BUSINESS PAPER 1 TOPIC 3

What are the three elements of the design mix?

• Function – How well the product performs its purpose.

• Aesthetics – How attractive the product looks.

• Cost – How much it costs to produce.

Why is the design mix important to a business?

It helps balance product quality, appearance and production costs to meet customer needs while remaining profitable.

What is resource depletion?

The reduction of natural resources due to overuse. Businesses can reduce this through recycling, reusing materials and minimising waste.

What is ethical sourcing?

Purchasing materials from suppliers that follow ethical practices, such as fair wages, safe working conditions and environmental protection.

How can environmentally friendly product design benefit a business?

It can improve brand image, attract environmentally conscious consumers and reduce long-term costs. However, sustainable materials may increase short-term costs.

What are the main types of promotion?

• Advertising

• Sales promotions (discounts, offers)

• Public relations (PR)

• Personal selling

• Direct marketing

• Sponsorship

What are the three main types of branding?

• Manufacturer branding – Products sold under the manufacturer's brand, e.g. Nike.

• Own-label branding – Products sold under a retailer's brand, e.g. Tesco own-brand.

• Generic branding – Products without a distinctive brand identity.

What are the three main benefits of strong branding?

• Added value.

• Ability to charge premium prices.

• Reduced price elasticity of demand (PED).

How does strong branding reduce PED?

Brand loyalty makes customers less sensitive to price changes, meaning demand becomes more price inelastic.

What is a unique selling point (USP)?

A feature or benefit that makes a product different from competitors, encouraging customers to choose it.

What are four ways a business can build its brand?

• Creating a strong USP.

• Advertising.

• Sponsorship.

• Social media marketing.

What is viral marketing?

When promotional content spreads rapidly through social media as users share it with others.

What is emotional branding?

Creating an emotional connection with consumers to increase brand loyalty and encourage repeat purchases.

What are the advantages and disadvantages of social media promotion?

Advantages: Low cost, wide reach, targeted advertising and direct customer engagement.

Disadvantages: Negative publicity can spread quickly, and campaigns may not generate sales.

What is cost-plus pricing?

Adding a percentage mark-up to the unit cost to determine the selling price

.Example: £20 cost + 25% mark-up = £25 selling price.

What is price skimming?

A: Setting a high initial price for a new product, then gradually lowering it.

Best suited to: Innovative products with limited competition and strong demand.

What is penetration pricing?

A: Setting a low introductory price to attract customers quickly and gain market share.

Best suited to: Competitive markets with price-sensitive customers.

What is predatory pricing?

A: Setting extremely low prices, potentially below cost, to drive competitors out of the market.

Disadvantage: Can cause losses and may be illegal if anti-competitive.

What is competitive pricing?

A: Setting prices at a similar level to competitors to remain attractive to customers

What is psychological pricing?

Using pricing techniques to influence consumer perceptions, such as £9.99 instead of £10.

What six factors influence a business's pricing strategy?

• Number of USPs/product differentiation.

• Price elasticity of demand.

• Level of competition.

• Strength of brand.

• Stage in the product life cycle.

• Costs and need for profit.

How does PED affect pricing decisions?

• Elastic demand: Lower prices may increase total revenue.

• Inelastic demand: Higher prices may increase total revenue.

How does competition influence pricing?

High competition limits pricing power because customers can switch to substitutes. Less competition may allow higher prices.

How have price comparison websites affected businesses?

They make it easier for consumers to compare prices, increasing price transparency and competition.

How do online sales affect pricing strategies?

Online businesses may have lower physical store costs, allowing competitive prices, but customers can compare alternatives more easily.

What is a distribution channel?

The route a product takes from the producer to the final consumer.

What are the main distribution channels?

• Producer → Consumer

• Producer → Retailer → Consumer

• Producer → Wholesaler → Retailer → Consumer

What is direct distribution?

A: Selling directly from the producer to the customer without intermediaries.

Advantage: Greater control and potentially higher margins.

Disadvantage: The business handles delivery, marketing and customer service.

What is indirect distribution?

A: Selling through intermediaries such as wholesalers and retailers.

Advantage: Wider market reach.

Disadvantage: Less control and reduced margins due to intermediaries.

How has online distribution changed businesses?

Businesses can sell directly to customers worldwide, potentially reducing store costs and increasing market reach.

What does changing from a product to a service mean?

A: Moving from selling physical products to providing ongoing services, often through subscriptions.

Example: Software subscriptions instead of physical software purchases.

What are the five stages of the product life cycle?

• Development

• Introduction

• Growth

• Maturity

• Decline

What happens during the introduction stage?

Sales are initially low, promotional costs are high, and profits may be negative.

What happens during the growth stage?

Sales increase rapidly, brand awareness grows, and profits may rise as more customers purchase the product.

What happens during the maturity stage?

Sales reach a high level and growth slows. Competition is strong, and businesses may use extension strategies.

What happens during the decline stage?

Sales decrease due to changing consumer preferences, increased competition or newer alternatives.

What is an extension strategy?

A method used to prolong a product's life cycle by maintaining or increasing sales.

What are two types of extension strategies?

• Product-based: Improving features, packaging or design.

• Promotion-based: New advertising campaigns, discounts or targeting new markets.

What is the Boston Matrix?

A portfolio analysis tool that classifies products based on market growth and relative market share.

What are the four categories of the Boston Matrix?

• Star: High growth, high market share.

• Cash cow: Low growth, high market share.

• Question mark: High growth, low market share.

• Dog: Low growth, low market share.

What is the best strategy for a star?

Invest to maintain or increase market share while the market is growing.

What is the best strategy for a cash cow?

Maintain its position and use the cash it generates to fund other products.

What is the best strategy for a question mark?

Decide whether to invest heavily to increase market share or withdraw if future success is unlikely.

What is the best strategy for a dog?

Consider withdrawing, reducing investment or repositioning the product, depending on profitability.

What is a mass market?

A: A large market targeting a broad range of consumers with similar needs.

Advantage: Large potential sales volume.

Disadvantage: High competition.

What is a niche market?

A: A small, specialised segment of a larger market with specific customer needs.

Advantage: Less direct competition and potentially higher prices.

Disadvantage: Limited market size.

What is B2B marketing?

A: Business-to-business marketing, where products or services are sold to other businesses.

Example: A manufacturer selling machinery to a factory.

What is B2C marketing?

A: Business-to-consumer marketing, where products or services are sold directly to individual consumers.

Example: Nike selling trainers to customers.

How can businesses develop customer loyalty?

• Loyalty schemes

• High-quality products

• Excellent customer service

• Personalised offers

• Consistent branding

Why is customer loyalty important?

Loyal customers make repeat purchases, potentially increasing revenue and reducing the need for costly customer acquisition.