Business

Basics

Business: An organisation that combines factors of production in order to create goods and services to satisfy consumes’ needs and wants.

Needs: Essential Items

Wants: Non-essential Items

Aim: The main goal of the business (financial/non-financial)

Objectives: Help to achieve the aim (multiple targets).

Understanding Business Activity

Factors of Production/Inputs

• Capital: financial resource or assets (machinery, equipment, etc.) for the purpose of investing/starting a business.

• Enterprise: The skills and risk taking of the person who oversees the business.

• Land: The natural resources or physical area used to produce goods or services

• Labour: the human effort/skill required for production

Enterprise/Entrepreneurship

• An entrepreneur is someone who operates, oversees and takes risks on a business to gain a reward.

Risks:

• Financial Loss

• Security

Rewards:

• Profit

Characteristics:

• Optimistic

• Strong-minded

• Creative

• Physically/mentally fit

• Mindful

• Patient

• Independent

• Humorous

Benefits:

• Independent

• Chance of fame/success

• More profitable

• Make use of personal interests/skills

Disadvantages:

• Risk (unlimited liability)

• Opportunity cost (lost profit from working at another company

• Capital

• Lack of knowledge/experience

Entrepreneurs/Leadership

• Autocratic leadership: Leader expects to be in charge and orders followed

• Democratic leadership: Employees’ opinions are considered at every decision

• Laissez-faire leadership: Make major decisions known to employees, but alone on decision-making process.

Outputs

• Goods: Physical/tangible Objects to satisfy consumers’ (someone who buys goods/services from a business) needs and wants

• Services: Actions to satisfy consumers

Internal

• Operations: The operations function is centred on creating the product or delivering the service that the business offers to customers, including

  • Ensuring the quality of output

  • Sourcing and purchasing raw materials and components

  • Managing the design and testing of new products

  • Inventory management

• Human Resources: The human resources (HR) function is responsible for managing the workforce within an organisation and ensuring employee welfare, including

  • Recruitment and selection

  • Training and development

  • Maintaining healthy industrial relations

  • Ensuring compliance with health and safety regulations

• Marketing: Marketing focuses on understanding the needs and wants of both existing and potential customers, including

  • Researching the market to plan products that meet consumer demand

  • Organising their distribution

  • Persuading customers to purchase a company’s goods or services

  • Determining pricing tactics that attract and retain customers

• Finance: The finance department is tasked with managing the organisation’s money, including

  • Recording all incoming and outgoing financial transactions

  • Collecting debts owed to the business

  • Ensuring that bills and salaries are paid on time

  • Setting and maintaining budgets

  • Conducting financial forecasting

  • Managing banking operations

  • Preparing the annual financial report

External Pressures

• Laws/Regulations (Minimum wage, etc)

• Economy (Exchange rates)

• Ethics (Fair trade)

• Environmental Impact (can be linked to marketing)

Consumer Needs

• Price: Needs to be realistic for the target demographic/price range.

• Quality: Ideally as high as possible. Should be considered alongside price as higher quality = higher cost, thus, to generate suitable profit margins price must be higher as well.

• Convenience: Make it easy for consumers to access. E.G: an easily navigable website for e-commerce.

• Choice: Cater to a large variety of customers. Give them choice.

Sectors of Industry

• Primary: The sector concerned with the extraction of raw material

• Secondary: The sector concerned with the manufacturing of raw material.

• Tertiary: The sector concerned with providing a service. Includes retailers, utility services and leisure services

Private Sector

Businesses are operated and owned by private individuals/companies. Generally, run for profit.

• Sole Trader: 1 owner

• Partnership: A formal arrangement by two or more entrepreneurs to manage and operate a business and share its profits

• Private Limited Company: Shares given out to trusted individuals.

• Public Limited Company: Company that sells shares on the stock market to generate investments

Public Sector

Owned/run by the government/its organisations on behalf of the public to provide goods and services to the public.

Non-profit Organisations: A business that is set up to pursue objectives that benefit society

Examples:

• Local authority undertakings (local government)

• State Service (Defense, education)

• Public land

Growth

Internal Growth

External Growth

• Mergers: Consolidation of two entities

• Takeover: One entity takrs ownership of another entity (E.g. Brave Group & Idol)

• Joint Venture: Where 2 or more businesses start a new project together, sharing capital, risks and profits

• These increase market share, secure point of sale, supplies, reduce risk and acquire knowledge

Franchise

• Franchise: A business utilising the brand name, promotion and product ideas of a preexisting successful company.

• Franchisee: A person who buys the license to operate an outlet of an existing business from the franchisor

• Franchisor: The original business that sells the right to a franchisee to use its name and idea. The franchisor sells the right to open stores and sells products/services using its brand name

Advantages of Franchise for the Franchisee:

• More business support

• More brand power

• More buying power

• Less risk

Disadvantages of Franchise for the Franchisee:

• Less flexibility

• High initial cost

• More regulations

• Conflict

Integration

Types of Intergration

• Horizontal: One firm joins up with another in the same industry and the same point in the supply chain. To expand by merging or taking over companies that produce similar products

• Vertical (forwards): One firm joins up with another in the same industry but further up the supply chain. Move closer to the end consumers of its products

• Vertical (backwards): One firm joins up with another in the same industry but down the supply chain. Move closer to suppliers/sources of raw material

• Conglomerate: One firm joins up with another in a different industry. Unrelated industries

Organisations

• Annual General Meeting: Mandatory for Public Limited Company. Shareholders attended and vote on Board of Directors for next year

• Dividends: Payments made to shareholders from a part of the company’s profit

• Unincorporated business: Owners are the company. Unlimited liability

• Incorporated business: Companies that have separate legal status from their owners

• Partnership agreement: The written and legal agreement between business partners. Not essential but recommended

• Shareholders: The owners of a limited company. They buy shares that represent part-ownership of a company.

• Social Enterprise: Has social objectives as well as an aim to make a profit to reinvest back into the business.

Measuring Business Size

Why Businesses Fail

No Growth:

• Type of industry

• Market size

• Owners’ objectives

• Limited capital

Failure:

• Lack of finance/poor financial control

• Lack of effective marketing (poor brand image)

• Changes in technology

• Changing market conditions

• Poor planning 

• Competition

• Overexpansion

• Economic factors

• Problems with growth

Types of Measurements

Amount of Employees

Advantages:

• Easy way to judge

Disadvantages:

• Some firms are more capital-intense (focus on usage of capital over labour)

• Hard to count part-time employees

Value of Output

Advantages:

• Easy to compare businesses in the same industry

Disadvantages:

• A firm employing few people may produce very few expensive products per year.

• Might have a very low output if few products are sold.

Value of Sales

Advantages:

• Easy to compare retail businesses

Disadvantages:

• Cannot compare other markets (e.g. street market to luxury shop)

Value of Capital Employed

Advantages:

• none i think

Disadvantages:

• Similar to number of employees. Could be labour-intensive, so small output levels and less capital equipment.

Stocks

• Floatation: “Going public”, The process of a private limited company offering shares for sale on the stock market; a private limited company becoming a public limited company.

• Registrar of Companies

• Memorandum of Association:

• Articles of Association:

Benefits:

• Raise external finance

• Stable business ownership structure

• Higher prestige

• Shareholders retain limited liability

• Become larger

Disadvantages:

• Expensive (Bank/legal fees)

• Anyone can buy shares (conflicts/takeovers)

• Increased legal requirements

• Short-sighted investors

Stakeholders

Stakeholders: Anyone with an interest/influence on the business.

Stakeholders could be:

Internal:

• Owners

• Shareholders

• Employees

External:

• Customers

• Suppliers

• Community

There will definitely be conflicts within any decision made.

Miscellaneous

Division of Labour: Splitting people into specialised roles of labour

Limited Liability: the condition by which shareholders are legally responsible for the debts of a company only to the extent of the nominal value of their shares.

Added Value: The extra value for a product a business creates through its production, distribution and marketing process.

Opportunity Cost: The sacrificed value of the next best alternative given up when choosing one option over the other.

Business Plan: A document containing the business objectives and important details about the operations, finance and owners of the new business.

Executive Summary: A short summary of the business in its business plan.

Who needs a Business Plan?

• Bank

• Entrepreneurs

• Managers/Employees

People in Business

Organisational Structure

Organisational Structure: An organisational chart is a visual representation of the reporting relationships, roles and responsibilities of employees in an organisation

• Businesses must determine what the best structure is for them so as to effectively implement ideas and achieve their objectives

  • structure may affect management and effectiveness of operations and communications

  • promotes clarity, efficiency and accountability

Chain of Command: the formal line of authority that flows downward from the top management to lower-level employees

• who reports to whom and who is responsible for making decisions

• clear communication channel and helps to maintain accountability

Span of Control: number of employees that a manager or supervisor can effectively manage

• It is based on the principle that a manager can only effectively manage a limited number of employees

  • A narrower span of control means that there are more layers of management

  • A wider span of control means that there are fewer layers of management

Tall Organisational Structure:

• A long chain of command usually results in a narrow span of control

Advantages:

• Provides a clear hierarchy of authority and defined roles and responsibilities

• Promotes specialisation and expertise within each department or function

Disadvantages:

• Can create communication barriers between upper and lower levels of the hierarchy

• Decision-making can be slow as information must pass through multiple layers of management

Flat Organisational Structure:

• A short chain of command usually results in a wide span of control

Advantages:

• Promotes a culture of collaboration and open communication

• Decision-making can be faster and more efficient

Disadvantages:

• Can lead to a lack of clear hierarchy

• May require employees to take on multiple roles and responsibilities leading to burnout and feeling overwhelmed

Centralisation: All orders come from people at the top

Advantages:

• Consistent company policies/decisions

• Most expertise/experience at the top

Disadvantages:

• Decision making can be slow

• Decisions become disconnected from reality

• People at top may not have specialised expertise in each sector

Decentralisation: Decision-making responsibilities are delegated from the top to lower-level managers.

Advantages:

• Faster decisions

• Specialist knowledge in sectors of the business

Disadvantages:

• Inconsistent decisions

• Decisions may not be aligned with the overall aims/objectives of business

Delayering: A process where a business removes layers of its management to make its structure flatter.

Delegation: A process where tasks are given to members of staff, where often managers give tasks to employees further down the chain of command.

Disadvantages:

• Harder in smaller businesses

• Cannot/should not delegate responsibility

• Depends on quality/experience of subordinate

• May increase workload and stress of subordinates

Subordinates: Members of staff below a manager in the chain of command.

Recruiting/Selecting Employees

Recruitment: Attracting/identifying potential job candidates who are suitable for a vacant role

• Internal Recruitment: When a vacancy is filled by a pre-existing employee of the business.

Advantages:

• Saves time and money (recruitment process)

• Already know the employee

• Employee knows company’s policies

• Motivating for employees to see colleagues get promoted

Disadvantages:

• No new skills/experience coming into the business

• Jealousy from other employees

• External Recruitment: When a vacancy is filled by someone who is not an existing employee and will be new to the business.

Advantages:

• Larger pool of potential candidates

• Less likely to be internal conflict

• New ideas/skills/experience coming into business

• Helps avoid complacency among existing employees

Disadvantages:

• Takes longer, costs more

• New external recruits must undergo induction training during which they may not be working/producing output

• Externally recruited managers may have conflicting leadership styles with the company

• May leave the company quickly if other promotion possibilities are elsewhere

Employee Selection: The process of evaluating candidates for a specific job and selecting an individual for employment based on the needs of the organisation.

1. Job Analysis: The exact nature of the job and the duties to be undertaken.

2. Prepare a Job Description: The tasks and duties to be undertaken by the successful applicant

3. Prepare a Person Specification: Details of the type of person required, qualifications, experience and personal qualities

4. Job Advertised in Appropriate Media

5. Application Forms and Shortlisting

6. Interviews and Selection

7. Vacancy Filled

Full-time: More than 35 hours a week

Part-time: Between 1 and 30-35 hours a week

Advantages (for employer):

• More flexible hours of work

• Easier to ask employees to just work at busy times

• Easier to extend business opening/operating hours by working evenings/weekends

• Less hours so lower pay

• Less expensive than full-time employees

Disadvantages:

• Less likely to be trained because job is seen as temporary

• Takes longer to recruit 2 part time workers than 1 full-time worker

• Less committed to the business

• Less likely to be promoted because less skill gain than full-time employees

• More difficult to communicate with when they are not in work

Training

• Training is a post-recruitment activity. (IT IS A LEGAL OBLIGATION)

Induction

• An introduction given to a new employee

• Explains business’ customs, activities and procedures

• Introduces them to other employees

Advantages:

• It helps new employees understand their job roles and responsibilities

• Improves employee confidence and motivation

• Reduces time for new employees to become productive

• Clear expectations

• Health and safety

Disadvantages:

• time-consuming and expensive to organise

• May not cover all aspects of the job role

• May not be effective in all cases, leading to employee dissatisfaction and higher staff turnover rates

On-the-Job

• Employees learn skills/knowledge from other employees while performing their duties

• Can involve shadowing

Advantages:

• Employees learn new skills and knowledge while performing their job duties

• Training is tailored to the business and the employee's specific job role and responsibilities

• Training is often practical and relevant to the employee's job duties

• Can be low-cost as it takes place during working hours

Disadvantages:

• Employees may make mistakes while learning or trainers could pass on bad habits which may impact productivity and quality

• Can be disruptive to the workplace as it requires the trainer to devote time to training the employee

• May not be effective in all cases, leading to employee dissatisfaction and higher staff turnover rates

Off-the-Job

• Takes place away from the business (usually at workshops/college courses/seminars)

Advantages:

• Employees learn new skills and knowledge outside of the workplace

• Training can be tailored to the employee's specific needs and interests

• Training can be used as a reward or incentive for high-performing employees

• Can be cost-effective if training is provided online or through webinars

Disadvantages:

• Can be expensive to organise (transportation/accommodation)

• Employees may miss work while attending training, which can impact productivity

• The training may not be directly applicable to the employee's job role or the needs of the firm

Laws

Employment Law: Laws protecting the rights of employees which must be obeyed by employers

Contract of Employment: A legal document stating hours, rate of pay, duties and other conditions under which a person is employed.

• Rates of pay and how often an employee will be paid

• Lengths of holidays and regular working hours

• Normal place of work

• Details of the business pension schemes

National Living Wage (Right to a Minimum Wage): An hourly rate of pay that is set by the government. All employees above a certain age must receive at least this rate of pay.

The Equality Act 2010 (No Discrimination in the Workplace): Says that employees cannot be treated differently from other employees in the workplace on the basis of factors such as gender, sexuality, race, religion, etc.

Health and Safety at Work Act (Safe Working Conditions): Employers must ensure they safeguard employees’ health, safety and welfare at work. Also requires employees to follow all health and safety procedures and to take care of their own and others’ safety.

• the installation and maintenance of safety equipment and clothing

• providing protection against dangerous substances

• fitting guards on dangerous machinery

• writing and displaying safety policies

Protection Against Unfair Dismissal: Dismissal takes place when an employer ends an employee’s Contract of Employment with the business.

Communication

Communication: A message passed from the sender to the receiver, who understands it.

• Sender: The person who sends the message

• Channel: The method of message transportation

• Receiver: The person who receives the message

• Feedback: The receiver indicates to the sender that they have received

• One-way: Does not require a response.

• Two-way: Receiver gives a response and there is discussion.

Channels

Internal:

Verbal:

• Intranet

• Meetings

• Training

• Newsletters

• Phone calls

• Emails

External:

• Advertising

• News Releases

• Conferences

• Speaking Engagements

Barriers:

• Fault in technology

• Body language

• Tone of voice

• Misinterpretation

• Message too long

• Unclear message

• Sent to wrong person

• Too many people pass on message

• Message may be lost

• Wrong channel

• Lack of trust

• Poor attitude

• Does not listen

• Not sent

• Not asked for

Downward Communication: Messages from managers to their subordinates i.e. from the top to the bottom of an organisational structure.

Upward Communication: Messages from subordinates to managers i.e. from the bottom to the top of an organisational structure.

Horizontal Communication: Occurs between people on the same level of an organisational structure.

Remember to state whether it is internal/external

HR Issues

Flexible Working: Allows employees to choose when to stop and start work and where to work, as long as the contract hours are completed.

Advantages:

• Better work-life balance

• Allows care responsibilities to be managed

• Choose work times

• Trust

• Motivation

• Could open earlier/close later

• Cost of premise reduced

Disadvantages:

• Reduced feeling of belonging

• May miss meetings

• Communication becomes difficult

• Less teamwork

Home Working: When an employee works from home instead of commuting to a centralised workplace such as an office

Advantages:

• No time/money wasted on commute

• More control/flexibility

• No office distractions

• Relocation does not impact productivity

• Cost of premise is lower

• Job satisfaction and morale increase

• Less chance of employees leaving

Disadvantages:

• Pay for aircon/heating

• Lack of social contact

• Less likely to meet up with managers/supervisors

• Have to be well-motivated to work

• Less teamwork

• More difficult to monitor

• Not suitable for all jobs

• Communication is difficult

Motivating Employees

Motivation: The reason why employees want to work hard and work effectively for the business.

Motivational Theories

Taylor (1911): Money is the main motivator

• F.W Taylor

• Workers motivated by personal gain, mainly money

• Therefore, increasing pay increases productivity (amount of output produced)

• Introduced piece-rate system, whereby employees would get paid based on the number of output they produce

• Suggested companies use a scientific management method in production for division of labour in order to maximise output

• However, money is not the only motivator within the workplace

• The piece-rate system is not very practical when output cannot be measured (service industry) and it could result in poor quality.

Maslow (1954): Hierarchy of needs

1. Self-actualization: Morality, creativity, spontaneity, problem-solving, lack of prejudice, acceptance of facts (Promotion/given more responsibility)

2. Esteem: self-esteem, confidence, achievement, respect of others, respect by others (given recognition for a job well done)

3. Love/belonging: friendship, family, sexual intimacy (work colleagues that support you at work)

4. Safety: Security of body, of employment, of resources, of morality, of the family, of health, of property (job security)

5. Physiological: Breathing, food, water, sleep, sex, homeostasis, excretion (wages high enough to meet weekly bills)

Herzberg (1959): “Hygiene” and “Motivation”

• Two sets of needs (hygiene/motivation)

• Hygiene: Basic animal needs NOT MOTIVATORS

  • Working conditions

  • Salary

  • Supervision

  • Company policy/administration

  • Interpersonal relations

• Motivation: Needs that allow humans to grow psychologically

  • Achievement

  • Work itself

  • Recognition

  • Responsibility

  • Advancement

Financial Rewards

• Salaries: Generally paid to administrative and management employees. Based on their work for the year.

• Wages: Generally paid to shop/factory floor employees based on time rates and/or piece rates.

• Time Rates: Paid to employees based on the number of hours worked.

• Piece Rates: Paid to employees based on the number of output produced.

• Overtime: A higher hourly rate paid to employees for any additional hours worked

• Performance Related Pay/Bonus: An additional payment to an employee for achieving an agreed target.

• Commission: A payment to an employee based on achieving a certain level of sales.

• Profit Sharing: An additional reward paid to employees to reflect the profits earned by the business.

• Fringe Benefit: Rewards to employees not shown in their traditional pay. Such benefits may include company cars or staff discounts.

Unions

Trade Union:

• A group of people who have joined together to ensure their interests are protected.

  • Higher pay

  • Better working conditions

  • Training opportunities

  • Opportunities to contribute to business decisions

  • Job security

• The key role of the trade union is to represent its members during negotiations with employers on employment issues.

Benefits to Employees of being a member:

• Strength in numbers when negotiating with employers

• Negotiating with employers for improved work environment

• Negotiating with employers for improved benefits for members who are not working

• Improved job satisfaction by encouraging employers to offer training opportunities

• Advice/financial support if dismissed/made redundant

• Benefits that have been negotiated or provided for union members

Workforce Planning: Establishing the workforce needed by the business for the foreseeable future in terms of the number and skill of employees required.

Dismissal: When employment is ended against the will of the employee, usually for not working in accordance with the employment contract.

Redundancy: When an employee is no longer needed and so loses their job. It is not due to any aspect of their work being unsatisfactory.

How to recommend and justify which employee(s) to make redundant in any given situation:

• Length of time employed: Loyal employees may be retained. Redundant payments will be highest for these.

• Essential skills

• Future potential

• Employment record

• Voluntary redundancy

Why reducing the size of the workforce may be necessary:

• Automation: Automated machines require little to no employees to operate them. Frequently results in job losses. New jobs in programming may be created, but the original employees may not have the skill to do this work.

• Reduced demand for a product

Marketing

Marketing: The management process involved in identifying, anticipating, and satisfying customer requirements. The process of getting the right product, to the right place, at the right price and the right time.

Customer loyalty: When existing customers continually buy products from the same business

Customer relationships: Communication with customers to encourage them to become loyal to the company and its products

Market share: The percentage of the total sales revenue for the whole market held by the company/business

Marketing Mix (4Ps): All the activities which go into marketing a product/service

• Promotion

  • Sales promotion

  • Advertising

  • Public relations

  • Direct marketing

• Product

  • Features

  • Quality

  • Branding

  • Packaging

  • Services

  • Warranties

• Place

  • Channels

  • Marketing coverage

  • Assortment

  • Location

  • Inventory

  • Transport

• Price

  • Price strategy

  • Pricing

  • Allowances

  • Discounts

  • Payment terms

Reasons for market change:

• Changes in tastes/fashions

• Changes in disposable incomes

• Demographic changes

• Global influences

• Changes in technology

Mass vs Niche Market

Mass market: A very large number of sales for a product

Advantages:

• Sales could reach a high level, leading to high revenue and potential economies of scale

• No additional costs of producing different products for different customer groups

• Promotions appeal to the whole mass market, keeping costs low

• The business and brand name will be well known

Disadvantages:

• Difficult to differentiate standardised mass market product from similar products sold by other businesses

• Some customers may not be attracted by mass market marketing as it does not suit their particular needs

• May be difficult to sell mass market products globally unless cultural differences are taken into account in marketing

• Competition can be high

Niche market: A small, usually specialised segment of a larger market

Advantages:

• Small businesses may be able to sell successfully as large businesses may not have identified niche markets and focus on mass markets instead, reducing competition.

• Customer needs can be focused on and targeted. Leads to high levels of customer loyalty and good customer relationships.

• Customers may be willing to pay higher prices for specifically branded products that satisfy their particular needs.

Disadvantages:

• Niche markets are usually small and have limited sales potential. If the business wants to grow, it may have to look outside the niche market to develop products for the mass market

• Often businesses in the niche market will specialise in one product. If the product is no longer in demand the business will fail if it has not spread its risks

• If niche market is successful, new competitors may see this and may be attracted to enter the market too.

Marketing Research

Marketing-oriented: a business reacts to what customers want. The decisions are based around customers' wants and needs. 

Product-oriented: means the business develops products or services based on what they are good at making or doing, instead of what a customer wants. Innovations create the need rather for a product.

Market segment: An identifiable sub-group of a whole market in which consumers have specific characteristics and preferences.

Advantages:

• Needs of each customer groups can be more completely satisfied by products designed specifically for them. Helps build customer relationships.

• Total sales should increase if different products are accurately marketed at different customer groups

• Promotion/advertising will use information about each customer group to appeal to them directly, which makes more effective use of the marketing budget

• Revenue should increase as customers are willing to pay higher prices for a product that meets their needs.

Disadvantages:

• Might not be profitable to target market segments with a small number of consumers

• Costs of developing different products for several different consumer groups are high. Expensive market research

• Storage costs of different kinds of products are high

• Developing different advertisements and promotions for different products and consumer groups is costly.

Market research: The process of gathering, analyzing and interpreting information about a market

Types of data:

• Quantitative: Answers questions such as “how many”, “how often”, “who”, “what”, “where”.

  • Often on larger samples

  • More statistically valid

  • Usually in various forms of survey (telephone/postal/face-to-face)

    Benefits:

• Relatively easy to analyse

• Numerical data provides insights into relevant trends

• Can be compared with data from other competitors/history

    Drawbacks:

• Focusing on data rather than explaining why things happen

• Doesn’t explain the reasons behind numerical trends

• May lack reliability if sample size and method are not valid

• Qualitative: Based on opinions, attitudes, beliefs, and intetions

  • Answers questions such as “why”, “would”, or “how”

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

  • Focus groups/interviews

    Benefits:

• Essential for important new product development or launches

• Focused on understanding customer needs, wants, expectations

• Can highlight issues that need addressing

• Effective way of testing elements of the marketing mix

    Drawbacks:

• Expensive

• Based around opinions

Market Research:

• Primary Research: Data collected first-hand for a specific research purpose

    Advantages:

• Directly focused for research purposes/objectives

• Tends to be up-to-date

• More detailed insights (customer views)

    Disadvantages:

• Time-consuming and often costly to obtain

• Risk of survey bias

• Secondary Research: Data that already exists and which has been collected for a different purpose

    Advantages:

• Often free/easy to obtain

• Good source of market insights

• Quick to access and use

    Disadvantages:

• Can quickly become out-of-date

• Not always tailored to specific research needs

• Specialist reports quite expensive
  

Products

Successful Product:

• Satisfies existing needs and wants of customers

• Design consistent with the brand image

• Capable of stimulating new wants from the consumer

• Not too expensive to produce (relative to charging price)

• The first business to produce the new product or introduce new changes to original product from competitors

• Has something very distinctive that makes it different (USP)

Consumer Goods: Goods which are bought by consumers for their own use. They can be goods that do not last long, such as food or cleaning materials or goods that last a long time such as furniture and computers.

Consumer Services:  Services that are bought by consumers for their own use. Examples include repairing cars, hairdressing and education.

Producer Goods: Goods that are produced for other businesses to use. They are bought to help with the production process. Examples include trucks, machinery and components.

Producer Services: These are services that are produced to help other businesses. Examples include accounting, insurance and advertising agencies.

Branding: The process of creating a strong, positive perception of your company and its products in the customer’s mind

Advantages:

• Provides unique identity to products

• Improves goodwill and customer loyalty

• Creates barrier for other competitors to enter the market

• Increases profitability

• Makes easy to launch new products

Disadvantages:

• Requires huge investment

• It creates brand monopoly

• Lacks flexibility

• Customers have to pay premium price for branded products

• Discourages new companies

Packaging: The physical container or wrapping for a product. Also used for promotion and selling appeal\

Extension Strategy: A way of keeping a product at the maturity stage of the life cycle and extending the cycle

Pricing

Cost-plus pricing: The cost of manufacturing the product plus a profit markup

Advantages:

• Easy to calculate

• Different profit mark-ups used in different market

• Each product contributes to profit of the business

• Easy to explain to customers

Disadvantages:

• Total profit only made if sufficient units are sold

• Ability and willingness of consumers to pay a cost-plus price is not considered

• No incentive to reduce costs

• Price cannot be changed if market conditions change.

Penetration pricing: Price set lower than competitors in order to enter a new market.

Advantages:

• Often used for newly launched products

• Low average costs = still maybe profitable

• Competitors may find it difficult to reduce prices

Law of Demand: When price increases demand will fall. When it decreases demand increases in the market

Price elastic demand: Where consumers are very sensitive to changes in price. When price increases, demand decreases and vice versa.

Price inelastic demand: When consumers are not sensitive to changes in price

Place

Distribution channels:

1. Direct → Customers

2. Direct → Retailers → Customers

3. Direct → Wholesalers → Retailers → Customers

4. Direct → Agent → Wholesalers → Retailer → Customer

E-Commerce

Advantages

Legal Controls

• Laws designed to protect consumers from unfair or unsafe business practices.

• Force businesses to adopt ethical, responsible and consumer-friendly marketing strategies. Non-compliance can lead to:

  • Financial penalties

  • Bans on advertising

  • Lawsuits

  • Damage to brand image and customer trust

• As a result, marketing teams must work closely with legal advisors

• Weights and measures

• Trade descriptions

• Sale of Goods

Production

Production of Goods/Services

• Job production: One-off products/services

Advantages:

• Each meets the exact requirements of the customer

Formulas

Exam Methods

• Application: Copy the text. Make sure to include what the question asks for.