BUSINESS UNIT 2 - CHAP 6+7

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4 Reasons to grow a business
increase sales, market share, economies of scale, and become more secure which will mean customers will trust the business more
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MARKET SHARE benefit
If sales of business grow faster than the total sales of the ,market then its market share will grow so retailers ill be more oprepared to stock products for this business
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market share risk
if other firms are increasing sales at an even faster rate then market share will fall
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economies of scale benefit
reduce cost of each item- bulk discounts
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risk of economies of scale
more difficult to manage a large business and could increase costs of each item to produce, increase stock holding/warehouse pricing
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Reasons for not expanding
keep control, offer personal service, avoid too much risk, avoid increased worry nd workload
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organic growth
slow and steady, paid for from profits, easier to manage and control as its slower growth, less risky than merging
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organic growth disadvantage
too slow, market share could fall, no gains from interacting w other business
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benefits of inorganic growth - horizontal integration
horizontal integration can lead to increase in market share and reduces competition, benefit from economies of scale
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Vertical backward integration
offers reliable source of supplies
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vertical forward
reliable outlet for products
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diversification
spreads risk over more than one industry, one might see rise in demand other might see fall
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disadvantages of inorganic growth
expensive to take over another business, problems meaning and controlling a much large business, amangemnt may ack
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growth for workers
promotion and job security // job losses if duplicated
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growth fro customer
lower prices bc economies of scale // higher prices iff the business has fewer competitors
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suppliers
more orders bc larger business / threaten to lower prices
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bank
more profitable account // increased risk if expansion isn't successful
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gov
pay more tax / may create a monopoly
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advantages of private limited company
more stars than sole trader or partnership, clear legal identity, keep control limited liability for shreholders
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drawbacks of private limited company
can't offer shoes to public, scope for expansion is limited, shareholders aren't sure what their shares are worth, possible too ee how a private is performing
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beenfits of PLC
easy to raise additional finance any selling shares, higher status, good publicity due to thousands of shareholders, limited liability for shareholders, shareholders know what theyre shares are worth
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drawbacks of PLC
Owner lose control -takeover, managers appointed to run the business may have different aims, must disclose all accounts to public - published in media, company at risk of takeover
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objectives of expanding businesses
profit growth, increasing market share, increasing shareholder value, managerial objectives
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profit growth
more profit to be put back into business and use as dividends
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Increasing market share
increase status and reputation give business more power over suppliers, give firm more control over prices and be dominant in the industry
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Increasing shareholder Value
share prices rise over time, keep shareholders happy, increased dividends can be paid out to shareholders
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Managerial objectives
divorce between ownership and control: directors may want to: increase their status by running a larger business, increase their salaries and perks, gain publicity form well publicised decisions
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Why would a firm change there objectives to be ethical and environmental
laws on environmental protection have become stricter, so being environmental decreases the risk of breaking these laws, gain good publicity and loyalty, consumers are putting more pressure on firms to be ethical, demanding organic foods and low poll
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Being ethical can reduce short term profits
paying higher wages is expensive but its not right to pay workers low, not taking bribes means lost sales but is it right, not forcing suppliers to reduce prices can increase costs
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Being ethical can INCREASE long term profits
Good reputation, other ethical firms will want to do business together, workers are more motivated if treated well and paid high, Gov more likely to give contracts to ethical firms, consumers avoid unethical firm, suppliers develop good relationshipt
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Ideal location
minimises costs and maximises revenue
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Factors to consider when choosing a location
cost of the site, labour costs, transport costs, sales potential, managers preferences
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labour costs
Varys region to region, business should locate in an area with low labour costs - advantage - skilled workers???
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Transport costs
if heavy materials are used in production such as steelmaking the business will have to pay high transport costs if suppliers are long distance
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sales potential
sales of a growing business depends on being situated in certain locations even if the land and rent costs are high
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Managers preferences
owners/ senior mangers have a preference on one location over another, may be more attractive as there ae better schools and leisure activities
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Benefits of locating abroad
lower site/land prices - london is the most expensive place to buy offices in + lower labour costs - low wage countries but is quality still as good? + avoid trade barriers - no tariffs + advantage of fast growing economies and marketse.g. indiachina
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problems of locating abroad
language differences make communication difficult, transport costs will increase if goods are shipped back to UK, Bad publicity due to unethical decision of locating in low wage country and UK jobs will be lost
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Product life cycle stages
introduction, growth maturity and decline
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introduction
product is launched with lots of averts and promotions - place is v important bc you need to attract customers
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growth
sales and profitability will increase so you can py back initial investments on research and ads
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Maturity
sales are at their peak and promotion is less important, as popularity grows businesses try to make the product more widely available at at the end the market becomes saturated and theres no more room to expand
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Decline
sales start to fall as rival products take over and from will spend less on the product - sales fall = loss
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what is a product portfolio
offering a wide range of goods to support the original product so the customer spends more in one visit, to grow and compete, new products replace old ones going into declines attract new customer- aiming at diff market, reduce risk of decline in sal
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methods of extension strategies
offering discount, new ad campaign, updated designs, nee brand image, targeting new markets,
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what to do to reduce risk when using extension strategies
balance investing money into old and new products BALANCE BALANCE bc it ca n take money away from the business
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how to broaden portfolio
grow and compete, add products to existing range, designing and producing new products
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penetration pricing
setting a low price bc the product is new and to gain greater market share - gets sale growth bc low price, prices can be raised one market share is gained
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Loss leader
price is set below cost hoping to gain other profitable sales, once the product is established can increase the price
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price skimming
charge high price, high quality and exclusive image which is desirable to people with large incomes, when established firm can lower price for greater market share and to make it a mass market product
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Competitive pricing
firm charges similar to other firms this helps grow sales by reducing price if market is competitive
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Cost-Plus pricing
setting a price with a profit mark up - only used if no competition
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what can influence pricing decisions
nature of market and degree of competition
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9 promoton methods
discounts, product trails, free gifts, direct marketing, sponsorship, buy 1 get 1 free, competitors, credit , advertising
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direct Marketing
cheaper, no Tv/radio, straight to customer, may be annoyed, can measure success, junk mail
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Sponsorship (sport/TV/Arts)
creates a high profile for business and brand image but could risk bad publicity
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Nature of product
Business to business marketing uses trade fairs and magazines for promotion - focus on business customers not retail
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NATURE OF MARKET
if market is laps; and customers are well known then the need fir advertising is reduced
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1. Manufacturer - wholesaler - consumer
INDIRECT // Consumers buy from warehouse // manufacturer gets bulk orders and wholesaler takes on risk of storing them and not selling them. Consumer buys for lower price than retailer but customer service is lower
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2. Mnaufactere - wholesaler - retailer -- consumer
INDIRECT// Traditional (used in food and drink industry)manufacturer gets bulk buys, Retailer benefits from buying from wholesaler, (allowed to buy smaller quantities-reduce risk+greater choice of goods) long time to consumer, good for limited £££$$
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3. Manufacturer - retailer - consumer
INDIRECT/Clothing industry/Faster bc no wholesaler/harder and riskier as retailer will have lots of stock/good for large business-covers a large market
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4. manufacturer - consumer
DIRECT// V popular and fastest, direct marketing (telesales, mail shots and internet selling) cheapest for consumer, limited choice as retailer would have products from a range of manufacturers // customer service not as good
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Other cards in this set

Card 2

Front

MARKET SHARE benefit

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If sales of business grow faster than the total sales of the ,market then its market share will grow so retailers ill be more oprepared to stock products for this business

Card 3

Front

market share risk

Back

Preview of the front of card 3

Card 4

Front

economies of scale benefit

Back

Preview of the front of card 4

Card 5

Front

risk of economies of scale

Back

Preview of the front of card 5
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