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AS Business Studies
Business Activity
Resources – the inputs that are used in the production process to produce goods and services
...
It provides a managing, decision making and co-ordinating role
...
g
...

Consumer Services – non-tangible products that are sold to the general public e
...
hotel
accommodation, insurance services, train journeys
Capital Goods – physical goods that are used by industry to aid in the production of other goods and
services e
...
machines, commercial vehicles
Primary Sector – those firms engaged in the extraction of natural resources so that they can be used
and processed by other firms
Secondary Sector – those firms that manufacture and process products from natural resources
Tertiary Sector – those firms that provide services to consumers and other businesses
Public Sector – comprises of organization accountable to and controlled by central or local
government (the state)
Private Sector – comprises of businesses owned and controlled by individuals or groups of
individuals

Enterprise
Entrepreneur – someone who takes the financial risk of starting and managing a new business
venture
...
g
...
g
...
Without
record keeping, the organisation of the business will be poor, causing poor relationships
with suppliers and customers, as well as making decisions more time consuming and
possibly affecting staff morale
...
This can be done through establishing a relationship with the
bank to ensure short term and long term solutions or by using effective credit control for
customers
...

 Poor management skills – there may be poor leadership skills, cash handling and cash
management, planning and coordinating, decision making skills, communication skills, or
marketing, promotion and selling skills
...

 Changes in the business environment – new competitors, legal changes (e
...
safety
regulations), economic changes (e
...
during a recession) and technological changes may
cause a loss in profits
...

Advantages
Total national output (GDP) increases and this
raises standards of living
Increasing output of goods can result in lower
imports and higher exports of such products
Value is added to the countries’ output of raw
materials, rather than just exporting these as
basic, unprocessed products
Expanding and profitable firms will pay more tax
to the government
Expanding manufacturing businesses will result
in more jobs being created

Disadvantages
The chance of work in manufacturing can
encourage a huge movement of people from the
countryside to the towns, which leads to housing
and social problems
Imports of raw materials and components are
often much needed, which can increase the
country’s import costs
Much of the growth of manufacturing industry is
due to the expansion of multinational companies

Economies
Economy – the state of a country or region in terms of the production and consumption of goods
and services, and the supply of money
Mixed Economy
Mixed Economy – economic resources are owned and controlled by both private and public sectors
Advantages
It has the advantage of taking the benefits of
capitalist nature of private companies and
socialist nature of government
...

Limited Liability – the only liability, or potential loss, a shareholder has if the company fails is the
amount invested in the company, not the total wealth of the shareholders
...
Partners are bound by the terms of the
Partnership Act 1890
...
These have limited liability
...


Share – a certificate confirming part ownership of a company and entitling the shareholder owner to
dividends and certain shareholder rights
Shareholder – a person or institution owning shares in a limited company
Limited Companies – incorporated business with limited liability, a separate legal personality and
continuity of a business
...
To do this they must complete:




Memorandum of Association
o Details the name of the company
o Details the address of the head office
o Details the maximum share capital for which the company seeks authorisation
o Details the companies declared aims
Articles of Association
o Details the internal workings of the business and control of the business e
...
it
details the names of directors and the procedure to be followed at meetings

Private Limited Companies – an incorporated business that is owned by shareholders but does not
have the legal right to offer shares for sale to the public
Advantages
Shareholders have limited liability
Separate legal personality
Continuity in the event of a shareholder’s death
Able to raise capital from sale of shares to
family, friends and employees
Original owner is still often able to retain control
Greater status than an unincorporated business

Disadvantages
Legal formalities involved in establishing the
business
Quite difficult for shareholders to sell shares
Capital cannot be raised by sale of shares to the
general public
End of year accounts must be sent to Companies
House – available for public inspection there

Public Limited Companies – an incorporated business that has the legal right to offer shares for sale
to the public
...
g
...

Consumer Cooperatives – members buy goods in bulk, sell them, and divide the profits between
members
Worker Cooperatives – workers buy the business and run it; decisions and profits are shared by the
members
...
Franchise businesses
have a lower failure rate than non-franchise firms
...

Advantages
Costs and risks of a new business venture are
shared
Different companies might have different
strengths and experiences and they therefore fit
well together
They might have their major markets in different
countries and they could exploit these with the
new product more effectively than if they both
decided to ‘go it alone’

Disadvantages
Errors and mistakes might lead to one blaming
the other for mistakes
The business failure of one of the partners would
put the whole project at risk
Styles of management and culture might be so
different that the two teams do not blend well
together

Holding Companies – a business organisation that owns and controls a number of separate
businesses, but does not unite them into one unified company
...
The holding company has diversified interests
...
They often do not
have profit as a main objective
...

Stakeholders can influence what a business does, and as they will be affected by the business, they
will try to get the business to do what they want
...
It is the
simplest method and easy to understand, however it does not represent a business which
requires little amounts of workers
...
It is often used
when comparing industry businesses
...
g
...

However comparisons in different industries may be misleading e
...
a hair dresser and an
optician
 Market Capitalisation – businesses with higher market capitalisation are generally larger,
however it can only be used with businesses that have shares on the stock exchange
...

 Market Share – if a business has a high market share then it must be among the leaders in the
industry or comparatively large
...

Capital Employed – the total value of all long-term finance invested in the business
Market Capitalisation – the total value of a company’s issued shares
MARKET CAPITALISATION = current share price

current no
...
g
...
g
...

Aim – where the business wants to go in the future; its goals
...

Strategy – the long-term plans of action of a business that focus on achieving its aims
Tactic – short-term policy or decision aimed at resolving a particular problem or meeting a specific
part of the overall strategy
Why set aims?





They highlight key areas of development
They help businesses keep a focus upon key areas
They outline the ‘destination’ of where the company wants to reach
Provides a framework which strategies and plans can be drawn up

Mission Statement – a statement of the business’ core aims, phrased in a way to motivate
employees and to stimulate interest by outside groups
...
These form the foundation for the strategic plans for the business
...

SMART – Specific, Measurable, Achievable, Realistic, Time Specific
Why set Objectives?




Objectives give the business a clearly defined target
Enables businesses to measure progress towards its aims
Can help motivate employees

Factors that determine Objectives
 Size and Legal Form – Smaller businesses will be more concerned with survival or satisficing,
whereas larger business may be more concerned rapid business growth or profit maximisation
...
Culture is about people, how they
perform and deal with others, how aggressive they are in the pursuit of objectives and how
adaptable they are in the face of change
...

 Number of Years in Operation – newly formed businesses are likely to be driven by survival
...

Common Corporate Objectives
 Profit Maximisation – private sector firms want to gain the highest profit through increasing
revenue and decreasing costs of production
 Growth – this is usually measured in terms of sales or value of output; growth can reduce risk of
takeovers, appeal to new competitors, and motivate managers
 Maximising shareholder value – helps to direct management action towards taking decisions
that would increase share price and returns to shareholders
 Increasing Market share – indicates that the marketing mix of the business is proving to be more
successful than that of its competitors
...

 Maximising short-term sales revenue – would benefit managers and staff when salaries and
bonuses are dependent on sales revenue levels
 Survival – likely to be key objective of most new business start-ups
...

 Profit Satisficing – aiming to achieve enough profit to keep the owners happy but not aiming to
work flat out to earn as much profit as possible
...

 Corporate Social Responsibility

Stages in Decision Making
1
...

3
...

5
...

7
...
They directly produce goods or resources and use
social aims and ethical ways to achieve them
...

Triple Bottom Line – three main aims of Social Enterprises:
 Social – provide jobs or support for local, often disadvantaged communities
 Economic – make a profit to reinvest some of it back into the business and provide some
return to owners
 Environmental – to protect the environment and to manage the business in an
environmentally sustainable way
...

Improvement in the number and quality of
employee applications

Reasons against CSR
Cost involved in ensuring a socially responsible
approach
Reduction in Profits
Distraction from main business activity
In developing countries, it is argued that
economic growth is more important than CSR
Businesses just using it for publicity not actually
doing it for society

Ethics – the moral guidelines that determine decision making
Ethical Code – a document detailing a company’s rules and guidelines on staff behaviour that must
be followed by all employees
Social Audit – a report on the impact a business has on society – this can cover pollution levels,
health and safety record, sources of supplies, customer satisfactions and contribution to the
community
...

Problems with Social Audits




Timely and expensive to produce
May be used as a publicity stunt by companies
Due to them not being compulsory, companies may not take them seriously

Finance
Start-up Capital – the capital needed by an entrepreneur to set up a business
Working Capital – the capital needed to pay for raw materials, day-to-day running costs and credit
offered to customers
...
It needs to be managed effectively by concentrating on the four main components:








Debtors
o No extending credit to customers
o Debt factoring
o By being careful to discover whether new customers are creditworthy
o By offering discount to clients who pay promptly
Credit
o Increasing the range of goods and services bought on credit
o Extend the time taken to pay
Inventory
o Keeping smaller inventories
o Using technology to enhance re-ordering
o Efficient inventory control
o Use Just in Time (ordering stock just before necessary)
Cash
o Use of cash flow forecasts
o Wise use or investment of excess cash
o Planning for periods where there may be insufficient cash inflows

Sell On
Credit

Production

Cash

Materials
and Stock

Liquidity – the ability of a firm to be able to pay its short-term debts
Liquidation – when a firm ceases trading and its assets are sold to pay for suppliers and creditors
Insolvent – when a business cannot meet its short-term debts
Capital Expenditure – the purchase of assets that are expected to last for more than one year, such
as building or machinery
Revenue Expenditure – spending on all costs and assets other than fixed assets and includes wages
and salaries and materials bought for stock
Business Plan – a detailed document giving evidence about a new or existing business, that aims to
convince external lenders and investors to extend finance to the business
Why do businesses need finance?







Expansion
Purchasing of assets
Special situations – decline in sales, economic downturn
Setting up a business
Working Capital
Takeovers or acquisitions
Equity Finance

Equity Finance – permanent finance raised by companies through the sale of ownership of the
business/shares
...
This sale of shares can be
undertaken in two main ways:
o Public issue by prospectus
o Arranging a placing of shares with institutional investors without the expense of a
full public issue
...


Rights Issue – existing shareholders are given the right to buy additional shares at a discounted price
Internal Sources of Finance
o

o

o

Retained Profit – earned profit that is not taken as tax or used to pay owners or shareholders
 Once invested back into the business the retained earnings will not be paid out
 Newly formed companies or ones trading at a loss will not have access
Sale of Assets
 Assets can be sold to leasing company and leased back
 Opportunity cost of selling assets that could be used in the future
Reductions in Working Capital
 Money raised through selling assets or reducing debt
 Firm’s liquidity may be reduced to risky level

External Sources of Finance






Short-Term
o Bank Overdraft – bank agrees to a business borrowing up to an agreed limit as and when
required
 Amount raised can vary from day-to-day
 Often High Interest Rates, Bank can ‘call in’ overdraft – force firms to pay back
o Debt Factoring – selling of claims over trade receivables to a debt factor in exchange for
immediate liquidity
 Any debts to the business can be received immediately
 Only a proportion of the value of the debts will be received as cash
o Trade Credit – delaying the bills for goods and services to suppliers or creditors
 Extra existing finance, no interest rates must be paid for this ‘loan’
 Supplier confidence lost, quick payment discounts lost
Medium-Term
o Leasing – obtaining the use of equipment or vehicles and paying a rental or leasing
charge over a fixed period
 Avoids raising long-term capital to buy assets, leasing company repairs/upgrades
 Periodic payments may total more than one payment, asset returned after use
o Hire purchase – when an asset is sold to a company that agrees to pay fixed repayments
over an agreed time period
 The asset belongs to the company, purchase made over time
 Periodic payments may total more than one payment
o Medium-term Loan
 Bank can supply large sum quickly
 Interest rates must be paid back to bank, collateral must be provided
Long-Term
o Share Issue – selling some ownership of the business to investors
 Nothing needs to be paid back
 Ltds cannot sell shares publicly, expensive to join stock exchange, risk of
takeovers, some loss of ownership,
o Debentures – bonds issued by companies to raise debt finance, often with a fixed rate of
interest
 Usually not secured on an asset, convertible debentures can be turned into
shares overtime so the company issuing them will not have to pay it back
 Company must pay fixed rate of interest each year up to 25 years, if secured on
an asset and the firm ceases trading the investors may sell the asset
o Long-term Loan – loans that do not have to be repaid for at least one year
 Bank can supply a large sum quickly that does not have to be paid back for
awhile
 Interest rates must be paid back to bank, collateral must be provided
o Grants – money donated to the business by outside agencies
 Do not have to be repaid if conditions are met
 Difficult to receive – the business has no choice over who gets the grants

Other Sources of Finance
Venture Capital – risk capital invested in business start-ups or expanding businesses that have good
profit potential but do not find it easy to gain finance from other sources
Microfinance – providing financial services for poor and low-income customers who do not have
access to banking services, such as loans and overdrafts offered by traditional commercial banks
Crowd Funding – the use of small amounts of capital from a large number of individuals to finance a
new business venture
Factors Influencing Choices of Finance









Use of finance
Size of existing borrowing
Flexibility of firm’s need for finance
Legal structure and desire to retain control
Amount required
Cost of debt
Time period for which finance is required
Existing assets of the firm

Costs
Fixed Costs – costs which do not change with output
...

Direct Costs – costs that can be clearly identified with each unit of production and can be allocated
to a cost centre
Indirect Costs – costs that cannot be identified with a unit of production or allocated accurately to a
cost centre
Marginal Costs – the extra cost of producing one more unit of output
Total Costs – all costs required in the production process
TOTAL COSTS = Fixed Costs + Variable Costs
Revenue – total value of sales made by a business in a given time period
TOTAL REVENUE = Price x Quantity
Profit/Loss – how much money the firm has made once costs of production have been taken into
account
PROFIT/LOSS = Total Revenue – Total Cost

Break Even Analysis
Breaking Even – the level of output where total revenue is equal to total cost
BREAKEVEN POINT OF OUTPUT =
Contribution – how much per unit a company’s variable cost can contribute to paying the fixed costs
...

CONTRIBUTION = Selling Price – Variable Cost
Margin of Safety – the difference in terms of units of production, between the current production
level and the break-even level

Total Revenue
Total Costs

$

Variable Costs
Break Even
Point
Margin of Safety
Fixed Costs
Output

Advantages
Charts are relatively easy to construct and
interpret
...

Comparisons can be made between different
options by constructing new charts to show
changed circumstances
...

The equation produces a precise breakeven
result
...

There is no allowance made for inventory levels
on the break-even chart
...
This is unlikely to always
be the case
...

Not all costs can be conveniently classified into
fixed and variable costs e
...
electricity

Accounting
Financial Accounting
Collection of data on daily transactions
Preparation of the published report and
accounts of a business – statement of financial
position, income statement and cash statement
Information is used by external groups
Accounts are usually prepared once or twice a
year
Accountants are bound by the rules and
concepts of the accounting profession
Covers pasts periods of time

Management Accounting
Analysing internal accounts such as budgets
Preparation of information for managers on any
financial aspect of a business, its departments
and products
Information is only available to internal users
Accounting reports and data prepared as and
when required by managers and owners
Not set rules – accountants will produce
information in the form requested
Can cover past time periods, but can also be
concerned with the present or projections into
the future

Accounting Concepts and Conventions
The Double-Entry Principle: Every time a business engages in a transaction e
...
buying materials,
there are two sides to the transaction
...
If no adjustment was made for this accrued expense, then
the profits in the current accounting period will be overstated
...
All accounting data are converted into money – hence
the principle of money measurement
...

Conservatism/Prudence Concept: Accountants are trained to be realistic about the values used in
accounts
...
Profits, on the other hand, should not be recorded until it is certain
that goods or services have been sold at a profit and not a loss
...
So sales are not recorded when an order is taken or when payment is actually
made – but when the goods or services have been provided to the customer
...
g
...
e
...
g
...

There are three sections to an income statement:
1
...
Profit and Loss Section – calculates the overall level of profit made
NET (OPERATING) PROFIT = Gross Profit – Expenses and Overheads
PROFIT FOR YEAR (PROFIT AFTER TAX) = Operating Profit – (Interest Costs + Tax)
3
...

Non-current Assets (Fixed Assets) – assets to be kept and used by the business for more than one
year
Intangible Assets – items of value that do not have a physics presence, such as patents and
trademarks
Current Assets – assets that are likely to be turned into cash before the next balance-sheet date
Trade Receivables (Debtors) – the value of payments to be received from customers who have
bought goods on credit
Liabilities – items owned by the business either long-term (fixed/non-current) or short-term(current)
Non-Current Liabilities – value of debts of the business that will be parable after more than one year
Current Liabilities – debts of the business that will usually have to be paid within one year
Accounts/Trade Payable (Creditors) – value of debts for goods bought on credit payable to suppliers
Shareholders’ Equity – total value of assets – total value of liabilities
Share Capital – the total value of capital raised from shareholders by the issue of shares

Example Income Statement
Sales Revenue
Cost of Sales
Gross Profit
Expenses
 Fixtures
 Loan Repayments
 Mortgage
 Other Expenses
 Advertising
 Insurance
 Wages
Total:
Net Profit
Interest
Profit Before Tax
Tax at 20%
Profit After Tax
Dividends
Retained Profit

1315860
48826
1267034
15000
2500
750
2600
2100
1800
42336
67086
1199948
10500
1189448
237890
951558
55000
896558

Example Balance Sheet
Non Current Assets
Premises
889000
Machinery
126000
Vehicle
200000
Current Assets
Stock
9500
Cash
2260
Accounts Receivable
35798
Total Assets
1262558
Current Liabilities
Accounts Payable
49000
Overdraft
7000
Non Current Liabilities
Mortgage
300000
Loan
4000
Total Liabilities
360000
Share Equity
6000
Retained Profit
896558
Total Equity and Liabilities
1262558

Goodwill – arises when a business is valued at/sold for more than the balance-sheet value of assets
Intellectual Capital/Property – amount by which the market value of a firm exceeds its tangible
assets less liabilities
Information not in Published Accounts







Details of the sales and profitability of each good or service produced by the company and of
each division or department
The research and development plans of the business and proposed new products
The precise future plans for expansion or rationalisation of the business
The performance of each department or division
Evidence of the company’s impact on the environment and the local community
Future budgets or financial plans

Window Dressing – presenting the company accounts in a favourable light – to flatter the business
performance
...
Motivation levels may fall if
wage costs cut, or replaced by machinery which may also require retraining
...
Consumers
may consider this to be a ‘profiteering’ decision and the long-term image of the business
may be damaged
 Reducing overhead costs – efficient operation may be damaged if fewer managers or lower
salaries
...
Promotion costs may be cut which could lead to sales falling
...
If
assets are still needed by the business, then leasing charges will add to overheads and
reduce operating profit margin
 Sell of inventories for cash – this will only improve the current ratio
...
Consumers may doubt the image of
the brand if inventories are old off cheaply
...

 Increase loans – There will be an increase in gearing ratio, working capital and interest costs
Low-Quality Profit – one off profit that cannot easily be repeated or sustained
High-Quality Profit – profit that can be repeated or sustained

Management
Managers – responsible for setting objectives, organising resources and motivating staff so that the
organisation’s aims are met
...

Directors – senior managers elected into office by shareholders in a limited company
...

Supervisors – appointed by management to watch over the work of others
...

Lower levels of the hierarchy are given little delegated authority and communication is usually just
one way
...
It
involves a great deal of participation from the workforce but can be time consuming
...
g
...
This may be appropriate in research and development departments
staffed by skilled specialists that are self motivated
...
Emotional Intelligence
competencies should try to develop and improve on:





Self Awareness – knowing what we feel using that to guide decision making
Self Management – being able to recover quickly from stress
Social Awareness – sensing what others are feeling
Social Skills – handling emotions in relationships well and understanding social situations

Motivation
Motivation – the act or process of stimulating an action, providing an incentive or motive, especially
for an act completed
...

Motivation Theory – the study of factors that influence the behaviour of people in the workplace
...
W
...
W
...
He considered money to be the main factor that motivated workers, so he
emphasised the benefits of Piece Work
...
Higher efficiency would generate
higher profits and thus higher wages to workers
...
g
...
He
concluded that:






Changes in work conditions and financial rewards had little or no effect on productivity
When management consulted workers and took an interest, motivation improved
Team work and developing team spirit can improve productivity
When some control over their own working lives is given, there is a positive motivational
effect
Groups can establish their own targets or norms and these can be greatly influenced by
informal leaders of the group

Maslow’s – Hierarchy of Needs
Abraham Maslow – an American psychologist whose work on human needs has had a major
influence of management thinking
...


SelfActualisation
Self-Esteem
Needs
Social Needs
Security and Safety Needs
Physiological Needs
Self-Actualisation – the need to fulfil one’s potential through actions and achievements, Maslow did
not believe this need could be filled fully and thought people would always strive to develop further
and achieve more
...

Social Needs – the desire for friendship, love and a sense of belonging, or being part of a team
...

Safety Needs – the need for security, a secure job, safe working environment, clear lines of
accountability and responsibility
...
In relation to work it’s the need
to earn income to acquire these things and to have reasonable working conditions
...

Motivators
Sense of Achievement
Recognition for effort and achievement
Nature of the work itself
Responsibility
Promotion and improvement opportunities

Hygiene/Maintenance Factors
Working Conditions
Supervision
Pay
Interpersonal relations
Company police and Admin e
...
paperwork, rules

Motivators – aspect of a worker’s job that can lead to positive job satisfaction
Hygiene Factors – aspects of a worker’s job that have the potential to cause dissatisfaction

David McClelland – Motivational Needs Theory
Achievement Motivation – a person with a strong need to achieve goals and job advancement
Authority/Power Motivation – a person with a dominant need is ‘authority motivated’
Affiliation Motivation – a person with a need for affiliation, friendly relationships and interaction
with other people

Vector Vroom – Expectancy Theory
Vroom’s Theory – that an employee’s motivation to a complete a task is influenced by their personal
views regarding the possibility of completing the task and the possible outcome or consequence of
completing the task
...
There would be a decrease in boredom and an increase
in multiple skills
...

 Job Enlargement – attempting to increase the scope of a job by broadening or deepening the
tasks undertaken
...

 Job Enrichment – aims to use the full capabilities of workers by giving them the opportunity
to do more challenging and fulfilling work
...

 Job Redesign – this involves the restructuring of a job, usually with employees’ involvement
and agreement, to make work more interesting, satisfying and challenging
...

 Quality Circles – voluntary groups of workers who meet regularly to discuss work-related
problems and issues
...
There would be an increase in team working, motivation and
responsibility
...
There is a decrease in labour turnover but an increase in quality and improved
ideas

Human Resource Management
Human Resource Management – the strategic approach to the effective management of an
organisation’s workers so that they help the business gain a competitive advantage
Role of HRM









Appropriate Pay Systems
Workforce Planning
Staff Morale and Welfare
Appraising and Training
Recruitment and Selection
Preparation of Contracts
Measuring Staff Performance
Involving managers in development of staff

Strategic Workforce Planning – analysing and forecasting the numbers of workers and the skills of
those workers that will be required by an organisation to achieve its objectives
Workforce Audit – a check on the skills and qualifications of all existing workers and management
Factors affecting Workforce Demand







Demand for existing and new products
Business disposals and product closures
Introduction of new technology
Cost reduction programmes
Changes to the business organisational structure
Business acquisition, joint ventures, strategic partnerships
Factors affecting Workforce Supply





Changes to the composition of the existing workforce
Normal loss of workforce e
...
through retirement
Potential exceptional factors e
...
actions of competitors that create problems of staff
retention

Workforce Gap – a forecast of having too few or too many workers
...

Recruitment and Selection Process
1
...

3
...

5
...
It may also state the job title, location, nature of the business and the salary and conditions
...
It
may state qualifications, experience, interests and personality
...
A contract includes:





Employees responsibilities
Working hours
Rate of pay and holiday entitlement
Notice period both employee or employer

Zero-Hours Contract – no minimum hours of work are offered and workers are only called in – and
paid – when work is available
Temporary employment contract – employment contract that lasts for a fixed time period e
...
6
months
...
g
...
5 hours per week
Flexitime contract – employment contract that allows the staff to be called in at times most
convenient to employers and employees e
...
busy times of the day
Teleworking – staff working from home but keeping contact with the office by means of modern IT
communications
Outsourcing – not employing staff directly, but using an outside agency or organisation to carry out
some business functions
Core workers – full time and permanent staff
Peripheral workers – temporary, past time and self employed workers
Charles Handy, Shamrock Organisation – shows the trend towards
fewer core staff on permanent and salaried contracts
...
e
...
Before
dismissing staff they must follow a disciplinary procedure
...

Redundancy – when a job is no longer required, so the
employee doing this job becomes redundant through no fault
of his or her own
...
When this happens the employer must make a redundancy payment, which
depends upon the number of year’s service and the employees current pay level
...
Notice can be given by either part and failure to give sufficient
notice will result in financial penalties
...
This will:




Be a continuous process
Enable workers to continually achieve self fulfilment at work
Establish a career plan that the individual feels is relevant and realistic
Absenteeism

Absenteeism – measures the rate of workforce absence as a proportion of the employee total
...
g
...
To be effective, marketing
objectives should:





Fit in with the overall aims and mission of the business
Be determined by senior management
Be SMART
Be made through coordination with other departments

Marketing Strategy – long-term plan established for achieving marketing objectives
Market Orientation – customer led organisations start the planning process by focusing on the
customers
Product Orientation – production-led organisations start the planning process by focusing on the
firm
Asset-Led Orientation – asset-led organisations match the customer needs to the firms strengths
Direct Competitors – businesses that provide the same or very similar goods or services
Unique Selling Point – the special feature of a product that differentiates it from competitor’s
products
Product Differentiation – making a product distinctive so that it stands out from competitors
products in consumer perceptions
Consumer Profile – a quantified picture of consumers of a firm’s products, showing proportions of
age groups, income, gender, location and social class
Factors that determine Marketing Success
 Societal Marketing – this approach considers not only the demands of consumers but also
the effects on all members of the public involved in some way when firms meet these
demands
 Demand
 Supply
 Price

The Market
Market – any situation where buyers and sellers are in contact in order to establish a price
Formal Market – a shop or financial market such as the Stock Exchange
Informal Market – selling goods from a street corner or an advert in a local newspaper
Demand – the quantity that people in a particular market actually can and will purchase at each
price
...
Supply is affected by:






Costs of Production – change of labour or raw materials
Tax imposed on the suppliers and government – raise of costs
Subsidies paid by government to suppliers – reduce costs
Weather conditions and other natural factors
Advances in technology – low costs

Equilibrium Price – the market prices that equates supply and demand for a product
Niches
Niche marketing – identifying and exploiting a small segment of a larger market by developing
products to suit it








Smaller businesses try to find a gap in the market
A large business has the money to research and develop products in competitive markets
Small businesses look for a gap, where there are fewer competitors
Finding a product or service that is not often offered by main stream competition
Small businesses can survive and thrive as market is not dominated by large firms
High prices and profit margins
Create status and image
Mass Marketing

Mass marketing – selling the same products to the whole market with no attempt to target groups
within it



Businesses benefit from economies of scale
Fewer risks

Market Segments
Market Segmentation – identifying different segments within a market and targeting different
products or services to them
Market Segment – sub group of the whole market
...
These can be
influenced by the consumer social class
...
Businesses need Market Research for:





To reduce the risks associated with new product launches
To predict future demand changes
To explain patterns in sales of existing products and market trends
To assess the most favoured designs, flavours, styles, promotions and packages for a product
Market Research Process

1
...
Research Objectives
 These objectives must obviously tie in with the original problem
 At the end of the research they will have needed to provide information to solve the
problem
 Examples can include: How many people are likely to buy our products in Country X?
If the price of Good Y is reduced, how much will this increase sales volume?
3
...
g
...
Researchers will be part of this discussion
and will have to keep them ‘on target’ as they may get off track, and they may also present a
bias from them leading or influencing the decision too much
...
e
...
The region selected however, must
reflect as closely as possible the social and consumer profiles of the rest of the country
...
They can obtain both qualitative and quantitative data
...
When there is a larger sample, there will be more confidence in results
Random Sampling – every member of the target population has an equal chance of being selected
...

Stratified Sampling – this draws a sample from a specified sub group of segment of the population
and uses random sampling to select an appropriate number from each stratum
...
This is a cheaper method, however is not
random and therefore may not be fully representative
...

Trade Organisations – information concerning products can be received from trade
organisations that produce regular reports on the state of the markets their members
operate in
...

Newspaper reports and specialist publications – could show weekly advertising spend data,
consumer ‘recall of adverts’ results, as well as regular articles on key industries and detailed
country reports
...
The
accuracy and relevance of the source would always have to be checked
...
g
...
g
...
g
...
It is linked to:





Market Segmentation
Market Research
Product Development
Product Life Cycle (and extension strategies)
Product Life Cycle

Product – the end result of the production process sold on the market to satisfy a consumer need
Product Life Cycle – shows the stage that products go through from development to withdrawal
from the market; refers to their life span as such







Each product may have a different life cycle
PLC determines revenue earned
Contributes to strategic marketing planning
May help the firm to identify when a product needs support, redesign, reinvigorating,
withdrawal etc
...
It is
likely implemented during the Maturity stage or early Decline
...
(colour, quality, etc
...
These
have a coefficient greater than 1
Inelastic Demand – a change in price brings about a small change in the quantity demanded
...

Perfectly
Inelastic

Perfectly Elastic
Unitary
Elasticity
Importance of PED





Firms can use PED estimates to predict:
o The effect of a change in price on quantity demanded
o The effect of a change in price on total revenue
o The likely price volatility in a market following unexpected changes in supply
o The effect of a change in indirect tax onto the consumer
o Information on the price elasticity of demand can be utilized as part of a policy or
price discrimination
Can be used to make more accurate sales forecasts and assist in pricing decisions
Is bad because:
o PED assumes nothing has changed in the market
o PED can become outdated quickly
o It is not always easy and indeed possible to calculate PED

Pricing Strategies
Mark-Up Pricing – adding a fixed mark-up for profit to the unit price of a product
e
...


Total Cost of bought-in materials = $40; Firm wants 50% Mark-Up
Therefore, Selling Price =
= $60

Target Pricing – setting a price to give the company a targeted rate of return at certain output levels
e
...


Total costs for 10000 units = $400000; Targeted Rate of Return = 20% of Sales
Therefore, Selling Price =

= $48

Full-cost (absorption) pricing – setting a price by calculating a unit cost for the product (allocating
fixed and variable costs) and then adding a fixed profit margin
e
...


Fixed Costs = $10000; Variable Cost for 5000 units = $25000; Profit Margin = 300%
Therefore, Selling Price =

Advantages
Suitable for firms that are ‘price-makers’ due to
market dominance
Easy to calculate for single-product firms where
there is no doubt about fixed cost allocation
Price set will cover all costs of production

= $28
Disadvantages
Inaccurate for multi-product businesses where
there is doubt over allocation of fixed costs
If sales fall, average costs often rise – this could
lead to the price being raised using this method
Tends to be inflexible
Doesn’t consider market/competitive conditions

Contribution-cost pricing – setting prices based on the variable cost of making a product in order to
make a contribution towards fixed costs and profit
e
...


Variable Cost = $2; Total Fixed Costs = $40000; Expects to sell 60000 units
If Selling Price = $3, $1 Contribution covers Fixed Costs, plus makes $20000 profit

Advantages
Variable costs covered and contribution to fixed
Suitable for firms producing several products –
fixed costs do not have to be allocated
Price can be adapted to suit market condition

Disadvantages
Fixed costs may not be covered
If prices vary too much – due to the flexibility–
then regular customers may be annoyed

Competition Pricing – setting a price based upon what the price competitors set
Advantages
Necessary for firms with little market power
Flexible to market and competitive conditions

Disadvantages
Price set may not cover all of the costs

Price Discrimination – uses price elasticity knowledge to charge different prices
...
Examples include:





Cheaper prices of travel for children and elderly
Different prices for different export markets
Higher priced goods in higher socio-economic areas
Occupational discounts such as teachers getting stationery cheaper

Advantages
Uses PED knowledge to charge different prices in
order to increase total revenue

Disadvantages
Costs of having different pricing levels
Customers may switch to lower-price rate
Consumers paying higher prices may object

Dynamic Pricing – offering goods at a price that changes according to the level of demand and the
customer’s ability to pay
Penetration Pricing – when a firm enters a new market, it sets its price lower than the competitor’s
Price/Market Skimming – setting a high price for a new product when a firm has a unique or highly
differentiated product with lower price elasticity of demand
Advantages
Help establish a product in the market
Consumers may assume it is of good quality

Disadvantages
Potential customers might be put off because of
the high prices

Promotional Pricing – when the firm sets price lower for a set amount of time, in cases such as:



Buy One Get One Free

Psychological Pricing – setting prices as appropriate for the quality of the good e
...
perfume sold at a
high price as to not effect perception of quality
...
g
...
99 instead of $3
...
The firms hope that the profits earned by these other goods
will exceed the loss made on the lower priced ones

Promotion
Promotion – the use of advertising, sales promotion, personal selling, direct mail, trade fairs,
sponsorship, and public relations to inform consumers and persuade them to buy
...
There are two types:
 Informative Advertising – adverts that give information to potential purchasers of a product,
rather than just trying to create a brand image
 Persuasive Advertising – adverts trying to create distinct image/brand identity for products
Factors contributing towards determining Advertising Media







Cost
Size of audience
Profile of target audience in terms of age/income levels/interests etc
...
g
...
g
...
These are set in a number of
different ways:
 Competitor-Based – setting the budget based on competitor’s budget
...

 Objective-Based – analysing what sales are required to meet objectives, then assess how
much support spending is required
 Percentage of sales – expenditure will vary dependant on sales
 What the business can afford – many managers adopt a view that marketing is a luxury and
may not provide a large amount of budget towards it
 Incremental – what was set last year, adding a percentage for inflation of different sales
targets
Impacts on Society from Promotional Expenditure
Benefits
It informs people about new products and thus
helps increase competition between firms
By helping create mass markets, promotion can
assist in reducing average cost per unit
Generates income for TV, radio, and newspaper
businesses

Drawbacks
Waste of resources – could be used to lower
prices instead
Promotion is powerful – could encourage
purchases that are unwanted
Promotes consumerism – people are judged by
the amount they own
Encourages consumption – environmentalists
argue that it’s against conserving resources

Internet
Internet Marketing – refers to advertising and marketing activities that use the internet, email and
mobile communications to encourage direct sales via electronic commerce
...
The intermediaries include:
Wholesalers





Breaks down bulk and buys from producers and sell small quantities to retailers
Provides storage facilities
Reduces contact cost between producer and consumer
Wholesaler takes some of the marketing responsibility e
...
sales force, promotions
Agents






Mainly used in international markets, however control is difficult due to cultural differences
Commission agent – does not take the title of the goods
Stockist agent – hold ‘consignment’ stock
Training, motivation etc
...

Creating Value – increasing the difference between the cost of purchasing bought-in materials and
the price the finished goods are sold for
Adding Value – the difference between the cost of purchasing raw materials and the prices the
finished goods are sold for
...
It can be raised through:




Improve training or staff to raise skill levels
Improve worker motivation
Purchase more technologically advanced equipment

Labour-Intensive – involving a high level of labour input compared with capital equipment
Capital-Intensive – involving a high quantity of capital equipment compared with labour input
Efficiency – producing output at the highest ratio of output to input
Effectiveness – meeting the objectives of the enterprise by using inputs productively to meet
consumer needs

Production Methods
Job Production – producing a one-off item specifically designed for the customer; requires a skilled
workforce e
...
personalised wedding cakes
Advantages
Able to undertake specialist projects or jobs,
often with high value added
High levels of worker motivation

Disadvantages
High unit production costs
Time-consuming
Wide range of tools and equipment needed

Batch Production – producing a limited number of identical products – each item in the batch passes
through one stage of production before passing onto the next stage
Advantages
Some economies of scale
Faster production with lower unit costs than job
production
Some flexibility in design of product in each
batch

Disadvantages
High levels of stocks at each production stage
Unit costs likely to be higher than with flow
production

Flow Production – producing identical items in a continually moving process; used for products with
high steady demand
Advantages
Low unit costs due to constant working of
machines, high labour productivity and
economies of scale

Disadvantages
Inflexible – often very difficult and timeconsuming to switch from one type of product to
another
Expensive to set up flow-line machinery

Mass Customisation – the use of flexible computer-aided production systems to produce items to
meet individual customers’ requirements at mass-production cost levels; requires flexible equipment
and workers
Advantages
Combines low unit costs with flexibility to meet
customers’ individual requirements

Disadvantages
Expensive product redesign may be needed to
allow key components to be switched to allow
variety
Expensive flexible capital equipment needed

Factors that Influence the Change of Production Method





Size of market
Amount of capital available
Availability of other resources
Market demand exists for products adapted to specific customer requirements

Operational Flexibility – the ability of a business to vary both the level of production and the range of
products following changes in consumer demand
Process Innovation – the use of a new/much improved production method/service delivery method

Technology
Computer Aided Design (CAD) – the use of computer programmes to create two or three
dimensional graphical representations of physics objects
Advantages
Lower product development costs
Increased productivity
Improved product quality
Faster time-to-market
Good visualisation of the final product and its
constituent parts
Great accuracy, so errors are reduced

Disadvantages
Complexity of programmes
Need for extensive employee training
Large amounts of computer processing power
required and this can be expensive

Computer Aided Manufacturing (CAM) – the use of computer software to control machine tools and
related machinery in the manufacturing of components or complete products
Advantages
Precise manufacturing and reduced quality
problems – compared to production methods
controlled by people
Faster production/increase labour productivity
Integrating with CAD, CAM allows more design
variants of a product to be produced as well as
mainstream mass market products
...
Suppliers generally offer price
discounts for bulk purchases as delivery is cheaper
...

Technical Economies – large firms generally have sufficient finance for investment in new
machinery, training/recruiting skilled workers, and research and development
...
Diversification allows large firms to spread their risk over
a range of products
Managerial Economies – larger firms are able to employ specialist managers who should
operate more efficiently than general managers and make fewer mistakes due to training

External Economies of Scale – when the expansion of an entire industry benefits all firms within that
industry





Access to a skilled workforce – Large firms may have access to a skilled workforce because
they can recruit workers trained by other firms within the industry
Ancillary firms – firms which develop and locate near large firms in particular industries to
provide them with specialised equipment and services
Joint Marketing Benefits – firms locating in the same area well known for producing high
quality produce may benefit from reputation
Shared infrastructure – the growth of one industry may persuade firms in other industries to
invest in new infrastructure
Diseconomies of Scale

Diseconomies of Scale – when firms experience an increase in average costs as they try to increase
production and expand too much and too quickly




Management Diseconomies – if a firm has offices in different locations, produce many
products and have many different layers of management, this can slow down the decision
making process
Labour Diseconomies – large firms generally employ computer-controlled equipment and
machines
...
It can become difficult to coordinate all
different activities of the merged firms
...
Stocks include Raw Materials, Work In Progress, or Finished goods
...
Space released from holding of
inventories can be used for a more productive
purpose
The greater flexibility that the system demands
leads to quicker response times to changes in
consumer demand or tastes
Any failure to receive supplies of materials or
components in time will lead to expensive
production delays
Much less chance of inventories becoming
outdated or obsolescent
...
Business decide to
locate internationally to:




Reduce costs, with cheaper prices in other countries
Access global markets
Avoid protectionist trade barriers

Advantages
Greater convenience for consumers
Lower transport costs
Reduce risk of supply disruption
Opportunities for delegation
Cost Advantages

Disadvantages
Coordination problems between the locations
Potential lack of control and direction
Different cultural standards and legal systems

Offshoring – the relocation of a business process done in one country to the same or another
company in another country
Multinational – a business with operations or production bases in more than one country
Trade Barriers – taxes or other limitations on the free international movement of goods and services



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