Unit 3 Flashcards
What does marketing involve?
Identifying and understanding customer needs and wants.
Businesses can then provide products and services that meets these needs profitably. It is about understanding customers, not just selling.
Why do businesses bother marketing?
To reduce risk of product failure
Understand their customers
Communicate their products in a way which encourages customers to buy them
Keep up to date with market trends in order to meet customer needs
What’s the marketing process?
Market research undertaken to understand customers
Develop and test products and services
Communicate products and services to customers
What’s a market segment?
A group of customers in a market that have similar characteristics and needs.
E.g. You can segment the car market by the type of car a person drives e.g. Sports, people carrier etc and suit their needs.
What are the benefits of market segmentation?
It helps carry out market research
You can tailor products to customer needs
Promotions can be targeted at specific groups
What’s market research?
Gathering information about customers, competitors and market trends by collecting primary and secondary data.
This helps the business make decisions.
When reading a case study on market research, what must you consider?
Was the right type of research used?
How accurate is the research?
Is the research representative of the target market?
Is there any information the market research doesn’t show.
What are examples of qualitative market research?
Interviews
Consumer panels
Questionnaires and surveys
Focus groups
What’s a product trial?
When consumers buy a product for the first time to assess whether or not they want to buy it again.
If product trial is successful, it could lead to repeat purchases and customer loyalty where customers will buy a product more than once and keep coming back.
What increases product trial?
Low trial prices Advertising Public relations Free samples Viral marketing Reminder adverts Promotions Product innovations Loyalty schemes e.g. Cards
What’s the product life cycle?
A model showing the general sales of a product over time.
1) Introduction - product is launched
2) Growth - if launch is successful, sales increase sharply and profit is made
3) Maturity - sale growth slows but repeat customers continue and loyalty builds
4) Decline - the product eventually becomes outdated and sales fall
5) Extension strategies - adaptions/new products extend the life cycle and sales
What is a product portfolio?
The range of products or services a business sells.
How does a product portfolio help a business?
It helps make decisions regarding:
- What products to launch and when
- When to withdraw a product
- What products are doing well or badly now and in the future
- How to increase sales
What is the cash flow of the different stages of the product life cycle?
Introduction - negative (more money out than in)
Growth - positive but small
Maturity - positive
Decline - experience issues/fall in cash flow
What’s the Boston Matrix?
A product portfolio analysis tool used to plan development of products (which can be linked to the life cycle).
Problem child: should the business invest or divest?
Star: very successful but growth needs to be funded for demand and cash flow may be a problem.
Cash cow: little growth but is established and can support others
Dog: few prospects. Is it profitable?
What are the segments of the Boston Matrix?
Problem child / question: low market share, high market growth
Star: high market share, high market growth
Cash cow: high market share, low market growth
Dog: low market share, low market growth (these are often used to fund or be funded by other products. It may also be kept in case the product becomes more fashionable)
What’s a brand?
A named product, logo, symbol or design consumers can identify, differentiate and associate with.
What are the benefits of branding?
Consumers are more willing to trial products in the brand range.
Brands encourage customer loyalty.
Consumers trust brands, leading to repeat purchases.
Brands can often charge premium pricing.
Consumers have a greater awareness of brands.
Brands can lead to increased sales and market share.
There is very little difference between non-branded products, meaning there’s nothing to differentiate it by.
What’s market mapping?
Showing the difference between brands, products or businesses based on two variables.
What’s product differentiation?
How does it help?
Making the product different from others which helps:
Position their products and target different market segments
Gain an advantage over rivals
Consumers to see their needs are being met by one product rather than another
How can a product be differentiated?
Unique and catchy name Quality Design, formulation or function Packaging Customer service Marketing (product, price, place, promotion)
What’s the marketing mix?
A combination of factors which helps a business to take customer needs into account. This includes considering the 4 P's: Product Price Place Promotion
What does product (of the marketing mix) mean?
The product must meet the needs of the customer and must consider…
Who it's aimed at The range Unique selling point Brand Packaging
…when differentiating their product
What does price (of the marketing mix) mean?
What the business will charge consumers
This is important as it indicates the quality
Changes in price can influence demand
Branded products tend to have a higher price
What does place (of the marketing mix) mean?
Having the product available to customers when and where they want it.
This can be done in various ways:
Direct - sell directly to customers, made easier with the growth of internet sales
Retail - distribution through retailers which helps sell by improving the buying experience and customer service.
Wholesale - breaks down bulk supply of a product and distributes it to retailers. It’s suitable for businesses which produce large quantities of a product.
What does promotion (of the marketing mix) mean?
The way which a business makes consumers aware of the product for sale.
This is done because it: Creates awareness Communicates product benefits and features to customers Boosts sakes Builds a strong brand image
What are the types of pricing?
Premium / Price skimming - very high
Competitive pricing
Penetrative pricing - low
What is research and development?
Scientific research and development in order to find the most appropriate/best appearance, cost and function of the product.
Scientific research involves researching new technologies, techniques and processes, making prototypes and trialled and tested working models and testing the product for safety and durability.
How does the design mix help a product differentiate?
The design mix consists of the cost, appearance and function which is used to differentiate.
Function - how well it does what it’s meant to. For a laptop, this would be memory, processing speed and software performance.
Cost - businesses try to keep costs low but improved functionality and appearance increase cost. The better screen size as technology, the more expensive the laptop.
Appearance - style and elegance of the product. Modern laptops can be found in various colours and are thinner and lighter.
What does managing stock involve?
It’s about managing materials a business holds in the most efficient and effective way.
What’s stock?
The materials to be used, work in progress and finished product a business holds.
What’s the maximum stock level?
The maximum amount of stock a business is able to hold.
What’s the reorder level?
The point at which new stock will be ordered.
The difference between this level and the point at which stock increases is the time it takes for stock to arrive - this is called the lead time.
What’s the buffer stock?
A.k.a the minimum stock level, it is the lowest amount of stock the business will hold.
It’s a safety net in case there is a surge in demand or a late delivery.
What’s just in time stock control?
Stock management where stock is delivered only when it is needed by the production system, and so none is kept by the business.
For this to work, there must be good relationships with suppliers, a well-organised production system and regular demand.
What are the benefits and drawbacks of holding stock?
Benefits: Can meet unpredicted surges in demand Can replace damaged goods Can receive discounts for bulk buying Limited problems
Drawbacks: May go out of fashion Might have to sell off cheaply Expensive to store May go off
What are the benefits and drawbacks of holding little or no stock?
Benefits:
Costs reducing for not having to store stock
Less chance of damaged or stolen goods
Employees can focus on tasks other than managing stock
Reduce cost of production which makes pricing more competitive
Too little:
Miss out on sales
Customers may go to competitors
Can affect reputation may disappoint customers
What’s quality control?
A part of the chain of production - the method where the product is made then a quality controller will examine and/or test for quality. (If not good enough, it would be thrown away).
What’s quality assurance?
Focusing on quality at every stage of the production process.
Everyone is involved and responsible for contributing towards the achievement of a quality standard.
As a result, there should be no defects.
For quality assurance, the business must:
Focus on quality at every stage
Involve customers and suppliers at the design stage
Aim for zero defects
Meet a quality standard
What are the benefits of good quality products?
Can charge a premium price Builds a stronger brand image Closely linked to meeting customer needs Differentiates the product Less waste as the are fewer faulty products.
What is productivity?
Output per worker.
It measures how much each worker produces over a period of time and can be calculated by:
Total output/number of workers
Increasing productivity leads to a greater competitiveness and can be improved by increasing output or lowering costs of production (inputs) while maintaining output.
How can output be increased?
Train employees better Invest in better equipment Introduce more effective work practises Work overtime Motivate employees
How can costs be reduced?
Improved purchasing (cheaper suppliers) Better design of products Cheaper labour costs Cutting overhead costs Streamline the production process Relocation
What is meant by the term ‘competitiveness’?
Competitiveness is where a firm has some kind of advantage over a rival firm, such as higher productivity, that will allow it to gain customers from rivals.
What improves customer service?
Meet and exceed needs Provide high-quality products and services Innovation (keep moving forward) Spot problems Listen to customers Deal effectively and quickly with complaints Be on time Train staff in customer service
What are the disadvantages of poor customer service?
Poor customer satisfaction
Poor brand image
Inability to differentiate and gain a competitive advantage
Inability to charge premium pricing
Fall in sales and profits - sales lost to rivals
Fall in repeat purchase and customer loyalty
What’s the sale of goods act?
The consumer protection law that all products must:
Be fit for purpose
Be of merchantable quality
Match their description
What’s the trade description act?
The consumer protection law relating to how businesses deal with and sell to customers.
All businesses must not:
Give false information
Fail to give (withhold) important information
Act aggressively (force sale)
What are the benefits and drawbacks of consumer protection laws?
Benefits:
- Following the law makes the business less likely to receive fines or be sued by customers.
- Meeting the laws may improve or maintain a business’s image.
- Improved relationship with stakeholders.
- good publicity is followed
Drawbacks:
- Businesses need to know the laws and keep up to date.
- Laws can restrict a business operating as they wish
- Businesses have to comply with laws by changing their products and practises which may be costly.
- If the business doesn’t follow the rules, it may result in bad publicity.
What is financial management?
It’s about changing monetary variables such as cash flows to achieve financial objectives such as improved cash flow.
Businesses try to speed up/increase inflows and slow down/reduce outflow.
Why is cash important?
A business can still be profitable but run out of cash.
If a business’s outflows are greater than it’s inflows (or outflows at a faster rate) then it could run out of cash and trading will cease.
How can a business improve/reduce cash outflows?
Delay paying invoices
Leasing rather than buying
Reduce stock orders
Improve credit terms with suppliers
Use cheaper supplies
How can a business improve/increase cash inflows?
Increase sales revenue
De-stocking
Reduce credit terms with customers
Encourage customers to pay early - incentives
Short term sources of finance e.g. Overdrafts and loans
Why is improving profit not easy?
Cutting material costs leads to lower quality products.
Cutting labour costs leads to lower motivation of workforce.
Cutting investment leads to damages in long term competitiveness.
Improving products leads to expensive development costs.
Increasing prices leads to customers switching to competitors’ products.
How can profits be improved?
Increase revenue
Decrease costs
How can revenue be increased?
Improved marketing
Better products
Changing the selling price
How can revenue be calculated?
Revenue = selling price * quantity sold
How can total costs be calculated?
Total costs = fixed cost + variable cost (v.c. = v.c. per unit * quantity sold)
How can costs be reduced?
Cutting costs of raw materials, labour or research and development costs
Cutting it’s marketing
How is profit calculated?
Profit = revenue - total costs
What’s the margin of safety?
The amount of output between the actual level of output where profit is being made and the break-even level of output.
This is how much production could fall before the business starts to make a loss.
How is break even calculated?
Fixed cost / Selling price (p.u.) - variable cost (p.u.)
What is break even analysis?
A useful tool to help businesses make decisions and set targets and plan for the future
e.g. What would the impact be of an increase in variable cost on profit?
Any fall in fixed or variable costs is likely to lower the break even point. An increase in price will also lower the number of units required to break even.
What are the issues with break even analysis?
It assumes the business will sell all the products it makes. In reality, if a business increased price, it will lower the break even point but this might deter customers from buying the more expensive product.
It isn’t very accurate - it’s an approximation
It only applies to one type of product (not a range of products and prices e.g. Tesco
Why may break even analysis be used?
To understand the past and why decisions went wrong
To set and achieve production targets
Launch a new product
Start a new business
Develop a business plan
How can a business finance growth?
Internal sources:
Retained profit
Sale of assets
Owners funds
External source: Overdraft Loans Bonds Trade credit
Stock market flotation
Private limited companies Ltds
Public limited companies Plcs
What are the risks of the sources of finance?
Selling shares may mean owners lose control
Cash flow problems may result from meeting loan-repayment terms.
What are the costs of the sources of finance?
The cost of borrowing varies across different sources
Some have longer periods of time to be paid off meanwhile others must be repaid quickly with interest.
What’s the availability of the sources of finance?
Some source e.g. Loans or share capital might not be accessible
What’s share capital and what are the advantages and disadvantages?
The monetary value of a business that belongs to the business’ owners. In a company this would be the value of the shares - selling shares.
Adv:
Can raise a large amount (especially is PLC through stock market)
Doesn’t have to repay capital like it would have to repay a loan to a bank.
Disadv:
Ownership is diluted
Shareholders recieve a proportion of profits made
What’s a bank loan and what are the advantages and disadvantages?
A loan from a bank (to be paid with interest by a fixed date)
Adv: Lump sum Clear terms and conditions May get support Longer term
Disadv: Interest paid Strict conditions Needs to be agreed May result in debt
What’s a bank overdraft and what are the advantages and disadvantages?
Borrowing money from a bank by borrowing more money than is actually in their account.
Adv:
Flexible short term source
Provides back up
More money can be taken out than that of which is in the bank
Disadv:
Interest paid
Short term
Can be withdrawn by bank
What’s retained profit / personal savings and what are the advantages and disadvantages?
Profit kept within the business (for investments).
Adv: Pays off loses Funds investments Cheap form of borrowing No interest Quick access Flexible
Disadv:
Depends on availability
Shareholders may want profits to be paid out
Can’t use personal savings for other purposes
What’s trade credit and what are the advantages and disadvantages?
When a supplier provides goods to a customer with an agreement to pay them later.
Adv: Usually interest free Cheap way to get finance Gives the business more time to pay invoices Don't have to pay straight away
Disadv:
Amount limited by the amount a business buys from suppliers
May be cancelled out if the business gives it’s customers trade credit too
What’s the sale of assets and what are the advantages and disadvantages?
Selling the business’ own assets e.g. Buildings, equipment etc to raise finance.
Adv:
Cheap in the short run
Receive a lump sum
Low risk
Disadv:
Costly long term as you lay periodically to lease the asset
What’s factoring and what are the advantages and disadvantages?
A financial service company or bank who would pay them the money which is owed to them.
Adv:
Quick to recover debts
Disadv:
Have to pay a factor fee and/or receive only part of what they’re owed
What’s a grant and what are the advantages and disadvantages?
Money that doesn’t need to be repaid.
Adv:
Often with added support
May not need to be repaid
Disadv:
Often difficult to qualify
How can cash inflow be improved?
Advertising - raise awareness Sales revenue Higher quality products Change pricing De stocking - one off reductions Internal or external sources
How can cash outflow be improved?
More local stock Streamline manufacturing process Less advertising Cut overhead costs - rent, wages, stock, materials Redundancies Re location - online
How do you calculate net cash flow?
Cash in - cash out
What’s remuneration?
Type of payment, usually paid to employees, in return for work
What’s piece rate?
Adv and disadv
Remuneration where staff are paid for the number of items produced and completed. The more produced, the higher the pay.
Adv:
Encourage staff to produce more
Helps improve efficiency and productivity due to motivation
Disadv:
Like Taylorism’s theory, it may act as a threat as staff feel pressured to work.
Less items in a day can decrease pay for that day
What’s performance related pay?
Adv and disadv
Pay related to staff performance.
Adv:
Incentive - if target achieved they’re happy and rewarded
Improve productivity of workforce
Disadv:
Feel pressured resulting in stress
Unrealistic targets demotivate staff
What are fringe benefits?
Adv and disadv
Benefits given as part of payment for work, discounted products, company cars and health insurance.
Adv:
Motivates staff
Rewarding and gives benefits which can be used outside of the working environment
The firm can reduce wage bills
Disadv:
May reduce promotional opportunities
May not recieve the same level of pay (lower pay)
What’s a bonus?
Adv and disadv
Additional payment in recognition and reward of achievement of an individual worker.
Adv:
Improves work atmosphere as staff feel appreciated
Provides an increase to the pay of staff
Extra effort results in increased output
Disadv:
Unequal bonuses demotivate staff
Workers may feel under pressure or stressed
Firm would be giving more money, increasing their costs
What’s a salary?
Adv and disadv
Yearly amounts paid to a worker regardless of work or hours completed typically paid monthly.
Adv:
Constant pay
Easier to calculate fixed costs
More job security
Disadv:
Doesn’t encourage staff to work harder
What’s commission?
Adv and disadv
Reward of payment as a result of achieving sales - it typically takes a % of sales made.
Adv:
Motivates staff to sell more, increasing profits
Increases enthusiasm
Staff take pride in the sales they’ve achieved, improving quality
Disadv:
Unequal across staff due to different levels of sales made
Some may be achieving more therefore others are demotivated
What are the methods of promotion?
Advertising (TV, radio etc)
Public relations (e.g. Charities)
Promotions (special offers)
Word of mouth
Celebrity endorsement
Discounts
What is marketing?
The process of identifying and understanding customer needs in order to provide products and services that meet these needs profitably.
How can a business maintain repeat purchases and customer loyalty?
Special promotions
Reminder adverts
Product innovations
Loyalty schemes e.g. Loyalty cards
What is an organisational structure?
The way in which a business is structured to achieve its objectives.
This is normally through a hierarchy.
A business can be organised it a number of ways:
Product divisions
Regional divisions
Functional areas such as marketing or finance
These structures are shown through organisational charts
What’s a hierarchy?
A structure of different levels of authority in a business organisation, one on top of another.
What is centralisation?
Adv and disadv
When decisions are made by senior managers normally in one place e.g. At head office
Adv:
Increased control and standardisation
Disadv:
Decisions can be slow - take time to reach various branches
Decisions may not relate to individual branches
What is decentralisation?
Adv and disadv
When decisions are delegated to regional employees at local stores and branches
Adv:
Decisions devolved to branches that may know their customers better.
Sense of responsibility
Disadv:
Lose overall control
How does the size of a business affect the organisational structure?
As businesses expands they employ more people which increases the chain of command and span of control.
The size and structure of an organisation impacts communication, control and flexibility of a business.
A business can downsize (reduce size) or delayer (reduce layers of the hierarchy) to:
- reduce costs
- improve efficiency
- improve communication
What is a subordinate?
Someone who is directly beneath you in the chain of command.
What is the span of control?
The number of subordinates which you are immediately in control of/above.
What can motivation / a motivated workforce lead to?
- a hardworking and flexible workforce that is willing to ‘go the extra mile’ for the business
- greater commitment to the organisation
- less time off with illness
- improved customer service
- improved communication within the business
- improved productivity and efficiency
What is Maslow’s hierarchy of needs?
A pyramid of five needs devised by Maslow. In theory, people are driven to meet these in order:
(Top to bottom)
5) Self-actualisation - creating job opportunities, promotion and training to allow employees to reach their full potential
4) Self-esteem - promotion opportunities, empowering employees, rewards and recognition
3) Love and belonging - working in teams, affection, respect, socialising
2) Safety - long term progression, job security, shelter, no danger
1) Psychological - providing a clean and safe working environment, health, food, sleep, money.
Example use of Maslow’s Hierarchy of Needs in an answer:
The job losses at … likely to reduce the motivation of employees as many friendships will be affected.
This could have an impact on employees’ love and belonging needs.
Further, employees’ safety needs could be compromised as those that remain may doubt their job security.
On the other hand, with fewer employees, there may be opportunities for promotion which may help employees meet their high order needs.
How is communication made effective?
- The sender has to choose an appropriate medium to reach the receiver.
- Feedback should be available to ensure the communication has been successful.
What can insufficient or excessive communication have an impact on?
Customer service
The number of mistakes made
The understanding of employees
Speed and implementation of decisions
The image / brand of the business (through advertising)
Employee motivation
What is formal communication?
Approved by the organisation, it lays down rules of communication within a business.
What is informal communication?
Also known as grapevine, it is also used in a business, and example being gossip.
It can get in the way of effective communication
What are barriers to effective communication?
Using inappropriate mediums or email system failures.
Being angry or tired
Cultural differences
Use of jargon - this depends on the skill or knowledge of the sender or receiver
What are the different types of worker?
Part time
Full time
Temporary
Freelance (self-employed)
Manual workers (blue collar)
Non-manual (white collar)
What jobs use time based systems of remuneration?
Wages for part-time and full-time workers
Working overtime
What jobs are salary remuneration systems given to?
Non-manual jobs
Professional workers
What jobs are results-based remuneration systems given to?
Piece rates
Commission
Bonus schemes
What do fringe benefits provide as remuneration?
Examples: Company car Healthcare Pension schemes Company discounts
What influences payment systems?
Nature of the job - e.g. Piece rate systems may not fit that of a secretary
Cost - businesses choose the most cost effective
Motivation - pay is closely linked to motivation
Flexibility - a business may pay off a fee to a consultant to not pay them over a long period of time
Different systems motivate workers in different ways e.g. Commission motivates those who can sell more. The wrong system could waste money
What’s a trade off?
When something is given up in order to gain or achieve something else.
Is there a trade off between profits and ethical behaviour?
What are various views on the trade off between profits and ethics?
Acting ethically can lower profits.
Paying higher wages, recycling and only using ethical suppliers is likely to raise costs and lower profits.
Acting ethically can be appealing to customers and can motivate employees.
This may lead to higher productivity and more sales which will balance the cost of ethical policies.
What are pressure groups?
Organisations which try to get a business to change what they’re doing.
They focus on issues such as animal rights, workers’ rights, the environment and world poverty.
Pressure groups can cause bad publicity for businesses that act unethically which can damage their reputation.
What are the methods of pressure groups?
Lobbying
Protests
Refusing to work with businesses
Boycotting
What are short term effects of businesses on the environment?
- Traffic congestion through transport and deliveries
- Air, noise and water pollution through manufacturing and industry
What are long term effects of businesses on the environment?
- Climate change
- Depletion of land, food and natural resources
How can the impact of businesses on the environment be reduced?
Recycling
Using renewable energy
Replenishing and conserving natural resources
Biodegradable packaging
Reduction of food miles
Social enterprise
How does the impact of businesses in the environment suggest a business opportunity?
Businesses can differentiate their products to meet needs and make them ‘greener’ e.g. The development of hybrid cars.
There are also opportunities for businesses in the ‘green’ industry e.g. Energy conservation and solar power.
What factors influence international trade?
The development of each country (including wages, income, quality and technology of goods)
Government regulations on imports and exports (including import protection, quotas and export subsidies.
How do developing countries provide opportunities for UK businesses?
Lower costs of production in developing countries
Products are cheaper when bought from abroad and then sold in the UK (this may also be a threat)
Import of cheap natural resources
Increased demand from foreign market as countries develop
How do government policies influence international trade?
Tariffs and customs duties tax imports and make them more expensive.
Quotas put a limit on the number of imports.
An export subsidy will reduce the rice of exports and encourage exporting firms.
Whether importing or exporting, UK businesses may suffer of benefit from these.
What is meant by a tariff?
A tax put on goods imported into a country which makes them more expensive for buyers.
What is meant by the term ‘export subsidy’?
Measures that reduces the price of good sold abroad encouraging firms to export.
What is the role of the UK government and EU laws?
They govern the way businesses in the UK operate, trade and deal with customers.
Government intervention aims to encourage competition, help businesses run efficiently and protect consumers and employees.
What are some examples of EU regulations?
The Trade Descriptions Act
Accounting regulations
Health and safety laws
Minimum wage
Maternity and paternity rights
How do business tried to avoid government intervention?
By moving to a country such as Ireland where corporation tax is lower
By producing products in countries with lower minimum wage
By selling products in a country with relaxed health and safety laws
What are examples of government taxation?
Value added tax (VAT)
Corporation tax
National insurance (NI)
Income tax
What is the impact of high taxes in consumers and businesses?
Consumers spend less
Business profits and dividends fall
What is the impact of low taxes in consumers and businesses?
Consumers spend more
Business profits and dividends rise
Benefits and drawbacks of minimum wage
Benefits:
Small businesses are able to compete with big businesses who might force down wage rates
Drawbacks:
Higher costs of labour will reduce profits
Benefits and drawbacks of maternity and paternity rights
Benefits:
Better relationships with employees and worklife balance
Drawbacks:
Working days lost while employee on maternity / paternity leave
Benefits and drawbacks of Health and safety regulations
Benefits:
Fewer work-related accidents and injuries
Drawbacks:
Costs of health and safety regulations can hinder productivity
What’s red tape?
Excessive bureaucracy or adherence to official rules and formalities - strict legislations
What is meant by the term national minimum wage?
Lowest legal amount which can be paid to staff per hr.
What are examples of external sources of finance?
Share capital
Loans
Bonds
Leasing
Grants
Overdrafts
Trade credit
What’s a salary?
A fixed yearly payment divided into 12 monthly instalments.
