allocating a certain percentage of annual profits to be shared as a bonus among staff.
+ this aligns staff goals with business goals
- hard-working staff may resent others who receive the same profit-share bonus without putting in the same amount of effort
76
Performance pay (financial rewards) + -
rewarding staff whose performance exceeds a certain level where work performance is hard to quantify.
+ this allows individuals' performances to be clearly rewarded financially
- employees may feel the process used to decide on the award of PRP is unfair
77
Delegation (non-financial rewards) + -
passing decision making power to staff over how to perform a task.
+ meets Maslow's esteem and self-actualisation needs, and is a motivator (Herzberg)
- staff must have the skills and experience to make good decisions
78
Empowerment (non-financial rewards) + -
passing even more to staff, may be given authority to decide what jobs need doing.
+ meets Maslow's esteem and self-actualisation needs, and is a motivator (Herzberg)
- the need for appropriate skills and experience is even greater then that needed for successful delegation
79
Consultation (non-financial rewards) + -
seeking staff's opinions before making a decision.
+ may help to meet esteems needs on Maslow's hierarchy
- many decisions will appear to go against the views of many staff
80
Team working (non-financial rewards) + -
allowing staff to work in a group rather then individually.
+ meets Maslow's social needs and recognises Mayo's theory of human relations
- performance of more productive individuals may be dragged down to a team average level.
81
Flexible working (non financial rewards) + -
allows staff to adjust where and/or when they work to suit their lifestyle.
+ helps to ensure Maslow's lower level needs are met and can be a key factor in meeting hygiene needs (Herzberg)
- co-ordinating the workforce can be harder to achieve
82
Job enrichment (non-financial rewards) + -
giving staff added responsibilities and challenge by widening the scope of their job.
+ meets Maslow's top two levels of needs and is a motivator (Herzberg)
- some staff may view extra responsibility as an unwanted burden
83
Job rotation (non-financial rewards) + -
moves staff between different tasks of the same level of complexity.
+ helps to prevent boredom
- prevents the potential productivity benefits that come form specialising in one task
84
Job enlargement + -
Gives staff more, similar tasks of the same level of complexity.
+ can make employees feel a sense of esteem
- most staff recognise they are simply being asked to do more for no extra reward
85
Types of leadership styles
> autocratic - issue instructions and expect these to be obeyed. Pay little attention to what workers have to say
> paternalistic - care about the best interests of staff and listen to their views, but the leader makes the decision
> democratic - expect their staff to be involved in decision making. They will delegate authority to subordinates.
> laissez-faire - leave staff alone to get on with things, generally without even providing a clear sense of direction
86
Problems with business expansion
> over-estimating demand
> failing to raise enough finance
> not recruiting enough or the right people
87
Barriers to entrepreneurship
> funding
> gender bias
> lack of public sector
88
Entrepreneurial characteristics
> financial skills - understanding key financial documents and how finance allows a business to function
> persuasive abilities - find a way of persuading many people to do many things for their business
> problem solving skills - the ability to identify causes of the problem and solve them
> networking skills - with a wide range of possible business contacts, entrepreneurs are more likely to find someone who can help when needed
89
Profit maximising
continually seek to get the most profit from every business transaction.
this can cause long-term problems with consumers feeling exploited or cheated with substandard work caused by skimping on materials and workmanship.
90
Profit satisficing
long-term success may be based on satisficing, with the need to accept lower than possible profits in the short-term to build a brand or reputation.
91
Independence
avoid the need to take orders from others or fit in with company policy.
92
Home-working
this can be another form of independence, especially valued by those with family commitments.
93
Ethical stance
for those that are unwilling to compromise there beliefs by working in a business with whose practices they feel uncomfortable.
94
social entrepreneurship
major aim is to make a positive contribution to their community, perhaps by providing a service that benefits people in need.
95
Business objectives (SMART)
to gain the most from objectives they should be:
> Specific
> Measurable
> Achievable
> Realistic
> Time-bound
96
Survival
focusing on generating sufficient cash to sustain the business
97
Sales maximisation
growing the number of customers, without a major focus on controlling costs
98
Market share
Increasing market share to a dominant level helps to ensure long-term success through greater distribution and preventing new entrants.
99
Cost efficiency
a focus on seeking to minimise the costs of producing a product and the running costs of the business.
100
Employee welfare
looking after staff and looking to develop them using training and internal recruitment.
101
Customer satisfaction
prioritising the need to ensure that every customer has a positive interaction with the business.
102
Social objectives
objectives that relate to the beneficial role a business can play within society.
103
Sole trader (unlimited liability) + -
a person who starts and runs a business without turning it into a company.
+ owner has full control over decisions
+ owner keeps all profits made
+ minimal paperwork needed to start up
- owner has unlimited liability for debts
- hard to raise finance
104
Partnership (unlimited liability) + -
best thought of as a sole trader where several owners are allowed.
+ more owners can allow for more finance to be raised
+ partners may bring varied skills and experience
+ shared burden of responsibility among partners
- partners have unlimited liability
- potential for disagreement among partners
105
Private limited company (limited liability)
the simpler form of limited company to start is private limited company, with no minimum share capital.
increased legal formalities include having accounts independently audited each year at a probable cost of several thousand pounds.
106
public limited company (limited liability)
> only type of company that can sell shares via the stock market to the general public
> this allows them to raise vast sums of share capital
> however, in order to become a public limited company, a business must have a minimum of $50,000 share capital
> in addition, there are considerable regulatory requirements involved in floating the company on the stock market
> continuing to meet the annual requirement of the stock market will cost tens of thousands of times more than running a private limited company
107
Franchising (other) + -
+ access to a tried and tested formula for business success
+ support from the franchisor in providing materials and fixtures and fittings
+ advice and training on all business functions
+ possibility of a national advertising campaign from the franchisor
+ a guaranteed local monopoly for that brand
+ easier access to loans, as banks recognise the lower risk involved in starting as a franchisee
- the franchisee may feel frustrated at being unable to make decisions dictated by the franchisor
- there is likely to be an initial franchise fee to buy the licence
- the franchisor will also expect royalties, a percentage of revenue
108
lifestyle businesses (other)
some entrepreneurs start up a business because it suits their desired lifestyle.
> this may mean that maximising profit is far form the most important issue considered when making decisions for these businesses
> for some, running their own business may give flexibility in working hours to fit around family commitments
> other lifestyle businesses may be based around hobbies or pastimes
>maximising profit may be less important then simply making enough money to sustain the lifestyle
109
Online businesses (other)
the internet has enabled businesses to connect with consumers effectively without the need to ever meet face to face.
the result is that traditional businesses now face competition from many online-only companies.
online offers two powerful advantages over traditional businesses :
+ lower costs - with no need to spend money on physical premises
+ higher potential revenues - with the scope to sell worldwide
110
Opportunity cost
the value of the next best option foregone when a business decision is made.
cost of launch :
> development and research costs
> equipment purchase and installation
> direct costs of material and staff
Opportunity cost of launch :
> specialist staff unable to work on other projects
> commitment of capital may restrict other opportunities
> hard to get full production levels on existing products
111
Choices and trade-offs
the choices a business faces are likely yo involve some form of compromise - a trade-off between competing objectives
successfully managing these trade-offs need :
> experience
> understanding of consumer tastes
> a broad understanding of the business's current position
> an understanding of the external issues influencing the decisions
112
Common business issues
> matching production to demand
> financing growth
> overtrading
> change in structure
113
Common personal issues
> delegating
> maintaining effective communication
> co-ordinating far more people
> keeping an eye on the big issues
114
methods of financing and potential drawbacks
> sell shares
- this will result in loss of control
> loans
- interest and repayments will drain cash from the business and security may be required
> overdraft
- interest rates are even higher than on loans
> leasing new equipment
-this will lead to higher costs in the long-term as leasing fees will need to be paid for as long as the equipment is in use.
