business theme 1

benefits of adding value

• goes towards paying off a company’s fixed costs

• the higher the value the sooner the cost can be paid off and the quicker a business will make profit

• the more value the more chance at success-survival

usp

something specific to a business its a way to add value and help the business compete

examples of mix and match added value

• well designed products

• convenient shop location

• freshly handmade

• friendly service

• unique combination of ingredients

benefits entrepreneurs bring to economy

• creating products and services to meet peoples needs

• creating jobs

• generating economic activity through customer spending

• paying tax to the goverment

• exporting goods abroad

meeting customer needs-price

changing a price that is 20% lower than competitors prices to attract more customers and increase sales

meeting customer needs - choice

a restaurant serving a menu that offers more than 30 different dishes- variety

meeting customer needs - convenience

a business offering customers next day delivery at all times

meeting customer needs - quality

a clothes manufacturer using only the highest grade of cotton in all garments to ensure durability and comfort

understanding customers - family needs

customers with children will have different needs from a couple with no children

understanding customers - financial needs

people with different incomes will choose to buy products and services at different price points

understanding customers - personal tastes and preferences

all customers have personal preferences based on style, colour, function and personal taste

understanding customers - emotional needs

some customers may have strong emotional connections to certain brands and products

the purpose of market research

• identify and understand customer needs

• understand how well the business is doing, such as customer opinions of products

• identify gaps in market

• inform business decisions and reduce the risk associated with making business decisions

• identify and understand competitors

• understand trends in market

primary research

• focus groups

• surveys

• social media

• observations

• experiment

• questionnaires

advantages of primary research

• more accurate

• up to date

• specific to needs

• effective at collecting qualitative data

• direct customer contact

secondary research

• sales data

• market reports

• goverment reports

• local newspaper

• internet sites

advantages of secondary research

• more general

• less time consuming

• effecting at collecting quantitative

• cheaper

market research data - size and scale

can be expensive and small businesses may only do a little due to budget constraints and limited resources. larger businesses may pay someone else to do it

market research data - effectiveness

market reseearch data can be biased if customers give answers they thing the business wants them to give. a bias also happens by not surveying a representative sample

market research - reliability

research data should be reliable - representative -accurate

how to segment a market

• age

• demographics

• lifestyle

• location

• income

• gender

benefits of market segmentation

• meet specific customer needs

• differentiate its products

• focus on a specific groups needs

• target marketing activity

• develop usp

• build closer relationships

limitations of market segmentation

• costly

• could miss another opportunity

• customer characteristics change over time

benefits of market mapping

• identify gaps in market

• identify competitors

• helps to make decisions about marketing

limitations of market mapping

• biased

• simplistic

• difficult to identify appropriate varibles

ways to compete

• wider product range

• lower prices

• better designs

• higher quality

• more convenient location

• stronger brand image

• better customer service

differentiate products

make a product different from others in ordee to appeal to customer needs and stop a product from becoming obsolete and compete with competitors

drawbacks of highly competitive markets

• lower prices in order to compete

• accept lower profit margins

• cut back on expenses

• be careful about how and when it expands

• monitor competitors closely

total costs

revenue = total fixed costs + total variable costs

revenue

revenue = price x quantity

profit

profit = sales revenue - cost of sales

profit as an objective

• survive

• reinvest profits for expansion

• provide security and savings

• reward employees

• generate wealth for owners

interest

interest = total repayment - borrowed amount/borrowed amount x100

breakeven

fixed costs / sales price-variable cost

importance of cash

• pay suppliers and other debts

• repay bank loans

• pay wages to employees

• buy raw materials and products to sell

• promote the business

what impacts cash flow

• change in costs

• seasonality in sales

• business expansion

• change in stock levels

• credit terms can change

• changes in sales revenue/change in demand

short term sources of finance - bank overdraft

covering short term expenses that can be repaid quickly

short terms finance - trade credit

paying for stock or goods when the goods have already been sourced

reasons for finance

• paying for expanses

• expanding the business

• investing in new products and services

• shorting a new business

• paying for unforeseen costs

long term finance - personal savings

covering short-term expanses that can be repaid quickly

long term finance - venture capital

raising capital from investors to find a new business idea

long term finance - share capital

raising large amounts of money by selling equity in a limited company

long term finance - loans

covering large expenses associated with starting or expanding a business which will be repaid over a number of years

long term finance - retained profit

reinvesting in a successful business to ensure that it kept growing

long term finance - crowdfunding

raising money from a large number of people in return for some sort of reward

long term finance - selling shares

a share is a part ownership in a business a limited company can sell shares to potential investors are then shareholders in the business and are entitled to a share of any profits made

unlimited liability

the owner is legally responsible for any debts of the business and is therefore potentially at risk of losing personal belongings to pay off debts

limited liability

owners and the business have separate legal identities and owners can only pay for any debts made by business up to how much they have invested

principle of franchising

expansion of an established business by licensing the right to set up their own business using the name,equipment and product the franchisor receives a fee

what does francisee get

• established brand name

• advertising and promotion

• training

• support

• access to goods and services

• equipment

• customers

benefits of running a franchise

• brand image and reputation

• marketing covered

• access to tried and tested products

• customers

• higher chance of survival

• support and training provided

drawbacks of running a franchise

• cost of initial investment is high

• little freedom

• pay a fee to franchisor

• restrictions on location

sole trader - advantages

• makes all decisions

• quick and easy to set up

• keep all profits

• financial info is private

sole trader - disadvantages

• unlimited liability

• harder to raise money

• a lot of pressure

• no one to cover time off

partnership - advantage

• wider expertise

• share risk

• easier to raise finance

partnership - disadvantages

• decisions made by one affect all

• no longer exists if one person leaves

• share the profit

• disagreements

private limited - adv

• limited liability

• customers may trust more

• continue to trade if shareholders change

• easier to finance

private limited - disadv

• more complex

• shareholders may disagree

• financial info is published

• more info needed to be reported to goverment

location - proximity

• competitors

• market

• materials

• labour

• transport

manufacturing influences location

may require specialist resources to be transported to their site and specialist facilities for removal of waste

exporting influences location

may need to access docks, rails or airports in order to distribute abroad

retailing influences tourism

may need to be situated on a busy high street to gain the benefits from passing trade

tourism influences location

may need to be more near popular tourist attractions such as beaches and famous location

location and internet

trading on the internet removes the significance of location for businesses because they sell online

marketing mix - product

product has t meet needs and wants of customers - a successful business will differentiate their products from competitors

marketing mix - place

how product is distributed

marketing mix - promotion

communication between the business and customers that make the customers aware of product

marketing mix - price

price needs to fit the quality and value of product in customers opinion

technology and product

new technology demands that products are constantly updated and improved to fit new tech

technology and promotion

switching focus from traditional advertising to forms of digital promotion

technology and price

customers can easily compare prices online

technology and place

e-commerce not only provide an effective channel for selling but also the ability to customise products and services

purpose of business plan

• convince bank to give loan

• forecast financial projections

• identify needs of customers

• spot and provide important info

• provide owner with a plan of action

content of business plan

• links together topics covered n different parts of specifications

• help answer important questions

business plan - business idea

outline of business concept and idea so shareholders can understand the owners intention

business planning - aims and objectives

specific measurable and achievable and realistic that the business can measure success from

business planning - market research

identifies the business’ target market and maket conditions

business planning - financial forecast

forecasts of the business’ costs,revenue, profit and breakeven

business planning - sources of finance

how the business will be financed and how borrowings will be repaid

business planning - location

location and reasons for it

business planning - marketing mix

how business will be able to develop successful products and services

business planning - production

how product will be produced including supplies

possible positive effects on stakeholders

• receive return on investment

• employees and managers receive income, rewards, financial stability

• customers receive high quality products at reasonable price

• local community may benefit from development and investment in the local area

• goverment collects income tax and corporation tax

possible negative effects on stakeholders

• local community can suffer because of pollution

• goverment needs to monitor and regulate business activity that is unfair or illegal

• employees may lose job and income

• employees may work under poor conditions

• pressure groups protest against unethical business activity

technologies affect on cost

can be huge investment but in the long term can help a business improve efficiency and reduce costs

technologies affect on sales

innovating products with new tech can increase demand and boost sales

technologies affect on marketing mix

lowering cost of a product make promotions easier though social media allowing customers to purchase products anytime and anywhere through e-commerce

drawbacks of consumers law

• business must know the law and keep up to date

• laws can restrict from operating as they wish

• costly to change products to comply

• possible bad publicity

• consumers can use law to take legal action

benefits of consumers law

• being compliant means being less likely to be fines or sued

• considered professional if compliant

• improved relationship with stakeholders

• good publicity if followed

drawbacks of employment law

• costly

• increase business costs

• failing to comply may lead to happy employees/low productivity

benefits of employment laws

• being compliant means to be considered a good employer

• increased employee retainment

• employees are happier and more productivity

meet law requirements through costs

meeting requirement means businesses incur additional costs

meet law requirements through equipment

health and safety approved

meet law requirements through licenses

must meet them to be granted relevant licenses

meet law requirements through pay

must meet requirements for the national living wage

meet law requirements through administration

must use correct processes and record-keeping systems

meet law requirements through training

employees must be trained in health and safety rules and customer service guidelines

what might change demand

• level of economic activity

• interest rates

• changes in exchange rates

• consumer income

• changes in taxation

impact of high demand

• consumer incomes rise

• inflation may rise

• unemployment may fall

• interest rates may rise

• the pound may become stronger

impact of low demand

• consumer incomes fall

• inflation may fall

• unemployment may rise

• interest rates may fall

• the pound may become weaker