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Theme 2 Economics (2.1 (2.1.1 (Objectives of growth (2. (Increases…

- - - - 2.
        
        Increases Profitability - growing the business means increased profitability for the company, in a static market a business may increase profitability by increasing there market share or diversify into new market.
        
        Many businesses keep on growing and to increase profitability the business tries to achieve minimum efficient sale. this is where the lowest level of output at which costs are being minimised.
      - 3.
        
        Increasing brand recognition- Branding is the process involved in creating a unique name and image for a product in the consumers mind
        
        This allows consumers to differentiate products from each other and having a strong brand name means the consumer are more likely to buy the business product then other competitors. This creates loyal customers for the brand which leads to repeat purchases and more sales. Overall grows the business market share.
      - 4.
        
        Increasing market power - is about the extent to which one business can affect what happens in the market
        
        The benefit of having the most market power is that you become the market leader which means the business has some control over prices and marketing strategies.
        
        Monopoly power- the business with the biggest market share is likely to have a degree of monopoly power. They may be able to influence price or output.
        
        Monopsony power -The business that are big buyers of supplies are likely to have some monopsony power. This is when they can dictate prices of goods from suppliers.
      - 1.
        
        Achieve economies of scale - is a reduction in the average costs of production brought about by an increase in the size and scale output. You can have intern balk our external economies of scale, internal economies of scale are those that benefit the individual business as external is the benefits that it brings to the entire industry.
        
        Or economies of scale can enable a business to cut prices pf there products whilst maintaining the same amount of profit, so they will gain a competitive advantage over competitor in terms of increased sales
        
        Internal Econonies of scale
        
        Technical economies is when specialised equipment is used to full use, normally large firms can only afford expensive equipment but the high cost of the equipment is spread over a large quantity. - For example increasing a size of a transporting vehicle reduces average costs as more product can be loaded on there
        
        Marketing economies arises as when the output increase but marketing stays at a fixed cost. softly but wide spread media becomes effective as output for the company increases
        
        Managerial Economies allow bigger businesses to use specialist managers with specialist skills to increase productivity and less mistakes in the company is made.
        
        Financial Economies- when bigger companies negotiate with on loans and fiancee which means reduced cost for the company and less risky
        
        Risk bearing economies- this is when a company diversifies into different market to spread risk as the business is not reliant on one market.
        
        Bulk Buying- when buying in large quantity a business can negotiate prices of per unit cost so it is reduced.
        
        External economies of scale reduce production costs for all the businesses in the industry.
        
        External economies of scale leads to falling cost and falling prices
        
        Products become more affordable
        
        We all have more purchasing power
        
        A mass market develops as more people can afford to buy a product
        
        Standards of living rise
        
        The benefits of economies of scale is that the business can keep the existing price so that its profit increase and this can be re-invested into the business to generate growth
    - - Diseconomies of Scale this is when average costs start to increase with increased output. this may be caused by two factors
        
        Internal Communication having communication be clear in a huge organisation can be difficult and miscommunication can lead to mistakes which can be costly for the company
        
        Potential skill shortages as the company grows you need more skilled people to manage the company. Thus if there is less skilled people managing the company then its hard to co-ordinate a large organisation and productivity can decrease
      - Corporate culture is the set of important assumptions that are shared by people working in a particular business and influence the ways in which decisions are taken there.
        
        Businesses with a strong culture and effective leadership can prevent diseconomies of scale as good teamwork can over come issues in the company.
        
        Benefits of corporate culture - Staff tend to be loyal
        
        productivity increases
        
        less training costs from staff not leaving
        
        good team work between employees and managers to overcome problems
  - - - Organic growth- Means simply, expansion of the business without takeovers and mergers.
        
        Benefits of organic growth
        
        The firm grows from within, using its own resources.
        
        It does not take over or merge with other businesses
        
        growth comes simply by expanding output and sales
      - Inorganic Growth occurs when there are takeovers or a merger. This is quicker but can be less successful than organic growth
        
        Takeovers occurs when one firm makes a bid for another firm and secures 50% of the shares.
        
        Benefits of inorganic growth
        
        Inorganic growth combined with organic growth can lead to the whole firm becoming a oligopoly
        
        Enhancing market power
        
        Reducing competition
        
        access to patents and assets.
        
        economies of scale
        
        Sharing overheads
        
        Merger is the joining together of two or more firms into a single business with the approval of the shareholders. The two firms may retain their separate identities.
        
        Mergers can be beneficial as businesses can compete better with other firms from gaining more market power whilst increasing efficiency as costs could possibly decrease.
        
        Synergy can occur where two businesses are combined and together increase efficiency and grow faster or make more profit than they could have staying separate.
        
        Complementary strengths- increase market share
        
        Diversification businesses from different markets help spread risk when they join together
      - Horizontal, vertical and conglomerate integration
        
        Vertical integration- when two businesses in the same industry that are different stages of production.
        
        Backwards vertical integration is when the the firm joins with the stage before.
        
        Forward Vertical integration- when a firm join with the stage of production such as suppliers join with retailers
        
        Horizontal integration- means that two businesses in the same industry have joined together.
        
        Conglomerate integration- occurs when two businesses that have nothing in common join together.
  - - - Through R&D you can gain a competitive advantage , by doing something new and different the company can gain more consumers and deter them from going to there competitors.
      - Using innovation is an incentive increase market power as it is hard for companies to compete with existing companies.
      - Product innovation- occurs when a completely new or improved product and service is created this often increases sales for the business if product has improves and increases consumer satisfaction.
      - Process innovation- occurs when new or improved production methods are used, enhancing efficiency and reducing costs.
      - Role of state funding- R&D can be expensive so governments can invest money in to r&d so businesses can compete nationally and internationally.
      - Product life cycle- Innovation can be a extension strategy.
        
        Introduction
        
        Growth
        
        Maturity
        
        Decline
  - - - Market information in the digital economy
        
        Viral Marketing- is a strategy that spreads product information from person to person as individuals respond to the message and pass it on to their friends and colleagues via social media.
        
        Social media- reaches hundreds and thousand so people and they are more likely to buy the product then go in stores and search others similar to that.
        
        Price comparison sites have increased the power of consumers. this effects businesses as consumers can identify the best deal and maximize their spending power.
      - The supply side
        
        Micromarketing is when businesses target small groups of consumers via social media with personalised recommendations. Mircromarketing is a easy way for a business to reach there target market and keep close contact with them, as well as less overhead for the business.
        
        Online retailing and distribution is growing very fast, where businesses selling online is more efficient as they get direct orders.
        
        Recruitment is easier online to find peoples employment information as well instead of employees going to top training centres they can train online.
      - The demand-side
        
        Satisfying customer with the 'long tail' refers to the shape of a curve, which applies to any industry. where customers were showed a wide variety of products and services which include wider geographical markets
      - Impact on markets and firms, costs, prices, profit and loss are greatly affected by the digital economy
        
        Firms can be affected by the digital economies as it can lead to creative destruction, where new businesses will flourish and old traditional businesses will fail.
  - - - Customer service can be good in small firms as you can normally get a personal touch when getting a service or deciding to buy a product this adds value to the consumer experience
      - Targeting niche markets enables small firms to sell ether products at high prices and have higher turnover whilst selling online.
      - Flexibility in responding to consumer needs small firms often know there consumers personally and can meet there requirements and get better consumer satisfaction
      - Achieving competitive advantage through relationships with stakeholder
        
        employees welfare higher efficiency
        
        added value to products
        
        Create customer loyalty
        
        Quality of products
        
        innovation
      - Product differentiation and USPs are often are interesting and unusual products that draw in consumers to buy products. And often small firms having unique products build up demand for there product portfolio
- - - - Price elasticity of demand the responsiveness of the demand for a product to a change in its price
        
        Calculating price PED %change in Deamand/ %cjange in rpice
        
        A product that is highly price sensitive (price elasticity more then 1)
        
        Inelastic is not very sensitive (less the 1)
        
        Determinants of PED
        -Availability of substitutes- the more substitutes for a product, the higher PED.
        -Time the longer the period of time, the more price elastic is the demand for a product (short and long term).
        -Luxury or necessary- luxuries tend to be more price elastic the the necessaries.
        -The proportion of income spent on a good some goods if the priced is raised it is not noticeable to consumers as on other products it will be.
        
        **Whys is PED important to businesses?
        
        Marketing- it needs to know for planning purposes what may happen to its demand if it changes its price
        -Branding will have a higher price then a non branded product thus it makes a product more inelatic
        
        Total Revenue Changing the price can affect total revenue, depending on whether demand is price elastic or inelastic. businesses need to predict what will happen if the price changes.
    - - Cost plus (calculating mark up on unit cost)
        When a retailer wants to know the gross profit margin of a sale in advance, they
        might use cost-plus pricing. A benefit of this is that the retailer reduces the
        uncertainty of profits, since they know costs will be covered if they can sell the good.
        However, it could lead to a fall in the quantity sold, the revenues and profits and
        market share of the firm since the price is uncompetitive.
        Price skimming This is a short term pricing strategy which is used most commonly when a new
        product is launched. This is when the product has little or no competition, so a high
        price is set temporarily before competitors enter the market. It is most common
        where technology has changed or a product is distinctive. It is only used in the short
        term, because the high profits earned in the market act as a signal to other firms to
        enter the market, so competition increases.
        Penetration
        This involves setting a low price initially, which is below the intentional price, in
        order to attract customers. It aims to encourage customers to switch to this brand
        since the price is low, and once consumer loyalty is gained, the price is increased
        again.
        Predatory
        This involves firms setting low prices to drive out firms already in the industry. In the
        short run, it leads to them making losses. As firms leave, the remaining firms raise
        their prices slowly to regain their revenue. They price their goods and services below
        their average costs. This reduces contestability.
        Competitive
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        This is when prices are set based on the prices of competitors, and it is used when
        the products are similar.
        Psychological
        This is a pricing strategy which uses the emotional and not rational reactions to the
        price of a good. For example, a good might be priced at 99p rather than £1, since the
        99p price tag seems a lot cheaper than the £1 price tag, even though there is only a
        penny difference. Therefore, consumers might be more inclined to purchase the
        good.