theme 3

• what is a mission statement?


  a statement that states the purpose of a business

  
  

  designed to:

  - provide guidance for the overall direction of the business

  - state the overall goal

  - help inform decision making

  - create a shared focus for all employees
• what is a corporate objective?

  medium to long term GOALS of a business

  
  

  designed to:

  - coordinate functional areas

  - inform corporate strategy and functional objectives

  - quantifiable targets
• what is a corporate strategy?

  medium to long term PLANS of a business
• Ansoff's Matrix- development of corporate strategy


  assesses the degree of risk versus potential reward for strategic options

  
  

  product/market = new or existing

  
• what is market penetration?

  existing product

  existing market
• market penetration advantages


  - gain market share from competitors

  - encourage customers to buy more

  - changes to the marketing mix

  - extension strategies
• market penetration disadvantages


  - competitors reactions

  - short term

  - market may already be saturated
• what is market development?

  existing product

  new market
• market development advantages


  - enter a new international market

  - change promotional tactics

  - new distribution channels
• market development disadvantages


  - the product may not be desired in a new market - business may not understand the market

  - alienation of current customers
• what is product development?

  new product

  existing market
• advantages of product development

  - launch sustainably improved version of existing products

  - introduce complementary products

  - new product innovations
• disadvantages of product development

  - risk of cannibalisation

  - may shorten product life cycle of existing products

  - damage to brand
• what is diversification?


  new product

  new market
• advantages of diversification


  - R &D into new products and market research into new markets

  - acquisitions of other businesses
• disadvantages of diversification


  - relies on heavy investment

  - cultural differences

  - brand name may be diluted
• porters strategic matrix


  Identifies a competitive strategy, based on competitive advantage and market scope

  
• cost leadership strategy


  the business aims to be the lowest cost producer in a particular industry
• differentiation


  a business aims to add value through a usp
• product portfolio analysis


  analyses the range of products and brand a business has under its control

  - identify any gaps

  - identify where each of its products are positioned

  
• What does Kay's Distinctive Capabilities argue?

  sustainable competitive advantage cannot be achieved without its three atributes
• what are kay's distinctive capabilities

  - architecture = the relationship that a business has with its stakeholders

  - innovation = the successful introduction of new products

  - reputation = the ability to build and maintain a good reputation based on customers experiences
• swot analysis


  helps identify the:

  
  

  - internal strengths

  - weaknesses

  - external opportunities

  threats

  
  

  to a business
• internal strengths/weaknesses to a business

  - profitability

  - resource management

  - human resource management

  - marketing

  - culture of the business

  - corpoprate social responsibility and ethics
• external opportunities/ threats to a business

  - economic environment

  - political and legal environment

  - degree of competition in the market

  - consumer trends

  - demographics
• business cycle


  shows fluctuations in economic activity

  
• what happens in a boom?

  high levels of economic activity

  
  

  - high rates of economic growth

  - high demand

  - low unemployment

  - labour skills shortages

  - high confidence in economy

  - high capital investment
• what happens in a recession?


  the rate of economic growth starts to fall

  
  

  - falling demand

  - unemployment begins to rise

  - low confidence in the economy

  - firms will reduce investment
• what happens in a slump?

  serious economic decline

  
  

  - low/negative growth

  - low demand and inflation

  - high unemployment

  - high risk of bankruptcy
• what happens in a recovery?

  economic growth is starting to rise

  
  

  - demand increases

  - unemployment falls

  - inflation starts to rise

  - confidence in the economy increases

  - capital investment increases
• interest rates


  the cost of borrowing money
• what happens when interest rates rise?

  - increases repayments on loans

  - increased costs of borrowing/ invest is capital equiptment

  - reduced demand for luxuary items

  - increased incentive to save- less disposable income

  - increased return on savings- if net savers

  - foreign investors will invest in uk banks for higher returns
• what happens of interest rates fall?

  - decreased repayments on loans- people may pay off more of their mortgage

  - increased demand for interest sensitive goods

  - more disposable income= increase demand
• exchange rates


  the value of one currency in terms of another
• What happens when the Pound depreciates?

  currency is worth less £1= $1.40

  
  

  - buys less of another currency

  -Exports become cheaper

  -imports more expensive- reduces their competitive threat
• What happens when the Pound appreciates?

  currency is worth more £1 = $1.60

  
  

  - buys more of another currency

  - Exports become more expensive- less demand

  - imports= cheaper - can buy more raw materials from abroad compared to the previous year
• inflation


  A general and progressive increase in prices
• the effects on businesses of increased inflation

  - increase costs of raw materials - if inelastic, products can be passed onto the consumer

  - workforce may push for higher wages

  - difficult to maintain international competitiveness

  - reduces consumers incomes= reduction in demand

  - if product is inelastic
• economic growth


  a rise in the value of GDP
• how does economic growth affect businesses?

  - consumers will have more disposable income

  - more firms will be created due to confidence in the state of the economy

  - higher demand in the economy= skill shortages