Business Unit 1

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  • Created on: 12-12-19 16:50


Marketing- term used to describe the range of activities that businesses undertake to try to create a demand among consumers for their products or services.

Roles of marketing department:

  • Understanding markets
  • Market research
  • Analysing factors affecting demand in a market
  • Deciding which markets to sell to
  • Spotting changes within markets.
  • Understanding consumer behaviour within markets
  • Making marketing decisions
  • Designing products and services
  • Deciding on a price
  • Deciding where to distribute
  • Communicating with customers
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People- human resource departments

Human resources departments roles:

  • Recruitments of new staff
  • Selection of applicants for jobs/promotions
  • Training new and existing staff
  • Designing and administring payment systems
  • Planning future workforce needs

People-related tasks:

  • Working out shift rotas
  • Coaching staff
  • Providing on-the-job training
  • Motivating staff on a day-to-day basis
  • Delegating authority
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Competitive advantage marketing and people

Competitive advantage to businesses from marketing:

  • Brand name
  • Promotion
  • Logo
  • Widest distribution
  • Unique product features
  • Unusual packaging
  • Higher skill levels
  • Better quality of output
  • More motivated staff
  • Better customer service skills
  • More innovative staff
  • More flexible staff
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Mass markets and niche markets

Market segment- a subsection of a larger market in which consumers share similair needs and wants.

Niche markets- a small segment of a larger market.

Benefits niche markets:

  • Meeting consumer needs precisely- higher prices to be charged.
  • Higher profit margins
  • Easier to enter for firms with limited financial resources.

Mass markets- a business sells the same products to all consumers and markets in the same way, selling a hemogenous product.

Benefits mass marketing:

  • Meeting consumer needs more precisely allows higher prices to be charged.
  • Higher profit margins
  • Easier to enter for firms with limited financial resources.
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Dynamic markets

Dynamic market- a market that does not remain the same over time- they are likely to change as they grow, shrink, fragment, emerge or completely disappear.

The unpredictability of growth adds to the unpredictability of dynamism in online retailing.

Market change due to external influences- PESTLE

  • Political, e.g. legal minimum wage
  • Economic, e.g. economic recession
  • Social, e.g. desire for convenience
  • Technological
  • Legal, e.g. laws
  • Environmental

A major cause of change within markets is innovation. Once one innovation has been succesful, other companies may be forced to try to adapt their offerings in order to keep pace with rivals.

Change in a market impacts the four business functions: marketing, people, finance and operations.

Required changes may include; production methods, new suppliers, redeploying workers and adopting new advertising and distribution methods.

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Competition affecting the market

Competition is the feature of business that most stimulates change and developement.

Pressure to businesses from increased levels of competition:

  • Need to reduce costs
  • Maintain competitive prices
  • Develop innovative products and services
  • Maintain high quality of products and services.
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Difference risk and uncertainty

The key difference lies in the predictability of events occuring.

The risk involved in launching a new product can be identified and quantified.

The factors causing the risk are uncertainties such as;

  • Reactions of rivals
  • Reactions of consumers
  • Unexpected events as currency movements and economic downturns.
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Product and market orientation

Product orientation- an approach to business which places the emphasis upon the production process and the product itself.

Market orientated- an approach to business which places the needs of consumers at the center of the decision-making process.

Advantages market-orientated businesses:

  • Respond more quickly to changes in the market.
  • Stronger position to meet the challenge of new competition entering the market.
  • More able to anticipate market changes.
  • More confident that launch of a new product will be a success.
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Limitations to market research

Reasons for market research to be unreliable:

  • Sample size too small
  • Sample bias

Uses of ICT to support market research:

  • Company websites
  • Social media
  • Database technology
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Market segmentation

Market segmentation- discovering useful ways to split up a market into different groups of consumers who share similair characteristics and needs.

Benefits of segmenting a market:

  • Products and services can be designed to suit specific customers.
  • Meeting customer needs precisely- higher price charged.
  • Easier to target with promotional activity.
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Market positioning- market mapping

Market positioning- deciding exactly what image you are trying to create for your product relative to its rivals.

Key judgments required in market mapping:

  • Choosing the right variables
  • Placing rival brands in the right place on the map, truly reflecting consumer perceptions of those brands.

A business can idenfity the gaps in the market more easily using a market map, and decide what marketing tools to use to the gap that it has identified.

Generic routes to finding a competitive advantage:

  • Lowest cost producer
  • Sustainable point of differentiation

The key to competitive advantage is that it should be sustainable in the long term- a really strong brand name and image can achieve this.

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Product differentiation

Product differentiation- means attempting to make your product seem different in the minds of consumers, to any other rival in the market.

Actual product differentiation:

  • Design
  • Different functions
  • Taste
  • Performance

Perceived product differentiation:

  • Branding
  • Advertising
  • Sponsorship
  • Celebritiy endorsement

Purpose product differentiation:

  • Insulating the product from actions of competitors.
  • Allowing prices to be increased without a major fall in demand or sales.
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Added value

Added value- the difference between the cost of bought-in goods and services and the selling price of a product.

Adding value- offering extra features when selling a product.

Product differentiation generally helps to add value to products and services.

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Demand-term used to describe the level of interest customers have in a product.

Higher prices lead to lower effective demand- interest backed by the ability to pay.

Higher prices make alternatives seem better value.

Lower prices may damage consumer perceptions of quality.

Substitute- a similair, rival product that consumers may choose instead.

Complement- a product whose use accompanies another.

If the price of a complementary product rises, demand for the original product is likely to fall.

As economies go through recession, incomes will fall, and for normal and luxury goods, demand falls as consumers try to save money.

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Reasons for a change in demand

Reasons for a change in demand;

  • Price- changes in prices of substitutes and complements.
  • Changes in consumer incomes
  • Fashions, tastes and preferences.
  • Advertising and branding
  • Demographics- changes in the make-up of populations.
  • External shocks. E.g. natural disasters, changes in law, traffic problems.
  • Seasonality
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Reasons for changes in Supply

Reasons for changes in supply:

  • Changes in costs of production
  • Introduction of new technology- should increase supply due to reduced costs.
  • Indirect taxes- taxes that the government imposes on goods and services. E.g. VAT.
  • Government subsidies- cuts production costs faced by businesses.
  • External shocks E.g. economic crises, poor harvests or natural disasters.
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Markets and equilibrium

Commodity markets- markets for undifferentiated products. Price is determined simply by the interaction of supply and demand.

If demand is higher than supply, the price of the product will rise, until demand falls back to the level of supply.

Equilibrium- describes a situation in a market where supply and demand are balanced, making the price stable.

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Price elasticity of demand

Price elasticity of demand- measures the responsiveness of demand for a product to a change in its price.

Price elasticity of demand= % change in demand/ % change in price.

Price elasticity between 0 and -1= product is price inelastic, changes in price have proportionally smaller effect on demand/sales.

Price elasticity is a negative number greater than 1= product is price elastic, changes in price have proportionally larger effect on sales/demand.

Factors influencing price elasticity:

  • Degree of product differentiation
  • Availability of direct substitutes.
  • Branding and brand loyalty

If price is a central factor in the decision, price elasticity will be high (elastic).

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Significance price elasticity

Price elasticity is a useful concept for two major reasons:

  • Helps in forecasting sales- likely impact of planned future price changes.
  • Helps decide the best pricing strategy for increasing revenue.

Price elasticity values tend to change over time since, in a competitive market many firms actions will affect the extent to which one product stands out from its rivals.

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Income elasticity of demand

Income elasticity of demand- measures the responsiveness of demand for a product to a change in real incomes.

Income elasticity of demand= % change in demand/ % change in real incomes.

The results of an income elasticity can either be positive or negative.

Interpreting income elasticity:

  • Inferior goods- negative income elasticity
  • Normal goods- positive income elasticity between 0 and 1.
  • Luxury goods- positive income elasticity that is greater than 1.

Factors affecting income elasticity; necessity or indulgence.

Significance of income elasticity:

  • Sales forecasting
  • Financial planning
  • Product portfolio management- having just luxuries or inferior goods increases danger of changes in real income.
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Marketing mix

Marketing mix- collective term for the four major marketing decisions relating the 4Ps; Product, place, promotion and price.

Design mix:

  • Aesthetics
  • Economic manufacture
  • Function (and quality)

Benefits of good design:

  • Adds value
  • Provides a point of differentiation
  • Reduced manufacturing costs, boosting profit margins.
  • Improves brand image and therefore, brand loyalty.

Changes in design mix to reflect social trends:

  • Environmental concerns; design for waste minimisation or reuse and recycling.
  • Ethical sourcing.
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Branding and promotion

Promotion- methods used by the business to communicate information and persuade consumers to purchase a product.

Types of promotion:

  • Long-term methods; persuasive advertsing and public relations

Public relations- attempts by a business to create publicity that is reported as news.

  • Short term methods; buy one get one free (BOGOF) and seasonal price-cutting promotions
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Brand- a recognisable name or logo that helps to differentiate a product or business.

Types of branding:

  • Individual brand- single product brands
  • Brand family- brand name used acrosss a range of related products.
  • Corporate brand- using the company as a brand- can convince consumers that all products across the entire range share similair benefits or drawbacks.

Ways to build a brand:

  • Advertising
  • Unique selling point (USP)- a particular feature of a product or service that no rival provides.
  • Sponsorship
  • Digital media

Changes in branding and promotion to reflect social trends:

  • Viral marketing
  • Social media
  • Emotional branding
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Pricing strategies

In the medium to long term a company's pricing strategy shapes decisions on the actual price to charge.

Pricing for new products:

  • Price skimming- launching a brand new product at a high price while the product is unique.
  • Penetration- launching a new product at a very low price to entic customers to try it.

Pricing for exisitng products:

  • Cost-plus- deciding price by adding a desired percentage onto total costs per unit.Price charged= unit cost+ (% mark-up).
  • Predatory- sets price low enough to force a competitor out of business.
  • Competitive- charing a price at the market average or at a discount to the average price in the market.
  • Psychological- prices are set just below major psychological levels. E.g. $9.99
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Factors that determine pricing strategies

Factors that determine the most appropriate pricing strategy:

  • Level of product differentiation
  • Price elasticity of demand
  • Level of competition
  • Strength of brand
  • Stage in the product life cycle
  • Costs and the need to make a profit.

Changes in pricing to reflect social trends:

  • Online sales- easier to compare prices for online consumers so pricing is more sensitive.
  • Price comparison sites appear to encourage firms to price competitively.
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Distribution channel- the route a product takes from producer to consumer.

Intermediaries- businesses between the producer and the consumer in a distribution channel, such as retailers.

Examples distribution channels:

  • Traditional physical channel; Mars- Wholesales- Small independent convenience store- Consumer. Wholesalers and retailers will add their own markup.
  • Direct to retailer; Kellogg's- Sainsbury's- Consumer
  • Be your own retailer; Apple- Apple stores- Consumer
  • Direct online; Small producer of made-to-order gifts-eBay-consumer

E-commerce platforms offer the chance to sell online without the same investment as other distribution channels.

Changes in distribution to reflect social trends:

  • Online
  • From product to service.
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Product life cycle

Product lifecycle- a pattern of sales over time that most products tend to follow. Four phases; 

  • (Development)
  • Introduction
  • Growth
  • Maturity
  • Decline

Extension strategy- a medium to long-term plan for extending the life cycle of a product.

Extension strategies:

  • Changes to the product; extra features, changing ingredients, launching slightly different variants of product.
  • Changes to promotion; targeting different market segment, finding new uses for product or increasing use of product among exisiting customers.
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Product portfolio

Large businesses normally sell a range (or portfolio) of different products.

Boston Matrix- the matrix assess each product within a firm's product portfolio. Two key variables considered are market share and market growth.

Quadrant of the diagram:

  • Problem child- low market share, sold in rapidly growing markets and rapid sales growth.
  • Rising star- products in exciting and rapidly growing markets, high share, future money makes and future profitability is likely.
  • Cash cow- products in stable markets, high share, high sales, low marketing expenditure and significant profits.
  • Dog- low share of low growth market, unattractive members of portfolio.
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Marketing strategy

Marketing strategy- term used to describe the general approach to marketing used by a business.

Marketing strategies:

  • Strategy about the future
  • Strategy is company specific- there is only space n a market for one business following a particular strategy.

Successful mass marketing relies on one major balancing act- the need to differentiate the product from all rivals without making it less appealing to any particular group of consumers.

The key to successful niche marketing is a depth of understanding of the product and consumer tastes that takes many years to build up.

Business to consumer (B2C) strategies focus on developing customer loyalty.

Business to business (B2B)- misses emotion in business transactions.

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Approaches to staffing

Treating staff as an asset:

  • Permanent contracts
  • Develop staff skills with training
  • Pay staff a salary
  • Builds loyalty from staff.

Treating staff as a cost:

  • Flexible contracts. E.g. zero hours.
  • Minimal training offered.
  • Low pay at hourly rate.
  • High staff turnover- proportion of staff that leave a business during a year.

Adapting a flexible workforce:

  • Multi-skilling
  • Part-time and temporary
  • Flexible hours and home-working
  • Outsourcing- contracting another business to perform certain business functions, allowing significant increases in capacity when needed.
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Dismissal vs redundancy

Dismissal occurs when an employee, having been fairly warmed, it deemed "not up to the job" or they have commited a major breach of their terms of employment.

Collective bargaining- an employer deals with one or a few representatives for the whole workforce when discussing problems or negotiating pay rises or changes to working conditions.

Individual approach- employees to be treated on an individual basis, with stars singled out for better treatment.

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Recruitment and selection

Need for recruitment:

  • existing staff leaving
  • Growth of business
  • New activities needing new skills

Internal recruitment- filling a job vacancy with somebody who already works for the business.

Advantages internal recruitment:

  • Quicker and cheaper
  • Chance of promotion- boost morale within business.
  • Skills and attitutes of internal candidates already known.

External recruitment-filling a job vacancy with somebody who does not currently work for the business.

Methods of selection:

  • Interviews
  • Testing and profiling
  • Assessment centres
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Training- designed to enhance employees existing skills or develop new skills.

Induction training- initial training when an employee begins a job the is designed to familiarise them with the workplace and the business.

Benefits training:

  • Higher skill levels- boost productivity and innovation
  • Wider range of skills- business flexibility
  • Motivates staff- feel invested in by business.

Costs training:

  • Large financial costs
  • Normal operations of business can be disrupted.
  • Better-trained staff- more attractive to other businesses.
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Organisational design

Most organisations have a hierarchical stystem- main decisions taken at the top and those lower down putting those decisions into practice.

Business functions- main departments working within a business. Traditional business functions; marketing, finance, human resource management and operations management.

Span of control- number of subordinates directly answerable to one manager.

Centralised structure- describes an organisational structure where most major decisions are taken at the very stop of the organisation by the most senior managers.

Decentralised structure- decision-making is passed lower down the organisation structure through the process of delegation.

Delegation- passing decision-making power down the organisational structure to a lower level.

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Types of structure

A tall structure is one with many layers and narrow spans of control.

A flat structure has fewer levels within the hierarchy, but wider spans of control.

Matrix- staff may have two or more managers.

Structure can affect efficiency and unit costs:

  • Poor communication- mistakes.
  • Duplication of tasks
  • Tasks being overlooked- not done.
  • Departments failing to work together effectively.

Structures can affect motivation by encouraging or preventing the following issues:

  • Scope to show initiative
  • Extent of delegation
  • Responsibility
  • Receiving all information required to perfom a job
  • Opportunities for promotion
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Motivation- Taylor and Mayo

F.W. Taylor (scientific management)- money motivates

  • Break task down into small, simple repetitive parts.
  • Design a payment system that rewards each workers each time they complete their task.

Workers feel treated like pieces of machinery and denied the opportunity to use their minds at work.

Elton Mayo (human relations theory)- importance of interpersonal relations as a factor affecting productivity.

  • Workers gain satisfaction from freedom and control in working environment.
  • Teams tend to work more effectively.
  • Group norms have strong influence on workers behaviour and productivity.
  • Managers taking an active personal interest in their employees has a beneficial impact on workers performance.
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Motivation- Maslow and Herzberg

Maslow's hierarcy of needs (top to bottom):

  • Self actualisation- self-fulfilment.
  • Esteem needs- strength, self-respect, confidence, status and recognition
  • Social needs- belonging, friendship, contact
  • Safety needs- security, stability, freedom from anxiety.
  • Physical needs- food, shelter, warmth

Frederick Herzberg (two-factor theory)- motivators and hygiene factors.

Herzberg's motivators:

  • Achievement
  • Recognition for achievement
  • Meaningful, interesting work
  • Responsibility
  • Advancement- sense of growth as a person.

Hygiene factors:

  • Company policy and administration
  • Supervision
  • Pay
  • Interpersonal relations
  • working conditions.

Herzberg argued it is impossible to motivate a dissatisfied worker.

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Motivation in practice (financial rewards)

Financial rewards

  • Piecework- paying each member of staff a set amount of money each time they repeat a task.
  • Commission- paying staff a percentage of the revenue they generate, usually on top of a low basic salary or hourly rate.
  • Bonus- paying a lump sum as an additional reward to members of staff, typically once a year.
  • Profit-sharing- allocating a certain proportion of annual profits to be shared as a bonus among staff.
  • Performance-related pay (PRP)- rewarding staff whose performance exceeds a certain level where work performance is hard to quanity.
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Motivation in practice (non-financial techniques)

Delegation- passing authority down the structure to a subordinate, giving them some decision-making power over how a task is done.

Empowerment- slightly stronger form of delegation- subordinate is given some decision-making power over what tasks need to be done, not simply told how to do them.

Consultation- asking the views of staff affected as part of the decision-making process, although the manager retains the power to make the decision.

Job enlargment- any increase in the scope of a job and this describes both job rotation and job enrichment.

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Manager- a person fulfilling a role whose major-job is to oversee putting plans into actions, getting details right and ensuring that resources allocated are used correctly.

Leader- idenfies key issues to be addressed, sets objectives and decides what should be done to address those issues and who should do it.

Types of leadership styles:

  • Autocratic
  • Paternalistic
  • Democratic
  • Laissez-faire
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Role of an entrepreneur

Entrepreneur- individuals who spot business opportunities and then act in order to exploit the opportunity.

Main source of business ideas:

  • Observation
  • Thinking ahead
  • Personal or business experience
  • Innovations

Sources of opportunity:

  • Changes in technology
  • Changes in society
  • Changes in the economy

Entrepreneurs running the business:

  • Measure performance in an unbiased way.
  • Eye for detail
  • can step back from day-to-day issues.
  • Love what they do.
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Barriers entrepreneurship

Intrapreneurship- encouragement of entrepreneurial behaviour within larger businesses.

Barriers to entrepreneurship:

  • Funding
  • Gender bias
  • Lack of public sector support

Characteristics entrepreneur:

  • Understanding the market
  • Determination
  • Passion
  • Resilience
  • Ability to coope with risk

Skills entrepreneur:

  • FInancial skills
  • Persuasive abilities
  • Problem-solving skills
  • Networking skills
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Reasons for business start-ups

Reasons why people set up businesses:

  • Profit maximising
  • Profit satisficing- blending a desire for profit with other factors.
  • Independence
  • Home-working
  • Ethical stance
  • Social entrepreneurship

objective- specific target set by a business.

Objectives have to be SMART:

  • Specific
  • Measurable
  • Achievable
  • Realistic
  • Time-bound

Strategy- plan devised by the business to achieve it's objectives.

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Forms of business

Sole trader- a person who starts and tuns a business without turning it into a company.

Benefits sole trader:

  • Owners have full control over decisions
  • Owners keep all profits
  • Minimal paperwork needed.

Liability- refers to the extent to whcih the owner of the business must repay debts incurred in the running of the business.

 Benefits partnership:

  • More finance to be raised
  • Varied skills and experience
  • Share burden of responsibility
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Liability and businesses

Unlimited liability- owners of the business must take personal responsibility for covering debts run up by their business.

Limited liability- form of legal protectlion for business owners which ensures that owners of a limited company can only lose the money they have invested in the business.

The simpler form of limited company (Ltd) to start is a private limited company with no minimum share capital.

A public limited company is the only type of business that can sell shares via the stock market to the general public.

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really helpful especially during exam periods

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