Edexcel Business A Level Revision

Price elasticity of demand (PED) - Measures the extent to which the quantity of a product demanded is affected by a change in price. The demand for goods and services varies depending on a range of factors. Elasticity - measures the responsiveness of demand to a change in a relevant variable - such as price or income. PED IS CALCULATED AS : % Change in Quantity Demanded ÷ % Change in Price Price Elastic - More than 1 Price Inelastic - Less than 1 Unitary price elasticity - Exactly 1 Price elastic = Change in demand is more than the change in price. Price inelastic = Change in demand is less than the change in price. Unitary price elasticity = change in demand is equal to change in price. Example of Inelastic demand: Gasoline has inelastic demand . This means that when there's an increase in the price of gasoline, the quantity demanded decreases just a little bit. So when the demand is inelastic, the quantity is insensitive to a change in p

Market Equilibrium - When there is a balance between demand and supply in a market. Market demand - The total quantity (volume) demanded for a product in a market by all customers. Market Supply - The total quantity (volume) of a product supplied to a market by suppliers. A market is said to be in Equilibrium when there is a balance between demand and supply. If something happens to disrupt the Equilibrium (e.g. an increase in demand or a decrease in supply) then the forces of demand and supply respond (and price changes) until a new equilibrium is established. In some markets, the equilibrium point is changing many times a second as demand and supply try to reach a point of balance (e.g. share prices). In other markets there is much less volatility and price changes are less frequent. For examples, use this link http://www.tutor2u.net/business/reference/market-equilibrium

Supply - the quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period. Profit motive - the motivation of firms that operate so as to maximize their profits. Indirect Taxes - Taxes not connected to income or proftit Government subsidy - Government payment that covers some of the cost of an economic activity. ☆ BASIC LAW OF SUPPLY ☆ The basic law of supply is that as a selling price of a product rises, so businesses expand supply to the market. The higher selling price acts as an incentive for businesses to produce more and it may also attract other suppliers into the market. There is a direct relationship between price and quantity supplied A rise in market prices brings about an expansion of supply - producers are responding to the profit motive. A fall in market prices brings about a contraction of supply - producers are not not responding to the profit motive. A movement along t

Demand  curve (for a good or a service) - the quantity that customers are willing and able to buy at a given price in a given period of time. Demand - the willingness and/or ability of consumers to purchase goods at a given price ☆ BASIC LAW OF DEMAND ☆ Demand varies inversely with price - lower prices make products more affordable for consumers. Causes of Changes in Demand • PRICE - For more (normal goods), a fall in price should result in an increase in demand. The extent of the change depends on the price elasticity of demand. • INCOMES   - As incomes rise, demand should normally rise. However, for inferior goods, demand will fall as consumers choose better alternatives that are now affordable. The extent of the change depends on the income elasticity of demand. • FASHIONS, TASTES & PREFERENCES - Demand for products that are fashionable or trendy will experience sharp fluctuations • ADVERTISING & BRAND - A key purpose of advertising and branding is

Adding value - the process of adding value to the cost of inputs into and through the transformation process Define: added value Added value = the difference between the price of the finished product/service and the cost of the inputs involved in making it. Define: factor of production The four categories of resources (or inputs) into the production process that results in goods and services being produced or delivered. The four categories are usually taken as land, labour, capital and enterprise Define: transformation process The process or processes that factors of production go through in order to produce goods and services. The transformation process can range from very simple (e.g. food ingredients into cooking) to highly complex (e.g. designing the iPad) Adding value can be done at any stage of the product life. Calculating value = REVENUE - BOUGHT IN GOODS AND SERVICES In the different ways all businesses add value by taking resource inputs and transforming them in

Product differentiation - arises when customers perceive a distinct difference between your product and the alternatives provided by competitors. Where products has a value proposition that is sustainably different from the competition. Effective differentiation allows a business to : - Compete effectively (a source of competitive advantage and ideally hard to copy) - Protect and build a brand (build intangible value which will also strengthen customer loyalty) - Add more value (strong differentiation should allow a higher price which means high profit margins) Requirements of a product for effective product differentiation : - capable of delivering what is important to customers - distinctive  (compared with competition) - not easily copied by competitors - affordable for target customers - profitable A product that is effectively position is often said to have a unique selling point (USP). USP - something that sets a product apart from its competitors in th

Positioning map - is used to place products in a range of positions in the market based on two significant qualities that customers feel are important when looking for the best product in contrast with other products in the market. Competitive advantage - an advantage over competitors gained by offering consumers greater value either by means of low price or by providing greater benefits and services that justifies high prices. Possible properties of products customers may be interested in - low price / high price - basic quality / high quality - ethical / not very ethical - high reputation / low reputation - light / heavy Whilst positioning maps are useful conceptual models, care has to be taken when using them in marketing decision making. ADVANTAGES OF POSITIONING MAPS ☆ help spot gaps in the market that a business could potentially fill ☆ useful for analysing competitors to see who is your main competition and whether there is a need for product differentiati

Market Positioning - the place a product occupies in customer minds relative to competing products Businesses create value for customers by making two key decisions : DECISION 1 : CHOOSE WHICH CUSTOMERS TO SERVE This involves two elements: • Market Segmentation (analysing the different parts of the market/ subgroups with similar needs and wants) • Targeting (deciding which market segments to enter) DECISION 2 : CHOOSE HOW TO SERVE THOSE CUSTOMERS This also involves two important parts of marketing strategy: • Product differentiation (what makes it different from the competition) • Marketing Positioning (how customers perceive the product) Value proposition - how to compete in the segments? ☆Having analysed the structure and chosen which segments to target the next stage in the marketing strategy is to decide how to compete in the segments. Marketing people call this the value proposition. ☆It is important to remember the market position or value proposition is define

Market Segmentation - the process of dividing a market into smaller sections which contain customers with similar needs and wants Market segmentation splits up a market into different types of segments to enable a business to better of target it's products to the relevant customers. Segments are usually measured in terms of sales volume or valu e Segmentation is possible because in almost all markets there are differences in factors such as: • Customers needs and wants • How customers buy • Location of customers • Knowledge & experience of customers Recognising and understanding these differences are the first Steps in an effective approach to market segmentation. ☆MAIN BASES OF SEGMENTATION☆ DEMOGRAPHIC > dividing a market into segments based on demographic variables such as age, gender, family, lifestyle, religion, nationality, ethnicity, occupation, Socio-economic group. BEHAVIOURAL > dividing a market into segments based on the different

Use of ICT is now now commonplace and essential market research The capabilities of modern business IT has transformed market research. It is now relatively easy to learn about consumer preferences and buying habits by mining massive sets of quantitative data. Data mining Data mining is an example of secondary research. It relies heavily on data that is already there. It's quicker automated and huge sets of data can be analysed which means it can reduce the need for sampling. Data can also be linked for example transactional data with customer profiles. Social media Social media data is a source of both primary and secondary research. Software can now quickly highlight what customers are saying about the product or brand through secondary research. Survivor not easy assess and analyse results in real time and there is also a wide range of powerful software applications to manage social media research and integrate with other business systems

Sampling - gathering of data from a set of respondents, the results of which should be representative of the population  (e.g. target market) as a whole. Sampling is widely used in marketing research and it can provide statistically valid insights into the profile of the overall population  (e.g market) being analysed The aims of sampling is to avoid bias and to sample in a cost effective manner; minimum error for a given cost. The main benefits and potential drawbacks of sampling are summarised as the following: Benefits • Even a relatively small sample (if representative) can provide useful research insights. • Using sampling before making marketing decisions can reduce risks and costs. • Sampling is flexible and relatively quick. Drawbacks • Biggest risk = sample is unrepresentative of population - leading to incorrect conclusions. • Risk of bias in research questions. • Less useful in market segments where customer tastes and preferences are changing freque

Sampling - In market research, sampling means getting opinions from a number of people, chosen from a specific group, in order to find out about the whole group. It would be expensive and time-consuming to collect data from the whole population of a market. Therefore, market researchers make extensive use of sampling from which, through careful design and analysis, marketers can draw information about their chosen market. Primary research - Data gathered first hanf that is specifically designed and obtained for a specific business. These can come in the form of focus groups, observation, face-to-face surveys and online surveys Secondary research -involves using data collected by someone else that has not been designed specifically for the business requiring the information. This can come in the form of published market research reports, Google, ONS (official statistics), Media reports, Competitor materials. Sample size - The amount of data collected by the business from c

Market Research - the gathering and analysis of research from customers - their attitudes, behaviour and wants - in relation to a product or service. This may help support the implementation of a marketing strategy Marketing - the way a company interacts with current and potential customers. You can think of it as the communication arm of a business - gathering information from and sending out messages to customers.  Product orientation - where a business focuses primarlily on creating and developing a high-quality good or service - but perhaps ignoring customer preferences and priorities. Market Orientation - where a business chooses to design a product or service to meet the requirements of customer preferences/desires. Market research is critical to the success of a market-orientated business as itallows the business to find out customer's tastes and priorities. Market Research Businesses often complete market research before entering a new market and at various

Dynamic Markets - A market that is changing All markets are dynamic - they all change! But the pace and nature of change varies considerably by market. Sources of change : •Social trends • Impact of technology on what customers buy and how they buy • Impact of new market entrants •Competitive environment Businesses have to adopt their marketing in response to these changes. A business that fails to keep up with trends in the market will soon cause COMPETITIVENESS EXAMPLES OF DYNAMIC MARKETS: 1) Film Industry - Disrupted by online streaming E.g Netflix 2) Taxi Services - Disrupted by mobile apps E.g Uber 3) Camera Market - Disrupted by sophisticated smartphones E.g Go Pro, iPhone.

Added value is equivalent to the increase in value that a business creates by undertaking the production process. It is quite easy to think of some examples of how a production process can add value. Adding value = the difference between the price of the finished product/service and the cost of the inputs involved in making it Consider the examples of new cars rolling down the production line being assembled by robots. The final, completed and shiny new car that comes off the production line has a value (price) that is more than the cost of the sum of the parts. Value has been added. Exactly how much is determined by the price that a customer pays. Alternatively, imagine a celebrity chef preparing a meal at his luxury restaurant. Once the cooking is complete, the meal is being served and sold for a high price, substantially more than the cost of buying the ingredients. Value has been added. You don't have to use robots or have the culinary skills of Gordon Ramsay to "add

Brand - a product produced by one business using a specific name. Tangible - something you can physically see as a difference Intangible - something you cannot physically see as a difference Branding involves the creation of an identity for the business that distinguishes that firm and it's products from other firms . Consumers have a perception of what to expect from a particular brand. BRANDING CAN ADD VALUE to a product allowing firms to charge higher prices and also leads to brand loyalty whereby customers will continue to buy products from that firm. Brands help build loyalty and repeat business as well as adding value allowing businesses to charge higher prices. Sometimes a brand is so strong it filters into our everyday language e.g Google, we now say we are going to Google something, it's turned into a verb. Other benefits of having a brand and add value to a product are: • BRAND EXTENSION Brand extension can mean adding new product ranges to

Market share - percentage share of the overall market held by a product, brand or business Static Market - the market is remaining the same, no change. Hard to expand your share in a static market as there are no new customers so you would have to steal customers off your competitors and redirect their loyalty to you. • Explains how the overall market is split between the existing competitors • Usually calculated based on market value, but volume can also be used • Good indicator of competitive advantage : Market leaders  (with the highest market share) usually have some kind of advantage. Calculating market share Business Sales ÷ Market Sales × 100 Links to videos and articles on market share •  Calculating and Interpreting market Share

Market Growth - percentage growth of the overall market size (value or volume) over time. Measures the rate of change of market size, which might be rising or falling or remaining stable. Market Growth: • Indicator for existing and potential market entrants  ( more businesses might be expected to try and enter fast-growing markets) • Growth rate can be calculated using either value (e.g. market sales) or volume (units sold) • Market Growth is usually expressed as a percentage change on the previous period. Markets can fall in size as well as rise, so market Growth can be negative. Cal culating market growth percentage (Market size this period ÷ market size last period) -1 × 100 (NEW - OLD) ÷ OLD ×100 Present - Past ÷ Past × 100 Links to videos and articles on market share • Calculating and interpreting market Growth • Calculating percentage changes

Market size - a measure of the total available demand for competitors in a market. • It indicates the potential sales for a firm • Normally measured in terms of annual sales or volume sold per year • Usually measured in terms of both volume (units) and value (sales) • Size of individual segments within the overall ,arles can also be measured. CALCULATING MARKET SIZE Method One: NUMBER OF UNITS SOLD IN MARKET (per period) X AVERAGE SELLING PRICE  (£) IN MARKET (SP) MARKET SIZE = UNIT X SP Method Two: FIRM'S REVENUES (per period) ÷ MARKET SHARE (%) MARKET SIZE = REVENUE ÷ MARKET SHARE CALCULATING REVENUE Method One: Market Size (£) ÷ Firm's Market Share (%) Links to videos and articles on market size • Market size calculations

Market - a market is any place that buyers and sellers will come together to exchange goods or services. There will normally B an exchange of money at a set price. Niche marketing - A smaller part of a large market, with products tailored to specific customer needs. Mass marketing - A large market of customers which is undifferentiated and that sells products and services to suit a large number of consumers. Mass market features : Customers form the majority in the market large number of potential customers to attract Customers needs and wants are "general" and less "specific" Associated with higher production output (makes products in large numbers) and capacity and potential for economies of scale Success usually associated with low-cost (highly efficient) operation or market leading brands. Products appeal to a wide range of customers Products are widely available through a range of markets Mass media is used to advertise the product Exa