Business Theme 1

the market

The market: What is a target market?

The set of customers sharing common needs and wants that a business decides to target

The market: what is a mass market

targets the whole market- focuses on common wants and needs

The market: what is a niche market

business focuses on small segments/ niches

The market: Advantages of a mass market

• more potential customers so more sales

• large scale production means lower unit costs

• straight forward mass marketing

• consistent quality

The market: Advantages of a niche market

• Charge high prices for premium products

• less competition

• easy to target customers

• small scale production is easy to adapt for changes in demand

The market: disadvantages of a mass market

• more competitors

• homogenous products need more advertising to differentiate them which is expensive

• high volume production makes it hard to keep up with changing demand

• not targeted to specific needs

The market: disadvantages of a niche market

• lower volume of sales

• risky as demand is not constant

• higher unit costs

• less customers

What is market size?

The total of all sales within an industry

How can market size be measured (2 ways)

Volume of sales (quantity)

Value of sales (monetary amount)

What is market share and give formula

portion of market controlled by company

sales of x/total sales of whole market x 100

What is market growth

percentage change in the volume of products/services and economic activity over time

what is dynamic market

a market that is subject to rapid or continuous change

explain market orientation

company that makes products that meets customer demands, carries out lots of market research

explain product orientation

company that focuses on a unique product or service, prioritises high quality products at a fair price

what is market research

gathering and analysing data relevant to the market process

examples of primary research:

• questionnaires

• observation

• customer interviews

• test marketing

• focus groups

examples of secondary research:

• government sources

• trade publications

• market reports

• internet sources

• newspapers/magazines/TV/radio

what is a questionnaire

a set of questions to gather information

what is test marketing

trailing a product or service for a short of time

what is a trade publications

a magazine or journal written for people in a specific country

what is market segmentation

dividing the market into parts that reflect different consumer needs and wants

what are the 4 segments when dividing the market

1. demographic- characteristics

2. geographic- location

3. psychographic- type of person a consumer is

4. behavioural- how consumers respond and act

benefits of market segmentation

• focus on key market areas

• growth opportunities

• new product development

• more effective marketing

drawbacks of segmenting the market

• imprecise data

• limited research

• market dynamics

• over segmentation

what is market mapping

the process of plotting competitors on a graph

what are direct vs indirect competitors

direct= competitor selling the same products- eg: costa and starbucks

indirect= competitor that can take customers away- eg: costa and bubble tea

what is a competitive advantage

an advantage a business has over its competitors allowing it to generate a larger turnover for the industry

what is ‘adding value’

the difference between the price that is charge to the customer and the cost of inputs required to create the product or service

what is differentiation

where the product is different from the competition in some way

what is demand

the amount of a good or service that consumers are willing and able to buy at a given price

what is supply

the quantity of a good/service that producers are willing and able to offer for sale at different prices over a period of time

profit margin

percentage of revenue left after paying business expenses

what is automation

use of automatic equipment in a manufacturing process

what is indirect tax

taxes imposed by the government

what is a subsidy

a financial payment/benefit from the government

what is economic growth

an increase in the amount of goods and services produced per head of the population over a period of time

list some factors that determine demand:

• consumer trends

• price of good/service

• price of substitutes (competitors)

• price of compliments (products which go with the product)

• changes in consumer income

• marketing, branding, advertising

• population structure or demographics

• seasonality

• external shocks

list factors that effect supply

• external shocks

• price of product

• cost of production

• technology

• indirect taxes

• government subsidies

PED and equation

price elasticity of demand- measures the responsiveness of demand for a product when its price changes

PED= % change of demand / % change in price

factors that influence PED:

• the degree of product differentiation

• availability of direct substitutes

• branding and brand loyalty

how to interpret PED

• if the number is between 0 and -1 : product is inelastic so changes in price do not have a large effect on demand

• if the number is a negative number greater than 1 : price is elastic so price changes have a larger effect on demand

define YED and give equation

YED = % change in demand / % change in real incomes

YED- income elasticity of demand- measures the responsiveness of demand on changes in real incomes

how to interpret YED

inferior goods= negative number YED

normal goods= 0 to 1

luxury goods= 1+

factors influencing YED

• is the product a necessity or indulgence

• who buys the product

significance of YED

• sales forecasting

• financial planning

• product portfolio management

name the three elements of the design mix

1. function

2. aesthetics

3. economic infrastructure/ costs

define sustainability

meeting needs without compromising the needs of the future

name methods of promotion (short and long term)

short term:

• buy one get one free BOGOF

• seasonal price cutting promotions

long term:

• persuasive advertising

• public relations

benefits of branding

• added value

• ability to charge premium prices

• reduced PED

What are the three types of branding

1. individual branding

2. brand family

3. corporate branding

list the 6 pricing strategies

1. skimming

2. penetration

3. cost-plus

4. competitive

5. psychological

6. predatory

define distribution channel

the route a product takes from producer to consumer

give benefits and drawbacks of traditional distribution channel

benefit=

• wide distribution

drawback=

• high selling price due to mark-ups from wholesalers etc

give benefits and drawbacks of direct to retailer distribution

benefit=

• saves on mark-up price

drawback=

• exposes producers to negotiations with retailers

give benefits and drawbacks of being your own retailer

benefit=

• complete control

drawback=

• significant costs of running stores and still producing goods

give benefits and drawbacks of direct online distribution

benefit=

• producer gets %100 of the price/ keeps the full price paid

drawback=

• cuts off consumers who are not able or willing to shop online

• high cost to set up website

give benefits and drawbacks of online retail

benefit=

• wider audience

• smaller investment as your using a pre-existing website

drawback=

• fee for using someone else’s website

what are the 4 aspects of the product life cycle (PLC)

1. introduction

2. growth

3. maturity

4. decline

+ development is an additional stage added - identified as happening before the product is launched

what is the key benefit of the PLC

to help make marketing decisions

explain a limitation of the PLC

the PLC may encourage managers to make decisions that speed a product through the life cycle faster than might naturally occur otherwise

what are extension strategies

a method for a business to boost life of a product- preventing it from going into decline

give two adjustments that work as extension strategies

CHANGES TO THE PRODUCT:

• adding extra functions/features

• changing materials/ingredients

• launching slightly different variations

CHANGES TO PROMOTION:

• targeting a new market segment

• finding new uses for the product

• increase use of the product among existing customers

what are the four sections of the boston matrix

1. cash cow

2. rising star

3. dog

4. question mark/ problem child

what are on each axis of the boston matrix

market share (%)

market growth(%)

describe characteristics of a cash cow

• stable markets

• high market share

• low market growth

• low marketing expenditure

• significant profits

describe characteristics of a dog

• low market share

• low market growth

• likely to become obsolete

describe characteristics of a question mark

• low market share

• high market growth

• has potential if it was funded and supported properly

describe characteristics of a rising star

• high market share

• high growth

• exciting and rapidly growing

• future profitability is likely

benefits of mass marketing

• high distribution levels

• greater control over advertising and promotion

• a degree of influence over pricing within a market

benefits of niche marketing

• able to meet consumer needs more precisely

• able to charge higher prices than mass market products

• less direct competition

what is the difference between risk and uncertainty?

• a risk is quantifiable

• factors causing risks are uncertainties

marketing strategies for B2C

• marketing is vital

• taking all aspects of marketing mix into account

• developing customer loyalty

marketing strategies for B2B

• developing customer loyalty

• price focused

• reliability focus

what is most vital when developing customer loyalty to the consumer

what are two approaches to treating staff

1. treating as an asset

2. treating as a cost

explain features of treating staff as an asset

• permanent contracts

• develop staff skills with training

• pay staff a salary

• builds loyalty from staff

explain features of treating staff as a cost

• flexible contracts (eg- zero hours)

• minimal training offered

• low pay, often an hourly rate

• often leads to high staff turnover rate

what is flexible working

Flexible working is a way of working that suits an employee’s needs and helps balance a work-home life.

what is a soft vs hard approach in HRM

soft=

• people centred

• positive approach

• focused on employee satisfaction

hard=

• employees treated like resources

• emphasises efficiency and productivity

• focused on measurable outcomes

what is multi-skilling

Multi-skilling arises where staff are allowed to carry out a variety of tasks rather than specialise

advantages of multi-skilling

• productivity rises as staff are used more fully

• reduced disruption by staff absence

• more motivated staff

disadvantages of multi-skilling

• loss of production as employees switch jobs

• increased training budget (costs and time)

• staff may feel more is being asked of them

what is a part time job

someone who works less than 35 hours a week, they should get the same benefits as a full time worker

what is a full time job

A full-time worker will usually work 35 hours or more a week

what is a permanent contract

the most common type of employment, an indefinite contract whereby you are employed by the company until either the employee leaves is fired or made redundant

what is a temporary contract

where the employer only needs extra staff to cover a period of time e.g a seasonal period, maternity cover, illness.

has an end date

what is a freelance contract

employee is hired on a daily basis usually or for a specific job

what is a zero hour contract

an employment agreement where the employer is not obliged to provide a minimum number of working hours, and the worker is not obliged to accept any offered.

what is outsourcing

Outsourcing is the practice of hiring a third party to perform business operations that are formerly done by the company’s in-house staff.

This could include payroll, production, purchasing and delivery.

benefits of outsourcing

• grow faster

• access to skills the business may not already have

• quickly meet demand

• could be cheaper as you don’t have to invest in potential equipment

drawbacks of outsourcing

• could damage brand reputation

• loss of quality control and management

• not always the cheaper option especially when outsourcing overseas

• danger you are giving away your business to another

whats the distinction between dismissal vs redundancy

• you get compensated if made redundant vs no pay out if dismissed (fired)

• dismissal occurs when employee has been fairly warned or has breached the terms of their employee agreement but redundancy can be due to reduction in demand

what is employee relations

the process of discussions and agreements between employees and employers

name two types of employee relations

1. collective bargaining

2. individual approach

describe collective bargaining

• when an employer deals with one or a few representatives for the whole workforce

• most commonly represented by a trade union

• employers only need to negotiate with one or two people on behalf of the whole workforce, thus saving time

• employees benefit because acting together gives them more power in their relationship with the employer

describe the individual approach

• employees treated on an individual basis

• far more time consuming for the employer

• the employer is in a stronger position if an employee is unable to call upon threats of strike action from colleagues if they are unhappy with their deal being offered

why may a business need to recruit

• to fill gaps

• existing staff leaving

• growth of the business

• new activities needing new skills

what would the recruitment process look like

• identify need to recruit

• determine how many and the type of employees required

• create a job description and person specification

• advertise the vacancy (internally and/or externally)

• draw up a shortlist of most suitable applicants

• decide on most suitable candidate

what are the two types of recruitment

1. internal

2. external

what is internal recruitment

filling a job vacancy with someone who already works for the business