economics test

competitive advantage

the unique edge that allows a business to outperform its rivals

features of competitive advantage

• sell more products

• earn more profits

• gain a larger market share of customers

how to create competative advantage

1. Unique products- products competitors cannot easily copy

2. lower prices- selling cheaper than competitors

3. better quality products- products that perform better or longer than others

4. strong branding- products that carry brand names that customers identify with

5. better customer experience- products or services with higher levels of customer service leading to higher customer satisfaction

6. convenience- products that are located where and when customers need them most

market share

the percentage of sales that belong to a single brand

brand loyalty

a consumers dedication to consistently choose a specific brand over the competitors

competitive advantage- apple

• apple has achieved high brand loyalty through its reputation for quality innovation, premium design, user friendly products

• they have an ‘ecosystem’ which interconnects all their devices that creates a seamless experience

• strong customer service → consistent branding

↳ significant competitive advantage by generarting repeat purchase charging premium prices

• apple consistently invests in research and development to create new products and services (apple intelligence and etc)

unique selling proposition

• feature or benefit that makes a product, service, or business different from its competitors and gives customers reasons to choose it

• key form of innovation that businesses will invest in

• often creates higher brand loyalty and allows companies to charge premium prices

• maccas- fast and consistent meals

innovation

• creating a new product or signifcantly improving an existing product to meet consumer needs in a new way

how innovation happens

• businesses identify problems, frustrations or changing preferences among consumers and develop new products or services to adress them

dyson example

• high-performance household application

• when it was released, most vaccuum cleaners had bags and lost suction over time

• differenciated themself by bagless vacuum and strong suction maintainece

reasons businesses innovate

• to gain competitive advantage over competitors

• to increase profits and sales

• to attract new customers maintain existing ones

• reduce operational and production cost

• to improve efficiency and productivity

• to respond to technological advancements

• to enter new markets or target new customer groups

• to adapt to social, environmental and economic change

• to strengthen brand reputation and remain relevant

• to ensure long term business growth and survival

reason innovation is risky

1. must ivnest huge sums of money into research, development and improvement

2. most invest in advertising

3. pay patents to legally protect their products

economies of scale

• a business’s average cost per unit decreases as the number of units they produce increase

• economies of scale mean less competition (making it harder for smaller businesses)

how does economies of scale happen

• large businesses buy materials in large bulk & negotiating for lower prices

• try to spread fixed costs like advertising, research and equipment

• allow businesses to earn higher profits, charge more competitive prices, or invest further in innovation and marketing

• eg. apple can purchase mechanics at lower prices than smaller competitors because of its huge production

economies of scale → diseconomies of scale and why

• happens when a business becomes too big that the average cost increases rather than decrease

↳ why?

• poor communication

• complex management structures with lots of middle managers

• slower decision making by the business

• less responsive to customer needs

• difficulties maintaining quality

multinational company

a business that produce, sell or manage goods and services in more than 1 country (earns an imcome from many markets)

why business sell overseas

• access to larger markets

• cheaper labour and resources

explain access to larger markets

• more customer- more revenue than the home market can provide

• reduced risk- the business don’t need to rely on one countrys economy

• brand recognition- being known worldwide builds reputation and trust

explain cheaper labour & resources

• cheaper labour- lower production cost= higher profit

• cheaper raw material- lower input costs

• specialising resources- some countries have what other countries don’t have

specialisation

chooosing to focus on a business’s resources, labout and operations on a specific product or service in order to gain a competitive advatage

why businesses specialise

• expertise

• strong brand identity

• lower costs

• better quality

• differenciation

• loyal to customers

to compete globally brands must be f, b, b

first

• gains first mover advantage- the brand name comes the product

biggest

• gains economies of scale, lower costs, lower prices, available everywhere.

best

• wins on quality, innovation reputation of customer experience

investment

An asset purchased with the expectation that it will generate income or appreciate over time

↳ why? grow wealth, beat inflation, achieve financial goal, build independence

financial risk

the chance that an outcome or investment’s actual gain will differ an expected outcome or return

liquidity risk

• the chance you can’t sell an investment quickly

market risk

• prices change because of events outside of control

credit risk

• a borrower may not repay money they owe

operational risk

• problems caused by systems, processors, external events

risk appetite

the amount and type of risk someone is wiling to accept in pursuing their financial investment

time horizon

• before making any investment, you should always determine the amount of time you have to keep your money invested

• the riskier the investment, the greater its volatility (price changes)

bankroll

• determing the amount of money you can stand to lose is another factor to find your risk tolerance

• only investing the money you can afford to lose or live without for a period of time so you won’t be pressured to sell off investments because of panic or liquidity issues