Business ( Ansoff matrix, franchises, economic and dieconomies of scale)

Define Ansoffs matrix

An analytical tool that helps managers choose various products and market growth strategies.

List the 4 types of strategies

1. Market penetration

2. Product development

3. Market development

4. Diversification

Explain Market penetration

1. Selling existing product and market

2. Low risk

Explain Market development

1. Selling existing products in new markets

2. Medium risk

Explain product development

1. Selling new product in existing market

2. Medium risk

Explain diversification

1. Selling new product in new market

2. High risk

Define franchising

Form of External growth where a franchisee buys a license to trade using another companies products

List types of franchises

1. Franchisor

2. Franchisee

Define franchisor

The original business/ parent company

Define franchisee

The business that buys the right to operate/ purchaser company

Define royalty payments

Commission given to parent company based on revenue

Advantage of franchisor

1. Rapid growth without risk

2. Access to wider market range

3. Royalty payment

Disadvantage of franchisor

1. Risk in allowing new parties

2. Difficult control management

3. Not as efficient as other external growth methods

Advantage of franchisee

1. Lower start up cost

2. Low risk

3. Likely to benefit from parent company image

Disadvantage of franchisee

1. Cannot try out new ideas

2. Can be very expensive to purchase

3. Continuos payment of royalty.

Define economies of Scale

Lowering the average cost of production as a firm operates on a larger scale

List types of economies of scale

1. Internal EOS

2. External EOS

Define Internal economies of scale

Occur inside a firm and are within control

Define external economies of scale

Occur outside the firm’s control

List advantages of economies of scale

1. Lower average cost per unit

2. Higher profit margin

3. Lower cost in supplies (bc its bought in bulk)

List disadvantages of economies of scale

Define diseconomies of scale

An increase in average unit cost as a business increases size of operation

List types of diseconomies of scale

1. Internal D-EOS

2. External D-EOS

Advantage of dieconomies of scale

1. 
   

Disadvantages of diseconomies of scale

1. Higher average cost per unit

2. coordination problems

3. Greater potential ineficientcies