Edexcel Business A Level Revision

Competitive advantage -  A sustainable advantage over the competitors in the long term, gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher price. Specialisation - When a business concentrates on a product or task and in many cases means producing only a small number of products. Specialisation is particularly important when competing in international markets as it can create a competitive advantage for the business and act as a barrier to stop others from entering the market. Specialisation increases output as economic units become more effective and efficient in what they produce due to: Greater understanding of the requirements of production Each economic unit can specialise in what they are best at Efficient use of time as there is no switching between tasks Technical economies of scale such as capital equipment is used to produce goods and services The increased output can...

Predatory pricing - When prices are set low for a short period of time to force competitors out of the market. Prices are then put back to where they were previously or even higher. This strategy is used by dominant businesses, who can afford to make a loss in the short run, to force new entrants out of the market. This is deemed as illegal in the UK. Once existing firms have been driven out and entry of new firms deterred, it can raise its prices. This is ANTI-COMPETITIVE and therefore not in the best interest of consumers in a market. The existing competitors in the market see the new entrant about to launch - and immediately begin to lower prices to retain their customers If the new entrants cannot match the lower price (or provide a product which customers still belive represents value for money) then they may have to choose not to enter the market. The big loser in this is the customers. They are denied a wider choice in products. This therefore means price...

Penetration Pricing - Offering a significantly lower price than normal in an attempt to maximise volume sold and to build an installed base of loyal product users/customers Example - Broadband companies or telephone companies e.g BT or Virgin Involves setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. The strategy aims to encourage customers to switch to the new product because of the lower price. Penetration pricing is often used to support the launch of a new product and works best when a product enters a market with relatively little PRODUCT DIFFERENTIATION and when demand is ELASTIC - so a lower price than rival products is a competitive weapon. ☆ THIS IS THE OPPOSITE OF PRICE SKIMMING ☆ Aims: • Gain market share quickly • Build customer usage and loyalty • Build sales of higher priced related items ("Hook and bait" approach) Price can be increased once target market share is ...