Notesale: Turn your study into money

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Business Studies Notes
by Abdullah
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This may be a sole
trader working alone, like a newsagent, or thousands of shareholders in a large Public
Limited Company
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This may involve reducing prices
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Private sector activities
The activities of industry can be divided into stages - primary, secondary and tertiary production
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Primary production
This involves acquiring raw materials
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This is sometimes known as
extractive production
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This involves converting raw materials into components, eg
making plastics from oil, and assembling the product, eg building houses, bridges and roads
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Their owners are not personally liable for the firm's debts their
losses are limited to the amount they invested in the business (limited liability)
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Whoever owns one or more of these is
called a shareholder
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Unlike a sole trader or a partnership, the owners of a limited company are not
involved in the running of the business, unless they have been elected to the Board of Directors
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There are, however, exceptions to
this rule for smaller private limited companies
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This lets traders know that their liability is
limited and that debts cannot be recovered from the personal funds of the company shareholders
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Lack of capital due to no share issue
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g
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bulk buying, cheaper borrowing
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Public Limited Companies
Advantages

Disadvantages

Raise large amount of capital from share issue
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Benefit from economies of scale, eg bulk
Conflict of interest between shareholders and the
buying, cheaper borrowing
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Possibility of takeover or merger because shares can
Produce goods at lower unit cost
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Sole traders
A sole trader describes any business that is owned and controlled by one person, although they may
employ workers, eg a newsagent's shop
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Sole traders do not have a separate
legal existence from their owner
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This is called unlimited liability
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Advantages
1
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2
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3
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4
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Disadvantages
1
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A good
hairdresser, for example, may not be very good at handling the accounts
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Sole traders often work long hours and find it difficult to take holidays, or time off if they are
ill
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Developing the business is also limited by the amount of capital personally available
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There is also the risk of unlimited liability, where the sole trader can be forced to sell personal
assets to cover any business debts
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A contract called a deed of
partnership is normally drawn up
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Doctors, dentists and solicitors
are typical examples of professionals who may go into partnership together
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A partnership can also
have a sleeping partner who invests in the business but does not have dealings in the day to day
running of the enterprise
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The main advantage of a partnership over a sole trader is shared responsibility
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For example, if
a hairdresser were in partnership with someone with a business background, one could
concentrate on providing the salon service, and the other on handling the finances
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More people are also contributing capital, which allows for more flexibility in running the
business
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There is less time pressure on individual partners
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There is someone to consult over business decisions

Disadvantages
1
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2
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3
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The deed of partnership sets out who should
get what, but if one partner feels another is not doing enough, there can be dissatisfaction
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A partnership, like a sole trader, has unlimited liability
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Public ownership
Public ownership refers to any service or industry owned by the state, for example:
 National Health Service
 Emergency services
 Armed forces
 State education
Central government controls these organisations
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They are not profit making, and the general public pays for these services
through taxation
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There are arguments for and against public ownership
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 Resources - Key supplies, eg water and energy, can be guaranteed and controlled
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The main argument for public ownership is that the whole population benefits rather than just those
who can afford to pay privately
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Today we pay through taxation, but those who earn less, pay less and the
unemployed are provided for
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 Higher costs - Providing these services means higher costs, and higher taxes
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This cost is called the Public Sector
Borrowing Requirement and is funded by taxation, either directly through income tax or indirectly
through National Insurance
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Large public sector organisations are bureaucratic
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During the 1980s, the government decided to privatised most of the nationalised industries in the
belief that the added competition, and profit motive, would improve efficiency, and provide a better
value-for-money service for the consumer
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The main one is that it can benefit from
economies of scale
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A large firm can borrow more cheaply
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The larger it becomes, the more power and status it will have
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The most powerful companies may want to diversify [Moving into another area of business] and take
control of other companies
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If two companies agree to merge, it usually means a complete restructuring of the combined
companies
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The advantages of these forms of integration are that they can
expand more quickly, and diversify into other areas of production
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A firm's size can be measured in different ways: through its turnover, net profit, and number of
employees
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A manufacturing
firm may have a different structure from one providing a service
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Most large companies have departments or functions as their basis for internal structure, for
example: Production, Finance, Marketing and Personnel
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The chain of command is the formal line of communication that starts with the Board of Directors
and the Managing Director, who make the firm's decisions
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This is a hierarchical
structure
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The chain of command is a typical pyramid shape
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This person directly responsible
for a group of workers is called their line manager
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Breakeven calculations
As with any calculation, it is easy to make a mistake
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You can calculate the breakeven point in:
 units
 costs/revenue
Either way, the result should be the same
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2,500 × 6 = £15,000
If you look at the breakeven chart, you will see this is the correct answer
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These are
access to:
Natural resources
An area that is rich in raw materials attracts industry
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Transport links
Canals were the quickest way of moving bulky material around until railways were built
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Some industries still need to be close to
transport links, so produce can be moved to market quickly and cheaply, eg newspaper printers and
distributors
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However, workers with specialist skills are often needed
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Markets
Getting produce to market is no longer a problem because of the extensive transport and
communications links in the UK
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Supermarkets and restaurants
locate near their markets, or customers
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External economies of scale
In some areas, a whole industry has developed, like the car industry in the West Midlands
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They may even work on new
research together
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Central government funding
Central government sometimes offers incentives to any firms who are prepared to move to a
targeted area
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New towns like Telford and Milton Keynes and economic development areas [Regions

where government is triying to attract firms, Usaully by offering incentives] or enterprise zones like
London's Docklands have grown up in this way
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They require a workforce with the right skills and want to benefit from external economies of scale
[Costs are reduced when business concentrated on one location e
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Transport cost is reduced
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Examples include IT companies and call centres which both use telephone lines to transmit
information
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The channel of
distribution [ the route a product takes from its beginning to consumer] can be simple such as a
farmer selling fruit directly to a consumer or through a chain of resellers
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On top of these costs, each reseller will want to make a profit for the
service they are providing so the price is marked up
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They have
cut out some of the resellers and perform functions like wholesaling and retailing themselves
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Direct from the manufacturer to the consumer - mail-order goods
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From the manufacturer, via the wholesaler, to the consumer - furniture
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From the manufacturer, via the retailer, to the consumer - supermarket goods
Methods of production
The types of goods and size of potential orders will affect the method of production used
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 labour intensive



requires specialist, skilled labour
very expensive
Batch production
This method is used when the size of the market for a product is not clear, and where there is a
range within a product line
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This method involves using estimates
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This method is used when there is a mass market for a large number of identical
products, for example, cars, computers, chocolate bars or toasters
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 capital intensive
 low cost per unit
Technological changes
Production methods are constantly evolving in the attempt to cut costs and raise profits
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The draw back with this method is that computer-controlled machinery replaces workers
leading to large-scale redundancies
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This sort of machinery is very expensive, so a company will be taking a risk as a product may not be
successful
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Computer-Aided Design (CAD)
CAD allows designers, engineers and architects to manipulate a 3D image
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This represents a huge saving in time and
costs as a prototype need not be built at each stage
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The products can then go straight into production
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The most important application of CAM in production is the use of robots
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They are particularly useful for repetitive
tasks, or for those dangerous to health, for example, working with poisonous gases or radioactivity
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Organising production
The production department
This department is responsible for the entire manufacturing process, turning raw materials into
finished goods
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identify the engineering or technical aspects of the production process
2
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monitor progress, carrying out work studies and inspection
Now look at each of these functions in more detail:
Engineering
1
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Assesses what technical equipment is needed
3
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Identifies when production will take place
2
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Ensures raw materials are delivered on time
Controlling
1
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Maintains quality standards
3
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The company will
lose money if workers and equipment are left idle due to raw materials not arriving on time
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If they are not used
efficiently, the firm can lose money
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The quality control department carry
out inspections where random samples are tested to ensure standards are met
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Stock control
The purchasing department of a firm handles stock control
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However, this can lead to a number of problems like increased storage
costs and a greater risk of theft or deterioration
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If a firm wants to make a profit, it has to know what
it is spending as well as what it is earning
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
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Fixed
Variable
Total
Marginal
Average
Now look at each of these costs in more detail:

Fixed costs
These costs do not change however many units of a product are made
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The owner of the business may have taken
out a loan to buy equipment or refurbish a building
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Variable costs
Variable costs change as output changes
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Piece-work wages also fluctuate, depending on
the employees' efficiency and the demand for the company's products
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The
fixed costs remain constant, but the variable costs increase in direct proportion with output
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Here is an example:
A company produces compact discs
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If the total costs increase to £1,000 when the hundredth CD is made the
marginal cost of the last CD is £1
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The firm knows that now each CD should cost only £1
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As the cost per
unit usually decreases with a rise in output, it should become cheaper to produce each one
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The reason is that the fixed costs do not change and are spread
across a greater level of output
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It is calculated by dividing total cost by total output
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00 per CD, its average cost will fall radically:
Total costs
/Total output = Average cost of production
£1,100
/200 CDs = £5
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Branding and packaging
The basic function of packaging has always been to protect and contain a product
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We instantly recognise products by the size, shape and colour of
packaging
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This will incorporate the brand name and will differentiate the product from
competitors
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Package design
The shape, size and colour are important factors when packaging a product
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Coke's packaging is
dominated by red
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The same applies to the shape of the packaging
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Remember that the actual product is inside the
container, so the packaging and advertising are all that will attract us to try a product in the
first place
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Kellogg's, Adidas and
Microsoft are all household names which we associate with quality
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This is why it is important for their brand name
or a striking logo to be prominent on packaging
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An expensive perfume or aftershave might be sold in
an elegantly designed bottle
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at a person with taste
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Effects on consumer behaviour
Brand loyalty
The success of a product through branding can lead to brand loyalty
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Consumers tend to stick to a product if we like it
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Buying behaviour
There are so many products on the market, many of them similar to each other, that the
decision to make a first time purchase can be a difficult process
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Without personal recommendation, we rely on advertising and the product's packaging to
help us make a buying decision
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A supermarket is a good example of this, with shelves full of almost
identical products to choose from
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The 4Ps and the marketing mix
The 4Ps are the ideas to consider when marketing a product
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Getting this mix right is critical in order to successfully market a product
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Product
2
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Promotion
4
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Now look at the 4Ps in more detail
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A customer buys a product, and a consumer uses it
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For example, British Airways
might buy aeroplanes from British Aerospace, so it is a customer
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Sometimes a
wide product range[range of goods that a firm produce] covers both (Mercedes produce lorries for
haulage companies, and cars for domestic use)
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For example, a
gold mine may sell gold to a jewellery manufacturer, who in turn will sell on rings to wholesalers and
retailers, before we get to buy them in the high street
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A marketing manager will identify who his/her target market[the end-user or
consumer group ,whom a producer aims to sell] is, what they want, and sell it to them at each stage
in the chain
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No matter how good the product is, it is unlikely to succeed unless the price is right
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Most people associate a higher price with quality, so you
would expect to pay more for a Rolls Royce than for a Lada
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This is useful, as it helps them to
recover expensive research and development costs quickly
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The firm will want a large share of the market, so will settle for a small
profit on each item
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The simplest method of all is cost plus pricing, where a firm adds a profit mark-up[profit added to the
cost by resellers] to the unit cost
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Advertising is the most widely used form of promotion, and can be
through the media of TV, radio, journals, cinema or outdoors (billboards, posters)
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If you were a toy manufacturer, you might want an advertising spot during children's TV
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A small or local business would not usually advertise on TV, because it is very expensive
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Loyalty cards, free gifts, competitions
and voucher schemes are the most popular
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Place
Distribution channels are the key to this area
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Direct marketing through catalogues, via a TV shopping channel and
through the Internet have become popular, because the consumer can shop from home
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Going through wholesalers and high-street retailers, however, is the most popular form of
distribution, as that is still where most people shop
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From this, it will identify who its market is, and then put
together a marketing plan based on the findings
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The firm can then review and adapt
their plan when they need to
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 A good marketing manager will try to differentiate their product (ie make their product
stand out against similar competitive brands)
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 Making it as easy as possible for the customer to buy the product will help sales to increase
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Marketing is about responding to consumers' needs
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Types of research
Market research is the collection of information or data to better understand what is happening in
the market place
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Based on this information, they can put together a marketing plan, which will
meet their own needs as well as those of their consumers
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Typically,
the data is gathered in face-to-face interviews, by telephone, by post or via the internet, using
questionnaires
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Sometimes potential consumers are asked to test products,
and their responses are recorded
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The disadvantages are that it takes longer and is more expensive
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It can be anything from a company's own sales statistics to Department of Trade and Industry
reports
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Traditionally, these have been paperbased, but more and more information is now available on CD-ROM or on-line through the Internet
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The disadvantages are not knowing if the findings are accurate, or how relevant
they will be to your product
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For
example, they will want to know what similar products already exist and how much they cost
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The process for doing this is as follows:
1
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Set objectives
3
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Analyse data
Now have a look at the process in more detail
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This is something that
people sometimes forget
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Set objectives
You have to decide which are going to be the best ways to gather this information
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Depending on how much time you have, choose what field
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Designing questionnaires and testing products on consumers can take a long
time
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This is a more expensive option
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Then supplement this
with field research, so that you don't duplicate your findings
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Analyse data
Now that you have the findings, you have to work out what they are telling you
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You must look for trends and
patterns
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For example, if you were
thinking of setting a price for your product of £10 per unit, and 70% of the sample group think this is
too high, then you may need to consider reducing the price
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But remember: no survey is perfect
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Market segments
Just as you can divide an orange up into segments you can divide the population as a whole into
different groups of people or segments that have something in common
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Marketers
therefore look for categories they can use to divide up the population
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For example, a pensioner will have similar needs to those of other pensioners
but different needs from those of a teenager
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For instance, cosmetics have been traditionally
targeted at women while DIY has been targeted at men
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In the UK businesses provide for a wide range of

different cultures
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Income
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), or type of
job and social class
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This is called a socioeconomic segment
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Lifestyle
People are grouped according to the way they lead their lives and the attitudes they share
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Married parents might want the same things, but have to provide for their children, which is a large
extra cost
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Market segmentation
Marketing departments use segmentation so they can target their products more accurately
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Now look at the way the 4Ps are used in market segmentation
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For example, a
car manufacturer will often have a range that includes a family model, an executive model and a
sports model
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Price
Price and quality are obviously linked but not everyone can afford to buy the most expensive goods
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Within this range of products, there will also be a range of prices to cater for varying disposable
incomes
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A mobile phone company recently
used advertising campaigns that varied for men and women
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The female phone was in bright
colours, and was pictured as a matching accessory to go with a woman's lipstick and handbag
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Place
A firm needs to know where its target market is
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The firm would have to consider how best to get its product
to these areas
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Product lifecycle
All products have a limited life both for the consumer and the producer
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Perishable goods, like fruit and
vegetables, have a short lifespan
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Different products last
for different lengths of time but their life-cycles have elements in common and follow this curve:

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Initial sales will be low until the consumer
starts buying
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Growth
As sales increase production becomes more profitable
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The success of the product can lead to brand loyalty and repeat sales
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Competitors
have now entered the market which may reach saturation point[when market is full of products it
becomes difficult for a product to make additional profits]
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Sales fall, as does revenue
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Applying the product life cycle to the marketing mix
Marketing teams watch for changes in the business environment and react to them
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Introduction
To make the target market aware of the new product it is important to heavily promote it
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Growth
As sales and profitability increase, the selling price may be reduced to make the product more
attractive
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The marketing
team may consider expanding its distribution, to reach more consumers
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If their products are as good but
cheaper the company may lose some of its market share
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Marketers may also put added value onto their product, by offering accessories or insurance, for
example
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