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How Businesses Work

1. Taking risks to gain a financial reward

2. Expect to make more than they earn as an employee

3. Be their own boss

4. Do a job your really interested in

5. Businesses have to make a profit to make profit or break even

Public Sector - Government owned {Not for Profit organisations e.g police, army} {Service}

Private Sector - Privately owned

Other Objectives like offering high quality products, attempting to grow, good customer service, limiting impact on enviroment, & diversifying

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Production - Monitor Quality of what theyre producing.

Finance - Best value for money to break even

HRM - Right number of quality staff in right place at right time

Marketing - Identify the wants and needs of customers in order to sell it

Admin - Run their own affairs as efficiently as possible

R&D - Need to discover new ideas for products that could be launched in the future

Businesses need Labour, Finance, Customers, Suppliers, Premises, Enterprise

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What Businesses Do

Businesses add value to Raw materials. Transform them into products to sell.

Difference between the cost of the raw materials bought, and the price the customer pays for the finished product. e.g. selling price = 10.00 and materials = 3.00, added value = 7.00

The value added leaves a surplus and this pays for costs, and leftover = profit

Luxuries usaully have higher added value

The greater the value added the greater the profit

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Supply Chain

Raw materials go through stages to reach the product consumers recieve.

Transformsations form part of the Supply Chain.

Raw Materials > Suppliers > Manufacturing > Distribution > Retailers > Consumer

Value tends to be added at each stage

Three Divisions in Businesses according to Supply Chain - 

Primary Sector - Industries that extract raw materials. Decline in UK due to importing materials for cheaper. {Farming, Fishing, Mining}

Secondary Sector - Processes the materials that come from Primary Sector, {Manufacturing and Construction} Decline because companies move manufacturing abroad leading to better margins.

Tertiary Sector - Service sector which provides services like banking to Primary and Secondary sectors helping them sell goods. e.g Shops, hotels, healthcare services

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Entrepreneurs have to do Market Research on a small budget

New Businesses can easily do secondary research on a small budget, and can also do primary research on a low budget like surveys etc. Entrepreneurs must be subjective, and ask a wide range of people, not just family etc.

Entreprenuers must do marketing on a budget too - Not much money to spend on advertising campaigns. Sales promotions e.g BOGOF

Important not too stimulate demand too much, if demand bigger than capacity then customer relations can be poor.

Businesses often fail - 

- Lack of Experience - Lack of Market research - Wrong market conditons

- Give up when expectations not met - Poor Stock Control

- Run out of money - Inaccurate or unrealistic business plan

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New Ideas

Targetting Niche or Mass Markets -

Some products are aimed at mass markets and therefore are designed to appeal to lots of consumers

Some products may be aimed at Niche Markets - smaller and more specific group of consumersSmall business may be better in a niche market/ Established by specialising. Often have high profit margins, difference between cost and what it's sold for. Suitable to meet the demand for small businesses

Entrepreneurs need good background knowledge in their market e.g. Similar products? Successful?

Patent - Government agency that gives license for a new invention not to be copied by any other business unless permission is given in which the business can change for

Trademark - Protects names and logo's slogans, registered so no one else can use it, {Intellectual property of a business} To protect Brand Image

Copyright - Gives protection to written work or music. Illegal to reproduce without permission,{Royalties}

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Special Agreements between one business and another.

Allow one business to use the idea, name and reputation of another business.

Franchisor is the business willing to sell or license the use of it's idea etc. and the franchisee is the business which wants to use it's name

Franchisee recieves A well known name, successful and less risky idea, training and financial support, marketing advertising and promotion nationally, equipment can be leased, banks more willing to lend

But they to pay for the right, part of the profits go to the franchisor, must follow rules, difficult to sell on, could get a bad reputation depending on other firms

Franchisor recieves someone else running their business, cutting wage costs, share of profits, faster name spread, reduced risk

But have to help franchisee set up, must share rewards of the franchise, could recieve a bad reputation

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Industrial Market - Businesses to other businesses

Consumer Markets - Firms sell to individual consumers 

Local Markets - Firms sell to customers nearby

Electronic Markets - Virtual where customers dont physically interact with sellers

Business to Business companies or Business to Consumer companies


Market Size - estimate the size of their market by the total number of sales in the whole market or by the value of all the sales in the market.

Market Share - Sales as a percentage of total market size {sales / total market size * 100}

Market Growth - If the market is growing or shrinking. Competition is fierce in a shrinking market. {Difference between size of old and new market / size of old market * 100}

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Markets {2}

Demand affects market size, share and Growth. If demand for their product increases they'll sell more products and make bigger profits. What affects demand is:

The price of a product, actions of competitors, customer income, seasonality and marketing

Markets are segmented into groups of consumer's with similar wants and needs so businesses can focus on targetting market segments: Incomes, Socio-economic class, Age, Gender, Geographical region, Amount of use, Ethnic grouping, family size, lifestyle

Segment by identifying new cutomers, new markets, and new ways of marketing. However; Can cause a firm to ignore potential customers, can be difficult to break market into segments, unable to target this segment

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Market Research

Reasons for Market Research: Helps spot business oppurtuinites, work out how to expand business, Helps them see if their plans are working

Market Research can be expensive and if done badly can lead too poor decision making, so must plan carefully to get maximum benefit.

Quantitive and Qualitative Research - 

Quantitive research produces numerical statistics like facts and figures, often uses questionnaires, closed questions

Qualitative research looks into feelings and motivations of consumers. Often uses focus groups, open questions

Primary Research - Gathered by the business themselves e.g. questionnaires interviews, samples are specific to business so good for niche markets. Up to date but labour intensive

Secondary Research - Collected from external sources, easier faster and cheaper, might be unsuitable, record or previous data collected

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Market Research Samples

Need a representative sample - Must have similar proportions to tge people in the market e.g. Income etc, bigger sample has more chance of being representative than a small sample, however always a magin of error

Always depends on the amount of cash a business has,

Simple random sample - Names are picked randomly from a list

Stratified Sample - The population is divided into groups and people are randomly selected from each group. No. of people picked Proportional to size of the group

Quota Sample - People are picked who fit into a category. Businesses use quota sampling to get opinions from consumers

Must avoid being bias - should avoid leading questions

Not spending enough money on market research can cause results to be risky

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