Y12 Models 1/4 Flashcards
(37 cards)
What are the key characteristics of Non-Profit Organisations and how do charities differ from social enterprises?
Charities:
Aim to benefit society; reinvest all surplus into causes. Rely on donations to generate income. Have no shareholders, and anything not spent is “surplus.”
Example: Oxfam.
Social Enterprises:
Proper businesses that make profit in a socially responsible way. Reinvest primarily for community/social benefit but can reward owners. Self-sustaining, generate income through sales, not donations.
Examples: TOM’S Shoes, Cafédirect.
✦ Benefit from strong brand image and public trust.
What are the differences between Public Sector and Private Sector businesses?
Public Sector:
Run by local/national government (e.g. NHS, schools). Funded through taxation.
Not-for-profit – aim to provide public services.
Private Sector:
Owned by private individuals or shareholders. Run for profit, selling goods/services (e.g. Apple, Sainsbury’s).
Includes sole traders, Ltds and PLCs.
What are the characteristics of a Sole Trader and what are its advantages and disadvantages?
Owned and run by one individual.
Keeps 100% of profits. Unlimited liability – legally tied to business debts. Not a separate legal entity – the owner is the business.
Easy to set up and run – minimal paperwork. Often unregistered with Companies House.
Makes all key decisions – autonomy.
✔️ Advantages:
Full control over decisions. Keeps all profits.
Simple set-up, low costs.
Greater privacy (no public accounts).
Flexible working hours and operations.
What are the characteristics and of a Private Limited Company (Ltd)?
Company is a separate legal entity from owners.
Owned by private shareholders (friends, family). Limited liability – shareholders only lose what they invest. Cannot sell shares to the public – must be invited. Must register with Companies House. Must publish annual accounts, but less scrutiny than PLC.
Often run by founder(s) who retain control.
✔️ Advantages:
Limited liability – protects personal assets.
Can raise finance via share sales (to chosen investors).
More professional image than sole trader.
Separate legal identity – contracts in the company’s name.
Business continuity even if shareholders leave.
What are the characteristics and advantages of a Public Limited Company (PLC)?
Characteristics:
Shares traded publicly on stock exchange.
Must have at least £50,000 share capital.
Owned by many shareholders, not all known to the business.
Run by directors, can result in divorce of ownership/control.
Limited liability for shareholders.
Subject to stringent legal & financial regulations.
Must issue Annual Reports and maintain transparency.
✔️ Advantages:
Access to large-scale finance from the public via IPO. Increased brand recognition and prestige.
Limited liability encourages investment.
Easier to grow or expand internationally.
Can use shares as currency for takeovers/acquisitions.
Disadvantages of running a Sole Trader?
Disadvantages:
Unlimited liability – personal risk if the business fails.
Harder to raise finance – reliant on personal funds or security.
No shared expertise – owner may lack skills in key areas.
Business may lack continuity – stops if owner retires or dies.
Heavy workload – no support from partners/shareholders.
Disadvantages of running a Private limited company?
Disadvantages:
Shares not publicly traded – limits growth potential.
Legal paperwork – must submit accounts & reports.
Decision-making may slow if multiple shareholders involved.
Loss of some control if other shareholders are brought in.
Potential conflict between directors and shareholders.
Disadvantages of running a Public limited company?
❌ Disadvantages:
Complex, expensive to set up and maintain.
Loss of control – anyone can buy shares.
Vulnerable to hostile takeovers.
Must meet regulatory compliance – time-consuming.
Shareholders may focus on short-term profits (dividends).
Public scrutiny of performance and strategy.
What does whether a firm becomes a Ltd or PLC ‘depend’ on?
It depends on:
Owner’s willingness to give up control and share profits.
Business size – can it successfully float? (small firms usually can’t).
Readiness for public scrutiny and market-determined valuation.
% of shares sold – risk of takeover if >50% voting shares are released.
Investor demand – is there interest in buying shares?
Desire for capital vs maintaining ownership.
What factors influence share price movements on the stock market?
Share prices fluctuate based on company performance and external conditions (GDP, interest rates, competition).
If actual profits exceed expectations, share prices are likely to rise.
Shareholders expect higher dividends if profits rise, increasing demand.
Good economic conditions boost investor confidence – this may raise prices due to speculation.
When do share prices typically increase?
When actual profits rise faster than expected.
When shareholders expect future profit growth, they are less likely to sell.
New potential shareholders rush to buy, increasing demand and price.
Overall, share prices rise when confidence in the company’s profitability exceeds expectations.
When do share prices typically decrease?
When actual profits rise less than expected.
When profits fall below expected growth or drop faster than forecast.
Shareholders (especially short-term ones) may sell their shares, reducing demand.
Fewer new buyers want the shares, putting downward pressure on the price.
What is Market Capitalisation and how is it affected by share price?
Market Capitalisation = Current Share Price × Number of Shares Issued
It represents the total value of the company’s shares.
If share price falls → market cap drops, making firm vulnerable to takeovers.
It becomes harder to raise funds via rights issues (new shares).
Many firms become short-termist, prioritising immediate profits over long-term investment.
Draw and Label a Breakeven graph
What is the break-even level of output and why do businesses calculate it?
Break-even output (Q) is the volume of sales needed to cover all costs. It’s used to identify how much must be sold to avoid losses, and to forecast profit/loss at different output levels using total revenue (TR) and total costs (TC).
What is contribution per unit and how is it calculated?
Contribution per unit = Selling price – Variable cost per unit. It shows how much each unit contributes to covering fixed costs.
E.g.: If price = £15, VC = £11 → contribution = £4.
To break even with £20,000 fixed costs, need 5,000 units (£4 x 5,000 = £20,000).
How is the margin of safety and profit calculated using contribution?
Margin of Safety = Actual (or planned) output – Break-even output
E.g. 6,000 units – 5,000 = 1,000 units safe from loss
Profit = Total Contribution – Fixed Costs
E.g. Contribution = £24,000 (6,000 x £4) – £20,000 = £4,000 profit
How can a business lower its break-even output and increase profit?
Increase selling price (TR line becomes steeper)
Decrease fixed costs (shifts TC line downward)
Lower variable cost per unit (shallower TC line) → more contribution per unit
What is market segmentation and what are the 4 main bases for segmentation?
Market segmentation is the classification of customers into groups with similar characteristics who respond to products/marketing in similar ways.
Segment bases:
Demographic – age, gender, lifestyle, religion
Income – disposable income, socio-economic grouping
Behavioural – usage, loyalty, product benefits sought
Geographical – nations, regions, cities, neighbourhoods
What are the main business benefits of effective segmentation, targeting, and positioning (STP)?
Better matching of product/service to customer needs → higher satisfaction, loyalty, and word-of-mouth
Match price to different incomes → higher profits via premium pricing or volume-based pricing
Retain more customers over their lifetime by meeting evolving needs
More effective promotion targeting → less waste, more conversions (e.g. social media, influencers)
What are some limitations or evaluation points for Segmentation, Targeting and Positioning strategies?
Data limitations: Inaccurate or unavailable data may limit ability to segment effectively.
Human behaviour varies: Customers may not behave consistently over time.
Hard to gain market share: Identifying a segment is easier than reaching them effectively.
Ignores other customers: Focusing on one group risks alienating others with unmet needs.
It depends on data quality, market accessibility, and how effectively the firm communicates to target groups.
What is Segmentation, Targeting and Positioning (STP) and how does it shape a firm’s marketing mix?
Segment: Divide the market into distinct groups based on needs, behaviours or traits.
Target: Assess which segments are attractive (e.g. profitable, reachable), and select one/more to focus on.
Position: Tailor the marketing to create a specific image/identity in the minds of that target segment.
The STP strategy helps firms align Price, Product, Promotion, Place, People, Process, and Physical Evidence to the target segment’s needs.
E.g. ALDI targets low-income segments with budget positioning, while M&S uses premium positioning.
What are two key evaluation points for the 7Ps marketing mix model?
Integration is key: For the mix to be effective, all 7Ps must support each other. E.g., high prices are only effective if product has a strong USP and excellent promotion.
Doesn’t guarantee success: A competitor might offer a stronger overall mix, better price, promotion, customer experience, or perceived value—even if your 7Ps are aligned.
