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Mergers and takeovers

2017-18

OBJECTIVES OF THIS CLASS

I What is the reason of mergers and takeovers?

I What is the difference between mergers and takeovers?I What is meant by horizontal and vertical integration?I What are the risks and rewards of mergers and takeovers?I What are the main problems when companies grow rapidly?

OBJECTIVES OF THIS CLASS

I What is the reason of mergers and takeovers?I What is the difference between mergers and takeovers?

I What is meant by horizontal and vertical integration?I What are the risks and rewards of mergers and takeovers?I What are the main problems when companies grow rapidly?

OBJECTIVES OF THIS CLASS

I What is the reason of mergers and takeovers?I What is the difference between mergers and takeovers?I What is meant by horizontal and vertical integration?

I What are the risks and rewards of mergers and takeovers?I What are the main problems when companies grow rapidly?

OBJECTIVES OF THIS CLASS

I What is the reason of mergers and takeovers?I What is the difference between mergers and takeovers?I What is meant by horizontal and vertical integration?I What are the risks and rewards of mergers and takeovers?

I What are the main problems when companies grow rapidly?

OBJECTIVES OF THIS CLASS

I What is the reason of mergers and takeovers?I What is the difference between mergers and takeovers?I What is meant by horizontal and vertical integration?I What are the risks and rewards of mergers and takeovers?I What are the main problems when companies grow rapidly?

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?

I exploit synergies (e.g., economies of scale, diversification,common management)

I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scaleI asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?

I exploit synergies (e.g., economies of scale, diversification,common management)

I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scaleI asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)

I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scaleI asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)I expand the business

I may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scaleI asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)I expand the businessI may be cheaper than internal growth

I use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scaleI asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to it

I defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scaleI asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeover

I as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scaleI asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)

I entry into foreign marketsI gain economies of scaleI asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign markets

I gain economies of scaleI asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scale

I asset strippingI or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scaleI asset stripping

I or simply because objective is growth of business

REASONS FOR MERGERS AND TAKEOVERS

I Mergers and takeovers: take place when firms join togetherand operate as one organisation

I Why do mergers and takeovers occur?I exploit synergies (e.g., economies of scale, diversification,

common management)I expand the businessI may be cheaper than internal growthI use excessive cash instead of holding to itI defensive reason: get bigger to avoid takeoverI as a response to economic changes (e.g., creation of euro)I entry into foreign marketsI gain economies of scaleI asset strippingI or simply because objective is growth of business

DISTINCTION BETWEEN MERGERS AND TAKEOVERS

I Merger: two or more businesses join together and operateas one

I agreement of all involved businessesI name of new business composed of names of involved

businessesI Example: Holcim Ltd. + Lafarge SA = LafargeHolcim

I Takeover: one business buys another

I public limited company: anyone can buy themI predator companyI takeover of public limited company → rise in share pricesI Example: Takeover of O2 by Three

DISTINCTION BETWEEN MERGERS AND TAKEOVERS

I Merger: two or more businesses join together and operateas one

I agreement of all involved businesses

I name of new business composed of names of involvedbusinesses

I Example: Holcim Ltd. + Lafarge SA = LafargeHolcimI Takeover: one business buys another

I public limited company: anyone can buy themI predator companyI takeover of public limited company → rise in share pricesI Example: Takeover of O2 by Three

DISTINCTION BETWEEN MERGERS AND TAKEOVERS

I Merger: two or more businesses join together and operateas one

I agreement of all involved businessesI name of new business composed of names of involved

businesses

I Example: Holcim Ltd. + Lafarge SA = LafargeHolcimI Takeover: one business buys another

I public limited company: anyone can buy themI predator companyI takeover of public limited company → rise in share pricesI Example: Takeover of O2 by Three

DISTINCTION BETWEEN MERGERS AND TAKEOVERS

I Merger: two or more businesses join together and operateas one

I agreement of all involved businessesI name of new business composed of names of involved

businessesI Example: Holcim Ltd. + Lafarge SA = LafargeHolcim

I Takeover: one business buys another

I public limited company: anyone can buy themI predator companyI takeover of public limited company → rise in share pricesI Example: Takeover of O2 by Three

DISTINCTION BETWEEN MERGERS AND TAKEOVERS

I Merger: two or more businesses join together and operateas one

I agreement of all involved businessesI name of new business composed of names of involved

businessesI Example: Holcim Ltd. + Lafarge SA = LafargeHolcim

I Takeover: one business buys another

I public limited company: anyone can buy themI predator companyI takeover of public limited company → rise in share pricesI Example: Takeover of O2 by Three

DISTINCTION BETWEEN MERGERS AND TAKEOVERS

I Merger: two or more businesses join together and operateas one

I agreement of all involved businessesI name of new business composed of names of involved

businessesI Example: Holcim Ltd. + Lafarge SA = LafargeHolcim

I Takeover: one business buys anotherI public limited company: anyone can buy them

I predator companyI takeover of public limited company → rise in share pricesI Example: Takeover of O2 by Three

DISTINCTION BETWEEN MERGERS AND TAKEOVERS

I Merger: two or more businesses join together and operateas one

I agreement of all involved businessesI name of new business composed of names of involved

businessesI Example: Holcim Ltd. + Lafarge SA = LafargeHolcim

I Takeover: one business buys anotherI public limited company: anyone can buy themI predator company

I takeover of public limited company → rise in share pricesI Example: Takeover of O2 by Three

DISTINCTION BETWEEN MERGERS AND TAKEOVERS

I Merger: two or more businesses join together and operateas one

I agreement of all involved businessesI name of new business composed of names of involved

businessesI Example: Holcim Ltd. + Lafarge SA = LafargeHolcim

I Takeover: one business buys anotherI public limited company: anyone can buy themI predator companyI takeover of public limited company → rise in share prices

I Example: Takeover of O2 by Three

DISTINCTION BETWEEN MERGERS AND TAKEOVERS

I Merger: two or more businesses join together and operateas one

I agreement of all involved businessesI name of new business composed of names of involved

businessesI Example: Holcim Ltd. + Lafarge SA = LafargeHolcim

I Takeover: one business buys anotherI public limited company: anyone can buy themI predator companyI takeover of public limited company → rise in share pricesI Example: Takeover of O2 by Three

DISTINCTION BETWEEN MERGERS AND TAKEOVERSNUMBER OF TRANSACTIONS

HORIZONTAL AND VERTICAL INTEGRATIONI Integration: businesses join together to form one

I Horizontal integration: when firms are in the same line ofbusiness

I Vertical integration: when firms are in different stages ofproduction

I Forward vertical integration: joins business that is the nextstage of production

I Backward vertical integration: joins business that is in theprevious stage of production

HORIZONTAL AND VERTICAL INTEGRATIONI Integration: businesses join together to form one

I Horizontal integration: when firms are in the same line ofbusiness

I Vertical integration: when firms are in different stages ofproduction

I Forward vertical integration: joins business that is the nextstage of production

I Backward vertical integration: joins business that is in theprevious stage of production

HORIZONTAL AND VERTICAL INTEGRATIONI Integration: businesses join together to form one

I Horizontal integration: when firms are in the same line ofbusiness

I Vertical integration: when firms are in different stages ofproduction

I Forward vertical integration: joins business that is the nextstage of production

I Backward vertical integration: joins business that is in theprevious stage of production

HORIZONTAL AND VERTICAL INTEGRATIONI Integration: businesses join together to form one

I Horizontal integration: when firms are in the same line ofbusiness

I Vertical integration: when firms are in different stages ofproduction

I Forward vertical integration: joins business that is the nextstage of production

I Backward vertical integration: joins business that is in theprevious stage of production

HORIZONTAL AND VERTICAL INTEGRATIONI Integration: businesses join together to form one

I Horizontal integration: when firms are in the same line ofbusiness

I Vertical integration: when firms are in different stages ofproduction

I Forward vertical integration: joins business that is the nextstage of production

I Backward vertical integration: joins business that is in theprevious stage of production

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job lossesI Integration costs: expensive and time-consuming processI Bidding wars: if there is more than one potential buyer →

price of acquisition ↑I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑I Rewards to previous owners:I Increased profitability:

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job lossesI Integration costs: expensive and time-consuming processI Bidding wars: if there is more than one potential buyer →

price of acquisition ↑I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑I Rewards to previous owners:I Increased profitability:

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job losses

I Integration costs: expensive and time-consuming processI Bidding wars: if there is more than one potential buyer →

price of acquisition ↑I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑I Rewards to previous owners:I Increased profitability:

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job lossesI Integration costs: expensive and time-consuming process

I Bidding wars: if there is more than one potential buyer →price of acquisition ↑

I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑I Rewards to previous owners:I Increased profitability:

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job lossesI Integration costs: expensive and time-consuming processI Bidding wars: if there is more than one potential buyer →

price of acquisition ↑

I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑I Rewards to previous owners:I Increased profitability:

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job lossesI Integration costs: expensive and time-consuming processI Bidding wars: if there is more than one potential buyer →

price of acquisition ↑I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑I Rewards to previous owners:I Increased profitability:

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job lossesI Integration costs: expensive and time-consuming processI Bidding wars: if there is more than one potential buyer →

price of acquisition ↑I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑I Rewards to previous owners:I Increased profitability:

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job lossesI Integration costs: expensive and time-consuming processI Bidding wars: if there is more than one potential buyer →

price of acquisition ↑I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑

I Rewards to previous owners:I Increased profitability:

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job lossesI Integration costs: expensive and time-consuming processI Bidding wars: if there is more than one potential buyer →

price of acquisition ↑I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑I Rewards to previous owners:

I Increased profitability:

FINANCIAL RISKS AND REWARDS

Corporate strategies (e.g., M & A) can also go wrong:I Risks:

I Regulatory intervention: Competition and Markets Authority(CMA) in the UK

I Resistance from employees: job lossesI Integration costs: expensive and time-consuming processI Bidding wars: if there is more than one potential buyer →

price of acquisition ↑I Rewards:

I Speedy growth: growth can be achieved faster than throughinternal growth

I Higher remuneration for senior staff: salaries of managers ↑I Rewards to previous owners:I Increased profitability:

PROBLEMS OF RAPID GROWTH

I Drain on resources:

I Coping with change:I The alienation of customers:I Loss of control:I Shortages of resources:

PROBLEMS OF RAPID GROWTH

I Drain on resources:I Coping with change:

I The alienation of customers:I Loss of control:I Shortages of resources:

PROBLEMS OF RAPID GROWTH

I Drain on resources:I Coping with change:I The alienation of customers:

I Loss of control:I Shortages of resources:

PROBLEMS OF RAPID GROWTH

I Drain on resources:I Coping with change:I The alienation of customers:I Loss of control:

I Shortages of resources:

PROBLEMS OF RAPID GROWTH

I Drain on resources:I Coping with change:I The alienation of customers:I Loss of control:I Shortages of resources:

KEY TERMSI Backward vertical integration: joining with a business in

the previous stage of production

I Forward vertical integration: joining with a business inthe next stage of production

I Horizontal integration: the joining of businesses that arein exactly the same line of business

I Integration: the joining together of two businesses as aresult of a merger or takeover

I Merger: occurs when two (or more) businesses jointogether and operate as one

I Synergy: the combining of two or more activities orbusinesses creating a better outcome than the sum of theindividual parts

I Takeover: the process of one business buying anotherI Vertical integration: the joining of two businesses at

different stages of production

KEY TERMSI Backward vertical integration: joining with a business in

the previous stage of productionI Forward vertical integration: joining with a business in

the next stage of production

I Horizontal integration: the joining of businesses that arein exactly the same line of business

I Integration: the joining together of two businesses as aresult of a merger or takeover

I Merger: occurs when two (or more) businesses jointogether and operate as one

I Synergy: the combining of two or more activities orbusinesses creating a better outcome than the sum of theindividual parts

I Takeover: the process of one business buying anotherI Vertical integration: the joining of two businesses at

different stages of production

KEY TERMSI Backward vertical integration: joining with a business in

the previous stage of productionI Forward vertical integration: joining with a business in

the next stage of productionI Horizontal integration: the joining of businesses that are

in exactly the same line of business

I Integration: the joining together of two businesses as aresult of a merger or takeover

I Merger: occurs when two (or more) businesses jointogether and operate as one

I Synergy: the combining of two or more activities orbusinesses creating a better outcome than the sum of theindividual parts

I Takeover: the process of one business buying anotherI Vertical integration: the joining of two businesses at

different stages of production

KEY TERMSI Backward vertical integration: joining with a business in

the previous stage of productionI Forward vertical integration: joining with a business in

the next stage of productionI Horizontal integration: the joining of businesses that are

in exactly the same line of businessI Integration: the joining together of two businesses as a

result of a merger or takeover

I Merger: occurs when two (or more) businesses jointogether and operate as one

I Synergy: the combining of two or more activities orbusinesses creating a better outcome than the sum of theindividual parts

I Takeover: the process of one business buying anotherI Vertical integration: the joining of two businesses at

different stages of production

KEY TERMSI Backward vertical integration: joining with a business in

the previous stage of productionI Forward vertical integration: joining with a business in

the next stage of productionI Horizontal integration: the joining of businesses that are

in exactly the same line of businessI Integration: the joining together of two businesses as a

result of a merger or takeoverI Merger: occurs when two (or more) businesses join

together and operate as one

I Synergy: the combining of two or more activities orbusinesses creating a better outcome than the sum of theindividual parts

I Takeover: the process of one business buying anotherI Vertical integration: the joining of two businesses at

different stages of production

KEY TERMSI Backward vertical integration: joining with a business in

the previous stage of productionI Forward vertical integration: joining with a business in

the next stage of productionI Horizontal integration: the joining of businesses that are

in exactly the same line of businessI Integration: the joining together of two businesses as a

result of a merger or takeoverI Merger: occurs when two (or more) businesses join

together and operate as oneI Synergy: the combining of two or more activities or

businesses creating a better outcome than the sum of theindividual parts

I Takeover: the process of one business buying anotherI Vertical integration: the joining of two businesses at

different stages of production

KEY TERMSI Backward vertical integration: joining with a business in

the previous stage of productionI Forward vertical integration: joining with a business in

the next stage of productionI Horizontal integration: the joining of businesses that are

in exactly the same line of businessI Integration: the joining together of two businesses as a

result of a merger or takeoverI Merger: occurs when two (or more) businesses join

together and operate as oneI Synergy: the combining of two or more activities or

businesses creating a better outcome than the sum of theindividual parts

I Takeover: the process of one business buying another

I Vertical integration: the joining of two businesses atdifferent stages of production

KEY TERMSI Backward vertical integration: joining with a business in

the previous stage of productionI Forward vertical integration: joining with a business in

the next stage of productionI Horizontal integration: the joining of businesses that are

in exactly the same line of businessI Integration: the joining together of two businesses as a

result of a merger or takeoverI Merger: occurs when two (or more) businesses join

together and operate as oneI Synergy: the combining of two or more activities or

businesses creating a better outcome than the sum of theindividual parts

I Takeover: the process of one business buying anotherI Vertical integration: the joining of two businesses at

different stages of production

KEY TERMSREVISION OF CHAPTER 11

I Competitive pricing: Pricing strategies based on the pricescharged by rivals

I Cost plus pricing: Adding a percentage (the mark-up) tothe costs of producing a product to get the price

I Mark-up: The percentage added to unit cost that makes aprofit for a business when setting the price

I Penetration pricing: Setting a low price when lanching anew product in order to get established in the market

I Predatory or destroyer pricing: Setting a low price forcingrivals out of business

I Pricing strategy: The pricing policies or methods used bya business when deciding what to charge for its products

KEY TERMSREVISION OF CHAPTER 11

I Competitive pricing: Pricing strategies based on the pricescharged by rivals

I Cost plus pricing: Adding a percentage (the mark-up) tothe costs of producing a product to get the price

I Mark-up: The percentage added to unit cost that makes aprofit for a business when setting the price

I Penetration pricing: Setting a low price when lanching anew product in order to get established in the market

I Predatory or destroyer pricing: Setting a low price forcingrivals out of business

I Pricing strategy: The pricing policies or methods used bya business when deciding what to charge for its products

KEY TERMSREVISION OF CHAPTER 11

I Competitive pricing: Pricing strategies based on the pricescharged by rivals

I Cost plus pricing: Adding a percentage (the mark-up) tothe costs of producing a product to get the price

I Mark-up: The percentage added to unit cost that makes aprofit for a business when setting the price

I Penetration pricing: Setting a low price when lanching anew product in order to get established in the market

I Predatory or destroyer pricing: Setting a low price forcingrivals out of business

I Pricing strategy: The pricing policies or methods used bya business when deciding what to charge for its products

KEY TERMSREVISION OF CHAPTER 11

I Competitive pricing: Pricing strategies based on the pricescharged by rivals

I Cost plus pricing: Adding a percentage (the mark-up) tothe costs of producing a product to get the price

I Mark-up: The percentage added to unit cost that makes aprofit for a business when setting the price

I Penetration pricing: Setting a low price when lanching anew product in order to get established in the market

I Predatory or destroyer pricing: Setting a low price forcingrivals out of business

I Pricing strategy: The pricing policies or methods used bya business when deciding what to charge for its products

KEY TERMSREVISION OF CHAPTER 11

I Competitive pricing: Pricing strategies based on the pricescharged by rivals

I Cost plus pricing: Adding a percentage (the mark-up) tothe costs of producing a product to get the price

I Mark-up: The percentage added to unit cost that makes aprofit for a business when setting the price

I Penetration pricing: Setting a low price when lanching anew product in order to get established in the market

I Predatory or destroyer pricing: Setting a low price forcingrivals out of business

I Pricing strategy: The pricing policies or methods used bya business when deciding what to charge for its products

KEY TERMSREVISION OF CHAPTER 11

I Competitive pricing: Pricing strategies based on the pricescharged by rivals

I Cost plus pricing: Adding a percentage (the mark-up) tothe costs of producing a product to get the price

I Mark-up: The percentage added to unit cost that makes aprofit for a business when setting the price

I Penetration pricing: Setting a low price when lanching anew product in order to get established in the market

I Predatory or destroyer pricing: Setting a low price forcingrivals out of business

I Pricing strategy: The pricing policies or methods used bya business when deciding what to charge for its products

KEY TERMSREVISION OF CHAPTER 11

I Product life cycle: Shows the different stages in the life ofa product and the sales that can be expected at each stage

I Psychological pricing: Setting the price slightly below around figure

I Skimming or creaming: Setting a high price initially andthen lowering it later

I Unit costs: The same as average cost (total cost divided byoutput)

KEY TERMSREVISION OF CHAPTER 11

I Product life cycle: Shows the different stages in the life ofa product and the sales that can be expected at each stage

I Psychological pricing: Setting the price slightly below around figure

I Skimming or creaming: Setting a high price initially andthen lowering it later

I Unit costs: The same as average cost (total cost divided byoutput)

KEY TERMSREVISION OF CHAPTER 11

I Product life cycle: Shows the different stages in the life ofa product and the sales that can be expected at each stage

I Psychological pricing: Setting the price slightly below around figure

I Skimming or creaming: Setting a high price initially andthen lowering it later

I Unit costs: The same as average cost (total cost divided byoutput)

KEY TERMSREVISION OF CHAPTER 11

I Product life cycle: Shows the different stages in the life ofa product and the sales that can be expected at each stage

I Psychological pricing: Setting the price slightly below around figure

I Skimming or creaming: Setting a high price initially andthen lowering it later

I Unit costs: The same as average cost (total cost divided byoutput)

KEY TERMSREVISION OF CHAPTER 12

I Agent or broker: An intermediary that brings togetherbuyers and settlers

I Breaking-bulk: Dividing a large quantity of goodsreceived from a supplier before selling them on in smallerquantities to customers

I Direct selling: Producers selling their products directly toconsumers

I Distribution: The delivery of goods from the producer tothe consumer

I Distribution channel: The route taken by a product fromthe producer to the customer

KEY TERMSREVISION OF CHAPTER 12

I Agent or broker: An intermediary that brings togetherbuyers and settlers

I Breaking-bulk: Dividing a large quantity of goodsreceived from a supplier before selling them on in smallerquantities to customers

I Direct selling: Producers selling their products directly toconsumers

I Distribution: The delivery of goods from the producer tothe consumer

I Distribution channel: The route taken by a product fromthe producer to the customer

KEY TERMSREVISION OF CHAPTER 12

I Agent or broker: An intermediary that brings togetherbuyers and settlers

I Breaking-bulk: Dividing a large quantity of goodsreceived from a supplier before selling them on in smallerquantities to customers

I Direct selling: Producers selling their products directly toconsumers

I Distribution: The delivery of goods from the producer tothe consumer

I Distribution channel: The route taken by a product fromthe producer to the customer

KEY TERMSREVISION OF CHAPTER 12

I Agent or broker: An intermediary that brings togetherbuyers and settlers

I Breaking-bulk: Dividing a large quantity of goodsreceived from a supplier before selling them on in smallerquantities to customers

I Direct selling: Producers selling their products directly toconsumers

I Distribution: The delivery of goods from the producer tothe consumer

I Distribution channel: The route taken by a product fromthe producer to the customer

KEY TERMSREVISION OF CHAPTER 12

I Agent or broker: An intermediary that brings togetherbuyers and settlers

I Breaking-bulk: Dividing a large quantity of goodsreceived from a supplier before selling them on in smallerquantities to customers

I Direct selling: Producers selling their products directly toconsumers

I Distribution: The delivery of goods from the producer tothe consumer

I Distribution channel: The route taken by a product fromthe producer to the customer

KEY TERMSREVISION OF CHAPTER 12

I E-commerce: The use of electronic systems to sell goodsand services

I Intermediaries: Links between the producer and theconsumer

I Retailer: A business that buys goods from manufacturersand wholesalers, and sells them in small quantities toconsumers

I Wholesaler: A business that buys goods frommanufacturers and sells them in smaller quantities toretailers

KEY TERMSREVISION OF CHAPTER 12

I E-commerce: The use of electronic systems to sell goodsand services

I Intermediaries: Links between the producer and theconsumer

I Retailer: A business that buys goods from manufacturersand wholesalers, and sells them in small quantities toconsumers

I Wholesaler: A business that buys goods frommanufacturers and sells them in smaller quantities toretailers

KEY TERMSREVISION OF CHAPTER 12

I E-commerce: The use of electronic systems to sell goodsand services

I Intermediaries: Links between the producer and theconsumer

I Retailer: A business that buys goods from manufacturersand wholesalers, and sells them in small quantities toconsumers

I Wholesaler: A business that buys goods frommanufacturers and sells them in smaller quantities toretailers

KEY TERMSREVISION OF CHAPTER 12

I E-commerce: The use of electronic systems to sell goodsand services

I Intermediaries: Links between the producer and theconsumer

I Retailer: A business that buys goods from manufacturersand wholesalers, and sells them in small quantities toconsumers

I Wholesaler: A business that buys goods frommanufacturers and sells them in smaller quantities toretailers