Unit 1 mock exam

  • Created by: Megan_lou
  • Created on: 08-01-18 21:31


The market - a place were buyers and sellers meet in order to exchange goods and services.

Markeing - the managerial process of identifying, anticipating and satisying customer wants and needs profitably.

Market share - a businesses total sales within the market as a percentage

     formula - (sales / total sales) x 100

Market growth - increase in total sales within the market

    formula - (change in sales / original 1 sales) x 100

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Mass market - large unspecialised market where the products are aimed at the whole market.


  • large target audience
  • huge amounts of market research available 
  • higher levels of efficiency as firms try to become more price competitive
  • increased brand awareness 


  • high start up capital costs in order to compete e.g. advertising
  • high amounts of competition 
  • harder to meet specific needs
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Niche market - small targeted / specialised market which allows the supplier to meet the individual needs of the customers.


  • less competition
  • higher consumer satisfaction - repeat customers/ brand loyalty
  • meets the market demand easier


  • threat from larger potential competitors 
  • specialisation leads to smaller profits
  • prone to changes in trends
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Brand - a unique company image that differentiates it from the rest of the market.

  • can portray quality
  • consumers know what to expect
  • brand importance can exceed the importance of the price
  • can be used to add value

Market research - the collection and analysis of data and information about consumers, competitors and suppliers to inform a business about its market.

Primary research - data collected first hand about the market that didn't exist before.

Secondary research - data collected by someone else about the market / data that already existed.

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Quantitative research - statistical data  that looks at the amount of items sold.

Qualitative research - non-statistical data that looks at why the customers buy the products.

Segmentation - the breaking down of a large market into smaller easily identifiable sections that have similar wants, needs and demand characteristics.

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Demand - the amount a customer is willing and able to buy at a given price.

Factors affecting demand:

  • price of complementary goods
  • price of substitute goods
  • trends
  • seasons
  • income
  • laws
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Supply - the amount a producer is willing and able to sell to the market at a given price in a given time period.

Factors affecting supply;

  • changes in cost of production e.g. increase in the price of raw materials
  • laws
  • changes in technology
  • external shocks
  • government subsidies
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Price elasticity of demand (PED) - how change in price affects quantity demanded

formula - %change in QD / %change in price

PED less than 1 = inelastic 

PED more than 1 = elastic

factors that affect PED:

  • degree of product differentiation
  • branding and loyalty
  • necessity / is is addictive
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Income elasticity of demand (YED) - a measure of how quantity demanded reacts to a change in income.

formula - %change in QD / %change in income

Normal good - as income rises QD rises

Luxury good - as income rises QD rises more than proportiant to income

Inferior good - as income rises QD falls

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Design mix:

  • aesthetics - look and feel etc.
  • economic manufacture - does it harm the environment? etc.
  •  function / quality - is it fit for purpose?


  • Ecological - non damaging to the environment
  • Equitable - no promotion of inequality in society
  • Economical - firm takes responsibility for the long term ecnomic development
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Marketing mix - refers to the set of actions or tactics that a company uses to promote its brand or product in a market.

Includs: Price, Product, Place and Production

Price - reflects the brand, quality and values as well as the amount the customer pays.

Pricing tactics - the day to day changes you can make to prices in order to achieve targets.

Pricing strategy - process by which a business plans to change the amount paid by the customer in the medium to long term.

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Price skimming - setting the initial price high then lowering the prices in the future.


  • item seen as more valuable due to the higher price
  • promotes exclusivity
  • covers high costs quicker


  • some customers put off by the higher prices
  • if the price falls the companies image may also fall and be seen as less valuable
  • falling price may annoy thoses customers who paid premium prices / removing exclusivity
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Price penetration - setting the prices low in order to gain market share with the intentions of raising those prices later on.


  • lower costs can lead to higher sales as the product is more affordable
  • conomies of scale due to more being produced in order to deal with high levels of demand
  • stores may provide high distribution levels and maintain good in store displays


  • product may look cheap leading to a decline in the brand image
  • mass market pricing may make it harder to sell products in high end stores
  • price reflectign values may cause customers to be price sensitive
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Pricing strategies for existing products:

Cost plus : unit cost + (% mark up)

unit cost = total costs / quantity 

Competitive: Price at market level or at a discount (Price takers)

However, this doesn't mean the cheapest on the market.

Predatory: price low enough to drive rivals out of business

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Factors effecting price:

  • Costs - costs up = price up
  • product differentiation 
  • strength of the brand
  • level of competition
  • PED
  • current stage of the product life cycle

Distribution - the process of getting the product from the producer to the right place for customers to make their purchases.

Distribution channel - the routes through which the product passes from the manufacturing to the customer.

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Product life cycle - a model showing the sales of a product over time and that all products follow a similar pattern.


  • intro 
  • growth
  • maturity
  • saturation
  • decline

Extension strategy - an attempt to prolong the life cycle of a product by preventing decline and prolonging saturation e.g. re-packaging, discounting etc.

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Product portfolio analysis - examines the market position of a companies products and places them on a matrix in terms of their market share and the market growth.

  • Stars  - high market share and high market growth
  • Cash cows - high market share and low market share
  • Question marks - low market share and high market growth
  • Dogs - low market share and low market growth
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Enterprise - the willingness to undertake new ventures and show initiative with a view to gaining rewards.

Entrepreneur - a person who spots an opportunity and shows initiative amd a willingness to take risks in order to benefit from the potential rewards.

Sources of business ideas:

  • spotting trends
  • identifying a market niche
  • copying ideas from other countries
  • innovation
  • spotting a gap in the market

Opportunity cost - the next best alternative foregone 

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Barriers to entrepreneurship:

  • lack of finance
  • lack of entrepreneurial capacity
  • responsibilities
  • legal / red tape
  • lack of ideas
  • fear of failure
  • avasion to risk
  • corrupt or unsupportive government 
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Main business objectives:

  • profit maximisation
  • growth
  • social or ethical aims
  • survival

Unlimited liability - the finances of the business are inseperable from the finances of the business owner

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Sole trader - a business run and owned by one person with unlimited liability


  • complete lack of formalities
  • easy to set up
  • owner in complete control


  • unlimited liability
  • problems caused by the owner being ill or away from work
  • lack of finance - banks may be less willing to give loans
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Partnership - more than one owner, involves a partnership agreement to distinguish sho gets what within the business


  • extra owners share the risk
  • new partners can bring extra capital
  • partners bring in extra skills and talents


  • unlimited liability
  • all partners are affected by the actions of another
  • potential for disagreements between partners
  • descision making takes longer as each partner must be consulted
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Private limited company (ltd) - needs shareholders to agree to any transfer in ownership of the business shares


  • owners have limited liability
  • greater scope for raising capital
  • shareholders retain control over who owns shares


  • accounts made publicly available at companies house
  • annual general meetings must take place and be observed
  • limited potential for raising share capital
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Public limited company (plc) - allowed to sell shares on the stock exchange


  • access to vast amounts of capital through stock markets
  • enhanced reputation
  • borrowing is easier and cheaper


  • stock market demands may cause over-emphasis on short term objectives
  • potential for takeovers
  • greater admin costs, both during and after flotation
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Franchise - when a business (the franchiser) gives another business (the franchisee) the right to supply its products and services

How is a franchise formed?

the franchiseor sells the franchisee a licence to sell their products, often within a specific georgraphical area. The franchisee will then sell the franchisor's products under the franchisor's name and trademark. The franchisor will often continue to give support in exchange for a licence fee and royalties on the products sold.

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  • rapid growth
  • regular income


  • no longer doing their idea
  • relying on franchisee
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  • minimises risks and failure
  • fast to set up
  • given an area to operate
  • brand awareness
  • assistance from franchisor


  • rely on other franshisee to uphold the image
  • lack of control
  • high start up costs
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