 Definition of ‘need’

 a good or service essential for living. .

 Examples:
 Food, Water, Clothes
 Shelter – Home – Electricity
 Safety
 Education
 Physiological – Social needs
 Esteem
 Self-actualisation

 Definition of ‘want’
 Wants are goods or services that people would like to have, but are not
essential to live or survive.
 Examples:
 Expensive cuisine foods
 Branded expensive clothes
 Aerated water
 Luxury Villa – Bungalow
 TV – Music System
 Fancy shoes

 Wants are unlimited

 Unlimited wants are desire for goods and services that cannot be fulfilled.
 It means that people never get enough, that there's always something else that they
would want
 The most typical example of an unlimited want is money. Even the very richest people
in the world continue to work and amass more money, as they never feel satisfied
with what they have earned and saved.
 Imagine getting a sports car as a birthday present. It'd be great for a moment, but
then you'd want everything to go along with it: special fuel for racing, a road without
other people to drive it on, a good pair of sunglasses to look cool while driving, and so
on.
 Unlimited wants can never be satisfied, yet people spend most, or even all of their life,
pursuing them anyway.

 Definition of ‘scarcity’
 Scarcity is the lack of sufficient products to fulfil the total wants of the
population

 Definition of ‘opportunity cost’

 Opportunity cost is the next best alternative given up by choosing another
item

 Definition of ‘factors of production’

  Factors of Production are resources required to produce goods or services.
They are classified into four categories.
 Land
 Labour
 Capital
 Enterprise
 Definition of ‘land’
 the natural resources that can be obtained from nature. This includes
minerals, forests, oil and gas. The reward for land is rent.

 Definition of ‘labour’
 the physical and mental efforts put in by the workers in the production
process. The reward for labour is wage/salary

 Definition of ‘capital’
 the finance, machinery and equipment needed for the production of
goods and services. The reward for capital is interest received on the
capital

 Definition of ‘enterprise’
 the risk-taking ability of the person who brings the other factors of
production together to produce a good or service. The reward for
enterprise is profit from the business

 Definition of specialization’
 When people or business concentrate on what they are best at
 Clear understanding [2]: E.g. way in which work is divided so each worker
concentrates on a specific task so become expert at it
 Some understanding [1]: E.g. workers only do one job
 Advantages of specialisation (knowledge points)
 Increased output OR quicker production OR increased
 productivity OR higher efficiency
 lower unit cost OR economies of scale
 Workers become expert OR more skilled OR focus on what they are good
at
 Improved accuracy OR better quality OR fewer mistakes OR reduced
waste
 Help improve competitiveness
 Disadvantages of specialisation (knowledge points)
 Risk of worker alienation
 Risk of disruptions to production process
 Risk of structural unemployment due to occupational immobility
 It can get monotonous/boring for workers, doing the same tasks
repeatedly
 Higher labour turnover as the workers may demand for higher salaries
and company is unable to keep up with their demands
  Over-dependency if worker(s) responsible for a particular task is absent,
the entire production process may halt since nobody else may be able to
do the task.

Knowledge Analysis Application Evaluation

more skills prevents the need for rework Workers are quicker at
producing goods/increased
productivity or efficiency/
higher output
Being efficient lower cost can offer a better service Lower (unit) cost/benefit from
economies of scale
Expertise so have time to focus on what Every worker focuses on what
they are good at they are good at/become expert
Less mistakes so people trust their products Improved quality or accuracy or
less wastage
More competitive.

Specialist machinery so more efficient Specialist machinery used to cut Thus increasing
used for production wood for making furniture output would
result in
increasing profit

 Definition of ‘Division of labour’

 Division of labour is when the production process is split up into different
tasks and each worker performs one of these tasks.
 It is a form of specialisation
 Advantages of ‘division of labour’
 Workers are trained in one task and specialise in this - this increases
efficiency and output
 Less time is wasted moving from one workbench to another
 Quicker and cheaper to train workers as fewer
 skills need to be taught
 Disadvantages of ‘division of labour’
 Workers can become bored doing just one job - efficiency might fall
 If one worker is absent and no one else can do the job, production
might be stopped

Knowledge Analysis Application Evaluation

Technological allows unskilled workers to be Car assembling industries can Thus more
advancements in the employed and hence wage hire different workers for specialisation is
business costs are lower different work attained at
every worker is
involved in one
specific activity
 which he is best
at

 Definition of ‘Business Activity’

 Businesses combine factors of production to make products (goods and
services) which satisfy people’s wants.
 Business activity involves organizing, combining and using scarce
resources to
satisfy the needs and wants of the consumer

 Need of ‘business activity’
 People have unlimited wants.
 The four factors of production - the resources needed to make goods -
are in
 limited supply.
 Scarcity results from limited resources and unlimited wants.
 Choice is necessary when resources are scarce. This leads to
opportunity cost.
 Specialisation improves the efficient use of resources.
 Purpose of ‘business activity’
 combines scarce factors of production to produce goods and services
 produces goods and services which are needed to satisfy the needs
and wants of the population
 employs people as workers and pays them wages to allow them to
consume products made by other people.

 Definition of ‘added value’

 Added value is the difference between the selling price of a product and
the cost of bought-in materials and components
 Added value is the difference between the cost of bought in resources
and the price at which the “finished product” sells.
 Value added = Sales Revenue - cost of Raw materials
 In this context it is the difference between the costs of rearing animals
and their market price.
 Knowledge of concept [1-2]
 Understanding of concept in context [1]
 The value is added by the work or processes carried out by the
business.
 Simple answer might say “difference between costs and selling price”
(this is really profit) but can be awarded 1 mark.

 Benefits of ‘ added value’

 Charging a higher price
 Creating a point of difference from the competition
 Protecting from competitors trying to steal customers by charging lower
prices
  Focusing a business more closely on its target market segment
 How could a business increase added value?
 increase selling price but keep the cost of materials the same
 Reduce the cost of materials but keep the price the same

Knowledge Analysis Application Evaluation

Added value Allows costs Increased profit margin as people likely to pay more for
to be paid handmade/quality suits
 Increase price As wages and other factory to help ensure sales increase
 explained costs are paid out of the
why/how prices revenue Improve quality of products
can be increased such as plant pot containers
– improve reputation
– establish brand image
– improve product features such
as excellent customer service
 Reduce cost of This will increase the used in products
materials gap between price and input buy cheaper sources of /find
 explanation of costs and therefore increase cheaper suppliers
how these can be added value – lower the quality of inputs
reduced such as: such as cheaper seeds
– reduce the amount of
inputs needed, for example
less fertiliser

Change packaging Better packaging would help Better packing would lure more
products last longer and in customers to buy the product
better conditions
Branding OR create a adding value is certainly a to use on social networks
USP step towards being profitable.
Improve design Gain brand loyalty and Better quality and more
potential customers quantity of production
Add extra features Adding value in this context
implies that by making the
clothing fashionable it will
increase its
appeal to customers and will
allow a larger ‘gap’ to exist
between bought in materials
and the
saleable worth of the end
product
Reward ways of how to Improve quality
set higher prices such as – Provide extra services
– Improve brand image
Reward ways of how to adding value is a Buy cheaper ingredients by
reduce input costs such necessary condition to be changing supplier/buying in bulk
as profitable but is not a sufficient to
one gain a discount/negotiating
cheaper price
– Source cheaper ingredients
from home country instead of
 importing ingredient

 Definition of ‘primary sector’

 The primary sector of industry extracts and uses the natural resource
of Earth to produce raw materials used by other businesses.
 those activities that are concerned with extraction of resources or
agriculture [2] or first stage of the production process [2].
 Involves the extraction/production of raw materials [2].
 Clear understanding [2] e.g. Involves extraction/production of raw
materials OR use the natural resources of the earth to produce raw
materials used by other businesses.
 Some understanding [1] e.g. Involves extraction OR deals with raw
materials. Examples only max 1 mark. Just ‘raw materials’ [0].
 Examples:
 mining,
 fishing,
 forestry,
 oil extraction,
 logging.

 Definition of ‘secondary sector’

 The secondary sector of industry manufactures goods using the raw
materials provided by the primary sector.
 this involves the manufacture of goods using the resources from the
primary sector.
 Examples include auto-mobile manufacturing, steel industries, cloth
production etc.

 definition of ‘tertiary sector’

 The tertiary sector of industry provides services to consumers and the
other sectors of industry
 this consist of all the services provided in an economy.
 Clear understanding [2] e.g. industry which provides/sells services [1]
to consumers and/or other sectors of the economy.
 Some understanding [1] e.g. provide services plus an example [+1].
 Do not accept examples on their own e.g. delivery company, accountant,
shop.
 This includes hotels, travel agencies, hair salons, banks etc
 Examples might include reference to any service type activity such as
retailing or banking.
 Activities rather than businesses are acceptable e.g. coal mining or a
shop.1 mark per acceptable example in each part

 Definition of ‘deindustrialization’
 De-industrialisation occurs when there is a decline in the importance of
the secondary, manufacturing sector of industry in a country.
  This is due to the growing incomes of consumers which raises their
demand for more services like travel, hotels etc.

 Definition of ‘private sector’

 Private sector is where private individuals own and run business ventures.
 Their aim is to make a profit, and all costs and risks of the business is
undertaken by the individual.
 Examples, Nike, McDonald’s, Virgin Airlines etc.
 Good knowledge [2]: When business activities are owned by individuals OR
groups of individuals [2]
 Some knowledge [1] e.g. run by individuals OR not controlled directly by
government OR aim to make a profit OR controlled by person/group of people
 For two marks, must have idea of ownership and by whom.
 Do not accept ‘privately owned’ as does not explain term OR ‘owned by the
people’ as it is too vague

 Definition of ‘public sector’

 The public sector refers to those activities that are owned and managed
by the government or its agencies (1).
 The public sector is not interested specifically in profits and is more
interested in making products and services to be more readily available.
 The public sector comprises business activities that are not usually
profit motivated but whose rationale is to provide a range of acceptable
quality services to all irrespective of ability to pay

 Objectives set by businesses in the public sector

 Identification of objective [knowledge] [2–1].
 Analysis of objective [2–1]
 Aims might include:
• Free access for all OR provided irrespective of ability to pay OR
affordable for all
• Minimum standard of provision
• Provide (essential) services
• Strategic – control production of certain goods
• Meet (profit/quality) target set by government
• protect or create employment in certain areas
 do NOT accept to reduce unemployment or to charge lower prices

 Reasons why the size of the public sector might increase over time.

Knowledge Analysis Application Evaluation

political views regarding The analysis shows why the health care/quality e.g. to
desirability factor identified may explain ensure standards/free at point
changes in the size of the of consumption/available
public sector according to need not ability to
pay/maintain jobs and
employment levels.
state of economy might Provision of important public some industries are too
demand action services important to be run by the
 Natural monopolies made- private sector
wasteful to have competitors
& no abuse of market power
expectations of society aim of public sector business For example if the transport
change. is to provide services to the system is owned by the
community government and it is running a
bus service to an interior village
and it is not getting enough
customers, the government
might still continue it as its main
objective is to provide service
and not to maximise profits.
Public sector strives to Public sector business usually Industrialization by government
create employment locates in regions where there in remote areas.
whereas is underdevelopment so as to
create jobs and income for
local population.

 Definition of ‘mixed economy’

 A mixed economy has both a private sector and a public (state) sector
 Mixed economy is a combination of market economy as well as
government planning.
 It has both private sector and public sector.
 Some businesses are owned by private individuals while some
businesses are owned by the government.
 India, Indonesia is examples of mixed economies.
 Mixed economy implies a balance of public and private sector
organisations. Thus ownership and objectives differ.
 Knowledge of terms [1–2]
 Understanding shown either by examples or explanation [development]
[1–2]

 Advantages of ‘mixed economy’

 Mixed economy attempts to overcome the disadvantages of a market
economic system by using government intervention to control or
regulate different markets.

 Definition of ‘entrepreneur’
 Good knowledge [2]: a person who organises, operates and takes the
risk for a new business venture.
 Some knowledge [1]: e.g. identifies qualities such as risk taker,
initiative, good management skills, leader, decision maker.

 characteristics of a successful entrepreneur

 Knowledge (2 × 1) – award one mark for each relevant characteristic
identified
 Analysis (2 × 1) – award one mark for a relevant explanation of each
characteristic
  Application (2 × 2) – award two application marks for each relevant
characteristic
 Relevant characteristics might include:
 Award one mark for each relevant characteristic (maximum of two), such as:
 Hard working
 Risk taker
 Creative
 Optimistic
 Self-confident
 Innovative
 Independent
 Effective communicator
 Forward thinker
 Determined


Knowledge Analysis Application Evaluation

They are risk takers *helpful in the financial as Archi And Boris have risked
management of a small $10 000 of their own
business money in the business and
* possibility of losing own could have gained interest on
capital –sole trader so may this money if they had put it in
lose the bank. (ap)
personal assets
risk taker, innovator, prepared to work a lot of Self-confident – decision to
creative, self-confident, hours/prepared to make all leave full-time job
optimistic, hardworking, the
independent, effective decisions and take on all
communicator, responsibilities of running the
leadership, initiative, self- business
motivating/determined,
results driven, good at
networking, multi-skilled
Self-confident – decision to leave full-time job

Creative created new menu to attract

additional customers
Independent It earns the trust and respect willing to go with own ideas
Leadership qualities of his team by demonstrating
positive work qualities and
confidence. They foster a
positive environment and then
proliferates these values
through the team.
Hard worker If George did not work so hard, and this is needed as the café is
George works very hard the reputation of the café open many hours a week. (ap) If
in his business (k) could he was not there most of the
fall and the business would be time then
less successful. (an) employees may not work as
hard and the café may not
maintain the high
quality. (ap)
Effective communicator Excellent inter-personal and persuades others
networking skills go a long
way in business success.
Optimistic think positively about new
ventures
Innovative they usually identify gaps in creating new recipes to retain
consumer demands or needs customers
which have been ignored for
long. They welcome change
and are consistently
innovating with the changing
demand patterns.

 Benefits of entrepreneur
 independence - able to choose how to use time and money
 able to put own ideas into practice
 may become famous and successful if the business grows
 may be profitable and the income might be higher than working as a
employee for another business
 able to make use of personal interests and skills

 Disadvantages of entrepreneur
 risk - many new entrepreneurs’ businesses fail, especially if there is poor
planning
 capital - entrepreneurs have to put their own money into the business and,
possibly, find other sources of capital
 lack of knowledge and experience in starting and operating a business
 opportunity cost - lost income from not being an employee of another
business

 Definition of “business plan”

 Clear understanding [2] e.g. a document containing the business
aims/objectives and important details about the operations, finance and
owners of a business OR states aims/objectives and shows how business aims
to achieve them
 Some understanding [1] states one element of plan e.g. shows marketing
strategy/production costs
  A business plan is a document containing the business objectives and
important details about the operations, finance and owners of the new
business.
 Knowledge [2 × 1] – award one mark for each way
 Analysis [2 × 1] – award one mark for a relevant explanation for each way
 Application [2 × 2] – award two application marks for each way

 Content in “business plan”

Knowledge Analysis Application Evaluation

 To obtain a bank loan

To plan the strategy for

the new business
To help to set a
budget/see if he can
afford to expand
To help identify the best
location/premises
 To help analyse
the market/demand for
the new
restaurant/marketing mix
for the new business
Accounting information

 Advantages of “business plan”

 Knowledge [2 × 1] – award 1 mark for each relevant advantage [max 2]
 Application [2× 1] – award 1 mark if relevant reference to Si and Ramon’s
business
 Analysis [2× 1] – award 1 mark for each relevant explanation
 It helps to secure a bank loan or overdraft
 The entrepreneur thinks ahead and plans out carefully the next few years
 Reduces risks of failure as the owners have thought through problems the
business might have
 To clarify the aims and objectives / targets to aim for
 Aids financial planning
  Motivate

Knowledge Analysis Application Evaluation

 Support loan applications can be repaid as bank/lenders will want to

know that the $12500
Clear aims/guidance for so, they know what they
business have to do to get there
help decision making so will not waste time and as Si believe there is
money targeting the wrong customer demand for service
people before start
helps understand the possible as they might not have run a
risks business before
provides an estimate of costs so, they will know how much for the photography business
they need
provides a checklist so that they don’t forget any
important task
A business plan reduces risk This will allow them to as Samah and Selina will have
for the business prepare for any problems thought through problems
and stop these causing such as where to source their
difficulties for the business ingredients for the ice cream
and what it will
cost them
This might include preparing
for cash flow problems at
times
of the year when demand is
low
Provide an estimate of
costs/what type of finance
they need

Guide business/help set

objectives/checklist/monito
ring
Support loan
applications/attract investors
Gets out of date quickly

 sections of a business plan

 Executive summary
 Business aims OR targets OR vision statement OR objectives
 Marketing OR any element of mix, e.g. pricing, product, place or
 promotion
 •Market research OR Competition OR market analysis•
 Financial, e.g. cash flow forecast OR budgets
 Human resources OR number of employees OR skills needed
 Production details
 Organisational OR management details, e.g. structure, type of
 business, name and location of business
  Why governments support business start-ups?
 Knowledge [2×1] award 1 mark per reason
Points could include:
• Reduce unemployment
• Increase competition / develop market
• Increase output / economic growth
• Generate new ideas
• Can become large / important businesses in future
• Source of tax
 To encourage job creation as unemployment is a problem.
 To help more businesses get started to encourage further economic growth.
Increased
 taxation and decreased government spending on welfare payment

 How governments support business start-ups?

 Organise advice
 Provide low cost premises
 Provide loans at low interest rates
 Give grants for capital
 Give grants for training
 Reduced tax payments

Knowledge Analysis Application Evaluation

To increase employment as Peter will need to employ By giving Peter a grant to start
other workers to convert vans his own business

this will reduce unemployment

in the area and increase
incomes
provide business advice to
potential entrepreneurs, giving
them information useful in
staring a venture, including
legal and bureaucratic ones
provide land at low cost or low
rent for new firms
provide financial aid to new
firms for investment
provide financial aid for
workforce training
high taxes are a disincentive for
new firms to set up.
Governments can thus
withdraw or lower taxation for
new firms for a certain period of
time

 Measuring Business Size

  Number of employees: larger firms have larger workforce employed
 Value of output: larger firms are likely to produce more than smaller
ones
 Value of capital employed: larger businesses are likely to employ much
more capital than smaller ones

 Limitation of using ‘number of employees’ as a method of measuring

business size.
 Knowledge: [2 × 1] – award 1 mark per limitation.
 Points could include:
 Not account for capital intensive business/could be labour intensive
 Could have many part – time employees
 Gives no indication of value/market share/revenue

 Definition of “internal growth”

 Internal growth occurs when a business expands its existing operations.
 Definition of “external growth”
 External growth is when a business takes over or merges with another
business.
 It is often called integration as one business is integrated into another
one

 Definition of “takeover”
 A takeover or acquisition is when one business buys out the owners of
another business, which then becomes part of the ‘predator’ business
(the business which has taken it over
 A merger is when the owners of two businesses agree to join their
businesses together to make one business.

 Benefits of a takeover
 Knowledge [1] – award 1 mark for identification of relevant issue(s).
Positive or negative points allowed [max 1]
 Application [1] – award 1 mark if relevant reference made to AB’s
business
 Analysis [2] – award up to 2 marks for relevant development of point(s)
 Evaluation [2] – justified decision made as to whether the takeover is in
the best interests of the employees.

Knowledge Analysis Application Evaluation

employees may gain as so able to pay for basic needs

jobs more secure
opportunities for
promotion or more
responsibility or increased
pay as it will be a larger
business [k]
loss of benefits as pay or so employees might not be
conditions offered by rival able to earn as much
business might not be as
generous
employees might have as both
less opportunities for businesses will have
promotion or employees looking for roles so
responsibility could become demotivated
loss of some jobs as some tasks might be
duplicated in the two
businesses
risk of job losses is much as the economy is in recession so a takeover
greater [ap] so cost cuts or might not
redundancy is more likely benefit
employees as
they
might face
greater job
insecurity
hich in a recession they AB has $200m in loans so it
might be unable to repay might be safer
to be taken over
by a larger
business
Increase in share
price/money made from
sale of shares [k]
Larger company might
mean more secure
investment / more capital
to invest [k]
Level of influence as likely to have less say in
larger company

 Disadvantages of ‘takeover’
 employees will be concerned about job security in short run, although the
merger might
create firmer job prospects for others
 management might find extra complexity in work and be concerned about
their position
and status in new organisation
 owners would probably gain if the terms of the takeover were attractive
 country [Government] might gain through increased tax receipts from a larger
business
  consumers might be affected by changes in prices or a different range or
choice of
products.

 Definition of “merger”
 A merger is when the owners of two businesses agree to join their
businesses together to make one business.


 Definition of “market share”

 Clear understanding [2] Percentage of the total market sales [1] held by
one brand or business [+1]
 Some understanding [1] e.g. share of all sales made

 Definition of “horizontal merger”

 Horizontal integration is when one business merges with or takes over
another one in the same industry at the same stage of a production

 Benefits of “horizontal merger”

 Reduces number of competitors in the market, since two firms become
one.
 Opportunities of economies of scale.
 Merging will allow the businesses to have a bigger share of the total
market.

 Definition of “vertical integration”

 Vertical integration is when one business merges with or takes over
another one in the same industry but at a different stage of production.
 Vertical integration can be forward or backward

 Definition of “backward vertical integration”

 When one firm merges with or takes over another firm in the same
industry but at a stage of production that is behind the ‘predator’ firm.
 For example, when a firm that manufactures furniture merges with a
firm that supplies wood for manufacturing furniture.

 Benefits of “backward vertical integration”
 Merger gives assured supply of essential components.
 The profit margin of the supplying firm is now absorbed by the
expanded firm.
 The supplying firm can be prevented from supplying to competitors.

 Definition of “forward vertical integration”
 When one firm merges with or takes over another firm in the same
industry but at a stage of production that is ahead of the ‘predator’ firm.
 For example, when a firm that manufactures furniture merges with a
furniture retail store.
 
 Benefits of “forward vertical integration”
 Merger gives assured outlet for their product.
 The profit margin of the retailer is now absorbed by the expanded firm.
 The retailer can be prevented from selling the goods of competitors.

 Definition of “conglomerate integration”

 Conglomerate integration is when one business merges with or takes
over a business in a completely different industry.
 This is also known as diversification.
 Spread business risk [k] so if one product doesn’t sell, others might [an]

 benefits of “conglomerate integration”

 Conglomerate integration allows businesses to have activities in more
than one country.
 This allows the firms to spread its risks.
 There could be a transfer of ideas between the two businesses even
though they are in different industries.
 This transfer of ideas could help improve the quality and demand for the
two products.

 Drawbacks of “growth”
 Difficult to control staff: as a business grows, the business organisation
in terms of departments and divisions will grow, along with the number
of employees, making it harder to control, co-ordinate and
communicate with everyone
 Lack of funds: growth requires a lot of capital.
 Lack of expertise: growth is a long and difficult process that will require
people with expertise in the field to manage and coordinate activities
 Diseconomies of scale: this is the term used to describe how average
costs of a firm tends to increase as it grows beyond a point, reducing
profitability.

 Why some business stays small?

 personal wishes / owners’ objectives
 size of market / niche Lack of demand/market size
 lack of finance/ Lack of capital for investment
 avoid diseconomies of scale / communication issues / co-ordination
 Lack of demand/market size
 Offers a personal service
 Close contact with customers
 Close contact with employees
  Wants to keep the business in family ownership/control
 Easier to control
 Less stressful
 each explanation – 2 of which must be applied to this context.

Knowledge Analysis Application Evaluation

A lack of demand Without a large demand there  as the motorbikes may

is no point in trying to expand not have a large
number of potential
customers in the local
area
 to sell large number of
motorbikes and so the
business will remain
small
To stay as her own and she does not want anyone  as Bethany has run the
boss telling her what to do or business successfully
disagreeing with her decisions for 10 years

 The business idea is all

her own and so she
does not want to have
anyone else influencing
her decisions about which
treatments to offer clients

 Why some businesses fail?

 Knowledge [2 × 1] award 1 mark per reason
 Relevant points might include:
 Lack of demand / recession
 Poor management skills / poor planning
 Change in tastes
 Financial problems e.g. lack of cashflow
 Change in legal controls
 Action of competitor
 Change in economic situation e.g. rise in interest rates, taxes

Knowledge Analysis Application Evaluation

Poor management this is a common cause of

business failure for new
firms. The main reason is
lack of experience and
planning which could lead to
bad decision making. New
entrepreneurs could make
mistakes when choosing the
location of the firm, the raw
materials to be used for
production, etc, all resulting
in failure

Over-expansion: this could lead to diseconomies

of scale and greatly increase
costs, if a firm expands too
quickly or over their optimum
 level
Failure to plan for the demands of customers keep
change changing with change in tastes
and fashion. Due to this, firms
must always be ready to
change their products to meet
the demand of their customers.
Failure to do so could result in
losing customers and loss. They
also won’t be ready to quickly
keep up with changes the
competitors are making, and
changes in laws and regulations
Poor financial if the owner of the firm does not
management manage his finances properly, it
could result in cash shortages.
This will mean that the
employees cannot be paid and
enough goods cannot be
produced. Poor cash flow can
therefore also cause businesses
to fail

 Definition of ‘sole trader’

 Ownership of business in the hands of one individual/person.
 Clear understanding [2] e.g. ownership of business in the hands of one
individual/person.
 Some understanding [1] e.g. run/operated by one person.
 Features of a sole trader business
 Ownership by one person
 Unlimited liability
 Unincorporated business.
 Advantages of a Sole Trader (knowledge points)
 Keeps all the profit
 Own boss/has complete control
 Does not have to give information about his business to anyone else/secrecy in
business matters
 Has freedom to choose own holidays/hours of work/prices to charge
 Has close contact with customers

Knowledge Analysis Application Evaluation

Keeps all the profit So if successful, will make From his painting business
more money
Own boss – has complete So can make his own Of what prices he should sell his
control decisions more quickly paintings, where should he sell,
how should he sell his paintings
(Online, art gallery etc.)
Does not have to give So competitors have less Details about the number of
 information about his information about his business paintings sold and the value of
business or himself secrets. annual sales, profitability of his
A sole trader’s personal details painting business can remain
also remain private, whereas secret
certain details relating to
company directors are
disclosed publicly
Has freedom to choose He can live his life as per his This can enable him to balance
own holidays/hours of wish by planning how much to his lifestyle between his painting
work/prices to charge work and when to take a business and his personal life.
holiday. He can also decide as His decision of giving credit
whether to offer 3 months terms to a customer based on
credit terms to customers. his own judgement about a
customer may enable him to
gain more customers and also
increase more customers and
sales.
Has close contact with So, he can respond quickly to And thus, give them better
customers needs of the customers service and satisfaction about
what type of paintings do they
like to buy or when do they
want a specific painting to be
delivered

 Disadvantages of a Sole Trader (knowledge points)

 Unlimited liability
 Limited sources of finance/difficult to raise funds
 May have limited range of skills
 No continuity/if ill who will take control
 Has to work long hours/difficult to take holidays
 No one to share the risks/losses with
 Not able to benefit from economies of scale

 Definition of ‘limited liability’

 Limited liability means that the liability of shareholders in a company is
limited to only the amount they invested.
  Clear understanding [2]: Liability of shareholders in a company is only
limited to the amount they invested OR shareholders in a limited liability
company which fails only risk losing the amount they have invested in the
company and not any of their personal wealth
 Some understanding [1]: Cannot lose personal assets or only lose amount
invested

 Definition of ‘unlimited liability’

 Unlimited liability means that the owners of a business can be held
responsible for the debts of the business they own.
 Their liability is not limited to the investment they made in the business.

 Definition of ‘partnership’
 Partnership is a form of business in which two or more people agree to
jointly own a business
 A clear definition indicating that two or more people own the business. [2]
Partnership is an association between people who agree to own and run a
business together. [2]
 Weak definition showing some relevant knowledge. [1]

 Features of “partnership”
 Knowledge [2 × 1] one mark per feature. Points might include:
 share of risk and rewards
 Share of profits
 Decision making
 Share of ownership
 Flexibility
 Business privacy
 Legal agreement between 2 or more people
 Owned and financed by partners
 Profits shared
 Unlimited liability [usually]
 Unincorporated
 Share risk of failure
 Definition of Partnership agreement
 A partnership agreement is the written and legal agreement between
business partners.
 It is not essential for partners to have such an agreement but it is
always recommended.

 Advantages of ‘partnership’
 raise additional capital;
 additional expertise in business;
 share losses.
 Additional assets could now be purchased.
 The responsibilities of running the business can be shared.
 Absences and holidays did not lead to major problems as one of the
partners was always available.
  Fewer legal formalities when setting up and running the business
 Partners can work in the business/help with
decisions/holidays/responsibility shared/more ideas/ additional
specialisms/skills of partners
 disadvantages of ‘partnership’
 have to share profits
 partners share control
 conflict between partners
 No continuity
 Responsible for actions of other partners
 Slower decision making
 Profit will have to be shared.

Knowledge Analysis Application Evaluation

Increased capital to put into This will reduce the need all partners will invest
the business to borrow money, saving
interest payments,
More ideas [k which could make business
more competitive
More capital (than sole trader which may help solve cash
flow
problems [app] so less
need to borrow money
Share responsibilities OR so have time to focus on as Corey
workload OR Specialisation OR what they are good at focuses on finance
more skills
Share risk OR losses

Fewer legal formalities when

setting up
Partnerships can create strains
in the following areas –
division of Work
loads/responsibilities/control/de
cision making/personal
conflicts.

 what is a limited company?

  Clear knowledge [2]: business which has a separate legal identity/status to
its owners OR a business whose owners are legally responsible for its
debts only to the extent of the amount of capital they invested.
 Some knowledge [1]: e.g. able to sell shares or owners have limited
liability

 Definition of ‘private limited company’

 Private limited companies are businesses owned by shareholders but they
cannot sell shares to the public
 Clear understanding [2] e.g. a business whose shares cannot be sold to
the general public [2] Or shares only sold to family and friends [2]
 Some understanding [1] e.g. outlines general features of limited
companies e.g. have limited liability/separate legal identity from
owners/can sell shares/incorporated

 Features of ‘private limited companies’

 legal identity in own right
 owners have limited liability
 restriction placed on sale of shares
 owned by individuals.

 Advantages of ‘private limited company’
 Shares can be sold to a large number of people
 All shareholders have limited liability
 The people who started the company are able to keep control of it as long
as they do not sell too many shares to other people.
 shareholders in a company have less risk than sole traders and partners
 more capital from shareholders
 limited liability
 continuity
 disadvantages of ‘private limited company’
 The shares in a private limited company cannot be sold or transferred to
anyone else without the agreement of the other shareholders
 The accounts of a company are less secret than for either a sole trader or
a partnership
 the company cannot offer its shares to the general public. Therefore, it will
not be possible to raise really large sums of capital to invest back into the
business
 sale of shares restricted to family and friends
 accounts not private any more
 more legal requirements

 definition of ‘public limited’

 Clear understanding [2] e.g. a company whose shares can be sold on the
stock exchange OR identifies specific features of public limited company
e.g. shares issued to and owned by public/shares sold freely on the stock
market.
  Some understanding [1] e.g. identifies general features of limited
companies e.g. have limited liability/separate legal identity from
owners/can sell shares/freedom of access to financial statements.
 Do not accept private sector on its own.
 features of ‘public limited company’
 shares issued to and owned by public
 shares sold freely on the stock market
 freedom of access to financial statements

 advantage of ‘public limited company’
 able to sell shares on stock market - so no limit to potential number of
investors
 access to more sources of finance – so easier to raise funds to expand
 limited liability - so investor only liable for amount invested /could be
more likely to invest in company as risk limited
 separate legal identity -accounts separate to owners, so if one dies,
business can continue
 high status -so easier to attract suppliers who will sell to them on credit
OR banks more likely to lend to them as seen as lower risk

 disadvantage of ‘public limited company’

 Accounts published -have to disclose accounts, so less able to keep financial details
secret from rivals
 many legal requirements/regulations, which is expensive and time consuming
 selling shares expensive because shares need to be listed on the stock market
 shares are freely traded so there is a greater risk of takeover/danger that original
 owners might lose control
 Divorce of ownership and control

Knowledge Analysis Application Evaluation

Access to greater sources of so help fund expansion

finance
Greater prestige/status so might be able to
Can give a company a more attract better
prestigious profile OR status [k] managers/employees
More legal requirements to
meet
Already have limited liability as private limited so is there
company much benefit
[eval]
business is already successful so might have funds as profits have increased
for expansion already
Greater Risk of takeover/
Cannot control who buys the
shares
A public limited company can This is a his will allow it
issue new shares to the public cheaper way to raise this to raise the additional
/Shares tradeable on the stock necessary capital for the
exchange expansion as interest will
not
need to be paid on the
finance

 Definition of ‘annual general meeting’

 An Annual General Meeting is a Legal requirement for all companies.
Shareholders may attend and vote on who they want to be on the Board
of Directors for the coming year.

 Functions of ‘annual general meeting’

 AGM is the means by which communications between directors and
shareholders directly occur on a two-way basis.
 Shareholders are informed as to what has happened and directors are
answerable for their actions.
 Resolutions formally approved and accounts accepted.
 Discussion of strategic issues but not operational ones.
 The meeting also acts as the basis for election of company officers
[board members but not managers].
 elect OR re-elect directors/approve OR present accounts/vote on
 resolutions e.g. approve directors pay OR agree dividends/opportunity
for shareholders to question the board OR inform performance.
 [2–1] knowledge of functions
 [2–1] analysis [explanation] of functions

 Definition of ‘dividend’
 Dividends are payments made to shareholders from the profits (after
tax] of company. They are the return to shareholders for investing in
the company
 Dividends are the profit after tax paid out to shareholders of the
business. [2]
 Good knowledge [2] e.g. Payment to shareholders [1] from profits of a
company [+1] Return to shareholders for investing in the company [2]
 Some knowledge [1] e.g. Payment to shareholders
 Answers like ‘money paid to shareholders’/ ‘reward for owning shares’
[1]
 MUST refer to profit as the source for second mark.

 Definition of Unincorporated business

 An unincorporated business is one that does not have a separate legal
identity. Sole traders and partnerships are unincorporated businesses
 Definition of Incorporated businesses
 An Incorporated business are companies that have separate legal
status from their owners.
 Definition of Shareholders
 Shareholders are the owners of a limited company. They buy shares
which represent part ownership of the company.

 Definition of ‘franchise’
 A franchise is a business based upon the use of the brand names, promotional
logos and trading methods of an existing successful business.
 The franchisee buys the licence to operate this business from the franchisor.
 Clear understanding [2]: A business based upon the use of the brand names,
promotional logos and trading methods of an existing successful business.
 The franchisee buys the licence to operate this business from the franchisor.
 A business system where entrepreneurs buy the right to use the name, logo
and product of an existing business.
 Some understanding [1]: Using the name or logo of another business

 Advantages of ‘franchise’ to franchisor

 The franchisee buys licence from the franchisor to use the brand name
 Expansion of the franchised business is much faster than if the
franchisor had to finance all new outlets
 The management of the outlets is the responsibility of the franchisee
 All products sold must be obtained from the franchisor

 Disadvantage of franchise to franchisor

 Poor management of one franchised outlet could lead to a bad
reputation for the whole business
 The franchisee keeps profits from the outlet

 Advantages of franchise to franchisee

 The chances of business failure are much reduced because a well-
known product is being sold
 The franchisor pays for advertising
 All supplies are obtained from a central source - the franchisor
 There are fewer decisions to make than with an independent business -
prices, store layout and range of products will have been decided by the
franchisor
 Training for staff and management is provided by the franchisor
 Banks are often willing to lend to franchisees due to relatively low risk

 Disadvantages of franchise to franchisee

 Less independence than with operating a non-franchised business
 May be unable to make decisions that would suit the local area , for
example, new products that are not part of the range offered by the
franchisor
  Licence fee must be paid to the franchisor and possibly a percentage of
the annual turnover

Knowledge Analysis Application Evaluation

Franchisee pays fee to so franchisor does not have

franchisor to use the brand to raise as much capital
name
Can expand more quickly (than
if franchisor had to
finance all new outlets)
Franchisees are responsible for so franchisor has time to
day-to-day management focus on more strategic
objectives
Franchisee should have local Which could help increase
knowledge sales/revenue
Franchisor receives a
percentage of revenue/profits
Franchisor shares risks with
franchisee
Brand/customer awareness
increases
All products sold must be
obtained from the franchisor
Wrong decision or poor reducing sales/revenue
management by one franchisee
can damage reputation for
whole business
Franchisor may have to provide which will increase
training and support franchisors costs

 Definition of ‘joint venture’

 A joint venture is where two or more businesses start a new project
together, sharing capital, risks and profits
 Clear understanding [2]: when two or more businesses agree to start
a(new) project together so share risks OR project)
 Clear understanding focusing on key features [2].
 Some understanding e.g. allows someone else to sell their products [2].
 Advantages of ‘joint venture’
 Provide access to new markets
 Share costs
 Access to other specialist staff and technology
 Share risks
 Different management styles or objectives
 Skills and expertise of partners differ
 Any mistakes might damage reputation of both firms
 Disadvantage of ‘joint venture’
  A

Knowledge Analysis Application Evaluation

Access to new markets increasing brand of its range of cereals

awareness
so Access to local expertise /
better able to meet ideas [k] e.g. cultural
customer requirements / knowledge as tastes differ
ensure sales
Wider range of contacts / so might be able to
better access to obtain
resources [k] cheaper ingredients
[app]
Increased capital / share so less risk
costs
Increased capacity without affecting so can meet expected
supply for other growth in demand
markets
Way to avoid government so able to maximise
restrictions potential sales
Less competition so one less rival as working with local
business
Economies of scale

Build reputation

 Definition of ‘public corporation’

 A public corporation Is a business in the public-sector that is owned and
controlled by the state(government).
 Clear understanding [2]: A business that is owned and controlled by the
government/state
 Some understanding [1]: E.g. run by government/state

 Advantages of ‘public corporation’

 Some industries are considered so important that government
ownership is thought to be essential. These include water supply and
electricity generationin many countries.
 If industries are controlled by monopolies because it would be wasteful
to have competitors - two sets of railway lines to a certain town, for
example - then these natural monopolies are often owned by the
 government. It is argued that this will ensure consumers are not taken
advantage of by privately owned monopolists.
 If an important business is failing and likely to collapse, the government
can step in to nationalise it. This will keep the business open and secure
jobs.
 Important public services, such as TV and radio broadcasting, are often
in the public sector. Non-profitable but important programmes can still
be made available to the public
 Disadvantages of ‘public corporation’
 There are no private shareholders to insist on high profits and
efficiency. The profit motive might not be as powerful as in private
sector industries.
 Government subsidies can lead to inefficiency as managers will always
think that the government will help them if the business makes a loss. It
may also be unfair if the public corporation receives a subsidy but
private firms in the same industry do not.
 Often there is no close competition to the public corporations. There is
therefore a lack of incentive to increase consumer choice, increase
efficiency or even improve customer service.
 Governments can use these businesses for political reasons, for
example, to create more jobs just before an election. This prevents the
public corporations being operated like other profit-making businesses
 Definition of ‘business objective’
 Business objectives are the aims or targets that a business works
towards.
 Clear understanding [2] e.g. a statement of a specific target that a
business works towards
 Some understanding [1] e.g. target or goal
 Importance of ‘business objectives’
 To gain a good reputation
 To keep customer loyalty/customer satisfaction/meet customer needs
 To attract new customers
 To reduce customer complaints
 Unique Selling Point (USP)/Brand Image
 Added Value.
 Benefits to the business of having ‘business objective’
 Gives sense of purpose and direction
 Goal to be achieved
 Measure of success
 Helps decision making and planning
 Importance of business objective – “high market share’
 Increased growth in the market but could grow without taking a larger
market share as market itself is growing.
 May have to accept lower profit in a competitive market to increase
market share
 Improved brand image / good reputation from having a higher market
share encourages sales
 Increased influence over suppliers
  May have to reduce prices or increase marketing costs to attract more
customers
 Possibly have more control over prices if more dominant in the market
 definition of ‘growth’
 once a business has passed its survival stage it will aim for growth and
expansion.
 This is usually measured by value of sales or output. Aiming for
business growth can be very beneficial.
 A larger business can ensure greater job security and salaries for
employees.
 The business can also benefit from higher market share and economies
of scale.
 Definition of ‘profit’
 Profit is total income of a business (revenue) less total costs
 Importance of business objective – ‘profit’
 Dividends should be paid to shareholders to reward the investment or
shareholders may want to sell their shares. However, it is a private
limited company and shareholders can only sell shares to family and
friends so there will be fewer opportunities to sell shares than if it is a
public limited company.
 Will need to make a profit in the long term or will not attract more
investors in the future.
 Profit should be made so that it may be retained for future investment
without the need to borrow capital

 Definition of ‘market share’
 Market share is the percentage of total market sales held by one brand
or business.
 Proportion of total market sales accounted for by one business.
 market share = total sales / individual sales
 Clear understanding [2] e.g. percentage of the total market sales [1]
held by one brand or business [+1] OR business sales/total market sales
× 100
 Some understanding [1] e.g. share of all sales made/percentage of
customers a business has
 Importance of business objective – “high market share’
 Need to make a profit in order to be worth staying in business but
survival is usually an objective when the business is first starting out or
if times are difficult such as in a recession, when expanding the
business or facing increasing competition.
 In the long term this may not be an objective – other objectives become
more important

 Ways to increase ‘market share’(knowledge)

 takeover rival business
 offer new routes
 spot new trends or market gaps quicker than rivals
 enter new markets
  offer better customer service (to maintain customer loyalty)
 get existing customers to buy more
 sell through new channels

 Advantages of business objective being an environmentally Friendly

business
 Improved brand image– may attract ethical customers – increase sales
 Less likely to break government regulations on environmental damage
 Employees may prefer to work for an ethical business
 Avoids WA having to deal with pressure groups
 Disadvantages of business objective being an environmentally
friendly business
 May have a higher cost –higher price for furniture
 Less competitive especially if competitors do not use sustainable wood

 Advantages of business objective - ‘increasing market share’
 increase sales – higher revenue and profit
 More dominant in the market – more influence on price
 Disadvantages of business objective – ‘increasing market share’
 Increased cost of marketing
 Marketing costs may be higher than improvement in sales and revenue
 Increase in sales may not increase market share if market is growing at
the same rate
 Advantages of business objective - ‘survival’
 Avoids making a loss – costs are covered
 Easier to achieve than other objectives – just needs to aim to breakeven
 Protects family investment
 disadvantages of business objective - ‘survival’
 Long term not good as low / no retained profit this is usually a short-term
objective
 May need to borrow externally if low profit


Knowledge Analysis Application Evaluation

To gain a good reputation because then customers Customers will not use a
will tell their friends about photography business
the service very often and Thao and
and this will increase sales Liang will rely on gaining new
revenue customers for wedding
photographs from hearing
about them from other
happy customers
Lower prices could but might lead to lower
increase sales revenue as people only buy
cameras [app] because
they are cheaper
If larger share of a smaller sales volume might have as people now
market fallen have cameras in phones
Larger market share due to educing unit cost
increased sales volumes may increasing margins
lead to purchasing economies
of scale
Stronger brand recognition which could improve
competitiveness
More power to charge higher
prices

 Definition of ‘social enterprise’

 A social enterprise has social objectives as well as an aim to make a
profit to reinvest back into the business
 Clear understanding [2]: e.g. business with both social objectives as well
as aim to make a profit
 Some understanding [1] e.g. not all about profit

 Why business objectives could change

 A business set up recently has survived for three years and the owner
now aims to work towards higher profit.
 A business has achieved higher market share and now has the
objective of earning higher returns for shareholders.
 A profit-making business operates in a country facing a serious
economic recession so now has the short-term objective of survival.

 Definition of ‘stakeholder’
 A stakeholder is any person or group with a direct interest in the
performance and activities of a business.
 Clear understanding [2]: any person or people with a direct interest in
the performance and activities of a business
 Some understanding [1]: someone affected by what a business does

 Features of stakeholders
 Owners (Internal)
 They put capital in to set up and expand the business.
 They will take a share of the profits if the business succeeds.
 If the business does not attract enough customers,
 they may lose the money they invested.
 They are risk takers.
 Workers (Internal)
 They are employed by the business.
 They have to follow the instructions of managers and may need training
to do their work effectively.
 They may be employed on full- or part-time contracts
 and on a temporary or permanent basis.
  If there is not enough work for all workers, some may be made
redundant (retrenchment) and told to leave the business

 Managers (Internal)
 They are also employees of the business and control the work of other
workers.
 They take important decisions.
 Their successful decisions could lead to the business expanding.
 If they make poor decisions, the business could fail.
 Customers (External)
 They are important to every business. They buy the goods that the
business produces or the services that the business provides.
 Without enough customers, a business will make losses and will
eventually fail.
 The most successful businesses often find out what consumers want
before making goods or providing services - this is called market
research.
 Government (External)
 It passes laws to protect workers and consumers.
 It is responsible for the economy of the country.
 The whole community (External)
 The community is greatly affected by business activity.
 For example, dangerous products might harm the population.
 Factories can produce pollution that damages rivers, the sea and air
quality.
 Businesses also create jobs and allow workers to raise their living
standards.
 Many products are beneficial to the community, such as medicines or
public transport
 Banks (External)
 They provide finance for the business’s operations

 Objectives of stakeholders
 Owners/shareholders
 Shareholders are entitled to a rate of return on the capital they have
invested into the business and will therefore have profit maximization
as an objective.
 Business growth will also be an important objective as this will ensure
that the value of the shares will increase.
 Workers
 Contract of employment that states all the right and responsibilities to
and of the employees.
 Regular payment for the work done by the employees.
 Workers will want to benefit from job satisfaction as well as motivation.
 The employees will want job security– the ability to be able to work
without the fear of being dismissed or made redundant.
 Managers
  Like regular employees, managers too will aim towards a secure job.
 Higher salaries due to their jobs requiring more skill and effort.
 Managers will also wish for business growth as a bigger business means
that managers can control a bigger and well known business.
 Customers
 Price that reflects the quality of the good.
 The products must be reliable and safe. i.e., there must not be any false
advertisement of the products.
 The products must be well designed and of a perceived quality.
 Government
 The government will want the business to grow and survive as they will
bring a lot of benefits to the economy.
 A successful business will help increase the total output of the country,
will improve employment as well as increase government revenue
through payment of taxes.
 They will expect the firms to stay within the rules and regulations set by
the government.
 The whole community
 the banks will expect the business to be able to repay the amount that
has been lent along with the interest on it. The bank will thus have
business liquidity as its objective.
 The business must offer jobs and employ local employees.
 The production process of the business must in no way harm the
environment.
 Products must be socially responsible and must not pose any harmful
effects from consumption.

 Conflicts of stakeholder’s objective
 As all stakeholders have their own aims they would like to achieve, it is
natural that conflicts of stakeholders’ interests could occur.
 Therefore, if a business tries to satisfy the objectives of one
stakeholder, it might mean that another stakeholders’ objectives could
go unfulfilled.

Knowledge Analysis Application Evaluation

Employees/management should pay fair wages

or offer good conditio
Suppliers pay fair price/pay on time
[an
Community

Government paying its taxes on time/not as create jobs in more towns

do tax avoidance
Customer do not exploit them by
charging high prices
Case Study – Activity
1. Case Study 1 -Rakesh’s bakery
Rakesh owns a small bakery selling bread, cakes and biscuits. His business is just making
enough money to survive. His wife, Neeta, had the idea of serving customers tea and coffee
at two small tables that could be fitted into the bakery shop. ‘Customers will pay more for
each cake and biscuit if we sell them with tea or coffee - just like a little cafe.’ Rakesh
bought some second-hand cafe equipment and furniture and tried what Neeta had
suggested. She was right! Some of his customers not only bought teas and coffees but they
paid higher prices for the cakes and biscuits they bought as they were served them on a
plate! Rakesh had increased the value added to the flour, sugar and butter he used to
make these cakes and biscuits.
Activity 1.3
Refer to the case study above.
a. If the best-selling cake in this bakery uses 30 cents' worth of flour, sugar and butter
and Rakesh sells each one for $1, calculate the value added,
b. If customers are prepared to pay $1.50 when this cake is served on a plate at a table
within the bakery, what is the new value added per cake?
c. Does the opening of the small cafe mean that Rakesh must have increased his
weekly profit? Explain your answer.

2. Case Study 2- COMPARING THE THREE ECONOMIC SECTORS – India and

Papua New Guinea
The relative importance of the three economic sectors in. India is very different to that in
Papua New Guinea. India does not have large reserves of primary products (natural
resources), whereas Papua New Guinea is rich in mineral deposits including copper, gold
and oil and also has extensive forests covering much of the country producing timber
products. Extracting these valuable resources makes a huge contribution to the economy of
Papua New Guinea. India's textile, steel and car manufacturing industries are rapidly
growing, but the secondary sector in Papua, New Guinea is small- palm oil processing,
plywood production and wood chip production are the most important secondary industries.
If Papua, New Guinea developed a furniture industry making tables and chairs from the
timber extracted from its forests, secondary production could increase. The tertiary sector
is expanding in both countries tourism is starting to gain importance in Papua New Guinea
but it is still in its early stages of development and its main service industries are linked to
the transport and export of its minerals. Providing IT services to businesses all over the
world is India's largest service industry.
Activity 2.2
a)Explain what tertiary production means by using examples from the case study,
b) Explain two reasons why the primary sector is relatively more important to Papua ,New
Guinea than to India.
c) In 2017, it was estimated that 47 per cent of Indians worked in the primary sector-
mainly in agriculture. Why was this sector the least important of the three in terms of
output?
d) Discuss the likely impact on Papua New Guinea if its copper and gold mines become
exhausted (the copper and gold runs out!).

3. Case Study 3: Bangladesh - the importance of economic sectors over time

In 1970, Bangladesh had an economy largely based on agriculture. A high proportion of the
population worked in farming, either to produce crops for their own consumption or to sell
in local markets. Secondary manufacturing activities were not very important and the
tertiary sector was also small as incomes were very low and people had little spare cash to
spend on services. By 2017, Bangladesh had undergone significant changes. Although 40
per cent of the workforce still works in agriculture, primary production of goods such as
jute, tobacco and food has fallen in relative terms. Manufacturing industries - mainly food
processing and clothing - have expanded rapidly. Tertiary services such as
telecommunications, transport and finance now contribute approximately half of total
national output. Economic sectors in Bangladesh- World Bank estimates of % share of GDP

Activity 2.3
refer to the case study above.
a) Explain two possible reasons why the relative importance of primary output has fallen.
b) Would workers who formerly worked in agriculture find it easy to obtain jobs in the
secondary or tertiary sectors of industry? Explain your answer.
c) What do you expect to happen to the relative importance of tertiary industries if incomes
continue to rise in Bangladesh? Explain your answer.

CASE STUDY 3:
Business plan for Pizza Place Ltd
Name of business Pizza Place Ltd
 Type of organisation Private limited company
Business aim To provide a high-class takeaway pizza service including home
delivery
Product High-quality home-cooked pizzas
Price Average price of $8 with $2 delivery charge
Market aimed for Young people and families
Market research Research in the area conducted using questionnaires
undertaken and the Also, research into national trends in takeaway sales and local
results competitors
Results of all research in the appendix to this plan
Human Resources The two business owners to be the only workers to be employed
plan initially
Details of business Peter Yang - chef of 15 years' experience
owners Sabrina Hsiu - deputy manager of a restaurant for three years
Production details Main suppliers - P&P Wholesalers
and business costs Fixed costs of business - $50 000 per year
Variable costs - approximately $2 per unit sold
Location of business Site in shopping street (Brunei Avenue) just away from the town
centre
Leasehold site (10 years)
Main equipment Second-hand kitchen equipment - $6000
required Second-hand motorbike - $3000
Forecast profit See financial appendix to this plan
Summary: In the first year of operations the total costs are
forecast to be $75000 with revenue of $105000
Predicted profit = $30000
Level of output to break even - 10 000 units per year
Cash flow See financial appendix to this plan
Due to the high set-up and promotion costs there will be
negative
cash flow in the first year
Finance $10 000 invested by each of the owners
Request to bank for a further $15000 plus an overdraft
arrangement of $6000 per month
Activity 3.1
Read managers plan for Pizza each of Place the Ltd following above. Explain why, if you
were a bank manager reading this plan , each of the following would be important to you
before you gave the entrepreneurs a loan:
• market research results
• experience of business owners
• forecast profit.
Activity 3.2
Draw up another business plan. It should be based on your own idea for a business that
is operated within your school or college (for example, a stationery shop, confectionery
Store or cake shop)
Activity 3.3
Research in the background and business activities of two well that -known entrepreneurs
in your own country. Identify the personal characteristics that you believed that each
entrepreneur has which have helped them to succeed. Write a brief report on each one and
prepared to present your reports to the rest of the class.

Business Focus

CASE STUDY 1: Division of labour at McDonald’s

The cooking of food in all McDonald's restaurants is broken down into small, repetitive
tasks. These include serving customers, pouring drinks, cooking French fries and cooking
burgers. These separate tasks allow workers to become very efficient and skilled in them.
All workers are given much training in the tasks that they will become skilled at. The speed
and efficiency of McDonald's workers means that customers are served very quickly with
freshly cooked food. Costs are kept very low and this helps to keep prices low. McDonald’s
and other fast-food restaurants often make great efforts to reduce the high labour turnover
in this industry; this means
they are trying to reduce the high number of workers that leave the industry each year.
Discussion points
•Why do you think a large business such as McDonald’s uses specialisation?
•Think about as many advantages as you can to McDonald’s of using specialisation.
•If you owned a fast-food restaurant, consider two ways in which you could increase the
value added to the food bought in by the restaurant.

CASE STUDY 2: Tourism in Mauritius

Mauritius is a small island in the Indian Ocean with a land area of just 2000km 2. The
Mauritian economy is dominated by the tertiary sector. In 2017, tourism, finance and other
services accounted for 74 per cent of total
national output (gross domestic product). In contrast, the secondary sector accounted for
22 per cent and primary industries- mainly sugar production - just 4 per cent. The
government is planning for 2 million foreign visitors and the number of tourists is increasing
by 9 per cent per year. These tourists spend a great deal of money on food, drink, travel
and holiday gifts. Air Mauritius is one of the businesses that has benefited greatly from the
expansion of tourism in the country the airline is partly owned by private owners and the
Mauritian Government. It has won the 'Indian Ocean's Leading Airline’ prize ten times in
recent years. Air Mauritius not only has an extensive network of air routes but it also offers
services to other airlines operating in the region and owns holiday companies such as
Mauritian Holidays UK. There are hundreds of hotels and guesthouses
in Mauritius and these employ many local workers. Some of the largest hotel groups in the
world operate in Mauritius, such as Radisson and Le Meridiem
Discussion points
•Why do you think the primary sector of the Mauritian economy is relatively small?
•Explain three ways in which tertiary sector industries contribute to the Mauritian economy.
•Do you think that increasing numbers of tourists will bring only benefits to Mauritius?
•Why do you think the Mauritian Government still owns a part of Air Mauritius?

CASE STUDY 3: Tata grows through takeovers

The Tata group is one of the largest companies in Asia, measured by value of output. It is
a conglomerate as it operates in marry industries, including electricity
steel, cars, chemicals, hotels and-tea!
Much of Tata’s growth has resulted from takeovers of other businesses. For example, it
bought out Daewoo’s truck division in South Korea and Jaguar Land Rover in the UK. Tata
car making uses many products, such as steel and plastics, produced by other Tata
factories
Each division of the vast Tata empire is given much independence in how it is managed-this
means more decisions are not taken centrally at head office
 The success of Tata's car division is in great contrast to SAAB, the Swedish car maker. This
business failed and stopped making cars. Its new models were too expensive and did not
meet car customers' changing needs- and the business simply ran out of cash.
Discussion points
 What are some of the benefits to Tata of being a ‘conglomerate’?
 Why do you think Tata’s managers have used takeovers as a method of growth?
 If the Tata car division was to take over a chain of garages selling cars, what form of
integration would
this be? Do you think this would be a good idea?

CASE STUDY 4: Private companies ‘go public’

TD Power Systems was incorporated as a private limited company in India in 1999. It has
slowly expanded its range of advanced electric generators. The company needed more
capital to:
 pay back debt
 invest in a huge expansion of its factory in Dabaspet.
The private shareholders decided to sell at least 25 per cent of their shares and convert the
business into a public limited company. This decision raised the capital needed. Reva
Medical makes medical equipment in San Diego, USA. The owners were keen to make the
business 'public' to raise capital for new research into heart medicine equipment. There
was little interest from shareholders in the USA-they were worried the profits from the new
equipment would take several years to be earned. Reva's directors looked abroad- and
decided on converting into a public company in Australia! The sale of shares on the
Australian Stock Market allowed the company to raise the finance needed. The owners of
some young businesses have decided against ‘going public’ because of the cost involved,
the loss of control and the need to make more information public.
Discussion points
 Do you think it would be better to keep a business such as TD Power Systems as a
private limited company or to convert it into a public limited company?
 Why are some business owners reluctant to convert their companies into public
limited companies?
CASE STUDY 5: Toyota makes clear its business objectives
Toyota recently announced a set of objectives to be achieved over the next 35 years to
reduce the negative impact of manufacturing and the driving of vehicles as much as
possible. It has the following objectives:
Producing ever-better cars Toyota is developing electric and hybrid cars that use
reclaimed energy which is the same technology used in Formula 1 cars. Hydrogen-powered
vehicles, such as the Mirai, are also important to Toyota's strategy for promoting
widespread use of fuel cell vehicles. Toyota’s plan is to reduce global average new-vehicle
carbon emissions by 90 per cent by 2050, compared to its 2010 global average.
Using ever-better manufacturing Toyota wants to reduce all carbon emissions from its
factories to zero by 2050. This will be achieved through use of low-carbon methods of
production. It will also use renewable power,
such as wind, biomass and hydroelectric to run its factories.
Enriching lives of communities when driving their cars by establishing a ‘recycling-
based society and systems' through the promotion of a global rollout of end-of-life vehicle-
recycling technologies developed in Japan. Toyota’s other main objective over the next few
years is sales growth in the emerging markets of Asia, Africa and South America. Although
profits are important, Toyota sets quite low earnings targets, preferring to focus on growth
in a competitive market. However, China’s emission and fuel
economy rules have been making it harder for Toyota to achieve its objective of selling 2
million vehicles a year in China by around 2025. In order to meet these regulations, Toyota
will need to sell a large number of smaller cars and hybrid cars.
Discussion points
•Why did Toyota set objectives for the next few years?
•Why do you think developing new models seems to be more important than making as
much profit as possible?
•Which stakeholder groups will be affected- positively or negatively-by Toyota working
towards these objectives?
•Do any of these objectives conflict with each other?
Section - 2

 Definition of “motivation in employees”

 Clear understanding (2) is the reason OR drive OR factor why
employees want to work hard and work effectively OR efficiently for the
business
 Some understanding (1) why employees work hard
 What is meant by highly motivated?
 Highly motivated implies workers have a positive work attitude.
 Alternatively, for two marks, a candidate might answer that motivation is
reflected by job satisfaction, enjoyment and enthusiasm
 Simple idea such as people who try hard or want to do well.
 Importance of “motivating employees”
 Motivation is a complex process and no single form of incentive will always
work.
 E.g. If people basically work for money then praise alone will not be effective.
Clearly praise makes the working situation “better” and thus it must help.
However, if other factors are not present, by itself it will not work.
  An individual might work for following reasons:
 Money – People need money to buy food, water and other items they need to
live.
 Social needs – People just like us likes to feel part of a team, socialise and
make friends.
 Esteem needs – Feeling important, feeling that they are contributing to a
business.
 Job satisfaction – enjoyment from the work and achievements they have
accomplished.
 Security – Feeling of having a secure job with a stable income. (not likely to
lose job etc…)

 Advantages of “motivated workforce”

Knowledge Analysis Application Evaluation

Better productivity This can lead to lower unit

(amount produced per costs of production and so
employee). enable a firm to sell its product
at a lower price
Lower levels of as the employees are content
absenteeism with their working lives
Lower levels of staff This can lead to lower training
turnover and recruitment costs
(the number of
employees leaving the
business)
Improved industrial Less strikes and disputes
relations with trade
unions
Contented workers give the firm a good
reputation as an employer so
making it easier to recruit the
best workers
Motivated employees are
likely to improve product
quality or the customer
service associated with a
product

 Maslow’s hierarchy theory of needs

 Maslow focused on the psychological needs of employees.
  Maslow put forward a theory that there are five levels in a hierarchy of human
needs that employees need to have fulfilled at work.
 hierarchy of needs,
1. physiological needs
2. safety needs
3. social needs
4. self-esteem needs
5. self-actualisation needs
 All of the needs are structured into a hierarchy and only once a lower level of
need has been fully met, would a worker be motivated by the opportunity of
having the next need up in the hierarchy satisfied.
 For example, a person who is dying of hunger will be motivated to achieve a
basic wage in order to buy food before worrying about having a secure job
contract or the respect of others.

Knowledge Analysis Application Evaluation

If the Sales Manager is well paid

and so recognition for a job well
done
might prove to be more of a
motivator according to Maslow.
However, the manager is
responsible for sales and so if
they were paid a commission
related to the amount of sales
then this should motivate them to
make more effort to sell more.
This would probably be the best
method to use because of this

 Maslow’s theory can be summarized as:

 Workers motivated by having each level of need met in order as they move up
the hierarchy
 Levels of needs are: Physical, Security, Social, Self-esteem, Self-fulfilment
 Workers must have lower level of needs fully met by firm before being
motivated by next level

 Drawbacks/ criticism of Maslow’s hierarchy theory of needs

 These needs to not apply to all employees (all humans are different)
 Difficult for managers to determine which needs their employees need

 Herzberg’s motivation theory

 Herzberg had close links with Maslow and believed in a two-factor theory of
motivation.
 He argued that there were certain factors that a business could introduce that
would directly motivate employees to work harder (motivators).
  However, there were also factors that would de-motivate an employee if not
present but would not in themselves actually motivate employees to work
harder (hygiene factors)
 Motivators are more concerned with the actual job itself. For instance, how
interesting the work is and how much opportunity it gives for extra
responsibility, recognition and promotion.
 Hygiene factors are factors which 'surround the job' rather than the job itself
 For example, a worker will only turn up to work if a business has provided a
reasonable level of pay and safe working conditions but these factors will not
make him work harder at his job once he is there.

Knowledge Analysis Application Evaluation

 Herzberg’s motivation theory can be summarized as:

 Workers motivated to work harder by motivators e.g. more
responsibility, more interesting work, more praise for good work
 Workers can become de-motivated if hygiene factors are not met e.g.
pay, working conditions, relationships with colleagues

 Drawbacks / criticism of Herzberg’s motivation theory

 Employees can be motivated by other factors not just money
 There is no guarantee that all employees will work harder if they are paid
more
 There are many jobs where output cannot be measured easily (difficult to
determine if employee actually works hard)

 Taylor’s motivation theory

 Taylor based his ideas on the assumption that workers were motivated by
personal gains, mainly money and that increasing pay would increase
productivity (amount of output produced). Therefore he proposed the piece-
rate system, whereby workers get paid for the number of output they produce.
So in order, to gain more money, workers would produce more. He also
suggested a scientific management in production organisation, to break down
labour (essentially division of labour) to maximise output
Taylor believed that money is a main motivator for workers and thus his theory can
summarize as:
 Workers given one repetitive task so they can learn to master it
 Managers should give orders and closely control workers
 Workers should be paid per item they produced – piece rate
  advantages of Taylor’s motivation theory

Knowledge Analysis Application Evaluation

 Paying people  Taylor believed that  so TT should increase

more money will money is a main motivator for the workers’ wages
encourage them to work workers especially to pay them
harder for all the tasks they do
 and then they may feel
more motivated and
less unhappy in their
jobs and not want to
leave
Money as a key Taylor said that  entrepreneurs could
motivating factor money is a way of motivating change their payment
workers methods to piece-rate
and pay the workers
according to number of
outputs of the work

 and then they should

work hard in order to
receive more pay
pay according to tasks
performed so speed is
encouraged,
specialisation would
make best use of skills

 Drawbacks / criticism of Taylor’s motivation theory

 this theory is not entirely true.
 There are various other motivators in the modern workplace, some even more
important than money.
 The piece rate system is not very practical in situations where output cannot
be measured (service industries) and also will lead to (high) output that
doesn’t guarantee high quality.

 reasons why ‘Taylor’s theory of motivation might not work’

 workers soon came to dislike Taylor's approach as they were only given
boring, repetitive tasks to carry out.
 Firms could also afford to lay off workers as productivity levels increased.
 This led to an increase in strikes and other forms of industrial action by
dissatisfied workers

Knowledge Analysis Application Evaluation

Financial rewards might because they enjoy

not motivate workers what they do
Taylor assumes workers these workers want to win more
are lazy awards
It assumes you can but only have output at harvest
measure output time
Non-financial factors Being able to work part-time
might be more important

 Types of motivating factors/ factors which could influence employee

motivation (knowledge)
 Motivation is a complex concept that is influenced by a variety of
factors.
 Money
 working Conditions
 intrinsic interest of the work
 attitude of colleagues
 working environment
 the style of management
 Recognition and reward (e.g. financial factors such as level of pay OR
bonuses OR employee of month awards)
 Good communication
 Leadership style
 Opportunities for promotion
 Interesting / varied work
 Job satisfaction
 Social reasons / sense of belonging
 Security / protection, e.g. safe conditions as working with machines
 reasons why workers might lack motivation(knowledge)
 dislike of nature of work
 unhappy with surroundings
 do not like fellow workers and/or boss
 do not like style of management
 lack of prospects
 low rates of pay

 Ways to improve employee motivation(knowledge)

 change method of payment / increased rate of pay
 training
 involve workers in decision making
 change leadership style
 chance for promotion / become full time
 job rotation
 job enlargement
 job enrichment
 employee of the month therefore workers feel like their hard work is being
recognised
 praise
  team working / communication
 fringe benefits

 methods of motivating employees

 Financial rewards
 Non-financial rewards
 Job satisfaction

 What is “financial rewards”?

 There are many ways in which businesses can offer financial rewards to their
employees.
 The methods of payment or financial reward are used to provide incentives to
employees to encourage them to work hard and effectively.
 Five of the most frequently used methods are:
 » commission
 » profit sharing.
 » wage
 » salary
 » bonus

Knowledge Analysis Application Evaluation

Money clearly can help and hence making However

motivation by increasing work more attractive money alone
the financial rewards cannot motivate
if other factors
are lacking
 Can the business
afford to pay high wages
High skilled jobs so will expect high levels of otherwise they will
financial rewards look for a job at rival busines
Money does not motivate
everyone / already highly
paid
Training might be offered so safety might be more as high risk job
important
profit sharing as employees may feel they
have a direct impact on
performance

 Definition of “wages”
 A wage is payment for work, usually paid weekly.
  Wages are often paid every week, sometimes in cash and sometimes directly
into a bank account.
 Paid to unskilled labour/manual labours
 It is topped by overtime, if the worker works for extra hours

 Advantages of paying “wages”

 The worker gets paid on a regular basis and does not have to wait long for
some money
 incentive to work additional hours when required by the business.

 Disadvantages of paying “wages”

 As the wages are paid weekly, they have to be calculated every week, which
takes time and money.
 Wages clerks are often employed to perform this task.

 Methods of calculating wages

 Piece rate
 Time rate

 Definition of “piece rate”

 Good knowledge [2] Payment system where workers are paid depending on
the quantity of
products they have produced OR paid for what done [1] so money earned is
linked to output/ volume of the worker
 Some knowledge [1] e.g. paid for what done [1]
 Do not accept answers which refer to amount sold as this relates to
commission-based pay
 Workers paid depending on quantity of product produced
 e.g. $2 for every bicycle assembled.

 Advantages of “piece rate”

 Will encourage workers to produce more
 Gives the opportunity to earn more if effort is shown
 For the employer it should be of benefit because now pay is linked more
closely to output, thus cost structures easier to calculate.
 Should also help increase productivity.

 Disadvantages of “piece rate”

 Workers may rush and produced bad quality products
 This usually requires a quality control system and this is expensive.
 Workers that make slow high-quality products will get paid less
 Can discourage team work as employees focus only on own work
 Difficult to calculate individual pay OR must have way to accurately record
output
 If poor quality goods are produced, this could damage the reputation of the
business.
 Workers who are careful in their work will not earn as much as those who rush,
 Friction between employees may be caused as some will earn more than
others.
 If the machinery breaks down, the employees will earn less money. Because
of this, workers are often paid a guaranteed minimum amount of money
  Businesses where “time rate” system of payment of wages is used
 piece rates can only be used where it is possible to measure the performance
of an individual or a team.
 Mine workers
 Businesses repairing computers and designing software for businesses
 car repair workers
 businesses making sports clothing
 producing handmade goods

Knowledge Analysis Application Evaluation

Will encourage workers to otherwise customers may which is important when there
produce more choose to buy from another are festivals OR celebrations
business
Workers may rush the leading to many mistakes which is a problem as quality is
production important
Can discourage team which may not be easy when
work as employees focus work
only on own part-time
work

 Definition of “time rate”

 Good knowledge [2]: e.g. receive a set amount of pay for every hour worked
 Some knowledge [1]: e.g. by the hour
 pay based on the number of hours worked.
 Time rate is payment by the hour (payment for a period of time).
 For example, if an employee is paid $10 per hour and they work for 40 hours,
then they will be paid $400.

 Advantages of “time rate”

 output may increase
 This makes it easy to calculate the worker's wages and the worker knows
exactly how much they will be paid for working a certain period of time

 Disadvantages of “time rate”

 Although output may increase, it doesn’t mean that workers will work
sincerely use the time to produce more- they may simply waste time on very
few outputs since their pay is based only on how long they work.
 The productive and unproductive worker will get paid the same amount,
irrespective of their output.
 The hours worked are often recorded on a time-sheet which must be filled in
and used to calculate the wages by the Accounts department. This system
takes time.
  Often supervisors are needed to make sure the workers keep working and
producing a good quality product. This is expensive because more supervisors
are needed by the business.
 A clocking-in system is needed to determine the number of hours worked by
the employees.

 Businesses where “time rate” system of payment of wages is used

 Time rate is often used where it is difficult to measure the output of the
worker,
 for example, a bus driver or hotel receptionist.
 large food production factory
 successful accountancy business

Knowledge Analysis Application Evaluation

Help budget effectively which is important for a small

sole
trader busines
Workers are able to focus which can help of its products
on quality maintain reputation
Does not encourage so, may not be able to meet
employees to increase demand during festivals
output

 why wages might be low in any business (knowledge)

 work is unskilled
 large number of people able and willing to do the job
 feature of that segment of the labour market such as employs young
staff
 gender issues
 not enough profit/cannot afford
 minimum wage in the country is low
 some other way of making up the wage, such as tips from customers
 low wage typical of industry
 work temporary or seasonal

 Definition of “salary”
 A salary is payment for work, usually paid monthly
 paid monthly but normally no overtime is paid.
 It is usual for office staff or management to be paid salaries
 A salary is calculated as an amount of money per year for the job performed
by the worker.

 Advantages of “salary”
  It is divided into 12 monthly amounts this makes it easy to calculate salary
costs for the business.
 The employer has the money in their bank account for longer than if they were
paying their workers' wages, as salaries are paid only once a month.
 The payment has to be calculated only once a month instead of at least four
times a month - as with wages
 Thus saves times and efforts of the employer

 Disadvantages of “salary”
 Workers may prefer to be paid weekly.
 No payment for extra time worked - workers may be reluctant to work longer.

 Definition of “bonus”
 A bonus is an additional payment [1] usually paid for performance exceeding a
given target.[2]
 Extra money for performance that reaches (or is in excess of) target/over and
above basic pay. [2]
 Simple idea such as extra pay for hard work. [1]
 Do NOT accept answers that confuse a bonus with other types/methods of
payment, e.g. Overtime or piece rate
 Just ‘extra money’ [0]
 Money for good performance/extra money for hard work – this type of answer
gains [1]

 Advantages of “bonus”
 A bonus is an additional amount of payment above basic pay as a reward for
good work

 Disadvantages of “bonus”
 Increases costs to the business
 Some employees may not be motivated by money
 Can lead to conflict / demotivation if some workers don’t get this


 Definition of “commission”
 Sales staff are often paid a small percentage of the selling price of the product
they are selling e.g. If a car salesman sells a car, the salesman might get 20%
of the selling price of the car which is added to his salary.

Knowledge Analysis Application Evaluation

 Commission to to get as would want to attract more

office team additional payment [an] clients

 Advantages of “commission”
 encourages employees to work harder
  Helps manage payroll expenses

 Disadvantages of “commission”
 Employees become too focused on earning commission
 If the sales staff are very persuasive and encourage people to buy goods they
don't really want, then the business may see its sales increase only in the
short term and then fall again as it gets a bad reputation.
 It can be very stressful for the sales staff because, if they have a bad month,
their pay will fall.
 There might be too much competition between sales staff to 'get the next
customer' who enters the shop

 Definition of “profit sharing”

 Profit sharing is a system whereby a proportion of the company's profits is
paidout to employees.

 Advantages of “profit sharing” to the business

 additional payment should motivate the workers to work hard as they all
receive a share of the profits earned by the business


Knowledge Analysis Application Evaluation

Motivate workers / Workers may feel they have a so workers help business
improve efficiency direct impact on performance remain successful

Creates team spirit/sense so workers may accept changes

of belonging/common  to working practices
goal
Improve employee so few workers leave each year
loyalty/retention
Help attract new
employees

 Disadvantages of “profit sharing”

 If a business makes very low profits or even a loss, then no 'profit share' will
be possible, leading to employee disappointment.
 The profit share is usually calculated on the basis of an additional percentage
of a worker's existing wage or salary - so higher paid workers will receive a
higher profit share.
 This could cause bad feeling among lower paid workers who consider that they
have worked just as hard!

 What is “fringe benefit”?

  Fringe benefits are non-financial rewards given to employees

 examples of fringe benefits

 staff discount on products
 subsidised meals
 transport to work/ Company vehicle/car
 health insurance
 assistance with accommodation
 days off/holiday
 Free healthcare
 Children’s education fees paid for

 What is “non-financial method of motivation”?

 Job satisfaction
 Job rotation
 Job enlargement
 Job enrichment
 Teamworking
 Training
 Opportunities of promotion
 Delegation

Knowledge Analysis Application Evaluation

Job rotation  could help staff to become when producing hand

multi-skilled and more made cards
flexible.
 would be more interesting
OR not as boring as doing
the same thing
Job enlargement as greater variety of work can to help meet the higher orders
help keep them satisfied during
 festivals
Training  so, workers feel more
valued as they gain more
skills
 could lead to increased
output OR increased
efficiency
Praise as feel their work has been Motivation is a complex process
recognised and no single form of incentive
will always work. If people
basically work for money then
praise alone will not be
effective. Clearly praise makes
the
working situation “better” and
thus it must help. However if
other factors are not present, by
itself it will not work.
Opportunities for
promotion
Increased responsibility
Award schemes such as
employee of the month

could use fringe benefits

Delegation OR
empowerment OR
decision making
 Definition of “job rotation”
 job rotation involves workers swapping around and doing each specific task for
only a limited time and then changing around again.

 Advantages of “job rotation”

 Workers not bored doing same job all the time
 Prevents workers becoming bored doing the same task repeatedly
 Need to provide training
 Helps improve flexibility
 can facilitate "multi-skilling”
 advantage of making it easier to cover for absent colleagues

Knowledge Analysis Application Evaluation

workers are not bored which could increase output Since workers are Engaged in
doing doing different activities
the same thing
Offer job rotation so there is more variety

Need to provide training So increases cost As there is a need to train a

huge number of employees
Helps improve flexibility as workers can switch if
someone is
 absent

 Disadvantages of “job rotation”

 Workers may not be good at the new task
 may also reduce' productivity as workers are initially unfamiliar with a new
task
 Some employees may also dislike some of the jobs that they are rotating to.

Knowledge Analysis Application Evaluation

Workers may not be good so productivity

at the new task decreases
  Definition of “job enrichment”
 Clear understanding [2]: (Involves looking at jobs and) adding tasks that
require higher skill or more responsibility
 Making work more challenging [1] by giving extra tasks [1]
 Some understanding [1]: Making work more challenging / difficult OR giving
workers more responsibility

 Advantages of “job enrichment”

 Makes the job more interesting
 Lower labour turnover
 motivates by giving employees the opportunity to use their abilities to the
fullest.


Knowledge Analysis Application Evaluation

job enrichment by adding more responsibility

to workers, they will feel
important so
increasing job satisfaction
may increase quality as workers feel they have
been given more responsibility

 Disadvantages of “job enrichment”

 May not be very easy to increase the number of tasks for a job
 Some tasks may not be carried out effectively
 Workers should have the necessary training and skills, otherwise it could lead
to reduced quality, lower productivity and dissatisfaction.

 Definition of “teamworking”
 Teamworking involves groups of workers and allocating specific tasks and
responsibilities to them.

 Advantages of “teamworking”
 could lead to increased output OR increased efficiency
 employees have a sense of belonging to a team
 gives a feeling of control over the jobs/tasks and the employee feel more
committed, therefore increasing job satisfaction
 Working as a group helps boost morale
 can also lead to a more multi-skilled workforce and shared responsibility,
which can improve worker motivation

 Disadvantages of “teamworking”
  when things go wrong, it is easy for team members to point the finger at
others and there is often resentment if some members feel others aren’t
pulling their weight.

Knowledge Analysis Application Evaluation

 Definition of “training”
 providing training will make workers feel that their work is being valued.
 Training also provides them opportunities for personal growth and
development, thereby attaining job satisfaction

 Advantages of “training”
 improves performance
 increase labour efficiency
 makes employees adaptable
 increases motivation.

 Disadvantages of “training”
 Extra cost of training involved
 Time consuming

Knowledge Analysis Application Evaluation

 Definition of “promotion”
 Promotion is the advancement of an employee in an organisation, for example,
to a higher job/managerial level

 Advantages of Opportunity for promotion

 Employees offered promotion will feel recognised, have a higher status and
will be given more challenging work to perform.
 Fill employees with a sense of self-actualisation and job satisfaction

 What is “organisation structure”?

 Organizational structure refers to the levels of management and division of
responsibilities within a business.
 This structure is often presented in the form of an organisational chart with
several levels of hierarchy.
 Clear understanding [2] e.g. the number of levels of management and division
of
 responsibility/authority within a business [2]/staff and their positions in relation to
each other [2].
 Some understanding [1] e.g. how many levels in a business/Shows how
business is
organised/shows who reports to whom/hierarchy.
Some understanding plus example can gain full marks.

Knowledge Analysis Application Evaluation

 Advantages of “organisation structure”

 Employees have a clearly defined role
 Clear chain of command OR know their manager
 Employees have a clear career structure
 Specialists can be employed

 Disadvantages of “organisation structure”

 Slow communication
 Heavy workload for managers so do they have time to focus on expansion
 Communication between departments can be difficult
 Can create rivalry between departments
 Workers can feel isolated

 Definition of “organisational chart”

 Organisational chart refers to a diagram that outlines the internal
management structure.

 Advantages of “organisational chart”

 All employees are aware of which communication channel is used to reach
them with messages
 Everyone knows their position in the business. They know who they are
accountable to and who they are accountable for
 It shows the links and relationship between the different departments
 Gives everyone a sense of belonging as they appear on the organizational
chart
 The chart should represent the structure of a large company.
 Thus, it should show levels of hierarchy/spans of control/chain of command.

 Definition of “hierarchy”
 Hierarchy refers to the levels of management in any organisation, from the
highest to the lowest

 What is level of “hierarchy”?

 A level of hierarchy refers to managers/supervisors/ other employees who are
given a similar level of responsibility in an organisation
 Features of a “tall and hierarchical” organisation structure
 Many layers (of management);
 Decision making takes longer
 Narrow span of control
 Little delegation
 Opportunities for promotion
 Communication can take a long time
 Clear lines of authority
 Long chain of command.

 Definition of “chain of command”

 Clear understanding [2]: structure within an organisation through which orders
are passed down from senior management to the lower levels of management
 OR way to pass messages up and down the hierarchy.
 Some understanding [1]: ‘shows who gives orders
 For 2 marks must have idea of ‘messages passed/communication’ AND ‘who
between’.

 Advantages of “short chain of command”

 Better communication- quicker & more accurate
 Top managers are less remote
 Span of control will be wider
 Encourages delegation
 More trust

 Disadvantages of “long chain of command”

 difficult to control so many people so less work is done
 communication problems as too many subordinates to inform/ask so harder to
get feedback about the work /messages lost
 workers might not have enough skills to cope with extra responsibility so more
mistakes are made
 supervisors might not have the right skills to manage so many people
 fall in productivity as hard to motivate so many people

 Definition of “span of control”

 Span of control refers to the number of subordinates directly accountable to
an individual

 advantages of widening the span of control for the remaining

manager
 Increased contact with senior managers
 Increased delegation
 Increased motivation
 Improved communication
 Reduced wage costs

 disadvantages of widening the span of control for the remaining

manager
  Less control by managers
 Junior managers may make mistakes
 Less supervision of employees
 Greater workload/stress/extra hours
 More people to manage
 Fewer opportunities for promotion.


 Who is director’s?
 Clear understanding [2]: e.g. senior management of the business [1]
responsible for strategic decisions [+1].
 Some understanding [1] e.g. identifies one feature of a board of directors (e.g.
elected by shareholders) OR managers in charge of company
 For 2 marks must have both idea of being in charge AND responsible for
strategic / key decisions

 Who are “line managers”?

 Direct authority over subordinates in their department. They are able to take
decisions
 Line Managers have authority over people directly below them in the
organizational structure.
 Traditional marketing/operations/sales managers are good examples.

 Who are supervisors?

 Supervisors are junior managers who have direct control over the employees
below them in the organisational structure

 Who are staff managers?

 Staff Managers are specialists who provide support, information and
assistance to line managers.
 The IT department manager in most organisations act as staff managers.

 Role and functions of management

 Planning
 Organising
 Coordinating
 Commanding
 Controlling

 Definition of “planning”
 setting aims and targets for the organisations/department to achieve.

 Importance of “planning”
 It will give the department and it’s employees a clear sense of purpose and
direction.
 Managers should also plan for resources required to achieve these targets –
the number of people required, the finance needed etc.

Knowledge Analysis Application Evaluation

  Definition of “organising”
 managers should then organize the resources.
 This will include allocating responsibilities to employees, possibly delegating.


 Importance of “organising”
 delegate tasks; people and resources; ensure everyone working effectively/no
duplicated tasks

Knowledge Analysis Application Evaluation

 Definition of “coordinating”
 ensure departments working together; aims/tasks linked together; chair
regular meeting between departments
 managers should ensure that each department is coordinating with one
another to achieve the organization’s aims.

 Importance of “coordinating”
 This will involve effective communication between departments and managers
and decision making.


Knowledge Analysis Application Evaluation

 Definition of “commanding”
 guiding employees; leading/supervising employees; ensure employees keep to
targets/tasks

 Importance of “commanding”
 managers need to guide, lead and supervise their employees in the tasks they
do and make sure they are keeping to their deadlines and achieving targets.

Knowledge Analysis Application Evaluation

  Definition of “controlling”
 measure/evaluate work of employees; identify poor performance/identify
problems

 Importance of “controlling”
 managers must try to assess and evaluate the performance of each of their
employees.
 If some employees fail to achieve their target, the manager must see why it
has occurred and what he can do to correct it- maybe some training will be
required or better equipment.

Knowledge Analysis Application Evaluation

 Definition of “delegation”
 Delegation refers to the passing on of authority to a subordinate to carry out a
task. Knowledge of term [1]
 Understanding of term [1-2]

 Advantages of “delegation”- for the business

 work-load spread more evenly
 give responsibility to lower rank employees
 management can focus on more important matters
 motivational factor for employees
 improved efficiency

 Advantages of “delegation”- for the Managers

 Decision making closer to ‘the ground’ [k] as likely to understand the laws /
traditions
 [app] to have better idea what customers want [an]
 • Quicker decisions [k] as don’t have to wait for response [an] which could
take time due to
 being in different countries [app]
 • Increased motivation/involvement [k] as if able to make important decisions
[app] might
 be more productive/efficient [an]
 • Lighten workload for senior managers [k] so Directors have more time [app]
to focus on
 strategic decisions [an]
 • New ideas [k].
  Advantages of “delegation”- for the subordinate
 the work becomes more interesting and rewarding- increased job satisfaction
 employees feel more important and feel trusted– increasing loyalty to firm
 can act as a method of training and opportunities for promotions, if they do a
good job.

 Why are some managers reluctant to delegate? / Disadvantages of

“delegation” – for the Managers
 Loss of control at the top so could lead to duplication of work
 Disagreements/different decisions made [k] as middle managers can now
make important decisions so no consistency of approach
 Skills of managers middle managers can’t cope with extra responsibility
leading to mistakes

Knowledge Analysis Application Evaluation

 Disadvantages of “delegation” – for the subordinate

 Lack of Knowledge of Employees Skills
 Lack of Trust
 Lack of Interest.
 Lack of Credit.
 Lack of Authority

Knowledge Analysis Application Evaluation

Lack of Knowledge of Wrong delegation of

Employees Skill task can prove fatal for
a project and business.

Lack of Trust Many managers either lack

trust or do not want to trust
their subordinates. They try to
do everything themselves due
to which their work pressure
never gets eased out.

Lack of Interest Managers who keep the

interesting work to
themselves and assign routine
and monotonous to others
give rise of discontentment
and disengagement
Lack of Credit When multiple people work
on a single project the credit
of the work often gets
 distributed. The true
contribution of each person is
at times not recognized
Lack of Authority It is also important to delegate
sufficient authority along with
responsibility. Only then can
employees work their full
potential

 Importance of having “good managers”

 motivate employees
 give guidance and advice to employees they manage
 inspire employees they manage to achieve more than they thought possible
 manage resources effectively and keep costs under control
 increase profitability of the business

 Why a manager might not delegate

 Manager wants control
 Subordinate may do a better job than manager
 Manager feels insecure
 Subordinates may fail - The belief that employees cannot do the job as well as
the manager can.
 The belief that it takes less time to do the work than it takes to delegate the
responsibility.
 Lack of trust in employees’ motivation and commitment to quality.
 The need to make one’s self indispensable.
 The enjoyment of doing the work one’s self.
 Guilt associated with giving more work to an overworked staff.

 Definition of “leadership”
 Leadership styles are the different approaches to dealing with people and
making decisions when in a position of authority -
 autocratic, democratic or laissez-faire

 Definition of “autocratic leadership”

 Autocratic leader is one who dominates their organisation. They manage by
telling and directing not by discussion and persuasion. [2]
 Two marks can be gained either by identifying two points or by developing one
point appropriately
 Some simple idea such as leader in charge. [1]
 An autocratic leadership style will mean that workers are told what to do and
they will work hard

 Advantages of “autocratic leadership”

 An autocratic leadership style will mean that workers are told what to do and
they will work hard so there is proper guidance to the workers
 it can be effective in certain situations. For example: When quick decisions are
needed in a company (e.g. in a time of crises)
  When controlling large numbers of low skilled workers this kind of leadership is
helpful

 Disadvantages of “autocratic leadership

 autocratic leader does not encourage discussion and consultation and tends to
deal with people in an impersonal manner.
 Managers do not trust workers and simply give orders (one-way
communication) that they expect to be obeyed
 Given that responsibility and involvement are thought to be strong motivators
this would imply that the approach is a de-motivating one
 No opportunity for employee input into key decisions, which can be
demotivating.

Knowledge Analysis Application Evaluation

Autocratic leadership because factory

style workers will need to be
told what to do
Stella could use an which will make it easier to as she only has 18
autocratic leadership keep control of employees to manage
style everyone and tell them what
to do


 Definition of “Democratic leadership”

 Democratic style of management implies that employees are consulted before
decisions are made. The management encourages participation by employees
before final decisions are made. This is a form of two-way communication
 democratic involves consulting people and involving people in decision

 Advantages of “Democratic leadership”

 Creates time to do other
 Less mistakes/better quality work
 departments/help TPW remain successful
 Retention of workers
 Better decision making possible
 Better communication
 Improves manager/worker relationship
 Improves motivation OR sense of belonging
 Help keep worker loyalty
 Creates time to do other jobs
 More ideas
 better feedback
 Positive work environment OR better relations between managers and workers
 Workers have better understanding of business’ objectives

Knowledge Analysis Application Evaluation

Creates time to do other as clerks/managers can

jobs perform some tasks
Less mistakes/better as it would be difficult
quality work to oversee the
different
 departments/help TPW remain
successful
Retention of workers as clerks/managers feel part of
decision-making process
Better decision making as managers/clerks know that
possible they can ask questions
Better communication as managers/clerks know that
they can ask questions
Improves motivation OR leading to increased as they are happy workers
sense of belonging output OR productivity
Creates time to do other leading to fewer mistakes
jobs

 Disadvantages of “Democratic leadership

 More time consuming to make decisions as time taken consulting the
employees before
 decisions made

Knowledge Analysis Application Evaluation

involving others might so customer service might As waiters or cooks

slow decision-making suffer discuss what to do with
manager

 Definition of “Laissez-faire leadership”

 Laissez-faire leadership makes the broad objectives of the business known to
employees, but then they are left to make their own decisions and organise
their own work.

 Advantages of “Laissez-faire leadership”

 Motivating as workers feel in control
 laissez faire is one with freedom to carry out activities with few guidelines
and directions.
  Give decision making to employees
 Motivating as employees feel they have control over their work
 Managers have more time for other tasks as can delegate more
 Employers feel more trusted

 Disadvantages of “Laissez-faire leadership”

 Some workers will not like this responsibility
 Implications of style are that lack of leadership and positive direction which
can lead to confusion and lack of action/control
 Employees may make bad decisions
 May lead to lower productivity or lower profit from bad decisions
 Difficult to have a clear direction for the business
 Managers may lose day to day control of decision making
 New employees might need guidance

Knowledge Analysis Application Evaluation

New employees so poor decisions might be

might need made
guidance
Communication can be as clear direction is not given
difficult
Harder to manage with so need rules to avoid
more people disputes
Workers might leave / as they like the freedom that so she will need to recruit more
demotivated laissez-faire allows than 3 new people
Democratic style allows
employees a say in what
they do

 Definition of “Trade Union”

 Trade unions act on behalf of their members and ensure that they are treated
in a fair and equitable manner.
 their existence would mean that the employer would have to follow the
 letter of the law on all matters that impact upon people in the business. They
would negotiate with employers collectively

 Advantages of trade union to – “businesses organisations”

 Improve communication between managers and workers
 improve relations between managers and workers

 Disadvantages of trade union to- “businesses organisations”

 might drive up wages and hence costs
 might lead to an increase in industrial action
 may oppose changes that the management might wish to make
  will ensure that all aspects of labour laws are fully implemented which again
may push up costs
 might create bad publicity for the business



Knowledge Analysis Application Evaluation

Trade union action damaging reputation as factory 1 has

could create high number of members
negative publicity

 Advantages of trade union membership to –

“employees”(knowledge)
 easier to negotiate with employees
 Negotiation over wages takes less time
 Gives strength in numbers/collective bargaining so more likely to achieve
demands
 Provides services such as insurance
 Improved pay
 Improved working conditions/health and safety
 Representation in grievances
 Represents the views of the workers
 Advice can be given if the worker has problems
 Legal support if the worker has problems
 Access to training/education
 Social activities/clubs
 Unions membership benefits e.g. discounts

Knowledge Analysis Application Evaluation

Being a member of a rather than if one worker tries At the moment business
trade union gives to achieve the demands on does not allow a worker
strength in numbers so them to be a member of a
workers are more likely to own trade union.
achieve their demands
Production workers are
only paid low wages and
they may want to be
members of a trade
union in order to gain a
pay rise
 Disadvantages of trade union membership to – “employees”
 Strength in numbers may lead to more disputes
 Easier to organise industrial action
 Industrial action may lead to a poor reputation for the business
 Higher costs if wages increase


 Definition of “closed shop”

 A closed shop is when all employees must be a member of the same trade
union.

 What is the role of “human resources department” in an

organisation?
 Recruitment and selection: involve selecting and attracting the best workers.
 Wages and salaries: must be enough to motivate or attract workers.
 Industrial relations: there must be effective communication between
departments.
 Training programmes: must meet the training needs of employees and finish
business objectives.
 Health and safety: must do things according to the law.
 Redundancy and dismissal: must follow all laws when firing the workers

 Definition of “recruitment”
 Recruitment is the process from identifying that the business needs to employ
someone up to the point at which applications have arrived at the business

 Why do business recruit?

 To replace staff who have left or been promoted
 Bring in staff with new skills
 Recruit more staff as business expands

 Definition of “employee selection”

 Employee selection is the process of evaluating candidates for a specific job
and selecting an individual for employment based on the needs of the
organisation.

 Definition of “job analysis”

 A job analysis identifies and records the responsibilities and tasks relating to a
job.


 Definition of “job description”

 A job description outlines the responsibilities and duties to be carried out by
someone employed to do a specific job

 Content of the “job description”

 Job description should contain job title, department, responsible to,
responsible for, main purpose of job, main duties, occasional duties.
 Importance of job description
 By producing a job description the features of the job become clear.
 Thus it helps the selection process because requirements that job holder
needs to carry out are explicit and hence
qualifications/experience/skills/qualities needed can be identified.
 Therefore it is easier to match the applicant to the demands of the job

 Advantages of job description

 clear idea of what they are looking for in an applicant
 saves time
 makes selection easier
 helps managers decide what the job entails
 allows them to evaluate the job

 Definition of “job specification”

 A job specification is a document which outlines the requirements,
qualifications, expertise, physical characteristics, etc., for a specified job

 Definition of “internal recruitment”

 Promoting staff or moving workers from one job to another within the
company

 Advantages of internal recruitment

 Saves time and money – Don’t need to spend money on advertising the job
vacancy
 Applicants ‘know’ the firm
 Motivates other workers (chance for them to get promoted)

 Disadvantages of internal recruitment

 Applicants may not bring in new ideas
 Promoting an employee may make other employees jealous and demotivated

 Definition of “External recruitment”

 Recruiting someone who is not an existing employee and will be new to the
business.


 Advantages of “External recruitment”

 New ideas from new workers
 More likely to hire someone who matches job specification

 Disadvantages of “External recruitment”

 Expensive – need to advertise job
 Demotivating for internal candidates

 Ways of advertising job vacancies



 Methods of application for job

 

 Methods of “selection”
 interview - to see whether they have the right qualities
 CV and / OR letter of application OR application form
 ability or aptitude OR psychometric test
 Group exercises to see how well/whether they can work as part of a team
 Online screening
 Presentation

 Factors affecting which worker to employ



 Rejecting process of unsuccessful employs



 Definition of “full-time employees”

 Full time employees will usually work 35 hours or more a week

 Advantages of full-time employees

 More likely to be trained and seek training –increases productivity of
employees
 Reduce labour turnover – more likely to see the job as long-term rather than
temporary/lower recruitment costs
 More committed to the cleaning business – leads to more motivated workers
which increases efficiency
 More likely to be suitable for promotion as gained more skills and experience if
business expands in the future – may allow promotion from the two internal
applicants and reduces recruitment costs
 Easier to communicate with than part-time employees – as in work for more
hours a day

 Definition of “part – time employees”

 Part-time employment is often considered to be between 1 and 30-35 hours a
week

 Advantages of part time employees

 More flexible hours of work
 Easier to increase the employee hours during busy times
 customer demand effectively
 easier to recruit part-time employees
 May reduce labour costs compared to employing fulltime employees
 business/may be willing to accept a lower wage rate

Knowledge Analysis Application Evaluation

More flexible/easier to when some additional help is such as the picking

ask employees to work at needed season
busy times
Help to attract new because it fits around their those who may not want to
employees other commitments work full-time
Lower labour costs as there is less work as there is less work

Provide a wide range of

skills/knowledge
May be more motivated and therefore have greater
productivity
Easier to find workers

 Disadvantages of part time employees

 less likely to be trained because the workers see the job as temporary
 takes longer to recruit two part-time workers than one full-time worker
 can be less committed to the business/ more likely to leave and go get another
job
 less likely to be promoted because they will not have gained the skills and
experience as full-time employees
 more difficult to communicate with part-time workers when they are not in
work- all work at different times.
 less likely to be promoted

 Definition of “training”
 Training is important to a business as it will improve the worker’s skills and
knowledge and help the business be more efficient and productive, especially
when new processes and products are introduced

 Importance of “training” to the business

 training helps an employee better perform their jobs by equipping them with
the skills and experience needed.
 It will also develop the individual so that perhaps they become better
motivated.
 Thus, benefits the business. It does however cost money/may not produce
results/people can leave.
 Must be a balance of points to gain full marks. No reference to the cost aspect
then max.

 Types of “training”


 Benefits of training to customer



 Benefits of training to employees



 Definition of “induction training”

  Induction training: an introduction given to a new employee, explaining the
firm’s activities, customs and procedures and introducing them to their fellow
workers.
 Content. This is training given to new staff to acquaint them with procedures
and in house methods of operation.
 2 marks for good understanding as demonstrated by development or
illustration of basic knowledge. 1 mark for basic knowledge.
 Clear understanding [2]: Introduction given to new employees explaining the
businesses activities, customs and procedures and introducing them to other
workers
 A training programme to help new recruits become familiar with their
workplace, the people they work with and the procedures they need to follow
 Some understanding [1]: Training for new employees OR give introduction
about the business to employees OR training given to employees before they
are employed so they know what to do

 Advantages of “induction training”

 The training should better equip the employee to carry out tasks required and
to be able to deal with problems as they arise.
 Thus it should improve employee efficiency / minimise procedural errors /
speed up operations and hence reduce costs. Much depends on the
effectiveness of the training
 Helps employees to settle into their job quickly/familiarise workers with the
 business/provide information about the business [k] so can cope with flow
production
 [app]
 Aware of health and safety/legal issues [k] in the factory [app]
 Know who to ask if there is a problem [k] preventing wastage of expensive
parts [app]
 Opportunity to communicate culture [k] so all car workers get same message
[app]
 Help keep productivity/efficiency high [k] so NCE remains competitive [app]
 The training should better equip the employee to carry out tasks
 required and to be able to deal with problems as they arise. Thus, it should
improve employee efficiency / minimise procedural errors / speed up
operations and hence reduce costs. Much depends on the effectiveness of the
training

Knowledge Analysis Application Evaluation

  Disadvantages of “induction training”
 Time-consuming
 Wages still have to be paid during training, even though they aren’t working
 Delays the state of the employee starting the job

 Definition of “on-the-job training”

 Clear understanding [2] occurs by watching a more experienced worker doing
the job OR at the work place
 Some understanding [1] get training while working OR learn from another
employee
 takes place in a normal working situation, using the actual tools, equipment,
documents or materials that trainees will use when fully trained

 Advantages of on-the-job training

 Individual tuition is given
 Some production takes place
 Usually costs less than off-the-job training
 Addresses the specific needs of the business
 Employees learn the way the business wants the job done
 Employees are working while training
 Cheaper (than off the job training)

Knowledge Analysis Application Evaluation

  Disadvantages of on-the-job training
 The trainer will be less productive
 Trainer may have bad habits
 Likely to make mistakes (as still learning)
 Slows down work of experienced employees
 May pick up bad habits or practices from other employees
 Might not learn the most up to date methods OR fewer new skills and ideas
taught


Knowledge Analysis Application Evaluation

Likely to make mistakes  so damage

(as still learning) reputation
with local businesses
Slows down work of at a time of
experienced employees falling demand

May pick up bad habits or

practices from other
employees
Might not learn the
most up to date
methods OR fewer
new
skills and ideas taught
  Definition of “off- the- job training”
 Clear understanding [2]: Trained away from the work place by specialist
trainers
 Some understanding [1] : Trained away from the work place

 Advantages of off-the-job training

 Employees can carry on working improving productivity
 Workers can focus 100% on training
 Broad range of skills can be taught
 May be cheaper if employee trains after work as output not lost

Knowledge Analysis Application Evaluation

 Disadvantages of off-the-job training

 more expensive than on the job which increases costs for the business. For
example, transport costs/paid trainer
 loss of first-hand experience/not necessarily tailored to individual company
 no output produced by learner whilst training taking place.
 Not necessarily tailored to individual business so not cost effective
 Have to pay more OR high cost for specialists
 Skills might not be available in the business
 Takes place away from normal work situations and employees are not
productive during this time
 Higher costs of training fees and possibly travel

Knowledge Analysis Application Evaluation

more expensive than on the job which which increases costs

increases costs for the
business
 loss of first-hand so not cost effective
experience/not
necessarily tailored to
individual company
no output produced by
learner whilst training
taking place.
Allows for mistakes so cannot build employees
confidence
Workers have access to
skilled trainers

 What is workforce planning?

 the establishing of the workforce needed by the business for the foreseeable
future in terms of the number and skills of employees required.
 Workforce planning is where the business will need to decide on the type and
number of employees needed in the future

 Ways of workforce planning

 They may have to downsize (reduce the no. of employees) the workforce
because of:
 Introduction of automation
 Falling demand for their products
 Factory/shop/office closure
 Relocating factory abroad
 A business has merged or been taken over and some jobs are no longer
needed
 They can downsize the workforce in two ways: Dismissal or Redundancy
 Worker could also resign (they are leaving because they have found another
job) and retire (they are getting old and want to stop working).

 Definition of “dismissal”
 where a worker is told to leave their job because their work or behaviour is
unsatisfactory.
 Clear understanding [2]: e.g. whether worker told to leave their job [1]
because their work or behaviour is unsatisfactory
 Some understanding [1]: made to leave job
 Do not accept ‘fired’, ‘dismissed’ or ‘sacked’ on own as it does not explain the
term
 Termination by the employer because the employee has broken company
rules or is not performing work to the required standard [2] OR When the
employment is ended against the will of the employee, usually for not working
in accordance with the employment contract [2]OR When employee told or
made to leave their job because their work or behaviour is unsatisfactory [2]
 Partial definition e.g. When employee told/made to leave their job [1]OR
Termination of employment against the wishes of the employee [1] OR
Employer ends employment [1]

 Definition of “redundancy”
 Redundancy means loss of job so setting up a business replaces the income
which was lost
  when an employee is no longer needed and so loses their work, through not
due to any fault of theirs. They may be given some money as compensation
for the redundancy.


 Which workers to make redundant?

 Some workers may volunteer because they might have planned to leave
anyways.
 Length of time worked (employees who have worked there for a long time can
stay)
 Workers with good skills remain
 Worker’s employment history (e.g. behaviour / performance of employee)

 Legal controls over employment issues

 These laws require businesses to treat their employees equally in the
workplace and when being recruited and selected- there should be no
discrimination based on age, gender, religion, race etc.
 Employees are protected in many areas including
 against unfair discrimination
 health and safety at work (protection from dangerous machinery, safety
clothing and equipment, hygiene conditions, medical aid etc.)
 against unfair dismissal
 wage protection (through the contract of employment since it will have listed
the pay and conditions).

 Definition “contract of employment”

 A legal agreement between the employer and the employee listing the rights
and responsibilities of workers.


 Importance of “contract of employment”

 A good employment contract is beneficial to both the employee and the
employer.
 It spells out the rights and obligations of each party, protects the job security
of the employee and protects the employer from certain risks such as the
release of confidential employer information after the term of employment
ends.
 Some jurisdictions require employment contracts for certain positions.

 Contents of “contract of employment”

 It will include:
 the name of employer and employee
 job title
 date when employment will begin
 hours to work
 rate of pay and other benefits
 when payment is made
 holiday entitlement
 the amount of notice to be given to terminate the employment that the
employer or employee must give to end the employment etc.
 

 Advantages of the employment contracts

 Clearly defines duties and benefits
 Protects each party
 Provides stability

Knowledge Analysis Application Evaluation

Clearly defines There's no wondering what

duties and benefits responsibilities are included in
the job, or what the pay or
benefits are, because they are
spelled out in the contract.
Protects each party Both employer and employee
are covered under the
agreement.
Provides stability With a contract in place, both
the worker and the company
know what to expect for the
foreseeable future.

 disadvantages of the employment contracts on employees

 Limits flexibility
 Legally binding
 Can only be changed through renegotiation

Knowledge Analysis Application Evaluation

Limits flexibility Once the employee is hired

under the contract, they can't
just leave if they feel like it,
and the employer can't just let
them go if they decide they
don't need them anymore.
Legally binding There are consequences for
breaking the terms of the
agreement.
Can only be changed Both sides must agree to any
through renegotiation changes to the original
agreement.

 Definition of “unfair dismissal”

 This occurs when an employer ends a worker's contract of employment for a
reason that is not covered by that contract
 Unfair dismissal is illegal in many countries and the worker has the right either
to compensation or to be offered their previous job back by taking the case to
an industrial tribunal

 Impact of unfair dismissal on employer

  Employer must keep very accurate records of a worker's performance if they
want to claim that the employee has broken their contract of employment
before dismissing them.

 Impact of unfair dismissal on employee

 Employees have security of employment - as long as they fulfil their contract
and are not made redundant.
 Allows employees to take their employer to an industrial tribunal if they feel
they have been treated unfairly and they may get compensation if this is
found to be true.
 Makes a business less likely to treat employees unfairly as they know they
may be taken to an industrial tribunal and may have to pay compensation or
give the employee their job back.

 Definition of “industrial tribunal”

 An industrial tribunal is a legal meeting which considers workers’ complaints of
unfair dismissal or discrimination at work. This will hear both sides of the case
and may give the worker compensation if the dismissal was unfair.

 Definition of “discrimination at work”

 Discrimination means to make a choice.
 Sometimes we have unfair discrimination, because they:
 Different race or colour
 Different religion
 Sex
 Age (too old or young)
 Are disabled in some way

 Impact of discrimination on employers

 Employers have to be careful when wording an advertisement for a job, for
example, they cannot advertise for a woman - they must say 'person'.
 When selecting an employee for a job an employer must treat all applicants
equally. If a business does not do this, then it could be prosecuted and fined.
 By following these laws carefully, businesses should recruit and promote staff
on merit alone and this should help to increase motivation at work.

 Impact of discrimination on employees

 Employees should be treated equally in the workplace and when being
recruited, and they should be paid equal amounts for similar work.
 If a man and a woman are both equally well-qualified for a job they should be
treated equally. It should not be the case that one rather than the other is
given the job simply because of their sex.
 Employees who have a disability, are from different races or of different
religions should be treated in the same way as all other workers.

 Definition of “legal minimum wage”

 “the minimum amount of remuneration that an employer is required to pay
wage earners for the work performed during a given period, which cannot be
reduced by collective agreement or an individual contract
  Impact of legal minimum wage on employers
 This avoids employers from exploiting its employees, and encourages more
people to find work, but since costs are rising for the business, they may make
many workers redundant- unemployment will rise.


 Impact of legal minimum wage on employees

 Many countries have a legal minimum wage– the minimum wage an employer
has to pay its employee.

 Definition of “communication”
 The transferring of a message from the sender to the receiver who
understands the message.

 Definition of “message”
 The information or instructions being passed from the sender to the receiver.

 Methods of “communication”

Knowledge Analysis Application Evaluation

Emails/mailshots could be targeted at individual who are interested in

customers different products
Social media as many people use it these
days to find out about the
latest offers
Telephone as two way communication
would allow business to
explain specific product details
to customers who could ask
questions
Website without having to spend a lot
of money on advertising
Press releases so business is able to control
the information that is given
out
Newsletters keep them up to date with
what is available
Text messages

Market research to find out what existing

methods customers think about its
products

 Definition of “internal communication”

  Process of exchanging information between one group and another inside a
business [2].
 Flow of messages from source to recipient [1] within a business [1].
 Do not accept examples of communication – the question requires a definition

 Importance of “internal communication”

 implementation of policies easier
 avoidance of confusion
 motivational impact
 increased co-ordination and efficiency.
 If internal communications don’t work this leads to
confusion/misunderstanding/lack of direction/omission or duplication of
actions. All these types of factors create inefficiency.
 Efficiency implies effective use of the resources within a business.

 Advantage of “internal communication”

 Quick to send
 Can send at any time
 Can be sent simultaneously
 Can be read when receiver has time
 Able to refer back to it later

Knowledge Analysis Application Evaluation

Quick to send which helps as always

busy
Can send at any time so can finish
cleaning before
having to
respond
Can be sent To all employees
simultaneously
Can be read when
receiver has time
Able to refer back to it so employees
later can check
details of the
assigned job

 disadvantages of “internal communication”

 Only contain limited information OR might not understand
 Might not receive the message OR no power on the phone OR may not have a
signal

Knowledge Analysis Application Evaluation

Only contain limited so cleaners may not

information OR might not have all details
understand
Might not receive the leading to poor service
message OR no power on
the phone OR may not
have a signal

 Definition of “external communication”

 External communication is between the organisation and other organisations
or individuals.

 Importance of “external communication”

 External communication is very important to the image and efficiency of a
business.
 If a company communicates ineffectively with suppliers, it may be sent the
wrong materials
 If it sends inaccurate information to customers, they may buy a product from
another company

 Process of “effective communication”

 transmitter/sender of the message
 A medium of communication eg: letter, telephone conversation, text message
 A receiver of the message
 A feedback/response from the receiver to confirm that the message has benn
received and acknowledged

 Importance of effective communication

Knowledge Analysis Application Evaluation

Avoid diseconomies of as communication can be

scale difficult in a large organisation
Everyone understands so no conflict
objectives
avoid language issues / particularly when selling in multi
misunderstandings lingual country
Better / faster decision So quick implementation of
making those decision
Able to exchange ideas

Better relations with

suppliers
Inform customers about so that customers are
its products interested in the products the
business has to offer
 Definition of “transmitter/sender”
 The transmitter or sender of the message is the person starting off the process
by sending the message

 Definition of “medium of communication”

 The medium of communication is the method used to send a message, for
example, a letter is a method of written communication and a meeting is a
method of verbal communication.

 Definition of “receiver”
 The receiver is the person who receives the message

 Definition of “feedback”
 Feedback is the reply from the receiver which shows whether the message has
arrived, been understood and, if necessary, acted upon

 Definition of “one-way communication”

 One-way communication involves a message which does not call for or require
a response.

 Definition of “two-way communication”

 Two-way communication is when the receiver gives a response to the
message and there is a discussion about it.

 Advantages of “two-way communication”

 A two-way communication ensures that the person receiving the message
understands it and has acted up on it.
 It also makes the receiver feel more a part of the process- could be a way of
motivating employees.

 Definition of “verbal communication method”

 Verbal methods (eg: telephone conversation, face-to-face conversation, video
conferencing, meetings)

 Advantages of “verbal communication method”

 Quick and efficient
 There is an opportunity for immediate feedback
 Speaker can reinforce the message- change his tone, body language etc. to
influence the listeners.

 Disadvantages of “verbal communication method”

 Can take long if there is feedback and therefore, discussions
  In a meeting, it cannot be guaranteed that everybody is listening or has
understood the message
 No written record of the message can be kept for later reference.

 Definition of “written communication method”

 Written methods (eg: letters, memos, text-messages, reports, e-mail, social
media, faxes, notices, signboards)

 Advantages of “written communication method”

 There is evidence of the message for later reference.
 Can include details
 Can be copied and sent to many people, especially with e-mail
 E-mail and fax is quick and cheap

 Disadvantages of “written communication method”

 Direct feedback may not always be possible
 Cannot ensure that message has been received and/or acknowledged
 Language could be difficult to understand.
 Long messages may cause disinterest in receivers
 No opportunity for body language to be used to reinforce messages

 Definition of “visual communication method”

 Visual Methods (eg: diagrams, charts, videos, presentations, photographs,
cartoons, posters)

 Advantages of “visual communication method”

 Can present information in an appealing and attractive way
 Can be used along with written material (eg: reports with diagrams and charts)

 Disadvantages of “visual communication method”

 No feedback
 May not be understood/ interpreted properly.


 Definition of “formal communication”

 Formal communication is when messages are sent through established
channels using professional language. E.g.: reports, emails, memos, official
meetings.


 Definition of “informal communication”

 informal communication is when information is sent and received casually with
the use of everyday language.

 downward communication.
 Downward communication: messages from managers to subordinates i.e. from
top to bottom of an organization structure.

 upward communication.
  Upward communication: messages/feedback from subordinates to managers
i.e. from bottom to top of an organization structure

 horizontal communication
 Horizontal communication occurs between people on the same level of an
organization structure.

 definition of “communication barrier”

 Communication barriers are factors that stop effective communication of
messages

 How communication barriers arise?

 Use of new/different jargon/technical terms/difficult words/vocabulary
 Use foreign/different language
 The wrong channel may be used/workers may not be able to use the method
selected
 Physical breakdown of medium
 Message may be lost/distorted (if have a long chain of command)
 No feedback is received

 How to reduce or remove communication barriers?

Knowledge Analysis Application Evaluation

Problems with the sender 

Problems with the 

medium
Problems with the 
receiver
Problems with feedback 

Problems with the 

physical environment

 What communication barriers might occur

 Problems with medium, e.g. inappropriate medium used
 Problems with sender, e.g. language problems/jargon
 Overload of information
 Problems with receiver, e.g. workers do not read messages
 Technical issues, e.g. no internet connection
 No opportunity for feedback
 Wide span of control
 Wrong message sent

Knowledge Analysis Application Evaluation

Problems with the sender  different languages in so workers don’t understand
country terms used by the manager
 not made the message clear
 speaks quickly
 sends message to wrong
person
 too many workers to contact
Problems with the  message lost as workers might not always
medium  no feedback given have access to emails
 wrong channel used
 message not picked up
Problems with the  not listening
receiver  may not trust the sender
 not understanding the
message
Problems with feedback  only one-way
communication
 there is no feedback
 distortion of feedback as
passed through too many
people
 long chain of command
Problems with the  noise level/
physical environment  separate buildings/
 time Difference
Overload of information which confuses production
workers
Technical issues, e.g. no without electricity cannot send
internet connection emails
No opportunity for
feedback
Wide span of control as manager responsible

Wrong message sent

Section – 3
 Definition of “market”
 A market is where buyers and sellers come together and exchange their
products for money. It can be in the streets, on the internet, in shops around
the world, etc… Customers and sellers exchange both goods and services for
money.
 A market exists whenever buyers and sellers come together. The buyer
and seller don't have to be in the same place in order to conduct transactions
with each other.

 Types of market
 Geographical markets
 Physical
 electronic markets

 “geographical markets”
 Local markets -Where customers are a short distance from suppliers
 National markets -A market where customers are spread throughout the
country or over a large area

 “Physical markets”
 A physical market brings buyers and sellers together in the same location
 car boot sales and markets in town centres. Farmers' markets are another
good example.

 “electronic markets”
 Businesses find their customers using a variety of electronic media, including
the Internet, mobile telephony, digital television and via email.
 Transactions are completed electronically with the delivery method depending
on the nature of the product sold.

 “market oriented business”

 market orientated business is one that produces products in response to the
requirements of the customers. Focus is on the market rather than on the
product.[2]
 Answer like finds out what the market wants [1], carries out market research
[1]means a business reacts to what customers want.
 The decisions taken are based around information about customers' needs and
wants, rather than what the business thinks is right for the customer.
 Most successful businesses take a market-orientated approach
  “Product oriented business”
 A product orientated company is one that focuses on making a product and
then tries to find a market afterwards. [2]
 The thought process is ‘product first, customer second’. [2]
 Simple idea like a business that aims to produce good products. [1]
 A business that does no market research. [1]
 A product orientated business focuses on the quality and price of the product
before finding a market for it to sell in.
 These type of businesses usually produce basic needs.
 This approach is usually criticised because it often leads to unsuccessful
products - particularly in well-established markets.

 Definition of “consumer”
 The final user of a product

 Definition of “Customer”
 An individual or a business that buys goods and services from a business

 Definition of “marketing”
 Clear understanding [2] e.g. identifying and anticipating customer wants and
then providing it.
 Some understanding [1] e.g. selling the product or 1 core element of
marketing identified, such as promotion or pricing or market research.
 Marketing is “the process of identifying, anticipating (predicting) and satisfying
customer needs profitably”.
 the action or business of promoting and selling products or services, including
market research and advertising

 Role of marketing (knowledge)

 Identifying and satisfying consumer needs
 Maintaining customer loyalty
 Building customer relationships

Knowledge Analysis Application Evaluation

Identifying customer Consumer groups  So that they would know what However, it
needs and wants • Quality and price types of equipment can be
• Market location customers would wish to use expensive to
• Gaps in market  So they would know what carry out the
• Changes in demand exercise classes customers market
would wish to attend research
 So they would know what price necessary to
customers were willing to pay identify these
So they would know what needs
hours/days the customers accurately
would want to use the gym
Identifying marketing • Correct medium
channels • Correct target

Maintaining customer • Repeat sales to existing

loyalty customers
• Price discounts
 • Loyalty bonuses
• Regular communication
• Good relationships
Satisfying customer • Right time -So the gym equipment works 
needs and wants • Right place correctly to make the
• Right price customers happy However, Peter
•Quality -So the exercise classes are may need to
• Reliability run well to make the customers buy more gym
happy equipment
-The customers are content and/or recruit
with the prices that are charged more personal
-So the opening hours of the trainers to work
gym are convenient for in the gym
customers’ lifestyle 
However, it can
be expensive to
maintain the
equipment
Building customer -Peter needs VG to retain a -However, if
relationships good reputation with customers customers are
-VG needs to maintain dissatisfied they
customer loyalty• may go to a
competitor
-However, it
may be difficult
to satisfy all
customers and
therefore some
may still give
the business a
bad reputation if
unhappy

 Definition of “market share”

 Clear understanding: e.g. percentage or proportion of the total market sales
[1] held by one brand or business [+1] OR business sales/total market sales ×
100
 Some understanding [1] e.g. share of sales made / percentage of customers a
business has
 Market share is the percentage of total market sales held by one brand or
business

 Definitions of “Objectives of marketing”

 Clear understanding [2]: for example particular marketing objective [+1] OR a
plan of action designed to promote and sell a product or service [1] to achieve
a set goal [+1]OR a plan for promoting products [1] to enter a new market
[+1]
 Some understanding [1]: how combine the 4 Ps OR plan for marketing or how
to increase sales OR how to promote a product

 Objectives of marketing (knowledge)

 Raise consumer awareness
  Improve the business or product image
 Introduce new products
 Maintain or increase market share
 Increase sales and profits
 Maintain customer loyalty

Knowledge Analysis Application Evaluation

One marketing objective This will make

could be to raise more people aware of the
consumer awareness. brand.

marketing objective could This will increase the total

be to increase market number of customers buying
share the business products

 Definition of “customer base”

 The group of products customer sells its products to

 Definition of “potential market”

 Potential market is the part of the total population that has shown some level
of interest in buying a particular product or service.
 This includes individuals, firms and organizations.
 example, you want to calculate the potential market for laptops. So, for
laptops, the users who might be interested to buy are the students who are
about to join residential campuses, students who simply want a laptop to
differentiate it from the desktop at home, users of desktops who want to
switch to a more portable version and office going people.

 Definition of “target market”

 Target market implies the groups of consumers that the product is specifically
aimed at (2).
 If answer says consumers or people who buy then (1).
 The key concept is ‘specifically’ to gain 2 marks.
 Contextual example rewardable for second mark if explanation rather simple.

Knowledge Analysis Application Evaluation

Specialist magazine therefore for bicycle lights

reaches the target likely to sell more
market
If target market wrong he company reputation may
be damaged
Who is target market needs to choose a way to such
attract the right customers as women for bags / belts for
men or women
Allows for CAD / help Which could help increase
design prototypes / new target market [an]
products / more variety
possible
Broaden target market could help spread risk so less reliant on food

 Definition of “consumer market”

 Markets for goods and services bought by the final consumer

 Definition of “industrial market”

 Markets for goods and services bought by other businesses to use in their
production process

 Definition of “business environment”

 The combination of internal and external factors that influence the operations
of a business

 Factors affecting consumer spending pattern – price factors

(knowledge)
 Market conditions can be the result of demand-side and supply-side factors
 Demand side factors
 Changes in consumer preference
 Changes in consumer spending
 Supply-side factors
 Amount of competition
 type of competition
 Changes in amount, price and quality of competitors' products

 Factors affecting consumer spending pattern – non price factors

(knowledge)
 Changes in income – Increase in luxury goods , Rising disposable income
 Changes in population – rise/decrease in population , determines market size
 Change in tastes, habit and fashion- Reformulating ingredients lists ,
 Social and cultural factors – regional / historical influence , Affects quantity
demanded
 Seasonal factors- Responding to restrictions and limitations , Weather or legal
factors
 Technological changes- Rapid advancement of affordable goods, Rise in
obsolete stock and spending patterns

Knowledge Analysis Application Evaluation

change in as new technology becomes

technology available, the old versions of
products become outdated
and people want more
sophisticated features on
products
change in income the higher the income, the
more expensive goods
consumers will buy and vice
versa
ageing population in many countries, the
proportion of older people is
increasing and so demand
for products for seniors are
increasing (such as anti-
ageing creams, medical
assistance etc.)
The price of the
products

 How business respond to changes

 Markets are not static and change for many reasons
 In order to respond to market changes, businesses must invest in effective
market
 research and analysis to be prepared for change and to
 identify market trend
 Businesses which do not respond to change often fail.

Knowledge Analysis Application Evaluation

Efficient, low cost  Maintain low selling prices

production  Reduce investment into
wasted resources
Flexible production  Investment into high-tech
and modern machinery
 Fast-changing demand
Expanding into new  Diversifying a product to
markets meet different target
segments
 Changing the geographical
location to expand the
number of customers

 Why some market become competitive?

 globalisation
 developments in technology such as internet, social media
 improvements in transport links
 lower barriers to entry e.g. government intervention or changes to legal
controls OR free trade
 more businesses enter the market OR more products
 Government intervention in markets
 Legal controls that prevent individual firms from dominating the market
 Selling off public sector organisations to the private sector
 Deregulation
 Providing financial and other assistance to new and small to medium – sized
businesses
 Growth of free trade between countries
 Development of e-commerce and social media networks
Knowledge Analysis Application Evaluation

Might decide to relocate especially as some markets

or stop selling some have become more competitive
products
Government intervention  Legal controls that  Many countries such as India
in markets prevent individual have laws against anti-
firms from competitive behaviour
dominating the  Privatisation in 20120020of
market glen valley and Dikabeya
 Selling off public farms , Tanzania
sector organisations  Deregulation of postal
to the private sector services of New Zealand
 Deregulation
(removal of
government control  Small enterprise development
from an industry ) Agency in of South Africa
 Providing financial helped Inembe foods prove
and other assistance that their baby food was full of
to new and small to multivitamin and minerals
medium – sized and safe for babies . this
businesses helped inembe foods to
secure financial support
needed to set up production
facilities
Growth of free trade Reduces trade barriers
between countries
Development of e- Increased competition level Businesses developing their
commerce and social in the market own website and use social
media networks Increased consumer choices media to promote their product

 How business respond to competition (knowledge)

 Develops new products
 Improves efficiency
 Increased promotion
 Look for new markets

Knowledge Analysis Application Evaluation

Market research will help Help business to remain Information from the research
to gain information about competitive can be used to identify
product development customers needs and wants to
develop new product
Reduce average cost by Price being an important Lower average cost means
using resources efficiently factor . lower prices will now business can reduce
mean higher sales prices of products
Increase advertisement Higher sales Will persuade customers

Too much competition Where consumers are ready Better to look for new markets
to buy

 Definition of “niche market”

 Clear understanding [2] – e.g. highly specialised [1] sub part of a large market
[1]
 Some understanding [1] – e.g. small part of a market OR specialist market
OR part of the market with specific needs and characteristics

Knowledge Analysis Application Evaluation

Meet exact customer so able to charge in a niche market

demands OR unique higher price
Risk to reputation could lead to in this niche market
fewer sales

 Advantages of “niche market”

 less competition – the firm is a "big fish in a small pond"
 Clear focus - target particular customers (often easier to find and reach too)
 Builds up specialist skill and knowledge = market expertise
 Can often charge a higher price – customers are prepared to pay for expertise
 Profit margins often higher
 Customers tend to be more loyal

 Disadvantages of “niche market”

 Lack of "economies of scale" (these are lower unit costs that arise from
operating at high production volumes)
 Risk of over dependence on a single product or market
 Likely to attract competition if successful
 Vulnerable to market changes – all "eggs in one baske

 Definition of “mass market”

 Where a business sells into the largest part of the market, where there are
many similar products on offer
 Customers form the majority in the market
 Customer needs and wants are more "general" & less "specific"
 Associated with higher production output and capacity (economies of scale)
 Success usually associated with low-cost operation, heavy promotion,
widespread distribution or market leading brands


 Advantages of “mass market”

  Requires large scale production
 larger firms benefits from economies of scale , which reduces unit cost
 lager market has potential for high sales and profits
 changes in consumer pattern might have less effect
 less risk


 Disadvantages of “mass market”

 Much more competition which lowers prices and profit margins
 Not all markets are large enough to support mass marketing
 Consumers now look for more customised and different products rather than
same identical products from mass market

 Definition of ‘market segment”

 A market segment is an identifiable sub-group of a larger market in which
consumers have similar characteristics and preferences

 Definition of “market segmentation”

 Market segmentation implies break up of a market into subgroups which have
common characteristics.
 Clear identification of segments usually makes it easier to target marketing
expenditure more effectively
 Market segmentation divides the whole market into smaller segments, each
with similar features, such as:
• characteristics
• preferences
• buying habits

 Methods of “market segmentation”

 Demographic Segmentation
 Geographic Segmentation
 Psychographic Segmentation

 “Demographic Segmentation”
 It is used to create broad groupings of the population based on things such as
age, gender, location, religion, family size, etc.
 Income
 Religion
 Gender
 Education
 Occupation
 Marital Status
 Demographic segmentation is the simplest and by extension the most widely
used type of market segmentation.
 These are usually black and white groupings that give you a profile of whether
or not someone has the ability to buy what you’re selling.
  For example, if you have a product for people 21 and older then people under
that age group are irrelevant for you.
 Similarly, products targeted at men usually won’t be useful for women unless
you’re marketing it as the perfect gift.

Knowledge Analysis Application Evaluation

Age Different age groups may look at the variety of toothpaste

prefer different types of products for children and adults)
holidays and toys (e.g. pre-school, 5-9,
10-12, teen, family)
population might be broken
down into groups such as 18–
30/65+
Gender males and females demand
different types of the same
product
examples include the clothing,
hairdressing, magazine,
toiletries and cosmetics market
Income Many companies target rich
consumers with luxury goods
(e.g. Lexus, Bang & Olufsen).
Other businesses focus on
products that appeal directly to
consumers on low incomes (e.g.
Aldi and Lidl (discounted
groceries) and fast-fashion
retailers such as TK Maxx)
Social class people with high income will Many businesses believe that a
spend more consumers "perceived" social
class influences their
preferences for cars, clothes,
home furnishings, leisure
activities and other products &
services

 ” Geographic Segmentation”
 Dividing consumer in the market by geographic area
 Country
 Region
 City
 Weather
 Population density
 For example, someone in a rural area wouldn’t need a subway but someone in
a city would.
 Geographic segmentation can also be used to offer specific deals to your
potential customers.
  Lastly, you can use this type of segmentation to adapt the language and tone
of your messages.
 In Georgia, every soda is called coke until you ask a few clarifying questions.
In Chicago, soda is referred to as pop.

Knowledge Analysis Application Evaluation

Regions in the UK these might be

England, Scotland, Wales
Northern Ireland or (at a more
detailed level) counties or major
metropolitan areas
Countries categorised by size,
development or membership of
geographic region
City / town size population within ranges or
above a certain level
Population density urban, suburban, rural, semi-
rural

 “Psychographic Segmentation”
 Dividing consumers in the market by lifestyles , personalities and attitudes
 Lifestyle
 Opinions
 Attitudes
 Value
 This type of segmentation is based on the lifestyle, interest, and activities of
individuals that make up a customer segment.
 Demographic segmentation tells you someone is an older male while
psychographic segmentation tells you they go hiking on the weekends.

 Advantages of “market segmentation”

 More effective marketing - appeals to the price, place, product and
promotional preferences of the target customer.
 Easier to identify gaps in the market - products can be adapted to exploit
unmet needs.
 Increased sales and profits - a larger customer base with specific needs leads
to increased income.
 Better resource utilization

 Disadvantages of “market segmentation”

 If only business life was that simple. It isn't. Here are some key limitations with
market segmentation:
 Lack of information and data: some markets are poorly researched with little
information about different customer needs and wants
 Difficulty in measuring and predicting consumer behaviour: humans don't all
behave in the same way all of the time. The way that they behave also
changes over time! A good example is the "grey generation" (i.e. people aged
 over 50). The attitudes and lifestyles of the grey generation have changed
dramatically in recent years.
 Hard to reach customer segments once identified: it is one thing spotting a
segment; it is another finding the right way to reach target customers with the
right kind of marketing message

 Definition of “market research”

 Market research is the process of collecting, analysing and interpreting
information about a product.
 Award two marks for a full definition. Award one mark for a partial definition.
 Process of gathering, analysing and interpreting information about the market
[2]OR Process of collecting, recording and analysing data about customers,
competitors and market for a product [2]
 Partial definition e.g. find out what customers want [1] OR find out about
competition [1]
 Investigating the market so that features are better understood e.g. what
customers like/trends/buying habits.
 1 mark per feature identified or developed [2] Methods of market research
acceptable for 1 mark.
 Clear understanding [2]: e.g. Process of finding out what consumers want or
need [1] before a product is made [1]
 Process of finding out what consumers want or need [1]depending on age
group, income and location [1]
 Process of gathering (primary and secondary) data [1] on the buying habits
and attitudes of potential customers [1]
 Process of gathering data about customers, competitors and market trends
[2]
 Some understanding [1]: e.g. find out what customers want, find out about
competition

Knowledge Analysis Application Evaluation

What table shows Thus helps in Use of this information

The market research determining production
shows the size of the levels and promotional
market segments and activities/advertising
also gives an indication of campaigns.
different gender
involvement.

 Role of “market research”

 Market research results gives business information about
 Its customers
 Its competitors
 Its market

Knowledge Analysis Application Evaluation

Results were useful because they identified a Thus, they allowed

gap in the market/showed Garfred to be market orientated
what particular features and thus produce a product that
were valued by potential was
customers/showed that appealing, at appropriate prices,
 the market was expected to sold through distribution chains
grow/showed that choice that
was limited/ were suitable. All these factors
indicated the retail outlets should allow Garfred to launch
that young people use his new
product range successfully

 Methods of “market research”

 generic methods such as primary and secondary
 specific methods such as interview customers/questionnaires/ gather data
concerning pattern and level of sales/identify trends/use secondary data.
 Answers like the internet are not acceptable as these are a means not a
method.

 Importance of “market research” (knowledge)

 find out customer needs
 able to determine possible demand
 able to determine effective promotion/pricing strategies [k]
 limitations of market research [k]
 level of competition
 Help identify gaps in the market OR future trends


Knowledge Analysis Application Evaluation

find out customer needs so able to adapt/make

products that customers want
able to determine so know whether it is
possible demand worthwhile spending money
on developing the new
product
able to determine
effective
promotion/pricing
strategies
limitations of market sample size, who or what
research questions asked
Greater awareness of for towels and sheets [app]
(current) consumer
needs / preferences (only
once)
Help identify gaps in the
market OR future trends
[k]•
Find out about as in private sector
competitors OR size of [app]
the market
Helps set price which could help increase cash
inflow above $9000
Produce the correct That could help reduce cash
amount of products outflows which are too high
[app]
Reduces risks OR
products launched with
more confidence
Help decide how best to to retailers
promote its products
Help gain competitive
advantage

 factors that might affect the accuracy market research

 Wrong sample size
 Information may be out of date
 How carefully sample drawn up OR characteristics of people asked
 Way questions asked by interviewer
 Poorly written questions OR questions not relevant
 Who carried out the research
 Dishonest opinions OR people say what they think you want to hear

Knowledge Analysis Application Evaluation

Wrong sample size as may only have asked

local people
Information may be so may not like same
out of date types/blend of coffee
How carefully sample cannot just ask people
drawn up OR interested in ethical
characteristics of goods
people asked

 Why market research data might not be useful?

 Usefulness will be reduced if it is inaccurate/irrelevant/inappropriate.
 Thus if wrong people are asked or the wrong information is gathered it will be
of little value.
 Similarly it might be biased or a misrepresentation of consumer attitudes.
 Wrong / leading questions asked
 Wrong people asked/ not representative
 Wrong sample size

Knowledge Analysis Application Evaluation

Wrong / leading for a mass market product

questions asked
Wrong people asked/ as may not buy beauty
not representative products
Wrong sample size as may need to speak to
more than 2000

 Definition “unique selling point”

 The special feature of a product that sets it apart from competitor’s products
  Advantage’s of “market research” (Knowledge)
 better understand customer needs
 able to predict future customer requirements
 increased awareness of customers like and dislikes
 awareness of the type of customer who buys certain products
 construction of consumer profile
 size of market/market segmentation

Knowledge Analysis Application Evaluation

greater awareness of so able to produce so can adapt its phone/features

consumer needs products wanted to match what customers want
able to forecast likely Which can save business time so can improve focus of new
future trends and money product development
so fewer wasted components
appreciate the strength of so can change marketing
competitors strategy to compete
knowledge of consumers’ as first time entering
views of company country T
products/image
reduces risks/products as know what features
launched with more customers want
confidence
help gain competitive so better able to anticipate as can set effective
advantage or react to rivals pricing/promotion strategy to
suit country T’s customers
produce the correct to avoid wastage of expensive
amount of product parts
help them to identify new which could help them to or further increase its high
market opportunities increase sales of computers market share

 disadvantages of “market research”

 market research is expensive
 mistakes in research methodology
 might divert capital away from other areas
 business is product-orientated
 is a change necessary

Knowledge Analysis Application Evaluation

market research is which will increase costs

expensive
mistakes in research could lead to expensive
methodology production mistakes
wasting time and
resources
might divert capital of the business so not as
away from other areas effective
business is product- it sells computer on the it sells computer on the
orientated basis of technical basis of technical innovation
innovation
is a change necessary as the business has a
high market share
already

 Definition of “primary research”

 Clear understanding [2] – e.g. Collection of new data about potential and
existing customers.
 Some understanding [1] – e.g. Find out information about what customers
want.

 Advantages of “primary research”

 provides detailed qualitative information,
 consumers opinions can be obtained,
 likes and dislikes about the product can be obtained,
 information is up to date.

Knowledge Analysis Application Evaluation

It is expensive therefore may not spends a lot on packaging

be able to afford it
It is time consuming so how much more can she she has already done secondary
find out research
Collect precise so that she can on sweets
information produce the most
appropriate products
Secondary data may be Needs might have
outdated changed
Help better target especially as
promotion /in pricing new business
decisions
Up-to-date so able to make more such as whether to open the
accurate decisions café
Specific to her purpose

Information is not so may provide a competitive for this small shop

available to other advantage
competitors

 Disadvantages of “primary research”

 questions may not be well thought out therefore answers will not be very
accurate,
  time consuming,
 expensive,
 interviewer bias could lead to not very accurate results,
 people may not give real feelings so as not to cause offence.

Knowledge Analysis Application Evaluation

High cost which will to find out views on her bakery

increase her expenses
Takes long time to collect

Can be bias in questions leading her to make the

or how questions are wrong decisions
asked

 Methods of “primary research”

 samples
 questionnaires/survey
 consumer panel
 interviews
 observation
 focus group.

 Sampling
 To make sure a business gets a good range of results, it must create a
sampling strategy.
 The most common methods are random and quota sampling

 Types of Sampling

Knowledge Analysis Application Evaluation

Random every potential customer has customers from different social
an equal chance of being backgrounds
selected
Quota information collected from a
set number of people
representing different groups
Systematic people are selected from
set criteria
Cluster is targeting a particular
population in a small area

 Advantages of sampling 
Knowledge Analysis Application Evaluation
To reduce the time taken to sampling means reduced number takes a lot of
carry out the questionnaire of time to ask the whole
questionnaires have to be collated population
and analysed
To reduce the cost of reduced postage/time taken by reduced number
carrying out the staff to carry of questionnaires printed
questionnaire out questionnaire
More accurate or relevant as potential customers can be so answers only relate to
information targetted potential customers and results
are not influenced by answers
from people not interested in
the service

 definition of “questionnaires”
 Questionnaires are when a sample of people are asked a set of questions to
find out whether they are interested in products

 factors can affect the accuracy of the questionnaire data

 Sample size
 Location where questionnaire is carried out
 Questions

Knowledge Analysis Application Evaluation

Sample size Larger size will mean more

accurate results but more
expensive to carry out Smaller
sample size will mean there is
less likelihood of this being
representative of the market.
 Location where If carried out in the city then
questionnaire is carried may not ask people who are
out interested in van conversions –
so results will be less reliable
for camper vans or
motorhomes then the results
will be more accurate as people
interested in these conversions
will be sampled
 Questions asked If badly phrased questions are
asked then the results will be
less likely to be truly what the
respondents think

Closed questions will not gain

qualitative information

 factors questionnaire results would affect decision making

 pricing decisions
  product to be made
 services to be provided
 presentation of products
 target audience

Knowledge Analysis Application Evaluation

The results will affect the and if the restaurant is not and if the restaurant is not open
decision about the open when they want a takeaway
opening times so the when they want a takeaway then sales will be lost
business then sales will be lost Although in this questionnaire
is open when customers customers see opening times as
want to use it only quite
important with a score of 3

 Advantages of “questionnaires”
 estimate size of market
 Quantitative data
 Large amounts of information can be collected in a short period of time [k]
 Many people can be asked the same questions [k]
 Respondent has time to consider question so more likely to complete [k]
 Relatively easy to analyse (as standard responses) [k]
 Disadvantages of “questionnaires”
 Expensive to collect
 May not have expertise to collect accurate information
 Questions may be poorly worded OR difficult to phrase questions properly
 OR people interpret questions in a different way
 People may not tell the truth OR say what they think sounds good
 Simple questionnaires cannot tell the meaning behind a response [
 Customers may not return / fill in the questionnaires
 May have to pay someone with the right skills to design the questionnaire
 properly

Knowledge Analysis Application Evaluation

questionnaires about the low prices

Questionnaires could be carried out on the could be carried out on the

streets streets
to gather consumer opinions to gather consumer opinions
This will gather
the personal opinions of
consumers to find out their
particular needs for
dining sets
Questionnaire research is This makes the information This makes the information
first-hand information gathered about food gathered about food
gathered for the specific requirements for weddings requirements for weddings
purposes more useful as the questions more useful as the questions
set will be to find set will be to find
out exactly the information out exactly the information
required by QC. required by QC.
Many people can be helps increase thesample
asked the same size
questions
Respondent has time to as do not have to complete
consider question so whilst in shop
more likely to complete
Relatively easy to analyse so quickly able to do about poor customer service
(as standard responses) something to solve it
 Questions may so business makes the ] about the ice cream
be poorly worded OR  wrong decisions
difficult to phrase
questions properly
 OR people
interpret questions in a
different way

 Definitions of “Interviews and surveys ”

 this is where the applicant will be seen face to face and asked a series of
questions – this is to make sure the person hasn’t lied on their CV and to make
sure the person could do the job advertised and could fit in with the other
employee
 Advantages of “interviews”
 Qualitative information
 specific information on customer needs
 Cost-effective method of gathering quantitative and qualitative data
 Can target specific market segments
 Disadvantages of “interviews”
 Interviewer bias possible
 Expensive to collect
 Difficulty in encouraging participation - low response rates
 Time consuming to gather and analyse data
 Interviewer bias may be evident in the questions and methods of delivery

Knowledge Analysis Application Evaluation

interviews about the new shops

Interviews provide first Dilip will know what he information will be specific to
hand information. consumers think about the Dilip’s holiday houses as the
holiday houses and what questions asked in the interview
services they will be specific to them and may
would want as customers will find out how the houses should
be asked directly for their be decorated and how much
opinions the
customers would be willing to
Secondary research would pay for a 3–4 day holiday.
not provide information
specifically
about the plans that Dilip
has for the farm.
  Observation and test marketing
 trained researchers watch how consumers behave and interact in the market
 Advantages of “observation and test marketing”
 Cost effective in gaining large amounts of quantitative data
 Reduces the risk of promotional failure by testing small-scale consumer
reactions

 disadvantages of “observation and test marketing”

 Time consuming and often no qualitative reason for results
 Different groups in different regions may have different reactions so may be
hard to extrapolate

 Focus groups
 Clear understanding [2] e.g. customers OR people who have similar
characteristics to the target market who give their opinions on a product /
service
 Some understanding [1] that this is a form of market research e.g. provide
comments OR opinions about the product

 Advantage’s of “focus groups”

 Qualitative information
 Gathers a range of opinions in one time and place
 Creates discussion and different points of view from different participant
 Highly detailed responses OR chance to ask for explanations/follow up
questions
 Competitors do not have access to this information
 High cost
 Time consuming to set up/carry out

Knowledge Analysis Application Evaluation

Highly detailed which could allow her to such as whether to offer

responses OR make more informed the delivery service
chance to ask for decisions
explanations/follow
up questions
Some group leading to unreliable
members can results
influence what
others say
High cost which is not helpful at a
time when revenue has
fallen
 Disadvantages of “focus groups”
 Answers may be influenced by other group members.
 Time taken to set up
 Time consuming and expensive to set up
 Members may be influenced by other reactions and may not give true opinions

 Reasons for inaccurate primary data research

 Sampling bias: The sample chosen may not be representative of the customer
base.
 Questionnaire bias: Misleading or badly worded questions influence answers.
 Response bias: Some respondents may not give accurate answers due to
many factors including image, politeness and misremembering data.
 Poor questionnaire design: Questions may be too open-ended or guiding.
Confusing questions may result in respondents giving any answer. Questions
may force respondents into answering in the preferred fashion.
 Poor use of open and closed questioning : Closed questions (limited to yes',
'no' or a specified answer) are useful for an initial factual answer, but should
be followed by an open (opinion-based) answer to elaborate on the reason.
 Not testing the questionnaire: It is important to identify and fix any faults by
testing the questionnaire first

 Definition of “secondary research”

 Clear Understanding [2] –e.g. Information about the market / customer needs
or competition [1] that is already available / collected by other agencies [1]
 Some Understanding [1] – e.g. Simple idea such as information already
collected [1] / or what market research is e.g. information about the market or
finding out what people want [1] Do not accept examples
 Desk research [0]

 Methods of “secondary research”

 Government statistics
 Newspaper OR magazine articles
 Internet OR online sources
 Paying for market research agencies
 Trade associations reports

 Advantages of “secondary research”

 a lot of information readily available,
 can be cheap to obtain,
 may not be time consuming
 May be on a larger scale than own research
 Low cost way to gain information
 Readily available
 May be out of date
  Disadvantages of “secondary research”
 information may be out of date,
 gathered for some other purpose,
 information may not be accurate,
 specialist market research agency sources of secondary information can be
expensive
 may not be reliable/accurate
 may not be representative of views generally
 might already be known

Knowledge Analysis Application Evaluation

Low cost way to gain so money saved can be used

information for other purposes
 Readily available so decisions can be made ] about whether to increase
quickly prices
 May be out of which means the
date information may not be
relevant

 Reasons for inaccurate primary data research

 Sampling error: The original research may not have had the same target
audience, so the data may be collected from a different perspective.
 Bias in original analysis: The original analysis may have had differing
influencing factors which may have distorted the analysis of the raw data,
creating misleading secondary data.
 Out of date data: Statistics and factual data may change quickly as external
factors affect market conditions and trends.

 Definition of “ Postal surveys”

 Questionnaires are posted to peoples home and they are asked to complete
and return them

 Advantages of “postal surveys”

 Views of population over a geographical area
 Cheaper than interview method


 Disadvantages of “postal surveys”

 Seen as junk mail and ignored
 Low response rate
 Might contain bias

 Definition of “online surveys”

  Using internet and their own websites to carry out surveys

 Advantages of “online surveys”

 Wide geographical area
 Results can be instantly collected and analysed

 Disadvantages of “online surveys”

 Often seen as electronic junk mail
 Only those with keen interest might participate and respond to it

 Presenting and using market research results

 Tables: Tables are useful for showing series of numerical data. They usually
contain descriptions and lists and quantitative values. Tables are not useful for
showing qualitative data
 Charts and graphs: Charts and graphs are useful for presenting quantitative
data visually. Totals, amounts and changes can be easily compared over time.
 Bar charts and line graphs are useful for showing the relationship between two
or more different sets of data.
 Pie charts are used to visualize the different proportions of a whole value.
 The bigger the slice, the bigger the proportion of the whole value.


 Definition of “marketing mix”

 The marketing mix deals with the way in which a business uses price, product,
distribution and promotion to market and sell its product.
 The marketing mix is often referred to as the "Four P's" - since the most
important elements of marketing are concerned with:

 Product - the product (or service) that the customer obtains

 Price - how much the customer pays for the product
 Place – how the product is distributed to the customer
 Promotion - how the customer is found and persuaded to buy the product
 It is known as a "mix" because each ingredient affects the other and the mix
must overall be suitable to the target customer.

 Definition of “product”
 Goods and services produced to satisfy a customer need or want
 This definition therefore includes both:
 Physical products – e.g. trainers, games consoles, DVD players, take-away
pizzas
 Services – e.g. dental treatment, accountancy, insurance, holidays, music
downloads

 Importance of a “product”
 it does not matter how good the packaging is if the product does not meet the
need of the consumer
  the product needs to be fit for purpose and fulfill the role intended - poor
design or unreliability may damage the reputation of the product and the
business
 the product components must meet the target audience and match their
ability to purchase

 Types of products
 consumer goods- consumed by people (final users of the product)
 consumer services- services for people
 producer goods- goods produced for other businesses to use (e.g. machines,
raw materials)
 producer services- Services for other businesses (e.g. Corporate lawyers,
business consultants)

 What makes a “product” successful

 Satisfies consumer needs and wants
 Low production cost to make profit
 Quality of the product that is kept consistent with the product image
 Introduced to the market before competitors
 Unique

 “product development”
 To stay competitive, businesses must develop new products. This can mean:
 redesigning previous version
 creating new products.

 Process of product development

 Generate ideas: the firm brainstorms new product concepts, using customer
suggestions, competitors’ products, employees’ ideas, sales department data
and the information provided by the research and development department
 Select the best ideas for further research: the firm decides which ideas to
abandon and which to research further. If the product is too costly or may not
sell well, it will be abandoned
 Decide if the firm will be able to sell enough units for the product to
be a success: this research includes looking into forecast sales, size of
market share, cost-benefit analysis etc. for each product idea, undertaken by
the marketing department
 Develop a prototype: by making a prototype of the new product, the
operations department can see how the product can be manufactured, any
problems arising from it and how to fix them. Computer simulations are
usually used to produce 3D prototypes on screen
 Test launch: the developed product is sold to one section of the market to
see how well it sells, before producing more, and to identify what changes
need to be made to increase sales. Today a lot of digital products like apps
and software run beta versions, which is basically a market test
 Full launch of the product: the product is launched to the entire market

 Advantages of “developing a new product”

 meet a gap in the market
 be a noticeable improvement on the previous version
  be benchmarked against competitors to ensure additional features
 in fast changing markets, such as those involved with hi-tech products a
business will not survive unless it meets the changing needs and expectations
of customers
 developing a new products before competitors will bring competitive
advantage.
 Increase sales, revenue, profit
 Helps in diversification – spreads risk
 Developer might enjoy economies of scale

 Disadvantages of “developing new products”

 costs of developing products are high
 market research is needed – high expenses
 requires new capital expenditure
 if investment for new product is financed by borrowing and the product is not
successful then it could threaten survival of business

 Definition of “brand image”

 General impression of a product held by consumers
 Allows business to distinguish its products from competitors

 Advantages of “brand image”

 Consumers can easily recognise products
 Increases sales revenue
 Easier to launch product on the market because consumers already know and
trust the brand
 If the brand is well know higher prices can be charged on a product

 How to create “brand image”

 Creating a unique brand name for the business
 Advertising to reinforce the brand image
 Use of social media
 Creating an easily recognised logo
 Using easily recognisable colour scheme
 Advertising using a jingle that makes it easily recognisable
 Slogan that is easily remembered
 Public Relations (PR) to create a positive brand image
 Sponsorship to increase recognition of the brand
 Establish an image of good quality

Knowledge Analysis Application Evaluation

A brand image allows a and without a brand image BB BB produces high quality
business to charge a may find it more difficult to handbags using the best quality
higher price for its charge high prices leather
products This makes it important to
because customers think BB as it needs to charge higher
it is of a higher quality. prices to cover its higher leather
costs in order
 to make a good profit for the
company

 Definition of “packaging “
 materials used to wrap or protect goods.
 It is the physical container or wrapping for a product. It is also used for
promotion and selling appeal.

 Role of “packaging”
 Protection
 Protects the product
 Easy for transportation
 Allows the product to be used easily
 Suitable for the product
 Promotes the product
 Attractive and appealing to customers
 Consistent with the brand image of the product (e.g. High end product in a
fancy packaging)

 Definition of “product life cycle”

 The term ‘product life cycle’ means changes in the level or pattern of sales of
a product over time [2]
 Content: product life cycle shows the level or pattern (stages) of the sales of a
product [1]over time [+1]
 Two marks can be gained by two different routes:
 • reference to time and level of sales [2]
 • simple answer like sales change supported by correct statement of the
product stages[2]. E.g.: Shows how sales rise and eventually fall. It covers the
period from launch through to decline [2].
 To gain 2 marks, the answer must include reference to both pattern/level of
sales and time either stated or at least implied, for example by a starting and
end point.
 Answers like ‘shows sales’ [0] and ‘sales over time’ [1]
 as one product is developed and 'born, another will be entering the decline
stage of its life cycle
 The product life cycle refers to the stages a product goes through from it’s
introduction to it’s retirement in terms of sales.

 Stages of “product life cycle”

 Development
 Introduction
 Growth
 Maturity
 Saturation
 Decline

 Definition of “development stage”

 Product is being developed, The business is spending money on research and
development
 There are no sales at this time.
  Definition of “introduction stage”
 Product is introduced onto the market, sales are starting to grow.
 Informative advertising is used to make consumers aware of the product.

 Definition of “growth stage”

 Sales are growing rapidly, Persuasive advertising is used. Prices are reduced
as competitors introduce their product to the market.
 Profits are now being made as the development costs have been covered.

 Definition of “maturity stage”

 Clear understanding [2]: e.g. when rate of increase of sales falls and perhaps
absolute sales show signs of falling. It is usually associated with the peak level
of sales.
 Some understanding [1]: identifies one feature e.g. sales start to peak, rate of
growth slows rivals enter market, prices/profits start to fall, positive cash flow

 Definition of “saturation stage”

 Sales have reached its highest point. Growth has stopped. Competitive pricing
is used.

 Definition of “decline stage”

 Sales of the product has started to fall, Eventually, the product will be taken
out of the market.

 Definition of “extension strategies”

 Extension strategies usually involve new uses/new features/revamped
image/new users targeted/repositioned in market/new points of sale.
 To be credited the points must clearly be extension strategies and not just
selling [marketing] strategies.
 Thus, no credit for lower prices or more advertising.
 Extension strategies can be used to prolong the life of a product. This is
usually done with products which have high brand recognition and an
established market position.

 Advantages of “extension strategies”

 New flavours or colours
 Additional services
 New advertising campaigns
 New markets

Knowledge Analysis Application Evaluation

add new features so more attractive to

existing/new customers
create new uses for
these products
sell to new target to widen customer base
markets/segments
rebranding by creating
a different image and
so appealing to new
market segments

 Definition of price
 Price is the amount of money producers are willing to sell or consumer are
willing to buy the product for.

 Methods of “pricing”
 Market skimming
 Penetration pricing
 Competitive pricing
 Cost plus pricing
 Loss leader pricing/Promotional pricing

 Definition of “market skimming”

 Charging a high initial price to cover research and development costs in a
monopolistic market

 Features of “market skimming”

 A high price is set to maximise short -run profits
 When competitors enter the market with a similar product then this will cause
a price to fall

 Uses of “market skimming”

 New products that are unique or very different from other products on the
market

 Advantages of “market skimming

 High profits
 Covers research and development
 costs quickly
 Takes advantage of early adopters
 High price enables the firm to recover research and development costs which
are often very high for products such as pharmaceutical products and hi tech
goods
 High price may help the firm to create a quality image for its products.

 Disadvantages of “market skimming”

 Unsuitable for competitive
 markets
 Only early adopters will buy while
 most will wait for the price to fall
 high profits will eventually attract cheaper competitors products
 some customers wont buy because of high prices and thus loss of sales
  Definition of “penetration skimming”
 Setting low initial prices (may be below average cost of production)

 Features of “penetration skimming”

 The prices set lower than similar products already on the market to encourage
high volume of sales and build customer loyalty

 Uses of “penetration skimming”

 Used for new products that are competing with similar products already
established in the market

 Advantages of “penetration skimming

 Quick to build customer base
 Fast sales growth and increased
 market share
 Keeps costs low
 May force other businesses out of the market
 Attracts customer more quickly
 Helps product to become more established
 Can increase market share quickly

 Disadvantages of “penetration skimming

 Sacrifices profit for market share and brand awareness
 May not gam loyal customers who will pay normal’ prices
 Possible loss of revenue due to lower prices
 Cannot recover

 Definition of “competitive skimming”

 Benchmarking against a competitor price

 Advantages of “competitive skimming

 Ensures a business can compete on price
 Useful for price-sensitive customers
 Can meet the requirements of the market

 Disadvantages of “competitive skimming

 Price may not cover production costs
 Customers may not be price sensitive
 Incorrect or flawed competitor pricing
 Can start destructive price wars

Knowledge Analysis Application Evaluation

Competitive pricing so able to respond to increased

competition
  Definition of “promotional skimming”
 Setting low prices for a short period of time to boost customer interest

 Advantages of “promotional skimming

 Increases product sales
 Expands customer base quickly
 Takes market share from competitors

 Disadvantages of “promotional skimming

 Profit sacrificed for revenue
 May start a price war
 May only attract short-term
 price-sensitive customers

Knowledge Analysis Application Evaluation

Promotional pricing can help attract new so able to gain different market
customers segments

 Definition of “cost-plus skimming”

 Clear understanding [2] e.g. the price is based on the cost of making a product
[1] and the addition of a fixed percentage for profit/mark up [+1].
 Some understanding [1] e.g. Basic idea that price is related to cost.
 Some understanding + example [2].

 Advantages of “cost-plus skimming

 Cost plus ensures costs are covered
 Easy to calculate
 Cost plus might be uncompetitive
 Depends on objectives of business
 Level of competition / state of market
 Know their profit margin / profit per item
 Different mark ups could be added

 Disadvantages of “cost-plus skimming

 Could lose sales if selling price higher than competitor
 Price might be set higher than competitors or more than customers are willing
to pay, which reduces sales and profits
 Does not consider what competitors do so price set might be uncompetitive
 Does not take account of changes in demand OR spending patterns
 Little incentive to control costs
 Prices could be higher than competitors
Knowledge Analysis Application Evaluation

Cost plus ensures and they can make a profit so can break even at 200
costs are covered per item rooms per month

Other methods so might end up making

might increase a loss
break-even point
Easy to calculate so can work out their
profit margin
Cost plus might be as price set too high
uncompetitive
Competitive pricing so able to respond to increased
competition
Different mark ups for the 5 styles
could be added

 How to choose a pricing method

 Is it a new or existing product?
If it’s new, then price skimming or penetration pricing will be most suitable. If it’s
an existing product, competitive pricing or promotional pricing will be
appropriate.
 Is the product unique?
If yes, then price skimming will be beneficial, otherwise competitive or
promotional pricing.
 Is there a lot of competition in the market?
If yes, competitive pricing will need to be used.
 Does the business have a well-known brand image?
If yes, price skimming will be highly successful.
 What are the costs of producing and supplying the product?
If there are high costs, costs plus pricing will be needed to cover the costs. If costs
are low, market penetration and promotional pricing will be appropriate.
 What are the marketing objectives of the business?
If the business objective is to quickly gain a market share and customer base,
then penetration pricing could be used. If the objective is to simply maintain
sales, competitive pricing will be appropriate.

 reasons why using the right pricing method is important

 Help attract customers
 Help retain customers
 Maintain OR create business image
 Remain competitive OR don’t lose customers to competitors
 Ensure cover costs OR survival
 Ensure business makes a profit
 “price elasticity of demand “
 The PED of a product refers to the responsiveness of the quantity demanded
for it to changes in its price.
 PED (of a product) = % change in quantity demanded / % change in price
 When the PED is >1, that is there is a higher % change in demand in response
to a change in price, the PED is said to be elastic.

 “price in elasticity of demand”

 when a small increase in the price of a product causes a small fall in total
demand and sales, or
 when a small decrease in the price of a product causes a small rise in total
demand and sales
 When the PED is <1, that is there is a lower % change in demand in response
to a change in price, the PED is said to be inelastic.

 Definition of “place”
 Place refers to how the product is distributed from the producer to the final
consumer
 There are different distribution channels that a product can be sold through.

 Definition of “channel of distribution”

 A channel of distribution is the route taken by a product as it passes from the
producer to the customer.
 Distribution is one element of the marketing mix.
 Thus it is important as part of an overall strategy of generating sales.[1-2]

 Definition of “wholesaler”
 A wholesaler is a business that buys and stores products in bulk and sells
smaller quantities to retailers

 Definition of “retailer”
 Shops and other outlets that sell goods and services to the final consumer

 Definition of “middlemen”
 These are the intermediaries in the channels of distribution , for example
wholesalers and retailers

 “producer-consumer channel”
 called a "direct-marketing" channel, since it has no intermediary levels.
 In this case the manufacturer sells directly to customers.
 An example of a direct marketing channel would be a factory outlet store.
 Retail outlets owned by the producer; online or mail order

 Advantages of “producer-consumer channel”

 Retain full control of distribution channel
 Build close customer relationships
 Lower distribution costs
  Low-cost advertising online

 Disadvantages of “producer-consumer channel”

 Large cost of bulk deliveries
 Large investment into infrastructure
 Online sales may have large courier costs

 “producer- retailer -consumer channel”

 contains one intermediary.
 In consumer markets, this is typically a retailer.
 The manufacturer will sell its products to a retailer (who will have stocks of
products from other manufacturers as well) who will then sell them to
customers who visit the shop.
 For example, brands like Sony, Canon and Panasonic sell their products to
various retailers.

 Advantages of “producer-retailer-consumer channel”

 the cost of holding inventories of the product is paid by the retailer
 The retailer will pay for advertising and other promotional activities
 Retailers are more conveniently located for consumers

 Disadvantages of “producer- retailer -consumer channel”

 The retailer takes some of the profit away from the producer
 The producer loses some control of the marketing mix
 The producer must pay for delivery of products to the retailers
 Retailers usually sell competitors’ products as well

 “producer- wholesaler-retailer -consumer channel”

 The manufacturer will sell large volumes of its products to a wholesaler
(wholesalers will have stocks from different manufacturers).
 Retailer will buy small quantities of the product from the wholesaler and sell it
to the consumers.
 One good example is the distribution of medicinal drugs.

 Advantages of “producer- wholesaler -retailer-consumer channel”

 Wholesalers will advertise and promote the product to retailers
 Wholesalers pay for transport and storage costs

 Disadvantages of “producer- wholesaler -retailer -consumer channel”

 Another middleman is added so more profit is taken away from the producer
 The producer loses even more control of the marketing mix

 “producer-agent- wholesaler-retailer -consumer channel”

 The manufacturer will sell their products to an agent who has specialized
information about the market and will know the best wholesalers to sell them
to.
 This is common when firms are exporting their products to a foreign country.
 They will need a knowledgeable agent to take care of the products’
distribution in another country
 Advantages of “producer- agent- wholesaler -retailer-consumer
channel”
 The agent has specialised knowledge of the market
 Save time for the producer as they don’t have to take care overseas
distribution

 Disadvantages of “producer- agent-wholesaler -retailer -consumer

channel”
 Another middleman is added so even more profit is taken away from the
producer
 May lose control of how the product is sold to customers

 Factors affecting place decision

 The type of product it is: if it’s sold to producers of other goods, distribution
would either be direct (specialist machinery) or wholesaler (nuts, bolts, screws
etc.).
 The technicality of the product: as lots of technical information needs to
be passed to the customer, direct selling is usually preferred.
 How often the product is purchased: if the product is bought on a daily
basis, it should be sold through retail stores that customers can easily access.
 The price of the product: if the products is an expensive, luxury good, it
would only be sold through a few specialist, high-end outlets For example,
luxury watches and jewellery.
 The durability of the product: if it’s an easily perishable product like fruits,
it will need to be sold through a wide amount of retailers to be sold quickly.
 Location of customers: the products should be easily accessible by its
customers. If customers are located over the world, e-commerce (explained
below) will be required.
 Where competitors sell their product: in order to directly compete with
competitors, the products need to be sold where competitors are selling too.

 Definition of “promotion”
 marketing activities used to communicate with customers and potential
customers to inform and persuade them to buy a business’s products.
 Promotions are marketing communication designed to influence customer
behaviour and spending decisions.

 Uses of “promotion”
 Increase demand
 Inform customers of product features
 Expand the consumer base
 Retain customer loyalty
 Create brand loyalty

 Aims of “promotion”
 Promotional activities have a variety of aims:
 To inform current and potential customers about the existence of products
 To explain the potential benefits of using the product
 To persuade customers to buy the product
 To help differentiate a product from the competition
 To develop and sustain a brand
  To reassure customers that they have made the right choice

 Types of “promotion”
 Advertising
 Sales promotion
 Personal selling
 Direct mail
 Sponsorship

 Definition of “advertising”
 Paid-for communication with consumers which uses printed and visual media
 The aim is to inform and persuade consumers to buy a product

 Aims of “advertising”
 create awareness
 improve recognition
 increased sales
 influence and persuade potential customers
 remind and reinforce messages
 maintaining sales
 improving brand image

 Types of “advertising”
 Informative advertising
 Persuasive advertising

 Definition “informative advertising”

 Information about the product communicated to consumers to create product
awareness and attract their interest
 to provide relevant information
 to provide factual information
 to increase product credibility and desirability.

 Definition “persuasive advertising”

 Communication with consumers aimed at getting them to buy a firm’s product
rather than a competitor’s product
 to create a customer want
 to boost sales of a particular product
 to meet target segment requirements
 to create and reinforce a brand image.

 Advantages of “advertising”
 Provides information
 May help increase consumer’s standard of living
 Increases sales, production, employment
 May lead to economies of scale for the firm which may lower price of product
for customers
 Creates competition between firms which may also lead to lower prices
 TV and newspapers are subsidized through the advertising revenue
 Employment opportunities created
 Disadvantages of “advertising”
 Higher prices/ unnecessary cost
 May lead to exploitation
 Tempting people to buy what they do not need or cannot afford
 Encouraging them to buy products that may be harmful
 Creating a materialistic society who think more emotionally than rationally
 Encourages the wrong kind of values and behaviour

 Definition of “advertising budget”

 Advertising budget is a financial statement of the total advertising expenditure
for next year broken down on an individual allocation basis. [2]
 Some understanding of a budget [1]

 Definition of “above the line promotion”

 Above-the-line promotions are communications using mass advertising media
 e.g., advertising on TV or in the newspapers.
 Though it can be targeted, it could be seen by anyone outside the target
audience. Advertising is the main methods of above-the-line promotion.

 Methods of “above the line promotion”

 National newspaper
 Regional and local newspapers
 Magazine
 Radio
 Television
 Posters and billboards
 Internet
 Leaflets
 Others

 Advantages of “national newspaper”

 Newspapers are bought by a large number of people.
 A lot of product information can be provided in an advertisement.
 Readers can keep the newspaper and refer back to an advertisement.
 It is reasonably inexpensive to advertise

 Disadvantages of “national newspaper”

 Most newspapers are only in black and white.
 Small advertisements tend to get ''lost "among others.
 Readers often ignore advertising sections.
 Sales are falling due to more online news.

 Advantages of “regional and local newspapers”

 Advertisements can be linked to local products, features and events.
 Advertisements can be used to test market promotions before national launch.

 disadvantages of “regional and local newspapers”

 Most of these are only in black and white and reproduction can be poor.
  The average cost per reader is relatively high due to limited circulation

 Advantages of “magazines”
 Advertisements can be linked to featured articles.
 Advertisements can be targeted at specific magazines and the consumers who
read them for example, gardening, travel, sports and car magazines.

 disadvantages of “magazines”
 Advertisements often have to be submitted a long time before publication.
 Magazines may only be published weekly or monthly.
 Advertising in magazines is more expensive than in newspapers.
 Competitors' products are often displayed on the same page.

 Advantages of “radio”
 Creative use can be made of sound including music.
 Advertisements are relatively cheap to produce and broadcast.
 There are a growing number of digital stations.
 Advertisements can be targeted at different stations and audiences
 for example, younger people listening to pop music stations.

 Disadvantages of “radio”
 Visual messages cannot be broadcast,
 The advertisement is often short-lived.
 Consumers may not listen to advertisements.
 Radio has more limited audiences than national newspapers and television

 Advantages of “television”
 Creative use can be made of moving images, colour, music and sound.
 There are large audiences.
 Repeats can reinforce messages.
 Advertisements can be targeted at different audiences by type of programme,
for example, for insurance and security systems during police dramas.

 Disadvantages of “television”
 Production and broadcast costs are high, especially at peak times.
 Advertising messages are usually short -lived.
 Television audiences may use advertising breaks in programmes for other
activities, for example, to make a drink or go to the toilet.

 Advantages of “movies”
 Creative use can be made of moving images, colour, music and other sound.
 Advertisements can be targeted at different audiences by type of movie, for
example, advertising toys, fizzy drinks and sweets during cartoon movies.

 Disadvantages of “movies”
 These have more limited audiences than television and some other media.
 Messages cannot be reinforced by repeat showings.

 Advantages of “posters and billboards”

 These offer cheap and permanent displays.
  They can be placed in areas where many people drive or walk by or where
people have to wait, such as platforms at train stations

 Disadvantages of “posters and billboards”

 Messages can be missed as people often ignore them or pass by very quickly.
 Posters and billboards can only provide limited information.
 They are susceptible to vandalism and adverse weather conditions

 Advantages of “internet”
 It is easy and relatively cheap to develop a website and sell products online.
 Websites can deliver information in an attractive way to large numbers of
potential consumers all over the world.
 Up-to-date and personalized promotional messages and product offers can be
targeted at different groups of consumers using emails and via social media,
including Facebook and Twitter.

 Disadvantages of “internet”
 This is a cheap form of advertising, especially for small, local businesses such
as restaurants and repair shops.
 Leaflets can be handed out to a wide range of potential customers near the
business.
 Leaflets can contain discount codes or money-off coupons to encourage
people to keep and use them to make purchases.

 Definition of “below the line promotion”

 used to support and reinforce above-the-line promotions.
 They are designed to pull consumers into shops

 Definition of “sales promotion”

 Sales promotion is the process of persuading a potential customer to buy the
product.
 using techniques such as ‘buy one get one free’, occasional price reductions,
free after-sales services, gifts, competitions, point-of–sale displays (a special
display stand for a product in a shop), free samples etc. to encourage sales.

 Types of “sales promotion”

 After-sales services -
 Gifts
 BOGOF
 Price reduction
 Competitions
 Point of sale displays and demonstration
 Free samples
 Product placement

Knowledge Analysis Application Evaluation

BOGOF/special offers attract customers to e.g. buy a cake get 5 balloons

buy as get more when buy free
certain product [an]
Sponsorship/public improves the image of the
relations business
Point of sales displays as attracts attention of
customers [
Gifts increases the attractiveness
of the product
Trade shows/events reaching a wider target
market
Competitions to have a chance of people will buy the party items
winning the prizes [an] from Party Pops
Promotional pricing as price becomes
OR short term more affordable [an]
discounts
Free samples s people are able taste sushi
before they buy [app]

[app] raising awareness of

the product[an]

 “after – sales services”

 After-sales service involves providing support for customers who have bought
a product or service from a business.
 For example, a business might provide assistance to a customer who has
bought a new computer and needs help using it.
 Offer after sales services such as free bike service so that customers are
tempted to choose their products over rivals

 “BOGOF”
 Buy one get one free
 Provides incentive for customers to buy many items which could lead to an
increase in revenue
 Helps business get rid of inventory more quickly
 Could create a lot of waste as encourages people to buy more than they need
 May devalue brand image as may not be seen as such high quality
 May run out if products are popular causing customer dissatisfaction
 Costs money to implement

 “gifts”
 a free product when buy another product
 Often a business will encourage customers to buy by offering a free gift with
its product.
 For example, fast food companies give away toys with children’s meals, or
some products include tokens in their packaging which have to be cut out and
posted off in order to claim the free gift.

 Discounts/price reduction
  Price discounts help shift stock at the expense of reduced profit margins.
 Therefore there are some advantages but gains not entirely clear e.g. sales
rise which is useful when stock is old or going out of fashion.
 Clearly better to generate some revenue than no revenue.
 However margins are lower and customers might wait for sales next year
causing long term problems.
 By offering products at a reduced price for a set period of time, a business can
offer customers better value,
 for example 20% off the price of a brand of washing-up liquid.
 This can encourage customers to buy more or to buy from them rather than a
rival company.

 Point of sale displays

 Point of sale displays are to be found at the checkout, for example at
supermarkets.
 The point of sale display is most commonly designed to attract the customer
to products that are new,
 for example the latest DVDs, books or video games.

 Loyalty cards
 Loyalty cards can encourage a customer to keep coming back to the same
business.
 Most commonly, loyalty cards operate on a points-based system.
 The more that a customer spends in a shop, the more points are added to
their loyalty card.
 These points can then be converted into some sort of reward, for example a
discount on other products.

 Free samples
 Many food companies will offer free samples as a way to let potential
customers test a product.
 For example, supermarket shoppers will be given the chance to taste a new
snack.
 The idea is that people will try the product and hopefully like it, encouraging
them to buy.

 Competitions
 buying the product will allow the customer to take part in a chance to win a
prize
 Great way to gain email sign ups
 Helps you raise your profile
 It will create a buzz on social media

 Advantages of “sales promotion”

 Effective at achieving a quick boost to sales
 Encourages customers to trial a product or switch brands

 Disadvantages of “sales promotion”

 Sales effect may only be short-term
 Customers may come to expect or anticipate further promotions
  May damage brand image

 Definition of “personal selling”

 sales staff communicate directly with consumer to achieve a sale and form a
long-term relationship between the firm and consumer

 Definition of “direct mail”

 also known as mailshots, printed materials like flyers, newsletters and
brochures which are sent directly to the addresses of customers.

 Definition of “sponsorship”
 payment by a business to have its name or products associated with a
particular event. For example Emirates is Spanish football club Real Madrid’s
jersey sponsor- Emirates pays the club to be its sponsor and gains a high
customer awareness and brand image in return.
 Sponsorship will increase customer awareness/raise profile of business/create
goodwill/
form of advertising.

 Definition of “marketing budget”

 Good knowledge: [2] e.g. a financial plan or forecast for the marketing of a
product for a specified period of time
 Some knowledge: [1] e.g. a financial plan or sum of money put aside for
marketing

 Definition of “e-commerce”
 E-commerce can reduce marketing costs, increase brand control and increase
the sales of a business.
 E-commerce can be used to promote and sell products and services direct to
the consumer.
 Search engines including Google, Bing and Baidu enable customers to search
and compare through websites to find the best prices for the specific product
required.

 Advantages of “e-commerce TO Business”

 Websites are a cheap way of marketing and selling to consumers all over the
world.
 A business can attract more customers through a website than through using
other methods.
 It saves money buying or renting retail outlets and on the employment of retail
staff.
 Businesses can search for low-cost providers of the goods and services they
need.
 Information about customers and their purchasing histories can be recorded
easily and used to target email
 promotions about product offers and discounts to different customers.

 Disadvantages of “e-commerce to business ”

 It increases competition between businesses, including with firms located
overseas. Domestic firms may lose custom and revenue.
  Increased competition may force some shops and shopping chains to close
down.
 Staff will need to be trained to maintain and update websites and to deal with
online ordering, payments and distribution.
 Businesses must protect themselves from online fraud and credit card scams.
If they do not, it may stop customers from shopping online.
 Website design and maintenance costs can be high

 Advantages of “e-commerce to consumers”

 Consumers can choose to buy from a wider variety of goods and services and
from a greater number of suppliers based in different countries.
 Increased competition between businesses using e-commerce can help to
reduce prices and improve product quality and customer services.
 Consumers need not spend so much time and money travelling to shops. This
can also help reduce road congestion and pollution.

 Disadvantages of “e-commerce to consumers ”

 Increasing online shopping may force local shops to close. Consumers without
internet access will have less choice and may have to travel further to shops
 Consumers may have to take time off work to accept deliveries of goods
purchased online. It may be more difficult to return damaged or faulty goods
than to simply take them back to a shop.
 Despite security measures, online fraud is rising.
 Consumers' personal credit card and bank details are being stolen and
misused by online criminal hackers.
 Consumers may receive irritating and unwanted email promotions and spam
emails.

 Definition of “social networking”

 Social media is fast overtaking television, the internet and radio as a means of
advertising.
 Social media is a fast and low-cost method of two-way communication with
customers

 Definition of “social; media marketing”

 Is a form of internet marketing that involves creating and sharing content on
social media networks in order to achieve marketing and branding goals
 It includes activities such as posting texts and image updates , videos and
other content that achieves audience engagement, as well as paid social
media advertising

 Definition of “viral marketing”

 It is when consumers are encouraged to share information online about the
products a business

 Uses of “social media”

  Social networking sites (e.g., Facebook)
 Location-based marketing websites (e.g., tourist websites)
 Microblogging sites (e.g., Twitter)
 Blogging (e.g., WordPress, Tumblr)
 Video hosting platforms (e.g., YouTube)

 Advantages of “social media”

 It is a cost-effective way of reaching a large number of potential customers
around the world.
 Many forms of social media allow businesses to target specific groups, often in
particular locations.
 Many forms of social media are free.
 Promotional messages can be updated quickly and easily as market conditions
change.
 Consumers in the target market will see the marketing messages and
advertisements as soon as they enter social networking sites.
 Messages can be personalized and two-way, allowing customers to correspond
directly with the business thereby creating good customer relationships and
loyalty

 Disadvantages of “social media”

 Some consumers may find pop-ups and constant messaging from many
different businesses annoying and may ignore them.
 Pop-up advertisements need to be paid for and can be expensive. Businesses
also have less control over how their advertisements are displayed by the host
site.
 Some promotional messages may be changed by social media users and
forwarded on to others with the intention of ridiculing a business and
damaging its reputation.
 The governments of some countries restrict the use of social media.

 Legal controls on marketing\Protection of consumers

 Common consumer protection laws protect against:
 unsafe goods or services
 goods that do not match the advertised claims
 goods that do not meet regulations on quality and/or condition
 false written and verbal product descriptions
 using inaccurate measurements
 failing to identify and explain hidden feeds, charges or taxes
 unhygienic preparation conditions
 offensive or indecent advertising

 The impact of complying with consumer law

 Cost increase
 Increased business reputation
 Reduced number of complaints
 Increased customer confidence

 Marketing in foreign markets

  As existing markets reach saturation levels, new markets must be found to
increase sales and profit.

 Reasons behind Growth potential of new markets

 Growing populations and incomes in developing countries
 Lower wage and resource costs in other countries
 Increases in scales of production
 Extended life of mature domestic products
 International trade easier due to e-commerce and removal of trade barriers

 problems when entering foreign markets

 Language barriers-
 Small businesses may not speak foreign languages
 Problems with translating marketing materials
 Different cultures, customs and tastes-
 Easy to offend target audience without knowing
 Existing businesses have market dominance
 Exchange rate risks-
 Can affect costs and revenues
 May reduce the value of sales and profits if exchange rates fall
 Different legal controls and taxes-
 Some products may contain banned substances
 May affect business practices and advertising

 Overcoming problems when entering foreign markets

 Use local contacts and agent
 Should have detailed local knowledge
 Can provide legal and tax advice
 Usually only require a fixed fee or percentage
 Set up business units overseas
 Reduces the risk of exchange rate issues
 May reduce the cost of production
 May influence governments who need foreign investment
 Enter a joint venture, merge or takeover an existing company
 Can match the product with experienced local companies who may have a
brand image
 Reduces set-up costs and time
 License or franchise the product
 Licenses and franchises transfer the financial risk onto investors
 Licensees will provide support and in-country expertise
Section – 4
 Definition of “Production”
 the process of converting inputs such as land, labour and capital into saleable
goods, for example shoes and cell phones.

 Role of “operations department”

 take inputs and change them into outputs for customer use.
 is responsible for making sure that raw materials are provided and made into
finished goods or services

 Definition “productivity”
 A measure of the efficiency of inputs used in the production process,
especially labour and capital
 Clear understanding [2] e.g. Productivity measures the amount of output that
can be produced from a given amount of resource inputs
 Some understanding [1] Speed at which items produced
 Answers that state that this shows efficiency – max 1 mark.
 Do not credit an answer that simply focuses on output alone e.g. shows the
output of a business in a year
output
 Productivity =
quantity of input
 Advantages of “productivity”
 Increased outputs and revenues
 Increased profitability
 Reduced average cost of each item produced
 Increased ability to compete on price factors
 Reduced amount and cost of raw materials

 “production process”
 Operations management involves managing business resources - known as
inputs –
 throughout the production process so as to produce finished goods, services
and components - known as output –
 that can be sold to other businesses or customers.
 For example, a baker (labour) will take ingredients such as flour and water to
his kitchen (land) and use mixers and ovens (capital) to make bread (the
output), which he will sell in his shop to customers.

 Difference between “production” and “productivity”

 Production involves changing inputs into output. It can be measured by the
number of units produced in a given period of time - this is the level of
production
  Productivity is a measure of how efficiently the inputs are changed into output,
which is the number of units of output produced for every unit of input

 Ways of increasing productivity

 improve quality of the product and inventory control to reduce waste.
 Replace employees with machines - automation.
 Improve training to increase employee efficiency.
 Motivate employees more effectively.
 Introduce new technology.
 Use more automation.

Knowledge Analysis Application Evaluation

Increase in capital so able to produce as

intensity OR automation more in same amount of time machines don’t have to take
OR introduce new [an] breaks/can work longer periods
technology
Improve quality control / to reduce level of waste
assurance
Changes in working so less wasted time
practices/Improve layout moving between different
of machines areas
Improve inventory (stock so materials are available when
control)/introduce JIT needed [app]
Train workers so understand what they are so use less materials
doing better [app]
Improve motivation so workers have such as offer more holidays
(once only) incentive to work harder
[an]
Use of payment to earn more money as workers try to
methods (once only) produce more parts/products
e.g. Bonuses/Piece
rates
Cell as it allows employees to
production/kaizen discuss/solve problems affecting
production [app]

 Advantages of increasing efficiency

 Reduced inputs needed for the same output level.
 Lower costs per unit (average cost).
 Fewer workers may be needed, possibly leading to lower wage costs.
 Higher wages might now be paid to workers, which increases motivation

 Definition “labour productivity”

total output
 Labour productivity =
Number of production employees
 Importance of “labour productivity”(knowledge)
 Impact on unit costs
 Improve profit margin
  Shows effective use of resources OR efficiency
 Help increase competitiveness of business/meet demand of customers
 Increase output
 Help identify poor performing workers/indicate problems with morale
 Basis for calculating wages or pay

 How to improve “labour productivity”

 increasing output with the same number of employees
 keeping output at the same level but with fewer employees.
 improving the skill level of employees
 improving the motivation of employees
 introducing more automation and more or better technology
 improving the quality of management decisions.

Knowledge Analysis Application Evaluation

Fall in productivity will weaken the business

because unit cost will rise and
put pressure on selling price
and profit margins

 Definition of “inventories”
 the stock of raw materials, work-in-progress and finished goods held by a
business.

 Why businesses hold inventories

 raw materials and components- these are needed as inputs for the production
process
 work-in-progress - that is, part-finished goods that have not yet completed the
production process
 finished goods ready to be sold or sent out to customers.

 Advantages of holding “inventories”

 The production process needs raw materials or components. If these are not
available when required then the process must stop. Employees and machinery
will stand idle and there will be a loss of output.
 If the business does not have finished goods in stock, then customers’ orders
cannot be met and the business will lose sales. This could result in the loss of
current and future sales, affecting both the short-term and the long-term
profitability of the business.
 Businesses often benefit from economies of scale when they buy inventories in
 large quantities because they receive a discount from the supplier. The
supplier may not offer discounts for smaller quantities

 Disadvantages of holding “inventories “

 Holding inventories adds to a business’s costs, such as:
 Warehousing costs - the business will need to rent or purchase a warehouse to
store the inventories.
 Handling costs - inventories need to be moved into and out of the warehouse.
 Shrinkage costs - damaged, lost or stolen inventories will need to be replaced.
  Insurance costs - these will cover the cost of losses from shrinkage.
 Obsolescence - the business may not be able to sell out-of-date goods.
 Opportunity cost – working capital is ‘tied-up’ in inventories which could be
used
 more profitably by the business.

 Definition of “buffer inventory”

 The buffer inventory Level is the inventory held to deal with uncertainty in
customer demand and deliveries of supplies.

 Definition of “lean production”

 Lean production is a term for those techniques used by businesses to cut down
on waste and therefore increase efficiency, for example, by reducing the time
it takes for a product to be developed and become available for sale.

 Advantages of “lean production”

 Reduced defects/better quality
 Reduced stock holding
 Fewer resource inputs
 Reduced waste
 Time saved
 Costs are saved through:
 less storage of raw materials or components
 quicker production of goods or services
 no need to repair defects or provide a replacement service for a dissatisfied
customer
 better use of equipment
 cutting out some processes, which speeds up production
 less money tied up in inventories
 improved health and safety, leading to less time off work due to injury
 Reduced costs can lead to lower prices for customers
 businesses being more competitive and possibly also increased profits.
 New products can be brought to the market more quickly.
 Unit costs are reduced

Knowledge Analysis Application Evaluation

Reduced so better reputation

defects/better
quality
Reduced stock so, less capital is tied up So for example holding less
holding in stock inventory stock would reduce
costs because less capital would
be tied up and hence overdraft
levels would be lower
Fewer resource so lower unit costs
inputs
Reduced waste so, less space required
for storing
Time saved so greater output
possible
  Types of waste that can occur in production
 Overproduction - producing goods before they have been ordered by
customers. This results in high storage costs and possible damage to goods
while in storage.
 Waiting - when goods are not moving or being processed in any way, waste is
occurring.
 Transportation - moving goods around unnecessarily causes waste and is
not adding value to the product. Goods may also be damaged when they are
being moved around.
 Unnecessary inventory - if there is too much inventory then this takes up
space, may get in the way of production and costs money.
 Motion - any actions, including bending or stretching movements of the
bodyof the employee, wastes time. It may also be a health and safety risk for
the employees. This also applies to the movement of machines which may not
be necessary.
 Over-processing - if complex machinery is being used to perform simple
tasks then this is wasteful. Some activities in producing the goods may not be
necessary and may be because the design of the product is poor.
 Defects - any faults require the goods being fixed and time can be wasted
inspecting the products.

 Definition of “Just-in-time inventory control”

 The just-in-time (JIT) inventory control system means that no inventories are
held by the business
 Just-in-time production relies on stockless production - a business holds little
or no stocks of raw materials and relies on the efficient delivery of materials
exactly when needed.

 Advantages of “Just-in-time inventory control”

 Reductions in the cost of holding stock
 Warehouse space can be used for production or other income streams
 Increased turnover, which leads to increased cash flow

 Disadvantages of “Just-in-time inventory control”

 A delay in supplies can negatively affect production
 Dependence of the quality and reliability of suppliers
 Needs suppliers to be located close by

Knowledge Analysis Application Evaluation

Just-in-time means that inventory is his reduces the need for having
reduced to no or very low warehouse space to hold
levels held the ingredients to make soap
in storage.
A will need to have good
relationships
with its suppliers to ensure that
 the flow production line is not
interrupted by
inventory running ou

 Definition of “kaizen”
 Kaizen is a Japanese term meaning continuous improvement ' through the
elimination of waste.
 The improvement does not come from investing in new technology or
equipment but through the ideas of the workers themselves
 Small groups of workers meet regularly to discuss problems and possible
solutions
 It relies on all of the employees participating by identifying problems and
making suggestions for solutions to improve productivity and reduce waste.
 Once a solution is found, this becomes part of the standard production
process.

Knowledge Analysis Application Evaluation

Kaizen or continuous as mistakes OR errors would as it allows employees to

improvement be discuss/solve problems affecting
eliminated production

 Advantages of holding “kaizen”

 increased productivity
 reduced amount of space needed for the production process
 work-in-progress is reduced
 improved layout of the factory floor may allow some jobs to be combined,
thereby freeing up employees to carry out some other job in the factory.
 Improves employee motivation through greater participation

 Disadvantages of holding “kaizen”

 Requires teamwork and a flat organizational structure
 Requires motivated and skilled employees

 Definition of “Kanban”
  inventory arrives at production line only when inventory has been
used/reduces the holding of inventory

 Methods of production
 job production
 batch production
 flow production

 Definition of “job production”

 Clear understanding [2]: where a single product is made at a time
 OR makes one product from start to finish (before starting the next one)
 OR produce a personalized product individually [2]
 Some understanding [1]: e.g. identifies one distinctive feature of job such as
products are made to the specific customer
 design; often labour-intensive; highly skilled workers; high quality, single
product, flexible
 the production of items one at a time.
 In job production an individual item is completed before another is started.
 used for the production of single or one-off/unique items, large or small,
 such as a ship or a designer dress.

 Features of “job production”

 provides goods or services that are usually made or delivered to a specific
order
 used for one-off, custom products or services difficult to reproduce the original
item
 requires skilled craftspeople and specialized machinery for specific tasks.
 job production implies that output is produced in response to individual
demand
 All employees complete one unit of production at a time
 Product in a sense unique
 Usually a method associated with low volume production

 Advantages of holding “job production”

 Products meet the precise requirements of their customers.
 Businesses can often include a premium in the price they charge their
customers to reflect increased quality.
 Workers have varied jobs and many can make a finished product from start to
finish.
 This can motivate workers and create a sense of pride in their work.
 It is most suitable for personal services or 'one-off' products
 The product meets the exact requirements of the customer.

 Disadvantages of holding “job production”

 needs highly skilled employees and specialised equipment, thus involves high
cost
 It is labour-intensive and often takes a long time.
 Wage costs can be high.
  As products are produced to order any mistakes can be expensive
 Materials may have to be specially purchased, leading to higher costs.
 Costs are higher as it is often labour intensive
 lower output OR production can take longer•
 No economies of scale (likely)
 Products are made to order so mistakes can be expensive to correct

Knowledge Analysis Application Evaluation

Can meet the individual This makes each product as the flower
needs of consumer unique to that customer and arrangement can be to the
so they will be exact design of the customer
happier with the order and
may tell their friends to go to
the shop

Unique OR meet exact for its clocks

customer needs
Workers less likely to as employees are skilled
make mistakes
More varied work (leads helping retain existing
to higher motivation) workers
Can charge a higher
price
Flexible

No economies of scale when buying raw materials

locally
Production can take leading to problems when
longer OR slow OR low exporting
output
Skilled labour can cost so can lead to high fixed costs
more
Costs are higher as it so may not be able to
is often labour find 30 employees
intensive
Mistakes can be
expensive to correct
as each job is different

 Definition of “batch production”

 Clear understanding [2]: e.g. products are made in groups [1] of items of a
certain amount, usually to meet a specific order/as orders come in
 OR identifies two distinctive features of batch production.
 Some understanding [1]: identifies one distinct feature of batch e.g. made in
(small) groups.
 Do not accept ‘batch’ as part of answer as stated in question.
 Do not accept examples on own.
 the production of goods in batches. Each batch passes through one stage of
production before moving on to the next stage.
  Features of “batch production”
 produces a limited number of identical products to meet a specific customer
order
 within each stage, work is completed on the whole batch before the next
stage begins
 increased economies of scale to job production.
 goods produced in sets/no variety in each group made/
 machines need to be reset between batches
 lower unit costs than job production

 Advantages of holding “batch production”

 It is a good way of adding variety to otherwise identical products in order to
give consumers a wider choice, for example, producing a car with a choice of
different colours and engine sizes.
 Workers' tasks are more varied than in flow production, reducing the risk of
boredom
 It is a flexible way of working and production can easily be changed from one
product to another.
 Production may not be affected to any great extent if machinery breaks down.

 Disadvantages of holding “batch production”

 It needs careful planning to minimize the amount of unproductive time
between different batches.
 Costs will be higher than for production on a mass scale.
 It can be expensive as semi-finished products will need moving about to the
next production stage
 Machines have to be reset between production batches which means there is a
delay in production and output is lost
 Warehouse space will be needed for inventories of raw materials, components
and finished batches of goods. This is costly

Knowledge Analysis Application Evaluation

It is a more flexible way of and production can easily be So if there is an increase in the
working changed from one product to number of orders for a
another to meet demand. particular size of trousers or
jackets then SCS can quickly
meet this
demand. (1)
Quantity is still limited so able to check reaches luxury
standard
Some economies of scale so able to reduce unit costs of
are possible each coat
Can add some variety leading to possibly more so customers can have choice
into products sales of coats
Flexibility/easy to to help meet changes in as able to quickly change
switch demand production to meet new design
Time lost switching OR Could lead to lower
reset machines productivity / lost output
between batches
A fault with one Which could increase waste
product is likely to
affect entire batch
Inventory (Stock) may
be sitting around
between stages
Added cost of moving
OR storing semi-
finished good
Demotivating for
employees as work is
repetitive

 Definition of “flow production”

 Clear understanding [2] e.g. Where large quantities of a product [1] are
produced in a continuous process [1] OR identifies TWO distinctive features of
flow.
 Some understanding [1] e.g. ‘makes lots of the same thing’ OR identifies one
distinctive feature e.g. large scale production.
 The production of very large quantities of identical goods using a continuously
moving process.

 Features of “flow production”

 a continuous production of identical or standardized products
 products are assembled, finished and packed on a continuously moving
products line
 often automated and uses little labour

 Advantages of holding “flow production”

 Goods can be produced quickly and cheaply.
 There is a high output of a standardised product.
 Average costs per unit are lower due to economies of scale
 Lower production costs can be passed on to consumers as lower prices help to
boost demand and revenues.
 It is easy for capital-intensive production methods to be used – reducing labour
costs and increasing efficiency.
 Capital-intensive methods allow workers to specialise in specific, repeated
tasks and therefore the business may require only relatively unskilled workers
- little training may be needed
 Automated production lines can reduce the number of workers needed and cut
labour costs
 Automated production can be continuous for 24 hours each day
 It allows workers to specialize in specific, repeated tasks.

Knowledge Analysis Application Evaluation

Unit costs are kept low and therefore prices are also
lower;

capital-intensive reducing labour costs and

methods of production increasing efficienc
can be used
It often leads to increased
specialisation
resulting in productivity
gains.
Also acceptable are
uniform quality/identical
products with
same specifications.
Associated with large so economies of scale
volumes of output possible
Similar or identical because all products go
products produced through the same
processes
Allows division of so more efficient
labour
Continuous movement so output is faster
of goods along a
production line
Capital intensive so high fixed costs

Fast method of
production
 Disadvantages of holding “flow production”
 The costs of equipment and machinery required to automate production lines
can be high.
 Storage requirements and the costs of stocks of materials, components and
finished products can be substantial
 Machinery breakdowns, power cuts or supply problems with components will
hold up production.
 Workers undertaking repetitive tasks may become bored.

Knowledge Analysis Application Evaluation

Boring/lack motivation so might not work as which could be why 15

efficiently workers left

Significant storage so higher rent space needed for metal

requirements
Cost of storage likely to be high as cans need to
stored safely
High set up/machinery which means a large capital if relocate
costs outlay
If one machine breaks which could damage If one machine breaks down
down whole reputation whole production line stops
production line stops
Inflexible/standard size so not easy to alter
production to meet new
requests
 Definition of “cell production”
 Cell production is where the production line is divided into separate, self-
contained units (cells), each making an identifiable part of the finished
product, instead of having a flow or mass production line.

 Advantages of “cell production”

 improves the morale of the employees
 more efficient employees
 employees feel more valued and are less likely to strike or cause disruption.

 Disadvantages of “cell production”



 Factors influencing firms to choose method of production

 the amounts they are likely to sell
 the product they are making
 the costs of production
 the variety of goods expected by customers
 the size of the market
 the type of good being made.

 How technology has changed production methods

 New production process
 Spill overs of technology into different sectors
 Replacement of labour

 “new production processes”

 Computer-aided design (CAD)
 detailed and accurate drawings completed on computer programs
 easily drawn, redrawn and altered
 allows 3D modelling.
 Computer-aided manufacturing (CAM)
 computer-controlled robots complete processes without human operators
 fast and accurate production process (no human error)
 increased output, reduced waste, improved and standardized quality
 CIM (computer-integrated manufacturing) involves the
 computer-controlled manufacturing system driving machine tools.
 These tools, or robots, are multipurpose machines that can be programmed
and reprogrammed to perform physical tasks.
 Example: industrial robot in a car factory may be programmed to paint and
then reprogrammed to weld pieces together or to assemble part
 Computer-based inventory control,
 are used in manufacturing and retailing to ensure the arrival of inventory just
in time for purchase by the end-customer.
 For example, it is essential that retailers of fresh fish, vegetables or fruit,
 provide customers with the latest inventories.
 By ordering just the right levels needed, waste is minimised.
  For tinned and packaged goods, electronic barcodes make it possible to
manage a computer-based inventory-control system.
 EPOS (electronic point-of-sale system) works in the following way:
 items for sale carry barcodes.
 When new arrives, the numbers are registered in the inventory system.
 At the checkout, the barcodes of sold items are scanned in.
 The cash till adds up and records the sales.
 The cash till automatically creates the bill, which is a record of transactions
with an individual customer.
 The customer then pays and receives a record of their payment.
 At the same time, a record is made on the back-office system showing items
sold.
 The back-office computer will then automatically reorder new inventory to
replace the products that have been sold.
 EFTPOS (electronic funds transfer at point of sale).
 This is where the electronic cash register is connected to the retailer's main
computer and also to banks over a wide area computer network.
 Contactless payment is increasingly being used in many countries.
 It is a fast, easy and secure way to pay for purchases that are less than a small
amount,

 Spill overs of technology into different sectors

 Technology developed for one use can often be easily used in different
sectors, especially when patents have expired.
 Technological spill overs are an external benefit, which means
governments are keen to provide financial help to businesses that specialize in
research and development of new technologies because of
 the following potential benefits:
 increase in manufacturing output of a country
 increased employment in hi-tech industries
 potential to create disruptive technologies that change entire market and
create new opportunities.

 Replacement of labour
 Labour input in many low-skilled or manufacturing jobs has been replaced by
advanced machinery and production equipment due to:
 the reduction in the cost of advanced machinery
 the increased productivity of machinery over labour
 the increased complexity of machinery.
 However, there are many factors that affect the ability of machinery to replace
labour:
 machines cannot offer personalized care and services
 machinery is expensive to purchase and sometimes maintain.
 workers need retraining, which can take time and be expensive
 some customers do not want mass-produced goods.

 Automation
 Automation is the use of machines in a series of tasks.
 Each machine is linked to another, without human intervention. Computers
can be programmed to start, finish, shut down and speed up operations, as
well as detect flaws in a system, without human intervention.
  Investing in automation is costly, but will lead to high levels of accuracy at
very low cost.

 Advantages of technology for “business”

 Firms can increase productivity and efficiency.
 Labour costs can be reduced. Hi-tech businesses can recruit, train and manage
fewer workers.
 Machines can be kept working all day, every day.
 Product quality can be controlled and improved, resulting in less waste.
 The development of a new desirable product gives a firm a competitive
advantage over others.
 Consumers are replacing products and buying new ones more often to get the
latest features.
 Many modern technologies, such as computers, are affordable to even the
smallest of firms.
 The internet and electronic communications allow information and payments
to be exchanged easily, quickly and cheaply.
 Governments may offer tax and subsidy incentives to encourage investments
in research and development and new technologies to boost economic growth

 Disadvantage of technology “business”

 Research and development of new products and processes can be expensive
and not all will succeed
 The initial costs of buying or hiring new technologically advanced machines,
like robots and other advanced equipment, can be high.
 Firms unwilling or unable to afford to invest in new technologies will lose
custom to firms that do
 Product life cycles are becoming shorter. This means businesses may earn less
profit from each product and have to spend more money and time developing
new ones
 Workers may need to be retrained to use new materials, production processes
and equipment.
 Workers and trade unions may be reluctant to learn new skills, may resist
changes in working practices and may even take strike action if the
introduction of new technology threatens their jobs.

 Advantages of technology “consumers”

 Better quality products.
 Lower prices.
 Products with more features are easier to develop and produce.

 Disadvantage of technology “consumers”

 Products may become out of date more quickly.
 When the product develops a fault, it can be expensive to repair.

 Advantages of technology “employees”

 Technology completes simple and repetitive tasks that employees find boring.
 The work is easier with the aid of technology.
 A business that uses the latest technology is likely to be more successful so
provides job security
  Disadvantage of technology “employees”
 Technology often reduces the need for employees, resulting in redundancy.
 Technology could make the work less interesting.
 A smaller workforce reduces opportunities for promotion.
 The development and manufacture of new technology products provide
employment opportunities.

 Definition of “fixed cost”

 A fixed cost is a cost that is unrelated to output [1k plus 1u].
 simple response such as does not vary [1].
 An acceptable example of a fixed cost [1].
 costs that do not change with output
 are costs which do not vary in the short run with the number of items sold or
produced.
 They have to be paid whether the business is making any sales or not. They
are also known as overhead costs

 Definition of “variable cost”

 Clear understanding of term [2]: e.g. costs related to the direct operation of a
business/costs that change [1] as the level of activity changes [+1].
 Some understanding [1]: e.g. costs that vary.
 Must link answer to level of activity/output to gain full marks.
 Do not accept sales/customers.
 costs that change in direct proportion to output.
 are costs which vary directly with the number of items sold or produced.

 Definition of “total cost”

 Clear understanding [2]: Sum of (total) fixed cost plus (total) variable costs
 Sum of (total) direct and (total) indirect costs
 Some understanding [1]: All the costs of the business
 all the variable and fixed costs of producing the total output

 Definition of “average cost”

 Clear understanding [2] e.g. Total cost divided by the total number of units
produced
 Some understanding [1] e.g. cost to make one product/cost per unit
 the cost of producing a single unit of output.
 It is the total cost of production divided by total output (sometimes referred to
as ‘unit cost').

 Uses of cost data

 Setting prices
 Deciding whether to stop production or continue
 Deciding on the best location

Knowledge Analysis Application Evaluation

Setting prices if the average cost per unit is Average cost of making a pizza
not known, the business could = $3.
charge a price that leads to a If the business wants to make
$1
profit on each pizza sold, it will
 loss charge a price of $4.
being made on each item sold See Chapter 13 for more
examples
of cost-based pricing.
Deciding whether to stop No business wants to continue If the total annual cost of
production or continue to producing
make a loss, but the decision a product is $25000 but the
to total
stop making a product will revenue is only $23000, then
also the
depend on whether: business is making a loss and
• the product has just been could
launched on the market - decide to stop making the
sales product.
revenue might increase in
future
• the fixed costs will still have
to
be paid, e.g. if the factory
being
used for the product is not
sold.

Deciding on the Costs are not the only factor Location A for a new shop has
best location to total
consider - there might not annual costs of $34000.
be Location B for a new shop has
any point in choosing a low- total
cost annual costs of $50 000.
location for a new shop if it is On this data alone, Location A
in should be chosen.
the worst part of town!

 Definition of “economies of scale”

 Award two marks for a full definition. Award one mark for a partial definition.
 Factors that lead to lower average costs as a business increases in size [2]
 OR
 Reduction in average costs as a result of increasing the scale of operations [2]
 Partial definition e.g. benefit of increasing in size/growth/expansion
 Clear understanding: [2] factors that lead to lower average costs as a business
increases in size.
 Some understanding:[1] benefit of increasing in size
 Economies of scale are the factors that lead to a reduction in average costs as
a business increases in size.

 Advantages of “economies of scale”

 Lowers average cost

 Definition of “financial economies”

  Lenders, such as banks, often prefer to lend to large businesses because they
consider them less of a risk than smaller businesses.
 As a result, large businesses find it easier to borrow money and often do so at
a lower rate of interest than smaller businesses.

 Definition of “managerial economies”

 As a business grows, it often employs specialist managers for the different
functional areas of the business such as marketing, finance, operations and
human resources.
 Specialist managers improve the quality of business decisions and make
fewer mistakes than non-specialist managers.

 Definition of “marketing economies”

 While total marketing costs rise as a business gets larger, they do not rise at
the same rate as sales output.
 So, if a business doubles its output and sales, it will not need to double its
marketing costs.
 This means that the average cost of marketing falls as output and sales
increase.

 Definition of “purchasing economies”

 Large businesses usually buy greater quantities of raw materials and goods
than smaller businesses.
 Suppliers often offer discounts on large, or bulk, purchases. Small businesses
do not benefit from discounts.
 Purchasing economies are sometimes called ‘bulk-buying economies

 Definition of “technical economies”

 Large businesses usually use flow production to produce their output.
 This method of production often uses the latest technology, such as computer-
aided manufacturing (CAM).
 Such technology may be very expensive and only very large businesses can
afford the level of investment required.
 The technology enables businesses to produce very high levels of output at
lower unit costs than smaller businesses.

 Definition of “diseconomies of scale”

 factors that cause average costs to rise as the scale of operations increases

 Causes of “diseconomies of scale”

 poor communication
 lack of commitment from employees
 weak coordination.

Knowledge Analysis Application Evaluation

Poor communication as messages need to be

sent/received from 4 factories
Low morale/motivation leading to higher labour as worried products they make
/lack of commitment turnover/more workers might be cut
leaving [an] for its 400 00 employees
Slow decision making as 80 products to consider

Lack of control

 Definition of “break-even analysis”

 Clear understanding [2] – e.g. Level of output where total costs equal total
revenue OR quantity at which business makes neither a profit or loss.
 Some understanding [1] – e.g. Revenue same as costs.
 the level of output where revenue equals total costs; the business is making
neither profit nor loss.

 Definition of “margin if safety”

 the difference between the current level of output and break-even output.
 margin of safety = actual sales - break-even output
 This is a measure of the amount by which sales can fall before losses are
made.
 The higher the margin of safety, the lower the risk of a loss being made.

 Uses of “break even analysis”

 Predicts how many sales the business needs to make to break-even
 Predicts how much sales could fall by and still make a profit
 Shows potential profit/loss for the business at different levels of output
 Shows possible effect of change in price on the break-even level of
output/profit
 Shows possible effect of change in costs on the break-even level of
output/profit
 May be useful to show to the bank manager to indicate a profit is predicted
and therefore more likely to gain a bank loan

 Advantages of “break even chart ”

 Managers are able to read off from the graph the expected profit or loss to be
made at any level of output.
 The impact on profit or loss of certain business decisions can also be shown by
redrawing the graph
 The break-even chart can also be used to show the margin of safety amount
by which sales exceed the break-even point

 Disadvantages of “break even chart”

 Break-even charts are constructed assuming that all goods produced by the
firm are actually sold - the graph does not show the possibility that inventories
may build up if not all goods are sold.
 Fixed costs only remain constant if the scale of production does not change
 Break-even charts concentrate on the break-even point of production, but
there are many other aspects of the operations of a business which need to be
analysed by managers, for example, how to reduce wastage or how to
increase sales
 The simple charts used in this section have assumed that costs and revenues
can be drawn with straight lines which is not the case everytime

 Break-even point: the calculation method

  Selling price - Variable cost = Contribution
 The contribution of a product is its selling price less its variable cost
¿
 Break-even level of production =total ¿ cost
contribution per units
 Definition of “quality”
 ensuring a good or service that meets the needs and requirements of its
consumer.

 Importance of “quality”
 Develop a strong brand image
 Keep customers and attract new customers
 Reduce costs, customer complaints and returns
 Charge a premium price
 Encourage wholesalers and retailers to stock the product
 Lengthen product life cycle

 Advantages of investing in and improving “quality”

 It helps to create or maintain a good reputation for the business
 It helps to create or reinforce a strong brand image
 Customers will share their positive experiences with friends and family or with
other consumers via social media or on internet
 sites such as Trip Advisor for hotels and holidays and Zagat for restaurant
reviews
 It helps the business gain a competitive advantage over rival firms which, in
turn, will increase its sales and market share
 It helps to build and maintain customer loyalty and repeat custom
 Long-term profitability is likely to increase.
 The business can attract and retain skilled staff because of its good reputation
and increasing profitability.

 Disadvantages of failing to invest in or maintain quality

 The business will develop a reputation for poor quality goods or services.
 Customers will tell their friends and family members not to use the business.
 Sales and market share will be lost to rival firms able to supply better quality
goods and services.
 Costs will increase because the business needs to devote more staff to
handling refunds and responding to complaints.
 Profits and the value of the business are likely to fall.
 staff turnover is likely to be higher and the business will not be able to attract
high-quality managers and employees because of its poor reputation

Knowledge Analysis Application Evaluation

loss of confidence by so less sales as customers look for

customer alternative
motor parts suppliers
cost of rectification which will increase costs and e.g. rework parts
could lead to lower profit
costs of fines/legal action

damage to
reputation/image
inability to supply on so could lose important
time future orders

 Definition of “quality control”

 It is the checking for quality at the end of the production process, whether it is
the production of a product or a service.
 It uses quality inspectors as a way of finding any faults.

 Advantages of “quality control”

 Quality control involves checking garments at the end of the process (or part
way
 through) to make sure that there are no defects. If there are defects then the
production
 can be stopped and the fault corrected. Quality assurance (e.g. TQM) is where
all
 employees are engaged in the checking of garments to make sure each stage
of the
 process has no faults. Any errors can be corrected immediately before the
garments are
 finished.

 Disadvantages of “quality control”

 The work can be repetitive and boring and this may demotivate the inspectors,
resulting in them not performing their tasks efficiently.
 If inspection only takes place at the end of the process, then problems with
quality that occur at the beginning are not found soon enough. Resources are
wasted completing a product that should have been rejected much earlier in
the production process.
 The use of quality inspectors takes any responsibility for quality away from the
employees
 Employees do not see quality as their responsibility and may not try to ensure
that quality is maintained throughout the production process.

 Definition of “quality assurance”

 Good knowledge [2]: e.g. checking standards [1] throughout production
process/at every stage/level [+1]
 Some knowledge [1]: e.g. checking the work
  Do not accept ‘checking at end / checking end product’ in this instance as this
defines quality control

 Advantages of “quality assurance”

 Lower cost/reduce cost of wastage/fewer mistakes/less rework (of faulty
products)
 Encourages teamwork
 Fewer customer complaints/improve/maintain reputation (as consistent
quality)
 Better brand image/fewer customer returns
 Reduce inspection costs
 Allows business to know at what stage mistakes happen
 Reduced costs if products do not have to be scrapped or reworked or service
repeated.

 Definition of “TMQ”
 Total Quality Management (TQM) is the continuous improvement of products
and processes by focusing on quality at each and every stage of production

 Advantages of “TMQ”
 Quality is built into every part of the production of a product or service and
becomes central to the ethos of all employees.
 It eliminates all faults or errors before the customer receives the product or
first
 No customer complaints and so brand image is improved - leading to higher
sales
 Reduced costs as products do not have to be scrapped or reworked or service
repeated.
 Waste is removed and efficiency increases

 Disadvantages of “TMQ”
 It is expensive to train all employees to check the product or service
 Relies on all employees following TQM ideology and accepting responsibility
for quality.

 Definition of “quality marks and standards”

 If businesses are able to demonstrate high levels of quality, they can apply for
and display quality marks

 Advantages of “quality marks and standards”

 increased customer confidence
 competitive advantage
 free or low-cost marketing tool
 they can attract customers away from competitors

 Definition of “infrastructure”
 the basic facilities, services and installations needed fora business to function,
for example water, power, transport links.
  Factors influencing location decision of a manufacturing business
 Production methods and location decisions
 Market
 Raw materials/components
 Availability of labour
 Government influence
 Transport and communications
 Power and water supply
 Climate

Knowledge Analysis Application Evaluation

The wholesaler needs to Or transporting

be near small food shops goods could be more
expensive

Access to raw material if some distance away it might

slow down production [an]

Close to customers to reduce transport as bricks are heavy

costs [an]
Land issues e.g. as need large space
Availability/cost of to build a factory [app]
suitable land
Labour issues e.g. people might not
Cost/access to suitable want to work in secondary
workers sector [app]
Government e.g. could be banned from some e.g. As have
Assistance, quotas, locations reputation for environmental
regulations damage
Competitors difficult to gain customers if loyal to a rival supplier

Transport links as need to move clay/stone

Lack of local
knowledge/cultural
issues
Language problems

Infrastructure e.g.
Utilities,
communications

 Factors influencing location decision of a service business

 Customers
 Personal preference of the owners
 Technology
 Availability of labour
  Climate
 Near to other businesses
 Rent/taxes

 Quantitative factors affecting location decision

 Cost of site
 Transport costs
 Market potential
 Government incentives

 Qualitative factors affecting location decision

 The size of the available site
 Legal restrictions
 Quality of local infrastructure
 Ethical issues and concerns

 Effects of business “relocation” to the community

Knowledge Analysis Application Evaluation

Loss of jobs OR increase So people have less money to of the 450 jobs
in unemployment spend in local shops

Less environmental attracting other people and at time when there are
damage businesses to the area environmental pressures

Increase in house prices making area as not using chemicals

more attractive place to live
decrease house prices as
fewer job opportunities
available
New roads built (in
new area)
reduced facilities (in Lower economic growth
old location)
 Definition of “government incentive”
 usually finance such as interest free loans or grants provided to a business to
help when locating in a country or an area of a country

 Reasons behind international location decision

 To achieve growth
 To reduce production costs
 To locate production closer to the market

 Advantages of “international location decision”

 Lower labour costs
 Access to global markets
 Avoidance of legal barriers and import tariffs
 Government incentives

 Disadvantages of “international location decision”

 Cultural differences
 Communication problems
 Ethical concerns
 Quality issues