Chapter 1

The Economic Problem

● Need: a good or service that is essential for living

● Want: a good or service that people would like to have but it is
not required for living
● Scarcity: a basic economic problem that occurs because there
are unlimited wants and limited resources

Unlimited wants + Limited resources = Scarcity

● Tangible: things that can be seen or touch ( Goods )

● Intangible: things that can’t be touched or seen but experience
( Service )
● Opportunity cost: next best alternative by choosing another item
( only one option can chosen due to scarcity )]

Chapter 3
Entrepreneurship

An entrepreneur is a person who organises, operates and takes risks

for a new business venture. The entrepreneur brings together the
various factors of production to produce goods or services.

● Risk taker
● Creative
● Optimistic
● Self-confident
● Innovative
● Independent
● Effective communicator
● Hard working
Business plan

A business plan is a document containing the business objectives and

important details about the operations, finance and owners of the
new business.

It provides a complete description of a business and its plans for the

first few years

Making a business plan before actually starting the business can be

very helpful because there is a lesser chance of losing sight of the
mission and vision of the business, motivates the employees and
easier to get a loan or overdraft.

Government support for business startups

Why do governments want to help new start-ups?

● They provide employment to a lot of people

● They contribute to the growth of the economy
● If they grow to be successful, they can also contribute to the
exports of the country
● Start-ups often introduce fresh ideas and technologies into
business and industry

How do governments support businesses?

● Organise advice: provide business advice to potential

entrepreneurs
● Provide low cost premises: provide land at low cost or low rent
for new firms
● Provide loans at low interest rates
● Give grants for capital: provide financial aid to new firms for
investment
 ● Give grants for training: provide financial aid for workforce
training

Measuring business size

Businesses come in many sizes. They can be owned by a single individual

or have up to 50 shareholders. They can employ thousands of workers
or have a mere handful. But how can we classify a business as big or
small?

Business size can be measured in the following ways:

● Number of employees: larger firms have larger workforce

employed (not as accurate as capital intensive firm)
● Value of output: larger firms are likely to produce more than
smaller ones (unreliable because different types of goods are
valued differently)
● Value of capital employed: larger businesses are likely to employ
much more capital than smaller ones (not reliable when
comparing to the capital intensive firm with a labour
intensive firm)

Business growth

Businesses want to grow because growth helps reduce their average

costs in the long-run, help develop increased market share, and helps
them produce and sell to new markets.

There are two ways in which a business can grow- internally and
externally.

Internal growth

This occurs when a business expands its existing operations. For

example, when a fast food chain opens a new branch in another
country. This is a slow means of growth but easier to manage than
external growth.
External growth

This is when a business takes over or merges with another business. It

is sometimes called integration as one firm is ‘integrated’ into the
other.

A merger is when the owner of two businesses agree to join their firms
together to make one business.

A takeover occurs when one business buys out the owners of another
business , which then becomes a part of the ‘predator’ business.

External growth can largely be classified into three types:

● Horizontal merger/integration: This is when one firm

merges with or takes over another one in the same
industry at the same stage of production. For example,
when a firm that manufactures furniture merges with
another firm that also manufacturers furniture.
Benefits:
● Reduces the 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.
● Vertical merger/integration: This is when one firm
merges with or takes over
another firm in the same industry but at a different
stage of production. Therefore, vertical integration can
be of two types:
● 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:
 ● Merger gives assured supply of
essential components.
● The profit margin of the supplying firm
is now absorbed by the expanded form.
● The supplying firm can be prevented
from supplying to competitors.
● 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:
● Merger gives an assured outlet for
their product.
● The profit margin of the retailer is now
absorbed by the expanded form.
● The retailer can be prevented from
selling the goods of competitors.
● Conglomerate merger/integration: This is when one firm merges
with or takes over a firm in a completely different industry. This
is also known as ‘diversification’. For example, when a firm that
manufactures furniture merges with a firm that produces
clothing.
Benefits:
● allows businesses to have activities in more than one
country
● allows the firms to spread its risks.
● a transfer of ideas between the two businesses even
though they are in different industries 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,
coordinate 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: used to describe how average costs of a
firm tends to increase as it grows beyond a point, reducing
profitability.

Why businesses stay small

Not all businesses grow.Some stay small, employ a handful of workers

and have little output. Here are the reasons why.

● Type of industry: some firms remain small due to the industry

they operate in. Examples of these are hairdressers, car repairs,
catering, etc, which give personal services and therefore cannot
grow.
● Market size: if the firm operates in areas where the total number
of customers is small, such as in rural areas, there is no need
for the firm to grow and thus stays small.
● Owners’ objectives: not all owners want to increase the size of
their firms and profits. Some of them prefer keeping their
businesses small and having a personal contact with all of their
employees and customers, having flexibility in controlling and
running the business, having more control over decision-making,
and to keep it less stressful.

Why businesses fail

Not all businesses are successful. The main reasons why they fail are:
 ● 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 firms expands too quickly or over
their optimum level
● Failure to plan for change: the demands of customers keep
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 management: if the owner of the firm does not
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

Why new businesses are at a greater risk of failure

● Less experience: a lack of experience in the market or in

business gets a lot of firms easily pushed out of the market
● New to the market: they may still not understand the nuances
and trends of the market, that existing competitors will have
mastered
● Don't have a lot of sales yet: only by increasing sales, can new
firms grow and find their foothold in the market. At a stage
when they’re not selling much, they are at a greater risk of
failing
● Don’t have a lot of money to support the business yet: financial
issues can quickly get the better of new firms if they aren’t very
careful with their cash flows. It is only after they make
considerable sales and start making a profit, can they reinvest
in the business and support it
Chapter 4
Sole Trader

A business organisation owned and controlled by one person. Sole

traders can employ other workers, but only he/she invests and owns
the business.

Advantages:

● Easy to set up: there are very few legal formalities involved in
starting and running a sole proprietorship. A less amount of
capital is enough by sole traders to start the business. There is
no need to publish annual financial accounts.
● Full control: the sole trader has full control over the business.
Decision-making is quick and easy, since there are no other
owners to discuss matters with.
● Sole trader receives all profit: Since there is only one owner,
he/she will receive all of the profits the company generates.
● Personal: since it is a small form of business, the owner can
easily create and maintain contact with customers, which will
increase customer loyalty to the business and also let the owner
know about consumer wants and preferences.

Disadvantages:

● Unlimited liability: if the business has bills/debts left unpaid, legal

actions will be taken against the investors, where even their
personal property can be seized, if their investments don’t meet
the unpaid amount. This is because the business and the
investors are legally not separate (unincorporated).
● Full responsibility: Since there is only one owner, the sole owner
has to undertake all running activities. He/she doesn’t have
anyone to share his responsibilities with. This workload and risks
are fully concentrated on him/her.
● Lack of capital: As only one owner/investor is there, the amount
of capital invested in the business will be very low. This can
restrict growth and expansion of the business. Their only sources
of finance will be personal savings or borrowing or bank loans
(though banks will be reluctant to lend to sole traders since it is
risky).
● Lack of continuity: If the owner dies or retires, the business dies
with him/her.
Partnerships

A partnership is a legal agreement between two or more (usually, up

to twenty)people to own, finance and run a business jointly and to
share all profits.

Advantages:

● Easy to set up: Similar to sole traders, very few legal formalities
are required to start a partnership business. A partnership
agreement/ partnership deed is a legal document that all
partners have to sign, which forms the partnership. There is no
need to publish annual financial accounts.
● Partners can provide new skills and ideas: The partners may
have some skills and ideas that can be used by the business to
improve business profits.
● More capital investments: Partners can invest more capital than
what a sole trade only by himself could.

Disadvantages:

● Conflicts: arguments may occur between partners while making

decisions. This will delay decision-making.
● Unlimited liability: similar to sole traders, partners to have
unlimited liability- their personal items are at risk if business
goes bankrupt
● Lack of capital: smaller capital investments as compared to
large companies.
● No continuity: if an owner retires or dies, the business also dies
with them.

Joint-stock companies

These companies can sell shares, unlike partnerships and sole traders,
to raise capital. Other people can buy these shares (stocks) and
become a shareholder (owner) of the company. Therefore they are
jointly owned by the people who have bought its stocks. These
shareholders then receive dividends (part of the profit; a return on
investment).

The shareholders in companies have limited liabilities. That is, only

their individual investments are at risk if the business fails or leaves
debts. If the company owes money, it can be sued and taken to court,
but its shareholders cannot. The companies have a separate legal
identity from their owners, which is why the owners have a limited
liability. These companies are incorporated.
(When they’re unincorporated, shareholders have unlimited liability and
don’t have a separate legal identity from their business).

Companies also enjoy continuity, unlike partnerships and sole traders.

That is, the business will continue even if one of its owners retire or
die.

These are two types of companies:

Private Limited Companies: One or more owners who can sell its shares
to only the people known by the existing shareholders (family and
friends). Example: Ikea.
Public Limited Companies: Two or more owners who can sell their
shares to any individual/organisation in the general public through
stock exchanges

Advantages:

● Limited Liability: this is because the company and the

shareholders have separate legal identities.
● Raise huge amounts of capital: selling shares to other people
(especially in Public Ltd. Co.s), raises a huge amount of capital,
which is why companies are large.
● Public Ltd. Companies can advertise their shares, in the form of
a prospectus, which tells interested individuals about the
business, its activities, profits, board of directors, shares on
sale, share prices etc. This will attract investors.

Disadvantages:

● Required to disclose financial information: Sometimes, private

limited companies are required by law to publish their financial
statements annually, while for public limited companies, it is
legally compulsory to publish all accounts and reports. All the
writing, printing and publishing of such details can prove to be
very expensive, and other competing companies could use it to
learn the company secrets.
● Private Limited Companies cannot sell shares to the public. Their
shares can only be sold to people they know with the agreement
of other shareholders. Transfer of shares is restricted here. This
will raise less capital than Public Ltd. Companies.
● Public Ltd. Companies require a lot of legal documents and
investigations before it can be listed on the stock exchange.
● Public and Private Limited Companies must also hold an Annual
General Meeting (AGM), where all shareholders are informed
about the performance of the company and company decisions,
vote on strategic decisions and elect board of directors. This is
very expensive to set up, especially if there are thousands of
shareholders.
 ● Public Ltd. Companies may have managerial problems: since they
are very large, they become very difficult to manage.
Communication problems may occur which will slow down
decision-making.
● In Public Ltd. Companies, there may be a divorce of ownership
and control: The shareholders can lose control of the company
when other large shareholders outvote them or when board of
directors control company decisions.

Franchises

The owner of a business (the franchisor) grants a licence to another

person or business (the franchisee) to use their business idea – often
in a specific geographical area. Fast food companies such as
McDonald’s and Subway operate around the globe through lots of
franchises in different countries.

ADVANTAGES DISADVANTAGES

TO Rapid, low cost Profits from the

FRANCHISOR method of business franchise needs to
expansion be shared with the
franchisee
Gets an income from
franchisee in the Loss of control over
form of franchise running of business
fees and royalties

If one franchise
Can access ideas fails, it can affect
and suggestions the reputation of the
from franchisee entire brand

Franchisee will run Franchisee may not

the operations be as skilled

Need to supply raw

material/product and
provide support and
 training

Cost of setting up
business

No full control over

business- need to
strictly follow
An established brand franchisor’s
and trademark, so standards and rules
chance of business
failing is low

Profits have to be
Franchisor will give
shared with
TO technical and
franchisor
FRANCHISEE managerial support

Need to pay
Franchisor will
franchisor franchise
supply the raw
fees and royalties
materials/products

Need to advertise
and promote the
business in the
region themselves

Joint Ventures

Joint venture is an agreement between two or more businesses to

work together on a project. The foreign business will work with a
domestic business in the same industry. Eg: Google Earth is a joint
venture/project between Google and NASA.

Advantages

● Reduces risks and cuts costs

● Each business brings different expertise to the joint venture
● The market potential for all the businesses in the joint venture is
increased
 ● Market and product knowledge can be shared to the benefit of
the businesses

Disadvantages

● Any mistakes made will reflect on all parties in the joint venture,
which may damage their reputations
● The decision-making process may be ineffective due to different
business culture or different styles of leadership

Public Sector Corporations

Public sector corporations are businesses owned by the government

and run by directors appointed by the government. They usually provide
essential services like water, electricity, health services etc. The
government provides the capital to run these corporations in the form
of subsidies (grants). The UK’s National Health Service (NHS) is an
example. Public corporations aim to:
● to keep prices low so everybody can afford the service.
● to keep people employed.
● to offer a service to the public everywhere.

Advantages:
● Some businesses are considered too important to be owned by an
individual. (electricity, water, airline)
● Other businesses, considered natural monopolies, are controlled
by the government. (electricity, water)
● Reduces waste in an industry. (e.g. two railway lines in one city)
● Rescue important businesses when they are failing through
nationalisation
● Provide essential services to the people

Drawbacks:
● Motivation might not be as high because profit is not an objective
● Subsidies lead to inefficiency. It is also considered unfair for
private businesses
● There is normally no competition to public corporations, so there
is no incentive to improve
● Businesses could be run for government popularity

Chapter 5
Business objectives
Business objectives are the aims and targets that a business works
towards to help it run successfully. Although the setting of these
objectives does not always guarantee business success, it has its
benefits.

● Setting objectives increases motivation as employees and

managers now have clear targets to work towards.
● Decision making will be easier and less time consuming as there
are set targets to base decisions on. i.e., decisions will be taken
in order to achieve business objectives.
● Setting objectives reduces conflicts and helps unite the business
towards reaching the same goal.
● Managers can compare the business’ performance to its
objectives and make any changes in its activities if required.

Objectives vary with different businesses due to size, sector and many
other factors. However, many businesses in the private sector aim to
achieve the following objectives.

● Survival: new or small firms usually have survival as a primary

objective. Firms in a highly competitive market will also be more
concerned with survival rather than any other objective. To
achieve this, firms could decide to lower prices, which would
mean forsaking other objectives such as profit maximisation.
● Profit: this is the income of a business from its activities after
deducting total costs. Private sector firms usually have profit
making as a primary objective. This is because profits are
required for further investment into the business as well as for
the payment of return to the shareholders/owners of the
business.
● Growth: once a business has passed its survival stage it will aim
for growth and expansion. This is usually measured by the 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.
● Market share: this can be defined as the proportion of total
market sales achieved by one business. Increased market share
can bring about many benefits to the business such as increased
customer loyalty, setting up of brand image, etc.
● Service to the society: some operations in the private sectors
such as social enterprises do not aim for profits and prefer to
set more economical objectives. They aim to better the society by
providing social, environmental and financial aid. They help those
in need, the underprivileged, the unemployed, the economy and
the government.

A business’ objectives do not remain the same forever. As market

situations change and as the business itself develops, its objectives
will change to reflect its current market and economic position. For
example, a firm facing a serious economic recession could change its
objective from profit maximisation to short term survival.

Stakeholders

A stakeholder is any person or group that is interested in or directly

affected by the performance or activities of a business. These
stakeholder groups can be external – groups that are outside the
business or they can be internal – those groups that work for or own
the business.

Internal stakeholders:

● Shareholder/ Owners: these are the risk takers of the business.

They invest capital into the business to set up and expand it.
These shareholders are liable to a share of the profits made by
the business.
Objectives:
● Shareholders are entitled to a rate of return on the
capital they have invested into the business and will
therefore have profit maximisation as an objective.
● Business growth will also be an important objective as
this will ensure that the value of the shares will
increase.
● Workers: these are the people that are employed by the business
and are directly involved in its activities.
Objectives:
● Contract of employment that states all the rights 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: they are also employees but managers control the
work of others. Managers are in charge of making key business
decisions.
Objectives:
● 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.

External Stakeholders:

● Customers: they are a very important part of every business.

They purchase and consume the goods and services that the
business produces/ provides. Successful businesses use market
research to find out customer preferences before producing
their goods.
Objectives:
● 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 role of the government is to protect the
workers and customers from the business’ activities and
safeguard their interests.
Objectives:
● 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.
● Banks: these banks provide financial help for the business’
operations’
Objectives:
● 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.
● Community: this consists of all the stakeholder groups, especially
the third parties that are affected by the business’ activities.
Objectives:
● 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.
Public- sector businesses

Government owned and controlled businesses do not have the same

objectives as those in the private sector.

Objectives:

● Financial: although these businesses do not aim to maximise

profits, they will have to meet the profit target set by the
government. This is so that it can be reinvested into the business
for meeting the needs of the society
● Service: the main aim of this organisation is to provide a service
to the community that must meet the quality target set by the
government
● Social: most of these social enterprises are set up in order to aid
the community. This can be by providing employment to citizens,
providing good quality goods and services at an affordable rate,
etc.
● They help the economy by contributing to GDP, decreasing
unemployment rate and raising living standards.

This is in total contrast to private sector aims like profit, growth,

survival, market share etc.

Conflicts of stakeholders’ objectives

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.

For example, workers will aim towards earning higher salaries.

Shareholders might not want this to happen as paying higher salaries
could mean that less profit will be left over for payment of return to
the shareholders.

Similarly, the business might want to grow by expanding operations to

build new factories. But this might conflict with the community’s want
for clean and pollution-free localities.

Chapter 6
Motivation
People work for several reasons:

● Have a better standard of living: by earning incomes they can

satisfy their needs and wants
● Be secure: having a job means they can always maintain or grow
that standard of living
● Gain experience and status: work allows people to get better at
the job they do and earn a reputable status in society
● Have job satisfaction: people also work for the satisfaction of
having a job

Motivation is the reason why employees want to work hard and work
effectively for the business. Money is the main motivator, as explained
above. Other factors that may motivate a person to choose to do a
particular job may include social needs (need to communicate and work
with others), esteem needs (to feel important, worthwhile), job
satisfaction (to enjoy good work), security (knowing that your job and
pay are secure- that you will not lose your job).

Why motivate workers? Why do firms go to the pain of making sure

their workers are motivated? When workers are well-motivated, they
become highly productive and effective in their work, become absent
less often, and less likely to leave the job, thus increasing the firm’s
efficiency and output, leading to higher profits. For example, in the
service sector, if the employee is unhappy at his work, he may act lazy
and rude to customers, leading to low customer satisfaction, more
complaints and ultimately a bad reputation and low profits.

Motivation Theories

● F. W. Taylor: 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
However, 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.
 ● Maslow’s Hierarchy: Abraham Maslow’s hierarchy of needs shows
that employees are motivated by each level of the hierarchy
going from bottom to top. Managers can identify which level their
workers are on and then take the necessary action to advance
them onto the next level.

One limitation of this theory is that it doesn’t apply to every

worker. For some employees, for example, social needs aren’t
important but they would be motivated by recognition and
appreciation for their work from seniors.

● Herzberg’s Two-Factor Theory: Frederick Herzberg’s two-

factor theory, wherein he states that people have two sets
of needs:
Basic needs called ‘hygiene factors’:
● status
● security
● work conditions
● company policies and administration
● relationship with superiors
● relationship with subordinates
● salary

Needs that allow the human being to grow psychologically, called the
‘motivators’:

● achievement
● recognition
● personal growth/development
● promotion
● work itself
According to Herzberg, the hygiene factors need to be satisfied, if not
they will act as de-motivators to the workers. However hygiene
factors don’t act as motivators as their effect quickly wears off.
Motivators will truly motivate workers to work more effectively.

Motivating Factors

Financial Motivators

● Wages: often paid weekly. They can be calculated in two ways:

● Time-Rate: pay based on the number of hours worked.
Although output may increase, it doesn’t mean that
workers will sincerely use the time to produce more-
they may simply waste time on very little output 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.
● Piece-Rate: pay based on the no. of output produced.
Same as time-rate, this doesn’t ensure that quality
output is produced. Thus, efficient workers may feel
demotivated as they’re getting the same pay as
inefficient workers, despite their efficiency.
● Salary: paid monthly or annually.
● Commission: paid to salesperson, based on a percentage of sales
they’ve made. The higher the sales, the more the pay. Although
this will encourage salespersons to sell more products and
increase profits, it can be very stressful for them because no
sales made means no pay at all.
● Bonus: additional amount paid to workers for good work
● Performance-related pay: paid based on performance.
● Profit-sharing: a scheme whereby a proportion of the company’s
profits is distributed to workers. Workers will be motivated to
work better so that a higher profit is made.
● Share ownership: shares in the firm are given to employees so
that they can become part owners of the company. This will
increase employees’ loyalty to the company, as they feel a sense
of belonging.

Non-Financial Motivators

● Fringe benefits are non-financial rewards given to employees

● Company vehicle/car
● Free healthcare
● Children’s education fees paid for
● Free accommodation
 ● Free holidays/trips
● Discounts on the firm’s products

● Job Satisfaction: the enjoyment derived from the feeling that

you’ve done a good job. Employees have different ideas about
what motivates them- it could be pay, promotional opportunities,
team involvement, relationship with superiors, level of
responsibility, chances for training, the working hours, status of
the job etc. Responsibility, recognition and satisfaction are in
particular very important.

So, how can companies ensure that they’re workers are satisfied with
the job, other than the motivators mentioned above?

● Job Rotation: involves workers swapping around jobs and doing

each specific task for only a limited time and then changing
round again. This increases the variety in the work itself and will
also make it easier for managers to move around workers to do
other jobs if somebody is ill or absent. The tasks themselves are
not made more interesting, but the switching of tasks may avoid
boredom among workers. This is very common in factories with a
huge production line where workers will move from retrieving
products from the machine to labelling the products to packing
the products to putting the products into huge cartons.
● Job Enlargement: where extra tasks of similar level of work are
added to a worker’s job description. These extra tasks will not
add greater responsibility or work for the employee, but make
work more interesting. E.g.: a worker hired to stock shelves will
now, as a result of job enlargement, arrange stock on shelves,
label stock, fetch stock etc.
● Job Enrichment: involves adding tasks that require more skill and
responsibility to a job. This gives employees a sense of trust from
senior management and motivates them to carry out the extra
tasks effectively. Some additional training may also be given to
the employee to do so. E.g.: a receptionist employed to welcome
customers will now, as a result of job enrichment, deal with
telephone enquiries, word-process letters etc.
● Team-working: a group of workers is given responsibility for a
particular process, product or development. They can decide as a
team how to organise and carry out the tasks. The workers take
part in decision making and take responsibility for the process. It
gives them more control over their work and thus a sense of
commitment, increasing job satisfaction. Working as a group will
also add to morale, fulfil social needs and lead to job
satisfaction.
● Opportunities for 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
● Opportunities of promotion: providing opportunities for
promotion will get workers to work more efficiently and fill them
with a sense of self-actualisation and job satisfaction

Is there a direct relationship between motivation and customer

service?

● Engagement -> motivated employees are more likely to be

engaged in their work.
● Positive attitude -> motivation often translates into a positive
attitude . Customers can sense this, leading to a more pleasant
and satisfying interaction
● Problem-solving -> motivated employees are more likely to
approach challenges with enthusiasm and creativity, finding
effective solutions to customer problems
● Customer satisfaction -> when employees are motivated and
more likely to provide exceptional customer services.

Chapter 7
Organisational Structure

Organisational structure refers to the levels of management and

division of responsibilities within a business. They can be represented
on organisational charts (left).
Advantages:

● 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
organisational chart

The span of control is the number of subordinates working directly

under a manager in the organisational structure. In the above figure,
the managing director’s span of control is four. The marketing
director’s span of control is the number of marketing managers
working under him (it is not specified how many, in the figure).

The chain of command is the structure of an organisation that allows

instructions to be passed on from senior managers to lower levels of
management. In the above figure, there is a short chain of command
since there are only four levels of management shown.

Now, if you look closely,there is a link between the span of control and
chain of command. The wider the span of control the shorter the chain
of command since more people will appear horizontally aligned on the
chart than vertically. A short span of control often leads to a long
chain of command. (If you don’t understand, try visualising it on an
organisational chart).

Advantages of a short chain of command (these are also the

disadvantages of a long chain of command):

● Communication is quicker and more accurate

● Top managers are less remote from lower employees, so
employees will be more motivated and top managers can always
stay in touch with the employees
● Spans of control will be wider, This means managers have more
people to control This is beneficial because it will encourage them
to delegate responsibility (give work to subordinates) and so the
subordinates will be more motivated and feel trusted. However
there is the risk that managers may lose control over the tasks.
Line Managers have authority over people directly below them in the
organisational structure. Traditional marketing/operations/sales
managers are good examples.

Staff Managers are specialists who provide support, information and

assistance to line managers. The IT department managers in most
organisations act as staff managers.

Management

So, what role do managers really have in an organisation? Here are

their five primary roles:

● Planning: setting aims and targets for the

organisations/department to achieve. It will give the department
and its 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.
● Organising: managers should then organise the resources. This
will include allocating responsibilities to employees, possibly
delegating.
● Coordinating: managers should ensure that each department is
coordinating with one another to achieve the organisation’s
aims. This will involve effective communication between
departments and managers and decision making. For example,
the sales department will need to tell the operations dept. how
much they should produce in order to reach the target sales
level. The operations dept. will in turn tell the finance dept. how
much money they need for production of those goods. They need
to come together regularly and make decisions that will help
achieve each department’s aims as well as the organisation’s.
● 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.
● 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.

Delegation is giving a subordinate the authority to perform some

tasks.

Advantages to managers:
 ● managers cannot do all work by themselves
● managers can measure the efficiency and effectiveness of their
subordinates’ work

However, managers may be reluctant to delegate as they may lose

their control over the work.

Advantages to subordinates:

● 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.

Type of decisions

Strategic decisions can affect the overall success of the business eg;
takeovers and expansion into their countries

Tactical decisions ways of training new staff, which types of machines

to purchase

Operational decisions are day to day decisions eh staffing, stock

levels, methods of delivery of goods and services.

Decision making process

1. Establish objectives of the business

2. Identify and analyse the problem
3. Collect and analyse the data
4. Consider options and make decisions
5. Review - was it successful?

Leadership Styles

Leadership styles refer to the different approaches used when dealing

with people when in a position of authority. There are mainly three
styles you need to learn: the autocratic, democratic and laissez-faire
styles.
Autocratic style is where the managers expect to be in charge of the
business and have their orders followed. They do all the decision-
making, not involving employees at all. Communication is thus, mainly
one way- from top to bottom. This is standard in police and armed
forces organisations.

Democratic style is where managers involve employees in the decision-

making and communication is two-way from top to bottom as well as
bottom to top. Information about future plans is openly communicated
and discussed with employees and a final decision is made by the
manager.

Laissez-faire (French phrase for ‘leave to do') style makes the broad
objectives of the business known to employees and leaves them to do
their own decision-making and organise tasks. Communication is
rather difficult since a clear direction is not given. The manager has a
very limited role to play.

Trade Unions

A trade union is a group of workers who have joined together to

ensure their interests are protected. They negotiate with the employer
(firm) for better conditions and treatment and can threaten to take
industrial action if their requests are denied. Industrial action can
include an overtime ban (refusing to work overtime), going slow
(working at the slowest speed as is required by the employment
contract), strike (refusing to work at all and protesting instead) etc.
Trade unions can also seek to put forward their views to the media
and influence government decisions relating to employment.

Benefits to workers of joining a trade union:

● strength in number- a sense of belonging and unity

● improved conditions of employment, for example, better pay,
holidays, hours of work etc
● improved working conditions, for example, health and safety
● improved benefits for workers who are not working, because
they’re sick, retired or made redundant (dismissed not because
of any fault of their own)
● financial support if a member thinks he/she has been unfairly
dismissed or treated
● benefits that have been negotiated for union members such as
discounts on firm’s products, provision of health services.

Disadvantages to workers of joining a trade unions:

● costs money to be member- a membership fee will be required

● may be asked to take industrial action even if they don’t agree
with the union- they may not get paid during a strike, for
example.

Chapter 8
The Role of the H.R. (Human Resource) Department

● Recruitment and selection: attracting and selecting the best

candidates for job posts
● Wages and salaries: set wages and salaries that attract and
retain employees as well as motivate them
● Industrial relations: there must be effective communication
between management and workforce to solve complaints and
disputes as well as discussing ideas and suggestions
● Training programmes: give employees training to increase their
productivity and efficiency
● Health and safety: all laws on health and safety conditions in
the workplace should be adhered to
● Redundancy and dismissal: the managers should dismiss any
unsatisfactory/misbehaving employees and make them
redundant if they are no longer needed by the business.
Recruitment

Job Analysis, Description and Specification

Recruitment is the process of identifying that the business needs to

employ someone up to the point where applications have arrived at
the business.

A vacancy arises when an employee resigns from a job or is dismissed

by the management. When a vacancy arises, a job analysis has to be
prepared. A job analysis identifies and records the tasks and
responsibilities relating to the job. It will tell the managers what the
job post is for.

Then a job description

is prepared that outlines the responsibilities and duties to be carried
out by someone employed to do the job. It will have information about
the conditions of employment (salary, working hours, and pension
scheme), training offered, opportunities for promotion etc. This is
given to all prospective candidates so they know what exactly they will
be required and expected to do.
Once this has been done, the H.R. The department will draw up a job
specification, a document that outlines the requirements,
qualifications, expertise, skills, physical/personal characteristics etc.
required by an employee to be able to take up the job.

Advertising the vacancy

Internal recruitment is when a vacancy is filled by an existing

employee of the business.

Advantages:

● Saves time and money- no need for advertising and interviewing

 ● Person already known to business
● Person knows business’ ways of working
● Motivating for other employees to see their colleagues being
promoted- urging them to work hard

Disadvantages:

● No new skills and experience coming into the business

● Jealousy among workers

External recruitment is when a vacancy is filled by someone who is not

an existing employee and will be new to the business. External
recruitment needs to be advertised, unlike internal recruitment. This
can be done in local/national newspapers, specialist magazines and
journals, job centres run by the government (where job vacancies are
posted and given to interested people; usually for unskilled or semi-
skilled jobs) or even recruitment agencies (who will recruit and send
along candidates to the company when they request it).

When advertising a job, the business needs to decide what should be

included in the advertisement, where it should be advertised, how
much it will cost and whether it will be cost-effective.

When a person is interested in a job, they should apply for it by sending

in a curriculum vitae (CV) or resume, this will detail the person’s
qualifications, experience, qualities and skills.The business will use
these to see which candidates match the job specification. It will also
include statements of why the candidate wants the job and why
he/she feels they would be suitable for the job.

Selection

Applicants who are shortlisted will be interviewed by the H.R. manager.

They will also call up the referee provided by the applicant (a referee
could be the previous employer or colleagues who can give a
confidential opinion about the applicant’s reliability, honesty and
suitability for the job). Interviews will allow the manager to assess:

● the applicant’s ability to do the job

● personal qualities of the applicant
● character and personality of applicant

In addition to interviews, firms can conduct certain tests to select the

best candidate. This could include skills tests (ability to do the job),
aptitude tests (candidate’s potential to gain additional skills),
personality tests (what kind of a personality the candidate has- will it
be suitable for the job?), group situation tests (how they manage and
work in teams) etc.

When a successful candidate has been selected the others must be

sent a letter of rejection.

The contract of employment: a legal agreement between the employer

and the employee listing the rights and responsibilities of workers. 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.

Employment contracts can be part-time or full-time. Part-time

employment is often considered to be between 1 and 30-35 hours a
week whereas full-time employment will usually work 35 hours or more
a week.

Advantages to employer of part-time employment (disadvantages of

full-time employment to employer):

● more flexible hours of work

● easier to ask employees just to work at busy times
● easier to extend business opening/operating hours by working
evenings or at weekends
● works lesser hours so employee is willing to accept lower pay
● less expensive than employing and paying full-time workers.

Disadvantages to employer of part-time employment (advantages of

full-time employment to employers)

● 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.

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. It will improve the workers’ chances at getting promoted
and raise their morale.

The three types of training are:

● Induction training: an introduction given to a new employee,

explaining the firm’s activities, customs and procedures and
introducing them to their fellow workers.

Advantages:

● Helps new employees to settle into their job quickly

● May be a legal requirement to give health and safety
training before the start of work
● Less likely to make mistakes

Disadvantages:

● 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
● On-the-job training: occurs by watching a more experienced
worker doing the job

Advantages:

● It ensures there is some production from worker whilst

they are training
● It usually costs less than off-the-job training
● It is training to the specific needs of the business

Disadvantages:

● The trainer will lose some production time as they are

taking some time to teach the new employee
 ● The trainer may have bad habits that can be passed
onto the trainee
● It may not necessarily be recognised training
qualifications outside the business
● Off-the-job training: involves being trained away from the
workplace, usually by specialist trainers

Advantages:

● A broad range of skills can be taught using these

techniques
● Employees may be taught a variety of skills and they
may become multi-skilled that can allow them to do
various jobs in the company when the need arises.

Disadvantages:

● Costs are high

● It means wages are paid but no work is being done by
the worker
● The additional qualifications means it is easier for the
employee to leave and find another job

Workforce Planning

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.

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: where a worker is told to leave their job because their

work or behaviour is unsatisfactory.
 ● Redundancy: when an employee is no longer needed and so loses
their work, though not due to any fault of theirs. They may be
given some money as compensation for the redundancy.

Workers could also resign (they are leaving because they have found
another job) and retire (they are getting old and want to stop
working).

Legal Controls over Employment Issues

There are a lot of government laws that affect equal employment

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

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.

Chapter 11
Market Research

Product-oriented business: such firms produce the product first and

then try to find a market for it. Their concentration is on the product
– its quality and price. Firms producing electrical and digital goods
such as refrigerators and computers are examples of product-
oriented businesses.
Market-oriented businesses: such firms will conduct market research
to see what consumers want and then produce goods and services to
satisfy them. They will set a marketing budget and undertake the
different methods of researching consumer tastes and spending
patterns, as well as market conditions. Example, mobile phone
markets.

Market research is the process of collecting, analysing and

interpreting information about a product.

Why is market research important/needed?

Firms need to conduct market research in order to ensure that they
are producing goods and services that will sell successfully in the
market and generate profits. If they don’t, they could lose a lot of
money and fail to survive. Market research will answer a lot of the
business’s questions prior to product development such as ‘will
customers be willing to buy this product?’, ‘what is the biggest factor
that influences customers’ buying preferences- price or quality?’,
‘what is the competition in the market like?’ and so on.

Market research data can be quantitative (numerical-what percentage

of teenagers in the city have internet access) or qualitative (opinion/
judgement- why do more women buy the company’s product than men?)

Market research methods can be categorised into two: primary and

secondary market research.

Primary Market Research (Field Research)

The collection of original data. It involves directly collecting

information from existing or potential customers. First-hand data is
collected by people who want to use the data (i.e. the firm). Examples
of primary market research methods include questionnaires, focus
groups, interviews, observation, and online surveys and so on.

The process of primary research:

1. Establish the purpose of the market research

2. Decide on the most suitable market research method
3. Decide the size of the sample (customers to conduct research on)
and identify the sample
4. Carry out the research
5. Collate and analyse the data
6. Produce a report of the findings

Sample is a subset of a population that is used to represent the entire

group as a whole. When doing research, it is often impractical to
survey every member of a particular population because the number of
people is simply too large. Selecting a sample is called sampling.
Random sampling occurs when people are selected at random for
research, while quota sampling is when people are selected on the
basis of certain characteristics (age, gender, location etc.) for
research.

Methods of primary research

● Questionnaires: Can be done face-to-face, through telephone,

post or the internet. Online surveys can also be conducted
whereby researchers will email the sample members to go onto a
particular website and fill out a questionnaire posted there.
These questions need to be unbiased, clear and easy to answer
to ensure that reliable and accurate answers are logged in. (The
first part of this wikiHow article will give you the basic idea of
how a questionnaire should be prepared.)

Advantages:

● Detailed information can be collected

● Customer’s opinions about the product can be obtained
● Online surveys will be cheaper and easier to collate and
analyse
● Can be linked to prize draws and prize draw websites to
encourage customers to fill out surveys

Disadvantages:

● If questions are not clear or are misleading, then

unreliable answers will be given
● Time-consuming and expensive to carry out research,
collate and analyse them.
● Interviews: interviewer will have ready-made questions for the
interviewee.

Advantages:

● Interviewer is able to explain questions that the

interviewee doesn’t understand and can also ask follow-
up questions
● Can gather detailed responses and interpret body-
language, allowing interviewers to come to accurate
conclusions about the customer’s opinions.

Disadvantages:
 ● The interviewer could lead and influence the interviewee
to answer a certain way. For example, by rephrasing a
question such as ‘Would you buy this product’ to ‘But, you
would definitely buy this product, right?’ to which the
customer in order to appear polite would say yes when
in actuality they wouldn’t buy the product.
● Time-consuming and expensive to interview everyone in
the sample
● Focus Groups: A group of people representative of the target
market (a focus group) agree to provide information about a
particular product or general spending patterns over time. They
can also test the company’s products and give opinions on them.

Advantage:

● They can provide detailed information about the

consumer’s opinions

Disadvantages:

● Time-consuming
● Expensive
● Opinions could be influenced by others in the group.
● Observation: This can take the form of recording (eg: metres
fitted to TV screens to see what channels are being watched),
watching (eg: counting how many people enter a shop), auditing
(e.g.: counting of stock in shops to see which products sold well).

Advantage:

● Inexpensive

Disadvantage:

● Only gives basic figures. Does not tell the firm why the
consumer buys them.

Secondary Market Research (Desk Research)

The collection of information that has already been made available by

others. Second-hand data about consumers and markets is collected
from already published sources.

Internal sources of information:

 ● Sales department’s sales records, pricing data, customer
records, sales reports
● Opinions of distributors and public relations officers
● Finance department
● Customer Services department

External sources of information:

● Government statistics: will have information about populations

and age structures in the economy.
● Newspapers: articles about economic conditions and forecast
spending patterns.
● Trade associations: if there is a trade association for a
particular industry, it will have several reports on that
industry’s markets.
● Market research agencies: these agencies carry out market
research on behalf of the company and provide detailed reports.
● Internet: will have a wide range of articles about companies,
government statistics, newspapers and blogs.

Accuracy of Market Research Data

The reliability and accuracy of market research depends upon a large

number of factors:

● How carefully the sample was drawn up, its size, the types of
people selected etc.
● How questions were phrased in questionnaires and surveys
● Who carried out the research: secondary research is likely to be
less reliable since it was drawn up by others for different
purposes at an earlier time.
● Bias: newspaper articles are often biassed and may leave out
crucial information deliberately.
● Age of information: researched data shouldn’t be too outdated.
Customer tastes, fashions, economic conditions, technology all
move fast and the old data will be of no use now.

Presentation of Data from Market Research

Different data handling methods can be used to present data from

market research. This will include:

● Tally Tables: used to record data in its original form. The tally
table below shows the number and type of vehicles passing by a
 shop at different times of the day:

● Charts: show the total figures for each piece of data (bar/
column charts) or the proportion of each piece of data in terms
of the total number (pie charts). For example the above tally
table data can be recorded in a bar chart as shown below:

The pie chart above could show a company’s market share in

different countries.
 ● Graphs: used to show the relationship between two sets of data.
For example how average temperature varied across the year.

Chapter 12
Marketing mix refers to the different elements involved in the
marketing of a good or service- the 4 P’s- Product, Price, Promotion
and Place.

Product

Product is the good or service being produced and sold in the market.
This includes all the features of the product as well as its final
packaging.

Types of products include: consumer goods, consumer services,

producer goods, producer services.

What makes a successful product?

● It satisfies existing needs and wants of the customers

● It is able to stimulate new wants from the consumers
● Its design – performance, reliability, quality etc. should all be
consistent with the product’s brand image
● It is distinctive from its competitors and stands out
● It is not too expensive to produce, and the price will be able to
cover the costs

New Product Development: development of a new product by a

business. The process:
 1. 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
2. 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
3. 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
4. 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
5. 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
6. Full launch of the product: the product is launched to the entire
market

Advantages:

● Can create a Unique Selling Point (USP) by developing a new

innovative product for the first time in the market. This USP can
be used to charge a high price for the product as well as be used
in advertising.
● Charge higher prices for new products (price skimming as
explained later)
● Increase potential sales, revenue and profit
● Helps spreads risks because having more products mean that
even if one fails, the other will keep generating a profit for the
company

Disadvantages:

● Market research is expensive and time consuming

● Investment can be very expensive

Why is brand image important?

Brand image is an identity given to a product that differentiates it

from competitors’ products.
Brand loyalty is the tendency of customers to keep buying the same
brand continuously instead of switching over to competitors’ products.
 ● Consumers recognize the firm’s product more easily when looking
at similar products- helps differentiate the company’s product
from another.
● Their product can be charged higher than less well-known brands
– if there is an established high brand image, then it is easier to
charge high prices because customers will buy it nonetheless.
● Easier to launch new products into the market if the brand
image is already established. Apple is one such company- their
brand image is so reputed that new products that they launch
now become an immediate success.

Why is packaging important?

● It protects the product

● It provides information about the product (its ingredients, price,
manufacturing and expiry dates etc.)
● To help consumers recognize the product (the brand name and
logo on the packaging will help identify what product it is)
● It keeps the product fresh

Product Life Cycle (PLC)

The product life cycle refers to the stages a product goes through
from its introduction to its retirement in terms of sales.

At these different stages, the product will need different marketing

decisions/strategies in terms of the 4Ps.
Extension strategies: marketing techniques used to extend the
maturity stage of a product (to keep the product in the market):

● Finding new markets for the product

● Finding new uses for the product
● Redesigning the product or the packaging to improve its appeal
to consumers
● Increasing advertising and other promotional activities

The effect on the PLC of a product of a successful extension strategy:

Price

Price is the amount of money producers are willing to sell or

consumers are willing to buy the product for.

Different methods of pricing:

● Market skimming: Setting a high price for a new product that is

unique or very different from other products on the market.

Advantages:

● Profit earned is very high

● Helps recover/compensate research and development
costs

Disadvantage:

● It may backfire if competitors produce similar products

at a lower price
● Penetration pricing: Setting a very low price to attract
customers to buy a new product

Advantages:

● Attracts customers more quickly

● Can increase market share quickly

Disadvantages:

● Low revenue due to lower prices

● Cannot recover development costs quickly
 ● Competitive pricing: Setting a price similar to that of
competitors’ products which are already available in the market

Advantage:

● Business can compete on other matters such as service

and quality

Disadvantage:

● Still need to find ways of competing to attract sales.

● Cost plus pricing: Setting price by adding a fixed amount to the
cost of making the product

Advantages:

● Quick and easy to work out the price

● Makes sure that the price covers all of the costs

Disadvantage:

● Price might be set higher than competitors or more than

customers are willing to pay, which reduces sales and
profits
● Loss leader pricing/Promotional pricing: Setting the price of a few
products at below cost to attract customers into the shop in the
hope that they will buy other products as well

Advantages:

● Helps to sell off unwanted stock before it becomes out

of date
● A good way of increasing short term sales and market
share

Disadvantage:

● Revenue on each item is lower so profits may also be

lower

Factors that affect what pricing method should be used:

● 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.

Price Elasticity

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.
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.

Producers can calculate the PED of their product and take suitable
action to make the product more profitable.

If the product is found to have an elastic demand, the producer can

lower prices to increase profitability. The law of demand states that a
fall in price increases the demand. And since it is an elastic product
(change in demand is higher than change in price), the demand of the
product will increase highly. The producers get more profit.
If the product is found to have an inelastic demand, the producer can
raise prices to increase profitability. Since quantity demanded
wouldn’t fall much as it is inelastic, the high prices will make way for
higher revenue and thus higher profits.

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.

Distributio Disadvantag
Explanation Advantages
n Channel es

– Delivery
costs may be
high if there
are
The product is customers
sold to the – All of the profit
over a wide
consumer is earned by the
area
straight from producer
the
Manufactu – All storage
manufacturer. A – The producer
rer costs must
good example is controls all parts
be paid for
a factory outlet of the marketing
by the
to where products mix
producer
Consumer directly arrive
at their own – Quickest
shop from the – All
method of getting
factory and are promotional
the product to
sold to activities
the consumer
customers. must be
carried out
and financed
by the
producer

Manufactu The – The cost of – The

rer to manufacturer holding retailer
Retailer will sell its inventories of the takes some
products to a product is paid by of the profit
to retailer (who will the retailer away from
Consumer have stocks of the producer
products from – The retailer will
other pay for – The
manufacturers advertising and producer
as well) who will other promotional loses some
then sell them activities control of
to customers the
who visit the marketing
shop. For – Retailers are
more conveniently mix
example, brands
located for
 – The
producer
must pay for
like Sony, Canon delivery of
and Panasonic products to
sell their the retailers
consumers
products to
various – Retailers
retailers. usually sell
competitors’
products as
well

The
manufacturer
will sell large
volumes of its – Another
products to a middleman is
wholesaler added so
Manufactu (wholesalers will – Wholesalers will more profit
rer to have stocks advertise and is taken
Wholesaler from different promote the away from
manufacturers). product to the producer
Retailers will buy retailers
to Retailer
small quantities – The
of the product – Wholesalers pay producer
to from the for transport and loses even
Consumer wholesaler and storage costs more control
sell it to the of the
consumers. One marketing
good example is mix
the distribution
of medicinal
drugs.

Manufactu The – The agent has – Another

rer manufacturer specialised middleman is
will sell their knowledge of the added so
to Agent products to an market even more
agent who has profit is
specialised taken away
to information from the
Wholesaler about the producer
market and will
to Retailer know the best
wholesalers to
 sell them to. This
is common when
firms are
exporting their
products to a
foreign country.
to
They will need a
Consumer
knowledgeable
agent to take
care of the
products’
distribution in
another country

What affects place decisions?

● 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 product 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 number of
retailers to be sold quickly.
● Location of customers: the products should be easily accessible
by its customers. If customers are located all 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.

Promotion

Promotion: marketing activities used to communicate with customers

and potential customers to inform and persuade them to buy a
business’s products.

Aims of promotion:
 ● Inform customers about a new product
● Persuade customers to buy the product
● Create a brand image
● Increase sales and market share

Types of promotion

● Advertising: Paid-for communication with consumers which uses

printed and visual media like television, radio, newspapers,
magazines, billboards, flyers, cinema etc. This can be informative
(create product awareness) or persuasive (persuade consumers
to buy the product). The process of advertising:

● Sales Promotion: 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.
● Below-the-line promotion: promotion that is not paid for
communication but uses incentives to encourage consumers to
buy. Incentives include money-off coupons or vouchers, loyalty
reward schemes, competitions and games with cash or other
prizes.
● Personal selling: sales staff communicate directly with
consumers to achieve a sale and form a long-term relationship
between the firm and consumer.
● Direct mail: also known as mailshots, printed materials like
flyers, newsletters and brochures which are sent directly to the
addresses of customers.
● 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.

What affects promotion decisions?

● Stage of product on the PLC: different stages of the PLC will

require different promotional strategies; see above.
● The nature of the product: If it’s a consumer good, a firm could
use persuasive advertising and use billboards and TV
commercials. Producer goods would have bulk-buy-discounts to
encourage more sales. The kind of product it is can affect the
type of advertising, the media of advertising and the method of
sales promotion.
 ● The nature of the target market: a local market would only need
small amounts of advertising while national markets will need TV
and billboard advertising. If the product is sold to a mass
market, extensive advertising would be needed. But niche market
products such as water skis would only need advertising in
special sports and lifestyle magazines.
● Cost-effectiveness: the amount of money put into promotion (out
of the total marketing budget) should be not too much that it
fails to bring in the sales revenue enough to cover those costs at
least. Promotional activities are highly dependent on the budget.

Technology and the Marketing Mix

It is also worth noting that the internet/ e-commerce is now widely

used to distribute products. E-Commerce is the use of the internet and
other technologies used by businesses to market and sell goods and
services to customers. Examples of e-commerce include online
shopping, internet banking, online ticket-booking, online hotel
reservations etc.

Websites like Amazon and eBay act as online retailers.

Online selling is favoured by producers because it is cheaper in the
long-run and they can sell products to a larger customer base/
market. However there will be increased competition from lots of
producers.
Consumers prefer online shopping because there are wider choices of
detailed products that are also cheaper and they can buy things at
their own convenience 24×7. However, there is no personal
communication with the producer and online security issues may occur.

However, e-commerce means an entire new type of marketing strategy

is also required – online promotions, new channel of distribution, new
pricing strategies (since price competition in e-commerce is very high
and demand is very price elastic). It requires a lot of money to set up –
online websites, promotions, web developers and technicians to run
and maintain the system etc.

The internet is also used for promotion and advertising of products in

the form of paid social media ads and sponsors, pop-ups, email
newsletters etc. It helps reach target customers, is relatively cheap
and helps the firm respond to market changes quicker (since online
ads can be easily altered/updated rather than billboards and TV ads).
But it can alienate and chase customers away if they see it too
frequently and find it annoying. There is also the risk of the adverts
being publicised negatively if it has annoying or offensive content that
customers quickly criticise (since content is more easily shareable
online).

§ Definitions
- Entrepreneur: a person who organises, operates, and takes the
risk of starting a new business.
- Business plan: a document containing the business objectives and
important details about the operations, finance, and owners of
the new business.
- Capital employed: is the total value of capital used in the
business
- Internal Growth: when a business expands its existing
operations, for example establishing their business in other
areas.
- External Growth: when a business takeover or merge with
another business.
- Takeover(acquisition): when one business buys out another
business and it becomes a part of that business.
- Merger: the owners of two businesses agree to join their
business together to make one business.
- Horizontal merger(integration): when one business merges or
takes over another business in the same industry at the same
stage of production.
- Vertical merger: when one business merges or takes over
another business but at a different stage of production.
- Forwards vertical merger: when a secondary sector business
merger or takeover a tertiary sector business, closer to the
consumer.
- Backward vertical merger: when a business merge with another
business at an earlier stage of production (raw material
suppliers)
- Conglomerate integration(diversification): when one business
merges or takes over a business in a completely different
industry.
- Limited liability: the liability of shareholders in a company is
limited only to the amount they invested.
- Unlimited liability: the owner is held responsible for the debts of
the business they own.
- Partnership-agreement: written legal agreement between
business partners.
- Unincorporated business: one that does not have a separate
legal identity.
- Incorporated business: companies that have separate legal
status from their owners.
- Shareholders: people who buy shares that represent part-
ownership of the company.
- Annual General Meeting (AGM): shareholders may attend to vote
on who they want to be on the Board of Directors for the
upcoming year.
- Dividends: payments made to shareholders from the profits
(after tax) of a company. They are the return to shareholders for
investing into the company.
- Sole trader: business owned by one person
- Partnership: form of business where two or more people join
together to own a business.
- Private-limited company: businesses owned by shareholders but
they cannot sell shares to the public. (limited shareholders: 20)
- Public limited companies: businesses owned by shareholders but
- they can sell shares to the public and their shares are tradable
on the Stock Exchange.
- Franchise: business based upon the use of the brand names,
logos, trading methods of an existing successful business. The
franchisee buys the licence to operate this business from the
franchisor.
- Joint ventures: is where two businesses or more businesses
start a new project together, sharing capital, risks, and profits
- Public Corporation: a business in the public sector that is owned
and controlled by the government.
- Business objectives: the aims and targets that a business works
forward to.
- Social enterprise: social objectives as well as an aim to make a
profit to reinvest back into the business
- Stakeholders: any person or group that is interested in the
performance and activities of a business.
- Profit: total income of a business
- Market share: is the percentage of total market sales held by
one brand or business.
- Motivation: is the reason why employees want to work hard and
work effectively for the business
- Wages: payment for work usually paid weekly
- Time rate: the amount paid to an employee for one hour of work.
- Piece rate: an amount paid for each unit of output
- Salaries: payment for work usually paid monthly.
- Bonus: an additional payment added on to the basic pay, to
rewards for good work.
- Commission: payment relating to the number of sales made
(applies to sales staff).
paid additionally from basic pay.
- Profit-sharing: a system whereby a proportion of the company’s
profits is paid out
to employees.
- Job satisfaction: the enjoyment derived from feeling that you
have done a good job.
- Job rotation: involoves workers swapping around different tasks
and doing them for a set period before swapping to another.
Increase a variety in the work and easier for managers to move
around if someone is absent. This means it doesn’t slow down
the productivity of producing goods as well.
- Job enrichment: looking at jobs and adding tasks that require
more skill or responsibility. Fulfil higher human needs and
workers are more committed as there is more responsibility.
- Teamworking: using groups of workers and allocating specific
tasks and responsibilities to them. The workers can get more
involved in decision making and take responsibility for the
process. It gives them a feeling of control and commitment
leading to job satisfaction. Includes job enrichment and job
rotation and a sense of belonging to the company.
- Training: the process of improving a worker’s skills. Improving a
worker’s level of skills can have beneficial effects not only on
the company but for the motivational level too. Workers can feel
a great sense of achievement as they have learned a new skill
and this could lead to them getting more changeling work to
perform - job enrichment. Workers can also feel special for being
selected for training courses and feeling recognition.
- Promotion: the advancement of an employee in an organisation.
Business gains workers that already know how the business
works from internal recruitment and they also gain motivated
workers. Workers that get promoted feel that their work has
been recognised and now they have a high status with more
changeling work. This view is linked to motivational theories:
Maslow and Herzberg.
- Organisational structure: refers to the levels of management
and division of responsibilities within an organisation.
- Organisational chart: a diagram that outlines the internal
management structure
- Hierarchy: the levels of management in any organisation, from
the highest to lowest.
- Level of hierarchy: to managers/supervisors/other employees
who are given a similar level of responsibility in an organisation.
- Chain of command: the structure in an organisation which allows
instructions to be passed down from senior management to
lower levels of management.
- Span of control: the number of subordinates working directly
under a manager.
- Directors: senior managers who led a particular department or
division of a business
- Line managers: direct responsibility for people below them in the
hierarchy of an organisation.
- Supervisors: junior managers who have direct control over the
employees below them in the organisational structure.
- Staff managers: specialists who provide support, information
and assistance to line managers.
- Delegation: giving a subordinate the authority to perform a
particular task.
- Leadership styles: the different approaches to dealing with
people and making decisions when in a position of authority.
- Autocratic leadership: where the manager expects to be in
charge of the business and to have their orders followed.
Communication is one way, the manager keeps the information
all to themselves and only tells employees what they need to
know. Quick decision making but no employee input.
- Democratic leadership: gets other employees involved in the
decision making process. Communication is both, decisions are
openly discussed.
- Laissez-faire leadership: makes the broad objectives of the
business known to the employees but then they are left to make
their own decisions and organise their own work.
- Trade Union: a group of employees who have joined together to
ensure their interests are protected. A yearly fee is needed for a
person to become a member.
- Closed shop: is when all employees must be a member of the
same trade union.
- Recruitment: the process from identifying that the business
needs to employ someone up to the point at which applications
have arrived at the business.
- Employee selection: the process of evaluating candidates for a
specific job and selecting an individual for employment based on
the needs of the organisation.
- Job Analysis: identifies and records the responsibilities and tasks
relating to a job
- Job Description: outlines the responsibilities and duties to be
carried out by someone employed to do a specific job. (conditions
of the employees, opportunities, and training)
- Job Specification: is a document which outlines the requirements,
qualifications, expertise, physical characteristics.
- Internal Recruitment: is when a vacancy is filled by someone who
is an existing employee of the business.
- External recruitment: is when a vacancy is filled by someone who
is not an existing employee and will be new to the business.
- Part-time: employment is often considered to be between 1 and
30-35 hours per week
- Full-time: employees will usually work 35 hours or more a week.
- Induction Training: is an introduction given to a new employee,
explaining the business’s activities, customs and procedures and
introducing them to their fellow workers.
- On-the-job training: occurs by watching a more experienced
worker doing the job and learning from them.
- Off-the-job training: involves being trained away from the
workplace, usually by specialist trainers.
- Workforce planning: is establishing the workforce needed by the
business for the foreseeable future in terms of the number and
skills of employees needed.
- Dismissal: is when employment is ended against the will of the
employee, usually for not working in accordance with the
employment contract.
- Redundancy: is when an employee is no longer needed and so
loses their job. It is not due to any aspect of their work being
unsatisfactory.
- Contract of employment: is a legal agreement between an
employer and employee, listing the rights and responsibilities of
the workers.
- Industrial tribunal: a law court that makes judgements on
disagreements between companies and their employees.
- Ethical decision: is a decision taken by a manager or a company
because of the moral code observed by the firm.
- Market research: is the process of gathering, analysing, and
interpreting information about a market.
- Product-orientated: a business whose main focus of activity is on
the product itself.
- Market-orientated: a business which carries out market research
to find out consumer wants before a product is developed and
produced.
- Marketing budget: is a financial plan for the marketing of a
product or product range for some specified period of time. It
specialises how much money is available to market the product
or range, so that the Marketing department knows how much it
may spend.
- Primary research (field research): is the collection and collation
of original data via direct contact with potential or existing
customers.
- Questionnaires: is a set of questions to be answered as a means
of collecting data for market research.
- Online surveys: require the target sample to answer a series of
questions over the internet.
- Interviews: involve asking individuals as a series of questions,
face to face or over the phone.
- Focus groups: is a group of people who are representative of the
target market.
- Secondary research (desk research): uses information that has
already been collected and is available for use by others.
- Sample: is the group of people who are selected to respond to a
market research exercise.
- Random sample: is when people are selected at random as a
source of information for market research.
- Quota sample: is when people are selected on the basis of
certain characteristics (gender, age) as a source of information
for market research.
- Marketing mix: is a term which is used to describe all the
activities which go into marketing a product or service.
- USP(Unique Selling Point): is the special feature of a product that
differentiates it from the products of competitors.
- Brand name: is the unique name of a product that distinguished
it from other brands
- Brand loyalty: is when consumers keep buying the same brand
again and again instead of choosing a new or competitor’s
brand.
- Brand image: is an image or identity given to a product which
gives it a personality of its own and distinguishes it from its
competitors’ brands.
- Packaging: is the physical container or wrapping for a product. It
is also used for promotion and selling appeal.
- Product life cycle: describes the stages a product will pass
through from its introduction, through its growth until it is
mature, and then finally its decline.
- Extension strategy: is a way of keeping a product at the maturity
stage of the life cycle and extending the cycle.
- Cost-plus pricing: is the cost of manufacturing the product plus
a profit mark-up
- Competitive pricing: is when the product is priced in line with or
just below competitors prices to try to capture more of the
market.
- Penetration pricing: is when the price is set lower than the
competitors’ prices in order to be able to enter a new market.
- Price skimming: is where a high price is set for a new
product/invention/development on the market
- Promotional pricing: is when a product is sold at a very low price
for a short period of time
- Dynamic pricing: when a business changes product prices, usually
when selling online depending on the level of demand.
- Price elastic demand: is where consumers are very sensitive to
the changes in price
- Price inelastic demand: is where consumers are not sensitive to
changes in price.
- Distribution channel: is the means by which a product is passed
from the place of production to the customer.
- Agent: is an independent person or business that is appointed to
deal with the sales and distribution of a product or range of
products.
- Promotion: is where marketing activities aim to raise customer
awareness of a product or brand, generating sales and helping
to create brand loyalty.
- Advertising: paid for communication with potential customers
about a product to encourage them to buy it.
- Informative advertising: is where the emphasis of advertising or
sales promotion is to give full information about the product.
- Persuasive advertising: is advertising or promotion which is
trying to persuade the consumer that they really need the
product and should buy it.
- Target audience: refers to people who are potential buyers of a
product or service
- Sales promotion: are incentives such as special offers or special
deals aimed at consumers to achieve short-term increases in
sales.
- Marketing budget: is a financial plan for the marketing of a
product or product range for a specified period of time.
- 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
contents that achieve audience engagement as well as paid
social media advertising.
- Viral marketing: is when consumers are encouraged to share
information online about the products of a business.
- E-commerce: is the online buying and selling of goods and
services using computer systems linked to the internet and apps
on mobile phones.