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 questiona. a Quantitative decision-making tool, but also a diagrammatic 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, 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 imports2. ex: Tariffs and quotas have been reduced trough WTO

ii. Technological progress1. Reduced the cost of information interchange2. Online shopping through the internet

iii.Deregulation in business activity:1. the costs of transportation and distribution have fallen.

iv. Growth in cultural awareness and recognition:1. The consumers around the world have increasingly similar tastes2. K-pop and cultural exports

v. Language:1. English becoming a universal language

b. What’s good about it? What’s bad about it for the investor and host country stake holders: Depends on the point of view from part C.

c. Effects of globalization on business activity:i. Globalization increases the level of competition ii. Meeting customer expectations and needs becomes more demanding

1. Businesses must now meet greater customer demands for quality, customer service, price and after - sales care.

2. With the competition from globalization, businesses must meet the demands of customers to have any competitive advantage.

iii. If businesses are able to build a global presence they are able to 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 corporations and e-commerce businesses in particular will benefit from increased customer care.

3. Reasons why a business merges with or takes over another business (pg: 125)a. Merger: Takes place when 2 firms agree to form a new company.

b. Take over: Occurs when a company buys a controlling interest in another company. i. Meaning by buying enough shares int he target business to hold a majority stake

(enough power to take over)ii. Also known as acquisitions because of its aggressive nature of growthiii.A hostile take over bid is referred to as the black knightiv.The white knight is more of a friendly bidder and partner for the company. v. But everything is ultimately up to the shareholders of the target company,

whether they approve the merger by selling or holding onto the share holdings.

c. There are four types of integration that can occur in a merger or acquisition: i. Vertical integration: Amongst different business sectors (primary, secondary,

tertiary), merged between two companies that doesn’t come from the same sector.

ii. Horizontal integration: Where the companies 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.

iv.Conglomerate mergers and takeovers: The companies that merge are from completely distinct markets. 1. Ex. Berkshire Hathaway owns businesses from property, clothing and flight

services. 2. This is a form of diversification strategy 3. If successful can benefit from economies of scale

d. Advantages of both: i. Greater market shareii. Economies of scaleiii.Synergyiv.Survivalv. Diversification

e. Disadvantages of both:i. Loss of controlii. Culture clashiii.Conflictiv.Redundanciesv. Diseconomies of scalevi.Regulatory problems

f. MORE IN BOOK

4. The importance of the external environment for merger and takeover activity; how and why the external environment affects the number of mergers and takeovers (PEST)

a. Opportunities and threats of the external environment. These factors, unlike internal factors, cannot be controlled. (pg. 74)i. POLITICAL

ii. ECONOMICALiii. SOCIAL

iv. TECHNOLOGICAL

b. PESTLE: POLITICAL, ECONOMICAL, SOCIAL, TECHNOLOGICAL, LEGAL & ENVIRONMENTAL

c. STEEPLE: SOCIAL, TECHNOLOGICAL, ECONOMICAL, ENVIRONMENTAL, POLITICAL, LEGAL, & ETHICAL

Steps to carry out PEST:1. Brainstorm2. Discuss3. Summarize

5. Niche markets and mass markets:a. Niche markets -> A niche refers to a small or unfilled segment of the market. Whilst

Niche Markets means small and specialist market segments.b. Mass markets -> The largest group of consumers for a specified industry product.

6. Market segmentation, consumer targeting, market researcha. Market Segmentation: The process of splitting a market into distinct group of buyers

in order to better meet their needs. i. Main methods of market segmentation are based on demographic, geographic

and psychographic factors. 1. Demographics: the study of the characteristics of the human population within

a certain area or regiona. Age groupingsb. Genderc. Race and Ethnicityd. Martial Statuse. Religionf. Languageg. Income and socio-economic class

2. Geographic: the geographic location of customers can have implications for segmentation. a. Location: Different areas and regions of a country have different cultures

and attitudes. b. Climate: The typical weather in the area.

3. Psychographic factors: Those that consider the emotions and lifestyle of customers, such as their habits, interests and values. a. Status: Some people are very conscious of social and economic status. b. Values: People’s beliefs, morals and principles. c. Cultured. Hobbies and interests

4. Advantages:a. Better understanding of customersb. Increase salesc. Growth opportunities

d. Gives support to product differentiation

5. DAMAS ( to ensure successful market segmentation ): a. Differential: segments must be unique and respond to different marketing

mixesb. Actionable: able to provide suitable products for each segmentc. Measurable: size and purchasing power of each segment must be

quantifiable d. Accessible: must be able to reach customers in a cost - effective waye. Substantial: each segment bust be large enough to generate profits.

b. Consumer Targeting: The market segment(s) that a business wishes to sell to. i. NICHE MARKETING (pg 484): Targets a specific and well defined market

segment. Also known as concentration marketing

1. Advantages:a. Better marketing focus, in contrast to mass marketing where there is little

focus and aims to market products at the ‘average’ customerb. Less competition, businesses can charge at higher prices for their

exclusive products. c. Firms can become highly specialized in meeting the needs and wants of

their niche target market. Thus encourages customer loyalty and give the firm a competitive advantage.

2. Disadvantages:a. Niche markets are usually very small. So this limits the numbers of

customers. Unlike mass marketing, where it can cater for a much wider customer base.

b. Also because it’s so small, it has few opportunities to exploit economies of scale.

c. Highly successful and profitable 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 aggregation1. Strategy that ignores targeting individual market segments but a large number

of different market segments in order to maximize volume.

a. Advantages: i. Huge potential in economies of scale from being able to supply

products in a mass market.ii. The whole market can be addressed with a single marketing campaigniii.Bigger customer base

b. Disadvantages:i. Not suitable for all businesses, as high entry barriers for mass

productionii. Competition can be fierceiii. Lack of focus, marketing can be quite wasteful.

iii.DIFFERENTIATED MARKETING: Also known as Selective Marketing or Multi-segment marketing.1. Targeting strategy that tailors a marketing mix to 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 around collecting primary and secondary data and information to gain some insight and understanding into the structure of the market.

ii. Helps reduce business risks. As being able to accurately 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 marketing issues. 2. Tend to be on a one-off basis.

iv.Continuous Research: takes place on a regular and ongoing basis.1. Research is carried out over and over, perhaps on a monthly or yearly basis.

v. Uses of market research: 1. Gives businesses up-to-date and accurate information. *important in fast-

paced industries that are always changing

2. Allows a business to see whether current products meet the needs of customers.

3. Allow businesses to improve their marketing by using a distinct marketing mix for each target group (market segment).

4. Assesses potential customer reactions to a new 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 strategies used by their competition.

6. Helps businesses to predict what is likely to happen in the future.

vi.Drawback of market research: 1. Information and findings are only as good as the research methodology used.

a. “Garbage in, garbage out” (GIGO) whereby unreliable and inaccurate input data generates poor quality of information.

2. The cost of good market research is often expensive.

vii.PRIMARY AND SECONDARY RESEARCH (pg: 470)1. PRIMARY: Market research that involves gathering new data first-hand for a

specific study. a. Examples:

i. Questionnairesii. Observationsiii.Experimentationiv.Online Surveys

b. Advantages:i. Up to dateii. Relevance: Directly addresses the questions which need to be

answered. iii.Confidential and uniqueiv.Objectivity: Help provide hard facts and figures to aid decision-making.

c. Disadvantages: i. Time consumingii. Costly

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: involves the collection of second-hand data and information. Meaning that the data or information already exists in another form. a. Advantages:

i. It is generally cheaper and faster to collect and analyze. ii. A huge range of sources that the researcher can use, more accessible. iii. Provides an insight to changes or trends in a whole industry.

b. Disadvantages:i. Second-hand data may be out of date or can become outdated quickly.ii. Data or information may be in an 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, marketing strategy and the elements of the marketing mix a. Marketing objectives (pg: 468) : the targets that the marketing department wishes

to achieve. i. If growth were an organizational objective, the marketing department may

considering entering overseas markets and/or launching a new product.

ii. Like all organizational objectives, marketing objectives should be specific, measurable, agreed, realistic and time constrained.

iii.Having marketing objective is important as targets can:1. Provide a sense of purpose, direction and motivation for the marketing

strategies. 2. Allow progress to be monitored and success to be assessed.3. Help in the planning and development of appropriate marketing strategies.

iv.Market objectives may include:

1. Maintain/increase 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 new markets. (the use of international 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 marketing objectives 1. Finance2. Costs of production3. Size and status of the firm4. Social issues5. Time lags6. Activities and reaction of competitors

7. The state of the economy8. The political and legal 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 development3. Implementation

iii.Tools:1. Perception mapping - product positioning and repositioning techniques2. Porter’s five forces analysis - competitor analysis3. Porter’s generic strategies - marketing strategies for competitive advantage4. Ansoff matrix - marketing strategies for growth5. Boston matrix - development of a firm’s product portfolio6. SWOT analysis - strength, weakness, opportunities and threats7. 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 as raw materials, machinery and

components sold to other businesses to further the production process. 2. Consumer products: sold at the end-user such as private individuals.

a. convenience products (fast moving consumer goods)b. consumer durables (long lasting)c. specialty products (expensive items)

ii. Price: how much the customer is charged for the product1. Depends on:

i. Equilibrium price, Demand, Supply, Business objectives, Competition, Cost of production and Corporate image.

iii.Place: the distribution channels used to get the products to the customer1. Can also be referred to as channels of distribution; the intermediaries used to

get a firm’s products to the consumers. 2. Manufacturer ---> wholesalers (who will probably bulk buy to 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 activities that use add mediab. Below the line: other promotional tactics such as 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 - CRM) involves setting the 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, also a form of product differentiation.

a. Advantages: protects products against damage during transport, labeling can provide information, makes the distribution easier, encourage impulse buying (unplanned buying), advertise the brand.

8. Economies of Scale9. Product Portfolio (BCG MATRIX) (pg 523): the range of products or 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 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: StarBuild share: Question MarkHold: Cash CowDivest: Dog

10.Pricing (chap 4.4)a. A monopolist is at an advantage as they are price makers or price setters. b. Monopolies: Pure, Natural and Legal.

c. COST-BASED PRICING STRATEGIES: based on the costs of production. i. Cost-Plus pricing (mark - up pricing)

1. adding a percentage or predetermined amount of profit to the AC of production to determine selling price.

2. the % or specified amount is known as the mark-up or profit margin3. ex: Product is estimated to have AC of $6 and producer want 50% profit, so

price will be $9. (plans ahead of how much profit they want based on costs)ii. Marginal Cost pricing:

1. MC = the cost of producing one extra unit of the good. 2. Similar to cost-plus except this involves looking at the contribution made from

the sale of each product.iii. Full cost 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 reducing price in an attempt 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. 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 in the industry.

Involves setting a relatively low price in order to gain market share and brand awareness. As the product establishes itself, the price will be raised.

ii. Skimming Pricing: Tend to be used for technologically advanced and innovative products. New product development can be expensive so there’ s a high selling price. Strategy is to create is a unique, high quality or prestigious image for the product. (ex: XBOX, Wii)

iii.Price discrimination (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 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.