Revision for Semester 2 HL BM exams
1. Decision trees (pg 104) : draw one, evaluate it and recommend a course of action in the context of the question a. a Quantitative decision-making decision-making tool, but also also a diagrammatic representation representation of different options in the decision-making process along with their probable outcomes.
2. Globalization - the growing integration and interdependence of the world’s economies. Has led national economies to integrate towards a single global economy, economy, where consumers have ever-increasingly similar habits and tastes. a. What contributes to the growth in globalization ? i. Liberalization of international trade (the removal of global trade barriers): 1. Encourages more trade in exports and imports 2. ex: Tariffs Tariffs and quotas have been reduced trough WTO ii. Technological progress 1. Reduced the cost of information interchange 2. Online shopping shopping through the internet iii. Deregulation in business activity: 1. the costs of transportation and distribution have fallen. iv. Growth Growth in cultural awareness and recognition: 1. The consumers around the world have increasingly similar tastes 2. K-pop K-pop and and cultural exports v. Language: 1. English becoming becoming a universal language language b. What’s good about about it? What’s bad about it for the investor and host host country stake holders: Depends on the point of view from part C.
c. Effects of globalization on business activity : i. Glob Global aliz izat atio ion n increases the level of competition ii. ii. Meet Meetin ing g customer expectations and needs becomes more demanding 1. Businesses must now now meet greater customer demands for quality, quality, customer service, price and after - sales care. 2. With the competition from globalization, businesses businesses must meet the demands of customers to have any competitive advantage. iii. If businesses are able to build a global global presence they are able to enjoy enjoy the economies of scale.
iv.Multinationals have greater choice of location for their production facilities. v. Mergers, acquisitions and joint ventures allows businesses to grow at a faster pace. With globalization, businesses have more choice in their expansionary plans.
vi.Multinational vi. Multinational corporations and e-commerce businesses businesses in particular will benefit from increased customer care . 3. Reason Reasons s why a business merges with or takes over another business (pg: 125) a. Merger: Takes Takes place when 2 firms agree to form a new company. company. b. Take over: Occurs when a company company buys a controlling interest in in another company. i. Meaning Meaning by buying buying enough shares shares int he target target business business to hold a majority majority stake (enough power to take over) ii. Also Also know known n as as acquisitions because of its aggressive nature of growth iii. A hostile hostile take over bid is referred to as the black knight iv.The white knight is more of a friendly bidder and partner for the company. company. v. But everything is ultimately up to the shareholders shareholders of the target company, company, whether they approve the merger by selling or holding onto the share holdings. c. There are four types types of integration that can can occur in a merger or acquisition: i. Vertical Vertical integration: Amongst different different business sectors (primary, (primary, secondary, secondary, tertiary), merged between two companies that doesn’t come from the same sector. ii. Horizontal integration: Where the companies that that merge or take - over are within the same business sector iii. Lateral integration: The companies that merge have similar operations but does not directly compete with each other. other.
iv.Conglomerate iv. Conglomerate mergers and takeovers: The companies companies that merge are from completely distinct markets. 1. Ex. Berkshire Hathaway owns owns businesses from property property,, clothing and flight services. 2. This is a form of of diversification strategy 3. If successful can can benefit from economies economies of scale d. Advantage Advantages s of both: both: i. Grea Greate terr mark market et sha share re ii. Econom Economies ies of scale scale iii. Synergy Synergy iv.Survival v. Divers Diversific ificati ation on e. Disadvanta Disadvantages ges of both: both: i. Loss Loss of cont contro roll ii. Cultur Culture e clas clash h iii. Conflict Conflict iv.Redundancies v. Diseconom Diseconomies ies of of scale scale vi.Regulatory problems f. MORE MORE IN BOOK BOOK 4. The importan importance ce of the external environment for merger and takeover activity; how and why the external environment affects the number of mergers and takeovers (PEST) a. Opportunit Opportunities ies and threats threats of the external external environmen environment. t. These factors, factors, unlike internal factors, cannot be controlled. (pg. 74)
i.
POLITICAL
ii.
ECONOMICAL
iii.
SOCIAL
Steps to carry out PEST: 1. Brains Brainstor torm m 2. Disc Discus uss s 3. Summar Summarize ize
iv. TECHNOLOGICAL b. PEST ESTLE: LE: POLITICAL, ECONOMICAL, SOCIAL, TECHNOLOGICAL, LEGAL & ENVIRONMENTAL
c. STEE TEEPLE: PLE: SOCIAL, TECHNOLOGICAL, ECONOMICAL, ENVIRONMENTAL, POLITICAL, LEGAL,
& ETHICAL
5. Niche markets and mass markets: a. Niche markets -> A niche niche refers to a small or unfilled segment segment of the market. Whilst Niche Markets means small and specialist market segments. b. Mass markets -> The largest largest group of consumers for a specified specified industry product. 6. Market segmentation, segmentation, consumer targeting, targeting, market research research
a. Market Segmentation: The The process of splitting a market into distinct group group of buyers in order to better meet their needs. i. Main methods methods of market market segmentation segmentation are based based on demograph demographic, ic, geographic geographic and psychographic factors. 1. Demographics: the study of of the characteristics of the human population population within a certain area or region a. Age groupings groupings b. Gend Gender er c. Race and Ethnicity Ethnicity d. Martia Martiall Status Status e. Religi Religion on f. Lang Langua uage ge g. Income and socio-economic socio-economic class 2. Geographic: the geographic geographic location of of customers can have implications for segmentation. a. Location: Different areas and and regions of a country have different different cultures and attitudes. b. Climate: The typical weather in the area. area. 3. Psychographic factors: factors: Those that consider consider the emotions and lifestyle of customers, such as their habits, interests and values. a. Status: Some people are very conscious conscious of social and economic economic status. b. Values: People’s beliefs, morals and principles. principles. c. Cultu Culture re d. Hobbies Hobbies and intere interests sts 4. Advant Advantage ages: s: a. Better understanding understanding of customers customers b. Increase Increase sales c. Growth opportuniti opportunities es
d. Gives support support to product differentiation differentiation 5. DAMAS ( to ensure successful successful market segmentation ): a. Differential: segments must be unique unique and respond to different different marketing mixes b. Actionable: able to provide suitable products products for each segment segment c. Measurable: size and and purchasing power power of each segment segment must be quantifiable d. Accessible: must be able to reach reach customers in a cost - effective effective way e. Substantial: each segment bust bust be large enough to generate profits. profits. b. Consumer Targeting: Targeting: The market segment(s) that a business wishes to sell to. i. NICHE MARKETING (pg 484): Targets Targets a specific and well defined market concentration marketing segment. Also known as concentration
1. Advant Advantage ages: s: a. Better marketing focus, in contrast to mass marketing where there is little focus and aims to market products at the ‘average’ customer b. Less competition, businesses businesses can charge at higher prices for their exclusive products. c. Firms can become become highly specialized specialized in meeting the needs and wants wants of their niche target market. Thus encourages customer loyalty and give the firm a competitive advantage. 2. Disadvanta Disadvantages: ges: a. Niche markets are usually very small. small. So this limits the numbers numbers of customers. Unlike mass marketing, where it can cater for a much wider customer base. b. Also because it’s so so small, it has few opportunities to exploit economies economies of scale. c. Highly successful successful and profitable niche niche markets may attract other firms. Thus a threat of larger firms entering the market. ii. UNDIFFERENTIATED MARKETING : Also known as Mass Marketing or Market aggregation 1. Strategy that ignores targeting individual individual market segments but a large number number of different market segments in order to maximize volume.
a. Advantage Advantages: s: i. Huge potentia potentiall in economies economies of scale scale from being being able to supply supply products in a mass market. ii. The whole market can be addressed with a single marketing campaign campaign iii.Bigger customer base b. Disadvant Disadvantages: ages: i. Not suitable suitable for all business businesses, es, as high high entry barriers barriers for mass mass production ii. Competition Competition can be fierce fierce iii. Lack of focus, marketing can be be quite wasteful. iii. DIFFERENTIATED MARKETING: Also known as Selective Marketing or Multisegment marketing. 1. Targeting strategy that tailors a marketing mix to each each market segment. (MORE IN BOOK) c. Market Research (pg: 469) : Market activities designed to discover the opinions, beliefs and feelings of potential and existing customers. Meaning it serves to identify and anticipate the wants and needs of customers. i. Revolves Revolves around around collecting collecting primary primary and secondary secondary data and information information to gain some insight and understanding into the structure of the market. ii. Helps reduce business business risks. As being able to accurately forecast forecast future market trends will give a business a greater chance of success. iii. Ad hoc market research: takes place on an “as and when necessary” basis. 1. Focus of the research is on specific specific marketing issues. 2. Tend to be on a one-off basis. basis. iv. Continuous Research: takes place on a regular and ongoing basis. 1. Research is carried out over over and over, over, perhaps on a monthly or yearly basis. basis. v. Uses of of market market research: research: 1. Gives businesses businesses up-to-date and accurate information. *important *important in fastpaced industries that are always changing
2. Allows a business to see whether whether current products meet the needs needs of customers. 3. Allow businesses to improve improve their marketing by using a distinct marketing marketing mix for each target group (market segment). 4. Assesses potential customer customer reactions to a new product product by testing it on a small group of customers. This can prevent huge losses if product is unsuccessful. 5. Gives businesses an understanding of the activities and and strategies used by their competition. 6. Helps businesses businesses to predict what is likely to happen happen in the future. vi.Drawback of market research: 1. Information and findings are only only as good as the research methodology methodology used. a. “Garbage in, garbage out” (GIGO) whereby unreliable unreliable and inaccurate inaccurate input data generates poor quality of information. i nformation. 2. The cost of good good market research research is often expensive. expensive. vii.PRIMARY AND SECONDARY RESEARCH (pg: 470) 1. PRIMARY: PRIMARY: Market research that involves gathering gathering new data first-hand for a specific study. a. Exampl Examples: es: i. Ques Questi tion onna naire ires s ii. Observ Observatio ations ns iii.Experimentation iv.Online Surveys b. Advant Advantage ages: s: i. Up to to da date ii. Relevance: Directly addresses the the questions which need to be answered. iii.Confidential and unique iv.Objectivity: iv. Objectivity: Help provide hard facts and figures to aid decision-making. c. Disadvant Disadvantages: ages: i. Time ime cons consum umin ing g ii. ii. Cost Costly ly
iii. Validity: Poor questionnaire design or too small a sample size would lead to misleading results. People might not be honest. Cultural differences and people’s suspicions of intention of the researcher might cause implications. 2. SECONDARY: SECONDARY: involves the collection of second-hand second-hand data and information. Meaning that the data or information already exists in another form. a. Advant Advantage ages: s: i. It is generally generally cheaper cheaper and and faster faster to collect collect and and analyze. analyze. ii. A huge range of sources sources that the researcher researcher can use, use, more accessible. iii. Provides an insight to changes or trends in a whole industry. industry. b. Disadvant Disadvantages: ages: i. Second-han Second-hand d data may be out of date or can become become outdated outdated quickly quickly.. ii. Data or information may be in an inappropriate inappropriate format for the researcher because it has been collected for another purpose. So the data must be further manipulated to suit the specific needs of the business. viii.QUALITATIVE MARKET AND QUANTITATIVE MARKET (IN BOOK)
7. Marketing objectives, objectives, marketing strategy and and the elements of of the marketing mix a. Marketing objectives (pg: 468) : the targets that the marketing department wishes to achieve. i. If growth were an organiza organizationa tionall objective, objective, the marketing marketing departmen departmentt may considering entering overseas markets and/or launching a new product.
ii. Like all organizational objectives, marketing marketing objectives objectives should be specific, measurable, agreed, realistic and time constrained.
iii. Having marketing objective is important important as targets can: 1. Provide a sense sense of purpose, direction direction and motivation for for the marketing strategies. 2. Allow progress to be monitored and success to be assessed. 3. Help in the planning planning and development development of appropriate marketing marketing strategies. iv.Market objectives may include: 1. Maintain/in Maintain/increas crease e market share: Can be achieved through market penetration strategies, allows businesses to increase sales revenue and profits. 2. Market leadership: The firm aims to have the greatest market share in an industry. 3. Product positioning: Attempts to change the image of the organization held by consumers. 4. Consumer satisfaction: Ensuring that the consumers are content with issues such as the quality of the product and its price. 5. Diversification: The objective of successfully marketing new products in new markets. 6. Market development: The objective of selling existing products in i n new markets. (the use of international i nternational marketing) 7. New product development: Businesses aiming to sell new products in existing markets. 8. Product innovation: The objective of launching a totally original or new product onto the market. Can help the firm gain a first-mover advantage . 9. High Market Standing: The extent to which a firm has a presence in the market place. Largely based on an organization’s image and reputation. v. Constraints on achieving achieving marketing marketing objectives objectives 1. Fina Financ nce e 2. Costs of productio production n 3. Size and and status status of the firm firm 4. Social Social issues issues 5. Time lags lags 6. Activities and and reaction reaction of competitors
7. The state state of the econo economy my 8. The political political and legal environment environment b. Marketing Strategy (pg 490): Marketing tactics (short-term plans) and strategies
(medium- to long-term plans) are used to achieve the marketing objectives of an organization. i. Marketing Tactics include: 1. Promotional tactics such as sponsorship or buy-one-get-one. 2. High-pressure sales tactics such as bait and switch methods. 3. Dubious marketing tactics such as misleading, deceptive or unethical
marketing. 4. Bargain brands that are used as a short-term tactic to boost sales. 5. Short-term price reductions to entice customers. ii. Three key phases: 1. Market research 2. Product planning, design and development 3. Implementation iii.Tools: 1. Perception mapping - product positioning and repositioning techniques 2. Porter’s five forces analysis - competitor analysis 3. Porter’s generic strategies - marketing strategies for competitive advantage 4. Ansoff matrix - marketing strategies for growth 5. Boston matrix - development of a firm’s product portfolio 6. SWOT analysis - strength, weakness, opportunities and threats 7. Force Field analysis - used to successfully implement and manage
organizational change. iv.To make it more successful, these strategies are to be examined along with the
4C’s of marketing: 1. Consumer Solution (product) 2. Cost to consumer (price) 3. Communication (promotion) 4. Convenience (place)
c. Marketing Mix (pg 456): a combination of the elements needed to successfully market any product. i. Product: the good or service 1. Producer products: industrial products such such as raw materials, materials, machinery and components sold to other businesses to further the production process. 2. Consumer products: products: sold at the end-user end-user such as private individuals. a. convenience products (fast moving consumer consumer goods) b. consumer durables (long lasting) c. specialty specialty products products (expensive (expensive items) items) ii. Price: how much the customer is charged for the product 1. Depend Depends s on: i. Equilibrium Equilibrium price, price, Demand, Supply, Supply, Business objective objectives, s, Competition, Competition, Cost of production and Corporate image. iii. Place: the distribution channels used to get the products to the customer 1. Can also be referred to as channels channels of distribution; the intermediaries used to get a firm’s products to the consumers. 2. Manufacturer ---> wholesalers wholesalers (who will probably bulk buy to reduce reduce costs) --> retailers (sold in smaller units) ---> consumers iv. Promotion: the process of informing, reminding and persuading customers to buy the product / strategies used to attract customers to a firm’s products. a. Above the line: promotional promotional activities that use use add media b. Below the line: other promotional tactics such such as packaging packaging v. People (customer relations management - CRM): attitudes and aptitudes of the people employed by a firm that determines the experience and quality of service given to customers. 1. (customer relations management management - CRM) involves involves setting the standards standards for and training staff. Also emphasizes on customer lifetime value (profitability that can be gained during the lifetime of a positive relationship with customers) than the profits made from a single transaction.
vi. Process: methods used to give clients the best possible customer experience. vii.Physical Evidence: the image portrayed by a business (or perceived by customers) regarding it’s tangible and observable features, in particular services. viii.Packaging: the ways in which a product is presented to a consumer, consumer, also a form of product differentiation. a. Advantages: protects protects products against against damage during transport, transport, labeling can provide information, makes the distribution easier, encourage impulse buying (unplanned buying), advertise the brand. 8. Economies Economies of Scale Scale 9. Product Portfolio (BCG MATRIX) MATRIX) (pg 523): the range of products or strategic strategic business units owned and developed by an organization. a. Build Share: strategy used to turn question marks into stars by investing necessary resources to grain market share. b. Harvest: reaping the benefits (profits) of a product. To To change stars into cash cows. (ex: a lot of advertising can turn a product into a cash cow) c. Hold: the firm investing enough resources to keep the product in its current position in the BCG Matrix. Investment is probably minimal since market growth of products will be low d. Divest: phasing out or selling dogs. Release resources to be used elsewhere.
Harvest: Star Build share: Question Mark Hold: Cash Cow Divest: Dog
10.Pricing (chap 4.4) a. A monopolist monopolist is at an advantage as they are price makers or price setters. b. Monopolies Monopolies:: Pure, Natural and Legal. c. COST-BASED PRICING STRATEGIES: based on the costs of production. i. Cost-Plus Cost-Plus pricing pricing (mark (mark - up pricing) pricing) 1. adding a percentage or predetermined predetermined amount of profit to the AC of production to determine selling price. 2. the % or specified specified amount is known known as the mark-up or profit margin 3. ex: Product is estimated to have AC of $6 and producer want 50% 50% profit, so price will be $9. (plans ahead of how much profit they want based on costs) ii. Marginal Marginal Cost pricing: pricing: 1. MC = the cost of producing one extra unit of the good. good. 2. Similar to cost-plus except except this involves looking at the contribution contribution made from the sale of each product. iii. Full cost pricing pricing iv.Absorption cost pricing d. COMPETITION-BASED STRATEGIES: based on the prices being charged by competitors. i. Price leadership : used for best-selling products or brands. Usually few substitutes (in the eyes of consumers), as these products are dominant then they can set the price and others will follow. ii. Predatory Pricing : Temporarily Temporarily reducing price in an attempt att empt to force rivals out of the industry since they cannot compete profitably.
iii. Going rate Pricing : the average price being charged by competitors in the industry. industry. So it’s where a firm charges a similar price to that of their competitors goods or services. e. MARKET- LED STRATEGIES: Based on level of customer demand. i. Penetration Pricing : Used for a new product to establish itself i tself in the industry. Involves setting a relatively low price in order to gain market share and brand awareness. As As the product establishes itself, the price will be raised. ii. Skimming Pricing : Tend Tend to be used for technologically advanced and innovative products. New product development can can be expensive so there’ s a high selling price. Strategy is to create is a unique, high quality or prestigious image for t he product. (ex: XBOX, Wii) iii. Price discrimination (also (also known as variable pricing): The same service is sold in different markets at different prices. iv. Loss Leader : Selling a product at or below its cost value. A short-term strategy that aims to entice customers to buy more profitable products as at the same time as buying the loss leader. (ex: cost of PS3 is $800 but is sold at $500, because they can recoup sales through complementary goods and collecting royalty payments). v. Psychological Pricing : using numbers like $17.99 to t o make prices seem lower. vi. Promotional Pricing : used when marketing new products by charging a low price to entice customers to try the product and build brand awareness.
