Unit 5.2.6 Causes of business failure
Objectives To know what is meant by business failure To know a range of different reasons why
business fail To understand what is meant by a lack of
competiveness To understand how the following factors can lead
to a loss of competiveness Poor marketing mixLoss of productivity Increased competitionChanging market conditions
To define cash flow and recognise how this can lead to business failure.
What causes
business failure?
What causes
business failure?
Productivity maters
Change in demand
Getting the marketing mix wrong
Managing cash flow
Causes of business failure If a business does not have enough money to pay its bills over a prolonged period of time it is said to be INSOLVENT. This usually results in Business failure. There are a number of reasons why this might happen.
Define and describe Insolvent
Marketing Mix
To survive, businesses have to be competitive. They must meet customers’ needs better than their rivals do. They may lose competitiveness if they get part of the marketing mix wrong.
Errors in the marketing mix!CAN YOU THINK OF ANY????
PRICE – to low or too high
Product – poor quality or doesn’t meet customer needs
Promotion – wrong media or wrongly targeted
Place – poor delivery record or not available online.
Productivity Productivity is the output per worker or
machine over a period of time. If productivity falls, business costs may rise. Poor productivity may be caused by:
Inadequate training or demotivated Bad management Out of date machinery A lack of flexibility
Why is cash flow important?
Express your thoughts
and ideas!
The importance of cash flow!Businesses need to make sure that they have enough cash when they need it. Without cash a business cannot trade – it will fail. CASH FLOW problems may be caused by:
An unexpected fall in demand Allowing too much trade credit Seasonal demand Poor cash management Unexpected expenditure or bad debts
Why do you think some businesses
fail?
Changing market conditions and competition
Some businesses fail because demand for their products fall.
Why might this happen?
Changing market conditions and competition A fall in income – perhaps due to a recession
A change in tastes or fashion – new trends can change demand
Advertising – a lack of advertising or poor adverts can change demand
Increased competition – new rivals with better products will affect demand.
Question time In 2011, many retailers such as Oddbins, Habitat and Focus DIY failed, mainly because of recession. Explain how a recession causes a change in demand for the products of these retailers. (3marks)
You need to make 3 clearly linked statements to ‘explain how a recession causes a change in demand ‘.
Grade your answer out of 3
In 2011, many retailers such as Oddbins, Habitat and Focus DIY failed, mainly because of recession. Explain how a recession causes a change in demand for the products of these retailers. (3marks) A recession usually leads to a fall in demand. People may lose their jobs and have less income. As their income is lower, they are less likely to buy wine, furniture or housing materials such as those sold by Oddbins, Habitat and Focus DIY.
What is the difference between this answer
and yours?
1. Which of the following is most likely to lead to a fall in productivity?
Select one answer!
1. An increase in price 2. A decrease in price 3. Installing new technology 4. A decline in worker motivation
1 MARK
Now try this C-B
Answer D
Define the key terms
Marketing mix – having the right product at the right price in the right place with the right promotion
Cash flow - the total amount of money being transferred into and out of a business
Productivity - Productivity is the output per worker or machine over a period of time
However, even if students did not correctly identify an element of the marketing mix, the examiners did sometimes award marks for analysis
Explain what you have learned today
Task Answer test yourself and over to you page 35