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1. Asset-LedMarketing
A business strategy based on the core strengths (core competencies) of the firm. Businesses that adopt thisapproach use their core assets, such as brand name, to develop and launch new products.
2. Market Leaders Are firms that dominate the market share in a particular market. The business that has the largest market share inan industry, as measured by value or volume of sales, is called the market leader.
3. MarketOrientation
Is an approach adopted by businesses that are OUTWARD looking. They focus on making products that they cansell, rather than selling products they can make.
4. Market Share Measures the value of a firm's sales revenue as a percentage of the industry's total; e.g. a business with 35%market share means that for every $100 sold in the industry, the firm earns $35 of the sales revenue.
5. Marketing The management task that links the business to the customer by identifying and meeting the needs of customersprofitably. It does this by getting the right PRODUCT at the right PRICE at the right PLACE with the rightPROMOTION.
6. Marketing Audit A review of the firm's current marketing mix, in terms of its strengths, weaknesses, opportunities and threats.
7. Marketing Mix The main elements of a firm's marketing strategy: PRODUCT, PRICE, PROMOTION & PLACE.
8. Marketing Plan The document outlining a firm's marketing objectives and strategies for a specified time period.
9. Marketing Strategy Any medium-to long-term plan for achieving the marketing objectives of a business.
10. ProductOrientation
A marketing approach adopted by businesses that are INWARD looking. They focus on selling products they canmake, rather than making products they can sell.
11. Social Marketing Any activity that seeks to influence social behaviour to benefit the target audience and society as a whole.It DOES NOT mean SOCIAL MEDIA (e.g. Facebook).
12. Consumer Markets Markets for goods and services bought by the final user of them.
13. Industrial Markets Markets for goods and services bought by businesses to be used in the production process of other products.
14. Market Size The total level of sales of all producers within a market.
15. Market Growth The percentage change in the total size of a market (volume or value) over a period of time.
16. CustomerRelationsManagement(CRM)
Refers to the use of people in the marketing mix. CRM focusses on what can be gained during the lifetime of apositive relationship with customers.
17. Ethical marketing The moral aspects of a firm's marketing strategies. It can be encouraged by the use of moral codes of practice.
18. Five forcesanalysis
Michael Porter's model of assessing the nature of competition within an industry by examining five variables (orforces): new entrants, existing competitors, substitutes, suppliers and buyers.
19. Market research The range of marketing activities designed to discover the opinions, beliefs and feelings of potential and existingcustomers to identify and anticipate the needs and wants of customers.
20. Marketing audit A systematic examination and review of the current position of a firm in terms of its strengths and weaknesses.
21. Marketing mix The four main elements of marketing strategies: PRODUCT, PRICE, PROMOTION and PLACE. (The 4Ps)
22. Packaging The eighth 'P' in the marketing mix which focuses on the ways in which a product is presented to the consumer.
23. Physical evidence The image portrayed by a business (or perceived by customers) regarding its observable and tangible features suchas the cleanliness and physical size of a business or the presentation of its staff.
24. Position map A visual aid that shows customers' perception of a product or brand in relation to others in the market.
25. Primary research Involves data being collected by the researcher since the dtaa does not currently exist.
26. Process Part of the extended marketing mix which refers to the methods and procedures used to give clients the bestpossible customer experience.
Combo with “IB Business and Management Marketing 4.1The Role of Marketing” and 15 othersStudy online at quizlet.com/combine/11527899,11616945,12012678,12312615,12455035,12510327,12600571,12600752,17338530,17436132,17620341,17725019,17827689,17930106,18322071,19333949
27. Qualitativeresearch
Focusses on the comments, suggestions and opinions of respondents. Qualitative research data are not statisticalbut can generate in-depth findings.
28. Quantitativeresearch
Focusses on the collection and interpretation of statistical and numerical data for market research purposes.
29. Quota sample A sampling method that involves segmenting the population and then selecting a certain number (the quota) in eachmarket segment.
30. Random sample A sampling method that gives every person in the population an equal chance of being selected.
31. Repositioning A strategy that involves changing the market's perception of a product or brand relative to those offered by rivalfirms.
32. Sales forecasting A quantitative technique that attempts to estimate the level of sales a business expects to achieve, over a given timeperiod.
33. Sampling The practice of selecting a representative group (known as the sample) of a population for primary researchpurposes.
34. Secondaryresearch
Using data and information that has already been collected by another party; i.e. the data or information alreadyexists.
35. Segmentation The process of categorising customers into distinct groups of people with similar characteristics (such as age orgender), and similar wants or needs for research and targeting purposes.
36. Targeting Each distinctive market segment will have its own marketing mix. Different markets can also be targeted, dependingon whether they operate in niche, differentiated or mass markets.
37. Unique SellingPoint (USP)
Any aspect of a product that makes it stand out from those offered by rival businesses.
38. Coordinatedmarketing mix
Key market decisions complement each other and work together to give customers a consistent message about theproduct.
39. Marketingobjectives
The goals set for the marketing department to help the business achieve its overall objectives.
40. Marketingstrategy
A long term plan established for meeting marketing objectives.
41. Test marketing Marketing a new product in a geographical region before the full scale launch.
42. Sampling error Errors in research caused by using a sample for data collection rather than the whole target population.
43. Stratifiedsampling
Draws a sample from a specified sub-group or segment of the population and uses random sampling to select anappropriate number from each stratum.
44. Cluster sampling Using one or a number of specific groups to draw samples from and not selecting the whole population; e.g. usingone region or town.
45. Quota sampling Gathering data from a group chosen out of a specific sub-group; e.g. a researcher may ask 100 individuals betweenthe ages of 20 and 30 years.
46. Snowballsampling
Using existing members of a sample study group to recruit further participants through their acquaintances.
47. Market segment A sub-group of a whole market in which consumers have similar characteristics.
48. Marketsegmentation
Identifying different segments within a market and targeting different products or services to them.
49. Consumerprofile
A quantified picture of consumers of a firm's products, showing proportions of age groups, income levels, location,gender and social class.
50. Target market The market segment that a particular product is aimed at.
51. Corporate image Consumer perception of a company behind a brand.
52. Trend Underlying movement of the data in a time series.
53. Seasonalvariations.
Regular and repeated variations that occur in sales data within a period of 12 months or less.
54. Cyclicalvariations
Variations in sales occurring over periods of time of much more than a year.
55. Randomvariations
May occur at any time and will cause unusual and unpredictable sales figures; e.g. exceptionally poor weather, ornegative public image following a high-profile product failure.
56. Boston Matrix Is a tool for analysing the product portfolio of a business. It measures whether products have a high or low MARKETSHARE and operate in HIGH or LOW GROWTH industries.
57. Branddevelopment
Is a long-term product strategy that involves strengthening the name and image of a brand in order to boost its sales.
58. Brandextension
Refers to the use of an existing brand name that is successful to launch a new or modified product.
59. Branding Refers to the use of an exclusive name, symbol or design to identify a specific product or business. It is used todifferentiate itself from similar products used by rival firms.
60. Cash cow Is a term used by the BCG Matrix to refer to any product that generates significant sales revenue due to its largemarket share in a slowly expanding or mature market.
61. Consumergoods
Are items bought by the final user for their own personal consumption. Examples include CONSUMER DURABLES(such as furniture, computers and cars) and PERISHABLES (such as flowers and food)
62. Differentiation Refers to any strategy used to make a product appear to be dissimilar from others. Examples include quality, brandingand packaging.
63. Productdifferentiation
Refers to any strategy used to make a product appear to be dissimilar from others. Examples include quality, brandingand packaging.
64. Extensionstrategy
Is an attempt by marketers to lengthen the product life cycle of a particular product. Such strategies are typically usedduring the maturity or early decline stages of a product's life cycle.
65. Generic brands Are trademarks that have become synonymous with the name of the product itself. Examples include Coke,Rollerblade, Tipp-Ex and Frisbee.
66. New productdevelopment(NPD)
Is the process of getting the latest products on to the market. The easiest way is by making small improvements toexisting products. Alternatively, a business could develop and launch entirely new products.
67. Marketingmyopia
Refers to the short-sightedness and complacency of marketers in adapting to changes in the market place. This maybe especially true of product orientated businesses.
68. Product A broad term that refers to any physical or non physical item that is purchased by either commercial or privatecustomers.
69. Product line Describes the varieties of of a particular product that serves the same purpose in a particular market. For examplethere are many different varieties of the BMW Mini, ranging from the basic model to the top of the range Mini CooperS.
70. Product mix Describes the variety of different product lines that a business produces.
71. Product lifecycle
Is the typical process that products go through from their initial design and launch to their decline and withdrawalfrom the market.
72. Six stages of theproduct lifecycle
Research. Launch. Growth. Maturity. Saturation. Decline.
73. Productportfolio
The range of products or strategic business units owned and developed by an organisation.
74. Product range All product lines of a firm's product mix; i.e. all the products sold by the business.
75. Stars Are products in the BCG Matrix that have high or rising market share in a high growth market.
76. Strategicbusiness unit(SBU)
Are businesses or divisions owned by a firm that operate as independent profit centres. Each SBU is in charge of acertain product or product portfolio.
77. Family branding A marketing strategy that involves selling several related products under one brand name (also known asumbrella branding).
78. Product branding Each individual product in a portfolio is given its own unique identity and brand image (also known asindividual branding).
79. Company orcorporate branding
The company name is applied to products and this becomes the brand name.
80. Own-label branding Retailers create their own brand name and identity for a range of products.
81. Manufacturer'sbrands
Producers establish the brand image of a product or family of products, often under the company's name.
82. Brand An exclusive name, symbol or design used to identify a specific product or business.
83. Cost-Plus Pricing Adding a fixed mark-up for profit to the unit price of a product
84. Marginal-CostPrice
Basing the price on the extra cost of making one additional unit of output
85. Contribution-CostPricing
Setting prices based on the variable costs of making a product in order to make a contribution towards fixedcosts and profit.
86. Full-Cost Pricing Setting a price by calculating a unit cost for the product (allocated fixed and variable costs) and then adding afixed profit mark-up. (Absorption-Cost Pricing)
87. Absorption-CostPricing
Setting a price by calculating a unit cost for the product (allocated fixed and variable costs) and then adding afixed profit mark-up. (Full-Cost Pricing)
88. Competition-BasedPricing
A firm will base its price upon the price set by its competitors
89. Price Leadership One dominant firm in a market sets a price and other firms simply charge a price based upon that set by themarket leader.
90. Predatory Pricing Deliberately undercutting competitors' prices in order to try and force them out of the market
91. Going-Rate Pricing The price charged is based upon a study of the conditions that prevail in a certain market and the prices chargedby major competitors
92. Penetration Pricing Setting a relatively low price often supported by a strong promotion in order to achieve a high volume of sales
93. Market Skimming Setting a high price for a new product when a firm has a UNIQUE or HIGHLY DIFFERENTIATED product withlow price elasticity of demand (Skimming)
94. Loss Leader Product sold at a very low price to encourage consumers to buy other products
95. PsychologicalPricing
Setting prices that take account of customers' perception of value of the product
96. PromotionalPricing
Special low prices to gain market share or sell off excess stock - includes 'buy one get one free'
97. Price Elasticity ofDemand
Measures the responsiveness of demand following a change in price
98. Income Elasticity ofDemand
Measures the responsiveness of demand for a product following a change in consumers' incomes
99. Cross Elasticity ofDemand
Measures the responsiveness of demand for a product following the change in the price of another product
100. AdvertisingElasticity ofDemand
Measures the responsiveness of demand for a product following a change in the advertising spending on it
101. Complements Are products which are jointly demanded as demand for one often depends on the demand for the other. (e.g.petrol and cars, popcorn and soda, cellphones and cellphone calling plans)
102. Cost-Based Pricing Setting prices based on the COSTS OF PRODUCTION rather than the level of demand or the prices set bycompetitors
103. Demand The amount of products that customers are willing and able to buy at each price. For the vast majority of products, asthe price increases, demand will tend to fall
104. PriceDiscrimination
A pricing strategy that involves charging different prices to different groups of customers for the same product (e.g.child and adult fares at the cinema and on flights)
105. Price War Firms compete by a series of intensive price cuts
106. Skimming Setting a high price for a new product when a firm has a UNIQUE or HIGHLY DIFFERENTIATED product with lowprice elasticity of demand (Market Skimming)
107. Substitutes Products in competitive demand; i.e. they can be purchased instead of the other (e.g. Coke and Pepsi, private andpublic schooling)
108. Supply Is the amount of product that firms are willing and able to provide at each price level.
109. Law of Supply As the price of a product increases, its supply will tend to rise (e.g. if the price of corn rises, more corn and less wheatwill be supplied)
110. Law of Demand As the price of a product increases, its demand will decrease (e.g. if the price of petrol rises, more people will catchpublic transport, walk or eventually buy smaller, more eco-friendly cars)
111. Promotion The use of advertising, sales promotion, personal selling, direct mail, trade fairs, sponsorship and public relations toinform consumers and persuade consumers to buy
112. Above-the-LinePromotion
A form of promotion that is undertaken by a business by paying for communication with consumers; e.g. advertising
113. Below-the-LinePromotion
Promotion that is not a directly paid-for means of communication but based on short-term incentives to purchase
114. Promotion Mix The combination of promotional techniques that a firm uses to communicate the benefits of its products to customers
115. Advertising A method of informative and/or persuasive promotion that has to be paid for. The ultimate aim of advertising is toraise the level of demand for a firm's products.
116. Personal Selling A form of promotional technique that relies on keen and knowledgeable sales staff directly helping and persuadingcustomers to make a purchase
117. Publicity The process of promoting a business and its products by getting media coverage without directly paying for it
118. Pull Promotion Refers to promotional methods, such as pester power marketing or television advertising, that lure customers intobuying a product
119. PushPromotion
Refers to using intermediaries, such as real estate agencies, bloggers or financial consultants, to help sell products
120. SalesPromotion
A short-term incentive designed to stimulate sales of a product; e.g. discount coupons, prize draws, trade fairs andfree product samples
121. Sponsorship A promotional technique which involves a business funding, supporting or donating resources for an event orbusiness venture in return for prominent publicity
122. Word of Mouth(WOM)
The spreading of good or bad messages about a firm, its products or its customer service. Many people argue that thisis the most cost-effective form of promotion
123. Channel ofdistribution
The chain of intermediaries a product passes through from producer to consumer
124. Agent Business with authority to act on behalf of another firm; e.g. to market its products
125. Broker A wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist innegotiation
126. Supply chainmanagement
The process of managing the network of businesses that are involved in the provision of products to the finalconsumer
127. Direct mail Promotional material sent directly to people's homes or place of work
128. Directmarketing
Any promotional activity that involves making direct contact with existing or potential customers, such as door-to-door selling, personal selling and direct mail
129. Distribution The process of getting products to customers at the right time and in the most cost-effective way; it is the PLACE in themarketing mix
130. Distributors Are independent businesses that act as intermediaries by specialising in the trade of products made by certainmanufacturers
131. Intermediaries Agents or firms that act as a middle person in the chain of distribution between the producers and consumers of aproduct
132. Telemarketing The use of telephone systems (calls and messaging) to sell products directly to consumers (also called telesales)
133. Retailers The sellers of products to the general public (i.e. consumers) that operate in outlets
134. Wholesalers Businesses that purchase large quantities of products from a manufacturer and then separate or 'break' the bulkpurchases into smaller units for resale to retailers
135. InternationalMarketing
Selling products in markets other than the original domestic market
136. Pan-GlobalMarketing
Adopting a standardised product across the globe as if the whole world were a single market - selling the same goodin the same way everywhere
137. GlobalLocalisation
Adapting the marketing mix, including differentiated products, to meet national and regional tastes and cultures
138. Globalmarketing
Adopting a standardised product across the globe as if the whole world were a single market - selling the same goodin the same way everywhere
139. Businessetiquette
The manner, social and cultural context in which business is conducted. International etiquette differs from onecountry to another so it is important for marketers to be aware of the different protocols that exist
140. Exporting The practice of selling domestically produced goods and /or services to overseas buyers to gain access to internationalmarkets
141. DirectInvestment
A business setting up a production and/or distribution facilities in foreign countries
142. E-Commerce Trading via the internet
143. Joint Ventures When two or more companies invest in a shared business project, pooling their resources to form a SEPARATEBUSINESS. The companies retain their separate legal identities but share the risks and returns from the joint venture
144. StrategicAlliances
When two or more businesses pool their human, capital and financial resources in a SHARED PROJECT. They DONOT form a new business with a separate legal identity
145. Franchising A business allowing others to trade under its name in return for a fee and a share of the profits
146. Mergers Two businesses (occasionally more) agree to integrate as a single organisation.
147. Acquisitions This is when another business buys out another by purchasing a majority stake in the target company
148. Takeovers This is when another business buys out another by purchasing a majority stake in the target company
149. Economies ofScale
Reductions in a firm's unit (average) costs of production that result in an increase in the scale of operations; i.e. byproducing more
150. E-Commerce The buying and selling of goods and services on the internet
151. ViralMarketing
The use of social networking sites or SMS text messages to increase brand awareness or sell products
152. B2B Stands for business-to-business and refers to online trade conducted directly for the BUSINESS CUSTOMER ratherthan the end-user; an example would be Amazon.com supplying books to other book retailers
153. B2C Stands for business-to-consumer and refers to online business conducted directly for consumers;p an example wouldbe Amazon.com selling books directly to private individuals
154. Clicks andMortar
Refers to businesses that combine the traditional main-street existence with an online presence. By contrast, otherbusinesses may have just an online presence (e.g. Zappos.com)
155. E-tailers Are businesses that operate predominately online (e.g. Zappos.com). They are different to retailers that operatephysical stores in shopping malls and other physical outlets
156. Online Presence A business has a dedicated website for e-commerce. This could be limited to providinginformation about the business and its products,and may extend to selling products online.
157. Spam Unwanted e-mail (usually of a commercial nature sent out in bulk)
158. Search Engines Find web pages related to your request; e.g. Google, Bing and Yahoo!
159. SEO Search Engine Optimisation
160. Search Engine Optimization A systematic process of ensuring that a firm comes up at or near the top of lists of typical searchphrases related to that business
161. Price Transparency The ease with which consumers can find out the variety of prices in a market
162. Production methods: 1. Job production2. Batch production3. Flow production and mass production4. Mass customisation5. Cell production
163. Job production Producing a one-off item specially designed for the customer
164. Batch production Producing a limited number of identical products - each item in the batch passes through onestage of production before passing onto the next stage
165. Flow production Producing items in a continually moving process - also known as line production
166. Mass production Producing large quantities of a standardised product
167. Mass customisation The use of flexible computer-aided production systems to produce items that meet individualcustomer requirements at mass production cost levels
168. Factors influencing choice ofproduction method:
1. Size of the market2. The amount of capital available3. The availability of other resources4. Market demand for products adapted to customer requirments
169. Impact of changing productionmethods from Job to Batch
Finance:- cost of equipment needed to handle large numbers in each batch- additional working capital needed to finance high levels of stocks and work in progressHuman Resources:- less emphasis placed on individual's craft skillsMarketing:- can no longer promote product as being 'customised to each consumer'- may have to promote the benefits of lower prices and consistent quality
170. Impact of changing productionmethods from Batch to Flow
Finance:- cost of equipment needed for flow production- any production delays during the change-over period may impact cash flowHuman Resources:- risk of low motivation and boredom if traditional line production techniques are usedMarketing:- mass production requires mass marketing so market research will be essential to identify largestmarket segments- accurate estimates of future demand to ensure that output matches demand- promotion and pricing decisions will have to be geared towards a mass marketing approach -not niche marketing, so the orientation of the business may have to change
171. Impact of changing productionmethods from Batch or Flow toCell Production
Finance:- expensive CAM methods may be needed to allow cells to switch from one product to anotherHuman Resources:- recruitment of flexible, adaptable staff keen to work in teams- staff training will be needed to achieve multi-skillingMarketing: - productivity and quality improvements should allow competitive pricing and promotion of theimproved quality products
172. Capital intensive The manufacturing or provision of a product relies heavily on machinery and equipment, suchas automated production systems. Hence, the cost of capital accounts for a higher proportion ofa firm's overall production costs.
173. Productivity Measures the level of labour and/or capital efficiency of a business by comparing its level ofinputs with the level of its output
174. Production process The method of of turning inputs into outputs by adding value in a cost-effective way
175. Specialisation The division of a large task or project into smaller tasks that allow individuals to concentrate onone or two areas of expertise. Specialisation is an essential part of mass production.
176. Standardisation Producing an identical or homogeneous product in large quantities, such as printing aparticular magazine, book or newspaper
177. Main feature of job production Single one-off items
178. Main feature of batch production Group of identical products pass through each stage together
179. Main feature of flow/massproduction
Mass production of standardised products
180. Main feature of masscustomisation
Flow production with many standardised components but customised differences too
181. Essential requirements of jobproduction
Highly skilled workforce
182. Essential requirements of batchproduction
Labour and machines must be flexible to switch to making batches of other designs
183. Essential requirements ofmass/flow production
- Specialised, often expensive, capital equipment - but can be very efficient- High steady demand for standardised products
184. Essential requirements of masscustomisation
- Many common components- Flexible and multi-skilled workers- Flexible equipment - often CAM to allow for variations in the product
185. Main advantages of jobproduction
- Able to undertake specialist projects or jobs, often with high value added- High levels of worker motivation
186. Main advantages of batchproduction
- Some economies of scale-Faster production with lower unit costs than job production-Some flexibility in design of product in each batch
187. Main advantages of mass/flowproduction
- Low unit costs due to the constant working of machines, high labour productivity andeconomies of scale- JIT stock management easier to apply than with other methods
188. Main advantages of masscustomisation
- Combines low unit costs with flexibility to meet customers' individual requirements
189. Main limitations of jobproduction
- High unit production costs- Time consuming- Wide range of tools and equipment needed
190. Main limitations of batchproduction
- High levels of stocks at each production stage- Unit costs likely to be higher than with flow production
191. Main limitations offlow/mass production
- Inflexible - often very difficult and time consuming to switch from one type of product to another- Expensive to set up flow-line machinery and each section needs to be carefully synchronised
192. Main limitations ofmass customisation
- Expensive product redesign may be needed to allow key components to be switched to allow variety- Expensive flexible capital equipment needed
193. CAM Computer Aided Manufacturing
194. Computer AidedManufacturing
Using computers to operate and control machines and processes to manufacture a product
195. Economies of scale Factors that cause a producer's average cost per unit to fall as output rises
196. Cell production Splitting flow production into self-contained groups that are responsible for whole work units
197. Types of financial costs: 1. Direct costs2. Indirect costs3. Fixed costs4. Variable costs5. Semi-variable costs6. Marginal costs
198. Direct costs These costs can be clearly identified with each unit of production and can be allocated to a cost centre
199. Indirect costs Costs that cannot be identified with a unit of production or allocated accurately to a cost centre - alsoknown as overhead costs
200. Examples of indirectcosts:
1. Production overheads - factory rent and rates, depreciation of equipment and power.2. Selling and distribution overheads - warehouse, packing and distribution costs and salaries ofsales staff.3. Administration overheads - office rent and rates, clerical and executive salaries4. Finance overheads - interest on loans
201. Fixed costs Remain unchanged (fixed) no matter what the level of output, such as rent of premises
202. Variable costs Costs that vary with output, such as purchases of flour at a bakery
203. Semi-variable costs These include both a fixed and a variable cost element, such as a salesperson's fixed basic salary plus acommission that varies with sales
204. Marginal costs The extra cost of producing one more unit of output (additional variable costs), such as the extra cost ofproducing loaf of bread number 101 after having already produced 100 loaves.
205. Revenue The income received from the sale of a product
206. Total revenue Total income from the sale of all units of the product (Revenue = Quantity x Price)
207. Profit All costs of operating the business during a time period have to be subtracted from total revenue to obtain aprofit figure
208. Non-operating income Business income that is not received from sales of products; for example:- the sale of fixed assets- rent from factory or office space received from another business- dividends on shares held in another business- interest on deposits held in a bank
209. Contribution per unit Selling price of a product less variable costs per unit
210. Total contribution Total revenue from sale of a product less total variable cost of producing it
211. Cost centre A section of a business, such as a department, to which costs can be allocated or charged, such as therestaurant in a hotel
212. Profit centre A section of the business to which both costs and revenues can be allocated, such as each branch of achain of shops
213. Advantages ofoperating cost andprofit centres:
1. Managers and staff will have targets to work towards which should be motivating2. Targets can be compared with actual performance to identify high and low performing aspects of thebusiness3. Individual performances of divisions and their managers can be assessed and compared4. Different aspects of the business can be monitored (e.g., individual prices) and decisions made about thefuture
214. Disadvantages ofoperating cost andprofit centres:
1. Managers and workers may consider their part of the business to be more important than the wholeorganisation2. Some costs - indirect costs - can be impossible to allocate between cost and profit centres accurately3. Reasons for poor performance of a profit centre may be due to external factors outside of its control
215. Contributioncosting
Costing method that only allocates direct costs to cost/profit centres not overhead costs
216. Advantages of usingcontributioncosting:
1. Overhead costs are not allocated to cost centres, so contribution costing avoids inaccuracies and arbitraryallocations of these costs.2. Decisions about a product or department are made on the basis of contribution to overheads - not 'profit orloss' based on what might be inaccurate full-cost calculation.3. Excess capacity is more likely to be effectively used, as orders or contracts that make a positive contributionwill be accepted.
217. Disadvantages ofusing contributioncosting:
1. By ignoring overhead costs until the final calculation of the business's profit or loss, contribution costingdoes not consider that some products and departments may actually incur much higher fixed costs than others.2. Single-product firms have to cover fixed costs with revenue from this single product, so using contributioncosting is less likely to be appropriate.3. It emphasises contribution in decision-making. It may lead managers to choose to maintain the productionof goods just because of a positive contribution - perhaps a brand new product should be launched insteadwhich could, in time, make an even greater contribution.4. Qualitative factors in decision-making may be important too, such as the image a product gives a business.5. Products with a low contribution may be part of a range of goods produced by the firm and to cease producingone would reduce the appeal of the whole range.
218. Break even point ofproduction
The level of output at which total costs equal total revenue
219. Contribution perunit
Selling price of a product less variable costs per unit
220. Margin of safety The amount be which sales level exceeds the break-even level of output
221. Break even revenue The amount of revenue needed to cover both fixed and variable costs so that the business breaks even (Break-even quantity x Price)
222. Features of a break-even chart
223. Calculating Break-Even level ofproduction: TR = TC Rule
224. Calculating Break-Even level ofproduction: Unit ContributionRule
225. Unit contribution calculation Price - AVC
226. Features of a break-even chart withMargin of Safety
227. Calculating break-even level ofproduction with a Profit Target
228. Benefits of Break-Even Analysis: 1. Charts are relatively easy to construct and interpret.2. It provides useful guidelines to management on break-even points, safety margins andprofit/loss levels at different rates of output.3. Comparisons can be made between different options by constructing new charts to showchanged circumstances.4. The equation produces a precise break-even result.5. Break-even analysis can be used to assist managers when taking important decisions, suchas location decisions, whether to buy new equipment and which project to invest in.
229. Limitations of Break-EvenAnalysis:
1. The assumption that all costs and revenues are represented by straight lines in unrealistic.2. Not all costs can be conveniently classified into fixed and variable costs. The introduction ofsemi-variable costs will make the technique more complicated.3. There is no allowance made for stock levels on the break-even chart. It is assumed that allunits produced are sold. This is unlikely to always be the case in practice.4. It is also unlikely that fixed costs will remain unchanged at different output levels up to amaximum capacity.
230. Quality product A good or service that meets customers' expectations and is therefore 'fit for purpose'
231. Quality standards The expectations of customers expressed in terms of the minimum acceptable production or service standards
232. Advantages ofproducing qualityproducts andservices are:
1. Easier to create customer loyalty2. Saves on costs associated with customer complaints; e.g. compensation and replacement3. Defective products and loss of customer goodwill4. Less advertising may be necessary as the brand will establish a quality image through the performance of itsproducts5. A higher price - premium price - could be charged for such goods and services. Quality can, therefore, beprofitable.
233. Quality control This is based on the inspection of the product or a sample of products
234. Quality assurance This is a system of agreeing and meeting quality standards at each stage of production to ensure customersatisfaction
235. Three stages ofeffective qualitycontrol:
1. Prevention: this is the most effective way of improving quality. The design of the product should followrequirements of the customer and allow for accurate production. Quality should be 'designed into' a product.2. Inspection: traditionally this has been the most important stage, but it does have high costs and these couldbe reduced by 'zero-defect manufacturing (TQM).3. Correction and improvement: this is not just about correcting faulty products but is also concerned withcorrecting the process that caused the failure in the first place, to improve quality in the future.
236. Weaknesses ofinspecting forquality:
1. It is looking for problems and is, therefore, negative in its culture. It can cause resentment among workers(inspectors believe they have been 'successful' when finding faults). Workers are likely to view theinspectors as management employees who are there just to check on output and find problems with the work.2. The job of inspection can be tedious, so inspectors become demotivated and may not carry out their tasksefficiently.3. If checking takes place only at specific points in the production process, then faulty products may passthrough several production stages before being identified - extra cost and time wasted.4. The main drawback is that it takes away from the workers the responsibility for quality(inspectors now assume this responsibility) which can be demotivating and will result in lower quality output.
237. How qualityassurance isdifferent fromquality control:
1. Puts much more emphasis on prevention of poor quality by designing products for easy fault-freemanufacture, rather than inspecting for poor-quality products - "getting it right first time".2. Stresses the need for workers to get it right the first time and reduces the chances of faulty products occurringor expensive reworking of faulty goods.3. Establishes quality standards and targets for each stage of the production process.4. Checks components, materials and services bought into the business at the point of arrival or delivery - not atthe end of the production process by which stage much time and many resources may have been wasted.
238. Advantages ofquality assurance:
1. It makes everyone responsible for quality - this can be a form of job enrichment.2. Self-checking and making efforts to improve the quality increases motivation.3. The system can be used to 'trace back' quality problems to the stage of the production process where aproblem might have been occurring.4. It reduces the need for expensive final inspection and correction or reworking of faulty products.
239. Why it is importantto establish qualityassurance systems:
1. To involve all staff and this can promote team work and a sense of belonging which aidsmotivation.2. To set quality standards for all stages of production so that all materials and all production phases arechecked before it is 'too late' and the whole product has been completed.3. To reduce costs of final inspection as this should become less necessary as all stages and sub-sectionsof the process have been judged against quality standards.4. To reduce total quality costs by instilling in the whole organisation a culture of quality, it is possible forquality assurance to lead to reduced costs of wastage and faulty products.5. To gain accreditation for quality awards, e.g, ISO 9000.
240. ISO 9000 Internationally recognised certificate that acknowledges the existence of a quality procedure that meets certainconditions.
241. To obtain ISO 9000accreditation a firm mustdemonstrate that it has:
1. Staff training and appraisal methods2. Methods for checking on suppliers3. Quality standards for all areas of the business4. Procedures for dealing with defective products and quality failures5. After-sales service
242. Total quality management(TQM)
An approach to quality that aims to involve all employees in the quality improvement process
243. Lean production Producing goods and services with the minimum of wasted resources while maintaining highquality
244. Internal customers People within the organisation who depend upon the quality of work being done by others
245. Zero defects The aim of achieving perfect products every time
246. Kaizen Japanese term meaning continuous improvement
247. Conditions necessary for Kaizento operate:
1. Management culture must be directed towards involving staff and giving their views andideas importance (the experience of workers in their day-to-day jobs is invaluable).2. Team working - suggesting and discussing new ideas to improve quality or productivity isbest done in groups. Each Kaizen group should meet regularly.3. Empowerment - by giving each Kaizen group the power to take decisions regardingworkplace improvements, this will allow speedier introduction of new ideas and motivate staff topursue further ideas.4. All staff should be involved.
248. Limitations of Kaizen 1. Some changes cannot be introduced gradually and may need a radical and expensive solution.2. There may be real resistance from senior managements due to their existing culture (especiallyauthoritarian managers).3. At least in the short-term there may be tangible costs to the business of such a scheme, such asstaff training to organise meetings and lost output as a result of meeting time.4. The most important advances tend to be made early on during the Kaizen programme, withlater changes showing diminishing returns.
249. Benchmarking Comparing the performance - including quality - of a business with performance standardsthroughout the industry
250. Stages in the benchmarkingprocess:
1. Identify the aspects of the business to be benchmarked.2. Measure performance in these areas.3. Identify the firms in the industry that are considered to be the best.4. Use comparative data from the best firms to establish the main weaknesses in the business.5. Set standards for improvement.6. Change processes to achieve the standards set.7. Re-measurement.
251. Benefits of benchmarking: 1. Offers a faster and cheaper way of solving problems than firms attempting to solve productionor quality problems without external comparisons.2. Areas of greatest significance for customers are identified and action can be directed toimproving these.3. A process that can assist the firm to increase international competitiveness.4. Comparisons between firms in different industries, such as customer service departments in aretailer compared to a bank, can encourage a useful cross-over of ideas.5. If the workforce is involved in the comparison exercise, then their participation can lead tobetter ideas for improvement and increased motivation.
252. Limitations of benchmarking: 1. The process depends on obtaining relevant and up-tto-date information from other firms in theindustry. If this is difficult to obtain, then the benchmarking exercise will be limited.2. Merely copying the ideas and practices of other firms may discourage innovation and originalideas.3. The costs of the comparison exercise may not be recovered by the improvements obtained frombenchmarking.
253. An evaluation of qualityissues:
1. Quality is not an option. It is a fundamental aspect of all successful businesses.2. Quality is an issue for all firms, in all sectors of industry. It is essential for business to put quality ofproducts and customer service at the top of their priorities to survive in competitive markets. Improvingquality has obvious cost advantages if the rate of defective products is reduced.3. Satisfying customers will give clear marketing advantages when seeking further sales.4. Involving all staff in quality improvement programmes can lead to a more motivated workforce.
254. The threecharacteristics oflocation decisions:
1. They are strategic in nature - as they are long-term and have an impact on the whole business.2. They are difficult to reverse if an error of judgment is made - due to the costs of relocation (sunkcosts).3. They are taken at the highest management levels and are not delegated to subordinates.
255. An optimal location onethat will be a balance of:
1. High fixed costs of a site and buildings with convenience for customers and potential sales revenue.2. The low costs of a remote site with limited supply of suitable qualified labour.3. Quantitative factors with qualitative ones (see below).4. The opportunities for receiving government grants in areas of high unemployment with the risks of lowsales as average incomes in the area may be low.
256. Optimal location A business location that that gives the best combination of qualitative and quantitative factors.
257. Quantitative factors These are measurable in financial terms and will have a direct impact on either the costs of a site or therevenues from it and its profitability.
258. Disadvantages to abusiness of non-optimal locationdecisions:
1. High fixed site costs; e.g., high break-even level of production2. High variable costs; e.g., labour3. Low unemployment rate; e.g., problems with skilled labour recruitment4. High unemployment rate; e.g., low average consumer incomes5. Poor transport infrastructure; e.g., raises transport costs for both materials and finished products.
259. Quantitative factorsinfluencing locationdecisions:
1. Site and other capital costs such as building or shop-fitting costs2. Labour costs3. Transport costs4. Sales revenue potential5. Government grants
260. Quantitativetechniques to assist inlocation decision-making:
1. Profit estimates - coming from costs and revenues2. Investment appraisal - payback, average rate of return, etc3. Break-even analysis - fixed costs, variable costs, pricing, level of demand
261. Qualitative factorsinfluencing locationdecisions:
1. Safety2. Room for further expansion3. Managers' preferences4. Labour supply5. Ethical considerations6. Environmental concerns7. Infrastructure
262. Other locational issues: 1. The pull of the market2. Planning restrictions3. External economies of scale4. Multi-site locations
263. Offshoring The relocation of a business process done in one country to the same or another company in the othercountry
264. Multinational A business with operations or production bases in more than one country
265. Benefits of aninternational location:
1. To reduce costs2. To access global markets3. To avoid protectionist trade barriers+ government financial support to relocate business+ good educational standards+ highly qualified staff+ avoidance of problems associated with exchange rate fluctuations
266. Limitationsofinternationallocation:
1. Language and communication barriers2. Cultural differences3. Level of service concerns4. Supply chain concerns5. Ethical consideration
267. Research anddevelopment
The scientific research and technical development of new products and processes
268. Invention The formulation or discovery of new ideas for products or processes
269. Innovation The practical application of new inventions into marketable products
270. Productinnovation
New, marketable products such as the Apple iPad
271. Processinnovation
New methods of manufacturing or service provision that offers important benefits
272. Theimportanceof R&D tobusiness:
1. Competitive advantage2. Customer loyalty3. Premium prices4. Publicity5. Lower costs
273. R&Dlimitations:
1. R&D does not always lead to innovation2. R&D is expensive and has an opportunity cost3. Inventions do not always lead to successful innovative products4. Competing R&D spending may result in even more successful products5. Ethical issues can sometime outweigh the potential commercial benefits
274. Intellectualproperty
Refers to creations of the mind such as inventions, literary and artistic works and symbols, names, images and designsused in business
275. Intellectualpropertyrights
Legal property rights over the possession and use of intellectual property
276. Patent Legal righ of an invention for a certain period of timet to be the sole producer and seller
277. Copyright Legal right to protect and be the sole beneficiary from artistic and literary works
278. Trademark A distinctive name, symbol, motto or design that identifies a business or its products - can be legally registered andcannot be copied
279. Benefits ofintellectualproperty:
1. Sets a business apart from its competitors and encourages increased sales as a result of this distinctiveness.2. Be sold or licensed to provide an important revenue stream.3. Form a key part of the branding process and assist in the marketing of the firm's products.4. Can be given a financial value on a firm's balance sheet which increases net assets.
280. Factorsaffecting thelevel of R&Dandinnovation bya business:
1. The nature of the industry. Rapidly changing technologies - consumer expectations - in pharmaceuticalproducts, defence, computer and software products and motor vehicles lead to the need for substantial investment inR&D by leading firms. Other businesses such as hotels and hairdressing would need to spend far less as the scope forinnovation is more limited.2. The R&D and innovation spending plans of competitors. In most markets, it is essential to innovate asmuch as or more than competitors if market share and technical leadership is to be maintained. However, a monopolymay limit R&D spending if it believes that the risk of a more technically advanced competitor entering the market islimited. On the other hand, profits from a monopoly could be used to finance research and development into innovativeproducts if the risk of competitor entry into an industry is high.3. The risk profile or culture of the business. The attitude of the management to risk and whether shareholdersare prepared to invest for the long term will have a significant effect on the sums that businesses can inject into R&Dprogrammes.4. Government policy towards grants to businesses and universities for R&D programmes and the range and scope oftax allowances for such expenditure will influence decisions by businesses.5. Finance is needed for effective R&D. In many firms this many be limited and will restrict the number of newinnovations that could be made.
281. Stock (inventory) Materials and goods required to allow for the production of and supply of products to the customer.
282. Manufacturingbusinesses will holdstocks in threedistinct forms:
1. Raw materials and components. These will have been purchased from outside suppliers. They will beheld in stock until they are used in the production process.2. Work in progress. At any one time the production process will be converting raw materials andcomponents into finished goods and these are 'work in progress'. For some firms, such as constructionbusinesses, this will be the main form of stocks held. Batch production tends to have high work-in-progresslevels.3. Finished goods. Having been through the complete production process goods may then be held in stockuntil sold and despatched to the customer.
283. Three costsassociated withstock holding:
1. Opportunity cost. Working capital tied up in stocks could be put to another best alternative use. Thecapital might be used to pay off loans, buy new equipment or pay off suppliers, or could be left in the bank toearn interest.2. Storage costs. Stocks have to be held in secure warehouses. They often require special conditions, such asrefrigeration. Staff will be needed to guard and transport the stocks which should be insured against fire ortheft.3. Risk of wastage and obsolescence. If stocks are not used or sold as rapidly as expected, then there is anincreasing danger of goods deteriorating or becoming outdated. This will lower the value of such stocks. Goodsoften become damaged while held in storage - they can then only be sold for a much lower price.
284. Costs of not holdingenough stocks:
1. Lost sales. If a firm is unable to supply customers 'from stock', then sales could be lost to firms that holdhigher stock levels. This might lead to future lost orders too. In purchasing contracts between businesses, it iscommon for there to be a penalty payment clause requiring the supplier to pay compensation if delivery datescannot be met on time.2. Idle production resources. If stocks of raw materials and components run out, then production will haveto stop. This will leave expensive equipment idle and labour with nothing to do. The costs of lost output andwasted resources could be considerable.3. Special orders could be expensive. If an urgent order is given to a supplier to deliver additional stockdue to shortages, then extra costs might be incurred in administration of the order and in special deliverycharges.4. Small order quantities. Keeping low stock levels may mean only ordering goods and supplies in smallquantities. The larger the size of each delivery, the higher will be the average stock level held. By ordering insmall quantities, the firm may lose out on an important economy of scale such as discounts for large orders.
285. Economic orderquantity (EOQ)
The optimum or least-cost quantity of stock to re-order taking into account delivery costs and stock-holdingcosts
286. Buffer stocks The minimum stocks that should be held to ensure that production could still take place should a delay indelivery occur or production rates increase.
287. Re-order quantity The number of units ordered each time.
288. Lead time The normal time taken between ordering new stocks and their delivery.
289. Re-order stock level The level of stocks that will trigger a new order to be sent to the supplier.
290. Just in case (JIC) Holding high stock levels 'just in case' there is a production problem or an unexpected upsurge in demand.
291. Why just in caseproduction methodsrequires bufferstocks:
1. failure of supplying firm to deliver on time2. production problems halting output3. increased consumer demand.
292. Just in time (JIT) A stock control method that aims to avoid holding stocks by requiring supplies to arrive just as they are neededin production and completed products are produced to order.
293. Advantages of Just in CaseStock Management:
1. Stocks of raw materials can be used to allow the firm to meet increases in demand by increasingthe rate of production quickly.2. Raw-material supply hold-ups will not lead to production stopping.3. Economies of scale from bulk discounts will reduce average costs.4. Stocks of finished goods can be displayed to customers and increase the chances of sales.5. Stocks of finished goods used to meet sudden, unpredicted increases in demand - customers canbe satisfied without delay.6. Firms can stockpile completed goods to meet anticipated increases in demand as with seasonalgoods or products, such as toys at festival times.
294. Disadvantages of Just in CaseStock Management:
1. High opportunity costs of working capital tied up in stock.2. High storage costs.3. Risk of goods being damaged or becoming outdated.4. 'Getting it right first time' - a key component of lean production - matters less than with JITas other supplies are kept in stock to replace defective items.5. Space used to store stock cannot be used for productive purposes.
295. Important conditions for JIT tobe successful:
1. Relationships with suppliers have to be excellent. 2. Production staff must be multi-skilled and prepared to change jobs at shortnotice. 3. Equipment and machinery must be flexible. 4. Accurate demand forecasts will make JIT a much more successful policy.5. The latest IT equipment will allow JIT to be more successful.6. Excellent employee-employer relationships are essential for JIT to operate smoothly.7. Quality must be everyone's priority.
296. Advantages of Just-in-Time(JIT) Stock managementsystems:
1. Capital invested in inventory is reduced and the opportunity cost of stock holding is reduced.2. Costs of storage and stock holding are reduced.3. Space released from holding of stocks can be used for a more productive purpose.4. Much less chance of stock becoming outdated or obsolescent. Less stock held also reduces therisk of damage or wastage.5. The greater flexibility that the system demands leads to quicker response times to changes inconsumer demand or tastes.6. The multi-skilled and adaptable staff required for JIT to work may gain from improvedmotivation.
297. Disadvantages of Just-in-Time(JIT) Stock managementsystems:
1. Any failure to receive supplies of materials or components in time caused by, for example, astrike at the supplier's factory, transport problems or IT failure, will lead to expensive productiondelays.2. Delivery costs will increase as frequent small deliveries are an essential feature of JIT.3. Order administration costs may rise because so many small orders need to be processed.4. There could be a reduction in the bulk discounts offered by suppliers because each order is likelyto be very small.5. The reputation of the business depends significantly on outside factors such as the reliability ofsupplying firms.
298. Reasons why JIT may not besuitable for all firms at alltimes:
1. There may be limits to the application of JIT if the costs resulting from production being haltedwhen supplies do not arrive far exceed the costs of holding buffer stocks of key components.2. Small firms could argue that the expensive IT systems needed to operate JIT effectively cannotbe justified by the potential cost savings.3. Rising global inflation makes holding stocks of raw materials more beneficial as it may becheaper to buy a large quantity now than smaller quantities in the future when prices have risen.4. Higher oil prices will make frequent and small deliveries of materials and components moreexpensive.
299. Capacity utilisation The proportion of maximum output capacity currently being achieved.
300. Capacityutilisation iscalculated by theformula:
301. Potentialdrawbacks tooperating at fullcapacity for along period oftime:
1. Staff may feel under pressure due to the workload and this could raise stress levels. Operations managerscannot afford to make any production scheduling mistakes, as there is no slack time to make up for lost output.2. Regular customers who wish to increase their orders will have to be turned away or kept waitingfor long periods. This could encourage them to use other suppliers with the danger that they might be lost aslong-term clients.3. Machinery will be working flat out and there may be insufficient time for maintenance and preventativerepairs and this could lead to increased unreliability in the future.
302. Excess capacity Exists when the current levels of demand are less than the full capacity output of a business - also known as sparecapacity.
303. Full capacity When a business produces at maximum output.
304. Capacityshortage
When the demand for a business's products exceeds production capacity.
305. Outsourcing (orsubcontracting)
Using another business (a 'third party') to undertake a part of the production process rather than doing it within thebusiness using the firm's own employees. When this is done by firms in another country it is called'offshoring'.
306. Businessprocessoutsourcing(BPO)
A form of outsourcing which uses a third party to take responsibility for certain business functions, such as humanresources and finance.
307. Reasons foroutsourcing:
1. Reduction and control of operating costs. Instead of employing expensive specialists that might not be keptbusy at all times it could be cheaper to 'buy in' specialist services or products as and when needed. Outsourcing firmsmay be cheaper because they benefit from economies of scale, as they may provide similar services to a large numberof other businesses. Much outsourcing involves offshoring - buying in services, components or completed productsfrom low-wage economies.2. Increased flexibility. By removing departments from the staff payroll and buying in services when needed,fixed costs are converted into variable costs. Additional capacity can be obtained from outsourcing only whenneeded and contracts can be cancelled if demand falls much more quickly than closing down whole factories ownedby the business.3. Improved company focus. By outsourcing 'peripheral' activities the management of a business canconcentrate on the main aims and tasks of the business. These are called the 'core' parts of the business. So, a smallhotel might use management time to improve customer service and outsource the accounting function completely.4. Access to quality service or resources that are not available internally. Many outsourcing firms employquality specialists that small to medium-sized businesses could not afford to employ directly.5. Free up internal resources for use in other areas. If the human resources department of an insurancecompany is closed and the functions bought in, then the resulting office space and computer facilities could be madeavailable to improve customer service.
308. Drawbackstooutsourcing:
1. Loss of jobs within the business. Workers who remain directly employed by the organisation may experience aloss of job security, reducing motivation. Bad publicity may result from redundancies, especially if the business isaccused of employing very low-wage employees in other countries to replace the jobs lost. The firm's ethical standardscould be questioned.2. Quality issues. Internal processes will be monitored by the firm's own quality assurance system. This will not be soeasy when outside contractors are performing important functions. A clear contract with minimum service-levelagreements will be needed. The company contracting out the functions may have to send quality assurance staff out tothe business undertaking the tasks to ensure that product quality and customer service standards are being met.3. Customer resistance. This could take several forms. Overseas telephone call centres have led to criticism aboutinability to understand foreign operators. Customers may object to dealing with overseas outsourced operations. Bought-in components and functions may raise doubts in customers' minds over quality and reliability.4. Ethical concerns. If outsourcing is undertaken by firms in countries with poor human rights or employment rightsrecords, it may be cheaper for the business that has outsourced - but how will the media and consumers view thispotentially unethical decision?5. Security. Using outside businesses to perform important IT functions may be a security risk - if important data werelost by the business, who would take responsibility
309. Project A specific and temporary activity with a start and an end date, clear goals, defined responsibilities and a budget.
310. Projectmanagement
Using modern management techniques to carry out and complete a project from start to finish in order to achieve pre-settargets of quality, time and cost.
311. Critical pathanalysis
Planning technique that identifies all tasks in a project, puts them in the correct sequence and allows for identificationof the critical path.
312. Networkdiagram
The diagram used in critical path analysis that shows the logical sequence of activities and the logical dependenciesbetween them - and the critical path can be identified.
313. Earlieststart time(EST)
The earliest time an activity may begin. The earliest finish time of the immediately preceding activity.
314. Latestfinishingtime (LFT)
The deadline for a particular activity so that the entire project can be completed in the minimum time.
315. Float Spare time (if any) that may be available.
316. Dummyactivity
A logical dependency between two indirectly linked tasks in a project. it is used to prevent an illogical path from beingfollowed.