Business Key Theme 1

Demand: the quantity of a good or service that consumers are willing to buy at a given price in a given time period.

The law of demand: there is an inverse relationship between the price of a good and demand. 

1. When the price is high, demand is low.

2. As price falls, there will be an increase in demand - a person switches away from rival products towards the product. 

Factors leading to a change in demand:

• Price of substitutes and contemporary goods
• Consumer income
• Tastes and fashions
• Demographics
• External shocks
• Seasonality

Supply: the quantity of a product that a producer is willing to supply on to the market at a given price in a given time period.

The law of supply: as the market price of a product rises, businesses will increase supply to the market. When there is a change in price, there is movement along the supply curve. 

Factors impacting supply:

• Changes in the cost of production
• Introduction of new technology
• Taxes
• Goverment subsidies
• External shocks

If the supply curve shifts to the left, this indicates a decrease in supply. 

If the supply curve shifts to the right, this indicates a increase in supply. 

Price elasticity of demand: the responsiveness of demand to a change in price. Elasticity measures the extent to which demand will change. % change in quantity ÷ % change in price

Income elasticity of demand: the responsiveness of demand to a change in someones real income. % change in quantity ÷ % change in real income

% change = difference ÷ original X 100

Inelastic demand: price falls/increase, quantity demand goes up/down marginally. These have few substitutes and if the number is  0-1. 

Elastic demand: price goes up/down, quantity demand goes down/up significantly. These are sensitive to changes in price and have a high number of substitutes. Number is >1. 

Perfectly inelastic: when a firm cannot change the price else no one will buy it. Number is 0.

Unit elastic: number is 0. 

Normal goods: positive income elasticity of demand. 

--> income rises, demand rises.

Normal necessities: income elasticity of demand between 0-1 - eg. economy class travel, bus travel.

--> demand rises less than income.

Luxury goods: income elasticity of demand is more than 1 - eg. luxury chocolates, exclusive resorts, fine wines and dining.

--> demand rises more than income.

Inferior goods: income elasticity of demand is negative - eg. Lidl (low-priced own brand foods), cigarettes, 

--> demand falls as income rises. 

Design mix: the emphasis on 3 key elements - aesthetics, function and economic manufacturer - to create a successful product. 

Social trends: 

• Resource depletion
• Waste minimisation
• Re-using and recycling (eg. Ebay)
• Ethical sourcing (ensuring that the products are created in safe facilities by workers)
• Appearance of a product
• Functionality

Emotional branding: seeks to create a bond between the consumer and the product by provoking an emotional response to the advertising.

Changes in branding/promotion to reflect social trends: social media, product placement, apps on phones and use of smartphones.

Promotion: raising customer awareness of a product or brand, generating sales, and creating brand loyalty.

Types of promotion: celebrity endorsement, sponsorship, sales promotions (discounts, BOGOFF), advertising, publicity (speeches, PR stunts) and personal selling (telemarketing).

Brand: a characteristic, name or symbol which distinguishes one product from another suppliers. Could create a USP, advertise, sponsorships, social media to build a brand. 

Manufacturers brands: created by manufacturers, advertising & promotion to build brand loyalty, charge higher prices, repeat purchases, consumer stays loyal. (eg. Walkers, Carling) Own-label brands: created by retailers, good value for money, high profits, ties consumer, bargaining power. (eg. Tesco value, Asda own)

Strong branding: reliability goes up, recognisable and competitive advantage, ability to charge higher prices, added value, reduced price elasticity of demand.

Viral advertising: brand awareness created through word of mouth on social media, the business does not pay for it.

Predatory: where a product is set at a very low price, intending to drive competitors out of the market or create barriers to entry - eg. vehicle brands, supermarkets. 

Psychological: using the customers emotional response to encourage sales. By pricing products strategically, a company may increase sales without significantly reducing prices. 

Competitive: setting the price of a product based on what the competitor is charging. 

Cost: the cost to produce the products are worked out then money is added on top. Add a profit margin or add a percentage mark-up on top. 

Skimming/creaming: a product is priced high to begin with as it has a desirability factor - eg. iPhone.

Penetration: setting prices really low on a new product to encourage sales then raise the price once its demand is high.

Depending factors: number of USPs, PED, competition, strength of brand, stage in product life cycle, costs and the need to make profit.

Distribution: the process of getting the right product/service to the consumer in the right place.

1. Manufacturer > Consumer - eg. factory shops, solicitors (DIRECT DISTRIBUTION) - increase in profit, costs will be lower, better customer service

2. Manufacturer > Retailer > Consumer - eg. mass markets - wide audience, high sales volume

3. Manufacturer > Wholesaler > Retailer > Consumer - eg. Macro (INDIRECT DISTRIBUTION) - buy in bulk - reduces cost, trade agreements

4. Manufacturer > Agent > Wholesaler > Retailer > Consumer - price of goods will be high

Online distribution --> niche businesses can target wider audiences. 

Marketing: the management process of identifying, anticipating and satisying consumer demands for profit. 

Product life cycle: describes the period of time in which a product is developed, brought and removed from a market.

• Development - the manufacturing of the product.
• Introduction - the promotion of the product, the place it can be sold and pricing.
• Growth - price can be lowered as the product will be at the stage of popularity.
• Maturity - reaching full potential.
• Decline - the 'death' of the product. 

Extension strategy: ensures the product remains in the maturity stage of the product life cycle.

Market growth: the value of a market increasing.

Market share: the value one product/service has within that market.

Boston Matrix: a model which helps businesses analyse their portfolio of businesses and brands.

• Star - profitable products, growing but competitive in market --> invest money.
• Problem Child or Question Mark - questionable for the future, may succeed may not, products invested in while market share builds.
• Cash Cows - profitable and less need for costs but they make revenue, reaching maturity but still have customer loyalty
• Dogs - may produce some income limited opportunity for sells growth, likely to be withdrawn from portfolio.

B2B: advertising needs to be informative rather than persuasive or clever, suppliers need to build up closer relationships with consumers - eg. a school will have a paper supplier. Quality product and a quality service is the focus.

Workforce planning: deciding how many and what types of workers are required.

Employer/Employee relationships:

• Individual approach: negotiation between an individual employee and a representative of the employer.
• Collective bargaining: negtiation process between employers and employees representatives, such as trade unions represenatives. 

Organisational structure: how a business is organised.

Organisation chart: a chart which illustrates the way an organisation is structured that should include - where the responbility for decision making and authority is, the job titles and positions in the business, the lines of authority and the lines of communication. 

Flat organisational structure: few or no levels of middle management between staff and executives, few layers or just one layer of management, span of control is wide, chain of command from top to bottom is short. 

Tall business structure: long chain of command running from the top of the organisation, barely exceed 8 levels of management, narrow span of control, long lines of communication. 

Matrix: individuals work across teams and projects as well as their own department.

Centralised: rely on one individual to make decisions. 

Decentralised: transfer of decision making power and assignment of accountability and responsibilty for results. 

Delegation: the assignment to others of the authority for particular functions, tasks and decisions. 

Vacancy: to expand a business, if someone gets fired or quits, if the business has been taken over, specialist people, promotion, natural wastage (retirement), shrinkage (redundancy).

Internal recruitment (in): sending out ads or informing through email, promotions, falling into role, acting role. - settle in quicker, less training, less time consuming, conflict between employees, demotivated workforce.

External recruitment (outside): headhunters, websites, newspaper adverts, TES advertise - costly, greater pool of people, quality of applicants may not be as experienced or reliable.

Depending factors: cost, experience, training, whats best for the business, the job their trying to replace. 

Job descriptions:  details the main tasks required in a job, includes a job title, location, main tasks and duties, pay and benefits, person whom the job holder reports, people who report to the job holder. These are important as they attract the right person, tells them what the job involves, know the expectations, refer back to, continuity of job role if someone leaves. 

Person specification: outlines the qualities of the person, including - physique, health and appearance, qualifications, special skills, interests, disposition, circumtances. 

Recruitment Process:

• A vacancy arises
• Job description produced
• Person specification produced
• Advert produced and place in appropiate media
• Application forms issued / CV's and letters of application requested
• Short listing occurs
• Interviews and testing takes place
• Selection takes place

Best candidate is informed of the decision, agree to accept job, debrief unsuccessful canidates and appointment reviewed after a period of time. 

Methods of selection:

• Internal sourcing: experience, tests specific to job role - costs arent very high, transition times means less cost for business
• External sourcing: tests to make sure they are motivated - costs more, less knowledge
• Third party recruitment: tests are team-building activities to work well in the company - pay headhunter to find employee
• Canidate selection: interview them, interviewers who do not ask questions are shy or uninterested shows the level of responsibilities - cheapest source
• Aptitude and attainment test: literacy, maths, IT etc
• Psychometic testing: personality, attitude and character presentations
• Work samples: complete exercises which would form part of the job
• Peer assessment: co-workers predict how a canidate would be like
• Assessment centres: large scale recruitment

Training on-the-job, training off-the-job and training using an induction. - improve skill, productivity, motivation but is costly, time consuming. 

Maslow (hierarchy of needs) - apply to any job, useful for managers, target setting - could depend on decisions, day/time and do we ever reach self actualisation.

• Self actualisation: understanding who you are
• Self esteem: promotion opportunities
• Social: working in a team
• Safety: shelter, working conditions
• Basic: food, water

Taylor (scientific management) - division of labour, specialisation, split tasks down - helps with efficiency, speed, motivation by pay - quality will decrease through piece-rate pay, increase in revenue, more than money is required.

Mayo (hawthorne effect) - motivated more than just pay, lighting on productivity levels, experimentation on working conditions - changes in conditions and financial rewards had no effect on productivity, multi-skilling, job rotation, job enrichment, cell production.

Hertzberg (two-factor theory) - motivators directly motivate which is related to job and hygeine demotivates surrounding the job eg. working conditions, pay.

Motivation: the extent to which an individual gives their best at all times when working for a business.

Non-financial methods: 

• Delegation: assignment of any responsibility/authority to another person to carry out activities.
• Consultation: meeting with a proffesional/expert for purposes of gaining information.
• Empowerment: giving employees a certain degree of responsibility for decision making.
• Team working: co-operation between those who are working on a task.
• Flexible working: employees have flexibility on how long, where and when they work.
• Job enrichment: redesigning jobs so that they are more challenging and less repetitive.
• Job rotation: an employee changes positions within the same organisation.
• Job enlargement: the number of tasks associated with a job is increased to add greater variety to activities. 

Leadership: a relationship through which one person influences the behaviour or actions of other people. It provides direction so they can adapt to change, know what to achieve.

Traditional view: command & control, decision-making. Modern view: inspiration, creating a vision, building effective teams.

Leadership style: the way that the functions of leadership are carried out.

Autocratic: focus of power is with the manager/leader, communication is top-down & one-way, formal systems of command & control, use of rewards & penalties, very little delegation.

Paternalistic: leader decides what is best for employees, links with Mayo, akin to a parent/child relationship, still little delegation, softer form of authoritarian leadership.

Democratic: focus of power is more with the group as a whole, leadership functions are shared, all have involvement in decision making, emphasis on delegation and consultation.

Laissez-faire: leader has little input in decision making, conscious decision to delegate power.

Entrepreneur: someone who makes a business idea happen either through their own effort or by organising others to do the work.

Incentives to becoming an entrepreneur: 

• Financial: to get a good amount of money, shareholder returns, profits, dividends, capital growth
• Non-financial: charity giving, jobs to people who cant get any, satisfaction of seeing a business grow, challenge

5 essential qualities of a leader: courage, confidence, concentration, passions & values

Depending factors of leadership: changes in societies values, better educated workforce, focus on need for soft HR skills, changing workplace organisation, greater workplace legislation

Factors affecting choice of leadership: the workforce, type of business, organisational structure, personality of the leader, experience and skill, pressure, nature of the business problems

5 Objectives to become a successful business: 

• Sell all year round to extend product life cycle
• Promote seasonally to increase demand
• Offer to all people by the variety of sizes
• To increase market share year-on-year
• Expand within a few years

Financial objectives: to survive, to profit maximise

Non-financial objectives: sales maximisation, market share, cost efficiency, employee welfare, customer satisfaction, social objectives

Growth in a successful business: staff, organisational structure, size of business, span of control, profit, revenue, range of customers, reputation, costs, regulations, communication

How entrepreneurs deal with change: first mover, market research, need for formality and shared ownership, responsibility, motivation and inspirations, strategy and vision

Partnership: a legal form of business operation between two or more individuals who share management and profits, contribute to all aspects of the business such as money, labor, property, profits etc.

Soletraders: people who operate businesses on their own, may/may not have employees, control and manage their business and treat its income as their own, unlimited liability.

Private limited company: limited liability, only lose what they have invested, board of directors (shareholders) invite shareholders who are usually friends or family for a return.

Public limited company: limited liability, often shares to the public which are brought in the stock market, minimum of 2 stock holders.

Social enterprise: an organisation that applies commercial strategies to maximise social needs/aims.

Lifestyle business: supporting owners income and personal requirements rather than maximising profits or revenue. 

Online businesses: could be used - tailored to them as using a website, business created based on interest or passion.

Franchises: a national/international business which has outlets across the world, provided with machinery, tools, training, marketing, equipment - objective is to grow.

Trade-offs, choices and opportunity costs

Opportunity cost: the cost of missing out on the next best alternative - hard to assess by the uncertainty, knowledge, benefits of decisions in long term, types of business, size of the opportunity, timescale, finanical/non-financial rewards.

Financial Methods of Motivation

• Profit sharing scheme is a percentage of the companies profits which are distributed to employees.
• Piece rate pay is paying employees based on the number of units made.
• Commission is payment based on the number of units sold.
• Bonus is a one-off payment for achieving targets.
• Fringe benefits are extras that are provided on top of a wage or salary, eg. company cars.
• Performance related pay is a financial reward to those whose work is above standard and/or above average.

Mass market is a market that is aimed at the general population eg. regular toothpaste.       Niche market is a subset of the main market and addresses a specialist need eg. sensodyne toothpaste for sensitive teeth. 

Market size is a measure of the total sales in a market. It can be expressed in currency or units.  Market share is the proportion of the total market held by one company or product, more often measured by value. 

Dynamic market is one that is subject to rapid or continuous change eg. online retailing. With dynamic markets comes constantly changing consumer tastes and preferences, meaning markets grow. 

Frank Knight 1921: Risk, Uncertainty, and Profit                                                                               Risk is when the potential outcomes of a decision are known.                                                            Uncertainty is when none of the outcomes are known in advance. Knight suggests that real opportunity for profit is found in uncertainty. 

Market segmentation is the technique where the market is broken down into smaller sections with similar characteristics. It can be segmented into age, gender, income, socio-economic group, ethnicity, religion, education, family style, lifestyle, and geographical location. 

Market research is a systematic, objective collection, and analysis or data about a particular target market, competition, and/or environment. It can be done through:

Secondary research: using existing sources to research the market, methods include Government statistics, newspapers & magazines, company sales figures, and the internet. 

OR Primary research: gathering your own information through test marketing, consumer panels/focus groups, and questionnaires. 

Qualitative research: in depth research, usually only a few people, asks opinions, attitudes and feelings, more insight and reasons...

Quantitative research: collects numerical information, easy to compare, spot trends 

Why sample? Too expensive to ask all potential customers, need to avoid bias.. BUT the choice of sampling methods depends on available finance, nature of product, level of risk, and target market. 

Random sample: people selected by chance no matter what their age or gender etc.                   Quota sample: a certain percentage of age groups or genders are asked.                                           Stratified sample: randomly chosen from within a sub-group eg. views of females between 18-24yrs. 

Differentiation is the way you make your business stand out against competition in a market by creating a competitive advantage or a USP.

The best way to visualise the position of products in the market is to use a market map.               Market map: a diagram which shows the range of possible positions for two features of a product. 

Adding value is the difference between the price of the raw materials and the selling price, it involves creating something of higher value to a customer than its bought-in-costs. It can be done through quality, brand, bundling, customer service, differentiated ingredient ie. fairtrade.