UNDERSTANDING BUSINESS

ACTIVITY:
1. Business Activity
Needs

Essential to
healthy
living

Wants

Would like
to have

1.a) Factors of Production

1. Land (Natural resources)
2. Labor (People)
3. Capital (Finance, Equipment)
4. Enterprise
Skill and risk taking ability to bring 4 resources together)

Scarcity
Opportunity Cost
Specialisation

Lack of sufficient products

to fulfill the wants of the
people
The next best alternative
given up
When people/business
concentrate on what their
good at

b) Division of Labour
When the production process is spilt up into different tasks and each
worker performs 1 of these.

Advantages
1. Trained/Specialise in one
job - efficiency increases
2. Specialised machines can
help with jobs
3. Cost will be reduced
4. Specialisation may lead to
higher living standards

Disadvantages
1. Can become bored
efficiency may fall
2. If one worker is absent, no
one is able to replace
(production may stop)
3. No flexibility
-

c) Added Value
The difference between the selling price and the cost of its
materials/components.
Important because: -make profit (to pay for other costs like labour costs
and advertising)
-customer loyalty

1. Increase selling price but keep costs the same

packaging
brand image
good service
unique selling point (easily
copied)
better quality & design
2. Reduce material cost but selling price is the same

 Buy cheaper products/resources

(may reduce quality, customer loyalty decreases)

UNDERSTANDING BUSINESS
ACTIVITY:
2. Classification of Business
1. a) Economic Sectors

Primary sector

Secondary sector

Tertiary sector

natural resources
extraction sector
- extracts and uses natural
resources to produce raw
materials used by other
business
e.g. farming, fishing,
forestry
- manufacturing
sector/industrial sector
- manufactures goods by
using the raw materials
provided by the primary
sector
e.g. building construction,
car manufacturing
- service sector
- provides services to
consumers/ other
businesses
e.g. bank, transport,
insurance, hotels

b) Ways to compare sector importance in a country:

1. % of the countrys total number of workers employed in a sector
2. Value of output of goods/services and proportion to the national
output

c) Industrialisation
-increase in importance of the secondary sector
(de-industrialisation- ^ opposite)

d) Reasons for the change in Sector Importance

1. Sources of primary resources are depleting
2. Most developed economies cant remain competitive in
manufacturing against newly industrialised countries like China/
India.
3. As a countrys living standards increase, customers tend to spend
more on services like travelling and restaurants.

Public Sector

Organisations that are owned

by local/ national
governments.
Profits are used in the
organisations.
Business owned by private
individuals.
They keep all profits.

Private Sector

Types of Economy

Free Market Economy

(private)

Command/Planned Economy
(Public)

Mixed Economy

Decisions are made for

profit.
Prices are based on demand
and supply.
Government controls every
decision.
Gov. controls what is
produced and selling price.
Consumers have little
choice.
Mixture of Free Market and
Command Economy

2. a) Privatisation
When the government sells public businesses to private sector
individuals.

Advantages
1. More focused profit, so
they will control/cut costs.
2. Increased competition
causes lower prices and
better quality.
3. Individuals have more
capital than the
government.
4. Raises money for the
government.
5. Decisions are made for
efficiency

Disdvantages
1. Not focused on social
objectives.
2. Job Loss- If a business
doesnt make money, they
may close.
3. Risk of a monopoly

b) Monopoly
1. When a person/business is the only supplier of a particular
good/service

2. The business will have control over the quality and price of the
product.

UNDERSTANDING BUSINESS
ACTIVITY:
3. Enterprise, Business Growth and Size
1. a) Enterprise and Entrepreneurship
Entrepreneur: a person who organizes, operates and takes the risk for
a new business venture.
Characteristics:
- Hardworking
- Creative
- Innovative
- Independant
- Responsible
- Self-confident

Effective Communicator

Advantages

Disadvantages

Independence (able to
choose how to use time and
money)
Put own ideas into practice.
May become
successful/famous
Might have higher income
than working as an
employee
Able to make use of personal
interests and skills
Risk (many new
entrepreneurs business fail
due to poor planning.)
Capital (put own money into
business/ find other sources
of capital)
Lack of experience and
knowledge
Opportunity cost (lost
income from not being an
employee)

b) Why does the government want to support them?

1. Reduce unemployment
2. Increase competition (keep cost low, quality high)
3. Increase output (more goods and services)
4. Possibility of growth (Every large/important business started small)
c) How does the government support entrepreneurs?

1. Finance

2. Premises

3. Labour

4. Business Ideas

Offer loans at low interest

rates
Enterprise zones with low
cost premises
Grants are given to train
employees
Organise advice and support
sessions by experienced
entrepreneurs

2. a)Business Plans
A document containing business objectives and important details
about operations, finance owners of the new business. (shows that
the future has been thought of)
b) Business Size
Who wants to compare it:
1. Investors
2. Workers

3. Banks
4. Competitors
5. Government

6.
7.
8.
9.
10.
11.
12.
15.
1.
Number of
employees

16.
2. Value
of Output

13.
Usage/Ad
vantages
Easy to calculate
and understand

Calculate
products
produced

17.
3. Value
of Sales

Use to calculate
market share

18.
4. Value
of Capital
Employed

Total value of
capital used in the
business

19.

14.
Disadvantage
s
Some firms are
capital intensive
How to calculate
part-time workers?
Does not take into
account of number of
products sold.
Not suitable for
comparing different
industries
Not suitable for
comparing different
industries
Some firms are
labour-intensive
Doesnt take into
account output/ sales
A lot of $ doesnt
mean its BIG

20. 3. a) Why businesses want to grow?

1. Higher profit
2. More status
3. Higher salaries
4. Larger market share
5. Lower average cost
6. Economies of scales (when the average cost in the long run falls as
output increases)
21.
22. Internal Growth (a.k.a. Organic Growth)
When a business expands its existing operations
Slow but easy to manage
23.e.g. opening a new branch, moving to a bigger building, hiring
more workers
24.
25. External Growth (a.k.a. Integration)
26.When a business takes over/merges with another business
27.
1. Merges
Two or more companies agree to join their companies together to
become 1 company.
28.
2. Takeovers/ Acquisitions
When a business buys out another business.
29.
30. Integration

1. Horizontal Integration
31.
(A firm integrates
wit another in the same
industry at the same stage
of production)
2. Forward Vertical
Integration
32.
(When a business
takes over another
business that comes after
it in the chain of
production)
3. Backward Vertical
Integration
33.
(Take over another
business that comes
before in the chain of
production)
4. Conglomerate Integration

Reduces number of competitors

industry
Increase market share
Opportunities to have
economies of scale
Assured outlet for their
products
Profit made by retailer can be
absorbed.
Retailers can be prevented by
selling competitors products.
Consumer preferences can be
obtained directly from
manufacturer.
Assured supply of raw
materials
Profit made by supplier can be
absorbed
Suppliers can be prohibited rn..

Spreads the risk

Transfer ideas between
different sections

34. Problems with Business Growth and How to Overcome them

35.

Problems

36.

How to Overcome

37.
1. Larger business is
difficult to control
38.
2. Poor
Communication
39.
3. Expansion costs
too much/Run out of $

40.
4. Integration
process is more difficult

Decentralisation (operate in
smaller units)
Operate in smaller units
Use latest IT equipment
Expand more slowly
Ensure sufficient long-term
finance is available
Good communication with the
workforce

41.
42. Why some businesses stay small?

43.

1. Type of industry

47.

2. Market size

49.

3. Owners objectives

44.
- offer personal
service/ specialized
products
45.
- may lose personal
service
46.
e.g. hairdresser,
mechanics, convenience
stores
48.
- if total number of
customers are small
50.
- choose to keep the
business small to avoid
stress/ worry/ keep
personal touch with
workers and customers

51.
52. Why do some businesses fail?

53.

1. Bad management

54.
2. Failure to plan for
change

55.
3. Bad financial
management
56.
4. Over-expansion
57.
58.
59.
60.
61.
62.
63.
64.
65.

Lack of experience can lead

to bad decisions
The business environment is
always changing
New technology/ powerful
competitors/chane in
consumer preference are
examples.
Failure to plan/forecast cash
flow and cant pay creditors
If expanded too quickly, can
lead to problems in finance
and management.

66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
UNDERSTANDING
BUSINESS
78.
ACTIVITY:
79.
80. of Business Organisations
4. Types
81.
New terms:
82. in the eyes of the law, the business is an individual entity. It can enter into
Legal identity83. owe people money etc.
contracts, be sued,
84.
85. When an owners financial liability is only limited to the amount they invested into
Limited Liabilitythe company. 86.
87.
Unlimited LiabilityWhen the owner can be held responsible for the debts of the business.
88.
89.
Incorporated
Business- has a separate legal identity.
90.
91.
92.
93.
94.

95.
-

Sole Traders

96.A business that is owned and operated by one person

Smallest and most common type of business organization.
Can employ other workers but the owner is the ONLY owner.
97.
98. Legal Requirements for Sole Traders
Register and send annual accounts to Government Tax Office.
Business name must be registered in the Registrar of Business Names
Must obey all basic laws in the industry.
99.

100.
Advantages
102.
Few legal
requirements
104.
Total control/
Freedom/ Flexibility
106.
Gets 100% profits
after tax
108.
Will have personal
contact with the
customers
110.
Secrecy- only gives
information to the tax

101.
Disadvantages
103.
No separate legal
identity and Unlimited
Liability
105.
Bears all the lost
107.
Limited
finance/capital
109.
Lack of specialist
111.
112.

Long hours of work

office
113.
114.
115.
116.
117.
118.

Recommend if:
- Owner wants to start a new business
- Business start up does not need a lot of capital
- Requires direct contact with customers

119.

Partnerships

120.
A business in which 2 to 20 people agree to own and run a
business together.
- Partners will contribute to the capital, share the profits and
together decide how to run the business.
- Partnership agreement: a written agreement of how much profit
each partner will take and how much capital each partner will put
in.
121.

122.
Advantages
1. More capital than sole
traders
2. Responsibilities are shared
(specialization and division
of labour)
3. Losses and risks are
shared
4. Easier to set up tha
companies

123.
Disadvantages
1. Unlimited liability
2. No separate legal identity
3. Potential for conflict
4. Takes time to consult
other partners
5. Business growth is very
limited
6. Profits are shared

124.
125.
126.
127.
Recommend if:
- Family members/friends want to start a simple business together.
- Professionals (e.g. lawyers, doctors)
- Want to be larger than a sole trader but without many legal
complications.
128.

129.

Private Limited Company

130.
A company that offers limited liability to its shareholders but
has certain restrictions on its owners.
- 2 to 50 owners
- Shareholders are the owners and each buy shares which
represents part ownership of a company.
- Usually owned by: original sole trader, relatives, friends, employee
131.

132.
Advantages
1. Higher capital (Shares can
be sold to many people,
usually relatives/ friends)
2. Limited liability
3. Separate legal identity
4. Original owner retains
control of the company.

133.
Disadvantages
1. Legal formalities (Articles
of Association, rules on
how the company will be
managed/ Memorandum of
Association, important
information about the
company)
2. Shares cannot be

transferred to anyone else

(needs consent of other
shareholders)
3. Less secrecy (accessible
by the Public)
4. Capital is less than a
Public limited company.
134.

135.

Public Limited Company (Private Sector)

136.
A company with limited liability and offer shares to the
general public.
- At least 2 owners (unlimited)
- Denoted by: PLC or plc

137.
Advantages
1. Limited liability
2. Separate legal identity
3. High capital
4. Easy to buy, sell and
transfer shares
5. Higher status

139.

140.
141.
142.
143.
144.
145.
146.
147.
148.
149.
150.
151.

Control and Ownership

138.
Disadvantages
1. Many complicated and
confusing legal formalities
2. Many rules and
regulations to protect
shareholders interest
3. Difficult to control and
manage
4. No secrecy (accounts must
be published)
5. Original owner may lose
the control of the company
6. Selling shares is expensive
(need to pa the bank to
help sell shares and pay
for printing prospectus, a
document that advertises
shares)

Directors
- Controls the company
- Responsible to run the business
- Make decisions
- Appoint managers for day-to-day operations
Annual General Meeting
- An event that shareholders attend to vote on who to put on the
Board of Directors for the year.
Dividends
- Payments made to shareholders from the profit of the company
- Given every year
- Amount of dividends paid are decided by the directors.
152.
153.
Joint Ventures
154.
When two or more business agree to start a new project
together. Sharing the capital, risks and profits of the project.

155.
Advantages
1. Costs is shared ( help with
expensive projects)
2. Risks is shared
3. Local knowledge

156.
Disadvantages
1. Profits are shared
2. Disagreements may
happen
3. Different business cultures

157.
158.
Franchising
159.
A business based on the use of brand names, promotional
logos and trading methods of a successful existing business.
- FranchiSEE buys license to operate the business from the
franchiSOR.
- Franchisor owns the original business.
160.
FranchiSOR

161.
Advantages
1. Franchisee will pay the
franchisor to use the
brand name.
2. Business grows faster.
3. Outlets will be managed
by franchisee
4. All products the franchisee
sells must be from the
franchisor
5. Business will be more
popular.
163.

162.
Disadvantages
1. Bad management of one
franchisee can cause a bad
reputation for the entire
business
2. Franchisee will keep the
profits of their own outlet.

FranchiSEE

164.
Advantage
1. Lower chance of failure as
it is already a famous
brand/ product.
2. Franchisor will pay for the
advertising.
3. All supplies can be
obtained by the franchisor

165.
Disadvantages
1. Less independence
2. Unable to make decisions
to suit the local area
(maybe)
3. License fee and a
percentage of sales is
usually paid to the

4. Fewer decisions to make

5. Training is provided by the
franchisor
6. Banks will be more willing
to lend as it has a lower
risk of failure

franchisor every year

166.

167.
168.
169.
170.

Public Sector Co-orporations

1. Public Corporations
171.
A business owned by the government, and employ directors
to run it.
- Many public corporations are businesses that have been
nationalized. ( a private sector business bought by the
government)
172.
173.
Social objectives:
1. Keep prices low and affordable
2. Keep people in jobs to reduce unemployment
174.
175.
Problems:
1. Keeping to objectives costs a huge amount of $
2. Often make huge loss
3. subsidies often paid by the government.
176.

177. Advantages
1. Some business are too
important to be owned by
individuals ( natural
monopoly)
2. Rescues important
businesses which are
failing
3. Reduces wastes in an
industry (2 railway
stations)

178. Disadvantages
1. No profit motive (causes
low efficiency and higher
cost)
2. Government subsidies lead
to inefficiency
3. Unfair (subsidies not given
to the private sector)
4. No competition leads to no
customer choice and
inefficiency
5. Government may use it for
political gains.

179.
180.
2. Municipal Enterprises
181.
Businesses that re run by the local government and is
usually free and financed by local taxes.
182.
(Street lighting, public schools, rubbish collectors etc.)
- If they make a loss, government subsidy is provided.
- Many municipal enterprises are being privatized to improve
quality and to reduce taxes.
183.
184.
185.
186.

187.
188.
189.
190.
191.
192.
193.
194.
195.
196.
197.
198.
199.
200.
201.
202.
203.
204.
UNDERSTANDING
BUSINESS
205.
ACTIVITY:
206.
5. Business
objectives and Stakeholder
207.
208.
Business objectives
209.
Business objectives are the aims and targets that a business
work towards.
- Gives workers and managers a clear target.
- Decision-making is more focused
- Unity
210.
211.
Profits = Total income (Revenue)
How? = increase (PRICE + REVENUE) =
Total costs
increase PROFIT
211.
1. Profits
212.
Main aim for most private businesses.
- Pay returns to owners
- Par for future investments of the business
213.
Problems:
- Higher prices may discourage customers to buy and encourage
new competitors to rise up.
- Higher profits lead to higher taxes.
214.
215.
2. Survival
How?
= decrease PRICE =
216.
increase SALES
- The business is just starting out
- The economy is moving into a recession
- A powerful new competitor emerges
217.
218.
3. Returns
How? = increase (PROFIT + DIVIDENDS )= increase
to Shareholders
(PLC)
219.
220.
Directors will try to increase shareholders returns to
discourage them from selling shares.
221.
How? = Work on products to make them a more

222.
4. Added Value
223.
224.
5. Growth
How?
= Put customers needs as the
highest priority
225.
226.
Growth in size refers to sales and profit
227.
228.
6. Market Share
How? = decrease PRICE = increase SALES = increase
229.
MARKET SHARE
230.
Market share is the proportion of total market sales
achieved by the businesses.
1. Good publicity
2. Increase influence over suppliers (discounts)
3. Increase influence over customers (setting prices)
231.
232.
Market share (%) = Company Sales/Total market Sales x
100%
233.
234.
7. Providing a Service
tofocus
Society
How? =
on
235.
Environmental/Social objectives
236.
Social enterprises: Private sector organisations that have
social objectives as well as aim to make a profit to reinvest back
into the businesses.
237.
238.
Why business objectives could change:
- A business set up recently has survived for 3 years and now wants
higher profit.
- A business has achieved higher market share and now wants
higher returns for shareholders
- A profit-making business is in a country that is facing economic
recession so they have a short-term objective to survive.
239.
240.
Stakeholders: is any person or group with a direct interest in
the performance and activities of a business.
241.

242.

Stakeholders (Internal)

243.
1. Owner
244.
They put capital into the business to set up and expand the
business.
245.
Objectives:
- Profits- to gain return on capital
- Growth- to increase the value of the business
246.
2. Workers (employee)
Objectives:
- Higher objectives
- Job security
- Job satisfaction
247.
248.
3. Managers
249.
They make decisions for the business that can lead to its
success or failure, also employees of the business.
250.
Objectives:
- High salaries
- Job security

- Business growth so they can get more status, salary and power.
251.

252.

Stakeholders (External)

253.
1. Customer
254.
They buy goods/service that te business provides.
255.
The most successful businesses will find out what consumers
want before providing the goods or services. This is called market
research (Chapter 11)
256.
Objectives:
- Safe & reliable products
- High quality
- Value for money
- Reliable services
257.
258.
2. Government
259.
They are responsible for the countrys economy.
260.
They pass lows to protect workers and consumers.
261.
Objectives: they want business to succeed so that
- Increase employment
- Increase Gross Domestic Product (GDP)
- Business will pay taxes
- Expect all firms to follow the law
262.
263.
3. Community
264.
Objectives:
- Employment- Jobs for the people
- Environment- Businesses dont damage the environment
- Safe products
265.
266.
4. Banks
267.
Provides finance to the business
Objectives:
- Expect the business to repay the capital lent and interests
268.
269.
270.
5. Creditors/ Suppliers
271.
Objectives:
- Expect the business to repay the amount owed to them
272.
273.
Conflict of Stakeholders Objectives
- A business that is trying to satisfy all its stakeholders will find
difficulty in doing so
- Managers/ directors will have to compromise some stakeholders
objectives and decide on the best objectives for the business.
274.
275.
Objectives of Public Sector Business
1. Financial- meet profit target set by the government
2. Service- provide a service to the public and meet quality targets set
by the government
3. Social- create employment in certain areas, especially poorer
regions.
276.
277.
278.

279.
280.
281.
282.
283.
284.
285.
286.
287.
288.
289.
290.
291.
292.
293.
294.
295.
296.
297.
298.
299.
300.
301.
302.
303.
304.
305.
306.
307.
308.
309.
310.
311.
312.
313.
314.
315.
316.
317.
318.
319.
UNDERSTANDING
BUSINESS
320.
ACTIVITY:
321.
6.322.
Motivating Workers
323.
Motivation
The reason why employees want to work hard and work effectively
for a business.
- Managers must try to find out what motivates a worker to
encourage the worker to be more efficient.
324.
325.
^ Efficiency, ^ Productivity, ^ Output, ^ Profit
326.

327.
328.

F.W. Taylor

Theory: MONEY is the main motivator

- All individual are motivated by personal gain.

- If workers are paid more, they will work more.
329.
330.
Disadvantage:
1. Too simplistic (Workers are seen like machines. Does not take into
account non-financial motivators)
2. Difficult to measure employee out put in some jobs.
331.

332.

Maslow

333.
334.
335.
336.
337.
338.
339.
340.
341.
342.
343.
344.
345.
346.

Hierarchy of Needs
Self- actualization
- Promotions and increased
responsibility
Esteem Needs
- Recognised for your efforts

Social Needs
- Support from work colleagues

Safety and Security Needs

- Job Security

351.
Physiological Needs
- Wages high enough to cover bills

347.
348.
349.
350.

Each level must be achieved before the employee can be

motivated by the next level.
- Once one level is met, more than that level will no longer
motivate the employee
352.
353.
Disadvantage/ Criticism
1. Some levels are not present in some jobs or some people
2. Some rewards can fit into more than one level (money for
physiological needs and esteem needs)
354.
Herzberg
355.
356.

Two factor theory- Humans have two sets of needs

357.
1. Hygiene factors
(basic needs)
359.
e.g. Salary, security,
status, working condition,
relationship with other
colleagues.
360.
361.
-If not satisfied, they
can be de-motivators but if
satisfied, they are not
motivators either.

358.
2. Motivators/
Motivational Factors
362.
e.g. achievement,
recognition, personal
growth, achievement/
promotion
363.
364.
- humans long to
grow physiologically
365.
- make a not
dissatisfied person
motivated.

366.

367.

Motivating factors

368.
It is the responsibility of the Human Resources Department
to motivate the workforce.
369.
370.
Financial rewards
- Wages
371.
- Salaries
372.
373.
1. Wages
a payment for work, usually paid weekly.

374.
Advantages
376.
- Workers are paid
on a regular basis
377.
- Overtime (normal
amount per hour plus an
extra amount)

375.
Disadvantage
378.
- Has to be
calculated weekly, wastes
time
379.
- Have to employ
wages clerk to calculate
wages, wastes money

380.
i.
Time rate
381.
-paid by the hour

382. Advantages
384. - Easy to calculate

383. Disadvantage
385. - Good/bad workers get
paid the same
386. - Wastes time (hours
worked must be recorded on a

time sheet)
387. - Wastes money ( Clockingin system)
ii.

388.
Piece rate
389.
-paid depending on how many products they make
390.
-the more you produce, the more money you make

391. Advantages
393. - Encourages workers to
work faster and produce more
goods

392. Disadvantage
394. - Workers may ignore
quality
395. - If the machine breaks
down, the workers will earn less
396. - it can only be used when
it is possible to measure the
number of goods produced by
each individual

397.
398.
1. Salaries
399.
Salary is a payment for work, usually paid monthly
400.
- Usually for office staff/ managers
401.
402.
No extra pay but may get some rewards:
i.
Commission (gets a percentage of money from the sales)
ii.
Profit-sharing (gets a percentage of profit)
iii.
Bonus (a lump sum paid to workers who have done well)
iv.
Performance-related pay (paid based on their effectiveness, similar
to piece rate)
v.
Share ownership (given some shares in the company)
403.
404.

405.

Non- Financial Rewards

409.

Job Satisfaction

406.
Fringe benefits/ Perks are non-financial rewards given to
employees. (usually given based by seniority)
407.
e.g. discount on company products, free healthcare,
company car, free holidays
408.
410.
When a worker enjoys doing a good job in his work, but if
they dont receive the hygiene factors they will be demotivated and
not achieve job satisfaction.
411.
Increasing Job Satisfaction:
412.
413.
1. Job rotation
414.
Workers will swap duties after a specific short period/time.
- Gives more variety
- Makes it easier for workers to cover for any absentees
- Doesnt make the task more interesting
415.
416.
2. Job enlargement
417.
Extra tasks of a similar level of work is given to the worker
- Gives more variety
- MUST NOT add extra work/increase responsibility

418.
419.
3. Job enrichment
420.
Redesign job by adding more tasks with more skills and
responsibility.
- Fulfill higher human needs like self-actualisation (makes them
more committed)
421.
422.
4. Autonomous work groups and Teamworking
423.
When a group is given complete responsibility for a
particular process
- Can decide how to complete the task and organize jobs
- Makes them feel more in control, involved and responsible which
will make them more committed
424.
425.
426.
427.
428.
429.
430.
431.
432.
433.
434.
435.
436.
437.
438.
439.
440.
441.
442.
443.
444.
445.
446.
447.
448.
449.
UNDERSTANDING BUSINESS
450.
ACTIVITY:
451.
7. Organisation and Management
452.

453.

Organisational Structure

454.
The levels of management and division of responsibilities in
an organization.
- It is shown in an organization chart
455.
456.
1. Hierachy
- There are different levels in the organization
- The higher the level, the more authority one has.
- People in the same level have the same degree of authority.
457.
458.
2. Departments
- It is organized into departments

- Each department has a particular job/function

459.
3. Chain of Command/ Span of control

Advantages:
1. Everyone can see their own position in the organization
(they will know who they are accountable to and who they have
authority over)
2. It shows the relationship between different departments in the
organization.
460.
461.
Chain of command: is the structure which allows
instruction to be passed down from the senior management to
lower levels. (long/short)
462.
463.
Span of Control: the number of subordinates working
directly under a manager. (narrow/wide)
464.
465.
Long Chain of Command and Narrow Span of Control
- Communication is slower because of many levels
- Manager is responsible for few subordinates so they have more
control over them
- Less delegation
466.
467.
Short Chain of Command and Wide Span of Control
- People at the top will be more in touch with the lower levels
- Communication is more quicker & accurate
- Manager is responsible for many subordinates
- More delegation
- Less direct control of each worker so they will feel more trusted
and this allows more decisions to be made by themselves (job
satisfaction)
468.
469.
Line Managers: have direct responsibility over the people
below them in the hierarchy and are usually loyal to their
department (sometimes not to the whole company)
470.
471.
Staff Managers: are specialist in their area who provide
advice and support to the line managers and report directly to the
board of directors
472.
473.
Regional Divisions: Look after stores in other countries,
specializes in knowing the consumer preference and law in the
other country.
474.
475.

476.

The Role of Management

477.
All organisations have managers. Sometimes they are called
directors/leaders/headmasters but they perform similar tasks.
478.
479.
Managers are needed to:
- Keep a sense of control and direction
- Co-ordinate between departments

- Control employees
- Organize resources
480.
481.
1. Planning
- Planning for the future
- Setting aims and targets which gives a sense of direction and
purpose
- Plan for the resources that will be needed
482.
483. 2. Organising
- Managers cant do everything by themselves, so they must delegate
their jobs to other employees
- Managers must know what the employees are capable of in order
to organize their people and resources effectively
- Organisational charts can show that the best people are
specializing in each department
484.
485. 3. Co-ordinating
- They must bring the people in the organization together
- Must make sure that the different departments are working
together to achieve the same purpose. They can achieve this by
having regular meetings.
486.
487. 4. Commanding
- Must guide, lead and supervise subordinates
- Must make sure everyone is keeping to targets and following
deadlines
488.
489. 5. Controlling
- Must try to measure and evaluate the work of all individuals to
make sure that they are on target
- If the workers are failing to meet targets, managers must find out
why and take corrective actions
490.

491. Delegation

492. Delegation is giving a subordinate the authority to perform

particular tasks.
- Only authority is delegated, the final responsibility is still on the
manager who is delegating.
- If the subordinate does a bad job, the manager must accept
responsibility.
- Must mean a decrease in direct control by the manager and an
increase in trust of workers by the manager.
493.
494. Advantages for

495. Manager:
1. Have more time to do more
important tasks
2. less likely to make mistake if
delegated to a specialist
subordinate
3. Can measure the success of
their staff easily

496. Subordinate:
1. Work becomes more
interesting and rewarding
2. Feels more important and
feels that the manager
trusts him/her to do the
job well
3. Helps to train workers and

gives them more career

opportunities
497.
498.
499. May refuse to delegate:
- Are afraid that the subordinates will fail
- Want to control everything
- Afraid the subordinate will perform better
500.

501. Leadership Styles

502. The different approaches to dealing with people when in a

position of authority
503. Good management needs good leadership to inspire workers.
504.
505. 1. Autocratic Leadership
- Manager expects to be in charge of everything and to have their
orders followed
- Manager makes almost all the decision and keep information to
themselves, only telling the employee what they need to know.
- They keep themselves separate from the other workers.
- Communication is usually one way.
506.
507. 2. Democratic Leadership
- It is where the manager gets other employees involved in decisionmaking
- Will discuss with workers and ask for opinions before the final
decision
- Final decision is still made by the leader
- Communication is one-way.
508.
509. 3. Laissez-faire Leadership
- The broad objective of the business will be told to the workers and
then left to make their own decisions on how to organize their
work.
- Manager has a very limited role in this leadership.
- Communication can be difficult because there is no clear direction
510.
511. Trade Unions
512. A group of workers who have joined together to ensure that their
interests are protected
513.
- They generally share the same interests: improving pay, proper
fringe benefits, being treated fairly. They negotiate together than
individually negotiating.
- They are pressure groups which bargain with the HR department
for these interests.
- Improve communication between workers and management
514.
515. : to join it, an employee has to pay an annual fee which will be
used to employ union officials who will represent the employees in
bargaining.

516.

Advantages

517.

Disadvantages

1. Strength in Numbers
2. Improve condition of
employment
3. Improve workplace environment
4. Improve benefits
5. Advice : union will tell the
employees his rights
518.
519.
520.
521.
522.
523.
524.
525.
UNDERSTANDING
BUSINESS
526.
527.
ACTIVITY:
528.
8. Recruitment,
Selection and Training
529.

1. Costs money to be a
member
2. May be required to take
industrial action (on strike)
even if they dont agree

of

530. Recruitment and Selection

531. The process from identifying that the business needs to employ
someone up to the point at which applications have arrived at the
business.
- Used to successfully employ the right people
- Usually done by the HR department
532.

533. The Recruitment Process

534. VACANCY ARISES

535. 1. Job Analysis
- Identify the responsibilities/ task relating to the job
- A job description is produced after the details have been compiled
536.
537. 2. Job Description
- Outlines the responsibilities and duties to be carried out by the
potential employee
- So candidates know what the job requires them to do
- Can be referred to when a dispute arises
- Contains: conditions of employment, training offered
538.
539. 3. Job Specification
- It is a document which outlines the requirements, qualifications
and expertise of the a job.
540.
541. 4. Advertising the vacancy
- The next step is to decide how to fill the vacancy and tell the
people about it
542.

543. Recruitment Ways

544.
545. Internal Recruitment
546. When a vacancy is filled by someone who is an existing employee
of the business
- Will be like a promotion

May be advertised on a company notice board or the company

newspaper

547. Advantages
1. Saves time and money
2. Person already knows the
business and their
reliability, ability and
potential are known
3. Person already knows how
the company works and its
rules
4. Motivates employees to
work harder for the
promotion

548. Disadvantage
1. Will not benefit from new
ideas/experience from
outside.
2. There maybe
jealousy/rivalry amongst
the other employees

549.
550. External Recruitment
551. When a vacancy is filled by someone who is not an existing
employee and will be new to the business.
552.
553. Where it can be advertised:
a) Local newspaper- Usually for office workers that do not need much
skills so a lot of people can do it
b) National newspaper- Usually for more senior positions where few
local people might be qualified
c) Specialist magazines- Usually for particular technical specialists
like physicists
d) Recruitment agencies- They specialize in recruiting employees.
They keep details of employees and will send one who they think is
suitable when a business asks
e) Centres run by government- Businesses can advertise vacancies for
unskilled/ semi-skilled employees
554.
555. 5. Application forms and resumes
556. Potential employees must fill in an application form/ write a
letter of application and it in with a resume.
557.
558. Resume: a summary of a persons qualifications, experiences and
qualities written in a standard format. (use to see whether the
applicant matches the job specification)
- Name, address, phone number etc.
- Education, qualifications
- Work experience
- Interests
- Referee (a persons who can give his/her opinion on the applicants
character, reliability and skill)
559.
560. The letter of application:
- Why the applicant wants the job
- Why he/ she feels they are suitable for the job
561.
562. 6. Interviews
563. Shortlisted applicants will be invited for an interview.
564. To find out:

- The applicants ability to do the job

- Personal qualities that are good/bad
- Their general character
565.
566. Some include tests:
a) Skills test : test the ability to carry out certain tasks
b) Aptitude test: how easily can the candidate learn new things
c) Personality test: to test candidates who need to have specific
personal qualities
d) Group situation: test how well the candidate work with other
people
567.
568. Rejecting: unsuccessful applicants should be informed and
thanked for applying.
569.
570. Contract of Employment
571. A contract of employment will set out the terms of the
relationship between the employer and employee.
- Will usually contain the job title, hours to be worked, pay, terms for
termination of contract.
572.

573. Part-time workers

574. They work fewer hours than a full-time worker.

575.

576. Advantages
1) More flexible
2) Can ask to work at busy
times and not work when
not busy
3) Less expensive

577. Disadvantages
1) Less likely to be traine

578.

579.
580.
581.
582. Training
583. Needed to:
- Introduce a new process or equipment
- Improve efficiency
- Improve ability of an unskilled worker
- Improve opportunity for promotion
- Job enrichment
584.
585. 1. Induction Training
586. An introduction given to a new employee (explaining companys
customers, procedures, and introduce them to fellow workers)
587.

588. Advantages
1. Helps employees settle in
quickly
2. New workers will less
likely make mistakes
590.

589. Disadvantages
1. Time consuming
2. Wages is paid, but no work
done
3. Delays work from starting

591. 2. On-the-job Training

592. Trained by watching a more experienced worker do the job
(unskilled/semi-skilled workers)

593. Advantages
1. Cuts travelling costs as
employee doesnt need to
go out to train
2. Work is being done while
training
3. Cost less than off the job
training

594. Disadvantages
1. Trainer will be less
productive than usual
2. Might pass down bad
habits to trainee

595.
596. 3. Off-the-job training
597. Trained away from the workplace.
598.

599. Advantages
1. More skills can be taught
2. If taught after work, will
not waste time
3. Usually uses expert
trainers

600. Disadvantages
1. Cost is high
2. If done during work time,
salary is paid but no work
done
3. If done during night time,
workers will be tired the
next day
4. Additional skill makes it
easier for the employee to
leave to another company.

601.
602. Downsizing
603. Workforce planning: business decide the skills and number of
employees needed for the business for the future.
604.
605. Workers can leave the business if:
- Retire (old and want to stop working)
- Resign (found a new job/doesnt want to work there anymore)
606.
607. 1. Dismissal
608. Where a worker is told to leave their job because their
work/behavior is unsatisfactory
609.
610. 2. Redundancy
611. Where a worker is told to leave because he is no longer needed
in the business
- cut cost/ sales are falling
- will be given money to compensate them for losing their job
(negotiated by trade union/ in the law)
612.
613.

614. Legal controls over Employment issues

615. In many countries the government has passed laws to protect

employees from being mistreated.
616.
a) Protection against unfair discrimination (equality acts 2010)

617. -Treating a person differently from others with unreasonable

reason.
618. (race, religion, gender, age, disability)
619.
b) Health and safety at work
- Protect from : dangerous machinery, provide safety equipment,
maintain reasonable workplace temperatures, hygiene conditions
etc.
620.
c) Protection against unfair dismissal
- From being fired unfairly (joining a trade union, being pregnant, no
warning beforehand)
621.
d) Wage Protection
- Must pay amount agreed on in the contract of employment.
- Minimum wage: illegal for employer to pay a worker an hourly
rate below the set amount.

622. Advantages of minimum

wage
1) Prevent employers from
exploiting unskilled
workers who are
desperate for a job
2) Encourages more people
to work
3) Encourages employers to
train workers (cause their
being paid more)
4) Low-paid workers can
spend more
624.
625.
626.
627.
628.
629.
630.
631.
632.
633.
634.
635.
636.
637.
638.
639.
640.
641.
642.
643.
644.
645.
646.

623. Disadvantages of
minimum wage
1) Increases business costs >
increase price of goods
2) Some employers cannot
afford the wages so have
to make some employees
redundant
3) Higher paid workers might
be asked to be paid more
> higher costs

647.
648.
649.
650.
651.
UNDERSTANDING
BUSINESS
652.
ACTIVITY:
653.
9. Communication
654.
655.
656. Communication: when a message is transferred from the
sender to the receiver, who understands the message.
657. Effective when: the message is received, understood and acted
upon in the way intended.
658.

659. Process of Effective Communication

1)
2)
3)
4)

Sender: the person who sends the message.

Medium of communication: method used to send the message
Receiver
Feedback: reply from the receiver to confirm that the message has
been received and understood.
660.
661. One- way Communication
662. When the receiver doesnt need to reply/give feedback to the
message,
663.
664. Two-way Communication
665. When there is a reply from the receiver. Both parties will be
involved in the communication process.

666. Advantages:
1) Whether the receiver understands the message will be
known and can be resent if they dont.
2) Both parties are involved in the process. Receiver will
feel like making a contribution to the discussion and be
motivated.
667.
668. Internal Communication:
669. Communication between people inside the same organization.
670.
671. External Communication:
672. Communication to another organization/individual (customers)
- Important to the image and efficiency of the business.
673.
674. Communication Method/ Medium
675. Factors to consider when choosing:
i.
Speed
ii.
Cost
iii.
Message details
iv.
Leadership style
v.
Number of receivers
676.
677. 1. Verbal/ Oral Communication
678. One-to-one talks, telephone conversations, video conferencing,
meetings.

679. Advantages:
1. Information is given out
quicker.
2. Opportunity for immediate
feedback and 2 way
communication
3. Message might be
reinforced by speaker (not
on telephone)

680. Disadvantages:
1. No way to know whether
everyone is listening or
not in a big
meeting/understood.
2. Cant be used as an
accurate and permanent
record

681.
682.
683.
684.
685.
686.
687.
688. 2. Written Communication
689. Includes IT communication, business letters, memos, notices,
reports, faxes, text messages, email, social networking.

690. Advantages:
1. Hard evidence of the
message that can be
referred to in the future.
2. Better for messages with
more details
3. Can be copied and sent to
many people
4. Electronic communication
is a quick/cheap way to
reach a larger number of
people.

691. Disadvantages:
1. Direct feedback may not
be possible, unless
electronic communication
is used.
2. Language barriers

692.
693. 3. Visual Communication
694. Powerpoint, videos, films, posters, charts, diagrams,
photographs.

695. Advantages:
1. More appealing and
attractive to the receiver
2. Can be used to make the
written message clearer.

696. Disadvantages:
1. No feedback and have to
use other mediums to
make sure the message is
understood.
2. Charts/graphs might be
hard to understand for
some.

697.

698. Formal/ Informal Communication

699. Formal: messages are sent through recognized channels by the

business using professional language
700. (notice boards, reports, official meetings)
701.
702. Informal: messages are sent and received casually with everyday
language

703. (chit-chatting, unofficial meetings)

704.

705. The Direction of Communications

706. Downward Communication: Message from managers to

subordinates
- doesnt allow feedbacks
- message may become distorted after passed down many levels
707.
708. Upward Communication: Feedback from subordinate to the
manager
709.
710. Horizontal Communication: People at the same level
communicate with each other
- may cause conflict between departments
711.

712. Communication Barriers

713. Factors that stop effective communication, through the four

factors of effective communication.
714.
715. 1. Problems with the sender
i.
Senders language is too difficult to understand
716. - Use understandable language
ii.
Verbal communication can be unclear
717. - Ask for feedback
iii.
Sender sends the wrong message to the wrong receiver
iv.
Message is too long/too many details so the main point is hard to
understand
718. - Keep message as brief as possible
719.
720.
721.
722.
723. 2. Problems with the medium
i.
Message might get lost
724. - Ask for feedback
ii.
Wrong medium is used ( urgent message on a notice board)
725. - Select the appropriate medium
iii.
Original meaning might be lost after sent down a long chain of
command
726. - Use shortest chain of command
iv.
Breakdown of medium
727. - Make other mediums available
728.
729. 3. Problems with the receiver
i.
Receiver is not paying attention
730. - Emphasize the importance of the message and ask for
feedback.
ii.
Receiver doesnt like/ trust the sender and choose to not act upon
the message
731. - Use another sender whom the receiver can trust.
732.
733. 4. Problems with the Feedback
i.
No feedback

734. -Ask for a feedback/ Use a method of communication which

allows feedback
ii.
Distorted/ received too slowly
- direct lines of communication should be available
735.
736.
737.
738.
739.
740.
741.
742.
743.
744.
745.
746.
747.
748.
749.
750.
751.
752.
753.
754.
755.
756.
757.
758.
759.
760.
761.
762.
763.
764.
765.
766.
767.
UNDERSTANDING
BUSINESS
768.
769.
ACTIVITY:
770.
10. Marketing,
Competition and the
771.

772. What is a Market?

773. A market is where buyers and sellers come together to exchange

products for money.
774.
775. Marketing
776. Marketing is a process which identifies consumer wants, predict
future wants, create wants and find ways to use these wants to the
fullest.
777.
778. The Objectives of Marketing
- Increase sales revenue and profit
- Increases market share
- Maintain/improve brand image and customer loyalty

- Develop new products

- Enter a new market
- Raise customer awareness of the product
- Remind customers of the existence of the product
779.
780. The Marketing Department
781.

782. Sales department:

783. Responsible for products
existing in each region
(includes exportation).
786. Market research
department:
787. Responsible for finding out
customers needs, market
changes and competitors
actions. (Helps making
decisions in developing new
products)

784. Promotion
department:
785. Responsible for the
promotion and
advertising of products.
788. Distribution
department:
789. Transport products to
the market.

790.
791. Understanding Market Changes
792. Can be due to:
- Change in consumer/fashion taste
- Changes in technology
- Change in income
- Ageing population
793.
794. Why are some markets becoming more competitive?
795. Globalisation: World-wide trading is increasing
796. Transportation improvements: Easier to get products to other
countries
797. Internet: Can easily buy products from other countries
798.
799. Business responds to changing spending patterns:
- Maintain good customer relationship
- Keep improving existing products
- Bring out new products
- Keep cost low
800.

801. Market for a Product

802. A market for a product is made up of a total number of

customers and potential customers as well as sellers for the
product.
803. (Can measure by the total sales by all the suppliers of the
market)
804.
805.
806.
807.
808.
809. 1. Mass Market

810. Where there is a large number of sales of a product. (Designed

to appeal to all)
811.

812. Advantages
1. Sales are very high
2. Spread risks
3. Opportunity for growth
4. Economies of scale

813. Disadvantages
1. High levels of competition
2. High costs of advertising
3. Standardised (May not
meet every customers
specific needs)

814.
815. Niche Market
816. A small market for specialized products.
817.

818. Advantages
1. Less competition
2. Products can be sold more
expensively
3. Needs of customers can be
focused on

819. Disadvantages
1. Lower sales (market is
small)
2. Risk is not spread (usually
only make one product)

820.

821. Market Segmentation

822. A market segment is when a market is broken up into small

groups which contains customer with similar preferences.
823.
824. Ways to Segment a Market:
1. Income : products are priced differently to target specific income
groups
2. Age
3. Location : Different regions in a country has different needs and
different countries have
different tastes.
4. Gender
5. Use of Product: Domestic/ business use
6. Lifestyle
825.

826. Advantages:
1. Helps company produce products that specifically satisfies
the segment.
2. Higher sales/profits (Can focus on a segment)
3. May find a gap in the market (Only business that supplies a
product to satisfy the buyer need)
827.
828.
829.
830.
831.
832.
833.
834.
835.
836.

837.
838.
839.
840.
841.
842.
843.
844.
845.
846.
847.
848.
849.
850.
851.
852.
853.
854.
855.
856.
857.
858.
859.
860.
861.
862.
863.
864.
865.
866.
867.
868.
869.
870.
871.
872.
873.
874.
875.
876.
877.
878.
879.
880.
881.
882.
883.

884.
885.
886.
887.
888.
889.
890.
UNDERSTANDING
BUSINESS
891.
892.
ACTIVITY:
893. Research
11. Market

894.
895.

Market research

896.
The process of gathering, analyzing and interpreting
information about a market.
- Used to find out how many people want to buy the product
897.
898.
Product-Oriented Business
899.
A business that produces the product first then tries to find a
market for it later.
900.
(Consumer wants are created through ads)
901.
902.
Market-Oriented Business
903.
A business that carries out market research to find out what
consumers want before developing a product.
904.
(Less risky, and more likely to be successful)
905.
906.
SWOT Analysis
907.
A tool to analyse the S, W, O and T involved in a
product/business.
908.
909.
910.
911.
912.
913.
914.
915.
916.
917.
918.
919.
920.
921.

922.

Types of Information

i.
Quantitative Information
923.
It answers questions about the quantity of
something
924.
(Compiled in a graph/chart)
925.
ii.
Qualitative Information
926.
Asks for a persons opinion/judgement
927.
(Why do women but more products than men?)

928.
929.

Types of Research

930.
1. Primary Research
931.
The collecting of original data and require direct
contact with customers.
- More expensive but usually more specific to the company
932.
933.
(Sample: the group of people that is selected to
do the market research on)
934.
i.
Random Sample (Selected at random)
ii.
Quota Sample (Selected based on a certain characteristic)
935.
936.
937.
938.
939.

940.
943.
1. Questionnaires
944.
(A set of
questions to be
answered- face
to face,
telephone,
mail)
945.
2. Interviews
946.
(Will ask some
prepared
questions faceto-face)
947.
3. Focus Groups
948.
( A group of
people who are
representative
of the target
marketdiscuss
opinions
together)
949.
4. Observation
950.
(May be in the

941.
A
dvantages
Detailed qualitative
information
Customers opinions
can be gathered

942.
dvantages
If Q are not clear,
consumers may
misunderstand it
Time-consuming

Disa

Q can be explained if
the interviewee cant
understand it
Detailed information
about opinions can
be gathered

Can provide detailed

information about
their opinions

Time consuming
Expensive
Might be affected by
opinion of others

Cheap

Information collected
only gives basic number
Doesnt provide
customers opinion

May unconsciously lead

the interviewee to a
certain answer
Time-consuming and
expensive

form of
recording,
watchingcount how
many people
enter the store/
auditing the
stocks sold)
951.

5. Experimenting

Easy to set up and

carry out

People might lie to

avoid offense

952.
953.
954.
2. Secondary research (a.k.a. desk research)
955.
Taking information that has already been
collected by others.
a) Internal sources
956.
-- data can be collected by the firms own post
records to be used again
957.
e.g. sales department/ finance department/
customer services reports
958.
959.
b) External Sources
960.
-data is collected from sources outside the firm
(not as accurate as it is for other purposes/out of date)
961.
e.g. internet/ newspaper/ government statistics
962.

963.

Presentation of Data

981.

The Marketing Mix

964.
When raw data is converted into a form that is
easier to understand.
a) Table of tally chart
965.
-used to record the data in its original form.
966.
b) Chart
967.
-a more attractive way to present data, used to
compare two or more sets of data
968.
(pie charts, pictograms)
969.
c) Graph
- used to show relationship between two sets of data
970.
971.
972.
973.
974.
975.
976.
UNDERSTANDING
BUSINESS
977.
978.
ACTIVITY:
979.
12. The
Marketing Mix: Product and
980.

982.
A term used to describe a;; the activities which
go into marketing a product.
i.
Product
ii.
Price
iii.
Promotion
iv.
Place
983.
984.
The role of Product
985.
The most important element of the marketing
mix (goods/services)
986.
987.
Types of Product
1. Consumer Goods
988.
Goods that are consumed by consumers/people
989.
2. Consumer Services
990.
Services that are produced for consumers/
people
991.
3. Producer Goods
992.
Goods that are built for other businesses to use
(lorries/ machinery)
993.
4. Producer Service
994.
Services that are produced to help other
business (accountants/insurance/advertising)
995.
996.
What makes a product successful?
- Needs to satisfy consumers wants and needs
- Low cost of production
- Design: performance, quality, reliability
- Unique Selling Point: a special feature of the product that makes it
different from other products
997.
998.
Product Development
- Select best ideas for further research
- Decide whether it will sell
- Develop a prototype
- Test the market
- Full launch of the product to the market

999.
Advantag
es
1. Allows business to expand
into new markets
2. Unique selling point- will
make the business the first
in the market
3. Broader range of products
to sell

1000.
Disadvant
ages
1. Expensive and time
consuming
(research/prototypes)
2. Wrong research leads to low
sales
3. Failed product leads to loss of
company image

1001.

1002.

Importance of Brand Image

1003.
An identity given to a product which gives it a
personality of its own and distinguishes it from competitors.

Creates brand loyalty (consumers keep buying the same brand

instead of choosing competitors brands)
- Price of a branded product is usually higher
1004.
1005.
1006.
1007.
A good brand has:
1. Unique name
2. Unique packaging
3. Higher quality and price than other unbranded products
4. Advertising
5. Consistent quality
1008.
1009.
Packaging
i.
For products to be put in
1010.
- Gives protection
1011.
- Allows product to be used
1012.
- Makes transporting the product easier
1013.
ii.
For promotion
1014.
- Appeal to the customer/ Catch their eye
1015.
- Carries information about the product
1016.
- Promote the brand image
1017.

1018.
1019.
1020.
1021.
1022.
1023.
1024.
1025.
1026.
1027.
1028.
1029.
1030.
1031.
1032.
1033.
1034.
1035.
1036.
1037.
1038.
1039.
1040.
1041.
1042.
1043.
1044.

1045.
1046.
1047.
1048.
1049.
1050.
1051.
1052.
1053.

Product Life Cycle

1054.
Describes the stages a product ill pass through
from its development until its decline.
- The length of each stage depends on the product.
- Knowing which stage the product is in helps to make decisions
about pricing and promotion.
1055.
1056.
1057.
1058.
1059.
1060.
1061.
1062.
1063.
1064.

1065.
Development

1.

1069.
Introduction

2.

1074.
Growth

3.

1079.
Maturity

4.

1066.
-Product is
being developed
1067.
-Market
research and testing is carried out
1068.
-No
sales/promotion
1070.
-Product is
introduced to the market.
1071.
-Sales grows
slowly (still unknown)
1072.
-Informative
advertising is used
1073.
-No profit is
made yet
1075.
-Sales rises
rapidly (become known)
1076.
-Persuasive
advertising is used to gain brand
loyalty
1077.
-Price
reduces slightly as new
competitors enter the market.
1078.
-Profits start
to be made
1080.
-Sales are
high but increases slowly

1084.
Saturation

5.

1089.
Decline

6.

1081.
-Prices are
reduced as competition gets more
intense
1082.
-More
promotion is used to maintain sales
growth
1083.
-Profits are
highest here
1085.
-Sales are
the highest here, and stabilize
1086.
-No new
competitors enter the market (but
is still intense)
1087.
-Advertising
is stable
1088.
-Profits fall
as sales are the same but prices
are reduced.
1090.
-Product
loses its appeal/ New product
arrives
1091.
-Sales
decline
1092.
-Product will
eventually be withdrawn as it
becomes no longer profitable.

1093.
1094.
Extending the Product Life Cycle
i.
Introduce new variations of the product (diet coke)
ii.
Sell to new markets (other countries)
iii.
Make small changes to the products design/packaging
iv.
Sell through new retail outlets
v.
Introduce new version of the old product (new coke)
vi.
Use new advertising campaign
1095.
1096.
If extension strategy works, the maturity phrase
will be prolonged.
1097.
1098.
UNDERSTANDING
BUSINESS
1099.
1100.
ACTIVITY:
13. The 1101.
marketing mix: Price
1102.
1103.
1104.
The Role of Price
1105.
The price of the product must fit with the rest of
the elements in the marketing mix.
- Too high and it will lose sales to cheaper products
- Too low and consumers will wonder about the quality
1106.
1107.
Methods of Pricing (Pricing strategies)

1108.

1109.
1112.
1.
Cost-Plus Pricing
1113.
The
cost of
manufacturing plus a
mark up.
1114.
2.
Competitive Pricing
1115.
Whe
n the business prices
the product the
same/little lower
than the
competitors.
1116.
3.
Penetration Pricing
1117.
Use
d when trying to
enter a new market
(priced lower than
competitors
product)
1118.
4.
Price Skimming]
1119.
Sett
ing a high price for a
new product/
invention in the
market
1120.
5.
Promotional Pricing
1121.
Whe
n the product is sold
at a low price for a
short time
1122.
6.
Psychological Pricing
1123.
Invo
lves setting prices
that will change
customers
perception of a
product
1124.
high price= want it
as status symbol

1110.
dvantages
Easy to supply
Assured profit for
every product

1111.
Disa
dvantages
Ignores the competition
(competitors pricing
may be lower)

Sales will be good

because the price is
realistic

Ensures that there

will be sales for the
new product

Make consumers
think that the quality
is good

May lose some potential

customers because of
the high prices

Help get rid of

unwanted stock
Renew interest in a
product

Profits/ Revenue will be

low

Costs time/ money to

research

Ensure sales by
reinforcing
consumers
perception of the
product
May help brand
image if it is high
priced
Little sales revenue is
lost if right under a
whole number

Prices will be low so

sales and profit will be
low

Competitors might do
the same and reduce
the effect.

1125.
-just
below a whole
number
1126.
lower price for
products that are
purchased regularly
1127.
7.
Dynamic Pricing
1128.
Pric
e is change for the
same product
according to
different demand
levels
1129.
8.
Loss Leader
1130.
Whe
n the price is set
below the cost to
bring the customers
into the store in
hope that they will
buy other fully
priced products

Higher profit/sales
due to following of
demand
Ensures all seats are
filled (airplanes)

Can boost the sales

of other products

High cost of constantly

changing the prices
Ethical issues
Customers have to
constantly spend time
looking for the best rats
1131.
The loss leader
makes a loss

1132.
1133.
1134.
1135.
1136.
1137.
1138.
1139.
1140.

1141.

Demand and Supply

1142.
Price is driven by demand and supply.
1143.
1144.
Demand
1145.
Demand is the amount of people who want a
product and are willing to pay for it.
1146.
Demand rises, prices will also rise.
1147.
1148.
Supply
1149.
Supply is the amount of products that producers
are willing and able to produce.
1150.
High supply, prices will fall.
1151.
1152.
The Market Price
1153.
The place where the demand
and supply curve meet is called the equilibrium (where the same
amount of goods on demand as they are in supply)

1154.
1155.
1156.
1157.
1158.
1159.
1160.
1161.
1162.
1163.
1164.
1165.
1166.
1167.
1168.
1169.

1170.
Demand

Price Elasticity of

1171.
Price elasticity of demand is
how easily demand can change when price changes.
1172.
1173.
1. Price - Elastic Demand
1174.
A product will have a big
change in demand with a small change of price.
When there are too many substitutes for them (Newspaper, Chocolate)
Price should not be increased, if product is elastic
1175.
1176.
2. Price- Inelastic Demand
1177.
A product will have a small
change in demand with a big change in price.
When there are not many substitute products for it (Niche
Market/Monopoly)
Price should be increased to increase revenue
1178.
1179.
1180.
Make a product more inelastic by:
-Strong brand loyalty
1181.
-Unique selling point
-Take over competition
1182.
Slowly make price changes so
customers wont notice
1183.
1184.
1185.

1186.
1187.
1188.
1189.
UNDERSTANDING
BUSINESS
1190.
1191.
ACTIVITY:
1192.
14. The
marketing mix: Promotion

1193.

1194.

The Role of Promotion

1195.
Promotion informs consumers
about the rest of the marketing mix.
1196.
Promotion is more than just
advertising.
1197.
Aims include:
1. Inform about particular issues
2. Introduce new products to the market
3. Compete with competitors
4. Improve company and brand image
5. Increase sales
6. Remind people of the product
1198.
1199.
Types of Promotion
1. Advertising
2. Sales promotion
3. Public relations and Sponsorship
1200.
1201.
1. Advertising
a) Informative advertising
1202.
Where advertising focuses on
giving as much information about the product as possible.
1203.
b) Persuasive advertising
1204.
Where advertising focuses on
persuading the customer that they really need the product.
1205.
1206.
Types of Advertising Media
1. Television
- For products that are bought by a large number of customers.
1207.

1208.
Adv
antages
1. Reaches a lot of people
2. More attractive to audiences (moving
visual)
3. Can reach a target audience by
advertising at times the potential
buyers will be watching
-

1209.
Disadvantages
1210.
1. Very expensive

1211.
2. Radio
For local services/ events
Usually uses a memorable song/tune so advert will remember it
1212.

1213.
Advantages
1. Cheaper than TV
2. Can still reach a large
audience

1214.
Disadvantages
1. No virtual message
2. Quite expensive compared to
others
3. Audience not as big as TVs
4. There is not hard copy for the

advert to look back on

-

1215.
3. Newspaper
National/local newspaper
1216.

1217.
Adv
antages
1. Reaches a lot of people
2. Local advertisement is cheap
3. A lot of information can be included
4. Advert is permanent

1218.
Disadvantages
1219.
1. Usually B&W (not as
eye catching)

1220.
4. Magazines
1221.

1222.
Advantages
1. Very effective for target
audiences
2. More attractive than newspaper
(more colours)
-

1224.
5. Billboards/ Posters
Products that are for most people in the area.
1225.

1226.
Advantages
1. Permanent
2. Relatively cheap
3. Can be seen by anyone who
passes by
-

1231.
Disadvantages
1232.
1. Seen by limited amount of people
who watch the movie.

1233.
7. Leaflets/ Brochures
Usually advertise local events (given on street/delivered door to door)
1234.

1235. Advantages
1. Cheap
2. Permanent

1227.
Disadvantages
1. May be easily missed
2. No detailed information
can be included

1228.
6. Cinemas/ DVDs/ Blu-rays
Product will depend on the movie shown.
1229.

1230.
Advantages
1. Eye catching ( Visual
Image)
2. Cheaper than TV
-

1223.
Disadvantages
1. Usually only published
once a week/ month.
2. More expensive than
newspaper

1236.
Disad
vantages
1. May not be read
2. May feel like it is junk mail and be put
off by the product

1237.
8. Internet
For products that customers are already familiar with.

1238.

1239.
Advantages
1. Large Audience
2. Can include a lot of information
3. Orders can be made instantly
via website
4. Direct mail is cheap
-

1240.
Disadvantages
1241.
1. May not be seen by the
target audience

1242.
9. Product placement
when branded products are features in TV programs, movies or music
videos.
1243.

1244.
Adv
antages
1. Reaches a lot of people
2. More attractive to audiences (moving
visual)
3. Can reach a target audience by
advertising at times the potential
buyers will be watching
-

1245.
Disadvantages
1246.
1. Very expensive

1247.
10.Other forms of publicity
logo on shirts/shopping bags/delivery vehicles
1248.

1249.
Advantages
1. Cheap

1250.
Disadvantages
1251.
1. May not be seen by target
audience

1252.
1253.
1254.

1255.

Sales Promotion

1256.
Mainly to increase sales in
the short term but is not for the long term (supports advertising)
1257.
1. Price reductions
1258.
Involves reducing prices at
specific times of the year
SALE, price reduction coupons etc.
1259.
2. Gifts
1260.
Free gifts are put in
packaging to encourage consumers to buy it
Happy Meal toys etc.
1261.
3. Competitions
1262.
An entry form for a
competition can be put in the packaging
1263.
4. Buy one get one Free

1264.
Encourages multiple
purchases
1265.
5. Point-of-sale displays and demonstrations
1266.
A point-o-sale display is
where a shop has a special display for a product
1267.
(same for demonstration)
1268.
6. After-sales Service
1269.
Providing a service after the
sales is made (to retain customers)
warranty, delivering goods for customers, exchange unsatisfactory
goods, give refunds for faulty products
1270.
7. Free Samples
1271.
It encourages people to try
the product and hopefully buy it
1272.
1273.
1274.
Advantages:
Increase sales at the time of the year when sales are usually low
Encourages to try new products
Encourages to buy in greater quantities or more often
Encourages to buy a a product instead of competitors
1275.
1276.
Factors to consider when
deciding the type of promotion:
1. Marketing Budget
2. Stage of the product life cycle
3. Nature of the product (producer goods/consumer goods)
4. Nature of the target market (different markets require different
media for advertising)
5. Cultural issues in international markets
1277.

1278.
Sponsorships

Public Relations and

1279.
It is concerned with
promoting a good image for the company or product. Making
people associate the company positively.
1280.
e.g. sponsorship, donations,
events where the owner/workers take part in an activity for a good
cause
1281.
1282.
1283.
1284.
1285.
1286.
1287.
1288.

1289.
How technology
influences the marketing mix:

1290.
Product: will keep
improving products with new technology
1291.
Price: easier to find out
competitors prices and know customer demands
1292.
Place: allows online
purchasing
1293.
Promotion: can choose
between advertising on social networking sites/ own websites
1294.
1295.
Networks

1296.
Advantages
1. Target specific audiences
2. Cheap
3. More people will see it
1298.
1299.

1300.
Advantages
1. No extra cost
2. Can control advertising
3. Can change advert quickly

Advertising on Social

1297.
Disadvantages
1. Can make potential
customers annoyed
2. Lack of control over
advertising
Advertising on Own Website

1301.
Disadvantages
1. Relies on customers
finding the website
themselves
2. Have to design their own
websites

1302.
1303.
Target market/ Audience: The
group of customers that the company is aiming its marketing
efforts towards.
1304.
1305.
1306.
1307.
1308.
1309.
1310.
1311.
1312.
1313.
1314.
1315.
1316.
1317.
1318.
1319.

1320.
1321.
1322.
1323.
1324.
1325.
1326.
1327.
1328.
1329.
UNDERSTANDING
BUSINESS
1330.
ACTIVITY:
1331.
15. The 1332.
marketing mix: Place

1333.

The Role of Place

1334.
Products has to be available
where and when customers want to buy them
should be able to get the product easily, and it has to be sold at the
right place
1335.

1336.

Distribution Channels

1337.
Distribution channels are the
ways a product is passed from the producer to the customer.
1338.
1339.
Distribution Channel 1

1340.
-

1341.
The manufacturer sells directly to the customer/other manufacturers
Goods that expire quickly (agricultural goods from the farm)

1342.
Advantages
Very simple and quick
Price is lower as there is no
mark-up

1343.
isadvantages
Impractical for most products
because consumers dont live near
factories
High distribution cost (can be
expensive to send every product by
post to every consumer)

1344.
1345.
Distribution Channel 2
1346.
1347.
1348.
Manufacturer sells to retailers and the retailer (sell in small
quantities) sells to customers
Usually retailers are large/ Where products are expensive

1349.
Advantages
Producer sells in large

1350.
isadvantages
No direct contact with consumer

quantities
Lower distribution cost than
channel 1

(manufacturer)
Producer has to deal with every
retailer individually

1351.
1352.
Distribution Channel 3
1353.
1354.
the wholesaler buys in bulk an breaks the bulk into smaller quantities
and sell them to smaller retailers
usually for perishable goods like food

1355.
Advantages
Retailer saves storage space
Reduces risk for smaller
retailers

1356.
D
isadvantages
The final product to the consumer
will be more expensive
Takes longer to reach consumers so
might reduce freshness

1357.
1358.
Distribution Channel 4
1359.
1360.
1361.
The Agent is a person/ business that represents the company and
deals with the sales and distribution of a product. (usually for overseas
products)

1362.
Advantages
Agent knows the best
way/place to sell the product
in their own country

1363.
D
isadvantages
Product to final customer will be very
expensive
Producer has less control over how it
is sold

1364.

1365.
Distribution
-

Methods of

1. Department Stores
A large store that sells many different types of products from many
different suppliers
1366.
e.g. Jusco, Parkson
1367.
2. Chain Stores
a group of stores all owned by the same company and spread
throughout the country
1368.
e.g. Watsons, Borders,
Popular
1369.
3. Discount Stores
Retail stores that offer many different products, sometimes branded,
at discount prices

1370.
e.g. F.O.S, Reject Shop
1371.
4. Superstores
Very large out-of-town stores which sell many different products
1372.
e.g. Tesco
1373.
5. Supermarket
Big stores that focuses on selling groceries
1374.
e.g. Giant, Carrefour
1375.
6. Direct Sales
Product is sold directly from the producer to the consumer
1376.
7. Mail Order
Customers look through catalogues/magazines and orders through
post, telephone, the Internet.
1377.
8. Internet/ E-commerce
The buying and selling of products using the internet

1378.
Advantages for the Business
(e-commerce)
Promotion is cheaper
Dont need to set up a store
Can sell to consumers all
around the world

1379.
Disadvantages
-

1380.
Advantages for the Customer
(e-commerce)
Convenient
Easy (pay with credit
card/comparing prices)
Can buy from anywhere in
the world

Competition is higher
Good website design can be
expensive
Need to pay for delivering
products
No face-to-face contact with
customer
Not for businesses that sell
services
1381.
Disadvantages
Must have access to internet
and a working computer
Products cant be touched,
seen, tried on
Many are afraid of using
credit cards online because f
hackers/identity theft

1382.
UNDERSTANDING
BUSINESS
1383.
ACTIVITY:
1384.
16. Marketing
Strategy
1385.

1386.

Marketing Strategy

1387.
A marketing strategy is
a plan to combine the right combinations of the four elements of
the marketing mix for a product to meet the marketing objectives.
1388.
Considering:
1389.
1. The marketing
objectives
1390.
2. Target market
1391.
3. Amount of money
available
1392.
4. Market research
1393.
1394.
Entering New Markets
Abroad
1395.
Opportunities for
Globalisation:
- To have more customers
- May be too many competitors in the home market
- Cheaper labour in some countries
- More choice of location to produce products
1396.
1397.
Problems with
Globalisation:
- Lack of knowledge- May not know much about the consumers/
competitors
- Cultural differences
- Exchange rate changes
- Import restrictions
- Transport (delivery)- Higher cost
1398.
1399.
Methods to Overcome
the problems:
- Joint ventures: Allows the business to gain knowledge of overseas
market
- Licensing: Where the business gives another company permission
to produce their products and sell it. The company will have to pay
royalty
- International Franchising: Franchisor sells the franchising rights
for a country to someone from that country
- Adapting a famous international brand to suit the taste of the local
consumer