Business Edexcel International A level Unit 1 - Chapters 1-22

Market Share

Business sales/Market sales x 100 = %

Total Revenue

Selling price x Quantity sold

Mass Market

Products aimed at a large group of buyers, with wide appeal and useful to a variety of consumers. More competition

Niche Market

Products aimed at a specific group of buyers, specialised to meet the particular requirements of customers

Branding

Creating a clear logo, name and/or statement that consumers can instantly recognise

Market Size

Total value of sales over a period of time or total number of consumers

Dynamic Markets

Markets that are rapidly changing and evolving. They can change by:
- Consumer preferences can change
- Innovation, meaning new products/processes emerge
- The way to shop, eg. Online shopping Changes in legislation

Market Research

Involves gathering, presenting and analysing information about marketing/consumption of goods and services. It is important because:
- Finds out what consumers want/need
- Predict amount of demand
- How best to market the product
- How much consumers are willing to pay
- Identifying competitors

Primary Research

Newly gathered research made by the company/business, usually by using:
- Surveys
- Observations
- Interviews
- Focus Groups

Secondary Research

Information from government statements, the Internet and market reports

Product Orientation

Businesses focusing on the product itself and the quality rather than customers needs

Market Orientation

Businesses focusing more on consumer wants and needs, typically giving it better marketing.
Advantages/effects include:
- Can respond more quickly to changes in the market
- Stronger position to meet new competition
- More able to anticipate market changes
- More confident the launch of a product will be a success
However, it must:
- Consult consumer thoroughly
- Design the product with the wishes of consumers
- Produce in quantities the consumer would buy
- Distribute the product according to buying habits of the consumer
- Set the price to something a consumer is willing to pay

Market Positioning

Market positioning is when consumers categorise products to a range of factors such as quality, value and status. Business may try to position their products, by:
- Benefits offered by a product Unique selling point
- Characteristics of the product Origin of the product
- Classification name of the product

Market Segmentation

Process of dividing a large market into smaller, distinct groups of customers who share similar characteristics & needs. Some types include:
- Demographic segmentation
- Geographic segmentation
- Psychographic segmentation (consumer's lifestyles and values)
- Behavioural segmentation (consumer's purchasing behaviour)

Competitive Advantage

A business's way of creating an edge over other competitors to generate more profit. Some methods include:
- Lower costs
- Product innovation
- Advertising/marketing
- Product differentiation
- Reliability and quality
- Good consumer service
- Convenience

Added Value

Offering additional benefits to your customers beyond the product or service itself.

Test Marketing

Test marketing is a strategy used by companies to gauge potential consumer response to a new product or advertising campaign before it is widely released. This involves selling the product in a small geographic area or demographic group to evaluate if it will be successful in a larger market.
Advantages of Test Marketing:
- It allows companies to test the viability of a new product or service in a controlled and manageable market.
- It can help identify potential issues or necessary adjustments before a full-scale launch.
- It provides valuable feedback and data from actual consumers.
Disadvantages of Test Marketing:
- It can be expensive and time-consuming.
- It may alert competitors to a company's plans, giving them time to copy ideas or prepare counter-strategies.
- The results might not be perfectly representative of the larger market.

Demand

The amount of a product consumers are willing to buy at a given price. Factors leading to a change in demand include:
- Price changes of substitutes (eg. margarine and butter)
- Complementary products (eg. printers and ink)
- Consumer income - more disposable income = higher demand for products
- Fashion and consumer preferences
- External shocks

Supply

The amount of product that suppliers will offer to a market at a given price. Supply can be affected by various factors, such as: - Cost of production - if costs for making a product rises, there will be a fall in supply
- Taxes that can be changed by the government can have an effect on supply
- Subsidies - money from the government to help increase supply of a certain product
- New technology can make creating products more efficiently
- External shocks

Equilibrium Price

Where both suppliers and buyers hold the same wishes. All supply is sold out

Price elasticity of demand

The measure of how much the quantity of a product people want to buy changes when the price of that product changes

Elastic Demand

If price goes up, they buy a lot less. If price goes down, they buy a lot more

Inelastic Demand

Even if price goes up, demand changes a little and vice versa

Luxury Goods

Non essential goods that people buy. Eg, iPhones. Usually elastic

Essential Goods

Essential goods that are needed to live. Eg, water. Usually inelastic

Price Elasticity of Demand Formula

% change in quantity demanded/% change in price

Factors affecting the PED

- Availability of substitutes
- Time. Short periods of time, demand is more inelastic and vice versa
- Perceived necessity - businesses can make their good seem like an essential, making demand inelastic

Income Elasticity of Demand

Measures the responsiveness of demand to a change in income. % change in in quantity demanded/% change in income

Normal Goods

Normal goods are products that have a higher demand when consumer income rises. Eg. Ferrari. Positive values

Inferior Goods

Inferior goods are products that have a lower demand when consumer income rises, as they can afford better. Eg. Bus ticket

Marketing

The activity or business of promoting and selling products or services, including market research and advertising

Marketing Objectives

Goals a business aims to achieve with their marketing, eg. reach 10,000 users

Product Life Cycle

Shows the sales of a product over time. It is valuable for planning marketing strategies and where a product is on it's cycle

Extension Strategies

Strategies used to extend a product's life cycle. Some methods of this is:
- Product Development (improvements, redesigns)
- Promotion (new ad campaign, special offers)

The Boston Matrix

Compares different products in regards to market growth, market share and sales revenue. Valuable way of figuring out where a product is positioned in the market

Marketing Mix

The 4 P's - explains how to market a product correctly. Price, Product, Place, Promotion

Mass Marketing Strategy

A marketing strategy aiming to appeal to an entire market

Niche Marketing Strategy

More emphasis on creating a different/unique product

B2B

Business to business marketing. Typically less emotional and instead marketed more with statistics, eg. surgical gloves to a local hospital

B2C

Business to consumer marketing. More emotional and less statistical, eg. supermarket to customers

Customer Loyalty

Businesses who create good relationships with consumers will gain loyalty. This can be encouraged with loyalty cards

Product Design

The process of creating a new service/product. Involves the development of ideas that lead to new product/services

Design Mix

A number of key features must be considered when coming up with a new product. These features are shown in the design mix, a pyramid with 3 points; functions, costs, and aesthetics

Social Trends

Trends that consumers are going through. For example, consumers do not like wastage currently, so Starbucks started selling reusable cups and offering discounts if it is brought in. Not only has Starbucks gotten more consumers and profit, but they are also saving on cups

Informative Advertising

Adverts designed to increase consumer awareness. They give clear information about the features of a product

Persuasive Advertising

Some advertising is designed to put pressure on consumers to buy a product. Usually convinces consumers to buy a particular brand, eg. Nike over Adidas. They appeal to people's emotion to make a better argument, and often uses celebrities to show important people using their product

Reassuring Advertising

This advertising is aimed at existing customers. Its goal is to make consumers feel good about a product they bought and that they should continue to do so. Usually used by companies offering financial services to convince people their money is 'safe'

Above-the-line Promotion

Involves advertising in the media, eg. going on TV or getting an ad printed in a newspaper

Below-the-line Promotion

Refers to any form of promotion that does not involve advertising

Rebranding

Changing a company's logo, design, promotion or pricing of an existing brand

Sponsorship

A business who helps contribute to the total costs of something, eg. sports in return for promotion

Pricing Strategy

Part of the marketing strategy of the business

Price Skimming

Prices are very high when the product comes out, and slowly lowers, eg. iPhone

Penetration Pricing

Prices are very low when the product comes out to gain market share and attract customers

Cost-Plus Pricing

different marketing strategies in regards to pricing. One of these methods is when a business adds a percentage mark-up to a product. Price = unit cost + (unit cost/100 x mark-up)

Distribution

The location where consumers can buy products from

Channel of Distribution

The route a product takes from the manufacturer to the consumer. Usually passes through intermediaries - supermarkets, retailers etc. This is how to find the best channel of distribution for your business:
- Nature of the product, as different products require different distribution methods. For example, most services are sold from manufacturers to consumers directly
- Cost, as businesses would like to pick the cheapest distribution method as intermediaries take a large share of profit
- The market, as producers in mass markets likely use intermediaries

Direct Selling (2-Stage Channel)

Goes from the manufacturer to the consumer. Used a lot by businesses based on the Internet (e-commerce)

Indirect Selling (3-Stage Channel)

Goes from manufacturer to retailer to consumer. Normally used for recreational items such as clothes and homeware

Indirect Selling (4-Stage Channel)

Goes from manufacturer to wholesaler to retailer to consumer. Traditionally used for groceries. However, each business wants to profit at each stage of the distribution channel, making the final price high for the consumer

Wholesaler

A business that buys from manufacturers and sell to retailers. They may break bulk, repackage products and store goods

Retailers

A business that buys from manufacturers/wholesalers and sells to consumers. They buy large quantities and sell low quantities to consumers

Staff as an Asset

Employers who view staff as assets will value employees higher and have concern for their welfare. Because of this, they will try to provide:
- Acceptable remuneration
- Reasonable holidays
- Safe working environment
- Job security
- Effective leadership
- Chances for promotion
- Opportunities to work in teams, be creative and solve problems

Staff as a Cost

Employers who view their staff as costs will try to minimise it as much as possible. For example, they may:
- Pay minimum wage
- No investment in training
- Use incentives to raise productivity
- Providing the minimum legal employee rights
- Having penalties for late workers, break. rules etc.
- Use cheap recruitment methods

Flexible Workforce

It is easier to match the work done by employees to the needs of the business if it is flexible, saving both the business and employees money and time. Some methods of creating a flexible workforce is:
- Full/part-time contracts. Employees who are employed full-time work at least 35 hours a week. By having more part-time workers, they can come in at specific times where other staff are absent
- Zero hours contracts. Businesses that employ a worker but do not guarantee him a specific amount of hours. Staff only work when they are needed to save money for the company. However, employees are under no obligation to accept the work, and businesses may not be able to find enough staff at busy times
- Permanent/temporary contracts
- Shift work
- Working from home
- Flexible hours
- Outsourcing, meaning a business outsources some tasks to other companies
- Multi-skilled, where employees are trained to be able to do a range of tasks

Recruitment

The act of a business hiring staff, usually because more labor is needed, people need replacing or positions have become vacant. Businesses usually hire by following this recruitment process:
1. Identify type and number of staff needed
2. Prepare job description/person specification
3. Advertise the job using appropriate media
4. Evaluate applicants and shortlist for interview
5. Evaluate interviews and make appointments
6. Provide feedback for unsuccessful candidates

Internal Recruitment

When a business hires someone who already works for them, eg. promotion. It is cheap, employees already know the business, and motivate others to do well for a promotion. However, it leaves another job empty, and can cause resentment between employees

External Recruitment

When a business hires someone from outside the business. Brings in new ideas, experience from other organisations and more applicants, but can cost more, will be a longer induction process, and the business doesn't really know who the employee is

Induction Training

Training a new recruit receives when he joins a business

On-The-Job Training

A worker is trained by an experienced worker in the workplace, usually where practical skills are taught, eg. stocking a warehouse

Off-The-Job Training

A worker goes to a site away from the business to be taught, eg. driving a truck

Organisational Structure

The structure in which positions are arranged. They can either be tall or short, and wide or narrow. They show how:
- How the business is split into departments
- Role of employees/job titles
- Who has responsibility
- Communication channels

Hierarchical Structure

A traditional structure, where each tier has authority over the levels below

Chain of Command

The path of communication and authority up and down the structure

Matrix Structure

Organise staff by 2 different criteria. Commonly used for project-based businesses

Centralised Organisation

All decisions are made by senior managers in a business. Some features include:
- Business leaders have experience in making decisions
- Managers get an overview of the whole business
- Senior managers hold no bias towards a specific part of a business
- Excluding other junior levels of staff may be demotivating
- Organisations are slow with changes, as there is a high chain of command

Decentralised Organisation

Authority is shared to more junior employees, eg. branch managers
- Involvement in decision-making motivates employees
- Can use expert knowledge from their area of business
- Day-to-day decisions can be passed quickly
- Employees may not have enough experience
- May be inconsistencies in different divisions of the business
- Junior employees do not hold the full scope of the business

Employee Motivation

How employees are goal-oriented in their careers and how efficient they are

Taylor's Scientific Management - Concentrate on Efficiency

Taylor's idea to maximise efficiency was to make staff do small, repetitive tasks with managers overlooking the work (Division of Labour). He would pay workers on how much they produce, so the most efficient workers would be paid more. Today, this would be seen as exploitation, and ignores the demotivating effect of doing very repetitive work.

Maslow's Hierarchy of Needs

Gives a hierarchy of needs most employees would agree with. It starts with basic physical needs, safety, social needs, self-esteem and self-actualisation (meeting their potential). Although this theoretically gives a good idea as to what needs workers prioritise, it can be unclear where on the hierarchy they are, and different employees may prioritise certain aspects over others.

Herzberg's Two Factor Theory

In the 1950-60s, Herzberg interviewed accountants and engineers on what motivated and satisfied them at work. He identified 2 main groups of factors; hygiene factors focus on company-related responsibilities, like pay, working conditions and supervision, whilst motivating factors focus on what motivates an employee, like interesting work, personal achievement, recognition and more responsibility. This theory is still used by businesses today, however, the main criticism is that a small number of people were interviewed and may have different hygiene and motivating factors.

Mayo's Human Relations Theory of Motivation

In the 1920-30s, Mayo investigated whether changes in working conditions increased productivity. 2 groups were used, 1 that didn't change and another that had multiple changes. Even if there was negative changes, it was found that the second group was more productive, as it showed employees management was attentive. It was also shown that teamwork improved productivity. This proves that when management is attentive and there is communication, employees will be more motivated. Furthermore, when employee's social needs are met, motivation is also improved.

Leadership

A leader has a long-term vision they share with others, pushing them in the right direction. They think about long-term consequences and are always looking to improve and innovate. Not all managers are leaders, even though they manage the day-to-day runnings of a business.

Autocratic Leadership

The leader makes decisions by themselves. They are exact when talking about goals. Works well in crisis management and amongst unskilled workers. Needs a lot of supervision. Can demotivate skilled employees.

Paternalistic Leadership

A softer form of the autocratic style. Leaders focus on employee well-being and motivation. Employees are consulted about decisions, and then persuaded as to why these decisions are in their best interest.

Democratic Leadership

The leader encourages workers to be involved in decision-making. They discuss and take advice from employees. Shows employees that management has faith in them - improving motivation. Quite difficult for larger companies, as there may be too many employees and the decision making process will take longer.

Laissez-Faire Leadership

Very hands-off form of leadership. Leaders offer coaching/support but rarely interfere with the running of the business, leaving it up to employees. Very applicable for a small group that is very able.

Transformational Leadership

Used when a business needs drastic change. Leaders have highly innovative ideas on how to improve the business and inspires employees to make these changes. Used in small businesses that need to grow/businesses that need modernising.

Entrepreneur

A person who sets up a business. They take on risks of new business activity for a reward, usually profit

Financial Motives

Financial motives are motives related to the capital part of a business - this can include profit maximization and profit satisficing

Non-Financial Motives

Motives that are not related to the finance of a business. For example, it may be solving a social challenge, working your own times or from home, and the flexibility

Cost Efficiency

Saving money for a business by reducing unit costs

Customer Satisfaction

A satisfied customer may become loyal, generating more revenue for a business

Social Objectives

Social objectives is when a businesses focuses on a goal to benefit society, such as donating to a charity

Opportunity Cost

When the business has to decide where to allocate resources for the most effective investment

Trade-Off

When using resources, one goal has to be given up. There are many choices that may have to be made in a business, such as Design Mix, Market Research, Business Ownership, Promotion and Pricing Strategy