- Created by: abi elizabeth
- Created on: 09-12-18 15:35
Enterprise and Entrepreneurs
Entreprenuers- The formation of a new busines to deliver a new product or service to the market
Entrepreneurs- A person who having generated a new business idea, develops it by setting up a business
Why do Businesses exist? -
- To produce goods
- To distribute products
- To provide a service
- To help others
- To meet the needs of society
- To make a profit
- Sources of Business Ideas
- personal experience
- -business experience
- Market research, Eureka moment, brain storming
Identification of a product or market Niche
What is a niche?
- A gap in the market
- An identified market that has not yet been met e.g. a specific type of person, a new product, a geographical location etc.
A scientific approach to identifying a product or market niche
- Finding out what the customer wants and what already exists (can it be improved?)
- Experimenting and testing new ways of doing something or raw materials used
- Prototypes and innovative thinking
Business aims and objectives
Characteristics of a good mission statement
- Breif in length, a very general statement, Flexible (can accommodate change), Business specific and distinctive, communicates key values, realistic and acheivable, based on consultation and supported by senior management
Corporate aims - long term targets of a business
- Tend to be qualitiative, Provide a direction for the business, inform corporate objectives and strategies, performance can be measured against these aims
Corporate objectives - medium to long term targets of a business
- Tend to be quantifiable (measurable)
- Specific, Measurable, Acheivable, Realistic, Time-bound
Main Functions of objectives
- A clear statement of what needs to be acheived, a focus for all activity, Targets for individual and group acheivement and means of measuring performance
Business Objectives and aims
How objectives can be used
- Implement the mission, provide a clear focus for decision making, provide a target, motivate employees, Facilitate control of actual performance, provide a criterion for evaluating performance, reduce uncertainty and provide a sense of unity
Common Business Aims
Survival - Surviving in the first years of trading
profit - Reaching break-even and then making a profit in order to make the business worthwhile
Growth - Expanding through developing their product or service
Cash-flow - Ensuring there is enough money flowing into the business to cover out-flows, whilst still having a positive balance
social and ethical - Ensuring they are doing the right things and being fair in their operations
Forms of Business Ownership
The most important protection given by law to shareholders of a limited company is limited liability
A PLC doesn't have to offfer its shares on a stock exchange
An advantage of setting up as an incorporated rather than an unincorporated business is that the business remains in existance after a change in ownership
The tax that sole-traders pay based on the profits they earn is called income tax
A private limited company is owned by Shareholders
Forms of business ownership
sole trader, partnership, co-oparative, community interest company (CIC - goverment based), Private limited company and public limited company
Changing Business ownership in the UK
volume of sole trader and partnerships
Since 2012, the amount of sole traders and partnerships have decreased by around 15% compared to the increase in the amount of companies and public corporations which have increased by around 15% The share in the amount of VAT based uk businesses of sole traders and partnerships share has decreased and a larger increase for public corporations and companies with a 75% share of all VAT based uk companies.
Due to the decrease in the amount of sole traders and partnerships, this means that the amount of sole traders growing into larger companies will decrease and therefore decrease the amount of companies ain the long term. This will therefore mean that the VAT gained by the goverment decreases.
To increase the amount of sole traders and partnerships within the UK, goverments could offer more grants to smaller businesses and offer easier loans to smaller businesses
The functions within a business across locations
The four business functions
Human resources, Marketing, Operations/production and Finance
- Recruitment and retention - Job descriptions and person specifications - Dismissal, redundancy, Motivation, Training Staff and monitoring health and safety conditions at work
- Explain two HR challenges a business would need to consider when operating from more than one location
- Coordination of health and safety between members of staff in differing locations, Availability of labour in areas where the business is located - more training may be needed which increases business costs and communication issues between differing locations
Sales and marketing
- Market research, product (advice on new product development, product improvement, extension strategies and target markets), promotion, pricing, sales and the sales team
The functions cont.
Production and operations
- Aquiring resources, planning output (labour, capital and land), monitoring costs and projections on future output
- Production methods e.g. Flow, Batch and Job
Finance and accounts
- Cash flow (monitoring income/revenue and expenditure), Preparing accounts (profit/loss accounts and balance sheets), Raising finance (shares and loans), links with all other functional areas
Cost centres - Only deals with costs e.g. Teacher in the school
Profit centre- Generates profit and revenue
Factors affecting PLC'S
- PLC'S want to become a larger business and therefore their main objective is to recieve as much income capital as possible, in order to expand and become an international business
- They will need a substansial amount of start-up capital which they can recieve from beginning as a smaller business and expanding from there
- example of an objective: -increasing their profit by 20% each year
- Business is composed of a tall structure, any decisions therefore will take more time than smaller businesses because there are more people who need to be conferred with to decide. it is usually the directing managers who make the final decision
- Due to the asipiration to grow bigger, they will need to choose reliable sources of funding such as a bank loan which they can eventually pay back
PLC's have limited liability- they will only lose their investment into the business
The effect of income on demand
The demand for businesses products is partly determined by the level of consumer's income and in turn, the health of the economy:
Income elasticity of Demand
- Some products have a positive income elasticity - when income rises, so will the demand for these products. Normal or luxury e.g. more luxury brands of food/clothing, travel etc.
- Other products have a negative income elasticity - when income rises, the demand for those products fell. Inferior e.g. cheaper alternatives of food/clothing, cheaper travel etc.
- An increase in the amount of goods and services produced per head of the population over a period of time
- This can be measured annually, quarterly and monthly and is usually presented as a % change in GDP (gross domestic product) - value of all goods and services produced within a nation's geographic borders over a specified period of time
Effect of income cont.
- £30,500 is the average salary for most people in Britain
- Average income (per capita income) measures the average income earned per person in a given area in a specified year
- It is calculated by dividing the areas's total income by it's total population
- It can be measured locally, nationally and internationally and is expressed as a common currency such as the US$
- Consumer spending is the amount of money spent by households in an economy
- The spending includes durables such as washing machines and non-durables such as food. It is also known as consumption, and is measured monthly.
- It can be identified by product, consumer, age, gender, location and income
Consumer spending effects
Importance of monitoring consumer spending patterns
- Businesses must keep an eye on spending patterns to meet customer's needs and to predict supply and demand in the market
- Examples of businesses where consumer spending patterns may affect;
- Estate agents - decline in housing payments (negative), Insurance companies - less house buying =less home insurance (negative), British Airways - more travel expenditure (positive)
Changes in consumer preferences
- Throw-away society
- People more frequently eat out/eat ready meals
- more frequent holidays and travelling further
- more organic food brought, fitness clubs joined
- increasing use of technology
- 24/7 society
- poeple are more pressured for time
- Bigger focus on ethical trading
Uk and international data; unemployment
Unemployment - The number/proportion of people who do not have a job. There are two classifications for this:
- Claimant count - This method calculates unemployment by measuring the number of people recieving benefits (jobseekers allowance)
- ILO count (international labour organisation) - The people without a job but who want a job and have actively sought work in the last 4 weeks, they are unable to start work within the next two weeks; or are out of work, have found a job and are waiting to start in the next 2 weeks.
IMPACT OF FALLING UNEMPLOYMENT
- Leads to - rising incomes, rising consumption, less need for benefits and improved social welfare but can also lead to wage inflation, difficult for business expansion and rise in trade union pressure
- e.g. for a business, more people can afford less vital products such as holidays, however the wages for that holiday business may increase and therefore less profit can be made
- The consumer price index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care
- It is used to see if inflation is increasing or decreasing
- It is unusual and undesirable that inflation is at 0% or lower as usually goods rise in price as time goes on
impact of inflation
- price stability - 2% (±) 1% leads to: Rising investment, confidence and less need for bank intervention but Volatility leads to uncertainty and less investment and consumers lacking confidence and postpone spending and reduced international competitiveness
e.g. price stability will allow a business to gain more investors who are willing to put money into their business
- The amount charged, expressed as a percentage, by a lender to a borrower for the use of assests. Interest rates are typically noted on an annual basis known as the annual percentage rate (APR)
- Base rates: The interest rate set by the bank of england for lending to other banks, used as the benchmarks for interest rates generally
impact of interest rates
- Lowering interest rates leads to: Rising investment, Rising consmer spending through credit and weakening of the £ (good for exporters)
- Rising interest rates leads to: Difficulty with debt repayments, lowering investment and consumption and strengthening of the £ (good for importers)
e.g. rising intrest rates would affect the business negatively as they will struggle to repay debts from investment projects
The value of one currency for the purpose of conversion to another
The impact of Exchange rates (value of £)
- Lowering the value of the £ leads to: Rising export competiveness, Good for visitors to the UK and cheaper for foreign firms to invest in the UK
- Rising the value of the £ leads to: Rising competition from international firms, good for UK tourists abroad and less foreign investments (FDI - foreign direct investments)
e.g. If the value of the £ is lowered, this would be good for businesses in the UK as it will make it cheaper for foreign companies to invest in the business which will therefore gain more investments
Social trends can be defined as any type of activity that is participated in by society as a whole. Trends can be long-lasting or short-lived.Ethical trends are doing the correct thing. Business can act ethical by, reducing waste, paying fair wages, having good working conditions, using less energy and using sustainable resources.
Trends in consumer spending with accessibility of products: greater access to the internet - 24 hour services, 92% of households have internet access in 2017
Due to the online trends, it can be difficult to provide customer service in the traditional sense
Many businesses (bar a few e.g. Lidl) are trying to do all they can both on the high street and online to deliver exceptional customer service.This will, in turn, allow businesses to be more competitive and build a loyal customer base, which is paramount to success.
- Accessing products – fair trade, sustainable and ethically.
- Customer expectation – rising
- Being environmentally friendly – an increase in the number of people who demand this from businesses. Also, more pressure from the government
Social Trends continued
Quality of life
This is more subjective and intangible. Factors that may be used to measure quality of life include the following: Freedom from slavery and torture, Equal protection of the law, Freedom from discrimination and Freedom of movement etc.
How quality of life and living standards affect consumer spending
If people have a better quality of life and better living standards, due to their income, then consumer spending will rise. On the other hand, if living standards and quality of life is poor, consumer spending will fall. Certain products will be affected by both of the situations.
Social Trends continued
Inferior goods decrease in demand when consumer income rises (or rises in demand when consumer income decreases), unlike normal goods.
e.g. Transportation – when income is falling, people may take the bus as it may be a cheaper option, when income is rising they may buy transport and therefore use the bus less
People are more aware of the environment and how we are impacting on it. This leads to them having numerous concerns. They are also aware of other issues e.g. GM foods
· Increased traffic – pollution, noise, dangers
· Packaging issues – waste, litter and plastic bags which take a long time to decompose
Site developments – destroying animal’s habitats, taking up green space
social trends cont.
Environmental concerns and patterns of consumer spending
- · Now people know more about environmental issues, their spending patterns are changing
- · Reluctant to buy GM foods
- · Higher sales for organic foods, where pesticides have not been used on them
- · More reluctant to deal with businesses who have a bad reputation for not looking after the environment
This is acting in a fair way and doing what is right e.g. fair trade
What is meant by ethical shopping?
Ethics is based on your belief in right and wrong. Do your actions reflect your beliefs? E.g. would you buy an expensive t-shirt if you knew the small child making it is being denied an education
Shoppers now have a lot of choice as to where to buy their goods and they will pick and choose the shops to go to.
The impact of competition and innovation
- · This is rivalry among sellers operating within the same market (segment). They are trying to achieve goals such as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, place and promotion
How markets are defined by product and location
- · Product – this looks at what type of product is sold within a certain market e.g. on the high street there is usually several fashion retailers
- · Location – e.g. high street, industrial estate, shopping mall, ecommerce
- · Market share is the portion of a market controlled by a company or product ; Calculation: total sales revenue/industry’s total sales x 100
- · Sales value: the amount of money received from a good or service being sold
- · Sales volume: the quantity/ number of products sold or services provided
Direct and indirect competition
· Direct competition – a situation in which two or more businesses offer products or services that are essentially the same; as such, the businesses are competing for the same potential market e.g. Tesco and Asda
· Indirect competition – the conflict between vendors whose products or services are not the same but could satisfy the same consumer need e.g. buying a TV for entertainment rather than a short break
- · Challenger
- · Follower
Leader (e.g. Amazon) - A brand, product or firm in which has the largest percentage of total sales revenue of a market (market share). A market leader often dominates its competitors in customer loyalty; distribution coverage; image; perceived value; price; promotional spending and finally profit.
Challenger (e.g. Pepsi and coke)
A market challenger is a firm that tries aggressively to expand its market share by attacking the market. Firms that are second and third or lower in the industry usually adopt market challenger strategies
Follower (e.g. PepsiCo or Danone) (lays or humpty dumpty)
A company that allows other more dominant firms to lead the way within the marketplace that it does business in. for example, a smaller business that is a market follower might keep close tabs on the activities at major market leader firms and seek to copy or improve upon the leader’s product releases and marketing efforts.
Market niche (green & blacks)
A small but profitable segment if a market suitable for a focused attention by a marketer. Market niches do not exist by themselves, but are created by identifying needs or wants that are not being addressed by competitors, and by offering products that satisfy them.
Porters 5 forces
- Competitive rivalry deals with firms competing within an industry and the extent to which they exert pressure on each other.
- refers to the pressures suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products
- refers to the pressure consumers can exert on a business to get them to provide higher quality products, better customer experience and lower prices
Threat of substitution
- refers to the availability of a product that the consumer can purchase instead of the industry's product. A substitute product is a product from another industry that offers similar benefits to the consumer as the product produced by firms within the industry.
porter's 5 forces cont.
Threat of new entry
- Refers to the threat new competitors pose to existing competitors looking to acheive profits. Therefore, a profitable industry will attract more competitors looking to acheive profits.
Porters 5 forces are an important tool for accessing the potential for profitability within an industry. It is a useful way of accessing the balance of power in more general situation.
- This is a condition or circumstance that puts a company in a favourable or superior business position. This will enable businesses to be more competitive and have the 'edge' in market.
Success and failure
- This depends upon: The competitive position it maintains, the competitive rivalry it faces, it's ability to define and access the market segments and the extent and nature of it's competitive advantage.
Product and process innovation
What is innovation?
innovation is about putting a new idea or approach into action. Innovation is commonly described as 'the comercially successful exploitation of ideas'
Invention vs innovation
- Invention is the formulation of new ideas for products or processes and innovation is the practical application of new inventions into marketable products or services
- innovation would include: improving or replacing business process to increase efficiency and productivity or extend the range or quality of existing products or services, developing entirely new and improved products and services - to meet rapidly changing customer demands and needs and adding value to existing products, services and markets to differentiate businesses's from their competitors and increase percieved value
Types of innovation
- Product innovation - launching new and improved products on the market
- Process innovation- finding better and more efficient ways of producing existing products
product and process innovation cont.
PRODUCT INNOVATION advantages:
- 'first mover advantage'
- higher prices and profitability
- added value
- oppotunity to build early customer loyalty
- enhanced reputation as an innovative company
- publics relations e.g. news coverage
- increased market share
- reduced costs
- improved quality
- more responsive customer service
- greater flexibility
- higher profits
Benefits and Risks of innovation
Benefits of innovation
- Improved productivity + reduced costs - improved production capacity and flexability/exploit economies of scale, Better quality - more effectively marketed and customer needs met
- Building a product range- provides oppotunity for higher sales and reduced shareholder risk
- Handle legal and eco issues -enables businesses reduced co2 emmsions and less waste
- More added value - establish a USP - customer likely to pay more for and differentiate from competitors. improved staff retention - good quality recruits drawn to innovative businesses
Risks of innovations
- Competition - 'me too' businesses on rise, initial business takes the risk and investment
- Uncertain commercial returns- no guarantee of future revenue and profits and longer developement timescale leads to risk of competitor research overtake
- Availability of finance - R&D demands high required rate of reurn which means for businesses that have limited cash, the opportunity costs of investing in R&D can be very high
Innovation and the law
- This is aimed at protecting the property of an individual or business which has innovated. This protection helps stop people stealing or copying:
- · The names of a firm’s products or brands
- · The inventions that businesses create
- · The design or look of their products
- · Things written, made or produced
Copyright writing and literary works
- · Art, Photography , Sound recordings, Web content, Films, TV and Music
Design right - shape of objects
Innovation and the law cont.
Trade marks (min 4 months)
- · Product names, Logo, Jingles
Registered design (min 1 month)
· Appearance of a product including: (shape, packaging, patterns, colours and decoration)
Patents (min 5 years)
· Inventions and products (e.g. machines, machine parts, tools and medicines etc.)
Non-disclosure agreements - relitavely simple document - must not assume conversations are confidential
- A legally binding document that can be used to stop those consulted from stealing the idea.
- used with potental partners e.g. Investors and stocklists and advisors e.g. accountants
Innovation and the law cont.
- Exclusive legal rights that protects the publication, production or sale of the rights to a literary, dramatic, musical or artistic work or computer program or to the use of a commercial print or label.
- You will usually see the © symbol, or the word ‘copyright’ with an identification of the owner of the copyright, either by name, abbreviation, or other designation by which they are generally known.
- Distinctive design, graphics, logo, symbols, words, or any combination of the above that uniquely identifies a firm and/or its goods or services.
- It guarantees the item’s genuineness, and gives it’s owner the legal rights to prevent the trademark’s unauthorized use. - must be distinctive, affixed to the item sold and registered with an appropriatte authority to obtain legal ownership and protection rights
- How businesses can analyse their internal strengths and weaknesses, considering their customers, competitors and resources e.g. considering competitive advantage and scope of patents
- How Businesses can analyse their external oppotunities and threats . e.g. considering competitor innovations and canging consumer spending patterns
- An acronym for Strengths, Weaknesses, Oppotunities and Threats. A structured planning method that evaluates those four elements of a project or business venture. A SWOT analysis can be carried out for a company, product, place, industry or person.
Calculation for change in income elasticity
% change in demand /
% income change