Paper 1 Winter 2015

Question 1

Product differentiation

Answer 1

differentiation is the process of making a product or service so distinctive that it stands out
from competitor products/services in the perception of a consumer

Question 2

Why differentiate product

Answer 2

– to establish and gain market share
– to establish and maintain a reputation
– to persuade customers to pay a particular price for the service
– to create an exclusive purchasing environment
– to create a unique selling proposition (USP)
– to survive and thrive in a very competitive environment
– to establish a perceived difference amongst consumers for services that are essentially much
the same

Question 3

Primary research to new business

Answer 3

• New business has little experince with market, customers, competitors
  – secondary research may be very general and unsuitable for a new business
  – primary research may give a new business specific insight into potential customers –
  which to target etc.
  – it could support a business plan and impress investors
  – it is expensive and few new businesses may be able to afford it

Question 4

Ensure market research expenditure is effective

Answer 4

• establish and review clear objectives for market research expenditure
  – ensure that these objectives are connected to corporate business objectives, e.g.
  maintain profit margins
  – ensure the most relevant and cost effective methods are used, such as electronic means
  of contacting large numbers of customers
  – ensure that the market research is well designed and focused
  – consider the most efficient way to conduct the research – self-directed, outsourced to
  professionals?
  – control the market research budget and seek to measure the impact of activities
  – use lower cost methods – social media/secondary research
  – strong answers may well address effectiveness as well as cost

Question 5

Why business not behave ethically?

Answer 5

-it may decide that its business is the business of making profits, producing goods and
services, and employing people – not ethical/social responsibility activities
– a business may decide it cannot afford to be ethical
– the aim is survival, growth and profitability – if that requires compromises on employee
terms and conditions, or treatment of suppliers for example, then so be it!
– a low priority may be given to any objective or activity that is not directly contributing to
the bottom line
– the pressure to establish more positive ethical standards may be relatively weak in the
business (by Government or pressure groups)
– a business may be a business in an ethically under-developed industry or country with
few ethical objectives or aspirations

Question 6

Unethical business action

Answer 6

– poor working conditions for employees or suppliers
– dishonest sales techniques
– environmentally unfriendly production methods
– bribery and corrupt operating policies
– misleading financial reports

Question 7

How unethical actions bring bad reputation

Answer 7

loss of trust in the company by customers and employees
– legal action may result, leading to compensation and damage to reputation
– poor publicity affects market standing
– the brand is tarnished
– investors and potential investors respond negatively
– the value of the company can seriously deteriorate leading to liquidation, merger or
takeover

Question 8

Breakeven

Answer 8

REMEMBER TO DRAW BREAK EVEN DIAGRAM

Question 9

Piece rate disad

Answer 9

• It may lead to reductions in quality and safety levels as workers focus on producing a high quantity level.
  – Workers may only want to achieve a ‘target’ pay and thus not produce beyond a certain
  level.
  – Accidents may occur as workers focus on speed.
  – Employers may lose control of output and wages bill as workers over-produce.
  – The method requires precise, measurable, standardised outputs to be set by employers
  – Increased labour turnover or absenteeism because some workers find piece rate demotivating.

Question 10

Small businesses importance

Answer 10

– They often provide entrepreneurial impetus and give greater consumer choice.
– They provide competition for the larger companies.
– They often provide specialist goods and services to large/important industries in a country.
– They can be flexible and adaptable to the needs of larger businesses.
– They may well grow into larger and more efficient businesses.
– They can provide more personal services to consumers and enjoy lower average costs.
– They contribute to GDP.

Question 11

Intellectual capital

Answer 11

Intellectual capital is defined as the amount by which the market value of a company exceeds its tangible assets (physical and financial) – the collective knowledge and skills of a company.

Question 12

Intellectual capital contribute to business operation

Answer 12

– Capital in the form of investment monies may well determine the extent and the ‘cutting
edge’ quality of the equipment used and hence the effectiveness of the final products or
services in a competitive market.
– Intellectual capital is the intangible bank of expertise, skills and competencies within a
business that can give the production process a distinctive competitive edge.

Question 13

Why understanding motivation is important

Answer 13

– Managers are concerned with achieving organisational objectives.
– Resources need to be organised and the labour resource is usually a key element.
– Employees need to be developed and directed to ensure all abilities and competencies
are exploited.
– Motivation of employees has a direct impact on productivity and business efficiency.
– Managers seek to motivate employees to peak performance.
– A motivated workforce can be a competitive advantage.
– A motivated workforce means low labour turnover, low absenteeism, high productivity,
responsible ideas – sharing workers.
– A demotivated workforce may give only the minimum or even less.

Question 14

Taylor plis

Answer 14

– The Taylor ‘economic man’ theory is that the rational worker will seek to maximise
economic gain, workers can be treated in a standard way, and wages/payment by
results will determine productivity – the scientific management approach.
– The factors that stimulate workers to work are simple – money, money and money!
– Taylor also argued that workers should have close supervision measured against targets
and be rewarded for output achieved.
– This approach is seen as a partial, simplistic view of worker motivation – a factory-led
approach.
– It ignores ‘other ways’ that workers can be motivated.
– It ignores the complexity of other drivers of performance.
– Other theorists who came later, e.g. Maslow, Herzberg, Mayo – Vroom – emphasised
additional motivators that might satisfy human needs at work (with examples).
– Nevertheless, despite the criticisms and revisions made to Taylor, money is still seen as
driver of performance.
– Money is still seen as important in satisfying important needs and a variety of monetary
incentives still figure in many motivational approaches.

Question 15

Ads of market research

Answer 15

– Reduces risk associated with new product development.
– Can predict future demand changes.
– Identifies market trends and sales patterns.
– Provides information for marketing mix decisions.
– Primary and secondary research methods may be used to illustrate the
benefits of market research activity.

Question 16

Disads of market research

Answer 16

– Market research is not an exact science.
– Inappropriate methods might be used.
– A market research department might not be integrated with the rest of the corporate
organisation.
– The market research objectives set may not be relevant.
– The research may become too expensive or too slow.
– The reliability of data may be suspect.
– Predictions/forecasts may not materialise.
– Not all marketing problems are researchable.

Question 17

Social enterprise differ

Answer 17

DEf: A social enterprise is a business with mainly social objectives and re-invests profits into
benefitting society rather than maximising returns to owners.
– Profit is still an objective and social enterprises compete with other businesses in the
market / industry.
– Business principles are used to achieve social objectives and they seek to make profits
in a socially responsible way.
– Objectives are Economic (make profits in sociably responsible ways), Social (provide
local jobs and/or support local disadvantaged groups) and Environmental (protect the
environment, do business in an environmentally sustainable way) – triple bottom line…
distinctively different from sole traders, partnerships, plcs not set up as social
enterprises.

Question 18

Why become a franchise at first

Answer 18

– You adopt an existing successful/established business.
– You operate an established brand and reduce risks.
– The initial investment is probably smaller.
– An entrepreneur can focus on operating and driving the established brand.
– Ability to benefit from a franchised business relationship.
– Less likely to fail.
– In the short term probably more profitable.

Question 19

Internal growth

Answer 19

Internal growth refers to the expansion of a business by expanding existing operations through opening new branches, shops or factories – also known as organic growth.

Question 20

Why growth = objective?

Answer 20

– increase profits and sales
– increase market share – a higher market profile
– secure economies of scale
– increase power and influence of owners in society
– reduce risk of takeover
– exploit entrepreneurial ambition and potential

Question 21

Process innovation improve operational efficiency

Answer 21

more efficient production processes – robotics
– CAD/CAM
– making increased use of flow production methods
– use of Internet to initiate and track parcel deliveries

Question 22

Process Innovation

Answer 22

Process innovation is the use of a new or improved production method or service delivery
method.

Question 23

Diff bw Revenue Expenditure and Capital Expenditure

Answer 23

– These two different types of spending will almost certainly need to be financed in
different ways (e.g. revenue expenditure from profits and capital expenditure from loans).
 – These two different types of spending will also be treated differently in business
accounts (revenue expenditure will be recorded on each year’s Income Statement, together with that year’s depreciation for non-current assets owned by the business, while capital expenditure will be recorded in the Balance Sheet).

Question 24

Improve customer relations by retail businesses

Answer 24

– train and develop staff in customer relations
– ensure customer relations objectives are set
– review style of leadership and management to ensure that it supports good customer
service
– engage with customers…seek feedback
– respond to collected customer feedback and comments
– introduce customer service awards
– have ‘welcome’ staff – get rid of queues – smile at checkout, etc.
– ensure they have a good after-sales service
– introduce loyalty cards/improve communication with customers

Question 25

Supervisor’s job

Answer 25

A supervisor will:
– monitor the production process
– observe and evaluate workers
– require compliance to procedures
– introduce new production technologies
– support and discipline front line workers
– drive performance, motivate, and ensure quality.