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Business revision for paper 3 (advanced information topics)
This resource is not in my own words I used the CGP Business Edexcel A level textbook.
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- Created on: 19-02-22 17:42
1.3.3 - Pricing strategies
What is cost plus pricing and how is it
calculated?
What is cost plus pricing and how is it
calculated?
Cost plus is calculating mark-up on unit cost.
Firms add a percentage mark-up to the cost of making or buying a single product.
Price = Unit cost + (Unit cost / 100 x markup)
Firms add a percentage mark-up to the cost of making or buying a single product.
Price = Unit cost + (Unit cost / 100 x markup)
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1.3.3 - Pricing strategies
What is the pricing strategy called
skimming?
What is the pricing strategy called
skimming?
New and innovative products are sold at high prices when they first reach the market.
Nike uses price skimming as their customers will be willing to pay premium prices to get the shoes first.
Nike uses price skimming as their customers will be willing to pay premium prices to get the shoes first.
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1.3.3 - Pricing strategies
What is the pricing strategy called penetration?
What is the pricing strategy called penetration?
Launching the product at a low price to attract customers and gain market share.
This can be used as an extension strategy.
Airlines may introduce seats that are cheap whilst keeping more premium seats and strong brand image.
This can be used as an extension strategy.
Airlines may introduce seats that are cheap whilst keeping more premium seats and strong brand image.
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1.3.3 - Pricing strategies
What is the pricing strategy called predatory?
What is the pricing strategy called predatory?
Businesses deliberately lowers pricing to force another business out of the market.
This is illegal under EU and US laws.
This is illegal under EU and US laws.
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1.3.3 - Pricing strategies
What is the pricing strategy called competitive pricing?
What is the pricing strategy called competitive pricing?
Businesses prices are based on competitor prices.
Supermarkets and department stores use this strategy.
Supermarkets and department stores use this strategy.
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1.3.3 - Pricing strategies
What is the pricing strategy called psychological pricing?
What is the pricing strategy called psychological pricing?
Based on customer expectations (high price must mean high quality)/
£99.99 looks better to a customer then £100
£99.99 looks better to a customer then £100
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1.3.3 - Pricing strategies
What factors determine the most appropriate pricing strategy for a particular situation?
What factors determine the most appropriate pricing strategy for a particular situation?
Number of USPs/amount of differentiation
Price elasticity of demand (availability of substitutes, type of product and strength of brand)
Level of competition in the business environment
Stage in the product life cycle
Costs and the need to make a profi
Price elasticity of demand (availability of substitutes, type of product and strength of brand)
Level of competition in the business environment
Stage in the product life cycle
Costs and the need to make a profi
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1.3.3 - Pricing strategies
What are two social trends that change pricing?
What are two social trends that change pricing?
Online sales
Price comparison sites
Price comparison sites
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1.4.2 - Recruitment, selection and training
What is internal recruitment?
What is internal recruitment?
Internal recruitment is when a business recruits someone who already works for them.
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1.4.2 - Recruitment, selection and training
State 2 pros and 2 cons of internal
recruitment
State 2 pros and 2 cons of internal
recruitment
+ Candidates already know the business, and the business knows them.
+ Short and cheap process.
- Leaves a vacancy in another department.
- Can cause resentment among colleagues who are not selected.
+ Short and cheap process.
- Leaves a vacancy in another department.
- Can cause resentment among colleagues who are not selected.
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1.4.2 - Recruitment, selection and training
What is external recruitment?
What is external recruitment?
External recruitment is when the business hires someone from outside the business.
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1.4.2 - Recruitment, selection and training
State 2 pros and 2 cons of external recruitment
State 2 pros and 2 cons of external recruitment
+ Bringing in experience from other organisations.
+ Larger number of applicants.
- Long and expensive process
- Candidates will need a longer induction process
Will have only seen a candidate at recruitment – might not be representative of what they’re l
+ Larger number of applicants.
- Long and expensive process
- Candidates will need a longer induction process
Will have only seen a candidate at recruitment – might not be representative of what they’re l
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1.4.2 - Recruitment, selection and training
What are the costs of recruitment?
What are the costs of recruitment?
Advertising the vacant post which can be in a specialist magazine costs more.
Recruitment can be extra costly if the staff go to recruitment fairs.
Recruitment can be extra costly if the staff go to recruitment fairs.
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1.4.2 - Recruitment, selection and training
What are the costs of selection?
What are the costs of selection?
Staff that are shortlisting and assessing would not be doing the usual job which would usually be done by senior staff.
This means that the more senior staff that are used in the selection process the more expensive it would be.
This means that the more senior staff that are used in the selection process the more expensive it would be.
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1.4.2 - Recruitment, selection and training
What are the three types of training?
What are the three types of training?
Induction - Introduction to the
business which can include learning the business's history and an introduction to the role.
On the job - practical skills are being taught.
Off the job - skills are learnt that are not possible in the work environment. (m
business which can include learning the business's history and an introduction to the role.
On the job - practical skills are being taught.
Off the job - skills are learnt that are not possible in the work environment. (m
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1.4.2 - Recruitment, selection and training
State 2 pros and cons of on the job training
State 2 pros and cons of on the job training
+ Easy to organise.
+ Training is job specific.
- Trainers are not fully productive during training.
- Bad practices are passed on.
+ Training is job specific.
- Trainers are not fully productive during training.
- Bad practices are passed on.
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1.4.2 - Recruitment, selection and training
State 2 pros and cons of off the job training
State 2 pros and cons of off the job training
+ Trainers are specialist.
+ New ideas are brought to a business.
- Can be expensive.
- Training might not be specific to their day-to-day job.
+ New ideas are brought to a business.
- Can be expensive.
- Training might not be specific to their day-to-day job.
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2.4.2 - Capacity utilisation
What is capacity utilisation and how is it calculated?
What is capacity utilisation and how is it calculated?
How much capacity a business is using.
Current output / maximum possible output x 100
Current output / maximum possible output x 100
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2.4.2 - Capacity utilisation
What is under utilisation and state some implications of it?
What is under utilisation and state some implications of it?
Under utilisation is when the business is not making good use of their machines and facilities.
1. Fixed cost will be spread over less units.
2. Can accept new orders in high seasonal demand.
3. Organising staff and machinery is easier.
1. Fixed cost will be spread over less units.
2. Can accept new orders in high seasonal demand.
3. Organising staff and machinery is easier.
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2.4.2 - Capacity utilisation
What is over utilisation and what are the implications of it?
What is over utilisation and what are the implications of it?
Over utilisation (100%)
May turn away customers s they cannot produce more
No time to fix machines which can reduce the life of machinery
No margin of error
May turn away customers s they cannot produce more
No time to fix machines which can reduce the life of machinery
No margin of error
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2.4.2 - Capacity utilisation
What ways can a business improve under utilisation?
What ways can a business improve under utilisation?
Can accept outsourced work from other firms
Reduce capacity by downsizing production (staff and machinery)
Reduce capacity by downsizing production (staff and machinery)
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2.4.2 - Capacity utilisation
What ways can a business improve over utilisation?
What ways can a business improve over utilisation?
Increasing capacity by using their facilities more by having staff work periods so they can meet demands.
If the rise in demand is temporary then businesses might choose to
If the rise in demand is temporary then businesses might choose to
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2.5.1 - Economic influences
What is inflation and what are the two types called?
What is inflation and what are the two types called?
This is the overall increase in the price of goods and services within an economy. There are two types:
Demand pull
Cost push
Demand pull
Cost push
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2.5.1 - Economic influences
What is demand pull inflation?
What is demand pull inflation?
Too much demand that is more than the economy can supply.
It happens when there’s an increase in disposable income so people buy more and businesses cannot supply goods quickly enough.
Demand-pull inflation can make profit margins go up.
Businesses can
It happens when there’s an increase in disposable income so people buy more and businesses cannot supply goods quickly enough.
Demand-pull inflation can make profit margins go up.
Businesses can
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2.5.1 - Economic influences
What is cost pull inflation?
What is cost pull inflation?
When rising costs push up prices. Employee wage rises can make prices go up – especially if productivity is not rising.
Cost-push inflation can make profit margins go down if businesses decide not to put up their prices.
Cost-push inflation can make profit margins go down if businesses decide not to put up their prices.
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2.5.1 - Economic influences
What is the consumer price index?
What is the consumer price index?
Tracks inflation by using index numbers to track the changes in the average cost of a ‘basket’ of hundreds of goods and services that an average household would buy.
Index number = average value of the ‘basket’ / base value of the ‘basket’ x 100
Index number = average value of the ‘basket’ / base value of the ‘basket’ x 100
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2.5.1 - Economic influences
What happens when inflation is high?
What happens when inflation is high?
When inflation is high, spending goes up temporarily – people rush to buy more before prices go up further. If wages do not go up in line with inflation, however, spending goes down as people can afford less.
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2.5.1 - Economic influences
What happens when inflation is high only in the UK?
What happens when inflation is high only in the UK?
When inflation in the UK is high, it makes UK exports expensive abroad. UK businesses become less competitive globally.
When inflation in the UK is low, UK businesses have a competitive advantage globally.
When inflation in the UK is low, UK businesses have a competitive advantage globally.
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2.5.1 - Economic influences
Who sets the rate of inflation?
Who sets the rate of inflation?
Bank of England
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2.5.1 - Economic influences
What is deflation?
What is deflation?
Deflation is the overall decrease in the price of goods and services within an economy.
Deflation is the opposite of inflation – there is not enough demands, so businesses reduce their prices.
Deflation is the opposite of inflation – there is not enough demands, so businesses reduce their prices.
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2.5.1 - Economic influences
How does deflation impact productivity?
How does deflation impact productivity?
Fall in productivity because businesses would not keep endlessly supplying the market with goods that nobody wants.
Firms do not need as many workers – so deflation often leads to a rise in unemployment.
This makes demands drop more and causes firms to
Firms do not need as many workers – so deflation often leads to a rise in unemployment.
This makes demands drop more and causes firms to
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2.5.1 - Economic influences
How does inflation impact strategy?
How does inflation impact strategy?
Business can expand if interest rates are lower then inflation.
Cheaper for the business to borrow money to invest into new premises and machinery.
Interest rate they would have earned on savings would be less then the amount prices would have gone up.
Cheaper for the business to borrow money to invest into new premises and machinery.
Interest rate they would have earned on savings would be less then the amount prices would have gone up.
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2.5.1 - Economic influences
What are exchange rates?
What are exchange rates?
Value of one currency in terms of another.
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2.5.1 - Economic influences
What happens when the exchange rate increases?
What happens when the exchange rate increases?
If pound is stronger than US dollars. UK exports, UK exports become more expensive abroad, which is bad for the UK exporters because their products become less competitively priced abroad.
This means that UK exporters may need to reduce their prices, whi
This means that UK exporters may need to reduce their prices, whi
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2.5.1 - Economic influences
What happens when the exchange rate decreases?
What happens when the exchange rate decreases?
Pound depreciates against the dollar.
UK exports become cheaper.
Become more price competitive abroad.
Might increase price in pounds, which will increase profitability but would not increase demands.
UK exports become cheaper.
Become more price competitive abroad.
Might increase price in pounds, which will increase profitability but would not increase demands.
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2.5.1 - Economic influences
How can an exchange rate be compared?
How can an exchange rate be compared?
Currency index
Exchange rate / base exchange rate x 100
Exchange rate / base exchange rate x 100
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2.5.1 - Economic influences
What is taxation?
What is taxation?
Taxation is the process of imposing charges on business and individuals by the government
For example:
Businesses are charged corporation tax on profits
Consumers are charged VAT on goods and services bought as well as income tax on earnings
For example:
Businesses are charged corporation tax on profits
Consumers are charged VAT on goods and services bought as well as income tax on earnings
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2.5.1 - Economic influences
How does taxation impact businesses?
How does taxation impact businesses?
A cut in income tax may give consumers more disposable income, thus raising consumption.
A cut in corporation tax may increase available profits for firms which may stimulate investment.
A cut in corporation tax may increase available profits for firms which may stimulate investment.
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2.5.1 - Economic influences
What are interest rate and how does it effect businesses?
What are interest rate and how does it effect businesses?
The price of money i.e., the cost of borrowing or the reward for saving.
If a firm has loans or overdrafts this will affect the amount that has to be paid in interest which is a cost to a business
Investments either become more or less attractive influenc
If a firm has loans or overdrafts this will affect the amount that has to be paid in interest which is a cost to a business
Investments either become more or less attractive influenc
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2.5.1 - Economic influences
How does interest rate influence the level of demand by consumers?
How does interest rate influence the level of demand by consumers?
If interest rates are high saving is more attractive and spending less.
High interest rates will mean that consumers have less disposable income e.g. higher mortgage payments and therefore a fall in demand for other products
High interest rates will mean that consumers have less disposable income e.g. higher mortgage payments and therefore a fall in demand for other products
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2.5.1 - Economic influences
What is the economic cycle and how does it impact businesses?
What is the economic cycle and how does it impact businesses?
Different stages the economy is in and it affects businesses:
During boom, businesses raise prices. This increases profitability, and it slows demand a bit.
During recessions, businesses may make worker redundant to save wage costs and increase capacity
During boom, businesses raise prices. This increases profitability, and it slows demand a bit.
During recessions, businesses may make worker redundant to save wage costs and increase capacity
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2.5.1 - Economic influences
What is the effect of business uncertainty on the business environment?
What is the effect of business uncertainty on the business environment?
Microeconomic environment - impact the actions of individual consumers and suppliers.
Macroeconomic environment - affecting the actions of the economy as a whole.
e.g. outbreak of disease, political unrest and natural disaster.
Macroeconomic environment - affecting the actions of the economy as a whole.
e.g. outbreak of disease, political unrest and natural disaster.
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2.5.2 Legislation
How does consumer protection law impacts businesses?
How does consumer protection law impacts businesses?
Consumer protection laws protect the consumer from firms with regards the quality of goods or services sold
Big businesses are more powerful than individual consumers, therefore the legislation attempts to stop the consumer from being exploited
Big businesses are more powerful than individual consumers, therefore the legislation attempts to stop the consumer from being exploited
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2.5.2 Legislation
What are three laws that protect customers?
What are three laws that protect customers?
Sale of Goods Act: goods must be as describe, fit for purpose and of merchantable quality.
Trade Descriptions Act: goods must be fully as described.
Consumer Protection Act: businesses are liable for any costs due to faulty goods and the prices quoted m
Trade Descriptions Act: goods must be fully as described.
Consumer Protection Act: businesses are liable for any costs due to faulty goods and the prices quoted m
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2.5.2 - Legislation
What examples are there for employee protection for individuals?
What examples are there for employee protection for individuals?
Working Time Regulations – employees cannot be forced to work more than 48 hours a week
National Minimum Wage Act – a minimum hourly wage rate introduced across the UK
Equal Pay Act – both sexes should be treated equally at work
National Minimum Wage Act – a minimum hourly wage rate introduced across the UK
Equal Pay Act – both sexes should be treated equally at work
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2.5.2 - Legislation
What examples are there for collective labour law?
What examples are there for collective labour law?
Law guarantees certain rights, and places certain restrictions, on groups of employees
Employment Act – ‘Secondary picketing’ outlawed
Trade Union Act – a secret ballot required before strike action
Employment Act – ‘Secondary picketing’ outlawed
Trade Union Act – a secret ballot required before strike action
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2.5.2 - Legislation
What is environmental protection?
What is environmental protection?
These laws help to ensure that firms do not have a negative impact on the environment
Environmental Protection Act
Firms must improve the control of pollution arising from industrial and other processes
Environmental Protection Act
Firms must improve the control of pollution arising from industrial and other processes
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2.5.2 - Legislation
What is competition policy?
What is competition policy?
Monopolies are regulated by the government as they have at least 25% market share and they can exploit customer by charging higher prices.
This is so there is a fair competition.
This is so there is a fair competition.
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2.5.2 - Legislation
What is the Health and Safety at Work Act?
What is the Health and Safety at Work Act?
A firm must provide a safe working environment with free safety equipment and clothing. There must be a H&S policy and union safety representatives are allowed to inspect the workplace
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2.5.2 - Legislation
Who oversees the Health and Safety at Work Act and what are the regulations?
Who oversees the Health and Safety at Work Act and what are the regulations?
The Health and Safety Executive
To provide adequate first aid provision
Rules for Display Screen Equipment (Computers) including free eye tests
Employers must consult with employees on any H&S changes in the workplace
To provide adequate first aid provision
Rules for Display Screen Equipment (Computers) including free eye tests
Employers must consult with employees on any H&S changes in the workplace
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2.5.3 - The Competitive Environment
What is the competitive environment?
What is the competitive environment?
The competitive environment is the degree of competition in the market and the buying and selling power of customers and suppliers within that market.
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2.5.3 - The Competitive Environment
What is a monopoly and oligopoly?
What is a monopoly and oligopoly?
Monopoly occurs when one firm dominates the market.
Oligopoly occurs when a few firms dominate the market.
Oligopoly occurs when a few firms dominate the market.
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2.5.3 - The Competitive Environment
What is monopolistic competition?
What is monopolistic competition?
Monopolistic competition occurs when there are many firms in the market but there is some form of product differentiation/
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2.5.3 - The Competitive Environment
What tactics and strategies do businesses employ in order to compete?
What tactics and strategies do businesses employ in order to compete?
New product development Changing/improving existing products
Promotions
Changing prices
Improving distribution networks including online sales
Quality assurance
Improved customer service – staff training
Promotions
Changing prices
Improving distribution networks including online sales
Quality assurance
Improved customer service – staff training
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2.5.3 - The Competitive Environment
How do you calculate market size and market share?
How do you calculate market size and market share?
MARKET SIZE = NUMBER OF UNITS SOLD X PRICE
MARKET SHARE = TOTAL SALES OVER A PERIOD OF TIME / TOTAL MARKET SALES X 100
MARKET SHARE = TOTAL SALES OVER A PERIOD OF TIME / TOTAL MARKET SALES X 100
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3.3.2 - Investment appraisal
What is payback period and how is it calculated?
What is payback period and how is it calculated?
Payback period is the time it takes for a project to make enough money to pay back the initial investment.
Payback period = Amount invested / Annual net cash flow
Payback period = Amount invested / Annual net cash flow
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3.3.2 - Investment appraisal
What are two pros and two cons of payback period?
What are two pros and two cons of payback period?
+ Easy to calculate and understand
+ It is very good for tech projects (technology tend to become obsolete quickly so businesses need to be sure that the initial investment is back before the products stop generating a return)
- Ignores cash flow after pa
+ It is very good for tech projects (technology tend to become obsolete quickly so businesses need to be sure that the initial investment is back before the products stop generating a return)
- Ignores cash flow after pa
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3.3.2 - Investment appraisal
What is the average rate of return and how is it calculated?
What is the average rate of return and how is it calculated?
Average rate of return compares the net return with the level of investment.
The net return is the income of the project minus costs, including investment.
ARR = Average net return / investment x 100
The net return is the income of the project minus costs, including investment.
ARR = Average net return / investment x 100
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3.3.2 - Investment appraisal
What are two pros and two cons of ARR?
What are two pros and two cons of ARR?
+ Easy to calculate
+ It takes account of all the project’s cash flows – i.e, it does not stop counting cash flow after a certain period of time like the payback does
- It ignores the timing of the cash flows – e.g. a firm might put more value on money t
+ It takes account of all the project’s cash flows – i.e, it does not stop counting cash flow after a certain period of time like the payback does
- It ignores the timing of the cash flows – e.g. a firm might put more value on money t
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3.3.2 - Investment appraisal
What is discounted cash flow (net present value only)
What is discounted cash flow (net present value only)
Is an investment appraisal tool that takes into account the time value of money.
It adjusts the value of cash flows in the future to calculate their present value.
It adjusts the value of cash flows in the future to calculate their present value.
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3.3.2 - Investment appraisal
How is present value and net present value calculated?
How is present value and net present value calculated?
Present value = Net cash flow x Discount factor
Net present value = Sum of present values of cash flows - cost of initial investment
Net present value = Sum of present values of cash flows - cost of initial investment
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3.3.1 - Investment appraisal
What are two pros and two cons of NPV?
What are two pros and two cons of NPV?
+ Takes into account what a pound is worth more than a pound tomorrow.
+ It takes into account all cash flows from a project into consideration.
- Hard to calculate as it is difficult for businesses to work out what the discount factor would be.
- It does
+ It takes into account all cash flows from a project into consideration.
- Hard to calculate as it is difficult for businesses to work out what the discount factor would be.
- It does
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3.4.3 - Shareholders versus stakeholders
What is a stakeholder and what is a shareholder?
What is a stakeholder and what is a shareholder?
Stakeholder: that the business considers all of its stakeholders in its business decisions/objectives
Shareholder: that the business should focus purely on shareholder returns (increasing share price and dividends) in its business decisions/objectives
Shareholder: that the business should focus purely on shareholder returns (increasing share price and dividends) in its business decisions/objectives
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3.4.3 - Shareholders versus stakeholders
State two examples of an internal stakeholder and two external stakeholders
State two examples of an internal stakeholder and two external stakeholders
Internal
Owners and employees
External
Customers and pressure groups
Owners and employees
External
Customers and pressure groups
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3.4.3 - Shareholders versus stakeholders
What might suppliers and the Government objectives be?
What might suppliers and the Government objectives be?
1. Customers - low prices, high quality goods - high profits means keeping prices high where possible
Suppliers - high prices for their suppliers, regular payment, long term relationship - high profits, therefore low prices paid for suppliers
Governmen
Suppliers - high prices for their suppliers, regular payment, long term relationship - high profits, therefore low prices paid for suppliers
Governmen
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3.4.3 - Shareholders versus stakeholders
What are stakeholder's and shareholder's influences?
What are stakeholder's and shareholder's influences?
Stakeholder: that the business considers all its stakeholders in its business decisions/objectives
Shareholder: that the business should focus purely on shareholder returns (increasing share price and dividends) in its business decisions/objectives
Shareholder: that the business should focus purely on shareholder returns (increasing share price and dividends) in its business decisions/objectives
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3.4.3 - Shareholders versus stakeholders
Who would support and who would oppose cutting jobs to reduce costs?
Who would support and who would oppose cutting jobs to reduce costs?
Supported by
1. Shareholders
2. Banks
Opposed by
1. Employees
2. Local community
1. Shareholders
2. Banks
Opposed by
1. Employees
2. Local community
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4.1.4 - Protectionism
What is protectionism?
What is protectionism?
This is where a government protects domestic businesses and jobs from foreign competition.
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4.1.4 - Protectionism
What are tarrifs?
What are tarrifs?
A tax that has to be paid when certain products are imported into a country.
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4.1.4 - Protectionism
What are import quotas?
What are import quotas?
Import quotas - are trade restrictions set by governments that put limits on the volume of particular products that can be imported into a country in certain time period -
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4.1.4 - Protectionism
How does import quotas impact competition and customers?
How does import quotas impact competition and customers?
Discourage international trade by making imported products more expensive than domestic products or limiting how much can be brought into a country.
Domestic firms grow more as they face less competition from foreign firms.
Restrict consumer choice and me
Domestic firms grow more as they face less competition from foreign firms.
Restrict consumer choice and me
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4.1.4 - Protectionism
What are other trade barriers?
What are other trade barriers?
Government legislation – can impact international trade (trade sanctions strongly restrict trade with a certain country, a trade embargoes can ban trade with a country altogether e.g. the USA has had an embargo against Cuba since 1962. This can restrict a
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4.2.3 Assessment of a country as a production location
What factors are there to consider when assessing a country as a production location?
What factors are there to consider when assessing a country as a production location?
1. Cost of production
2. Skill and availability of labour force
3. Infrastructure
4. Location in trade bloc
5. Natural resources
6. Ease of doing business
7. Political stability
2. Skill and availability of labour force
3. Infrastructure
4. Location in trade bloc
5. Natural resources
6. Ease of doing business
7. Political stability
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Other cards in this set
Card 2
Front
1.3.3 - Pricing strategies
What is the pricing strategy called
skimming?
What is the pricing strategy called
skimming?
Back
New and innovative products are sold at high prices when they first reach the market.
Nike uses price skimming as their customers will be willing to pay premium prices to get the shoes first.
Nike uses price skimming as their customers will be willing to pay premium prices to get the shoes first.
Card 3
Front
1.3.3 - Pricing strategies
What is the pricing strategy called penetration?
What is the pricing strategy called penetration?
Back
Card 4
Front
1.3.3 - Pricing strategies
What is the pricing strategy called predatory?
What is the pricing strategy called predatory?
Back
Card 5
Front
1.3.3 - Pricing strategies
What is the pricing strategy called competitive pricing?
What is the pricing strategy called competitive pricing?
Back
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