Theme 1- Marketing and people Flashcards
what are the 7 factors leading to a change in demand?
- changes in the prices of substitutes and complementary goods
- change in consumer incomes
- fashion, tastes and preferences
- advertising and branding
- demographics
- external shocks
- seasonal factors
explain ‘changes in the prices of substitutes and complementary goods’ for a change in demand
- if the price of substitutes go down it could lead to a decrease in demand for your product
- if the price set by the software producers for the PS4 games goes up it would have an effect on hardware. some would still to PS3 or change products. the software and hardware are complementary goods and so sales of one have a positive effect on sales of the other
explain ‘changes in consumer incomes’ for a change in demand
- the demand for most products and services grows as the economy grows. goods like cars and cinema tickets are normal goods so demand lines with income
- inferior goods see sales falling when people are better off, e.g. Tesco value products
explain ‘fashion, tastes and preferences’ for a change in demand
- Fashion is very difficult to manage as by definition what goes up must come down. Very few brands stay in fashion forever. Yet some brands such as Chanel and Nike do seem to be eternally fashionable.
- Consumer tastes and preferences can be fickle but generally, there is a core of stability that helps companies feel confident about ongoing demand. An example is the demand for gym membership. Yes, it may suffer during a recession but the ongoing consumer preference for this expenditure has been proven over the decades.
explain ‘advertising and branding’ for a change in demand
- Those who do the most advertising are much more likely to suffer higher demand due to the increased awareness of the product.
- In the long run, branding is more important than advertising as if the brand is one that the customer finds memorable and can identify with then the payback will be huge. The value of a brand is its ability to command a higher price for products and to achieve high levels of customer loyalty.
explain ‘demographics’ for a change in demand
- The top two yoghurt brands are focused on children and so these demographically based brands transformed demand in the yoghurt market. In the 1970’s, the market consisted solely of plain, unsweetened yoghurt in glass jars.
- Today the most exciting area for demographic opportunity is old people. There is a large growth projected to happen in this age bracket as life expectancy rises. This could lead to many businesses adapting their products to suit the demographic change, thus leading to higher demand.
explain ‘external shocks’ to a change in demand
- in May 1996, the EU banned all exports of beef from the UK due to the fear of ‘mad cow disease’, lifted after 10 years and led to a collapse in the market price of beef in the UK due to the very low demand
- Lots of businesses will face external shocks on a fairly regular system. For example, if there is a train line down or there is a blocked road due to works it will lead to the nearby shops receiving much less demand
- Further external shocks include natural disasters, a change in law and an unexpected change of mind by a major customer or supplier
explain ‘seasonal factors’ for a change in demand
- Some markets such as ice cream, soft drinks and seaside hotels boom in the summer and slump in the winter whilst markets such as sales of perfume, liquors and greeting cards boom at Christmas.
- Those with less obvious seasonal variations in demand include cars, TVs and newspapers. The variation is caused by patterns of customer behaviour and nothing can be done.
- A well-run business makes sure it understands and predicts the seasonal variations in demand to then form a plan for coping
what are the two demand risks?
1) undiversified demand
- a business must try to diversify, spreading the risk by fining new sources of demand and therefore being less reliant upon any single source
2) overtrading
- sometimes small business grow so quickly that they struggle to generate enough cash to meet rising bills due to rising production levels
- Meeting next month’s higher demand levels requires extra cash spent today, creating a strain on the firm’s cash position
what is supply?
the quantity of a product that producers are able to deliver within a specific time period.
what is the profit-maximising point?
where firms supply at the level that makes as high a profit as possible
what are the 5 factors leading to a change in supply?
- changes in the costs of production
- introduction of new technology
- indirect taxes
- government subsidies
- external shocks
explain ‘changes in the cost of production’ on supply
- These include the cost of materials, rent, fuel, salaries and advertising
- The higher the costs, the lower the incentive to supply due to the lower profits. However, if all your competitors face the same cost increases you may not worry. You can assume that if everyone puts their price up then market share figures should remain unchanged.
explain ‘introduction of new technology’ on supply
- This can have a significant effect on production costs and efficiencies.
- A big increase in the supply of robots can lower production costs and also help to boost production capacity. Therefore, supply is not only cheaper but also more plentiful.
explain ‘indirect taxes’ on supply
- These are taxes levied by government onto goods and services. The most common one is the 20% rate of VAT put onto most goods and services.
- If the government decided to increase the duty on petrol, this would add to the cost of supply. Therefore, oil companies would wish to supply less petrol to the market and therefore would push the price up.
explain ‘government subsidies’ on supply
- The reverse of taxation is subsidy. This is when the government wants to promote supply and therefore gives businesses a financial contribution towards supply.
- Through an increased amount of subsidies it will increase supply.
explain ‘external shocks’ on supply
- Cars are made out of steel and aluminium but also use a lot of copper. These metals are commodities with prices governed by the world market. When the recession hit in late 2008, the copper price crashed majorly. Any company that bought stockpiles of copper at the much higher previous price would suffer significant losses when the market price fell in that way.
- Other external shocks include natural disasters such as floods and earthquakes as they can disrupt supply lines, causing particular problems for retailers who choose to keep minimal stock. This led to very low stock and therefore prices rose.
what is a supply curve
a graphical representation of the relationship between quantity supplied and price, for all suppliers
what is equilibrium?
is the point where there is a balance between supply and demand, this makes the price stable
what is market price?
when price is determined by market forces (supply and demand)
what is a demand curve?
shows how much will be consumed of a good at each and every price level
explain what is shown on a demand curve
- There is generally a negative relationship between price and quantity demanded
- The areas underneath the demand graph is the sales revenue
- Increase in demand is a shift to the right (coke, summer weather)
- Decrease in demand is a shift to the left (increase in diabetes for coke
explain the interaction of supply and demand
- the only point at which supply and demand are equal is where the two lines cross over, this is called equilibrium
- price on y axis and quantity on x axis
- At a lower price, there is lots of demand and not enough supply so they must increase prices
- Q supplied – Q demanded = unsold stock/excess supply. They must then drop prices to get back to equilibrium.
what happens when supply is down and:
demand up
demand the same
demand down
when supply is down:
demand up = price up sharply
demand the same = price up
demand down = price same
what happens when supply is the same and:
demand up
demand the same
demand down
when supply is the same:
demand up = price up
demand the same = price same
demand down = price down
what happens when supply is up and:
demand up
demand the same
demand down
when supply is up:
demand up = price same
demand the same = price down
demand down = down sharply
explain supply and demand in practise
- The key to meeting varying demand is to anticipate it by varying supply
- A seaside hotel would hire more staff during its busy summer months due to the higher demand for hotel rooms
- Businesses need to be able to adapt their supply depending on their demand, this can be stressful for employees when it isn’t correctly predicted.
- If there is a low demand, supplies must lower and if this isn’t done then it can be very costly to the business as there will be lots of waste.
what does price elasticity of demand mean?
measure the extent to which demand for a product changes when its price is change
- If a customer is sensitive, the demand is elastic
- If a customer is not sensitive, demand is inelastic
what is a price-elastic product?
a product with demand that is highly price sensitive, so price elasticity is above 1
This means the percentage change in demand is greater than the percentage change in price that created it.
The higher the price elasticity figure, the more price elastic the demand. Cutting price on a product with price-elastic demand will boost total revenue.
On the other hand, a price increase on a product with price-elastic demand will lead to a fall in total revenue.
they have a PED of between -1 and -5
what is a price-inelastic product?
a product with demand that is not very price sensitive, so price elasticity is below 1
Products with price-inelastic demand have price elasticities below 1.
This means the percentage change in demand is less than the percentage change in price. In other words, price changes have hardly any effect on demand, perhaps because consumers feel they must have the product or brand. The companies will be tempted to push the prices up.
A price increase will boost revenue because it’ll only create a small fall in sales. This means the majority of customers will continue to buy the brand but at a higher price.
they have a PED of between -0.1 and -0.99
what does price elasticity do
Economists use the term ‘the law of demand’ to suggest that, almost invariably when price goes up demand goes down and when price goes down, demand goes up. Price elasticity thinks further than the law of demand by asking, ‘when the price goes up, by how much do sales fall?’. It allows businesses to forecast what will happen to sale volumes and revenue if prices were to change.
what is the formula for price elasticity of demand?
% change in quantity demanded / % change in price
it will always be a negative number because there is negative relationship between price and demand
what are the 3 factors determining PED
- availability of consumer substitutes
- branding and brand loyalty
- the degree of product differentiation
explain the influence of ‘availability of consumer substitutes’ on PED
- e.g. is there a goof replica?
- If a brand had no direct competition then price elasticity is much lower (inelastic) and therefore the brand owner can push the price up without losing too many customers
explain the influence of ‘branding and brand loyalty’ on PED
- e.g. those with a low PED are those that consumers grab without looking at the price tag. This could be coke.
- If a good is a necessity then it is more inelastic, if it is a luxury then it is elastic
- strong brand names with strong brand image creates customers who buy out of loyalty
explain the influence of ‘the degree of product differentiation’ on PED
- this is the extent to which customers view the product as being distinctive from its rivals, if the cover price is increased and it is similar to rivals then it is easy for people to switch to an alternative
what does knowing your price elasticity mean for a business
A business that knows its price elasticity can make better decisions than one that is in ignorance. Data on a product’s price elasticity of demand can be used for two purposes: sales forecasting and price strategy
how does price elasticity help sales forecasting
- A firm considering a price rise will want to know the effect the price change is likely to have on demand
- Producing a sales forecast will make possible accurate production, personnel and purchasing decisions. This will allows them to produce the perfect amount of stock and avoid waste.
how does price elasticity help pricing strategies
- Pricing is a crucial factor in determining demand and profitability, implications of a price change on revenue.
- see what price would work the best for the business and how much revenue they would expect to get from the change in price
what are the strategies for reducing price elasticity
Companies prefer to sell products with price-inelastic demand. Charging more for these guarantees an increase in short-term profit. If a firm have price-elastic products they will feel vulnerable.
To reduce price elasticity they need to find a way of reducing the number of substitutes available. This is done by:
- Product differentiation
- Reducing the competition (done through predatory pricing, such low prices that it forces a competitor out of a market by charging a low, loss-making price)
Why are consumers better off buying price-elastic products?
Because the close rivalry between suppliers ensures efficient, value-for-money products
Why might it be a mistake to cut the price of a product with high price elasticity of demand?
As demand will jump ahead following the price cut, this might hit competitors so hard that they have to respond- risking a price war
what is the impact of a price rise on revenue for products with price-elastic and also for price-inelastic demand?
elastic- sales fall sharply…so revenue falls
inelastic- sales fall, but not much…so revenue rises
what is income elasticity of demand and how do you calculate it?
measures the extent to which demand for a product changes when there is a change in consumers’ real incomes. The shorthand YED is often used for income elasticity of demand.
% change in quantity demanded / % change in real income
how is income elasticity of demand different to price elasticity of demand?
In contrast to price elasticity, this is out of the business’ hands and is affected by changes in the economy- that is, changes that are totally outside the company’s control. This occurred after the recession with car sales where in Italy they halved. Car companies had to cut production and cut costs.
what is meant by real income and how is it calculated?
This is the amount the average employee receives before any deductions for tax or pension contributions. In 2014 the figure was 0.6% higher than the previous year.
% change in real income = % rise in average earnings - % rise in price
Another way of expressing this is to say that real incomes are incomes after allowing for inflation.
how do you interpret numerical values for income elasticity?
- A ‘normal good’ with positive income elasticity of demand, and a YED of between 0.1 and 1.5
- A ‘luxury good’ with very positive income elasticity of demand more than 1.5
- An ‘inferior good’ which is one with a negative income elasticity of demand, as people become better off, they buy less of it
what is positive and negative income elasticity?
positive- a product for which sales rise when people are better off (but fall in recessions)
negative- a product for which sales fall when people are better off ( but rise when people are worse off)
what are the 3 factors influencing income elasticity of demand?
- whether the product is a necessity or self-indulgence
- who buys the product/ level of income
- positive and negative elasticity
explain the influence of ‘whether the product is a necessity or self-indulgence’ on income elasticity of demand
- When incomes rise people are happier to splash out on luxuries like posh hotels and champagne but when real incomes decrease they suffer sharp sales declines
- So for luxury products, income elasticities are strongly positive
- By contrast, necessity goods will have low (but usually positive) income elasticities of demand
explain the influence of ‘who buys the product’ on income elasticity of demand
- Some luxury products are bought only by the super rich and their incomes may not be affected by a change in ‘average’ real incomes, e.g. Chanel bags may be unaffected. It is important to measure income elasticity of demand for each individual brand rather than assume that all posh bags are the same.
explain the influence of ‘positive and negative elasticity’ on income elasticity of demand
- When falling incomes lead to a sales boom, the product or service has negative income elasticity, e.g. poundland
- However, the majority of products have positive income elasticity of demand- that is the better off we feel, the more we spend and buy. Most goods are ‘normal’ and their income elasticity is about +1 meaning a 3% rise in real incomes would cause a 3% rise in sales
what is the significance of income elasticity of demand to businesses
It is vital in order to develop a well-balanced product portfolio. Because inferior goods sell well during a recession, it is good for a company to have inferior goods as well as luxury goods. Data on a product’s income elasticity can be used for two purposes:
1) sales forecasting
2) financial planning
how can knowing a product’s income elasticity help firms for sales forecasting?
- In order to determine how many stores a firm can open up they must look at forecasts for economic growth in the UK, together with forecasts for the likely changes in real incomes.
- If and when the forecasts turned strongly positive, it would say that Poundland would start flattening off however jaguar land rover would have a very different sales forecast. The rising real incomes would mean higher sales and therefore higher production capacity and hiring and training new staff.
how can knowing a product’s income elasticity help firms for financial planning?
- Once a business can forecast its future sales level, it can start to plan for the financial implications.
- If sales are likely to boom then higher production will be needed and so they will probably need a significant amount of extra funding, perhaps requiring a bank loan.
- If sales are likely to fall then the business will try to find a plan to cut its cash outgoings in order to survive the problem period.
Why might it be a good thing if your product has negative income elasticity of demand?
Because it gives your company some protection against periods when people are getting worse off (recessions)
Why do products with high price elasticity not necessarily have high income elasticity of demand?
Price elasticity is about competition and differentiation, income elasticity is about luxury, so a Bentley has low price elasticity but high income elasticity.
what is a normal good?
- A ‘normal good’ with positive income elasticity of demand, and a YED of between 0.1 and 1.5
- demand increases as consumer income rises
- goods which sales move in line with changes in consumer incomes
what is an inferior good?
An inferior good means an increase in income causes a fall in demand.
- It is a good with a negative income elasticity of demand (YED).
what is a luxury good?
- A luxury good means an increase in income causes a bigger percentage increase in demand, however struggles during harder times
- It means that the income elasticity of demand is greater than one.
what is a unitary price elasticity of demand?
This means that the percentage increase/decrease in price will be exactly equal to the decrease/increase in quantity demanded.
what can staff be viewed as?
a cost or an asset
why would one see staff as an asset?
some say that your staff are your greatest asset- your competitive advantage. you want to attract and retain the best, provide them with encouragement and make them feel like they are an integral part of the company’s mission
why would one see staff as a cost and what would they do?
some seize every opportunity to cut these costs, perhaps by outsourcing tasks and by changing employment contracts from permanent and full-time towards the insecure wolf dog zero-hour contracts
what is the key to effective people management?
1) Making sure you have the correct amount of staff, with the right skills and experience and in the right places to meet all production and customer service requirements
2) Making sure those staff understand the business culture and are motivated in the right way, to ensure that quality standards match or beat customer expectations
what does redeployment mean?
retaining a staff member to give the skills required to take on a new job role
what is the concept of a flexible workforce?
To succeed in modern markets where customer needs are ever-changing, many firms have adopted lean production.
This approach implies the use of machinery that can be quickly reprogrammed to carry out a range of tasks, and the creation of a multi-skilled and flexible workforce that can quickly adapt – and be adapted – to meet a firm’s changing requirements.
- ever-imrpovng technology means that the marketplace is subject to frequent and often rapid change. firms need to be able to adapt to these changes quickly.
- firms adapt their goods and services to meet demand
- increasing competition especially from overseas means they need to introduce greater operational flexibility
what are the 4 ways of achieving a flexible workforce?
multi-skilling
part-time and temporary
flexible hours and home working
outsourcing
what is multi skilling and what are the benefits and costs?
this occurs when workers are given the scope and ability to carry out a variety of tasks, rather than specialising in completion of one particular area. this can be done through job rotation.
benefits:
- Increases in productivity from greater utilisation of employees
- Reduction in disruption to production caused by staff absence
- Greater employee motivation created by more varied and challenging tasks
costs:
- Potential loss of production as workers switch between different tasks
- Greater training requirements and cost as workers gain a range of skills
- Workers may be reluctant to gain more skills, especially if there is no corresponding increase in pay
what is part-time and temporary working and what are the benefits and costs?
giving staff short-term contracts in order to cut staff or keep up with busy periods
benefits:
- gives businesses flexibility, saves money
- it makes it easier for firms to cut staff without criticism
- able to increase staff in busy periods, sustain customer service
costs:
- this can be difficult for employees as they aren’t earning a lot of money
- difficult for communication
- fewer chances of receiving a promotion, decreased motivation
what is the use of flexible hours and home-working?
when home-workers generally work on a laptop connected permanently to the main office in their home, this can be done through part-time, job sharing, annualised hours contacts and flexitime. this is done to respond more effectively to customer demands.
benefits:
- benefits for employees who have other commitments such as family
- Providing staff with more flexible working arrangements can help to improve recruitment, increase motivation and reduce labour turnover, leading to reduced costs and a boost of productivity
- Home-working may be preferred by a business as they want to keep overhead costs down so they encourage them to work at home.
- this can be done in order to respond more effectively to customer demands.
costs:
- may not be as productive at home, productivity down, profits down for the business
- the use of zero-hour is risky as they are unsure whether they will have any actual work
- harder for team orientated environments where they have frequent meetings and conferences to discuss about future projects
what is outsourcing and what are the benefits and costs?
This involves a firm finding an external business to carry out part of the production process, in order to cut costs or achieve a better level of service.
benefits:
- access cheaper labour, reducing costs
- allows the office in the UK to focus on business strategy rather than on production, could lead to increased productivity
costs:
- loss of control as you go abroad, may lead to poor decisions being made
- the quality of the workforce may be poorer abroad and so the job may not be does to the same standard
- problems with shipping if everything is made abroad
what are the overall positives of flexible working?
- Reduce costs when people work part time and can be employed only for seasonal periods when there is an increase in demand
- Higher motivation and less travel time when involved with homeworking
- Multiskilling means less staff are needed, motivating due to varied tasks
what are the overall costs of flexible working?
- Homeworking means it is difficult to communicate and many lack motivation due to the lack of team spirit, decreases productivity
- Managers find it difficult to manage
- Multiskilling means greater training requirements and costs
what are the 3 scenarios when a firm may dismiss staff?
1) When they lack the competence to carry out their duties effectively- or are too disruptive
2) When economic or other factors depress demand, need to cut costs
3) When competitive or other factors cause the business to lose market share which means they need to cut staff
the last two cases are times of redundancy. in these cases there are legal requirements they need to abide to.
what is dismissal?
Dismissal isn’t about the job, it is about the individual. This can be done due to misconduct or a lack of competence. The management must demonstrate fairness by giving warnings. Dismissal comes with no payments at all.
what are employers-employee relationships like depending on the business?
- In smaller firms they may have an informal group consisting of one person from each department where monthly meetings are used as a way to raise problems and discuss future plans
- In larger firms, more formal methods are used to ensure there is a structure to allow an element of workplace democracy. Or they may belong to a trade union that represents their interests.
what are trade unions?
A trade union is an organisation that employees pay to join in order to gain greater power and security at work.
- Union membership provides greater influence collectively in relations with employers than workers have as separate individuals
- Before trade unions were solely for obtaining satisfactory rates of pay but now the most important aspect is the protection of workers’ rights under the law.
- Traditionally the key function of a union was ‘collective bargaining’. This means that the union bargains with the employers on behalf of all the workers.
what is individual bargaining and what are the pros and cons?
Negotiations between individual employees and the employer. This is usually regarding contract of employments and the term and conditions.
-Most employers are in favour of individual rather than collective bargaining as it puts the boss in a stronger position
Positives:
- prevents an uncomfortable work environment, composed and maintains relationship
- reduces es disruption, only one member
Negatives:
- lack of voice, may not be successful
- Can face discrimination due to the lack of people involved, not a set up group, more vulnerable to misjudgement
why have trade unions declined in recent years?
tougher laws and privatisation has made it harder for strikes to succeed, and that weakens union power
what is hot-desk?
an approach that provides a temporary desk for home-workers to use when they come to the main office, they are not allowed to keep any of their possessions here
what are peripheral workers?
those workers who are not seen as being central to a firm’s operations. They may be required only on a temporary basis and may be easily replaced.
what are the 4 reasons to recruit staff?
1) Business expansion
- Increasing sales of existing products
- Developing new products
- Entering new markets
2) Existing employees leaving
- Work with competitors or other local employers
- Due to retirement, sick leave or maternity leave
3) Business needs employees with new skills
4) Business is relocating
- Not all existing workforce want to move to the location
outline the recruitment and selection process
1) Identify the vacancy
2) Draw up a job description (responsibilities and workload)
3) Draw up a job specification (qualifications, characteristics)
4) Advertise the vacancy (internally or externally)
5) Shortlist applicants
6) Interview
7) Appoint the successful candidate
what is internal recruitment?
within a business, recruitment within a company lacking
selection from existing staff
- Promotion/transfer
- Internal advertisement, e.g. intranet, noticeboards
- Personal recommendation, e.g. from a manager
what are the positives and negatives of internal recruitment?
Positives:
- Cheaper (no induction training) and quick
- Promotion/varied job opportunities can be used as a form of motivation for employees
- Already know who you are recruiting
Negatives:
- Another vacancy may be created
- Ideas may stagnate due to ‘lack of new blood’ in the organisation
- Existing workers may not have the skills required
what is external recruitment?
External recruitment- advertising job vacancies outside of the business to recruit people who do not already work there
- Recruitment agencies
- media advertising
- firm’s website
- Job centre
what are the positives and negatives of external recruitment?
Positives:
- Bigger group of people to select from (could be better suited/qualified)
- No vacancy created as a result
- New ideas and perspectives may be brought to the business
Negatives:
- Can be very expensive and time consuming (especially for smaller business)
- Induction training needed which is an additional cost
- It can be demotivating to existing members of the existing workforce
what is the process of candidates being shortlisted?
- Shortlisted according to how well they fit the job description and person specification
- A shortlisting scoring grid will be used with candidates score according to ‘desirable’ and essential qualities
what is the process of candidates being interviewed?
- May be a face-to-face interview with a panel or one person
- May be a telephone interview or carried out on skype
- Group interviews where a group of candidates are observed completing a task
what are other possible recruitment activities?
- Aptitude test (usually multiple choice) to test knowledge/skills/ability/ intelligence
- Assessment centre where candidates get real life stimulations
- Psychometric testing where personal and attitudes are tested to see if they ‘fit’ with the business
what are the positives and negatives of video interviewing?
Positives:
- You can see someone and get an impression
- Quick, saves time as you can get through a few at a time
Negatives:
- Not as detailed as meeting face-to-face
- Can’t amend questions/change conversation, can’t tailor
what are 2 costs of recruitment and selection?
- This includes the cost of hiring temporary workers and the 28 weeks it takes until the new employee is working at their maximum productivity
- Another direct cost is the management time spent interviewing candidates, recruitment agency fees, advertising and HR time spent administrating the process
what is training?
process of equipping employees with the skills and knowledge necessary to carry out their job efficiency
what are the positives and negatives of training?
Positives of training:
- It increases the level and range of skills available to the business, leading to an increase in productivity
- It increases the degree of flexibility within a business, allowing it to respond quickly to changes in demand
- It can lead to a more motivated workforce by creating opportunities for development and promotion
Negatives of training:
- It can be expensive, providing the training itself and the cost of evaluating its effectiveness
- Production may be disrupted while training is taking place
- Newly trained workers may be persuaded to leave and take up job elsewhere
what is on-the-job training?
where an employee learns in the workplace from experienced employees, they acquire or develop skills without leaving their usual workplace
what are the positives and negatives of on-the-job training?
Positives of on-the-job:
- Tailored to the company’s own ways of working
- After a mistake, can get instant advice from fellow workers
- Saves the time and cost of spending people out
Negatives of on-the-job:
- Less knowledge acquired on methods used elsewhere
- May take a lower priority, as staff focus on production targets
what is off-the-job training?
where employees leave their normal place of work in order to undertake training, either within the firm or by using an external organisation
what is induction training for a new employee?
Induction is introductory training for employees new to an organisation
- They receive a tour of the organisation, introduced to other colleagues, details of employment, e.g. holidays and salary
what is an evaluation of training?
Many organisations continue to view training in particular as an avoidable expense, choosing to cut training budgets when under pressure to cut costs.
Although training is an expensive process, the cost of a lack of staff retention is greater and so effective training is vital otherwise the firm is to face serious burdens.
what is an organisational structure and what does it show?
creates a formal hierarchy that establishes who is accountable to whom throughout an organisation
It shows:
- Authority and responsibility
- Job roles and titles
- Accountability
- How communication flows
why is it necessary to have a structure?
- Divides up roles so everyone does something different and knows what they are doing so no time is wasted
- Need to know who has authority to make decisions
- Easier to find gaps and problems to recruit new people
- It determines the efficiency of the business through the determination of communication, tasks being overlooked and the duplication of tasks
what is a hierarchy?
A system in which people within an organisation are arranged based upon their importance
what is the span of control?
the number of employees for whom a manager is responsible
The ideal span of control will depend upon the nature of the tasks and the skills and attitude of the workforce and manager.
what is a tall hierarchy and what are the positives and negatives? (narrow span of control)
they have lots of different levels of authority within the business. these are largely present in focused, career-orientated workforces. the span of control is narrow.
Advantages:
- lots of supervision
- helps more effective communication with the small, immediate team
Disadvantages:
- no freedom, very structured approach, restricted scope for initiative and experiment
- usually not very caring, one may feel devalued and isolated due to the number of people in the business
what is a flat hierarchy?
this is when they have less levels of hierarchy. they are perhaps present in innovative and smaller businesses and through the minimal levels, one may say that communication is easier. this creates a wide span of control.
what are the positives and negatives of a flat hierarchy/wide span of control
Advantages:
- cheaper, reduce the need for managers
- lots of freedom, great for a young and dynamic market
- perfect for the service sector, where most workers are always in touch with the customers, creates motivation
Disadvantages:
- trust-dependant, lots of people to look after and so it is impossible to closely supervise people
- can’t talk to everyone, relationships
- may not be suitable for big businesses due to the lack of control in a very important business
what is the chain of command?
it describes the lines of authority within a business. this is the flow of information, power and authority through the organisation.
- Those at the top have more power and authority
- They can delegate tasks to those subordinate to them in the hierarchy (below them)
- Complaints and status reports flow up the chain, orders flow down the chain
- In a structure with several levels of hierarchy the chain of command will be longer and so if the info has to travel through several people, there is a chance it becomes distorted
what did Taylor and fayol base their thoughts on for organisational structures?
- They both saw the function of organisations as converting inputs such as money or materials into output. Therefore, designing an organisation was like designing a machine, the objective being to maximise efficiency
The key features of their hierarchy would be as follows:
- To break up the organisation up into divisions with a common purpose, these being the 4 business functions
- Every individual would answer to one person: their line manager
- The span of control would be kept low so the managers aren’t overloaded with subordinates
- To achieve low spans of control, it would be necessary to have many management layers
what is a centralised and decentralised business?
centralised- one in which the decision making power and control remains at the central headquarters in the hands of the top management levels
decentralised- the transfer of decision making and responsibility away from the central headquarters to local divisions
how can business be both centralised and de-centralised?
in schools, decentralised as in the resources needed but centralised in the future of the school
what is a matrix structure?
where staff work in project teams in addition to their responsibilities within their own department. therefore, staff can be answerable to more than one boss.
Whereas most people know who their boss is and the lines of accountability are clear, in a matrix structure it is different. Your job description may say that you work in marketing but you may have been put in a project team that is ‘cross-functional’. This means it may include a design engineer from operations, an accountant and a marketing executive, all working together to find a solution to a problem.
what are the pros and cons of a matrix structure?
Advantages:
- Working together should avoid each function trying to ‘win’ by getting its own ideas at the forefront
- Working together should avoid hold-ups (marketing putting something through and then operations stalling on it) and speed is vital to a competitive advantage
- It enriches the experience of every team member, as they learn the views of those from other departments
Disadvantages:
- each matrix member will now have two bosses: the project leader and their functional boss meaning it is hard to resolve priorities, caught in the middle
- unless the project manager is experienced, people from four functions may struggle to agree when key decisions are needed
- increases organisational complexity
what is motivation?
the desire to push yourself to achieve what you want to achieve, inspiring the will to work within employees
how can different organisational structures affect motivation?
- extremely unlikely in a tightly supervised role, and therefore a narrow span of control/tall hierarchy is likely to limit motivation.
- Much more promising is a less structured, flat hierarchy. This is what determined the success of Microsoft and apple. Individuals were given freedom to develop their ideas within a loose, but flat structure.
who is Taylor and what was the F.W. Taylor and scientific management?
He was an American (1856-1917) and had a massive influence over the 20th century. much business practise in America, Japan and europe is still rooted in his writing and work.
- Taylor believed that people only work for one reason: money and so he saw it as the task of the manager to devise a system that would maximise efficiency in order to generate a higher profit and then the workers will be able to be payed a higher wage.
- Workers do not enjoy work and so they should be supervised closely
- Managers should break down production into a series of small tasks so that it can be done quicker
- Workers should be given appropriate training and tools so that they can work efficiently
- Workers should be paid by performance (piece rate) as then they will be encouraged to work hard and maximise productivity.
- This theory is associated with manufacturing and factory work.
what were the main outcomes of F.W Taylor and scientific management?
- Tall hierarchy may be better so workers can be supervised and controlled
- Autocratic leaderships style links with this theory
- Performance related pay would be a good motivator, e.g. piece-rate, bonus
- high division of labour
how was Henry ford influenced by Taylor’s work?
- By 1911, the ford factory in Detroit was already applying Taylor’s principles of high division of labour, purpose-built machinery and rigid management control.
- When ford introduced the conveyor belt in 1913 he achieved Taylor’s idea of men’s pace of work dictated by a mechanical conveyor belt.
- This eventually led to workers rebelling against being treated like machines.
- Trade union membership thrived in factories run on Taylorite lines.
what was Elton Mayo and his human relations theory and what did he find out?
His first experiment was known as the relay assembly test. Six volunteer female assembly staff were separated from their workmates and a series of experiments were carried out. These were then discussed with the volunteers. Every 12 weeks, a new working method was tried such as:
- Bonus methods
- Rest periods
- Refreshments
- Work layouts
He found that:
- Employees are motivated by relational factors (attention and camaraderie) more than monetary rewards or environmental factors
- In 1920 he discovered that employee satisfaction increased employee participation in decisions (productivity). He also found that improved lighting and regular breaks only temporarily increased productivity
- He concluded that 3 main things are needed for motivation: better communication, greater participation from managers and working as a team.
- Businesses should encourage team-work and introduce personnel departments to encourage involvement from the manager
- Involve workers in decisions = more motivation
- Workers must believe that their managers are interested in them, the influence of this upon motivation is known as the ‘Hawthorne effect’
- Financial incentives and working conditions only improve motivation temporarily
who is mayo and what were the main outcomes of Mayo’s work?
Elton mayo (1880-1949) was a medical student who became an academic with a particular itnerst in people in organisations. Early in his career, his methods were heavily influenced by F.W. Taylor.
- Businesses should encourage team-work and introduce personnel departments to encourage involvement from the manager
- Involve workers in decisions = more motivation
- Workers must believe that their managers are interested in them, the influence of this upon motivation is known as the ‘Hawthorne effect’
- Financial incentives and working conditions only improve motivation temporarily
Who was Maslow and what was the hierarchy of needs?
what were the main outcomes?
Abraham Maslow (1908-1970) was an American psychologist whose great contribution to motivation theory was the ‘hierarchy of needs’
- He believed that everybody has the same needs, all of which can be arranged into a hierarchy
- At the base of the hierarchy are physical needs such as food, shelter and warmth. When unsatisfied, these are a persons primary motivation.
- When employees earn enough to satisfy their needs their motivation fades away and their new motivation becomes the level above them. This is how they move up the pyramid.
main outcomes:
- Methods of motivations will depend on where they are on the pyramid
- In very low-paid jobs, money may be a motivator but once money needs have been met health, safety and job security become more important.
what were the 5 levels of hierarchy in Maslow’s hierarchy of needs?
from bottom to top:
1) physical needs (food, shelter, pay levels)
2) safety needs (a safe structured environment, stability, job security)
3) social needs (belonging, friendship, team working)
4) esteem needs (strength, status, recognition for achievement)
5) self-actualisation (self-fulfilment, scope to develop new skills and meet new challenges)
what are the criticisms of Maslow’s hierarchy of needs?
Do all humans have the same set of needs? Are there some people who need no more from a job than money?
Can anyone’s needs ever be said to be fully satisfied? The reason the hierarchy diagram has an open top is to suggest that the human desire for achievement is limitless.
what was herzberg’s two-factor theory?
the key test of a theory is its analytic usefulness.
- he asked employees for 5 changes that would increase motivation and 5 changes that would decrease their motivation
- herzberg saw salary as a hygiene factor, not a motivator
for herzberg’s two-factor theory what were the 5 changes that increased motivation?
recognition for achievement, work itself, responsibility, advancements, achievements
for herzberg’s two-factor theory what were the 5 changes that decreased motivation?
working conditions, interpersonal relations, salary, supervision and company policy and administration
what were the main outcomes of herzberg’s two-factor theory?
- A business has to provide the hygiene factors otherwise employees will be dissatisfied
- To motivate workers they must recognise and reward achievement, make jobs interesting, give workers responsibility and help workers develop progress
what were hygiene factors for Herzberg?
Hygeine factors- ‘everything that surrounds what you do in the job’, such as pay, working conditions and social status; all are potential causes of dissatisfaction, according to Herzberg
Care to fulfil hygiene factors prevents job dissatisfaction
for herzberg’s two-factor theory what was his distinguishement between movement and motivation?
Movement occurs when somebody does something, motivation is when they want to do something.
Herzberg advised against payment methods such as piece rate as this would achieve movement but would reinforce worker behaviour, making them inflexible. The salaried, motivated employee would care about quality.
- his work was so good because he not only analysed motivation but he also had a method for improving it. this was called job enrichment which he defined as ‘giving people the opportunity to use their ability’
what is job enrichment?
This involved jobs constantly changing for the employee in order to make it more varied and challenging.
This would lead to them becoming more motivated as it is less repetitive.
what are the 4 main variables that influence the motivation of staff in practise?
1) Financial incentives
2) Empowering the employees: delegation, consultation and empowerment
3) Team and flexible working
4) Job enlargement: job enrichment and job rotation
what are the 5 financial reward systems?
piecework commission bonus profit share performance-related pay
what is piecework and what are the positives and drawbacks?
Piecework means working in return for a payment per unit produced. Pieceworkers receive no basic or shift pay, so there is no sick pay, holiday pay or company pension.
It is used in small-scale manufacturing and means that supervision is virtually unnecessary. All the manager needs to do is operate a quality control system.
Positives:
- increased production will reduce the cost of production allowing a greater profit margin to the employer
- less supervision is required because workers have the fear of not earning wages if they do not work
- the employer is able to how his exact labour cost per unit which will help managers see who is working the most efficiently
Disadvantages of piecework
- Scrap levels may be high, if workers are focused entirely on speed of output.
- There is a incentive to provide acceptable quality, but not the best possible quality.
- Workers will work hardest when they want higher earnings (probably before Christmas and before their summer holiday), this may not coincide at all with seasonal patterns of customer demand
what is commission?
Commission is a bonus earned on top of a basic salary, usually in line with a specific achievement, such as meeting a sales target.
It is used widely to incentivise staff in clothes shops, furniture shops and other outlets where it can take effort and skill to clinch a sale. In Herzberg’s terms, commission is simply a hygiene factor not a motivator.
what is a bonus?
This is a sum of money added to wages/salary as a reward to employees.
- According to Professor Herzberg, He considered every attempt to ‘motivate’ people through financial incentives doomed to fail. This was proved in the 2008 financial crisis where people would believe that by taking risks and them paying off they would earn a higher bonus.
- Banks in Britain say that bonuses are an important, positive part of remuneration. Banks complained about an EU ruling that no bank should pay a bonus greater than double a person’s salary.
- Relatively small-scale bonuses can act as a nice thank you for a job well done. When they become large enough to become the focus of an individual’s working life, they distort behaviour and turn people into a money-seeking robot.
what is remuneration?
all the financial rewards received by an employee: pay, pension, bonuses
what is profit share?
This is when employees receive a share of the profit of the business.
- This gives a sense of involvement to staff and may affect behaviour favourably. If staff receive some share of the profits, they may be slightly warmer towards customers.
- An annual profit share is a fine thing but if you’re not enjoying your job then few would look forward to £500 in a year’s time and say it’ll all be worth it. Good employers realise that motivation comes from the satisfaction/pleasure of doing a good job. A profit share is a lovely thank-you but no more than that
what is performance-related pay?
This is a financial reward to staff whose work is considered above average. It is used for employees whose work achievements cannot be assessed simply through numerical measures (such as units produced or sold)
- PRP awards are usually made after an appraisal process has evaluated the performance of staff during the year.
- They are normally determined based on their targets
what are the benefits and problems of Performance-Related pay systems?
Benefits
1) To make it easier for managers to manage/control their staff
2) To reduce the influence of collective bargaining and therefore trade unions
1) There is a lack of evidence for benefits of PRP- rewarding individuals does nothing to promote teamwork, it could also create unhealthy rivalry between managers, with each going for the same Merit 1 spot
2) Perceived fairness/unfairness- staff often suspect that those awarded the maximum are being rewarded not for performance but out of favouritism, this may damage team spirit
3) Whether they have a sound basis in human psychology- Herzberg would be very critical of any attempt to influence work behaviour by financial incentives, a LSE study found that in a workplace only 12% of staff believed PRP had raised motivation at work
what are the 8 methods of non-financial techniques to improve employee performance?
delegation consultation empowerment team working flexible working Job enrichment job rotation job enlargement
what is empowerment?
Empowerment means having more power and control over your working life, and having the scope to make significant decisions about how to allocate your time and how to move forward.
- It is a practical application of the theories of Maslow and Herzberg
- It may lead to greater risks being taken, but can also lead to opportunities being identified and exploited. Above all else, it should aid motivation.
It is a modern term for delegation however the difference is that empowerment allows some scope to decide what that task should be
what is delegation?
This means passing the authority for a task down to junior staff.
To be effective, the boss has to:
1) Trust the junior staff member
2) Provide extra training, if needed
3) Provide the resources that will be needed, e.g. a budget
4) Stay interested, but not intervene
- When effective, delegation should be motivating to the staff member, as it is great to be trusted and great to tackle a new challenge
- Effective delegation of substantial tasks is a sign of democratic leadership, as it passes decision making down the hierarchy
what is consultation?
This means asking the views of the staff you manage, then taking them into account in the decisions you make.
Effective consultation requires that the boss:
1) Consults on important issues (some bosses take big decisions without discussion)
2) Consults widely and deeply, so that all full-time staff feel they have had their say, no matter how junior
3) Takes those views into account when making decisions…and explains how they have been taken into account, including when they have been considered but rejected
what are the benefits of consultation?
- When effectively done, consultation helps boost team working and morale.
- People want to be able to express their views and occasionally find those views have made a difference.
- Effective consultation is a sign of high-quality paternalistic leadership
what are quality circles?
discussion groups in which staff discuss an operational problem with a view to recommending a solution to management
what is team working?
This is the attempt to maximise staff satisfaction and involvement by organising employees into relatively small teams. These teams may be functional or geographic.
The key features of such teams are that they should be:
1) Multi-skilled, so that everyone can do everyone else’s jobs
2) Working together to meet shared objectives, such as to serve every customer within a minute
3) Encouraged to think of the future as well as the present, in a spirit of kaizen (continuous improvement)
what are the benefits of team working?
From a theoretical point of view, team working fits in well with Maslow’s findings on the importance of social needs.
- Modern managers like team working because of the flexibility it implies. If one of the workers is absent then there are plenty of other dealing with the job, therefore there is no disruption.
- Team working gives scope for motivating influences, such as job enrichment and quality circles
- Professor Charles Handy suggests in his book Inside Organisations that ‘a good team is a great place to be, exciting, stimulating, supportive, successful. A bad team is horrible, a sort of human prison.’
what is job enlargement?
it is the general term for anything that increases the scope of a job. this allows for employees not to become bored, through the changing of the job. the two ways of doing this are job rotation and job enrichment.
what is job rotation?
This is increasing a worker’s activities by switching between tasks of a similar level of difficulty
- This does not increase the difficulty of the job but instead may reduce the boredom of the job
- An example of job enlargement is the changing from checkouts to shelf-stacking to then in the warehouse. It can be argued that this horizonal job enlargement will do little more than relieve the boredom. They are likely to still see work as a chore.
evaluate the use of motivation in practise
- Serious problems can arise within the workplace, serious problems such as bullying to ‘motivate’ staff into working harder, or creating a culture of overwork
- Successful motivation in the long term is a result of careful job design, employee training and development, honesty and trust.
- It may be possible to supplement this with an attractive financial reward scheme bit money will never be a substitute for motivation.
what is the difference between being an entrepreneur and a leader?
- Entrepreneurs struggle being part of a group because they are usually independent and want to do their own work themselves
- Entrepreneurs usually want to get stuck into the business and works everyday to drive the business forward. They are hands on.
- Entrepreneurs may not like becoming a leader because they have to step back and trust others
what is the difference in the person between one in leadership and management?
- Leaders need to have steely qualities when needed, e.g. when firing someone. However, a manager may get away with ducking difficult decisions.
- Although leaders do not need to have natural charisma, they need to have qualities that make people willing to follow them
what are the main parts of management and leadership?
management:
- directing and monitoring others
- problem solver
- official position of responsibility
- plans
- maintains
leadership:
- motivating and inspiring people
- natural abilities and instincts
- motivates
- develops
- respected and trusted by followers
- innovative
what are the different leadership styles?
their styles can be categorised under three headings: autocratic, democratic and paternalistic. A further type (laissez-faire) is best understood as a subset of democratic.
what are autocratic managers?
they are authoritarian, they tell employees what to do and do not listen much to what workers themselves have to say. They give orders to workers and do not want feedback. They take all decisions, command and control.
what are democratic managers?
they like to involve their workers in decisions. They tend to listen to employees’ ideas and ensure people contribute to the discussion. Communication by democratic managers tends to be two-way. They would regularly delegate decision-making power to junior staff.
what are laissez-faire managers?
this occurs when managers are so busy or lazy that they do not take the time to ensure than junior staff know what to do or how to do it.
Some people may respond very well to the freedom to decide how to spend their working lives however others may become frustrated.
what are paternalistic managers?
they think and act like a father. They try to do what is best for their staff/children. There may be consultation to find out the views of the employees, but decisions are made by the head of the ‘family’. They believe employees need direction but thinks it is important that they are supported and cared for properly.
what is democratic managing in terms of the style it is derived from, approach to staff, approach to staff remuneration and approach to human resource management?
style:
belief in Maslow’s higher-order needs or in herzberg’s motivators
approach to staff:
delegation of authority
approach to staff remuneration:
salary, perhaps plus employee shareholdings
approach to HRM:
recruitment and training based on attitudes and teamwork
what is paternalistic managing in terms of the style it is derived from, approach to staff, approach to staff remuneration and approach to human resource management?
style:
mayo’s work on human relations and Maslow’s low and middle order needs
approach to staff:
consultation with staff
approach to staff remuneration:
salary plus extensive fringe benefits
approach to HRM:
emphasis on train and appraisal for personal development
what is autocratic managing in terms of the style it is derived from, approach to staff, approach to staff remuneration and approach to human resource management?
style:
a taylorite view of staff
approach to staff:
orders must be obeyed
approach to staff remuneration:
payment by results, e.g. piece rate
approach to HRM:
recruitment and training based on skills, appraisal linked to pay
what is charismatic leadership?
Charismatic leaders are people who are able to connect with an audience and who can get others to buy into their ideas.
Charisma can have a downside, the combination of charisma and early success as a leader can result in too much praise and not enough friendly criticism.
what is hubris?
overweening arrogance leading to excessive self-confidence and therefore blindness to the risks being taken
what is nemesis?
divine punishment for wrongdoing or presumption, in other words, the fall that comes after pride.
what is the best style of leadership?
- Each style of leaderships can work well in different situations, if there is a crisis people often look for a strong leader to tell them what to do
- In a stable situation, where employees are trained and able to do their work, a more democratic leadership style may be more suitable
- The best style depends on an enormous range of factors, such as the personalities and abilities of the leader, of the workers, and the nature of the task.
- Leadership style should therefore change according to the particular situation and the people involved. It will also vary with time and degree of risk involved. If a decision has to be made urgently then the leader is likely to be quite autocratic. If there is plenty of time to discuss matters the style may well be more democratic.
what are the 5 roles of an entrepreneur?
1) creating and setting up a business
2) running and expanding/developing a business
3) innovation within a business (intrapreneurship)
4) barriers to entrepreneur
5) anticipating risk and uncertainty in the business
explain the role of an entrepreneur to create and set up a business
- generating business ideas
- spotting an opportunity
- small budget research
explain the generating of business ideas by an entrepreneur
- The most important part of a successful entrepreneurship is spotting a good business idea. This based on a good understanding of consumer tastes and/or the retail trade.
- The main sources of business ideas are through observation, brain-storming, thinking ahead, ideas from personal or business experiences and innovations
explain the spotting of an opportunity by an entrepreneur
- Through our ever-changing society, there will always be business opportunities, find something that people are more concerned about today, e.g. environmentally friendly products
- Thinking about changes to our economy, will a continuing boom in China give opportunities for British brands such as Burberry and Jaguar
- Thinking about the local housing market, are people moving into or out of your area, are prices going up or down? Many local business opportunities may rise or fall depending on these factors
- You must use small budget research and careful market mapping
what is small budget research?
- Before spending money on market research, good entrepreneurs must take the time to gain a general understanding of their market
- Say you wanted to open a subway franchise it would include walking around the town where other fast food outlets are (this is called geographical mapping), check on prices and special deals in the area and arrange to spend a day at another local subway franchise to see how it works
- Based on the knowledge gained by the above you should produce a market map of fast food and this will help to identify whether subway will have a market niche to itself
explain the role of an entrepreneur of running and expanding a business
- success depends on customer satisfaction and with that comes a large amount of organisation
Lots of business models rely on expansion as one outlet will never be able to generate enough profit to make the shareholders happy.
- To expand a business there are three broad issues that have to be covered: establishing that the extra demand exists (make sure there is enough demand to make a profit), ensuring that the finance is in place (the risk that you want to expand more quickly than your profit level allows you) and ensuring that the people are in place- especially any new leaders (new levels of hierarch yare needed, new line managers to be appointed and trained.
explain the role of an entrepreneur of intrapreneurship: innovation within a business
An intrapreneur has the personal characteristics of an entrepreneur, but works within a large organisation.
Typically, they think creatively and are willing to take risks and show leadership in making things happen.
The factors that determine the differences between companies that celebrate and those that mistrust intrapreneurs are:
1) High tech vs low tech: high tech companies need bright, even ‘disruptive’ ideas to keep them one step ahead in the ever-changing environment. Google gives each member 20% free working time to work on their own ideas, this fosters intrapreneurship
2) Stage in the company’s life cycle: companies in an early growth stage want bright new ideas to keep growth going, as they reach the maturity stage they want to take less risks and continue growing, larger companies become bureaucratic with every decision needing to be signed off by several higher layers of management
3) Leadership: some go out their way to encourage younger staff to have responsibility and some freedom whereas autocratic leaders prefer to keep all major decisions at the top and so intrapreneurship is unwelcome
what are the barriers to entrepreneurship?
An obvious barrier to entrepreneurship is a lack of personal finance as if you are like Richard Branson and come from a wealthy family then if your business fails then it is unlikely to affect you financially. However, other entrepreneurs invest their whole life savings or borrow on the strength on their home and so it is much more risky.
a parliamentary report published in 2012 said:
- since the financial crisis, banks are much less willing to lend money to small firms
- 29% of entrepreneurs are women
explain the role of entrepreneurs of anticipating risk and uncertainty in the business environment
Entrepreneurs pride themselves on their sensitivity to the market. Because they are usually in daily, face-to-face contact with their customers they pick up changing trends among consumers.
- It is important to quantify risks so they can be compared with the potential rewards. With uncertainty, wise businesspeople see this as the natural state of affairs. They accept that tomorrow’s trade may be completely different from yesterday’s.
evaluate the role of an entepreneur
Within the economy as a whole, entrepreneurs provide two marvellous functions. Firstly, they provide a wide array of competitors to the big companies that would otherwise be able to enjoy safe markets. Therefore consumers benefit largely from entrepreneurs because otherwise prices would be much higher.
Their second key function is innovation. Established businesses want to keep things the way they are however new entrepreneurs keep on coming up with new ideas such as Instagram and snapchat and so these bright new ideas then force existing firms to try to catch up with or beat the new competition. Once again the consumer is the winner.
what are the characteristics of a successful entrepreneur?
- Understanding of the market (market knowledge is key)
- Determination (very difficult, most fail)
- Passion (not only to make money but also linked to something you are passionate of, a hobby)
- The ability to cope with risk
what are the skills required to be a successful entrepreneur?
1) Financial skills, the ability to read and understand key documents such as a cash flow forecast
2) Persuasive abilities, asking for planning permission and persuading staff to take a chance by persuading staff to join a new and risky venture
3) Problem-solving skills
4) Networking skills, to turn acquaintances into business friends
explain risk-taking for an entrepreneur
- Business decisions are always about the future, therefore, they always involve uncertainty
- Good entrepreneurs consider not only what they think will happen, but also what could happen differently
- An entrepreneur looks at the risks, compares them with the possible rewards and makes a considered decision. They take calculated risks.
what are 4 general motives for becoming an entrepreneur
- Profit maximisation
- Improve community
- To be your own boss, control
- Personal development
what are the two financial motives for becoming an entrepreneur?
profit maximisation
profit satisficing
what is financial motive of profit maximisation?
- 20% of those starting a business have profit as their major motivation
- It is fair to say that most people will be thinking of the way to maximise their profits
- For businesses thinking in the long term, the best way to maximise profit is by satisficing the short term and this means accepting a lower profit now in order to make a higher profit in the future
what is financial motive of profit satisficing?
- To satisfice means to find the ideal blend between different pressures. In this case it is to find the ‘right’ profit rather than the biggest
- In the case of M&S they made their record profits in 1998 but after that came an implosion when people started complaining about their overpricing of products. Since then they have never regained as high as profits as then. This is because they were foolish enough to maximise their profits when a business like that should satisfice because it should always be thinking of the long-term future
- For new, small businesses especially, if they want to build a successful operation for the long term, profit satisficing makes far more sense than short-term maximisation
what are the 4 non-financial motives for becoming an entrepreneur?
independence
home-working
ethical stance
social entrepreneurship
explain the non-financial motive of independence
- Lots of people are urging for the independence of entrepreneurship rather than working in a big business for someone else
- One may believe after a long time working in a big business that they have the confidence and capital to do something for themselves
- Many immigrants choose to take the entrepreneur group as there is a tendency to mistrust fair career prospects working in large organisations. Immigrant entrepreneurs have employed 8.3 million people.
- So independence can be a psychological need or a practical response to actual or perceived unfairness or discrimination, many entrepreneurs including Richard Branson have dyslexia and so perhaps this led to the same desire for independence felt by many immigrants.
explain the non-financial motive of home-working
- Some need the practical flexibility of home-working because they are unable to physically go to work.
- Sadly, there are many who see this as an opportunity to get work done at below normal market rates, including below the minimum wage
- They often have to accept a piece rate term that gives no security of income and can work out as a low hourly income
- This is why some who need to work at home try to set up their own business. They are able to retain all the profits and are able to curve it around their responsibilities and requirements. It leads to them earning more money and avoiding the low hourly income they would receive otherwise.
explain the non-financial motive of an ethical stance
- Some entrepreneurs find it difficult to accept the ethical environment within a large business organisation
- Mis-selling scandals affecting banking remind that even if modern firms may be good at talking about ethics, some fail to practise what they preach
- Therefore, those with strong ethical convictions start up their own business as moral questions are entirely within the individual’s control
- a principled ethical stance leads to good publicity which encourages higher sales and therefore profits high enough to support the ethics
explain the non-financial motive of social entrepreneurship
- Whereas ethics has a clear meaning, social entrepreneurship does not, it all depends on your point of view.
- They are business’ created to address a social problem
- It is about addressing a problem and benefitting people, they can make a good profit however their business model is also designed to benefit others
what are business objectives?
the goals set for the business as a whole, also known as corporate objectives. They must be achieved to realise the aim, it is time bound
what is a mission?
a qualitative statement of the business’ aims that is settled upon by the boss or by the board of directors in a large one.
what is an aim?
a long term goal from which business objectives are derived, the mission usually takes this statement and makes it sound more motivational
what is a mission statement?
the goal of a business, reason for its existence, a vision for the future
what is a good mission statement?
- Excites, inspires, guides and motivates
- Differentiates the business from competitors
- Defines the market or business the firm want to operate in
- Is relevant to all major stakeholders
- Is relevant to objectives
what should objectives be?
S- pecific M- easurable A- chieveable R- ealistic T- ime bound
what are the main functions of a business objective?
- Means of measuring performance
- Motivates employees
- Reduces uncertainty
- Provides a sense of unity
- Provides a clear focus for decision making
what are the top two business objectives?
survival
profit maximisation
explain the objective of survival
- this is the main priority for new, start-up businesses, one third of businesses fail in the first three years.
- Managers may avoid actions that look highly profitable yet have a high risk attached to them.
- Survival is also a priority for those who have experienced a sudden change in economy, those who have over-expanded and those hit by competition.
explain the objective of profit maximisation
- this is making as much profit as possible.
- Big companies may follow when they see a big rival coming.
- Small companies may also do this with no concern for the long-term future. They be undertaking poor business practise.
what are 6 other objectives of a business
sales maximisation market share cost efficiency employee welfare customer satisfaction social objectives
explain the objective of sales maximisation
- decisions are made that focus on rising customer numbers instead of rising profits.
- The assumption is that if you get the growth today then you’ll get the profits tomorrow. This is the case with game consoles and the added extras that people later buy.
explain the objective of market share
this puts a business in a comfortable situation. If they have a high market share then lots of shops will stock their products and so when they innovate it is very likely to be popular
explain the objective of cost efficiency
- this is important for large firms but critical for smaller start-ups. - If their objective is to minimise costs then it is vital all workers are following this approach, even junior members who are delegated to make decisions. - This is important in markets where product differentiation is low.
explain the objective of employee welfare
- the only business that would place their staff as their central objective are ones like the John Lewis partnership who are workers’ co-operative.
- Lots of businesses believe that good customer service comes from motivated staff.
explain the objective of customer satisfaction
- along with employee welfare, customer satisfaction is a goal rather than a corporate objective.
- It is necessary but not sufficient for success.
- Business believe that customer satisfaction should be at a sufficiently high level to generate customer loyalty, or even commitment.
explain the objective of social objectives
- social and ethical objectives only mean something if the business is willing to sacrifice some profit or some market share.
- These objectives are often found on the company’s website, some believe that these objectives are just image-related add-ons.
what is the evaluation of business objectives
- It is difficult to abide to objectives due to the uncertainty of the economic climate
- A problem that can occur is that although the staff know the official objectives, some may believe there are other, unstated but more important goals. This happened in the case of Co-op bank.
what is unlimited liability?
when the finances of a business are treated as inseparable from the finances of the business owner(s)
Unlimited liability can be very risky, especially for start-up businesses. If they were to go into debt, the owner may be forced to sell their home, cars and so on. This liability can make them go bankrupt.
what are two types of organisations with unlimited liability?
sole trader and partnerships
what is a sole trader?
an individual who owns and operates his or her own business. Although there may be one or two employees, this person makes the final decisions about the running of the business.
what are the pros and cons of being a sole trader?
Advantages:
- The only one who benefits financially from success
- No formal rules to follow when establishing and no administrative costs
Disadvantages:
- Unlimited liability
- Long hours, no holiday
- Limited sources of finance available
what is a partnership?
When a business is set up which is comprised of between 2-20 people, they share their knowledge and resources.
It is vital that the partners trust each other as they are unlimitedly liable for any debts.
what are the pros and cons of a partnership
Advantages:
- Shared finance
- Shared expertise
- Better decision making?
Disadvantages:
- Unlimited liability
- Longer decision making, conflicts may arise
what is limited liability?
means that the legal duty to pay debts run up by a business stays with the business itself, not its owner/shareholders.
explain limited liability
If the company has debts then the courts can force the business to sell of its assets and if there is still not enough money then the company is closed down but the owner/shareholders have no personal liability for the remaining debts
To gain the benefits of limited liability they need to go through a legal process to become a company. This is called incorporation and creates a separate legal identity for the organisation. They will be registered with the Registrar of Companies.
what are the pros and cons of limited companies?
Advantages of forming a limited company:
- Shareholders experience the benefits of limited liability, including the confidence to expand
- They are able to gain access to a wider range of borrowing opportunities than a sole trader or partnership
Disadvantages of forming a limited company:
- They must make financial information available publicly. Small companies are not required to make full disclosure of their accounts but they have to reveal more than a sole trader/partnership
- They have to follow more and more expensive rules than unlimited liability businesses, e.g. holding an annual general meeting of shareholders which adds thousands to annual overhead costs
what are private limited companies?
- The shares of a private limited company cannot be bought and sold without the agreement of the other directors.
- This means the company cannot be listed on the stock market. This allows it to have very close control over how the business is run.
what is a franchise?
when a business sells the rights to its products, name and trading methods to a franchisee, in return for a fee
what happens in franchising?
The franchise owner also provides full training for the franchisee plus further advice for their branch, including the huge marketing support given by their multi-million pound TV advertising campaigns.
what are the pros and cons of setting up a franchise?
Drawbacks of running a franchise
- initial franchise fees can be very high, particularly for well-know brands
- It is hard to choose the right franchise, lots sell the promises of training and advertising support but supply very little
- Have to pay royalties to the franchisor which increases costs, reduces profits
- they won’t have as much control over how they run the fresh used businesses because they must follow the franchise rules
Benefits of running a franchise
- Could see it as great training towards becoming a full entrepreneur
- franchiser provides training for the franchisee, which lowers costs
- the business pays for marketing, leading to greater customer awareness and reduced costs
- buying into an established business allows for higher sales
explain a social enterprise
A business that focused in putting its profits back into a strong social or environmental mission. Primarily social objectives rather than monetary.
They often claim to give a lot of their profits to charity however it is very difficult to determine the extent to which they benefit others.
A specific type of potentially social enterprise is the co-operative. They can be worker-owned, such as Waitrose/John Lewis, or customer-owned, such as the retail Co-op. They have the potential to offer amore united cause for the workforce than the profit of shareholders. Workers at John Lewis can enjoy annual bonuses of 20% of their salary, as their share of the company’s profits.
other than sole traders, partnerships and private limited companies what are the other types of businesses?
- franchising
- lifestyle businesses
- online businesses
what is a lifestyle business?
Some entrepreneurs start a business based on their own or their family’s needs. E.g. a couple opening a surf shop by the school as a way to earn while enjoying their passion for surfing.
With a lifestyle business, usual rules about objectives and strategies might not apply. The surfer-entrepreneurs might target plenty of customers above plenty of revenue, therefore setting lower prices than would any profit-seeking business.
what are online businesses?
- They decide whether they want a limited or unlimited structure like the others and the only thing that marks online businesses out is the different balance between risk and reward.
- With restaurants there has to be a heavy financial outlay before the business begins trading. With online, the heavy investment is usually in time, not money. They can test out their app and be pretty certain of success before risking much capital at all.
- The ‘scalability’ of online businesses is usually quite limitless, with financial risks being lower and potential rewards higher
explain stock market flotation
When a private limited company expands to the point of having a share capital of more than £50,000, it can convert to a public limited company. This can be floated onto the stock market, which allows any member of the general public to buy shares. This allows the business to expand considerably.
- The process of converting from a private to a public company is difficult as when you float on to the stock market it provides a sudden, huge injection of cash and so it forces the firm to try and grow quicker
what are the main differences between private and public limited companies?
1) A public limited company can raise money from the general public, a private limited company is prohibited from doing so
2) The minimum capital requirement of a public limited company is £50,000. There is no minimum for a private limited company.
3) Public companies must publish far more detailed accounts than private limited companies.
evaluate the forms of business
- The existence of limited liability has had huge effects on business. It helps firms to take reasonable business risks. It also gives scope for dubious business practises (starting a firm, living great lifestyle, go into liquidation and leave the customers and then start again).
- Short-termism is a curse for effective business decision making. There is no proof that a stock exchange listing leads to short-termism, only the suspicion that in many cases it does. Massive companies such as Unilever may be above the pressures for short-term performance. In many other cases, it seems that British company directors focus too much on the short-term share price. Perhaps this is because their huge bonuses depend on how the share price is?
how should business choice be made?
Business choices must be made bearing in mind opportunity cost. This is the cost of missing out on the next best alternative when making a decision.
For a new business, the two most important resources are money and time. Both have an opportunity cost. If you spend lots of time making a nice website it could mean that little time is left recruiting and training staff. The same issue arises with money: it can only be spent once.
for business start-ups what are the most important opportunity cost issues?
- Don’t tie up too much capital in stock as his money could be used more productively elsewhere in the business
- Take care with every decision that uses up cash, it’s hard to get it
what are the two opportunity costs in developing a business idea
- personal opportunity costs
the opportunity costs of - developing one business idea as opposed to another
explain personal opportunity costs faced in develop a business idea
- Missing out on the opportunity to earn a regular income as it could take six months or more to get a business going, a long financial hardship
- The spending on building works, machinery and staff is using money that could otherwise be used on the proprietor’s house, holidays, and so on.
- The wear and tear on the family must be considered, starting a business is hugely time-consuming and so can lead to relatives feeling jealous or isolated
explain the opportunity costs of developing one business idea as opposed to another
- One idea is chosen, whilst another idea is sacrificed
- Cost of launching idea at the expense of further development
- Committing capital to investment in assets, may restrict other opportunities
what are the 4 factors influencing decision making (explained)
1) considering potential sales from each idea
- this can be done by mares research or solely through the expertise of the entrepreneur
2) considering the cash/financial commitment required
- Whilst some business ideas require massive sums of money (opening a restaurant in London), others can be started up from a back bedroom, keeping initial costs lows
3) considering whether the timing is right
- if people are spending a lot of money at the time of release, if fuel prices are high then people may not necessarily buy petrol cars
4) whether the decisions fits your skill set/whether you possess staff with the right skills
- Depending on your skills and characteristics determines what you would best suit as a job, e.g. to run a restaurant you need to have discipline and have meticulous attention to detail
Why might opportunity cost be especially important for a new start-up business?
Because it will almost certainly have little spare capital and even less spare management time- so every wrong decision and every overspend has especially damaging knock on effects.
what do business face as a result of making decisions?
they face trade-offs
what are trade-offs?
they arise where having more of one thing potentially results in having less of another
An example of a trade-off is if an entrepreneur gets huge help at the start from friends, yet realise that these same friends lack professionalism to help the business grow. The needs of the business may have to be traded off against the friendships.
what are the potential trade offs of a lower market research
less successful new product launch (lower sales)
what are the potential trade offs of a higher quality standard to build reputation
more quality control and assurance
what are the potential trade offs of higher advertising online
reduced advertising on TV
what are the potential trade-offs of choosing lower risk investments
gain lower rewards
explain small business growth
- Many small firms find themselves struggling during periods of rapid growth as it is hard to keep on top of the financial and organisational pressures of expansion
- Enthusiasm is key when going through rapid growth as it ensured that it was easy to raise extra external capital when needed.
what are the business effects of forecast rapid growth
- In certain circumstances, managers can anticipate a period of rapid growth. This may be temporary or permanent.
- The most successful firms will devise a plan that is detailed enough to help in a practical way, but flexible enough to allow for the differences between forecast and reality
- Timescales remain important as the forecast may cover 3 months but increasing capacity may demand a factory extension which would take 8 months, leading to 5 months of excess demand to cope with
- However accurate the forecast, there remains a lot of scope for error. The increased workload on staff, the extra sales putting pressure on the accounting system and warehouse managers can lead to things starting to go wrong. Invoices are sent out later, stock deliveries aren’t checked as carefully and suddenly cash flow position worsens and costs start to rise.
what can businesses do when rapid growth has been forecasted?
- compare the sales estimate with the available production capacity
- budget for any necessary increases in capacity and staffing
- produce a cash flow forecast to anticipate any short-term financing shortfall
- discuss how to raise any extra capital needed
what is overtrading?
refers to the situation where a business expands at a rate that cannot be sustained by its capital base.
A sudden surge in orders may tempt firms to buy additional stock on credit. However, if customers are slow to pay then the business may run into liquidity problems.
what is having adequate finance?
Adequate finance means having access to sufficient levels of funding to meet the firm’s needs, as and when they occur. Businesses need to pay their workers on time regardless of whether enough cash is generated from sales. They will also have to replace machinery when it wears out. They need capital not only for the purchase of new assets but also to cover additional day-to-day capital requirements.
what are the problems of adjustment from entrepreneur to leader/manager
- The typical entrepreneur is lively, often impatient and has a strong personality with quite possibly a charismatic and autocratic leadership style however when the business grows will they be willing to appoint a senior manager with real-decision making?
- Staff will always find it hard to accept a new manager as everyone will know that it is really the boss’ business
- Delegation is necessary as they should no longer attend every key meeting or demand regular reports. However will the new staff be as ‘hungry’ as the small team that built the business? Usually, the answer is no.
explain the two risks of business growth
- change in management structure or hierarchy
- risk of loss of direction and cotnrlol
explain the risk of business growth of a change in management structure or hierarchy
- As a business grows new layers of management may be needed and completely new departments may be founded, such as public relations. And so there is a constant change in personnel and their responsibilities which can be disconcerting for customers and suppliers as strong relationships are hard to build, making customer loyalty hard to achieve
- With new staff appearing frequently and managerial changes occurring regularly, team spirit may be hard to achieve.
- The potential for inefficiency or even chaos is clear. Too many new staff may mean to many mistakes.
explain the risk of business growth of a risk of loss of direction and control
- Templeton college, Oxford produces data each year on the fastest growing 100 small companies in Britain and in 2014 they found that the top ten enjoyed three-year growth rates of employees by 120% per year.
- The key challenges faced by these companies were managing the growth in staff and infrastructure. The entrepreneurs who get swamped by the success of the business are those whose firms will fail to sustain their growth. They may become so excited by their own success that they open up several businesses and then problems may start to hit from several directions at once.
What is staff turnover?
The number of staff leaving a company as a percentage of the number employed
What is zero hour contracting?
Employment contracts that agree employee duties and hourly pay rates, yet offer no guarantee of any work (and therefore income) in any specific week
Why is the employee-employer relationship so important?
- if there is a strong relationship then the workers will feel more supported thus leading to increased motivation and productivity
- conflict reduction
- employee loyalty, high levels of staff retention
What is collective bargaining and what are the pros and cons
Negotiation of wages and other conditions of employment by an organised body of employees or employee representatives, e.g. trade unions
Positives:
- usually a large group and so they have larger power, influencing decisions greater, larger voice
- can improve a workers’ quality of life through the possibility of higher pay and better working conditions
- creates enforcement consistency
Negatives:
- comes at a cost, loss of productivity
- hard to create a fair representation, incorporating everyone’s needs
- can create a different workplace environment, decrease motivation, not comfortable environment
What are the positives and negatives of trade unions?
Positives:
- productivity deals allow a firm to bring in new working practises which increase labour productivity
- efficiency wage theory states that higher wages increase motivation and productivity of workers
- reducing the possibility of discrimination and prevent employers from exploiting workers using monopsony power
Negatives:
- higher costs through increased wages causes increased costs of productivity, markets of inelastically demand might mean an increase in price
- time lost through strikes
- cost-push inflation where powerful unions can put up wages causing inflations (1970s)
What are core workers?
Employees who are essential to the operations of a business. Generally permanent employees.
What are peripheral workers?
Employees who are not seen as essential and generally are temporary
What is subcontracting?
When another business is used to perform or supply certain aspects of a firm’s operations.
what is recruitment?
filling job vacancies by defining the job, attracting suitable candidates and selecting those best suited to fill it
what factors influence the choice of internal or external recruitment by a firm
- the amount of finance available
- size of the organisation
- the job itself?
positives and negatives of off-the-job training
Positives
- a very good way of motivation, it can be a reward for hard work
- a wider range of skills or qualifications can be obtained, improving productivity through new ideas
- employees can be more confident when starting their job
Negatives
- more expensive, e.g. transport, accommodation, training costs
- lost working time and potential output from employees
- new employees may still need some induction training
what are the pros and cons of induction training
Positives
- Makes them more efficient and independent
- increase staff retention as they will feel more supported, saves money
Negatives
- Takes time
- No productivity during training
what is a head-hunter and when would their use be most appropriate?
A person who identifies and approaches suitable candidates employed elsewhere to fill business positions.
this would be useful when trying to recruit managers and roles of higher responsibility as the firm needs to secure a good person.
what is organisational design?
Creating the formal hierarchy that establishes who is answerable to whom throughout the organisation
what is a line manager?
A manager responsible for meeting specific business targets and responsible for specific staff
what is delegation?
the process of passing down responsibility to a subordinate. the giving of a task to someone lower down on the hierarchy.
which structure does centralisation and decentralisation relate to more?
centralisation- wide span of control
de-centralisation- narrow span of control
what are the three types of organisational design?
tall
flat
matrix
Why might there be benefits from widening an organisation’s span of control?
- increased independence of workers allowing them to thrive
- reduces overhead costs which leads to an improved overall efficiency
what is worker productivity?
it is an assessment of the efficiency of workers. This can be measured by the amount they produce in a set amount of time.
what is division of labour?
Subdividing a task into several activities, enabling workers to specialise and therefore become efficient at completing what may be a small, repetitive task
what are markets?
any place that buyers and seller will come together to exchange goods or services. there will normally be na exchange of money at a certain price.
what is a marketing strategy?
carefully evaluated actions or plans needed to achieve a corporate objective, they are a medium to long term plan for how to achieve your marketing objectives, it is delivered through your marketing mix
what is a mass market and what are its characteristics ?
the attempt to create products which are targeted at the whole market, e.g. mars bars
- high-volume
- generic
- competitive pricing
- capital intensive
what is a niche market and what are its characteristics ?
the attempt to create products or services which are targeted towards a specific segment of a market, with special needs, e.g. hotel chocolat
- unique
- premium product
- low volume
- labour intensive
what are the positives and negatives of mass markets?
positives:
- access more customers
- EOS, reduce unit costs
- higher sales
negatives:
- high competition
- cgi volume production not flexible for changes in demand
- homogenous (same), need for differentiation
what are the positives and negatives of niche markets?
positives:
- fewer competitors
- strong brand, loyalty, higher prices
- premium price so higher profit margins
negatives:
- higher cost per unit
- very risky as demand may not be constant
- risk of overdependance on single market/product
what is market size and how do you calculate it?
this is the total value/volume of sales in the market. it can be measured in monetary terms.
number of units sold x price
what is market share and how can you calculate it?
the proportion of total market sales that a firm has
sales of one firm / total market sales x 100
what are 3 factors affecting market share?
- marketing focus
- economic situation
- competitors actions
what is a dynamic market?
It is one that is always changing. sellers respond to the changing needs of buyers by improving existing products and services or introducing new ones.
why are markets dynamic?
- social trends
- changes in technology
- competitive environment
- consumer tastes
what are the 4 factors to consider in dynamic markets?
- online retailing
- how markets change
- innovation and market growth
- adapting to change
explain the factor affecting dynamic markets: online retailing
- this distribution channel is dynamic and quite unpredictable
- we can see from businesses that have broken due to the competition of online retailers such as HMV going into administration
explain the factor affecting dynamic markets: how markets change
- markets change significantly over time and a key factor influencing this is changes in affluence levels
- people are spending double the amount of their income on eating out than 20 years ago and so the restauration industry is thriving
- increased amount of people doing grocery purchasing of ethical products
explain the factor affecting dynamic markets: innovation and market growth
- innovation is about putting a new idea or approach into action and this can help a business gain market share and spur market growth
- new products encourage customers to try something new and therefore boost market growth
- apple have innovated through Face ID and waterproofing their phones
explain the factor affecting dynamic markets: adapting to change
- when businesses see for example that people are buying more drinks with reduced sugar levels then they will innovate in this sector to win customers back
- as customers taste change and with competitors coming and going, firms need to be clever about adapting rather than waiting and then forced to change
how does competition affect the market?
competition creates pressure on firms to innovate and so through having increased competition it means that businesses must stay on top of things and ensure competitive pricing along with innovation. if there is low competition then firms can charge higher prices.
what is uncertainty?
it exists when the outcome of a particular situation is impossible to predict
what is risk?
it is a known possibility of an unfavourable outcome that can be estimated with probabilities
what causes uncertainty?
- the market: dynamic markets, rivals trying to take market share, competitors actions
- the economy: business cycle, inflation
- geopolitical events: wars, natural disasters
what are the benefits of product innovation?
- competitive advantage
- first mover advantage
- demand will be inelastic when you are the first mover: monopoly
what are the benefits of process innovation?
- efficiency
- decreases unit costs so prices are lower
- competitive advantage
what is product orientation?
An inward-looking approach focusing on innovation and research and development. It is when businesses develop products based on what it is good at making or doing rather than what the customer wants. this can lead to unsuccessful products especially in well-established markets
what is market orientation?
An outward looking approach when a business reacts to what customers want. then decisions taken are based around information about customers’ needs and wants, rather than what the business thinks is right for the customer. these are often more successful products.
how is market orientation done?
- it is informed by market research
- the consumer is the most important factor
how is product orientation done>
- informed by scientific research
- business concentrates on producing high-qualityproduccts and then finds a market for them
- most common with technologically advanced products
what is the point of market research?
- identify and anticipate customer needs and wants
- quantify likely demand
- gain insight into consumer behaviour
what is primary research?
data collected first-hand for a specific research purpose
what is secondary research?
data that already exists for a different purpose
what are 5 examples of primary research?
- survey
- interviews
- observation
- focus groups
- consumer panels
what are focus groups?
they are a group of target market demographic respondents that are chosen to take part in a production trial
- it is a one off even
what are consumer panels?
- a group of customers who have been specially selected to give ongoing feedback to the business
- they generally get paid
what are 5 secondary research methods?
- annual reports
- internal data
- government sources
- trade journals
- news
what are trade journals/press?
- they cater to a very specialist market
- news specific to the industry
what are the pros and cons of qualitative research?
pros:
- essential for important new product development and launches
- focused on understanding customer needs and wants
- effective way of testing elements of the marketing mix
cons:
- expensive to collect and analyse, requires specialist skills
- based around opinions, sample may nor representative, bias
what are the pros and cons of quantitative research?
pros:
- relatively easy to analyse
- numerical data provides insights into relevant trends
- can be compared with data from other sources (competitors)
cons:
- focuses on data rather than why thing shappen
- doesnt explain the reasons behind the numerical trends
- may lack reliability from sample size
what are the three uses of ICT to support market research explained
social networking
- posting photos and seeing likes
- software can quickly highlight what customers are saying
- way to interact with them
websites
- understand your customers
- cheap, quick and easy
- accessible
databases
- address details
- see when and what they are buying
what are the three limitations of market research?
bias
validity (secondary research)
reliability
what are the 4 types of market segmentation ?
geogrpahic- e.g. by region, country, climate
demographic- by age, gender, income
pyschographic- by attitudes, personality, lifestyle
behaviour- why you buy a product, how the decision making takes place, brand loyalty
what are the pros and cons of primary research?
pros:
- its up to date, latest information from the marketplace, reliable
- it is specific to what the business need, useful
- a way to get your brand out into the public, raise awareness of your brand
cons:
- expensive, £10,000+ per survey
- risk of questionnaire and interviewer bias
- takes a lot of time, loss of productivity
what are the pros and cons of secondary research?
positives:
- saves time and money
- good overview of the market
- usually based on actual sales figures or research on large samples
cons:
- data may not be updated regularly, outdated
- not tailored to your own needs
- expensive to buy reports on many different marketplaces
what is market segmentation?
This is the process of selecting a specific segment of your market and adapting your 4 P’s of marketing to suit this market.
how do you successfully segment a market?
- research into the different types of customer within a market place (different age groups, regions, gender)
- see if they have common tastes/habits (one more focused on celebrities than another)
- identify the segment you wish to focus on, conduct some qualitative research
- devise a product designed not for the whole market but for a particular segment
what is sampling?
The process of targeting a group of individuals that have been chosen from a larger group, the results must be representative of the target population
what are the advantages and disadvantages of market segmentation?
Advantages:
- allows a business to adapt their 4 P’s to suit their segment, be more effective
- gain more customers through better marketing
- improve quality of their service
Disadvantages:
- expensive for marketing
- if not done effectively it can be a burden to the business
- can decrease the amount of customers as you are focusing on a particular segment rather than the whole market
what is market mapping
A grid plotting where each existing brand sits on scales based upon two important features of a market e.g. price
it shows potential niches or gaps in the market.
what is market positioning?
it is how individual products or brands are seen in relation to their competition by consumers. this may stem from pricing, marketing or quality
what are the pros and cons of a market map?
Advantages:
- see where there is a gap in your market
- see who your competitors are to assess their behaviour, changes in price and technology
- can help a business to differentiate its products from the competition
Disadvantages:
- it can sometimes be hard to categorise the same products and services, subjective
- identifying a gap does not mean there is a need for the product, more market research must be done
what is a ‘gap in the market’?
it is when there a business opportunity that no one else is fulfilling
what is a competitive advantage?
Competitive advantage is an advantage a company has over competitors gained by offering consumers greater value. It allows a business to gain more customers through having a unique selling point.
how can a firm achieve a competitive advantage?
- differentiation through technology or a great design can allow a business to set a higher price
- offering a better value product
- being more environmentally friendly
what is product differentiation?
The extent to which consumers perceive your brand/product as being different from others, this may involve giving it unique features.
what is the purpose of product differentiation?
- to give a business a competitive advantage, USP
- it may allow a business to charge higher prices by offering a more advanced technology or experience
- create brand loyalty as customers will not see a possible substitute
how can a firm create product differentiation?
- offering a more advanced technology
- differentiate through aesthetics
- differentiate through ergonomic factors (easier to use)
- a unique function (a phone with a new feature)
what are the two types of differentiation?
1) actual product differentiation
- it creates genuine consumer benefits
- done by differentiating by aesthetics, ergonomic factors, function, technology
2) imaginary product differentiation
- a product that is differentiated through psychological factors not that the product is actually different.
- this is done through persuasive advertising, celebrity endorsements and sponsorship
what are the two positives of product differentiation?
- to insulate the product or service from the competitive market. this allows them to control their market position and therefore their sales
- to enable the business to increase its prices if costs go up, in order to protect its profit margins. the higher the differentiation, the lower the price elasticity.
what is added value?
it is the value of the finished good or service over and above the cost of achieving it. this is achieved when a business increases the worth of its factor inputs by creating new output
what are the factors inputs?
- land
- labour
- capital
- enterprise
what are the ways to add value?
- branding
- customer service
- technology
- USP
what are the benefits of adding value?
- charging a higher price
- creating a post of difference from the competition
- protecting from customers trying to steal customers by charging lower prices
- focusing a business more closely on its target market segment
what are the different types of the design mix?
function
aesthetics
cost (economic manufacture)
what is marketing?
the process of meeting the needs and wants of customers
what is the marketing mix?
the combination of factors to help the business take into account customer needs when selling a product. these factors are: product, price, promotion and place
what is the design mix?
it refers to the way in which all aspects of a product design are considered, including: function, aesthetics and economic manufacture
what is the function? (design mix)
it is the way in which the product performs. products need to work, to be reliable and to do the job they were designed to do. if they do not, they will not satisfy customers and may cease production.
what are the aesthetics? (design mix)
refers to the degree of beauty or style as perceived by the user. some products will consider this to be a key differentiating feature and will place precedence over the other two areas
what is economic manufacture (cost)? (design mix)
the product has to make a profit and must be capable of being manufactured at a cost below the selling price if it is to be viable
why are changes made to the design mix?
they are made to reflect social trends.
these can alter the relative importance of the different elements, this includes services, such as cheap fast food or attractive menus
what are social trends?
they refer to the way society as a whole behaves and the values that determine that behavioue
what are the 4 social trends changing the design mix
resource depletion
recycling and reusing
waste minimisation
ethical sourcing
explain the social trend of resource depletion
- non-renewable materials become scarcer and costs increase
- designing the product so that it can be sued sustainably, e.g. switching from scarce metals to plastics
- fossil fuels, cod and tuna
(this affects economic manufacture)
what is sustainability?
making a product without affecting the long-term supplies of the inputs into the product
explain the social trend of waste minimisation
- this aims to eliminate waste before it is produced and reduce its quantity and toxicity. prevention is the primary goal, allowed by. reuse, recycling, treatment and appropriate disposal
- this helps to keep orducgton costs low and reduce environmental footprint
- biodegradable plastic bags
- donating food waste
- reducing plastic waste
(this affects all functions)
explain the social trend of recycling and reusing
- reusing as much as possible of the original materials
- coffee shops giving incentives for using recyclable cups
- making packaging recyclable
- this may affect the aesthetics of the products but the customers are willing to buy it due to the environmental impact
(this affects all functions)
explain the social trend of ethical sourcing
- it is not wasting resource for damaging the lives of employees
- many consumers avoid buying products that are associated with child labour or sweatshops
- Patagonia
(this affects all functions)
what are the positive and negative implications of designing a product sustainably?
positives:
- can be a source of added value
- charge premium prices
- produce a marketing campaign from sustainability strategy
negatives:
- can be costly to implement
- may not receive any monetary benefit
- can be seen as being ‘fake’ or ‘doing it purely for marketing purposes’
what is the difference between added value and perceived value?
added value is the value of the finished goof or service over and above the cost of achieving it, it is tangible.
perceived value is intangible, it looks like it is better but there isn’t really any added value.
what is promotion?
this involves using a variety of methods to communicate with customers and persuade them to buy your product
what are the different types of promotion?
- persuasive advertising
- sales promotion, BOGOF
- publicity/public relations
- personal selling
- direct marketing
what is advertising?
the use of brochures, leaflets and the radio to raise awareness of their product
what is sales promotion?
the use of short-term incentives to encourage buyers to purchase, such as special offers, free samples, competitions and price cuts
There can also be seasonal price promotions
what is publicity/public relations?
Professional maintenance is a favourable public image by a company or by another organisation
It is the attempt to affect consumers’ imaging of a product without spending on media advertising. it is communicating with the media and other interested parties to enhance the image of the business and its products, and therefore increase sales
what is personal selling?
it is based on face-to-face contact with customers
what is direct marketing?
marketing activity that is aimed directly at the customer, such as direct mail, door-to-door leaflets or email
what are the pros and cons of advertising?
pros:
- access a wide coverage
- control of the message
- used to build brand loyalty
cons:
- can be very expensive, e.g. TV, advertising
- uncertainty, could be misleading, customers may inaccurately interpret the message
what are the pros and cons of publicity/public relations?
pros:
- can be very low cost compared to other promotional activity
- more likely to trust from an objective source
- high distribution if successful
cons:
- cannot control the way the story is put across, inaccurate message, they need to make it newsworthy
- it is difficult to do it effectively, you need specific skills, they need to be newsworthy
what are the pros and cons of sales promotions?
positives:
- short-term positive impacts, immediate action
- it is a way of getting rid of excess inventory
- can encourage brand switching
negatives:
- can change customers’ price perceptions, difficult to keep customers when the price goes back to normal
- negatively affect profit margins in the short-term
what are the pros and cons of direct marketing?
Pros:
- you can send specific messages to a particular group of customers, your target market, more successful
- can be very cost effective, cheaper than mass media advertising campaigns
- you can provide very detailed information, a lot of room to work with
Cons:
- response rates are typically low, may not get read, a lot of time needs to be put in to make it eye-catching
- costs can add up with the list, the offer, the creation and the delivery
what are the pros and cons of personal selling?
positives:
- easily measured
- more personal service, engagement
- very good for high value goods as you may need to work harder to convince them to buy it
- tailor customer queries, create more of an impact
negatives:
- expensive and loss of time, may need to fly to the area, costs of training
- can anger customers, bad image
- can only reach a limited number of customers, longer to build awareness
what are the 3 different types of brand plus 2 extra?
Individual branding- brand associated with specific products, more stability, protected from negative PR/publicity, e.g. marmite, pot noodle
Umbrella (“family” brand)- brands that are assigned to more than one product. umbrella branding makes different production lines easily identifiable by the consumer by grouping them under one brand name, e.g. dove, Cadbury, the use of an umbrella brand encourages the sales of the other products as well, easier to get retail distribution when launching new products, large product portfolio
Corporate brand- promoting the brand name of a corporate entity as opposed to specific goods or services, e.g. nestle, convinces customers that all products across the range share similar benefits
Own-label brand- this is where for example retail outlets assign their corporate branding to a range of goods and services, e.g. Tesco finest
Global brand- easily recognised and operating worldwide, these brands are based on familiarity, availability and stability, e.g. Ikea
what are the benefits of having a strong brand?
- added value
- competitive advantage ability to charge premium prices, having good reputation as a brand
- reduced price elasticity of demand, protects against competition
- customer loyalty through umbrella branding
- awareness and sales
How do you construct a supply and demand curve?
- price on y axis and quantity on x axis
- draw on the lines, if it increases then it shifts to the right
- draw on the equilibrium and draw price and down to quantity to see the value
- label axis
what are the 8 types of advertising?
television radio cinema newspapers magazines billboards internet transport (e.g. buses)
what are the pros and cons of advertising on the television?
pros:
- reaches a large audience throughout the country
- use of colour and images very useful when the product itself moves
cons:
- costs can go into many thousands of pounds for 30 seconds
what are the pros and cons of advertising on the radio?
pros:
- cheaper than television
- can be taken anywhere
cons:
- product cannot be seen, which is important if you are marketing a visual item
- not as wide coverage as television
what are the pros and cons of advertising at the cinema?
pros:
- advertisement not allowed on TV may be shown
- audience likely to pay more attention as they have paid for the experience
cons:
- the audience remains small compared to television
what are the pros and cons of advertising on newspapers?
pros:
- choice of local, national or regional
- good targeting of customers using different papers
cons:
- not all people read newspapers
- cost. a full page in a national could cost many thousands of pounds
what are the pros and cons of advertising on magazines?
pros:
- best medium for targeting particular customer groups
- high quality colour gloss images can make products look attractive
cons:
- may only come out once a month, a business might need more regular adverts
- may have few readers and not suitable for products aimed at mass market
what are the pros and cons of advertising on billboards?
pros:
- highly visual, large images often at side of road
- can be targeted at particular aras of the country
cons:
- no real control of the people seeing the advert
- limited message given as read by people as they pass by
what are the pros and cons of advertising on the internet?
pros:
- one of the fastest growing advertising media
- can target particular groups according to the site the customer is on
cons:
- customers may see the adverts as ‘in the way’ of what they really need to see
- can be expensive to set up
what are the pros and cons of advertising on transport (e.g. buses)?
pros:
- can be targeted at a certain area
- cheaper than magazines and popular newspapers
cons:
- space available for the advert is limited
- only a simple message can be given
what are the influences on the choice of promotional mix?
- nature of the product (where are they going to be, what do they read?)
- competition (what are they doing, competitive market?)
- target market
- cost of promotion (budget, finance available)
- available options (developments in technology, algorithms, based on what you look at)
what are the ways of building a brand?
- USP/differentiation
- advertising
- sponsorship
- the use of social media
explain the use of USP/Differentiation for building your brand and what are the pros and cons of doing so
- this is how a business gains a competitive advantage by being the only business in market that offers the product or service
- may provide the key stimulus that launches a brand, although it can be copied the brand may already been well established before it happens.
- e.g. Tesla (first fully electric car)
Pros:
- if effectively done this can make the business well-established
- ability to charge higher prices
Cons:
- often only a short-term fix as competitors will catchup
- will involve lots of market research as it isn’t yet in the market, risky
explain the use of advertising for building your brand and what are the pros and cons
- this is to focus attention on what sets a business apart from others. branding through repeated, frequent advertising, is the most effective way to accomplish that goal
- this works best as a way of reinforcing the functional messages and value attached to the brand that the consumer might identify with/ the company wants to send about its brand
pros:
- access a wide coverage
- control of the message
- used to build brand loyalty
cons:
- can be very expensive, e.g. TV, advertising
- uncertainty, could be misleading, customers may inaccurately interpret the message
explain the use of sponsorship for building your brand and what are the pros and cons
- this is an attempt at long-term brand building by association that when done cleverly can help give a brand a ‘personality’
- it is the association of a brand/product with a popular celebrity or sports person that can increase sales and the profile of the product
Pros:
- can bring long-term success through creating awareness, sponsoring events means you are exposing your business to a wider audience and giving them a positive association with the brand
- consolidate expertise, if you choose to sponsor an event or organisation that aligns with your business goals and values it can help position you as an expert in the field.
Cons:
- can be extremely expensive if it is a large company, demands capital, normally a long-term relationship
- potential controversies, any person or brand that you sponsor will immediately be linked to you, you need to make sure they are responsible and professional, they can destroy your brand image
explain the use of social media to build your brand and what are the pros and cons
- hashtag on twitter are a way of alerting customers following a popular topic that your brand has an association with
- events- businesses can take photos and hashtag in some popular events, e.g. football world cup
- digital media offers a range of methods to help build a brand, some of which have not even been developed yet.
- social media is also a way of communicating, adding and building trust, providing value in a fun and creative way through daily content, interacting with customers, having accountability (e.g. dealing with customer complaints
Pros:
- it is a lot cheaper than other methods
- exposes your brand to bigger audiences, create awareness to people around the world
- can do frequent posts as a way of communication with your customers, updating them, a way of building trust and create dun daily content
Cons:
- time consuming constantly updating it
- your brand image can be damaged irrevocably, anything you post could be taken against you (insensitive content), need to be extremely careful with what you post
- social media marketing makes you lose control, everything is available for everyone and so it means you can see lots of negative and malicious comment
what are the 3 changes in branding and promotion to reflect social trends?
viral marketing
social media
emotional branding
explain the social trend of viral marketing that affects branding
- it is a strategy that encourages people to pass on messages to others about a product or service electronically
- traditionally businesses loved creating ‘word of mouth’ through people talking to family and friends about a product but with increased digitisation and use of social media we now use this to spread good (and bad) recommendations about a product
- uses social media and online platforms
- aims to increase brand awareness or to achieve other marketing objectives
- one celebrity tweeting about a restaurant could send that place booked out for months to come
explain the social trend of social media that affects branding
- Social media, just like traditional media, are seen by many businesses as another place where they can display their promotional messages through an Instagram page for example.
- websites and applications that enable users to create and share content or to participate in social networking
- helps to build a relationship with customers and develop positive interactions
explain the social trend of emotional branding that affects branding
- It refers to the practise of using the emotions of a consumer to build a brand and is designed to appeal to a customers emotion, human need or perceived aspiration.
- It is attempting to create some kind of emotional response form consumers to the brand.
- With social media this relationship between a brand and a consumer can reach new emotional levels with consumers following certain brands for daily updates from their brand of choice.
- e.g. John Lewis advert
what is a brand/branding?
A brand is a characteristic, name or symbol that distinguishes with customers and persuade them to buy your product
branding is the skill of giving a product or service distinctiveness-even personality.
what are potential issues of having a brand?
- you must always ensure you give good customer service as otherwise for brand could be damaged
- you are always in competition with other brands
why do brands reduce price elasticity of demand?
because if you have a strong brand then you will be less affects by the actions of competitors or changes in price due to customer loyalty
what is persuasive advertising?
- Persuasive Advertising is a type of product promotion that aims to persuade a consumer for buying a particular product, especially in the presence of several similar products in the same category through creating a distinctive image .
- In addition to encouraging trial purchase, persuasive advertising can also be used to coax consumers to add and retain a particular brand in their consideration set, thereby increasing the chances of customer loyalty.
- It can be used to convince the target audience about the qualities of a product. E.g. BMW have spent decades trying to persuade that they don’t create a car, they create a ‘driving machine’.
what are two short-term and two long-term methods of promotion
short-term
- sales promotions
- seasonal price-cutting promotions
long-term
- advertising
- public relations
Why may short-term promotions be a mistake in the long term?
Because they often reduce the profit margins for the business and also customers could get used to the promotion and then refuse to buy the product at the higher price again, thus losing customers
what is price?
the amount paid by the customer for a good or service.
why is price important for customers?
- determines whether it is good value
- determines where they will shop
- determines brand loyalty
- shows the quality of the product
what influences how sensitive a customer is to price?
- the quality of a product
- how much consumers want the product, is it a necessity?
- consumers’ income
what are the different types of pricing strategies with those focused on entering new markets at the top
Price skimming
Penetration
Predatory
Competitive
Psychological
Cost-plus pricing
what is price skimming and what are the pros and cons
- when a firm charges the highest initial price that customers will pay and then lowers it over time
- the goal is to gather as much revenue as possible whilst demand is high and competitors havent entered the market
pros:
- the high price is interpreted as a sign of quality, exclusivity
- innovation is expensive so charging higher prices will be able to pay off these costs
- the high price doesn’t attract competitors
cons:
- only possible for a limited time, businesses will develop competing products
- buyers may turn to cheaper competitors if a price reduction comes too late
- when firms decide to cut prices their image may sugar
what is penetration pricing and what are the pros and cons?
- this involves setting a very low price when entering and market in order to increase market share until they are able to increase the price when their objective is achieved
positives:
- gains market share, barrier to entry for other competitors
- it forces firms to focus on cost minimisation from the start
- builds customer loyalty, word of mouth spreads through the lower price
negatives:
- how much the price is increased depends on the strength of brand loyalty
- competitors might reduce their price to stay competitive
what is cost plus pricing and what are the pros and cons
- it is the practise by a company of determining the cost of the product to a company and then adding a percentage on top of that price
positives:
- building up the selling price of a product- it is a simple way to determine the cost to be set
- locking revenues in with a contract- especially guarantees sales with no risk of a loss
- a way for suppliers to justify and explain a price increase, companies can justify to customers by saying the cost of production went up
negatives:
- pricing doesn’t consider the competitors
- suppliers have little incentive to control or reduce costs, they product what they want
- doesn’t consider most recent replacement costs, based on historical costs and doesn’t factor in any recent changes
what is competitive pricing and what are the pros and cons
- meaning charging about the same as, or a little less than the price of competing products
- this happens in highly competitive markets, or in markets where one brand dominates
positives:
- you’ll have total control over your positioning
- reduction in price can gain customers
- highly effective when’re there is a lot fo competition
negatives:
- competitors may set their prices lower, no long term success
- you may risk selling at a loss, need to consider costs of production
what is psychological pricing and what are the pros and cons
- using price as a way of influencing consumers’ behaviour or perceptions by rounding the price down
- price elasticity will be higher charging 50p rather than 49p
positives:
- leads to higher sales, people will see your products as better value
- it is a way of encouraging customer attention
- compete with competitors
negatives:
- lower revenue, premium pricing makes customers see high quality
- causes customers to believe they are being manipulated
what is predatory pricing and what are the pros and cons
- when prices are set at a very low level, even below the costs of production. it is intended to drive competitors and new entrants out of the market
- it relies on the business being financially strong
positives:
- drives competition out of the market, more market share
- more sales
- entry barrier, eventually leading to monopoly, higher prices
negatives:
- loss in the short-term, cannot run in the long-term
- may be illegal, depending upon the government jurisdiction
- relies on the business being strong financially and competitors being unstable financially
what are the factors that determine the appropriate pricing strategy?
1) number of USPs/differentiation- the more USPs the higher the price can be, highly differentiated products can stand out, cost-plus pricing
2) price elasticity of demand- price inelastic products can raise their prices and gain revenue, a highly differentiated and strong brand will have low PED and so can set prices higher, higher PED = competitive pricing
3) level of competition- the less comp the more control they have over the price, the more direct the comp the more likely comp pricing is needed
4) strength of brand- customers will be brand loyal and therefore more price inelastic, strong brands can use cost-plus pricing and launch new products by price skimming
5) stage in the product life cycle- in the launch stage prices can be higher, If the product is in another stage then pricing may be used to revive interest in the brand, later stages prices fall as competition increases
6) costs and the need to make a profit- costs will dictate pricing so entrepreneurs can calculate a profit margin
what are the two factors that lead to a change in pricing to reflect social trends
online sales
price comparison sites
how do online sales lead to a change in pricing
- pricing online may be more sensitive than on the high street because online consumers find it easier to compare prices than in retail.
- pricing levels may be lower as running an online business generates lower fixed costs than those on the street that have rents to cover in prime locations
- this was seen by amazon where they put books to half price or less, threatening the survival of independent book stores, this is called predatory pricing
how have price comparison sites influenced pricing
- these encourage firms to price competitively so their products and services show up as best value on these sites
- however, customers should be beware that they are being told about best deals available as they may not be showing the cheapest deal available but the store that gives the highest rate of commission
Why may firms set lower prices in the growth phase than in the decline phase of the life cycle?
In the growth phase prices may be kept low to attract a large number loyal customers, in decline there are few new customers to attract and so they may keep prices high to exploit customer loyalty.
Why may skimming the market prove the wrong strategy for a new product?
Skimming may generate a good image plus strong profits in the short term but allow space in the market for new rivals to step in
what is a price war and how does it impact businesses?
Thy are short-lived and intense periods when competing businesses lower their prices in a bit to win extra market share, generate improved cash-flow and perhaps increase total revenue.
It is making an aggressive move on rivals to undercut their prices.
- it is very costly as it decreases their profit margins
- However, price wars can help companies gain a sizable increase in market share and lead to more profitability in the long-term
what is the difference between a business to business (B2B) market and a B2C market?
B2B market- involves the sale of one company’s products or service to another company
B2C market- the process of selling products and services directly to consumers
what are the keys to a successful marketing strategy and what are its purpose?
- it must be achievable, take into account market potential and its resources, whilst recognising the company’s resources
- it needs to be company specific, each business has different objectives
purpose
- ensures effective departmental co-ordination
- provides organisation
- helps in achieving objectives
what is the difference in the marketing strategy for mass and niche markets
marketing strategy for mass markets
- product differentiation
- media used will be TV, radio, mass media
- large volumes produced and so lower average costs and EOS are maximised, high profits
- competitive, psychological pricing
marketing strategy for niche markets
- inelastic demand due to USP, high prices can be charged
- marketing quite tailored, directed media used such as specialist magazines
- a patient approach is needed, a great deal of marketing on reinforcing distinctive characteristics of each product
what is the difference between the marketing strategies appropriate for business to business and business to consumer marketing
business to business marketing
- advertising needs to be informative rather than persuasive
- suppliers will need to build up closer relationships, this is key
- focus will be on offering a quality product and a quality service rather than focusing on advertising
- in some cases companies will be selling homogenous goods, this makes price the most important part in the mix
- design mix: function, marketing mix: promotion, product, competitive pricing
business to consumer marketing
- persuasion is key, emotional connection with the product or service
- consumers want a variety of distribution channels for convenience
- customers want to know the benefit of the product
- short message which clearly points out the benefits
- design mix: aesthetics, emotional branding, psychological pricing
what is a product portfolio analysis?
it assesses the position of each brand or product in a firm’s portfolio to help determine the right marketing strategy for each
what is the product life cycle and what are the diffferent stages?
it is a theoretical model which describes the stages a product goes through over its lifetime
research and development introduction growth maturity and saturation (extension strategy) decline
what is happening during research and development and what are the reasons for why products are scrapped before launch?
- the cost of development rises as it approaches launch
- negative cashflow
- may involve a long lead time before sales are achieved
- most new products do not reach the launch phase
scrapped?
- action of competitors
- life cycle expected to be too short
- change to external environment
- inadequate demand
what is happening during introduction and what are their strategies?
- high unit costs
- distribution still low as distributors may be reluctant to take on an unproven product
- low capacity utilisation
strategies:
- encourage customer adoption
- either skimming or penetration pricing
- high promotional spending to create awareness and inform people
what is happening during the growth stage and what are their strategies?
- expanding market but arrival of new competitors
- product gains market acceptance
- unit costs fall due to EOS
- thinking of innovation
- rising capacity utilisation
strategies:
- go for market penetration and if possible price leadership
- improve the product through new features, improved styling, more options
- high promotion to promote brand awareness
what is happening during the maturity stage and what are their strategies?
- high levels of capacity utilisation
- weaker competitors start to leave the market
- high profits for those with high market share
- low promotion and filing price as growth starts to stabilise
strategies:
- promotion focuses on differentiation
- repositioning
- persuasive advertising
what is happening during decline, why do they enter decline and what are their strategies?
- market saturation
- more competitors leave the market
- decline in capacity utilisation, switch capacity to alternative products
why enter decline?
- technological advance
- changes in consumer tastes
- increased comp
- failure to innovate
strategies:
- maintain market share
- harvest by spending little on marketing the product
- weed out product variations
what is an extension strategy and what are the different strategies coming under the two types
extension strategies are ways in which a business modifies a product to appeal to more customer and maintain sales in maturity in order to prevent sales from declining
- it is done to extend maturity and increase sales
Promotional strategies:
- target new segment
- reduce prices/discounting
- change the image
- change packaging
product strategies:
- new use for product
- change size
- moderated/improved product or flavour
what are the positives and negatives of a product life cycle?
positives:
- forecast future sales trends (marketing budgets, assess demand)
- help with market targeting and positioning (at the right time)
- help analyse and manage the product portfolio (when to invest in promotion and when to cut costs)
negatives:
- doesn’t take into consideration external factors, competitors can hugely affect the PLC
- strategic decisions can change the life cycle (not as predicted, could go into areas quicker than meant to, determinism)
- difficult to recognise where a product is in PLC when does it go from growth to maturity
- decline is not inevitable
what is the Boston matrix and what are the different categories explained
it is a tool to analyse a product’s share and growth within a market through plotting their portfolio of businesses and brands
star HOLDING - high share in a rapidly growing market - position of leadership - requires high marketing spending strategies: - investment to sustain growth - repel challenges from competitors - invest to maintain or increase leadership position
cash cow MILKING (take revenue and re-invest) - high share in slowly growing market - little potential for growth strategies: - defend market share - little need for investment - use profits to reinvest in new products
dog DIVESTING (resell) - either products that have failed or are in decline phases - low share in slow growth market - no real potential strategies: - phase out or sell off - not worth investing in - uses up more management time and resources than can be justified
question marks BUILDING (build by investing) - low share in a rapidly growing market - have potential but future is uncertain - could either become star or dog - cash flow negative strategies: - invest to increase market share - substantial investment to achieve growth at the epss of powerful competitors - INVEST in promotion and marketing
what is the difference between relative market share and market growth
relative market share
- expressed not as a % but share in relation to other firms in the market
- a measure of the firm’s strength in the market
market growth
- % rate of growth of sales in the market
- measure of market attractiveness
- from this we derive four cells as a means of analysing products
what is the best and worst category in the Boston matrix to have products
best
- cash cows, they have high market share in a market that isn’t growing much, solid income coming in
worst
- dog, due to low market share in low growth, not much point in continuing, very low revenue
how is the Boston matrix useful and not useful?
useful:
- a useful tool for analysis product portfolio decisions
- compare products success, where to invest
not useful:
- only a snapshot of the current position
- has little or no predictive value, hard for dynamic markets
- focus on market share and market growth so ignores issues such as developing a sustainable competitive advantage
what is customer loyalty and how do you build it?
customer loyalty means having a preference for a product or brand, based on experience and/or an emotional attachment, which inclines buyers to repeat purchase away from rivals, this affects price elasticity of demand
customer loyalty is built when a brand has a strong identity and is easily recognisable
1) customer service
- the staff who deal with the customers before, during and after a sale, they are the ones interacting with the customers
- extremely important in the service sector, speed of service and quality
- staff must be appropriately trained, motivated and show good communication skills when dealing with customers
2) physical environment
- the design and features of the actual place where a transaction takes place
- can directly influence the customers’ shopping experience and therefore their level of satisfaction as well as willingness to return
- this may include facilities, ambiance, design and cleanliness
3) loyalty schemes
- reward schemes/cards, e.g. collect points, stamps for a free product
- saver schemes
- focused on incentivising purchases by rewarding spending
explain market mapping
using two variables for comparison, place firms on the grid in order to spot gaps in the market
- market positioning
- value and price, (HV,HP, etc.)
what is the definition of distribution?
it is how to get the product to the right place for customers to make their purchases. it includes physical or online distribution availability and visibility
each part of the distribution channel is made up of intermediaries
the more intermediaries used, the less control the manufacturer has and the higher the final price becomes for the consumer
what are the 5 distribution channels and explain them
(direct selling) business - customer
- high-end good, focus on experience, tailored, door to doordrawback: limited reach, pay for distribution
business - retailer - customer
- saves on distribution, retailer pay for this
(traditional physical channel) business - wholesaler - retailer - customer
- eases with distribution, however it can be detrimental to PMs if low volumes sold, takes a long time, distribution complicated
business - e-commerce - retailer
- reach large target market, reach global, however problems with security w personal information
business - m-commerce- customer
explain the changes in distribution to reflect social trends
online distribution
- accessibility, shop 24/7, anywhere
- huge amount of choice
- usually cheaper because online retailers often have lower costs
BUSINESSES
- lower start up costs, both fixed and variable costs lower
- B2C businesses can offer goods to a much wider market
- businesses have more choice of where to locate their operations
changing from product to service
- DVDs to netflix
- newspapers to subscriptions
- increased use of tech means that we shift to more services, online holiday booking sites dominating the industry instead of travel agents
- however there will always be services that will remain as services, e.g. hairdressers
how do you calculate market growth and market share?
market growth =
current size x 1. (%growth/100)
market share =
total value of business (sales) / market value (sales) x 100
