Unit 1 mock exam

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

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

 advantages: 

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

disadvantages:

• high start up capital costs in order to compete e.g. advertising
• high amounts of competition 
• harder to meet specific needs

Niche market - small targeted / specialised market which allows the supplier to meet the individual needs of the customers.

advantages:

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

disadvantages:

• threat from larger potential competitors 
• specialisation leads to smaller profits
• prone to changes in trends

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.

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.

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

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

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

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

Design mix:

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

Sustainability:

• Ecological - non damaging to the environment
• Equitable - no promotion of inequality in society
• Economical - firm takes responsibility for the long term ecnomic development

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.

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

advantages:

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

disadvantages:

• 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

Price penetration - setting the prices low in order to gain market share with the intentions of raising those prices later on.

advantages:

• 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

disadvantages:

• 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

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

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.

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

stages:

• 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.

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

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 

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 

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

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

advantages:

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

disadvantages:

• unlimited liability
• problems caused by the owner being ill or away from work
• lack of finance - banks may be less willing to give loans

Partnership - more than one owner, involves a partnership agreement to distinguish sho gets what within the business

advantages:

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

disadvantages:

• 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

Private limited company (ltd) - needs shareholders to agree to any transfer in ownership of the business shares

advantages:

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

disadvantages:

• accounts made publicly available at companies house
• annual general meetings must take place and be observed
• limited potential for raising share capital

Public limited company (plc) - allowed to sell shares on the stock exchange

advantages:

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

disadvantages:

• stock market demands may cause over-emphasis on short term objectives
• potential for takeovers
• greater admin costs, both during and after flotation

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.

Franchisor 

advantages:

• rapid growth
• regular income

disadvantages:

• no longer doing their idea
• relying on franchisee

Franchisee

advantages:

• minimises risks and failure
• fast to set up
• given an area to operate
• brand awareness
• assistance from franchisor

disadvantages:

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