Summary: Chapter 6

Read the summary and the most important questions on Chapter 6

• 1 Chapter 6

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• What are the benefits/risks associated with expanding to increase sales?

  + More sales leads to more profits
  - Profits won't increase if the business lowers the price too much

• What are the benefits/risks associated with expanding to increase market share?

  + Benefit from economies of scale
  - Only works if their sales increase faster than other businesses' sales

• What are the benefits/risks associated with expanding to take advantage of economies of scale?

  + Reduce unit costs
  - Difficult to manage large businesses, if not done well it can lead to an increase in unit price

• What are the benefits/risks associated with expanding to become more secure?

  + Large businesses are seen as more secure, some customers prefer to deal with larger companies
  - Large businesses aren't immune to bankruptcy etc.

• What are some reasons to avoid expansion?

  To keep control, to offer personal service, to avoid risk, to avoid extra stress

• What are the advantages and disadvantages of opening new branches?

  + Slow and steady, usually doesn't require additional finance, easier to control/manage 
  - Can be too slow, market share could fall, no gains from integrating with another business

• What are the advantages and disadvantages of franchising?

  + Growth paid for by franchisee, quick, no extra stress of managing another store
  - Could damage image, don't get all the profits, bad publicity

• What are the two main types of inorganic growth?

  Merger or takeover

• What are the benefits of horizontal integration?

  Can lead to significant increase in market share, reduces competition, economies of scale

• What are the disadvantages of inorganic growth?

  Can be expensive, can lack experience, stress, can lead to demotivation