Theme 2

• What is internal expansion also known as?

  organic growth
• Which method of growth is fastest?

  external growth
• which method of growth is the most risky?

  external growth
• How do businesses expand internally?

  increase production capacity (can produce more goods)

  open new stores (allows them to be closer to customers in another location - needs lots of investment but is low risk because the business model is proven)

  launch new products (expands the customer base, but risky due to the large investment required)
• what are some advantages of external expansion?

  diversify (spread) risk -> makes the company less reliant on the existing products

  reduces competition and increases market share ->can merge or takeover a competitor, benefits from economies of scale

  rapid expansion
• disadvantages of external expansion?

  demotivated employees -> different management style or culture

  tension and lost jobs -> in the attempt to cut costs

  complicated -> two businesses' operations have to combine
• What are some internal sources of finances?

  personal savings

  retained profit -> no interest + limited +may not be high enough to fund large projects

  selling assets -> no interest but could harm a business' operations
• What are some external sources of finance?

  overdrafts -> have to pay interest on

  loans from family/friends

  trade credit -> just pay at a later date

  bank loans/mortgages -> pay interest + hard for new businesses to get

  government grants

  share capital -> selling shares - public = stock market, private = family/friends
• benefits of globalisation

  access more customers

  can import cheaply
• drawbacks of globalisation

  increased competition - negative impact on profit

  higher UK wages - less likely to compete on price

  ethical issues - working conditions in developing countries

  fluctuating global economy - businesses become dependent on the state of the economy of foreign countries - a recession elsewhere could hurt UK sales
• what are some ethical considerations for businesses?

  labour in developing countries -> legal to work long hours but paid little (sweatshops)

  product development -> animal testing - cruelty

  employee welfare -> treating employees fairly (fair wage, reasonable hours, holidays and good working environment)

  buying fair trade products -> ethically sourced materials - can be more expensive
• trade off between ethics and profits

  acting in an ethical way can increase a business' costs
• benefits of being ethical

  marketing -> creates a positive public image and increase sales

  motivation + culture -> if employees are treated in a fair way, they are motivated

  shareholders -> more likely to invest in an ethical company = moral purpose
• environmental issues

  traffic congestion -> delivery drivers, staff using cars

  careless waste disposal

  air and noise pollution

  poor choice of materials

  lack of encouragement of public transport use
• using renewable resources

  more sustainable

  more expensive - may have to invest in new machinery
• what is the design mix?

  function

  aesthetics

  cost
• product life cycle

  research and development

  introduction

  growth

  maturity

  saturation

  decline
• What occurs in the research and development stage?

  researching a certain area of the market for a business opportunity / gap in the market
• what occurs in the introduction stage?

  a product is introduced to the market

  marketing and advertising are crucial now - business needs to communicate to consumers that the product exists and what it is
• what occurs during growth?

  successful products undergo a period of growth as more and more customers discover and purchase the product

  the rate of growth tends to increase right after introduction
• what occurs during maturity?

  the rate of growth or no. of customers buying the product has slowed down

  the market for the product is considered mature

  sales are still rising, just slowly
• what occurs during saturation?

  the sales have reached their peak - no longer increases but remains steady

  all customers who want to buy the product have it
• what happens during decline?

  changes in technology or consumer wants have changed

  new competition is introduced

  this causes the demand to fall
• what are some extension strategies?

  rebranding or updating the packaging - helps keep the product fresh in the consumers eyes

  adding more/different features - keep people interested

  changing the target market - new countries, or age range

  advertising - attract more customers
• what influences a product's price?

  costs

  product life cycle - new = high to take advantage of exclusivity

  nature of product - luxury good? if its different from competitors?

  degree of competition - more competition = more options the customer has = business charges a lower price
• What is price skimming?

  where a business sets a high initial price and then gradually lowers it over time
• advantages of price skimming?

  maximizes revenue - early on customers are willing to pay a higher price

  covers the costs of research and development
• disadvantages of price skimming?

  can slow down the growth of the product which gives competitors time to launch a competing product
• what is price penetration?

  where a business tries to increase market share by offering a low initial price
• advantages to price penetration?

  increase market share - takes customers from higher charging competitors
• disadvantages of price penetration?

  lower short term profits
• What is competitive pricing?

  Setting prices for products or services based on the prices of competitors
• What is cost plus pricing?

  where a company adds a markup (extra amount) to the cost of producing a product to determine its selling price
• what are some promotional methods?

  advertising

  public relations

  sales promotion

  sponsorship

  social media

  product placements
• what is public relations?

  managing the spread of information about the business to maintain a positive public image and spread it as far as possible
• what are some examples of sales promotions?

  point of sale displays (at the cashier)

  samples

  competitions (mostly on social media)

  value for money offers (buy one get one free)

  free gifts

  discount coupons
• what is sponsorship?

  involves paying athletes, celebrities, or other organizations for them to advertise for a business
• how can social media be used for advertising?

  targeting the right audience

  easy + cheap for paid advertisements or just profiles

  updated and changed easily
• what are product placements?

  products can be clearly featured/shown in commercial TV programmes
• what effects the promotional mix?

  target market

  finance available

  competitor actions

  nature of the market

  nature of product/service - how much info should be provided