Unit 1 condensed study notes

Unit 1

The market - a place were buyers and sellers meet in order to exchange goods and services.

Markeing - the managerial process of identifying, anticipating and satisying customer wants
and needs profitably.

Market share - a businesses total sales within the market as a percentage

formaula - (sales / total sales) x 100

Market growth - increase in total sales within the market

formula - (change in sales / original 1 sales) x 100

Mass market - large unspecialised market where the products are aimed at the whole
market.

advantages:

• large target audience

• huge amounts of market research available
• more competitiveness can lead to higher levels of efficiency as firms try to become
more price competitive
• economies of scale
• increased brand awareness

disadvantegs:

• high start up capital costs in order to compete e.g. advertising

• high amounts of competition
• vulnerable to changes in demand
• harder to meet specific needs

Niche market - small targeted / specialised market which allows the supplier to meet the
individual needs of the customers.

advantages:

• less competition
• higher consumer satisfaction - repeat customers/ brand loyalty
• meets the market demand easier
disadvantages:

• threat from larger potential competitors

• specialisation leads to smaller profits
• prone to changes in trends

Brand - a unique company image that differentiates from the rest of the market / other
suppliers.

• can portray quality

• consumers know what to expect
• brand importance can exceed the importance of the price
• can be used to add value

Market research - the collection and analysis of data and information about consumers,
competitors and suppliers to inform a business about its market.

Primary research - data collected first hand about the market that didn't exist before.

Secondary research - data collected by someone else about the market / data that already
existed.

Quantitative research - statistical data that looks at the amount of items sold.

Qualitative research - non-statistical data that looks at why the customers buy the products.

Segmentation - the breaking down of a large homogeneous market into smaller easily
identifiable sections that have similar wants, needs and demand characteristics.

Demand - the amount a customer is willing and able to buy at a given price.

Factors affecting demand:

• price of complementary goods

• price of substitute goods
• trends
• seasons
• income
• laws

Supply - the amount a producer is willing and able to sell to the market at a given price in
a given time period.

Factors affecting supply;

• changes in cost of production e.g. increase in the price of raw materials

• laws
 • changes in technology
• external shocks
• government subsidies

Price elasticity of demand (PED) - a measure of how quantity demanded reacts to a change
in price.

formula - %change in QD / %change in price

PED < 1 = inelastic

PED > 1 = elastic

factors that affect PED:

• degree of product differentiation

• branding and loyalty
• necessity / is is addictive

Income elasticity of demand (YED) - a measure of how quantity demanded reacts to a

change in income.

formula - %change in QD / %change in income

Normal good - as income rises QD rises

Luxury good - as income rises QD rises more than proportiant to income

Inferior good - as income rises QD falls

Design mix:

• aesthetics - look and feel etc.

• economic manufacture - does it harm the environment? etc.
• function / quality - is it fit for purpose?

Sustainability:

• Ecological - non damaging to the environment

• Equitable - no promotion of inequality in society
• Economical - firm takes responsibility for the long term ecnomic development

Marketing mix - refers to the set of actions or tactics that a company uses to promote its
brand or product in a market.

Includs: Price, Product, Place and Production

Price - reflects the brand, quality and values as well as the amount the customer pays.
Pricing tactics - the day to day changes you can make to prices in order to achieve targets.

Pricing strategy - process by which a business plans to change the amount paid by the
customer in the medium to long term.

Price skimming - setting the initial price high in order to cover their costs leaving the option
to lower the prices in the future.

advantages:

• item seen as more valuable due to the higher price

• promotes exclusivity
• covers high costs quicker

disadvantages:

• some customers put off by the higher prices

• if the price falls the companies image may also fall and be seen as less valuable
• falling price may annoy thoses customers who paid premium prices / removing
exclusivity

Price penetration - setting the prices low in order to gain market share with the intentions
of raising those prices later on.

advantages:

• lower costs can lead to higher sales as the product is more affordable
• conomies of scale due to more being produced in order to deal with high levels of
demand
• stores may provide high distribution levels and maintain good in store displays

disadvantages:

• product may look cheap leading to a decline in the brand image

• mass market pricing may make it harder to sell products in high end stores
• price reflectign values may cause customers to be price sensitive

Pricing strategies for existing products:

Cost plus : unit cost + (% mark up)

unit cost = total costs / quantity

Competitive: Price at market level or at a discount (Price takers)

However, this doesn't mean the cheapest on the market.

Predatory: price low enough to drive rivals out of business

Factors effecting price:

• Costs - costs up = price up

• product differentiation
• strength of the brand
• level of competition
• PED
• current stage of the product life cycle

Distribution - the process of getting the product from the producer to the right place for
customers to make their purchases.

Distribution channel - the routes through which the product passes from the manufacturing
to the customer.

Product life cycle - a model showing the sales of a product over time and that all products
follow a similar pattern.

stages:

• intro
• growth
• maturity
• saturation
• decline

Extension strategy - an attempt to prolong the life cycle of a product by preventing decline
and prolonging saturation e.g. re-packaging, discounting etc.

Product portfolio analysis - examines the market position of a companies products and
places them on a matrix in terms of their market share and the market growth.

• Stars - high market share and high market growth

• Cash cows - high market share and low market share
• Question marks - low market share and high market growth
• Dogs - low market share and low market growth

Recruitment and selection - the process of filling an organisations job vacancies by

appointing staff.

Job description - outlines what the job entales / what the applicant needs to do e.g.
responsibilities.

Person specification - what qualities / qualifications a person needs for a job role.
Internal reqruitment - when candidates for a position are recruited from within the
organisation e.g. promotion.

benefits:

• cheaper - little to no advertising needed

• faster - candidates are already know e.g. personal qualities etc
• person already knows about the business and feels comfortable
• improved promotion prospects

limitations:

• higher costs
• may be awkward for those candidates who don't receive the job
• reduces the talent available to them

External recruitment - when candidates for a position are recruited from outside the
organisation.

benefits:

• increased talent available

• increased number of applicants
• can provide new sources of ideas to the company

limitations:

• higher costs
• may upset internal candidates
• not able to see candidates at work over a period of time

Induction - training given to all employees at the outset of their contract when they are
first employed.

Shadowing - copying the actions of other employees

Mentoring - being allocated a more experienced employee to give advice and demonstrate
tasks

Observation - watching a more experienced employee as they complete tasks

Job rotation - swapping duties with another employee in a different role to gain more
experience

Off the job - taking the employee out of the immediate work situstion but not out of the
workplace e.g. a conference room
Organisation structure - the relationship between different people and functions of an
organisation

Chain of command - number of layers i nthe hierarchy within the organisation

Accountability - obligation of an individual with assigned responsibility and authority for a

role to disclose outcomes.

Division of labour - part of the job design process where processes are divided into distinct
tasks

Span of control - the number of subordinates a manager has to supervise directly

Tall structure - many levels of hierarchy, narrow span of control and long chain of command

benefits:

• everybody knows who they report to

• known lines of communication
• offers leadership and guidance

Flat structure - few levels of hierarchy and wide span of control

benefits:

• more empowered
• more trust of workforce
• flexible working environment
• more efficient/ lessons the loss of communication

Motivation:

Taylorism:

Efficiency, speeds up the workforce, division of labour, assembley lines formed, incentives
created through higher wages, trade unions were banned, hard work equals good pay,
workers were supervised, workers were payed on the basis of results, however workers
had to endure tough, repetitive work.

Maslow:

Hierarchy of needs:

• physical needs
• safety needs
• psychological needs
• esteem needs
 • self actualisation

argument for Maslow:

• people react to a variety of stimuli which fall into these groups

• people easily identify with those groups

arguments against Maslow:

• Levels may not apply to all people

• Self actualisation is rarely achieved
• Some rewards fit more than one level
• It assumes that you have to move up the hierarchy to be motivated

Herzberg:

Motivation factors - things that motivate, promotion opportunities, recognition, praise and
responsibility.

Hygiene factors - things that prevent demotivation, money and working conditions

Job enrichment - is a management concept that involves redesigning jobs so that they are
more challenging to the employee and have less repetitive work

Job enlargement - hire someone with the potential to do a larger job e.g. learning on the
job and increasing their skills

Job rotation - the ability to change from one job to another, enables emplyees to gain a
greater variety of experience by doing a range of alternative jobs

Leadership:

Autocratic - authoritarian, tell employees what to do and don't listen to what they have to say.

Democratic - like to include workers in their decision making, listne to employees and ensure
they contribute in discussions.

Management by objectives - clear goal agreed with staff, provides the necessary resources,
day-to-day decisions made by staff.

Laissez-faire - let it be - managers are either busy or lazy, time isn't taken to ensure junior
staff know what to do.

Paternalistic - manager is like a parent, tries to do what is best for staff, but decisions made
by the head.

McGregor:
theory x:

• workers are lazy

• workers need to be pushed
• workers avoid responsibility
• workers have no initiative
• workers respond to threats

theory y:

• workers are keen

• workers will work on their own
• workers seek responsibility
• workers seek to show initiative
• workers respond to rewards

Enterprise - the willingness to undertake new ventures and show initiative with a view to
gaining rewards.

Entrepreneur - a person who spots an opportunity and shows initiative amd a willingness
to take risks in order to benefit from the potential rewards.

Sources of business ideas:

• spotting trends
• identifying a market niche
• copying ideas from other countries
• innovation
• spotting a gap in the market

Opportunity cost - the next best alternative foregone

Barriers to entrepreneurship:

• lack of finance
• lack of entrepreneurial capacity
• responsibilities
• legal / red tape
• lack of ideas
• fear of failure
• avasion to risk
• corrupt or unsupportive government

Main business objectives:

• profit maximisation
 • growth
• social or ethical aims
• survival

Unlimited liability - the finances of the business are inseperable from the finances of the
business owner

Sole trader - a business run and owned by one person with unlimited liability

advantages:

• complete lack of formalities

• easy to set up
• owner in complete control

disadvantages:

• unlimited liability
• problems caused by the owner being ill or away from work
• lack of finance - banks may be less willing to give loans

Partnership - more than one owner, involves a partnership agreement to distinguish sho
gets what within the business

advantages:

• extra owners share the risk

• new partners can bring extra capital
• partners bring in extra skills and talents

disadvantages:

• unlimited liability
• all partners are affected by the actions of another
• potential for disagreements between partners
• descision making takes longer as each partner must be consulted

Limited liability - the legal duty to pay the debts of the busines stays with the business

Private limited company (ltd) - needs shareholders to agree to any transfer in ownership
of the business shares

advantages:

• owners have limited liability

• greater scope for raising capital
• shareholders retain control over who owns shares
disadvantages:

• accounts made publicly available at companies house

• annual general meetings must take place and be observed
• limited potential for raising share capital

Public limited company (plc) - allowed to sell shares on the stock exchange

advantages:

• access to vast amounts of capital through stock markets

• enhanced reputation
• borrowing is easier and cheaper

disadvantages:

• stock market demands may cause over-emphasis on short term objectives

• potential for takeovers
• greater admin costs, both during and after flotation

Franchise - when a business (the franchiser) gives another business (the franchisee) the
right to supply its products and services

How is a franchise formed?

the franchiseor sells the franchisee a licence to sell their products, often within a specific
georgraphical area. The franchisee will then sell the franchisor's products under the
franchisor's name and trademark. The franchisor will often continue to give support in
exchange for a licence fee and royalties on the products sold.

Franchisor

advantages:

• rapid growth
• regular income

disadvantages:

• no longer doing their idea

• relying on franchisee

Franchisee

advantages:

• minimises risks and failure

 • fast to set up
• given an area to operate
• brand awareness
• assistance from franchisor

disadvantages:

• rely on other franshisee to uphold the image

• lack of control
• high start up costs