Business Theme 1

Market growth

The increase in demand or sales for a particular product or service, or the overall increase in the size of a market. Usually measured on an annual basis.

Market size

The overall size (value or volume) or demand for a specific market.

Market share

The proportion of total sales in a market held by a particular business, product, or brand. It's often expressed as a percentage and indicates how a business is performing compared to its competitors. 

Risk

Possibility that things will go wrong, can be managed through contingency planning.

Examples of risk: Business investments, risk of a product breaching health and safety regulations.

Uncertainty

The unpredictable and uncontrollable events that affect business.

Examples of uncertainty: Sales success for a new product launch.

Niche market

Smaller segment of a larger market where customers have specific needs and wants requiring differentiated products.

Mass market

The largest part of a market where there are many similar, undifferentiated products offered by competitors.

Market research

Gathering and analysis of research to help support the implementation of marketing strategy. Provides insight into things such as competitor strategies and customer needs and wants.

Product orientation

Business develops products based on what it is good at doing.

Market orientation

Business responds to customer needs and wants - designs products accordingly.

Why is market orientation linked to marketing success?

• Markets are more dynamic - e.g technology which shortens product life cycles

• Customers are expecting a higher level of service and are able to share experiences on social media

• Barriers to market entry are getting lower - many new entrants utilising online and mobile technology

Primary research definition + benefits and drawbacks

Data collected first-hand for a specific research purpose.

Benefits:

• Directly focused on research objectives

• Kept private - not publicly available

• More detailed insights and specific to the business

Drawbacks:

• Time consuming and costly

• Risk of survey bias

• Sampling may not be representative

Secondary research definition + benefits and drawbacks

Data that already exists and which has been collected for a different purpose.

Benefits:

• Often free and easy to obtain

• Good source of market insights

• Quick to access and use

Drawbacks:

• Can quickly become out of date

• Not tailored to business needs

• Specialist reports are often quite expensive

• Can be accessed by competitors

Examples of primary resesrch

• Focus groups - potential customers share detailed views on a product or market.

• Observation - watching how consumers behave, works well in retail.

• Surveys - low cost, capture views of existing and potential customers.

• Telephone interviews - provides quick feedback, potential customers are often wary of being called and can give short answers.

• Test marketing - involves selling a new product in a small section of the market to assess customer reaction. Can predict how a new product will be received.

Examples of secondary research

• Published market research reports

• Internal transactional data

• Google

• Official statistics

• Trade associations

• Media reports

• Competitor materials

Quantitative research definition and methods of obtaining it

• Based on numerical data

• Addresses questions such as “how many?” “how often?” “who?” “when?” and “where?”

• Based on larger samples, therefore more statistically valid

Methods of obtaining:

• Various forms of survey: telephone, postal, face to face and online

Benefits and drawbacks of quantitative research

Benefits:

• Data relatively easy to analyse

• Numerical data provides insights into relevant trends

• Can be compared with data from other sources, e.g. competitors, history

Drawbacks

• Focuses on data rather than explaining why things happen

• Doesn’t explain the reasons behind numerical trends

• May lack reliability if the sample size and method is not valid

Qualitative research definition and methods of obtaining it

• Based on opinions, attitudes, beliefs and intentions

• Answers questions such as “why?” “would?” and “how?”

• Aims to understand why customers behave in a certain way or how they may respond to a new product or service

Methods of obtaining:

• Focus groups

• Interviews

Benefits and drawbacks of qualitative research

Benefits:

• Essential for important new product development and launches

• Focused on understanding customer needs, wants, expectations = very useful insight for a business

• Can highlight issues that need addressing - e.g. why customers don’t buy

• Effective way of testing elements of the marketing mix - e.g. new branding, promotional campaigns

Drawbacks:

• Expensive to collect and analyse - requires specialist research skills

• Based around opinions - always a risk that sample is not representative

Sampling definition + benefits and drawbacks

Sampling involves the gathering of data from a sample of respondents where the results should be representative of the population or target market.

Benefits:

• Even a relatively small sample (if representative) can provide useful research insights

• Using sampling before making marketing decisions can reduce risk and costs

• Flexible and relatively quick

Drawbacks:

• Biggest risk = sample is unrepresentative of population which leads to incorrect conclusions

• Risk of bias in research questions

• Less useful in dynamic markets

What is data mining and what are its benefits?

The process of searching and analysing a large batch of data in order to identify patterns and extract useful information

Benefits:

• Quick and automated

• Large data sets can be analysed = reduced need for sampling

• Data can be linked (e.g. transactional data with customer profiles)

Market segmentation + examples

Involves diving a market into parts that reflect different customer needs and wants.

Examples:

• Demographic - e.g. age, gender, lifestyle, religion

• Income

• Behavioural - based on ways customers use or respond to a product and the benefits they seek

• Geographical

Benefits and drawbacks of market segmentation

Benefits:

• Focuses resources on parts of a market where the business can succeed

• Allows growth of market share or to “ride the wave” of fast-growing segments

• Helps with new product development - focused on needs of customers in the segment

• Helps make the marketing mix more effective, e.g. more targeted promotion

Drawbacks:

• Data about each market segment is not always available, up to date or reliable

• Doesn’t mean you can reach customers in it

• Markets are dynamic and so are their segments

Benefits and drawbacks to market mapping

Benefits:

• Helps spot gaps in the market

• Useful for analysing competitors

• Encourages use of market research

Disadvantages:

• Just because there is a “gap” doesn’t mean there is demand

• Not guaranteed success

• How reliable is the market research?

What is product differentiation and what does it allow a business to do?

The act of distinguishing a product/service from competitors to make it more attractive to a particular target market.

Allows a business to:

• Compete effectively - hard to copy, creates competitive advantage

• Protect and build a brand - build intangible value and strengthen customer loyalty

• Add more value - strong differentiation allows the charge of a higher price, higher profit margins

What is demand and how is a demand curve drawn?

Demand is the quantity that customers are willing and able to buy at a given price in a given period of time.

What causes a change in demand?

• Price - depends on PED

• Incomes - for inferior goods, demand will fall as consumers choose better alternatives that are now affordable

• Fashions, taste and preferences

• Advertising and branding

• External shocks - sudden and often significant change in the external environment

• Seasonality

What is supply and how is a supply curve drawn?

Supply is the quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period.

What causes a change in market supply?

• Costs of production - Higher unit costs cause an inward shift of supply e.g. a rise in wage rates or an increase in energy prices / other raw materials

• External shocks - e.g. economic downturn led to companies cutting back scale of operations

• New technology - encourages new market entrants and enable existing suppliers to become more efficient, thereby increasing their potential to supply.

• Taxation and subsidies - E.g. subsidies given for instillation of solar panels.

Equilibrium

Elasticity

Measures the responsiveness of demand to a change in a relevant variable - such as price or income.

PED =

% Change in quantity demanded /

% Change in Price

How to interpret PED

Factors that will influence the PED of a product

• Brand strength - Products with strong brand loyalty and reputation tend to be price inelastic

• Necessity - demand tends to be inelastic

• Habit - Inelastic

• Availability of substitutes - Demands for products that have lots of alternatives tend to be price elastic

• Time - Price changes tend to have less impact on demand over longer periods.

YED =

% Change in quantity demanded /

% Change in income

Luxury goods YED and examples

YED = more than 1

As income grows, more is spent on luxuries

Examples:

• Consumer goods

• Expensive holidays

• Branded goods

Necessities YED and examples

YED = less than 1 but more than 0

As income grows, less is spent on necessities

Examples:

• Staple groceries (e.g. milk)

• Own-label goods

Inferior goods

YED = less than 1

As income rises, demand falls due to consumers switching to better alternatives, substitute products become affordable.

Limitations of using elasticities

• Can be difficult to get reliable data on how demand changes in relation to price (although this is getting easier with the emergence of big data)

• Other factors affect demand (e.g. consumer tastes)

• Many markets subject to rapid technological change, making previous data less reliable

• Competitors will react - pricing decisions can’t be taken in isolation

Design Mix

• Function - The way the product works, is it reliable? does it do what it is supposed to?

• Cost - Does the design allow the product to be made and sold profitably? How much value is added during the production process?

• Aesthetics - How the product appeals to customers in terms of how it looks, feels etc. Based on the subjective judgement of the customer. Popular way to differentiate a product.

Features of products that focus on function in the design mix

• More predictable and stable demand

• Longer product life cycles

• Lower promotional costs

• Build reputation for quality based on reliability

• Economic manufacture through economies of scale

Features of products that focus on aesthetics in the design mix

• High added value

• Demand fuelled by customer aspiration

• Potentially shorter product life cycle

• Attracts imitation = need for design protection

• Need for greater promotional support

How the design mix is changing to reflect social trends

Sustainability

• Not damaging the environment

• Minimise waste in production

• Enable recycling or re-use

Ethical supply chains

• Consumers are increasingly interested in buying from “ethical” businesses

• “How” products are made is a key issue for many consumers

• There is potential for significant damage to a business reputation if issues are discovered in its supply chain

Waste minimisation

• Links to lean production

• Businesses address this issue by ensuring products are recyclable and production has minimum waste.

Marketing mix

• Price

• Product

• Place

• Promotion

Used to:

• Forecast future sales trends

• Help with market targeting and positioning

• Help analyse and manage the product portfolio

The product life cycle

• Development - often complex and time consuming, absorbs significant resources, high cost, high failure rate so businesses may use a test launch.

• Introduction - Likely to be low sales, low capacity utilisation and high unit costs, usually negative cash flow.

• Growth - Fast growing sales helped by wider distribution, rise in capacity utilisation should lower unit costs, cash flow may become positive, attracts new entrants to the market.

• Maturity - Slower sales growth, intense competition, high capacity utilisation, strongly positive cash flow, weaker competitors begin to leave the market

• Decline - Falling sales, market saturation, decline in profits and weaker cash flows, more competition leave, decline in capacity utilisation as they switch capacity to alternative products.

Extension strategies

• Lowering the price

• Changing promotion (e.g. new promotional message)

• Changing the product - re-styling etc.

• Looking for alternative distribution channels

Criticisms of the product life cycle

• Shape and duration varies from product to product

• Difficult to recognise where a product is in its life cycle

• Length cannot reliably be predicted

• Decline is not inevitable

Product portfolio analysis

Assesses the position of each product or brand in a firm’s portfolio to help determine the right marketing strategy for each.

Most popular model is the Boston Matrix.

What does the Boston Matrix look like?

Categories of the Boston Matrix

• Question marks - Low market share in high growth markets. Suggests they have potential but need substantial investment.

• Stars - High growth products competing strongly against competition. Often need heavy investment to sustain growth, eventually growth will slow and if they keep their market share they will become a cash cow.

• Dogs - Low market share in low growth markets, rarely generate enough cash to break even, not worth investing in, usually sold or closed.

• Cash cows - Low growth products with high market share. These are mature, successful products with relatively little need for investment. Need to be managed for continued profit so that they generate the strong cash flow needed to invest in stars.

How valuable is the Boston Matrix?

+ Useful for analysing product portfolio decisions

- Only a snapshot of the current position

- Little or no predictive value

- Focus on market share and market growth ignores issues such as developing a sustainable competitive advantage

What is branding and what are the benefits of effective branding?

A brand is a product that is easily distinguished from other products so that it can be easily communicated and effectively marketed. A brand name is the name of the distinctive product.

Types of brand

• Product brand - brands associated with specific products. E.g. pot noodle

• Service brand - brands that add perceived value to services either delivered face-to-face or online. E.g. Vue

• Umbrella / family brand - brands assigned to more than one product, makes different product lines easily identifiable. E.g. Cadbury

• Corporate and own label brands - promoting a brand name of a corporate entity as opposed to specific products or services. E.g. Unilever

• Own label - example of corporate branding where retail outlets assign their corporate branding to a range of products. E.g. Tesco

• Global brand - Easily recognised and operating worldwide. Based on familiarity, availability and stability. E.g. Coca-cola

What is the promotional mix and its main elements?

The promotional mix is the promotional methods used to pursue marketing objectives.

Its main elements are:

• Advertising

• Sales promotion and merchandising

• Personal selling

• Public relations / publicity / sponsorship

• Direct marketing

Advertising definition + benefits and drawbacks

Paid for communication, e.g. mobile, tv, radio, social media

Benefits:

• Wide coverage

• Control of message

• Repetition means message can be communicated effectively

• Effective for building brand awareness and loyalty

Drawbacks:

• Expensive (especially in mass markets)

• Impersonal (less for online)

• One way communication

• Lacks flexibility

• Limited ability to close a sale

Personal selling definition + benefits and drawbacks

Promotion on a person-to-person basis, e.g. telephone, retail outlets

Benefits:

• High customer attention

• Customised message and interactive

• Opportunity to close the sale and be persuasive

Drawbacks:

• High cost

• Labour intensive

• Can only reach a limited number of customers

Sales promotion definition + benefits and drawbacks

• Tactical, point of sale material to stimulate purchases, e.g. free samples or coupons.

Benefits:

• Effective to achieve a quick boost of sales

• Encourages customers to trial a product or switch brands

Drawbacks:

• Sales effect may only be short-term

• Customers may come to expect further promotions

• May damage brand image

PR definition and aims

Create goodwill towards an individual, business, cause or product.

Aims:

• Achieve favourable publicity

• Promote new products and enhance awareness

• Obtain favourable reviews

Direct marketing definition and its aims

Involves sending a promotional material through email, social media etc to individuals in aim to trigger a response, such as a purchase or enquiry.

Aims:

• Increase sales

• Build customer loyalty

Financial objectives vs Marketing objectives

Financial:

• Maximise profit

• Achieve a target level of profits / returns

• Improve cash flow

Marketing:

• Maintain/ improve market share

• Prevent competition

• Increase sales

• Build a brand

Benefits and drawbacks of cost based pricing

Benefits:

• Easy to calculate

• Profit on every product sold

Drawbacks:

• Doesn’t take competition into account

• Ignores PED

• Doesn’t guarantee customers will pay that price - therefore losing sales

Price skimming

• Setting a high price to maximise profits

• Aims to recover from development costs quickly

• Creates excitement amongst “early adopters”

• E.g. electronics

Price penetration

• Offering a low introductory price

• Aims to gain market share quickly, build customer usage and loyalty, build sales of higher-price related items

• Price can be increased once target market share is reached

Psychological pricing

Tricks people into believing the product is cheaper than it really is, e.g. 99p on the end.

Loss leaders

• Product advertised at a price below the normal price and even below cost to the seller

• Encourages customers to buy other full price products along with the loss leader product

• Draw in customers away from rivals

• Encourage people to buy complementary goods at full price

Dynamic pricing

Business sets flexible prices for products or services based on current market demands. E.g. surge pricing on Uber or amazon pricing

Purpose of distribution channels

• Provide a link between production and consumption

• Help gather market information

• Communicate promotional offers

Distributors and agents

Distributors:

• Sell on products and serve as a local sales point, usually specialise in an industry

• Offer products from many producers = greater choice

• Holds stock

Agents:

• Specialist type of distributor

• Tend to operate in a tertiary sector, e.g. travel or insurance

• Don’t hold stock

Reasons for indirect distribution

• Allows business to make use of resources elsewhere, less capital tied up on inventories

• Businesses may lack retail experience

• Customers may live too far away to reach directly or may be wide spread

Multi channel distribution channel benefits and drawbacks

Benefits:

• Allows more target segments to be reached

• Customers increasingly expect products to be available through more than once channel

• Enables higher revenues, e.g. customers can buy online if retailers have no stock

Drawbacks:

• Potential for channel conflict - e.g. competing with retailers by also selling online

• Can be complex to manage

• Danger that pricing strategy becomes confused in customers eyes

Staff as an asset (soft HRM)

• Treats employees as the most important resource in the business and a source of competitive advantage

• Concentrate on employee needs, e.g. roles, rewards, motivation.

• Strong and regular two way communication

• Competitive pay structure with suitable performance related rewards (e.g profit share, share options)

• Employees are empowered and take responsibility for

• Flatter organisational structure

• Suitable with a democratic leadership style

• Being too ‘soft’ when all employee benefits are added up can be costly

Staff as a cost (hard HRM)

• Treats employees simply as a resource of the business

• Identify workforce needs of the business and recruit and manage accordingly (hiring, moving, firing)

• Short term changes in employee numbers (recruitment and redundancy)

• Minimal communication, top down

• Little empowerment and delegation

• Taller organisational structures

• Suits autocratic leadership style

• More cost effective however a genuinely ‘hard’ approach will create higher absenteeism.

Outsourcing

Delegating one or more business processes to an external provider.

Employee representation benefits and drawbacks

Benefits:

• Increased empowerment and motivation

• Better decision making as employee experience is taken into account

• Lower risk of industrial disputes

Drawbacks:

• Time consuming - potentially slows decision making

•Conflict

• Managers may feel authority is being undermined

Trade unions

An organised association of workers in a trade formed to protect and further their rights and interests. Represents and negotiates on behalf of employees.

Role:

• Protect and improve the real incomes of their members

• Provide job security

• Lobby for better working conditions

Industrial action

• Work to rule - employees follow strict conditions of their employment contract and don’t work voluntary overtime

• Overtime ban

• Go-slow - employees work at slowest possible pace

• Strike

Damage to business:

• Lost sales and profits from lost output

• Damage to customer satisfaction

Damage to Employee:

• Lost pay

• Potential loss of jobs in an attempt to cut costs

Work councils

Formal group of employees representing a workforce in discussions with their employers.

• Focus on business objectives and performance

• Workforce planning issues

• Employee welfare issues

• Compliance with legislation

Methods of settling industrial disputes

Conciliation:

• Used when an employee is making a specific complaint against employer

• Conciliator discusses issues with both parties to help them reach an understanding of each others positions

Arbitration:

• Alternative to a court of law

• Held in private and voluntary, both parties must agree

• Impartial outsider makes decision on dispute based on evidence presented by parties

Mediation:

• Involves an independent, impartial person helping two or more individuals reach a solution acceptable to everyone

• Best used early in an industrial dispute

Internal recruitment methods + benefits and drawbacks

Jobs given to already employed staff, Promotion and reorganisation

Benefits:

• Cheaper and quicker

• People already familiar with business and how it operates

• Provides opportunities for promotion with in business

Drawbacks:

• Business already knows the strengths and weaknesses of candidates

• Limits number of potential candidates

• No new ideas

• Resentment amongst candidates not chosen

• Creates another vacancy

External recruitment methods + benefits and drawbacks

Job centres, job advertisements, recruitment agencies

Benefits:

• Outside people bring new ideas

• Larger pool of workers to find the best candidate

• People have a wider range of experience

Drawbacks:

• Longer process

• More expensive

• Selection process may not be effective enough to reveal best candidate

On the job training method + benefits and drawbacks

Demonstration, coaching/close working, job rotation to gain wider experience, group projects

Benefits

• Generally cost effective

• Employees actually productive

Drawbacks

• Quality depends on ability of trainer and time available

• Bad habits may be passed on

• Potential disruption to production

Off the job training methods + benefits and drawbacks

Day or part time attendance at college, professional development courses, online training

Benefits

• Wider range of skills or qualifications to be obtained

• Learn from outside specialists

• Employees start job more confidently

Drawbacks

• More expensive

• Lost working time

• New employees may still need some induction training

• May leave for better jobs with new skills and qualifications

Span of control

Number of subordinates a manager is directly responsible for.

Span of 7 = wide

• more independence

Span of 3 or below = narrow

• closer supervision and effective communication, more layer in hierarchy

Suitable span depends on:

• Experience and personality of the manager

• Nature of business, is close supervision needed?

• Culture, e.g. democratic management may operate wider spans of control

Tall vs flat structure

Tall

• many layers of hierarchy and narrow spans of control

• opportunities for promotion

• longer communication time

• more layers = more staff = higher cost

Flat

• few layers of hierarchy and wide spans of control

• less promotion opportunities but staff are given greater responsibility

• verbal communication improved

• fewer layers = less staff = lower costs

Delayering benefits and drawbacks

Benefits

• lower management costs

• faster decision making

• shorter communication paths

Drawbacks

• wider spans of control could be too wide

• potential loss of management expertise

Matrix structure definition + benefits and drawbacks

Where individuals work across teams and projects as well as within their own department or function.

Benefits

• Improves communication between departments

• Greater motivation amongst team

• Shares resource across departments

Drawbacks

• Divided loyalties as they report to two lines of managers

• Difficult to co ordinate

• Takes time to get used to working in matrix structure

Centralised decision making benefits and drawbacks

Decisions rest with senior management at the centre of a business

Benefits

• Prevent other parts of the business from being too independent

• Easier to co ordinate and control from centre, e.g. budgets

• Easier to achieve economies of scale

• Quicker decision making

Drawbacks

• Local and junior managers often closer to customer needs

• Lack of authority down the hierarchy may reduce motivation

Decentralised decision making benefits and drawbacks

Decision making spread out to include more junior managers in the hierarchy.

Benefits

• Decisions made closer to customer

• Improved level of customer service

• Improve motivation

Drawbacks

• Not necessarily strategic

• Harder to ensure consistent practices and policies at each location

• Diseconomies of scale, e.g. duplication of roles

Delegation + benefits and drawbacks

Assignment to others of the authority for particular functions, tasks and decisions.

Benefits

• Reduces management stress and workload

• Allows senior management to focus on key tasks

• Subordinates are empowered and motivated

Drawbacks

• Depends on quality and experience of subordinates

• Harder in a smaller firm

• May increase workload and stress of subordinates

Taylor’s motivational theory (scientific management)

• Identify efficient workers and train remaining workers to work like them, workers are payed based on productivity (e.g. piece rates)

• Believe workers are motivated by money

• Managers should maintain close control and supervision over employees

• Autocratic style of management

Maslow (Hierarchy of Needs)

• Lower level of needs needs to be met before a worker is fully motivated by the opportunity of having the next need up in the hierarchy satisfied

• Business should offer different incentives to workers in order to help them fulfil each need

Herzberg (Two factor theory)

Suggests two key factors in workplace motivation:

Motivators

• Factors that directly motivate people to work harder

• E.g. giving responsibility, recognition for good work, opportunities for promotion

Hygiene (maintenance) factors

• Factors that can de-motivate if not present but do not actually motivate employees to work harder

• E.g. pay, working conditions, job security

• Herzberg use job enrichment and empowerment

Mayo (Human relations theory)

• Workers are not just concerned with money but need their social needs met

• Believes workers are best motivated by better communication between managers and workers, greater manager involvement in employees working lives and by working in groups or teams.

• Fits with paternalistic management style

Employee engagement vs Employee motivation

Employee engagement

• Employee is positive about their work

• Thinks hard about how to improve

• Engaged with fellow employees

Employee motivation

• Employee has a will to work due to work incentives and satisfaction from work itself

Financial vs non financial incentives

Financial

• Wages

• Commission

• Performance related pay

• Profit sharing

• Share options

• Fringe benefits

Non financial

• Job empowerment

• Praise

• Promotion

• Job enrichment

• Job enlargement

Performance related pay benefits and drawbacks

Paid to employees who meet certain targets

Benefits

• Senior managers can easily monitor and assess individual employee performance during appraisal process

• Setting targets for employees helps makes sure they are focused on company objectives

Drawbacks

• Discourages team based approach and creates rivalry between managers

• Can be difficult to accurately measure worker performance

• Incentives may not be large enough to motivate employees

Piece-rate payments benefits and drawbacks

Pay per item produced in a certain time

Benefits

• Requires low levels of manager supervision

• Encourages high speed production

• Good incentive for workers motivated by pay

Drawbacks

• Workers are focused on quantity not quality

• Repetitive and de-motivating

• Workers are used to one method of production and may resist change

Commission

• Usually linked to achievement of sales

• Higher rate offered once sales targets are achieved

Benefits

• Clear link between sales and remuneration

Drawbacks

• Sales may be influenced by factors outside of employee control (e.g. mature product, customer service)

Authoritarian leadership style

• Manager holds power

• Communication top down and one way

• Use of rewards and penalties

• Very little delegation

• Links to McGregor theory X approach

Democratic leadership style

• Focus of power and leadership is with the group as a whole

• Employees have greater involvement in decision making

• Emphasis on delegation and consultation

• Trade off between speed of decision making and better motivation and morale