Sem 2 Exam Flashcards
Types of business ownership
Sole trader, partnership, small proprietary company, not-for-profit organisation, franchise
Sole trader
= a business that is run and owned by an individual.
Positives:
- Owner has full control
- Owner keeps all profits
- Easy to set up
Negatives:
- Unlimited liability i.e. if the business goes broke, the owner could lose personal assets to pay off business debts
- No one to share the workload
Partnership
= when two to twenty people operate a business as co-owners and share income.
- Governed by the Partnership Act 1895
Positives:
- Partners can collectively raise more capital
- Can share workload and combine ideas
- Can take breaks at different times
Negatives:
- There can be disagreements between partners over decisions
- Rules must be set for partners leaving otherwise the partnership will end
- Unlimited liability i.e. partners may lose personal assets to pay off business debts
Small proprietary company
= a company that is registered to operate and is owned by a maximum of fifty shareholders who are invited to own shares in the company.
Positives:
- Limited liability i.e. personal assets are not taken to cover business debts
- A person can sell their shares if they want to leave the business
Negatives:
- Expensive to set up
- Less say in the running of the business because there are so many owners
- Profits are shared amongst more owners
Not-for-profit organisation
= organisations that do not operate for the profit or gain of its individual members.
Positives:
- Inexpensive to incorporate
- May be eligible for tax exemptions
- Few rules
Negatives:
- Not closely monitored so no clear guidelines for operation and resolving disputes
- Profit is not given to members
- Limited to operating in the state of incorporation
Franchise
= when a firm that already has a successful product or service (franchisor) licenses its trademark and method of doing business to another business or individual (franchisee) in exchange for a franchise fee and an ongoing royal payment.
Positives:
- Franchisor offers management training and assistance
- There are established operating procedures, manuals and management systems
- Obtaining finance may be easier due to established market presence
Negatives:
- Franchisees must operate according to the franchisor’s procedures
- Ongoing cost of payments to the franchisor
- Restricted territory for operation and promotion of the business
Impact of economic factors on business function
Inflation rate, interest rate, availability of skilled and unskilled labour, unemployment rate
Inflation rate
= buying fewer goods and services with each unit of currency.
- High inflation –> business must pay more for supplies, increase their prices and pay employees more in line with CPI
- Low inflation –> business will pay less for supplies, decrease their prices and maintain employee wages
Interest rate
= the cost of borrowing money, measured in percentages.
- High rate –> businesses borrow less money, customers pay more for mortgages, less money for discretionary spending
- Low rate –> businesses borrow more, customers pay less for mortgages, more money for discretionary spending
Availability of skilled and unskilled labour
- Shortage of skilled labour –> businesses will raise wages to secure their employees, restrict orders or days of operation, unskilled workers may fill vacancies
- Abundance of skilled labour –> businesses will decrease wages, employees will exceed demand
Unemployment rate
= the number of people who are willing and available to work at current wage rates, but are not currently employed.
- Increasing –> larger pool of workers for the business to recruit and select from, employed workers may feel threatened with losing their job, lower consumer spending
- Decreasing –> reduced pool of workers for businesses, more disposable income, higher demand for products and services
Methods of raising business public image
Corporate sponsorship, donation
Corporate sponsorship
= a large scale event where lots of people attend and gain brand awareness and recognition.
- Big corporate businesses pay a high sum of money to be associated with these events for publicity
- Visibility –> participants and spectators will see the logo and slogan of the company during the event and visibility will be high
- Positioning –> creates a positive public image as supporting an event with good intentions and community involvement are involved with the company
- Market research –> company will choose what to sponsor based on the demographics of the people involved
- Publicity –> corporate sponsors are mentioned and thanked during the event
Donation
= when businesses give resources to causes so that they can be seen as contributing back to society.
- Businesses do this to improve brand likeableness to the public
- Customers feel that they have supported a good cause
- May be one-off or ongoing
- Can include: money or products, or employees could provide time and expertise to assist
Positive and negative impacts on business image of environmental issues
Climate change, pollution, energy use, animal testing
Climate change
= the change in global climate patterns over an extended period of time.
- Caused by an increased level of carbon dioxide in the atmosphere due to the use of fossil fuels in the production of goods and services
- Society expect businesses to be aware and to be managing their contribution to climate change
- A business can offer carbon offsets –> investments in planting trees and renewable energy, recycling when customers make a purchase
Pollution
= the presence of substances that can cause harm or damage to the natural environment.
- Businesses have the ability to control the amount of pollution caused in the manufacturing of their products
- Businesses can offer recycling alternatives where customers can bring in their used goods to re-use in creating new products or to be refurbished
- Businesses must buy their goods or raw materials from suppliers who share the same values on environmental issues
Energy use
= when a company operates in a way that reduces energy use, reduces waste and pollution, and is trying to avoid practices that add to climate change.
- Businesses who are seen to disregard climate change and use processes that add to pollution or fossil fuel energy use may have a negative business public image
Animal testing
- Businesses who take a public stance against animal testing will have a positive public image
- Businesses should also ensure that their suppliers are not engaging in practices that are harmful to animals
Key elements of a marketing plan
Market position, competitor analysis, target market analysis, marketing goals, marketing strategy, marketing mix
Market position
= how the product is designed to be perceived in the marketplace by the target market against its main competitors.
- Depending on the business’s goals, domestic and international competitors should be considered
- Businesses should increase profile and engage with potential customers
Competitor analysis
= the assessment of the strengths and weaknesses of current and potential customers.
- Businesses should establish what makes their product or service unique compared to others
Target market analysis
= the selection of potential customers.
- Involves segmenting the market and choosing segments of the market that are appropriate
Marketing goals
= goals that will be used in order to realise market objectives and properly target the market identified.
- Goals should specifically refer to the target market suggested and how the business is going to rise above competitors and improve market position
Marketing strategy
= the application of the marketing mix in order to realise marketing goals and objectives.
- It is the overarching strategy the business will use in order to improve market position and profit based on the market research undertaken
Characteristics of market segmentation
Demographic, geographic, psychographic
Demographic
= segmentation according to age, gender, race, religion, family size, ethnicity, income and education.
Geographic
= classification of market into geographical areas.
Psychographic (lifestyle and behaviour)
= lifestyle of the individuals; the individual’s attitude, interest and value help the marketers classify them into small groups.
Key features of the market research process
Collection of primary and secondary data, data analysis
Primary data
= data collected by the business itself directly from customers and consumers.
- E.g. face to face interviews, surveys
Secondary data
= data collected by another business or government agency and used for research purposes by a business.
Elements of the marketing mix
Product, price, place, promotion, people, processes, physical presence
Product
- Positioning –> strategies to differentiate the product from those of competitors, creating a unique impression in the minds of potential customers
- Features –> the way it is made, in an energy efficient and sustainable manner
- Branding –> the use of names or symbols to identify a product.
- Packaging –> the initial way a product is presented to the customers and hence can support the branding of a particular product
Price
- Price-skimming –> a product pricing strategy where a business changes the highest initial price that customers will pay and lowers it over time
- Penetration –> when a business sets a low price to gain market share
- Premium/prestige –> when the price of a product or service is significantly higher than similar competing products because the company either demonstrates that the product or service is of high quality, considered as luxurious or is particularly unique enough to justify its elevated price
Place
- Direct distribution –> when products are delivered directly from the producer to the customer without the use of intermediary businesses
- Indirect distribution –> when products go from the producer to the consumer via an intermediary business
- Location –> a business can lease a property and set up their business at a suitable location
Promotion
- Advertising –> any form of non-personal communication about a product or service
- Publicity –> the process of getting a high public profile and positive image
- Sales promotion –> when a business provides some short-term incentives to stimulate the sales of their products
- Viral marketing –> existing social networks that can be used to promote products
- Telemarketing –> a form of direct marketing where there is a solicitation of customers via phone to entice them to buy products and services
People (employees)
- Training and customer service
Processes
- Procedures to deliver a service or product –> businesses will build customer loyalty by fulfilling the needs and wants of customers and handling their complaints effectively
Physical presence
- Signage –> businesses should gain attention from customers and generate a degree of interest for potential follow up e.g. logo, slogan
- Webpage –> businesses should include updated information about employees, their values and links to other social media platforms
- Staff uniform –> businesses are seen as more professional and appealing and represents unity within the staff
Types of KPIs
Sales revenue, sales return, customer satisfaction
Sales revenue
= the number or percentage of sales over a period (financial).
- Figures are measured and compared to see how effective the marketing plan is
Sales return
= the return of goods due to dissatisfaction, faults or quality control (financial).
- A record of sales returns needs to be kept together with reasons why so that any repeat error or problems can be addressed
Customer satisfaction
= when businesses monitor customer satisfaction to keep sales increasing (non-financial).
- This can be done through a record of: complaints, return of goods, how long it takes to process and deliver an order
- Businesses can measure this using surveys and feedback forms
Customer profiling
= identification of relevant information regarding all the satisfied existing customers, which leads to targeting new prospects with matching profiles.
- Includes: age, gender, occupation
Competitor profiling
= determining a competitor’s product range, prices and marketing strategies.
- Includes: competitor name, establishment date, number of staff, market share, value to customers, strengths, weaknesses
Strategies for managing customer relationships
Customer loyalty, early adopter incentive, customer relationships
Customer loyalty
= profiling and understanding customers, personalising their experience, managing customer relations and communication methods, and monitoring business data.
- E.g. loyalty cards with discounts when a certain amount is spent, free postage over certain amounts spent, photos of customers wearing their clothing posted on social media
Early adopter incentive
= when an early adopter is likely to pay more for the product than later adopters.
- Businesses rely on early adopters to provide feedback about the product and to cover the cost of the product’s research and development
Customer relationships
= the relationship a company establishes with its specific customer segments.
- It is driven by the interaction a business needs to get, keep and grow customer relationships
The use of technologies to facilitate promotional activities
Internet, mobile devices
Internet
- Businesses can create awareness via social media platforms e.g. Facebook, Instagram
- Businesses must make sure they have reliable WiFi and online systems that enable them to operate and satisfy the end customer
Mobile devices
- A phone app that creates bookings/purchases for customers is a good promotional tool if it is easy and convenient
- Notifications and phone texts could reach more customers
- Phone apps can save businesses more money
PEST environments
Political and legal, economic, socio-cultural, technological
Political and legal environment
= environments that are controlled by the government.
- New laws get passed that businesses need to comply with
Economic environment
= the changing nature of the economy over time.
- During a recession, customer spending drops due to less disposable income and less job security
Socio-cultural environment
= changes to the value systems of a society affecting the firm’s marketing effort.
- The changing socio-cultural environment may pose threats or present opportunities
Technological environment
= the influence of changing technology on the operation and products sold by the business.
Factors that influence spending patterns of small to medium sized enterprises and consumers
Level of economic activity, prevailing social norms
Level of economic activity
- If local and national economic activity is strong, people will feel secure in their jobs and believe they will have a stable income –> increases confidence and spending
- If local and national economic activity is weak, people will be worried about their jobs and part-time and casual workers may work fewer hours –> decreases confidence and spending
Prevailing social norms
= rules of a society for behaviours that are considered acceptable and expected by the standards of a culture.
- Describe the lifestyle choices of people in a community, how they interact and their habits
- Businesses who are sustainable and use renewable energy and recyclable packaging enhance their business image
Issues related to the marketing and promotion of certain products
Alcohol, tobacco, fast food
Alcohol
- Violence
- Under-age drinking
Tobacco
- Lung cancer
- Further addictions
Fast food
- Obesity
- Diabetes
Acts
Equal Opportunity Act, Fair Work Act, Occupational Safety and Health Act
Equal Opportunity Act 1984
- Promotes equality of opportunity for all people and ensures fair and equal access to employment, education and services
- Our society should be free from discrimination, regardless of: age, family status, race, marital status etc
Fair Work Act 2009
- The right to engage in industrial activities
- The right to be free from unlawful discrimination
- The right to be free from undue influence or pressure in negotiating individual arrangements
Occupational Safety and Health Act 1984
- Protects workers from health and safety hazards on the job
Responsibilities of an employer:
- They must provide a health and safe work environment
- They must make sure their employees are aware and follow the relevant OHS procedures
- They must provide first aid facilities and have a planned process for helping injured or sick workers recover and get back to work
Responsibilities of an employee:
- They must work safely to ensure their own safety and health
- They must report any hazards, injuries or ill health
- They must cooperate with their employer when they require something to be done for safety and health at the workplace
Influence of government policy
Product labelling, trading hours, advertising practices to children
Product labelling
- Brand names and logos are used to differentiate the producer’s product from the competitors’ products
- Customers can identify/recognise the producer of a product from the brand name or logo on the product packaging
Trading hours
- The government sets the retail trading hours which provide times when retailers in WA can open for business
Advantages:
- Customers have more choices/options available to them at a variety of times
- Convenience to customers if they need to buy something
- Longer hours = businesses have more time to make an income/sale
Disadvantages:
- Employees working longer shifts are potentially missing out on time with family
- Small businesses may face financial difficulty
- Businesses may face higher costs for staying open longer i.e. more costs for wages, electricity, cleaning
Advertising practices to children
- Children can be exposed to alcohol advertising through social media pages, online videos, interactive games and mobile phones
Intellectual property
= the application of the mind to develop something new or original.
- Gives the business a competitive advantage
- Avoids the market being flooded with cheaper inferior quality fakes
- Prevents others making money from the hard work and effort of the inventor
Types of intellectual property
Patent, trademark, design
Patent
= a right that is granted for any device, substance, method or process that is new, inventive and useful.
- Is legally enforceable and gives the owner exclusive rights to commercially exploit the invention for the life of the patent
- The owner can apply to have someone stop coping or using their patented item
Trademark
= a way of identifying a unique product or service.
- Has a registration life of ten years and can be renewed
- Can help customers discern the quality of the product or service over that of the opposition
- E.g. letter, number, word, phrase, sound, shape, aspect of packaging
- Domain name –> web address for the business which will ensure that customers can find them and will identify them from their competitors
Design
= the features of shape, configuration, patterns or ornamentation which gives a product a unique appearance and must be new and distinctive.
- Gives the owner exclusive rights to commercially use it, license it or sell it
- Aims to protect the visual appearance of a whole product that has a physical or tangible form
Process for IP registration
1) Do patent search and a freedom-to-operate search
2) Draw up patent specification and claims
3) File a provisional application in Australia that sets the priority date of the invention
4) Within one year, lodge a patent cooperation treaty (PCT)
5) Within 18 months from filing the PCT, continue to national phase patent examination and registration
Marketing strategy
Features:
- Brand –> how customers should feel about the business
- Segment of the market the business will sell to
- Positioning –> how the business wants to be perceived in the mind of the customer e.g. quality, budget, premium
Purpose:
- To plan how to allocate the marketing resources of the business to achieve its marketing goals
- Outlines the customer focus and guides how to market to customers
Stages of the product lifecycle
Introduction, growth, maturity, decline
Introduction
= product is introduced to the market.
Product:
- Focus on brand recognition
- Attract consumers’ attention
Price:
- Penetration pricing –> set a low price to gain market share
- Skim pricing –> set a high price to establish a niche market
Promotion:
- High advertising costs aimed at product awareness
Place:
- Selective distribution to ensure the product reaches the target market
Growth
= demand increases in market share.
Product:
- Additional features added to the product and included on labelling
Price:
- Determined by supply and demand market pricing
Promotion:
- Aimed at brand recognition to build a customer base
Place:
- Distribution channels are increased as demand increases
Maturity
= sales continue to increase but at a lower rate as new competitors enter the market.
Product:
- Emphasis on product differentiation i.e. how the product is different from competitors’ product
Price:
- Competitors’ price –> price is set at the same as the main competitor
Promotion:
- Focus on showing the difference between the business product and the competitors’ products
Place:
- Aim to maintain distribution channels
Decline
= sales start to decrease.
Product:
- Make major changes to an existing product or discontinue the product and develop a new product
Price:
- Discount pricing may be used as demand starts to fall
Promotion:
- Promotion only if an existing product is to continue
Place:
- Only distribute to profitable outlets
Business plan
= an effective means of defining a business’s goals and the steps needed to reach them.
- Defines the purpose, vision and means of operation
- Serves as a blueprint to establish future direction
- Used to attract investors or finance
Key elements of a business plan
Executive summary, vision statement, mission statement, business concept, operation strategy, marketing plan, financial plan
Executive summary
= an overview of what is contained in the business plan; gives a clear purpose for the business plan.
- Includes information about the current market position of the business and the forecast or expected outlook if the business plan is implemented
Vision statement
= an image of where the business is headed.
- A clearly established vision encourages people to focus on what is important
Mission statement
= the present state or purpose of the business.
- Sums up what the business does, how they do it and why
- Defines the present state or purpose of the organisation
Business concept
= an idea for a business that includes the basic information.
- Includes: the service/product, target demographic, how the product will reach the intended user, competitive advantage of the business
Operation strategy
= a summary of how the business will undergo the production of goods, services or trading of merchandise.
- Includes: location, pricing strategies, internal controls and risk management strategies
Marketing plan
- Includes: current position in the market, market research, barriers to entry and competitor analysis, target market analysis, marketing strategy, marketing mix
- Includes SWOT analysis –> strengths weaknesses, opportunities, threats
Financial plan
- Includes: information on the anticipated earnings of the business
- Will estimate sales revenue based on past records and seasonal fluctuations and current economic activity
Human resource management
- Should address: staffing requirements, recruitment and selection, training, development and induction, performance management, staff relations, separations
Financial reports
Budget, balance sheet, income statement
Budget
= a forecast of the financial position and performance of the business.
- Measured to monitor business performance and control any problems
- Sales budget –> shows number of sales and income generated per month, quarter or year
- Cash budget –> shows cash inflow generated through sales and services and shows the opening and closing cash balances per period together with cash surplus and shortfalls for a particular period
Balance sheet (statement of financial position)
- Lists all assets, liabilities and equity at a particular point in time
- Provides businesses with an idea of their financial position by outlining the total assets they own and any amounts they owe
Income statement (profit and loss statement)
- Lists all income and expenses during a particular year
- States whether a company has made a profit or loss
Key Performance Indicators (KPIs)
= tools of measurement used to evaluate performance of an organisation in terms of effectiveness and efficiency.
- Evaluate the performance of the business against its targets, objectives or industry peers
Characteristics of financial KPIs
Profitability, cost reduction, sales
Profitability
- Used to measure profitability and viability of the business
Cost reduction
- Costs of goods sold and expenses e.g. selling, administration, financial
- Businesses can change suppliers to reduce costs
Sales
- Sales revenue can increase or decrease
- Businesses should think of strategies to improve sales if not performing as targeted
Characteristics of non-financial KPIs
Quality, customer satisfaction
Quality
- A business can use the highest quality ingredients
- Must meet industry standards and regulations
Customer satisfaction
- Repeat customers
- Increase in the number of sales
- Positive review from customers
- Few or low number of returns or complaints
- Businesses must ensure they get feedback from customers
Types of leadership styles
Autocratic, participative, situational
Autocratic leadership style
= a type of leadership style where there is a clearly defined, strong chain of command with a leader.
- Leaders keep complete control of power and decision-making responsibility
- Little opportunity for employees to make suggestions, even if in organisation’s best interest
- Can lead to high levels of absenteeism and staff turnover
- For routine and unskilled jobs, this is effective because the advantages of control may outweigh the disadvantages
Participative leadership style
= a type of leadership style where employees are involved in the decision-making process.
- Promotes employee motivation and morale
- Provides staff with the opportunity to build a functional working environment promoting business success
- Team members feel in control of their own destiny so they are more motivated to work hard
- More suitable when businesses must work as a team and when quality is more important than speed
Situational leadership style
= a type of leadership style that is based on the ability of a business to assess situations as they occur and to make rapid, flexible and adaptive responses to deal with them.
- Acknowledges that people and situations require varying levels of intervention, control and support at different times
- Recognises external factors influencing the choice of leadership style and actions
Motivation theories
Maslow’s hierarchy of needs, Herzberg’s motivation-hygiene theory, Vroom’s expectancy theory, Adam’s equity theory
Maslow’s hierarchy of needs
- Employees are at different stages within the hierarchy –> one motivational incentive does not fit all
1) Physiological –> food, water, shelter
2) Safety –> stability, security
3) Belonging –> family, friends
4) Esteem –> status, recognition
5) Self actualisation –> fulfilment
Herzberg’s motivation-hygiene theory
- Factors that make people satisfied with their jobs (motivation) are different from factors that make people dissatisfied with their jobs (hygiene)
- Motivation –> job related e.g. recognition, responsibility, advancement
- Hygiene –> environment related e.g. working conditions, policies, equipment
Vroom’s expectancy theory
- Employees’ behaviour is based on conscious decisions to maximise reward and minimise disappointment
- Hard work = improve work performance (expectancy)
- Improved work performance = reward (instrumentality)
- Reward is worth the extra hard work (valence)
Adam’s equity theory
- Input: what the employee contributes to the job
- Output: what the employee takes from the job
- Employees seek fair balance –> if employees believe it is not fair for all, they are demotivated and if employees believe it is fair for all, they are motivated
Concept of motivation
= to encourage employees to be more productive and innovative.
- Motivation can lead to: greater efficiency, higher morale, less absenteeism, less staff turnover
Rewards:
- Can be financial or non-financial
- Extrinsic rewards –> rewards that are visible to the employee e.g. promotion, employee recognition, pay rise
- Intrinsic rewards –> rewards that are not visible to the employee e.g. job satisfaction, personal enjoyment
Benefits:
- When the business pays for something that the employee usually pays for their private use
- Not shown in gross or net pay so no tax paid on the benefits
- E.g. membership to a gym, mobile phone
Penalties:
- A punishment can get imposed for breaching a rule, law or damaging the business brand
- Can be in the form of: demotions, reduction in wages, reduction of benefits, reduced hours
Financial incentives
Sales bonus, shares scheme
Sales bonus
= payments in cash if KPIs are achieved.
- Individual bonuses may undermine teamwork but can be addresses by using team based incentives
Shares scheme
= when employees are given shares in the business as reward.
- Can provide long term motivation as employees would benefit from the growth in share price and dividends if the business performs well
Non-financial incentives
Skill improvement training, recognition and reward
Skill improvement training
- Businesses can provide extra training to support employees’ personal career goals
- Can benefit both the business and employees
Recognition and reward
- Employees are recognised for the work they perform through payment e.g. salary, wages
- Do not always have to be financial
- Can be motivated through other reward systems
