Unit 2 - Growing a Business
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. What would you like to do?
The four Ps are:
Price, Product, Place, Promotion
State 2 reasons for lowering the price of an item.
- To boost stales,
- because competitors have lowered their prices
State 3 determinants of the price of a product
- the number of customers
- target audience
- nature of the product or service
State 2 ways of promoting a product
- sales promotion
State 3 factors that might determine how much is spent on promotion
- media used
- the firms objectives
- the firms resources
State 2 ways of advertising a small local food shop
- local newspaper
- Yellow pages
Give 3 examples of below the line sales promotion
- buy one get one free
- short term discounts
Modifying an existing product might keep its sales going. This is know as what?
State the stages of the product life cycle.
introduction, growth, maturity and decline
State 2 reasons why so many products fail
- poor market research
- competitors actions
Why do firms need to invest in new products?
- need to keep up with competitors
- customers want new products
- technology advances
State 3 situations when a firm might charge a higher price
- brand image
- if the product is unique and new
- if there is little competition
State 3 reasons why a firm might increase its advertising
- to prevent sales falling
- to make customers aware of new product
- to match a competitors campaign
One firms sales as a percentage of the whole market is called its?
How might the size of the market be measured?
by the number of items sold, by the value of the items sold
Identify different ways of segmenting a market
age, gender, income, region, lifestyle, personality
What would you expect to happen to cash flow in the early stages of the life cycle? Why?
it would be negative, sales are low and the product needs promoting heavily
State 3 reasons why a firms market share might fall
poor marketing, poor quality product, competitors actions
The gathering of information for marketing is called?
What is a retailer?
A business selling a final product
Give examples of below the line promotion
price cuts, special offers, point of sales displays, free samples, competitions, after sales service.
How might a firm react to a fall in sales?
increase promotional activities, cut prices, modify the product
Distinguish between primary and secondary research
Primary gathers new data, secondary uses data that already exists
Would you use primary or secondary research to test a new product? why?
Primary - the idea/product is new so there is no previous data
What is batch production?
Groups of items move from one stage of production to the next
Give 1 advantage and 1 disadvantage of batch production
- more flexible than flow production, can produce numbers of items at the same time
- let flexible than job production.
What is flow production?
items are produced by moving continuously along the production line, with each stage responsible for part of the production process
What is job production?
produces one off items, flexible but expensive
State 3 objectives of production management
- control quality
- control costs
- ensure the right volume of production
State 3 examples of decisions made by a production manager
how much to produce, how to produce, how many stocks to hold.
State 4 ways in which effective production management might help a firm.
keeps costs down, produces good quality products, produces items quickly, produces a range of goods.
Why might a firm find it difficult to recruit staff?
job is unattractive, rewards are too low, better jobs are available, jobs are available elsewhere
What is meant by research and development?
use of science to develop new products and processes
Are stocks an asset or liability of a business? Why?
Asset, the firm owns them
What might determine how much stock a firm holds?
whether it is using lean production, the warehousing space available for holding stock, demand and rate of usage, opportunity costs
State one benefit of lean production
Lower costs leading to higher profits
Lean production may involve producing with little or no stocks. This is known as what?
Just in time production
State one problem of holding low stock levels
may not be able to meet customer demands, leading to customer dissatisfaction
State 3 problems of introducing lean production
- finding the right suppliers
- costs of training employees
- costs of flexible equipment
State 2 benefits of improving quality
- fewer rejects and less wastage
- greater customer satisfaction
State 2 ways of improving quality
- better supplies
- making employees more responsible for their own work
Why is better quality more important nowadays?
because of more competition and greater demands from customers
What is quality control?
inspection of items to check that they are not faulty
Is rent a fixed or variable cost? Why?
Fixed, it does not change with output
State 2 ways in which the government might influence a firms location
- offering subsidiaries or tax cuts
- controlling planning permission
What factors might influence the location of a business apart from the government?
- customers location,
- availability of labour
State 2 diseconomies of scale
- Problems controlling and coordinating a business
- employees may be demotivated as they do not feel part of a large business
State 2 problems of diseconomies of scale
- May have to increase prices
- profit margins may fall
State 4 types of economy of scale
State one benefit of economies of scale
may be able to reduce prices or benefit from higher profit margins
State 2 ways in which a firm can raise money from outside the business, apart from selling shares.
- government grant
State 2 ways in which a firm can raise money from within the business
- sale of assets
- retained profits
- owners savings
Is issuing shares a short term or long term source of finance?
State one reason for producing a cash flow forecast
to estimate when a firm needs to borrow money
State 3 reasons why a cash flow forecast might be wrong
- customers may be slow to pay
- suppliers may demand payment more quickly
- sales may be lower than expected
What happens if a firm has too little cash?
- may not be able to pay bills
- may be closed down
- may not be able to afford to meet its debts
State 2 ways in which a firm might increase its cash flow quickly
- sell stock cheaply
What is an asset?
something the firm owns
What is a current liability?
something that has to be paid within a year.
Which of the following is an asset - overdraft, loan, stock, or creditor?
What is a limitation of a balance sheet?
- only shows the position of the business at a given moment
- it is likely to be out of date and may not help predict the future
State 3 measures of a firms success, apart from profit
- number of employees
When does a loss occur?
when costs are higher than revenue
How do you calculate profit?
Sales Revenue - Costs
What is the difference between gross profit and net profit?
Net profit deducts overheads and expenses (e.g. administration and marketing) from gross profit.
What is the difference between an asset and a liability?
An asset is owned by a firm, a liability is owed by a firm.
State 4 external sources of finance
- Government incentives
Why does a firm want to make a profit?
To generate funds for investment and expansion, to reward the owners
What is the equation for the acid test ratio?
current assets - stock / current liabilities
What is a current asset?
Something a firm owns that can be turned into cash within a year
State one problem of borrowing money
have to pay interest
State one disadvantage of selling more shares to raise finance
The business will have to bring in new owners and might lose control
What is the difference between a PLC and an LTD?
a PLC can advertise and sell its shares on the stock exchange, whereas a LTD can only sell shares by inviting people to invest in the business.
Who owns the business in the public sector?
What is the equation for the current exam?
current assets / current liabilities
What does a low acid test ratio suggest?
liquidity problems - the firm may have problems meeting is short term debts
To provide liquidity, should current assets be higher or lower than current liabilities
What is a fixed cost? Give an example
A Cost that does not change with output, rent
What is a variable cost? Give an example
A cost that changes with output e.g. raw materials
State 2 advantages of centralisation
- decision makers have an overview of the business
- it leads to consistency across the business
What is the opposite of centralisation?
State 1 disadvantage of centralisation
May mean that managers cannot react to local conditions or that local managers are demoralised as they cannot make decisions for themselves
State 3 benefits of a motivated workforce
- better productivity
- better attendance
- greater willingness to cooperative
State 4 ways of measuring the success of a business
- customer satisfaction
What is meant by the national minimum wage?
Determines the least someone can be paid in a job
What is the role of the Advertising Standards Authority?
To ensure that printed advertisements are legal, decent honest and truthful
State 3 elements of a contract of employment
- terms and conditions of work and pay
- holiday entitlement
- notice period for dismissal
How can technology help production?
- Computer Aided Design (CAD)
- Computer Aided Manufacturing (CAM)
- Automated Stock Control
State 2 factors influencing the span of control
- the nature of the task
- the ability and nature of superior and subordinates
State one possible problem if the span of control is too wide
- communication problems
- manager has too little time for subordinates
What is meant by a level of hierarchy?
a level of responsibility within the organisation
What is meant by the chain of command?
the vertical line of authority within a business
What is a salary?
A fixed sum per year paid monthly to employees
What is a pension?
A payment to employees once they have retired
What is a piece rate system?
Payment by output
What is a bonus?
additional payment on top of normal pay
State 3 benefits of delegation
- Motivates staff
- Firms benefit from the skills of others
- Frees up superiors time
State 1 disadvantage of delegation
managers and owners can lose control of decisions
What is an authoritarian manager?
A manager who tells people what to do
What is a democratic manager?
A manager who listens to employees before making a decision
A company is always owned by its managers. True or false
A sole trader is the owner and manager of the business. True or false?
What would you like to do?
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