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Business Znotes

The document provides summarized notes on the CAIE AS Level Business syllabus, covering key concepts such as economic activity, factors of production, added value, and the characteristics of different types of businesses. It discusses the roles of entrepreneurs and intrapreneurs, challenges faced by businesses, and various business structures including sole traders, partnerships, and limited companies. Additionally, it highlights the importance of business plans, the impact of enterprises on the economy, and methods for measuring business size.

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100% found this document useful (1 vote)

383 views49 pages

Business Znotes

Uploaded by

bhavyasharma.1311

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

ZNOTES.

ORG

UPDATED TO 2023-2025 SYLLABUS

CAIE AS LEVEL
BUSINESS
SUMMARIZED NOTES ON THE THEORY SYLLABUS
Prepared for Isha Dheepak for personal use only.
CAIE AS LEVEL BUSINESS

1.4. Economic activity

1. Enterprise There are insufficient goods to satisfy all of our needs so
we have to make choices of which need we want to satisfy
1.1. Purpose of Business Activity now.

Businesses aim to add value to raw materials and semi- Opportunity cost
finished goods in order to satisfy needs and wants of
consumers. The benefit of the next most desired option which is given
This helps raise living standards of the economy as up.
businesses will employ people for production. If we decide to chose one option, the opportunity cost is
the one we didn’t choose.

1.5. Changes in the business

environment
The business environment is always rapidly changing
(dynamic)
Changes can make original ideas less successful.
1.2. Factors of production
1. Land - all natural resources used in production 1.6. Why do new businesses fail?
Return for land is “rent”
2. Labour - both manual and skilled work Lack of record keeping
Return for labour is “salary” or “wages” Lack of cash and working capital:
3. Capital - finance that is needed to set up and run the Working capital is the capital needed to run the day-to-
business as well as man made goods used in day business
production eg. capital goods like machinery. Ways to avoid working capital shortage:
Return for capital is “interest” Make a cash flow forecast
4. Enterprise - the driving force that arranges all other Inject more capital into the business
factors of productions and takes the risk of the new Establish good relations with bank
business venture Use effective credit control with customers
Return for enterprise is “profit” Poor management skills:
Essential skills to avoid management problems:
1.3. Added value Leadership skills
Cash handling and cash management skills
Planning and coordinating skills
Added value = selling price - cost price
Added value is not the same as profit Decision-making skills
Business is successful if the consumer is willing to pay Communication skills
Marketing, promotion and selling skills
more than the cost of materials.
Changes in business environment:
How to increase added value A few changes include:
New competitors
1. Increase selling price by providing higher quality Legal changes
goods (higher quality raw materials), increasing Economic changes
advertising, changing packaging, making small Technological changes
improvements in the product.
2. Decrease cost price by reducing wastage through lean Why may businesses fail in early stages?
production methods, find cheap supplies, reduce
quality of the product, increase efficiency by training Internal problems –
workers and using advanced technology. Weak business idea
Lack of managerial skills
Lack of suitable employees
Lack of sufficient finance
Lack of entrepreneurial skills
Poor initial research
Over ambitious ideas

WWW.ZNOTES.ORG Copyright © 2024 ZNotes Education & Foundation. All Rights Reserved. This document is authorised
for personal use only by Isha Dheepak at Vibgyor High on 19/08/24.
CAIE AS LEVEL BUSINESS

Poor decisions An entrepreneur will have to decide on the best

External problems – location, considering costs, potential target market,
Anticipated customers did not materialize the status of the area, etc.
Changes in business environment affected customer’s Competition
spending patterns Building a customer base:
Unexpected competition For a firm to survive, it must build customer loyalty
and brand image.
1.7. Local, national and multinational Businesses can do this by:
Offering pre and after-sales services
Local: Provides goods and services to local population. Providing discounts and other sales promotions
National: Provides goods and services to domestic Providing goods that meet specific needs (which a
market. large firm will be reluctant to do)
Multinational: Provides goods and services to more than
one country. 1.11. Types of Entrepreneurial
Businesses
1.8. Characteristics
1. Primary sector – extracting materials like fishing and
Intrapreneurs Entrepreneurs coal mining
Passionate Innovative 2. Secondary sector – manufacturing sector like craft
Determined Committed and self-motivated manufacturing
3. Tertiary sector – service sector like hairdressing
Resourceful Multi-skilled
Think like entrepreneurs Leadership skills
Independent and proactive Self confidence
1.12. Impact of enterprise on an
Innovative Ability to bounce back economy
Employment creation
1.9. Roles Economic growth
Firm’s survival and growth
Intrapreneurship Entrepreneurship Innovation and technological change
Take direct responsibility and Exports
Generate ideas for a new
risk for the ongoing success Personal development
business.
of a business. Increased social cohesion
Develop innovative ideas for
Invest own savings and capital
projects. 1.13. Business Plans
Accept responsibility
Accepted possible risks Meaning: document of the business objectives and how they
will achieve them
Purpose: used to create a strategy, manage finance, attract
1.10. Challenges Faced by investors
Entrepreneurs Advantages Disadvantages
Can allocate resources Can be inaccurate
Identifying successful business opportunities: Future planning Can be time-consuming
Entrepreneurs need to find markets which have Changing business environment
enough demand to be profitable Attract investors
makes it flawed
People get their ideas from:
Own skills
Previous Employment 2. Business Structure
Small-budget market research
Sourcing finance:
Entrepreneurs face financial issues due to: 2.1. Classification of business activity
Lack of own finance
Lack of awareness of grants and subsidies 1. Primary sector – extracting natural resources. E.g.
Lack of trading records to receive loans from bank fishing, mining
A poor business plan 2. Secondary sector – manufacturing sector. E.g. car
Determining a location: manufacturing, clothes-making

3. Tertiary sector – service sector. E.g. banking, 2. Mixed economy – both private and public sectors.
transportation Governments and individuals make decisions
together. Governments usually offer essentials like
health care and education.
2.2. Public and Private Sector
3. Command economy – economies that have only the
1. Public sector – firms controlled and managed by the public sector.
government/local authority.
2. Private sector – firms controlled and managed by 2.5. Sole trader
individuals.
These are businesses owned by one person
2.3. Changes in business activity The one person owns and controls the business.
It has no formal legal structure as business and owner are
The importance of each sector changes as the economy considered one and the same.
develops. The importance of each sector is measured by
Advantages Disadvantages
employment levels or output levels.
Easy to set up and manage Limited finance (capital)
1. Industrialisation is when the importance of secondary Owner has complete control Unlimited liability
sector rises. This occurs in developing countries like
Ability to choose working
India and China May face intense competition
times
Advantages Disadvantages Easy to establish relations
with employees and Unable to specialise
Causes a huge movement
It increases the GDP of the customers
from rural to urban areas,
country, helping raise living Freedom of making own
causing social and housing Lack of continuity
standards. decisions
problems.
Imports of raw materials will Insufficient skills
It increases the employment
increase, increasing import
opportunities available
costs. 2.6. Partnership
Manufacturing industries
Increases exports and
growth is usually occurred It is a business owned by a group of individuals
reduces imports.
due to growth of MNCs
Firms will be more profitable, Advantages Disadvantages
increasing tax revenue Each partner may specialise in
Unlimited liability
Manufacturing sector goods different areas
have more value than primary Shared decision-making Profits are shared
sector goods. Additional finance (capital) injected
Risk of conflicts
by each owner
2. De-industrialisation occurs when the importance of Losses are shared No continuity
secondary sector declines. It occurs in developed Fewer legal formalities
countries like USA, UK.

As a country develops, the average income per person 2.7. Limited companies
increases. Rising incomes lead to increasing living
standards as consumers will be able to spend more on Features:
services than goods, showing demand for services rises
more quickly than physical goods Limited liability – each shareholder will only lose the
As the world industrialises, more and more amount invested if the business/idea fails
manufacturing businesses enter the market, increasing Legal personality – the company has a separate legal
the competition and causing prices to fall. This makes it identity from its owners/shareholders
easier for developed countries to buy these goods rather Continuity – even after the death of a shareholder, there
than producing it themselves. is no need for dissolution.

2.4. Types of Economies Private limited companies

1. Free market economy – only private sector and no It is a business owned by shareholders who are friends
government intervention. and family

Advantages Disadvantages Capital and finance shortage

Slow decision making
Limited liability High legal formalities
Separate legal identity Can’t sell shares to public
Holding companies
Continuity Difficult to sell shares
Have to send accounts to A business which owns and controls many different
Original owner will be able to
companies’ house – less companies, but is not unified as one
retain control
secrecy
Ability to raise capital from Joint ventures
sale of shares
When 2 or more businesses agree to join for one project
Higher status Reasons:
Shared costs and risks
Public limited company Different companies’ different strengths
Together more powerful
These are businesses which have legal rights to sell Risks:
shares to the public. Conflicts
Errors or mistakes
Advantages Disadvantages
Business failure of one partner, risk the whole project.
Limited liability High legal formalities
Separate legal identity Cost of hiring specialists 2.9. Franchise
High fluctuation in share
Continuity
prices A business which uses the name, logo, trading methods of
Easy to buy and sell shares Less secrecy an existing successful business
Access to substantial capital They have a legal agreement to do so
sources due to the right to High risks of takeover
To the franchisor
issue prospectus (flatation)
Advantages Disadvantages
Directors influenced by short
Poor management of one
term objectives of major Guaranteed income from
business, affecting reputation
investors franchisee
of all
Easy, risk-free way of
Legal formalities in setting up a company Potential management issues
expansion
1. Memorandum of association – name, address, contact Easy to manage Difficult to monitor
number, maximum share capital, declared aims Still have some control
2. Articles of association – name of director, procedures
to be followed To the franchisee
Advantages Disadvantages
These documents must be submitted to the registrar of
companies Lower risks as business is Proportion of revenue sent to
established franchisor

2.8. Other forms of business Advice, training, supplies and

Rigid business model already
advertising obtained by
organisation made
franchiser
Potential loss of large
Cooperatives Economies of scale
investment
Access to experts Expensive initial fee
These are organisations owned by their members
Features: Franchiser won't open
All members contribute to running and managing another outlet in the same
All members have a say in important matters area
Equally shared profits
Advantages – 2.10. Public-sector enterprises – public
Buying in bulk
Working together to solve problems corporations
Good motivation
Disadvantages – Known as public corporation
Poor management skills In the public sector

Profit is not their main aim 2. Problem – if the total market is small, results
will not be accurate
Advantages Disadvantages
Managed with social 3.2. Measuring business size
High chances of inefficiencies
objectives rather than profit
Still operate, even if making a Subsidies may encourage Best form of measurement
loss inefficiency
Finance raised from Government may interfere in No ‘best’ measure
government business decisions To choose which method to use, we need to known if we
are interested in absolute size or comparative size.
Absolute size – test using at least 2 criteria and make
2.11. Social enterprise comparison
Measures used will depend on the industry or specific
Features: business.

Directly produce goods and services Problems while measuring businesses:

Have social aims and ethical ways of producing them
Need to make a surplus There are many different methods to measure business
size and each method gives us different answers.
Objectives: There is no internationally agreed definition on the size of
a business.
Social
Economical
Environmental 3.3. Small and micro-businesses
Together known as triple bottom line Significance of small and micro-businesses

Benefits of encouraging development of small and micro-

3. Size of Business businesses:
Many jobs created as small businesses won’t have funds
3.1. Different methods of measuring to buy capital equipment
Often run by dynamic entrepreneurs. Provides greater
size variety
Will create competition for large businesses. Discourage
1. Number of employees monopoly
1. The size is measured upon the basis on May provide specialist goods or necessities
number of workers employed. Helps them grow and become large
2. Problems- a firm may be capital intensive, Will have lower costs as no diseconomies of scale
making this method insubstantial.
2. Revenue Government assistance for small businesses
1. Used to compare businesses of same industry
2. Depends on the total value of sales made. Governments may provide assistance to small businesses
3. Problem – less effective when comparing high- in the form of:
value and low-value firms. Reduced rate of tax
3. Capital employed Loan guarantee scheme
1. Depends on the total value of long-term Information, advice, support
finance available in the business Aid designed to overcome specific problems like:
2. Problem – can’t be used to compare firms in Lack of specialist management expertise
different industries Problems raising finance
4. Market capitalisation Marketing a limited product range
1. Market capitalisation = current share price * Finding cost-effective premises
total number of shares issued
2. Limited to public limited companies 3.4. Small and large businesses
3. Problem – share prices change on a daily basis
making the comparison unstable Advantages
5. Market share Small Business Large Business
1. Market share = total sales of business/total
Managed and controlled by
sales in industry * 100 Ability to employ specialists
owners

Small Business Large Business 6. Ability to be more competitive

Flexible - adapt quickly to Can conduct through market 7. Increase value of business
changes in demand research 8. Easy to access new target groups and markets

Personal contact with Internal growth

Diversified risks
employees and customers
Offer personal service Ability to sell at lower prices It is expansion by expanding the existing operations
Economies of scale It is cheap
Avoids takeover problems
Disadvantages Takes long time for results
Small Business Large Business Limited extent of growth
May not receive the desired outcome
Limited access to finance Diseconomies of scale
Ways for internal growth: -
Divorce between ownership Enter new markets
Not diversifies, high risks
and management Increased marketing activities
Few economies of scale Conflicts Increase investment
Poor communication, slow Use newer techniques to produce more efficiently
Unable to afford specialists
decision making
Difficult to manage and control 3.7. Joint ventures and strategic
alliances
3.5. Family business
Importance of joint ventures:
These are businesses which are owned and managed by
at-least 2 family members. Costs are shared
Risks are shared
Strengths Weaknesses Different strengths can fit together
Success/continuity problem - Differing markets can increase potential consumers
Commitment - family owners
there might be failure within
will show more dedication Importance of strategic alliances:
the family causing the failure
towards their work
of the entire business. Can create rapid growth
Knowledge continuity - Leads to innovation
Informality - there may be
families ensure they pass on Enter new markets
many inefficiencies and
the business knowledge to the Share ideas and resources
internal conflicts as personal
next generation allowing
and professional life is not
experienced and skilled
separate 3.8. External growth
managers.
Reliability and pride - as the Merger: shareholders and managers of 2 firms come
family business will have their Nepotism may lead to together with both owning shares
name and reputation, they try inefficient management Takeover: company buys more than 50% of another
to improve quality at all times. companies shares
Traditional - they are
reluctant to change Types of integration:
(inflexibility)
Horizontal: same industry at same stage of production
Conflicts - Family problems Vertical forward: same industry as a customer of existing
may affect business business
management Vertical backward: same industry as a supplier of existing
business
3.6. Business growth Conglomerate: different industry
Friendly merger: takeover with consent of the target
Reasons for growth – business
Hostile takeover: takeover without consent of the target
1. Increased profits business
2. Increased market share
3. Economies of scale
4. Lower risks
5. Increased power and status

T – time-specific: there must be time limits to the

objectives established.

4.4. Benefits of objectives

They provide a sense of direction
Helps improve focus of individual employees and
departments
Provides a framework for decision making
Acts as a motivation tool
Acts as a means of assess performance, progress and
identify training needs
Helps plan for future in terms of resources required

4.5. Hierarchy of objectives

This shows the balance and dependencies between the
different stages of setting aims and objectives.

3.9. Why might business growth fail?

Differing managing attitudes/culture
Shared facilities may not benefit both businesses
Poor communication
Not involving employees

4. Business Objectives
Aims are the long-term goals of a business. They act as a
framework for a business to create further objectives and set
a purpose of the business.

4.2. Importance of business objectives 4.6. Corporate aims

An objective helps to direct, control and review any These are long terms business goals and provides the
business activity. central purpose of the business.
For any aim to be achieved successful, there have to be These are objectives that translate the aims into
strategies in place which will guide the business to achievable targets.
achieve the goal. These strategies must be reviewed
constantly to know if it is effective. Advantages of corporate aims
Every business’s aims and strategies change over time.
Help develop a sense of purpose and direction for the
4.3. SMART criteria business
Help check progress
Every business objective must meet the SMART criteria They help development of successful tactics and
S – SPECIFC: the aim must focus on what the business strategies
does and must directly relate to the business’s
activities. 4.7. Vision statement
M – MEASUREABLE: every aim must have quantitative
values to prove targets are being met effectively. Vision statement is the desired future of the company
A – Achievable: aims which are impossible to achieve It is a company’s road map indicating what the company
in a time period must not be set. Such aims will wants to become in the future.
demotivate the employees.
R – realistic and relevant: aims should be realistic Mission statement
according to the resources available and must be
relevant to the people carrying it out.

Mission statement is a statement of a business’s core 2. Benefits –

aims, phrased in a way to motivate employees and to 1. Lesser chances of a takeover
stimulate interests by outside groups. 2. Economies of scale
It is a summary on how they intend to support/achieve 3. Motivated employees and
their vision managers
Businesses communicate their mission statement 4. If not growing, may lose its appeal to
through – publishing it in their accounts, websites, new investors.
banners, advertising posters, company newsletters, etc. 3. Limitations –
1. Too rapid expansion may lead to
Benefits – cash flow problems
2. Growth may be achieved due to
Helps inform the external stakeholders about the aims
lower profit margins
and vision quickly
3. Diseconomies of scale
It helps attract employees, potential investors,
4. Using retained earnings to finance
shareholders, etc.
profits will reduce dividends
Help motivate employees
5. May lose focus and direction is
Help guide and direct individual employee behaviour and
diversified
conduct
4. Increasing market share –
Limitations – 1. It is possible for a company to grow but it’s
market share to reduce, if the market is
Can be easily adopted by any business of any size expanding
It is not specific to a business 2. If market share is high, it indicates the
They are too vague and general marketing mix of the business is successful
Used as a PR activity than most of its competitors.
Impossible to analyse 3. Benefits of being the market leader –
1. Retailers will be keen to maintain
4.8. Corporate objectives high profile clients, so may provide
good quality and low prices
These are specific to a business and provide a much 2. Higher profits, due to lower supply
clearer guide for management. prices
1. Profit maximisation – 3. Effective promotional campaigns to
1. It means producing at the level of output attract customers
which leads to the greatest difference 5. Survival –
between total revenue and total costs. 1. Mostly an objective for start ups
2. The limitations of this corporate objective 6. Corporate social responsibility (CSR) –
include: 1. This concept applies to those businesses
1. If short term profits are high, that consider the interests of society by
competitors may enter jeopardizing taking responsibility for the impact of their
the long-term survival decisions and activities on customers,
2. Issues of independence and employees, communities and the
retaining control maybe of higher environment
importance 2. Benefits –
3. Analysts assess business 1. Helps boost morale of employees as
performance through return on they feel more connected
capital employed rather than profits 2. Helps attract skilled workers
4. Shareholders may aim for profit 3. Workers have higher productivity
maximisation but other and demand low wages
stakeholders may want to prioritise 4. Helps build reputation as
other issues responsible leader, gives
5. Very difficult to assess when the competitive advantage
maximised profit has reached 5. May help reduce costs and improve
6. Negative impact on customers profits as consumers will be willing
2. Profit satisficing – to pay higher prices for sustainable
1. It means achieving enough profits to keep products
the owners happy 6. It increases sales and builds
3. Growth – customer loyalty o Helps attract
1. Growth is measured through value of investors
sales/output 7. Maximizing short-term sales revenue

8. Maximising shareholder value - Benefits of communicating the aims of the business with
1. This involves increasing the share price of employees:
the company’s stock May achieve more
Know how their individual goals fit into the overall plan
4.9. Relationship between mission Creating shared employee responsibility
Easier for managers to stay in touch with employees’
statements, objectives, strategies and progress
tactics
4.13. Ethical influences on business
Aims and objectives provide basis for business strategies
as they are the long-term plans for the company.
objectives and decisions
Strategies and tactics are derived from a company’s
It is a document detailing a company’s rules and
corporate objectives.
guidelines on staff behaviour that must be followed
Strategy provides the path a business needs to follow in
It may be expensive in the short term
order to achieve a organisations corporate objective
But, in the long term:
Tactics are more concreate and specific smaller steps for
Avoid legal problems
shorter time durations to achieve a strategy.
Avoid bad publicity
Avoid pressure groups
4.10. Objectives and decision making May receive grants and subsidies
May attract skilled workers and investors
Stages in decision making framework:
Advantages and disadvantages of targets
1. Set objectives
2. Assess the problem/situation
3. Gather data about the problem and find possible
solutions
4. Consider all solutions and decisions
5. Make a strategic decision
6. Plan and implement the strategy
7. Review its success against original objectives

4.11. Factors that determine the

5. Stakeholders in a business
corporate objectives of a business
Stakeholders: People or groups of people that are
1. Corporate culture
affected by, and therefore have an interest in the
1. It is the code of behaviour and attitudes that
activities of a business.
influence decision making
Stakeholder concept: The view that businesses and their
2. Size and legal form of the business
managers have responsibilities to a wide range of groups-
1. Small businesses – profit satisficing
not just their shareholders
2. Public limited companies – growth, increase
The roles, rights and responsibilities of stakeholders:
stock value
3. Public sector or private sector Repaid on agreed dates
1. Public sector – CSR Roles Rights Responsibilitie
2. Private sector – profits
Receive goods
4. The number of years the business has been operating
Purchase goods and and services
5. Economic conditions Honesty
services that meet
6. Ethics
local laws
Offered
4.12. Management by objectives (MBO) Customers replacements,
Provide revenue repairs, etc- Not stealing
A method of coordinating and motivating all staff in an
as legally
organisation by dividing its overall aim into specific
obligated
targets for each department, manager and employee
Not make fals
Communicating objectives claims

Roles Rights Responsibilities Roles Rights Responsibilitie

Supply goods Report to
in time and stakeholders
Supply goods and On-time
condition regarding
Suppliers services payment Have contract
already business
of
decided operation; be
employment;
Fair treatment Control, Command capable of
to have
and direct resources handling
Treated within adequate
Provide manual and business
minimum Honesty authority to
other labour services operations in
legal limits fulfill roles
legal and
Employment
Meet ethical
contract
employment manners
payment and
contract
treatment
Employees Managers
Cooperate with
Join a trade management
union for reasonable Receive shar
requests of profit as
Observe reward.
To provide
Ethical code of Receive
Owners/Shareholders sufficient
conduct. accurate
finance
report/data o
Consulted
Provide local services business
about major Cooperate
and infrastructure performance
Local changes
Community Meet
Not have lives
reasonable
badly affected
requests
Businesses to Treat
Laws- restrain Stakeholder Local
meet businesses Business Decision Employees
business activity Response Community
requirements equally
Law and order- allow Prevent unfair More
activity to take place competition employment
Gov. for local
Good trading
Build new factory to Job residents and
links Impact:
expand business opportunities rise in
Achieve economic internationally-
spending in
stability allow
international local
trade businesses

Provide agreed
Provide finance in finance on New working Possible
different form agreed date method in new disruption du
Lender
and time factory to increased
Paid finance requiring new pollution and
charges skills traffic levels

Stakeholder Local Stakeholder Local

Business Decision Employees Customers
Business Decision Employees
Response Community Response Community
Will
purchase
more
products if
Increased May seek to Local IT
prices Training and
Reaction number of job deny planning Purchase of IT- service
decrease advancement
seekers permission controlled providers
while Impact opportunities
automated might see
maintaining may be
machines increased
the same provided
orders
quality
Trade unions
might push for Might impose
higher wages restrictions on
for more large trucks Fewer
There will be
skilled work untrained
need for
May organize workers will
skilled
a petition or be needed;
workers,
boycott those unable
reducing the
to acquire new
The merged number of
skills could
company Expansion on unskilled job
could become the existing Economies face
opportunities
more stable site could lead of scale redundancy
Horizon
Impact and provide to more local could result There may be
Integration/Takeover Workers
increased jobs and in lower calls for
career higher prices facing
retraining
advancement incomes redundancy
Reaction programs for
opportunities might take
the
industrial
Rationalization Reduced unemployed
Rationalization action
aimed at competition who lack skill
of overlapping
reducing might lead
facilities might
waste and to higher
cause
cutting costs
closures and 5.3. and
prices How to solve conflict which arises
might lead to fewer
job losses
job losses from
choices
satisfying different stakeholder
The aims
Customers
community could
might urge the respond The traditional shareholder perspective argues that
There may be focusing on stakeholders other than shareholders might
government to with a
industrial reduce profits due to non-essential costs.
block the boycott if
Reaction action if job The stakeholder approach suggests that addressing the
takeover if it prices
security is needs of various groups can ultimately benefit
threatens job increase
compromised
losses and dueshareholders.
to
facility Conflicts
decreased between stakeholder goals often require
closures compromises,
competition such as:
Gradually phasing out a product line to support
employees.
Relocating new facilities to minimize local disruption.
Funding noise reduction for residents affected by
extended airport operations.
Senior management must:
Prioritize stakeholders.
Weigh additional costs.
Assess the impact of negative publicity on revenue.

Balancing these conflicting interests is a key reason for Monitoring -measuring and monitoring employee
higher executive compensation. performance
Dismissing employees with inappropriate behaviour
5.4. Corporate social responsibility – an
evaluation 6.2. Recruitment
It is necessary when a business is expanding or
It is the concept that accepts that businesses should
employees are leaving the organisation
consider the interests on the society in their activities and
decisions, beyond the legal obligations that they have
Job analysis
CSR distracts businesses from their key role of using
scare resources to their maximum and produce goods It involves identifying a vacant position, understanding its
and services
roles and responsibilities.
CSR is a form of WINDOW DRESSING
If it is found that CSR is used as a PR activity, it will lead Job description
to bad word of mouth
CSR maybe expensive in the short run, but will help the It provides a complete picture of what the job will entail,
business raise profits in the future its roles, rights and responsibilities.
As it will lead to better reputation, lower regulations, It helps attract the right type of people to the job
chances of subsidies and grants, customer loyalty, etc.
Person specification
6. Human resource It includes analysis of the type of qualities, skills and
characteristics needed by any person appointed to a job.
management It is based on the job description after assessing the
complexity of the job. It is a ‘person profile’ for the job
It aims to recruit capable, flexible and committed people,
managing and training them and rewarding them Job advertisement
accordingly.
HRM has a major impact on efficiency, flexibility and It includes the requirements, personal qualities needed. It
motivation can be displayed within the organisation or outside,
depending on the recruitment method chosen.
6.1. Purpose and roles of HRM If external, can advertise in online recruitment services,
newspapers, magazines, government agencies,
Recruit and train workers to ensure maximum productivity recruitment agencies, etc.
so that all corporate objectives are met
In the past, HRM was:
6.3. Types of recruitment
Bureaucratic and had inflexible approach
Focused solely on recruitment and selection rather
1. External – outside the organisation
than development and training
1. Bring new ideas
Reluctant to delegate 2. Wider choice of applicants
Not part of the strategic management team
3. Avoids jealousy and resentment
Roles of HRM include: 4. Standard of applicants maybe higher
Workforce planning – identifying future needs in terms
2. Internal – from within the organisation
of number of employees and skills required
1. Already known to the business, no need for
Recruitment and selection – recruiting the most
induction training
suitable employees 2. Known to the selection team
Developing employees – training, appraisal and
3. Well aware of the organisational culture,
developing employees
ethical code of conduct, etc
Employment contracts – preparing employment
4. Quicker, less time consuming
contracts and ensure they are abided by 5. Cheaper
Ensuring HRM operates across the business –
6. Gives workers a chance to progress, motivates
involving managers in development and training of them, Herzberg, Maslow
employees
7. Management style already known
Employee morale and welfare – monitoring and
improving employee morale. Giving guidance and
advice and ensuring appropriate work-life balance 6.4. Selection process
Incentive systems – paying appropriately
Shortlisting applicants

After receiving various applications, the business will It helps the worker understand the customs,
shortlist them according to their CV’s, references, procedure, layout of the organisation
previous work, etc On-the-job training –
Instructions at the place of the work
Selecting between applicants Done by watching and working closely with an
experienced member
The shortlisted candidates are then selected through
It is cheaper
interviews, aptitude tests, psychometric tests, trail work,
Off-the-job training –
etc
Instructions given away from the work place by
They often use a 7-point plan – achievement, intelligence,
experts
skills, interests, personal manner, physical appearance,
It is expensive but more productive
personal circumstances
Training is expensive
But it will increase morale amongst employees as
6.5. Employment contracts they will feel more valued and secured as it will
increase chances of promotion
They are legally binding documents to ensure that all It may encourage poaching which acts as a
policies are fair and in accord with the current disincentive for companies to set up expensive
employment laws. training programmes
It includes workers responsibilities, working hours, holiday Increases productivity and efficiency
entitlement, wages, appraisal process, etc Makes the workforce more flexible
It imposes responsibility on both employers and Better customer service and lower accidents
employees to honour the contract.

6.8. Development and appraisal of

6.6. Labour turnover
employees
It measures the rate at which employees leave the
organization Development is a continuous process in the form of new
average number of employees employed challenges and opportunities
Labour Turnover Rate = (Number of Employees Leaving in It is to help an employee achieve self-actualisation and
1 Year) ÷ (Average Number of Employees) × 100 fulfilment levels
Appraisal is a process of assessing employee
Cost of labour turnover effectiveness. It is a part of the staff-development
programme
High and increasing labour turnover indicates low moral and The performance is measured against pre-set goals.
employee discontent It encourages them to work harder

It increases costs of recruiting, selecting training new

workers
6.9. Discipline and dismissal of
Customer service maybe compromised employees
Difficult to establish loyalty and team spirit
If a worker fails to meet obligations in the contract of
Potential advantages of labour turnover employment, the HR department has to discipline them
They can even be dismissed. This is when a worker is
Low skilled workers may be replaced by productive ones asked to leave, due to parts of their job or behaviour
New ideas being unsatisfactory
May reduce costs if business is planning redundancy and There maybe chances of unfair dismissal allegations if the
rationalisation organisation can not prove that the necessary steps have
been take to avoid it.
6.7. Training and development of These may include verbal warnings, written warnings,
training sessions, etc
employees An employee may reach out to an employment tribunal to
claim unfair dismissal
It is work-related education given to employees to
improve their efficient and productive
Types of training – 6.10. Redundancies
Induction training –
It is an introduction training given to all new Redundancy is when a worker loses their job because the
employees job is no longer necessary, through no fault to their own

This is done when there is a fall in demand, advances in Reduces strike days and industrial action.
technology, business is trying to rationalise and cut costs Eases the implementation of workplace changes, such as
Business must ensure these announcements are made automation.
efficiently as they have a major impact on other Management may recognize and reward workforce
employee’s morale and job security. contributions with better pay and benefits.
Enriches business competitiveness through efficient
6.11. Employee morale and welfare operations.
Workers’ insights contribute to more effective decision-
HR departments are expected to offer advice, counselling making.
and guidance to employees who are in need of it.
Increases morale and sense of loyalty 6.16. Trade union:

6.12. Work-life balance A trade union is a workers' organization that protect the
rights of the employees, negotiates on wages and work
It is where workers are not able to balance time between conditions, and supports their members in disputes.
their work and their personal life.
Workers expected to work long and unsociable hours Impact of Trade union involvement in workplace:
leads to stress and poor health
Trade unions gain power through unity, allowing them to
HR must work with employees to help them achieve good
negotiate better pay and conditions for all members.
work-life balance to increase efficiency and productivity
Collective action/bargaining, like strikes, is more effective
Some methods to do this may include:
than individual efforts.
Flexible working
Unions offer legal support for claims of unfair dismissal or
Teleworking – work from home facility
poor working conditions.
Job sharing – 2 people working as one full time
They ensure employers meet legal requirements, such as
employee
health and safety rules.
Sabbatical periods – extended period leave from work
This is mainly due to:
Collective bargaining and it’s benefits:
Consumers expect access to goods and services 24/7
Globalisation and increased competition The process where a group of workers, usually through a
union, negotiate with their employer as a team to improve
6.13. Policies for diversity and equality pay and working conditions.

Equality is when everyone is treated fairly and has equal The benefit of collective bargaining are:
chances to succeed Employers deal with a single individual representing
Diversity is the process of creating a mixed workforce the union instead of individual workers, saving time
Benefits – and ensuring fair treatment.
Higher reputation Unions provide a way to communicate problems and
Higher morale plans between workforce and management.
Ability to recruit top talent Unions can prevent disruptive, hasty industrial action
Capture a greater consumer market by disciplining members.
Better ideas and greater creativity Responsible union system helps employers and unions
discuss shared issues, leading to better agreements
and higher job security for employees. It also leads to
6.14. Encouraging Intrapreneurship
higher productivity, increased profits for the business.
through Employee Development
Ways Trade union leaders use industrial action
Foster independent thinking and creativity. during dispute with employers when cooperation
Provide opportunities to collaborate with skilled are non-existent:
employees from various departments.
Empower employees with authority and resources for Continue collective bargaining: This can be done with the
innovation. help of an independent arbitrator.
Accept and expect some failure; removing the fear of Go slow: In this industrial action, workers keep working
failure is crucial. but at the slowest pace demanded by their contract of
Start with small ideas before tackling larger projects employment.
Work-to-rule: Here, employees refuse to do any work
6.15. Benefits of Cooperation between Management outside the precise terms of the employment contract.
and Workforce

Overtime will not be worked and all non-contractual Select group of workers
cooperation will be withdrawn. Observe them perform tasks
Overtime bans - industrial action in which workers refuse Record time taken
to work more than the contracted number of hours each Identify the quickest method
week. During busy periods, this could lead to lost output Train all employees in that method
for the employer, damaging the potential sales. Supervise them
Strike action - the most extreme form of industrial action Pay them accordingly
in which employees totally stop working for an indefinite He believed that people are only motivated by money
period of time. Strike action leads to production stopping He believed piece rate method of payment should be
and the business shutting down during the industrial used where worker’s output is directly linked to their wage
action. rates
He believed that autocratic leadership style should be
Methods employers use to resolve an industrial used
dispute: Workers should be closely supervised and no discussion
or feedback should be taken
Negotiations: Try to find a compromise to avoid industrial One-way communication
action. Theory X manager ideology is adopted
Public relation Campaign: Use public relations to win Problems of this method –
public support and pressure the union to settle. Not everyone is motivated by money
Redundancy Threats: Warn of potential job cuts to push Quantity over quality is encouraged – not acceptable in
unions toward a settlement. the long run
Contract Changes: Require workers to do overtime, In modern times, due to advanced education and training,
accept flexible hours, or agree not to strike. worker participation should be encouraged and will help
Lock-Outs: Temporarily close the business to stop the business in the long run
employees from working and getting paid.
Business Closure: Shut down the business completely, 7.3. Mayo and Human Relation theories
leading to all workers being laid off.
Mayo is best known for his Hawthorne effect where he ran

7. Motivation experiments in Hawthorne factory in USA.

He reached surprising observations and they are:

7.1. What is motivation? Working conditions alone don’t determine productivity.

Other motivational factors need to be explored for
It is the desire of workers to do a job quickly and accurate conclusions.
efficiently.
They are the external and internal factors that stimulate Afterwards, he conducted more experiments by changing
people to take actions to meet a specific aim. rest periods, payment system etc.

Importance of motivation The Hawthorne Effect, conclusion of Mayo’s work:

Help a business achieve its goals Changing working conditions and pay often doesn’t impact
Help remain as cost-effective as possible (lower accidents productivity much.
and wastage) Talking with workers boosts motivation.
Helps maintain low labour turnover and absenteeism Working in teams and building team spirit can boost
rates productivity.
Impact the productivity and competitiveness of the Allowing workers control things like break times increases
business motivation.
Well-motivated staff will be ready to accept responsibility Teams can set their own targets, often influenced by
and will make suggestions to improve customer service informal leaders.
and satisfaction.
Evaluation of Mayo’s research for today’s businesses
7.2. F.W. Taylor – scientific Worker Participation: More businesses involve workers in
management/theory of an economic decision-making.
Human Resource Management (HRM): HR departments
man have been established to apply the Hawthorne effect.
Team Working: Many businesses use teams to leverage
His main purpose was to reduce inefficiencies
the Hawthorne effect.
His approach included 7 steps:

New Research: Involving workers and understanding their A range of tasks – workers must be given challenging and
goals has spurred new research in industrial psychology. beyond their current experience tasks
Team work should be encouraged and adopted
He divided his results into 2 factors –
7.4. Abraham Maslow – Hierarchy of
Hygiene factors –
human needs Salary, working conditions, supervision, social
relations
He categorised employee needs into 5 levels. They DO NOT motivate employees, but their absence
Every employee starts at the lowest level DEMOTIVATES them
They just remove dissatisfaction
Motivators –
Achievement, recognition, work itself, responsibility,
advancement
These factors MOTIVATE employees

7.6. David McClelland – Motivational

needs theory
He identified 3 types of motivational needs in his book –
The achieving society

1. Achievement motivation –
1. Have realistic goals
2. Seek opportunities of job enrichment and
advancement
3. Have result driven attitudes
2. Authority motivation –
1. Desire to control others
2. Need to be influential, effective, make an
Physical needs – food, shelter, water, rest impact
Safety needs – job security, health and safety 3. Strong leadership instincts
Social needs – trust, friendship, teamwork, acceptance 3. Affiliation motivation –
Esteem needs – respect, status, recognition, achievement 1. Need for friendly relations
Self-actualisation – reach one’s full potential, challenging 2. Teamwork and interaction with others
and creative work 3. Be liked and popular
Regression is possible – once one need is satisfied,
greater quantity of the same need will not motivate Achievement motivated people are the ones who give the
people business the best results.
Limitations-
Everyone has different needs 7.7. Vroom – expectancy theory
Difficult and impractical to identify for each worker
and have separate measures for each Individuals will choose to behave in ways they believe will
Self-actualisation is never permanently achieved lead to the best outcome and rewards
People can be motivated if they believe:
7.5. Frederick Herzberg – Two factor There is a positive link between performance and effort
Will result in a favourable reward
theory Reward will help satisfy important needs
Desire to satisfy the need is strong
He conducted interviews and surveys to know and identify 3 beliefs –
factors which give good feelings and the ones that provide Valence – depth of the want of an employee for an
negative feelings extrinsic reward
Job enrichment principles should be adopted Expectancy – degree to which people believe hard-
Complete units of work – workers should be allowed to work will lead to their desired reward
produce a recognisable part of the product/service Instrumentality – confidence of employees that they
Feedback on performance – workers must be given will receive the reward they desire
accurate feedback on their work. Good work must be Even if any 1 belief is missing, motivation will not occur
recognised

7.8. Motivational theories – evaluation Performance- Frin

Commission Bonus Profit-sharing
related pay Bene
They provide the starting point and a framework to A bonus for
defining motivational methods and issues staff based
They are often criticized due to its lack of rigour and on the profits
A bonus
follow up work of the
scheme to
Important to identify the most appropriate theory and Proportion In addition to business- can Non
reward staff
identify their relevance in the business of the sales their be a form
for “above
made wages/salary proportion of rew
average work
7.9. Motivators - Financial rewards the salary,
performance”
issue of
Time based wage organizations
Piece rate Salary shares
rate
Payment to a Payment to worker Com
Annual income, Maybe too cars,
worker made for for each unit Given for work Earns
paid monthly persuasive, In addition to insura
each hour worked produced. well commitment
poor brand basic salary pens
Mode of payment Reflects the done/efficiently from staff
Professional, image sche
for manual, clerical difficulty of the job
supervisory and loa
and other blue and the standard
management staff Requires
collared workers time.
regular
Too low-
target
demotivates, too In case of
setting,
Time rate is high- reduces Fixed each year and issue of In add
annual
present, usually incentives (will be determines the Low security shares solves to no
appraisals
paid weekly able to meet their status of job for workers the problem paym
against
target wage level of “us and sche
preset
easily) them”
targets and
Does not directly Encourages faster Job evaluation helps paying
link to efforts put in working and efforts decide salary bands bonuses
Security of income Often
Low security for Requires output to and helps in cost Reduces
inadequate,
workers be measurable and price Teamwork retained
short-term
calculation is not profits and
effect \n
encouraged dividends for
Suitable for jobs Problem of
Little security for shareholders
where output is not favouritism
workers
measurable Herzberg
Helps in price Can lead to theory: it only Diluted share
determination on complacency as moves, not capital
the basis of labor income is not motivates
costs. related to effort Hawthorne Workers may
Quality and safety effect: sell shares
issues \n Leads to Regular appraisal is individual quickly,
falling quality necessary focus rather reducing its
standards than team. effect
Resistance from
workers in the
7.10. Non-financial rewards
event of change of
work
Job Job
Job Rotation Empowerment
Enlargement Enrichment
Performance- Fringe
Commission Bonus Profit-sharing Empowerment
related pay Benefits
Increasing Principle of fastens problem
Increasing the
flexibility of organizing solving and levera
scope of job
the workforce work employees' releva
experience

Job Job Job redesign Training Quality circles

Job Rotation Empowerment
Enlargement Enrichment Attempt to make Voluntary groups of
Increases status
Encouraged work more workers meet
It increases and chances of
to use full interesting and regularly and
Giving variety motivation and promotion
Broadening the ability-not challenging discuss issues
of work- multi morale through
task, deepening just Adding and Employees have
skills challenging work and
physical removing certain Greater sense of first hand
recognition
effort tasks can lead to belonging experience with the
Reduction rewarding work problem
Switch from of direct It enhances Similar to Better and quicker
one job to Includes both supervision, communication and enrichment solutions
another- rotation and allowing reduces turnover by
Allows workers to
avoids enrichment decision increasing
gain a wider range
monotony making involvement Provides a new
of skills and
authority perspective
increases chances
Based on 3 of promotion
principles
Leads to job
from
enrichment –
Herzberg's
Herzberg
Usually theory: \n -
Managers can focus motivation
happens in Complete
Series of on strategic issues as
case of units of
separate task routine problems are Delegation
redundancies work \n - Worker
handled by employees Team-working Target setting and
or shortage Direct participation
Empowerment
feedback \n
- Actively
Challenging encouraged to
tasks become
involved in Lower labor Management Passing down
Doesn’t
Training is needed to decision turnover by objectives of authority
increase
Horizontal manage the risks of making within
empowerment
enlargement increased authority the
or
with empowerment organization
responsibility
Involvement in
Adding tasks to
decisions on
avoid it from Better ideas, Enables Delegating
Less supervision break times,
becoming improved feedback and control over
might result in poor job
boring but no quality comparison work
decision-making allocations,
power/authority
productivity
is given
Improves
Doesn’t lead to Reduced coordination Maslow and Provides a
productivity
long-term job can occur, leading to Herzberg’s sense of
and lowers
satisfaction or inconsistent applications direction
wastage
enrichment approaches
Better Time taking –
Some employees may
decisions, new Delayering appraisal
reluctantly accept
perspectives every year
more responsibility
for job security Not everyone
Can be time
is a team
consuming
player
Job redesign Training Quality circles
Autocratic Conflict with
Restructuring of a
Improving and managers find organizational
job with the Originated in japan-
developing the it difficult values
agreement of the Kaizen
skills of employees Paternalistic
employee
leadership
Training costs
used –
demotivating

7.11. Financial and non-financial Informational roles

motivation – evaluation 4. Monitor – collecting data about the operations

5. Disseminator – sending information about internal
Pay is not the only motivating factor and external factors to relevant people
Managers must be flexible 6. Spokesperson – communicating information about the
Depends on: business
Leadership style
Culture of management Decisional roles
Attitude of managers and workers
Usually, business use a mix 7. Entrepreneur – look out for new opportunities
Non-financial methods are cheaper than financial 8. Disturbance handler – flexible in responding to
changes
9. Resource allocator – deciding on the spending of the
8. Management and business’s resources
10. Negotiator – representing the organisation at all
Leadership negotiations

8.1. Functions of management – what 8.3. Leadership

managers are responsible for It involves setting a clear direction and vision for the
company
1. Setting objectives and planning
The best managers are also leaders
1. Future planning and creating departmental and
Qualities –
individual objectives for each employee
Desire to succeed
2. Organising resources to meet objectives • They will
Self-confidence
ensure clear division of work and delegate tasks to
Creative and innovative
keep everyone motivated
Multitalented
3. Directing and motivating staff
Incisive mind
1. Guiding, leading and overseeing people to
ensure corporate objectives are met
4. Coordinating activities 8.4. Important leadership positions in
1. Encourage teamwork between departments business
and division to lower duplications
5. Controlling and measuring performance against Directors –
targets They are the senior managers elected by
1. Make sure targets are being met and if they shareholders
are not, find solutions like training workers, Responsible for delegation, assist in recruitment,
buying better equipment meeting objectives within their department
Managers -
8.2. Management roles Responsible for people, resources and decision
making
According to Henry Mintzberg’s the nature of managerial Have authority over people below them
work, there are 10 different roles of management. Direct, motivate, discipline
These 10 can be classified into 3 main groups: Supervisors –
Interpersonal roles – dealing with people Appointed by management
Informational roles – receiver, sender of information Not a decision-making role
Decisional roles – make decisions and allocate Responsible for working towards pre-set goals
resources Workers’ representatives –
Elected by the workforce
Interpersonal roles They discuss areas of common concern with
managers
1. Figurehead – symbolic leader of the company
2. Leader – motivating subordinates, selecting and
8.5. Leadership styles
training workers
3. Liaison – linking managers of one department with
Autocratic Democratic Paternalistic Laissez-faire
others

Autocratic Democratic Paternalistic Laissez-faire They need to be managed and controlled with close
supervision
Believes that
manager is in This encourages autocratic leadership
Theory Y –
a better
Promotes Theory Y managers believed that workers enjoy work,
Decision- position than
active It means, let are creative, ready to accept responsibility
making at the the workers
participation of them do it This led to democratic leadership style
centre to know
workers He suggested that theory X and Y are MANAGEMENT
what’s best
OPIONIONS not types of workers.
for the
He believed how managers thought will led to workers
business.
becoming like that description
Leaves the
Some decision-
consultation, making on 8.7. Factors affecting the leadership
Leader takes Two-way but end workforce style
all decisions communication decision after the
based on broad Training and experience of workforce
managers objectives are Amount of time available for discussion
set Attitude of management
No true Culture of firm
Little Very little
Full staff participation Importance of issues
information input from
involvement in decision- In general, democratic is considered the best
given to staff management
making

Close Depends on
Workers
maybe
9. What is marketing?
High level of
supervision of the level of dissatisfied
delegation
workforce involvement and 9.1. Marketing
demotivated
Workers may Marketing is the management process responsible for
not identifying, anticipating and satisfying consumers’
Worker requirements profitably.
One-way appreciate
feedback is Marketing is the process of planning and undertaking the
communication lack of
taken conception, pricing, promotion and distribution of goods
structure and
guidance and services to create and maintain relationships that will
satisfy individual and organisational objectives.
Faster decision
Better final
making \n
decision \n Lack of 9.2. Related concepts
Good for
Better feedback
unskilled
motivation 1. Markets
workers
1. It is where a group of consumers purchase
May
Time goods and services. This may or may not be a
demotivate
consuming \n physical space and area
workers \n No
Not helpful 2. Human needs and wants
staff input who
during 1. Needs are basic requirements that a person
have hands on
emergencies needs in order to survive.
experience
2. Wants are items which are not necessary for
survival but satisfy certain requirements
8.6. McGregor’s theory X and theory Y 3. Value and satisfaction
1. Value is not equal to cheapness
Douglas McGregor devised a theory on what factors 2. A product is considered of good value if it
determine the best leadership provides satisfaction to consumers and is of a
He found that the management attitude is the most reasonable price
important factor 3. A business must aim to increase satisfaction
He identified 2 distinct approaches and value of a product/service to maintain
Theory X and theory Y managers good long-term customer relations
Theory X –
Theory X managers believed that workers are lazy,
dislike work, will avoid responsibility, not creative

9.3. Marketing objectives and corporate 9.6. Market and product-oriented

objectives businesses – an evaluation
Marketing objective may include – If a business tries to change and adapt to every consumer
Increase market share trend it will over stretch it resources
Increase number of items purchased per customer Trying to offer choice and range is expensive. But,
visit researching and then developing a product reduces risks
Increase loyalty Many companies use ASSET-LED MARKETING
Increase the number of times a customer shops It is where businesses base the product development on
Increase customer satisfaction market research but limit it to their own strengths and
Brand identity weaknesses. They try to take advantage of their
Increase new customers resources
In order to be success, marketing objectives must be: Market orientation does not guarantee success. It
In line with the corporate and long-term goals of depends on the whole marketing process
the business
Determined by senior managers 9.7. Societal marketing
Must fit into the SMART criteria
Importance of marketing objectives: It is an approach where the business considers and
Provide a sense of direction focuses on other stakeholders like customers, employees,
Allow progress to be monitored environment, etc.
Easily broken down into individual targets (motivation It was founded by Kotler in 1972
by objectives) It is not the cheapest but meets the society’s long-term
Form basis of marketing strategies interests.
Implications:
9.4. Coordination of marketing with Attempt to balance 3 concerns – company profits,
consumer wants, society interest
other departments Difference between short-term consumer wants (low
prices) and long-term social welfare may arise
Marketing department has a central role in coordinating
Gives a competitive advantage (USP)
the work of other departments
Allows the firm to charge higher prices
Marketing and finance – know the marketing budget and
help make cash flow forecasts
Marketing and HR – devise a workforce plan and help in 9.8. Demand
recruitment and selection of suitable employees
Marketing and operations – new product development It is the quantity consumers are willing to and able to buy
and plan for the spare capacity and raw materials needed at different prices
in the future

9.5. Market orientation

They put customers first. They produce what a consumer
wants rather than trying to sell them a product they
already developed
Necessary in these fast-changing, volatile consumer
markets
Benefits –
Lower risks
Ability to survive longer
Constant feedback from consumers

Product orientation
They invent a product and believe that consumers will
want to purchase it. They believe that if a product is
innovative and of good quality, then consumers will
Movements in a demand curve
purchase it

Factors affecting supply

Factors affecting demand
1. Costs
2. Taxes
Changes in consumer income
Changes in prices of related goods 3. Subsidies
Changes in age and population structure 4. Weather conditions
Fashion, tastes and attitudes 5. Advances in technology
Advertising and promotion
9.10. Equilibrium
9.9. Supply
It is the price level where demand = supply
Supply is the willingness and ability of a firm to There is no shortage (demand higher than supply) or
surplus (supply higher than demand)
sell/produce a product.
Disequilibrium is when demand is not equal to supply
(there’s either a surplus or shortage)

1. Creating/adding value
1. Added value is the difference between the
selling price and the cost of bought in raw
materials
2. Higher the added value, higher the profits
3. Added value can be increased by –
1. Create an exclusive and luxurious retail
environment
2. High quality packaging
3. Promote and brand the product
4. Create a unique selling point (USP) and
differentiate the product
2. Mass and niche marketing
9.11. Features of markets 1. Niche marketing is identifying and exploiting a
small segment of a larger market
1. Market location – 2. Mass marketing is selling the same products to
1. Businesses may operate locally, regionally, the whole market
nationally or internationally 3. Niche marketing – advantages –
2. Local markets have limited sales. International 1. May survive as are producing
markets have the greatest sales potential but it customised products
is a huge strategic step, differences in tastes, 2. Ability to charge high prices and
cultures, laws must be considered increase profits
2. Market size – 3. Improves brand image and loyalty
1. Can be measured by volume of sales or value 4. Mass marketing – advantages –
of goods sold 1. Wider choice for customers
2. Reasons to know the size – 2. Economies of scale
1. Market is worth entering or not 3. Fewer risks
2. Calculate firm’s market share 3. Market segmentation
3. Growing or declining market 1. Also known as differentiated marketing
3. Market growth – 2. Instead of trying to sell one product to the
1. If markets are growing rapidly, competition whole market, businesses identify different
may increase, market share may fall and consumer segments are research each of
profits may be negatively affected them separately.
2. The growth pace depends on –
1. General economic growth
2. Changes in income
9.13. Market segmentation – identifying
3. Changes in tastes and preferences different consumer groups
4. Technological changes
4. Market share – • Businesses create consumer profiles which includes age
1. Can be measure by volume or value of sales groups, income levels, gender and social class
2. If market share is increasing, it indicates that Advantages –
the marketing strategies are effective Easy to target marketing strategies to specific
3. Benefits of high market share – consumer groups
1. Higher sales Enables identification of gaps in the market
2. Retailers may not charger higher profit Differentiated marketing strategies can be focused on
margins to stock up goods target market groups
3. Producers may provide higher Price discrimination may be used to increase revenue
discounts and profits
4. Market leader maybe used in ads, USP Allows specialisation
5. Competitors – Disadvantages –
1. Direct competition is when 2 companies High research and development costs
provide similar products High promotional costs
2. Indirect competition is the substitute of the May not be able to enjoy marketing economies
good itself \ High stock-holding and production costs
3. Businesses must be able to respond efficiently May lead to over-specialisation
to both direct and indirect competition Extensive market research may be needed

9.12. Important marketing concepts

1. Identify problem and define objective

10. Market research 1. Identify the purpose of the research to ensure
unnecessary data is not collected.
Process of Collecting, Recording and Analysing data 2. After identifying the problem, research
regarding Customers, Competitors and Markets. objectives are set. These are always in form of
questions.
10.1. Need for market research 2. Determine research design
1. Deciding whether to use primary research or
1. To reduce risks associated with new product launches secondary research or a mix of both
1. Market research helps investigate the potential 3. Design and prepare research instrument
demand for a product. 1. Identifying the most suitable method of data
2. It allows firms to check the market conditions collection in terms of cost and time.
before launching a product 4. Sampling and collecting data
3. It identifies consumer needs and tastes, helps 1. Choosing a sample size and method
test the product idea, packaging design with 5. Analyse data
potential customers, pre test the brand 6. Visualise and communicate results
positioning and advertising. It even aids during 1. Representing the data in forms of bar graphs,
product launch and after launch periods. pie charts, line graphs, etc.
2. To predict future demand changes
1. Allows businesses to predict future
10.3. Primary research
economical/social changes which might affect
demand
Also known as field research
2. It gives businesses time to plan and implement
It is when businesses collect first-hand data for their own
effective strategies to tackle the future
needs
demand changes
Benefits –
3. To explain patterns in sales of existing products and
Up-to-date information
market trends
Relevant information
1. Conducting market research for existing
Confidential
products helps firms understand the potential
Drawbacks –
changes in consumer tastes, preferences,
Expensive
incomes, etc in the future and helps identify
Time-consuming
demand changes.
Doubts over accuracy and validity (due to sample size)
4. To assess the effectiveness of the marketing
strategies used
Types –
1. Conducting market research after
implementing few marketing strategies like
Quantitative methods – numerical results that
changed promotion, etc will allow a business to
understand the effectiveness of these
can be statistically analysed
strategies in achieving the long-term
Observations and recording – marker researchers
marketing goal
observe and record how consumers behave. It doesn’t
2. It helps identify whether or not the business
give the opportunity to understand the reasons/ask for
requires to change its strategies and tactics to
explanations for the behaviour/trend.
remain successful
Test marketing – when businesses produce a limited
5. Know consumer feedback
quantity before launching the product to the entire
1. Investing in market research will allow a firm to
market. They promote and sell the product in a limited
know customer feedback regarding the
area, record customer reactions and opinions. They then
perceived strengths, weaknesses, packaging
make changes and reduce risks involved before launching
preferences, sales and distribution methods,
it into the market.
etc
Consumer surveys – involves directly asking consumers
6. Identify competitors, their USP and differentiate the
for their opinions and feedback. Both qualitative and
product
quantitative.
1. Market research helps identify competitors,
their product differentiation strategies. It
Qualitative method –
allows the business to adapt and modify their
USP accordingly Focus groups –
They are discussion groups where participants are
10.2. The market research process encouraged to actively discuss and give their
feedback/opinions on new products/adverts/etc

They are more accurate and realistic that 3. Trade organisations

questionnaires and interviews 4. Market intelligence reports
There are researches stimulating the discussion so 5. Newspapers and specialist magazines and
that there is no biased decision made publications
It is cost effective and quick 6. Internal company records
Flexible but it is expensive 7. The internet
Subjective and chances of polarizing
Skilled moderator needed Every business, first, carries out secondary research and only
Less control if the data which exists is not relevant or no data exists like
Not the representative of the entire population for newly developed products, primary research should be
conducted.

10.5. Sample size

It is impossible to survey every member of the target
population
This is because the market is too extensive and it is
impractical to contact every member in terms of time and
money
Therefore, businesses choose a sample size and choose
people accordingly to act as a representative of that
sample
Usually, larger the sample size, more confidence the
business has in their results as they are likely to be more
accurately
Major constrains in selecting the sample size – time and
money

10.6. Sampling methods

Probability sampling
Selection of a sample based on the principle of
random choice
It is complex, time-consuming and costly
Methods:
Simple random sampling –
Each member of the target market has an
equal chance of being selected
10.4. Secondary research Every member of the target market is given a
number and then a computer is used to
Collection of data from second-hand sources generate a random set of numbers
It is also known as desk research
Systematic sampling –
It is gathering data which has already been collected
Sample selected by taking every nth term from
Advantages –
the population
Cheap
Stratified sampling –
Assists planning of primary research The target population will include people with
Less time consuming different tastes, opinions, preferences, etc.
Allows comparison between different sources
Each of these groups are divided into different
Drawbacks –
levels and the are known as strata
Maybe outdated
Random sampling is used to select different
Not available for new products
people from each stratum
May not be accurate
Quota sampling –
May not be suitable to the business
The interviewer selects different number of
people from each stratum of the target
Types –
population
Cluster sampling –
1. Government publications
Take a sample from one/few groups
2. Local libraries and government offices
For example: one town or region

Non-probability sampling Cost to customer – total cost of the product to consumers

Convenience sampling – Convenience to customer – how easily accessible is the
People chosen on the basis of ease of access. product to consumers
Ex. sampling friends and family Communication with customer – providing 2-way
Snowball sampling – communication channels
First respondent refers a friend and the process
continues 11.3. Customer relationship
It is cheap but the sample might be biased as all
respondents might have similar lifestyles and management
preferences
Judgemental sampling – It involves using the 4 C’s and the ideology of putting
Researcher chooses sample based on who they customers first in order to maintain customer relations
think are appropriate and loyalty.
Experienced researcher required It has been proven that maintaining existing relations is
Ad hoc quotas – cheaper than attracting new ones
Quota is established and researchers choose from CRM’s main policy is customer information. It believes in
within it gaining as much information about the target market as
possible and then adapting the 4P’s to it
Developing long-term relations with customers can be
10.7. Accuracy of primary research achieved by:
(evaluation points) Targeted marketing – providing customers with
products they prefer (according to market
1. Sampling bias research/previous purchase)
1. Time and cost constrain make it impossible to Customer service and support – providing feedback
question the entire target market which leads channels and using them to change the 4P’s
to biased answers Using social media – businesses can use social media
2. Higher the sample size, more accurate the to identify various trends in the market which allows
results are likely to be them to make their products more accurate for
2. Questionnaire bias customers
1. This may occur when there are many leading,
misunderstood questions asked. This may lead 11.4. Why is product a key part of the
the respondent to answer in a certain way,
leading to inaccurate results marketing mix?
3. Other forms of bias
1. The respondent may not be truthful In order to be able to build relations and establish brand
loyalty, the product must be right.
This includes the quality, durability, performance and
11. The Marketing Mix: appearance
Customer expectations must be met in terms of these
Product factors

11.1. Marketing Mix 11.5. What is meant by ‘product’?

The 4P’s include: This includes both consumer and industrial goods and
Product – existing product/newly developed product. services
Includes packaging, quality, features of the product The dynamic market makes the New Product
Price – amount customers pay Development (NPD) process a crucial part of the
Place – how the product is distributed business’s success
Promotion – informing customers about the product NPD is based on market research in attempt to satisfy
and persuading them to buy it customer needs
Important for the 4 P’s to be integrated in order to achieve It is expensive and may not be successful
the aims
Unique selling point
11.2. The 4C’s
Features that differentiate a product from its competitors
Customer solution – what a firm needs to produce to meet Benefits of having a USP –
consumer needs Effective promotion
Free publicity

Chance to charge high prices Repackaging and relaunching

Higher sales Finding new uses
Brand loyalty Sales promotion techniques
Adding new features
11.6. Products and brands
11.9. Uses of PLC
Product is a general term used to describe what is being
sold Assisting with marketing mix decisions
Brand is a distinguishing name given to the product, Knowing the stage of PLC helps decide the marketing
helping establish a USP mix of a product (all 4P’s)
It can help create a powerful perception in consumer Every marketing aspect is changed with a change in
minds – positive or negative the stage of PLC
But the final decisions even depend on competitor
Tangible and intangible attributes actions, economic state, marketing objectives
Identifying how cash flow might depend on PLC
Meeting the intangible expectations/needs of a customer Every business requires cash flow in order to be
is achieved through effective branding successful
These are subjective to customer opinions and can’t be At the development and decline stage, cash flow is
measured or compared likely to be negative
This may even continue into the introduction stage as
promotional expenses will be huge
11.7. Product positioning But, in the growth and maturity stage, cash flow is
likely to improve and become positive
Before launching a product, the firm will try to analyse its
Therefore, knowing about the PLC stages of different
relationship with other competitor products in the market
products, allows a business to plan for its next project
– product positioning
and see its effect on cash flow
One method – market mapping
Identifying the need for a balanced product portfolio
Identify features that consumers deem important
As one product is in the decline stage, the next
Plotting it on a comparison chart
product is ready to be launched.
This allows cash flow to remain balanced throughout
11.8. Product life cycle as positive cash flows of products in the growth and
maturity stage may offset the negative losses by
The stages a product goes through from its development products in decline and development phases.
to its decline
Product portfolio analysis involves making decisions about
11.10. PLC – evaluation
how to allocate resources effectively between the range
of products. PLC is one form to do so.
PLC is an important part of the marketing audit and helps
in assessing the marketing departments position
Stages of PLC
But it is based on past and present data, which may not be
necessarily true for future predictions
Introduction
Plus, there might be a rapid and quick change in sales, not
Low sales
giving enough time for the marketing department to
Increase slowly
Growth implement a strategy to offset such a change
In order to be effective, PLC analysis must be used in
Significant growth in sales
relation with sales forecasts and management
Few competitors start entering the market
experiences.
Maturity/saturation
Sales remain constant
Many competitors are in the market Product portfolio analysis – evaluation
Decline
Sales fall rapidly Having a balanced and managed portfolio allows
May occur due to changes in technology, tastes, etc marketing objectives to be met easily
But product is only one part of the marketing mix, and the
Extension strategies other 3 P’s – price, place and promotion are also essential
in achieving success of the business
Strategies used to extend the maturity stage of the PLC But without a well-managed product portfolio, the other 3
Examples – P’s may not be in use and the objectives may not, ever, be
Selling in new markets met

12. The Marketing Mix: Price 12.4. Factors affecting pricing decisions
1. Costs of production
12.1. Why is price a key part of the 1. A price must cover both variable and fixed
costs of a business
marketing mix
2. Competitive conditions
1. Monopoly – more freedom in deciding prices
Price is the amount paid by customers
2. Perfect competition – fix similar prices
Its impacts:
3. Competitors prices
The demand
1. Difficult to set prices too different from
Degree of value added by the business
competitors unless true USP is shown
Influence on revenue and profits earned
4. Business and marketing objectives
Reflect on marketing objectives and their success
1. Price must reflect all aspects of the marketing
Establish psychological image of the business
mix and should keep in mind the main goals of
the business
12.2. Price elasticity of demand 5. Price elasticity of demand
1. Elastic – low prices
It is a numerical measure of responsiveness of demand to 2. Inelastic – increase prices
a change in price 6. New or existing product
PED = % change in demand / % change in price 1. New products – price skimming or penetration
PED is always negative indicating the inverse relation pricing
between demand and price

Types of PED 12.5. Pricing methods

1. Elastic - % change in demand > % change in price Cost based pricing

(PED>1)
2. Inelastic - % change in demand < % change in price Mark-up pricing
(PED<1) When a percentage of fixed mark-up is added to the
3. Unitary - % change in demand = % change in price cost of the product
(PED=1) The mark-up size depends on the strength of demand,
4. Perfectly inelastic – demand is the same, irrespective number of substitutes, stage of PLC, etc
of price (PED=0) Target pricing
5. Perfectly elastic – demand is infinite at a particular It involves setting a price to achieve a required rate of
price, and 0 at all others (PED=infinite) return
This ensures a specific sales revenue is earned
12.3. Factors determining PED Full-cost (or absorption-cost) pricing
It involves setting a price by calculating the unit cost
Necessity or not – necessity = inelastic, luxury = elastic and adding a fixed profit margin
Number of substitutes – many substitutes = elastic, This ensures all costs are met
no/few substitutes = inelastic Easy to calculate
Level of customer loyalty – high degree of loyalty = Suitable for firms with high market shares
inelastic, low level of loyalty = elastic But, doesn’t take into account external factors like
Proportion of income – high proportion = elastic, small economic conditions
proportion = inelastic Inflexible method
Contribution-cost (or marginal-cost) pricing
Prices are set based on the variable costs and a
PED – application contribution amount for fixed costs and profits is
added
Helps make accurate sales forecasts
Contribution per unit = selling price – variable cost per
Assists in pricing decisions
unit
Break even point = fixed costs/ contribution
PED – evaluation Ensures variable costs are covered
Flexible method
PED assumes nothing else changes (ceteris paribus) Fixed costs may not be covered
Maybe outdated very quickly If prices are varied too much, consumers maybe
Uses past information, may not be accurate considering discouraged and business will face menu costs
the dynamic nature of the markets Competition-based pricing

Price is based on that of competitors 3. Oligopoly

Scenarios where it is suitable: 1. Price wars to gain market share
Following the market leader 2. Non price competition –
Avoid a price war competitive promotional
Destroyer pricing – force others out of the market campaigns, product
Based on study of conditions differentiation
3. Collusion – it is illegal and may
12.6. Market-oriented pricing lead to fines and court cases
2. Loss leaders
Perceived-value pricing 1. It involves setting relatively low prices for some
Also known as customer-value pricing products, expecting consumers to buy it. • They
Prices are set based on the value customers place on hope, the profits earned from other products
the product will cover the losses for the other product
Used for products with inelastic demand 2. Usually used for complementary goods
Price discrimination 3. Psychological pricing
It involves charging different prices to different 1. It involves setting prices just below the whole
consumer groups for the same product number
Dynamic pricing 2. It even involves using market research to avoid
Changing prices, frequently, to respond to changes in setting prices consumers believe is
demand inappropriate
It is based on demand level and ability of consumers
to pay 12.9. Pricing decisions – evaluation

12.7. Pricing strategies for new products A firm will not use the same strategy for all products as
there are differences in external market conditions
1. Penetration pricing Prices have a huge influence on consumer purchasing
1. Involves selling at a low price to attract more behaviours so market research must be carried out to
customers identify consumers ability to pay before setting prices
2. Used by firms in the mass market with a aim to Low price may not always be considered the best
capture a large market share strategy. It may even discourage consumers if they
2. Price skimming believe the product is on high value
1. Setting a high price to differentiate it from Price is only one factor. The complete brand image is
competitors more important
2. Usually for products with inelastic demand
(luxury goods)
3. It creates an exclusive image for the product
13. The Marketing Mix:
Promotion
12.8. Pricing decisions – some
additional issues 13.1. Why is promotion an important
1. Level of competition part of the marketing mix?
1. It depends on the type of market
1. Perfect competition Promotion involves communicating with potential
1. Consumers have complete customers
knowledge It helps increase awareness and create an image in
2. All producers are identical consumer minds
products The combination of all promotion techniques used
3. Freedom of entry and exit (advertising, direct selling, sales promotion) is known as
4. Equal market share promotion mix
5. Here, only competitive pricing The promotional budget is a key factor when making
will work promotion mix decisions
2. Monopoly
1. Single seller with 100% market 13.2. Promotion objectives
share
2. They are price makers Aims of having promotional objectives:
3. High barriers to entry and exit Increase sales by new customers

Raise customer awareness Message to communicate – written forms are most

Remind customers about the USP/product effective as their hard copy can be stored
Increase purchases by existing customers Other aspects of marketing mix – all marketing mix
Demonstrate USP and product differentiation strategies aspects must be kept in mind to ensure they are
Correct misleading reports/image integrated as closely as possible
Develop a public image Legal and other constraints – there maybe constraints
Encourage retailers to stock and promote their product as to what ads can contain in different countries, so
these should be kept in mind in order to avoid legal
13.3. Advertising barriers

Known as ‘above-the-line’ promotion 13.6. Sales promotion

Communicating information about the product through
TV, radio, magazine, etc Also known as below-the-line promotion
Effectiveness depends on selecting the appropriate target It aims to achieve a short-term rise in sales
market and suitable media
Helps increase awareness and long-term brand loyalty Methods of sales promotion
and image
1. Price reductions –
Types of advertising 1. A temporary reduction in price
2. Also known as price discounting
1. Persuasive – involves creating a distinct image for the 3. Reduce the profit margin on each product
product and encouraging repeat purchases. 4. May have a negative impact on reputation
2. Informative – give information about the product’s 2. Money-off coupons –
features, USP, qualities, etc. usually used for new 1. They are focused on offering a price discount.
products. Used to attract new customers These coupons maybe present in newspapers,
leaflets
13.4. Advertising agencies 2. Retailers may not have enough stock, leading
to customer disappointment
They are firms who advertise businesses in the most 3. Effectiveness depends on size of coupon
effective way possible. 3. Customer loyalty schemes –
They are expensive but are specialists and will provide the 1. Focused on encouraging repeat purchases.
entire promotional plan for a business They usually involve loyalty cards reduces
Stages in creation of a promotional plan: profit margin on each product
Research the market 2. High administration costs
Identify and advise on the most cost-effective forms of 4. Money refunds –
media to use 1. Offered when receipt is returned to the
Use creative designers to devise ads manufacturer
Print out the adverts 2. Involve customers filling in forms which maybe
Monitor public reactions to improve future ads a disincentive
3. Delay in refund may affect brand image
5. BOGOF –
13.5. Advertising decisions – which 1. Buy one get one free
media to use? 2. Substantial fall in profit margin
3. If used to sell of stock, may impact brand
Greater the promotional budget, wider media choices image
available 4. Current sales may increase, but future sales
Factors to consider when choosing the media to use: may fall
Cost – TV, radio and cinemas are very expensive 6. Point-of-sales-display –
whereas newspapers emails and leaflets are cheaper 1. Placing products in attractive and informative
forms places
Size of audience – it will allow the cost per person to 2. Only offered to market leaders
be calculated. Larger the size, wider reach media 3. New products may struggle
must be used like national or international newspaper
Consumer profile of target audience – this will help in 13.7. Personal selling
designing the advert and identifying which media to
use. It involves having a sales staff communicate and sell to
each customer individually

Expensive
13.9. Marketing or promotion
Requires skilled sales staff
Used for expensive, luxury items expenditure budgets
High success rates
1. Percentage of sales
1. Marketing budget varies with sales
Direct mail
2. Higher sales, higher budget and vice-versa
3. But, during low sales, promotion budget
Information is directly sent to potential customers,
identified by market research reduces which is when higher promotion is
needed to persuade customers to buy the
May provide detailed information
product
Well focused on potential customers
Cost effective 2. Objective-based budgeting
Maybe missed 1. Involves analysing the level of sales required to
meet aims and then identifying the amount of
expenditure in order to gain that sales level.
Trade fairs and exhibitions 3. Competitor-based budget
1. Two firms with the same size may try to match
Used to market to other businesses (retailers and
each other promotional budgets.
wholesalers) 2. May lead to spiralling promotional costs
Used to make contacts and identify potential customers 3. It doesn’t mean both companies promotion is
equally effective.
Sponsorship 4. What the business can afford
1. People tend to see marketing and promotion
Involves associating with an event/team as a luxury
Leads to free publicity 2. So, in such cases, the budget will only be set
Expensive after all other expenses have been accounted
Very effective for
3. This method fails to take into account market
Public relations (PR) conditions and marketing objectives when
deciding marketing budget.
It is used to gain free publicity provided by the media 5. Incremental budgeting
Tries to arrange positive TV and press coverage 1. This involves adding a percentage to the last
Maybe used to put forward the company’s views on year’s budget, to account for inflation and price
specific incidents changes
Used to improve reputation 2. But, it doesn’t require managers to justify the
total market budget for each year so it maybe
used inefficiently
13.8. Branding
It is a distinguishing name given to a product 13.10. Is the marketing budget well
Aims – spent?
Customer recognition
Product differentiation 1. Viewpoint of society and customer
Giving the product an identity 1. Many people may observe marketing and
Benefits of branding – promotion as a wasteful expenditure and
Increases chances of consumer recall money could’ve been used more effectively,
Product differentiation elsewhere
Reduces PED 2. Some consumers may even believe that the
Increases consumer loyalty society has to bear the burden of the
unreasonable, excessive advertising each year
Brand extension 2. Viewpoint of business
1. Advertising and promotion may aim to build
Using the same brand name for new/modified products
brand loyalty in the long-run rather than
will help make a family of costs.
increasing sales in the short-run
It will make the brand image even stronger and make
2. In such cases, the benefits will be spread
advertising easier as the brand can be advertised as one
across the years
unit which will improve sales of all products associated
3. Ways to assess the effectiveness of marketing
with it.
–

1. Sales performance before and after the

promotion campaign – compare sales 14. The Marketing Mix: Place
and calculate the promotional elasticity
of demand
14.1. Why are place decisions an
2. Consumer awareness data – identify
how well consumers are able to recall important part of the marketing mix?
the data and advertisements through a
series of questions Place is the process through which the product reaches
3. Consumer panels – focus groups may the customer from the manufacturer.
help gain qualitative data about the A correct distribution channel is necessary –
effectiveness of promotional strategies Consumers need the product to be convenient and
4. Response rarest to advertisements – accessible
number of calls to gain further Manufacturers need their outlet to be in line with their
information, number of website check- brand image
ins, views on videos, etc Every intermediary will add its profit margin, so it
depends on the price the manufacturer wants

13.11. Consumer markets and industrial

14.2. Concept of distribution
markets
The right product needs to reach the right consumer at
Industrial products are the ones that are sold to the right time in the most convenient way possible
businesses Supply chain refers to all the intermediaries involved in
Consumer products involves directly selling to the end
getting the product to the end consumer
consumer
Industrial markets may use trade promotion like trade
fairs, specialist magazines
Customer service as objective of
Consumer markets may use consumer promotion like distribution
discounts, TV adverts
Distribution channels chosen may not always be the
13.12. Promotion and the PLC \n cheapest
Customer service is the main objective of distribution,
therefore convenience to customers may also be a very
important factor when deciding the distribution channel
Businesses even use internet and e-commerce facilities
to make it more accessible to customers

14.3. Channels of distribution

1. Manufacturer → Consumer
1. Direct selling to customers
2. No intermediaries adding their profit margins
13.13. Packaging
to products, lower prices and higher profits
3. Has complete control of the marketing mix
The quality, design and colour of packaging play an
4. Quicker
important role in promotion
5. Fresher food available to consumers
Cheap and nasty packaging may destroy the brand image
6. Direct contact with customers
Also, wasteful expenditure on packaging will also lead to
7. Expensive – storage and stock costs
negative publicity. This will even reduce the product’s
8. No retail outlets, limits promotion from
competitiveness
physical shop/website
Packaging decisions must be blended in with the overall
9. Not convenient for customers
objectives of the business
10. No advertising done by intermediaries
Functions –
2. Manufacturer → Retailer → Consumer
Protect the product
1. Retailer pays for stock and storage costs
Give important information
2. Retailer offers after sales service and has
Support the brand image
product displays
Aid customer recognition
3. Available in many locations – convenient for
customers
4. Producers can focus on production

5. Retailer promotes and advertises the product High product

Consumers interact with websites and
6. Intermediary adds profit margin, more returns if
leave their information there, assists in
expensive to consumers customers
7. Producer loses SOME control over the market research
dissatisfied
marketing mix Easy and convenient for customers High postal costs
8. No exclusive outlet, may sell competing
Postal service may
products
be unreliable,
9. Producer bares delivery costs
Accurate records and quickly measured affecting
3. Manufacturer → Wholesaler → Retailer → Consumer
company’s brand
1. Wholesaler buys in bulk, reducing storage
image
costs for producer
2. Wholesaler bares transport costs to retailers Internet security
Lower fixed costs
3. Wholesaler break bulk by selling small worries
quantities to different retailers Website must be
4. More convenient for customers Increasing technological usage kept up-to-date,
5. Best way to enter foreign markets expensive
6. Higher final prices as more intermediaries add Easier dynamic pricing
profit margins
7. Producer further loses control over marketing
mix 14.6. Viral marketing
8. Slow distribution chain
It involves using social media sites to increase brand
9. No direct contact with customers
awareness or increase sales
It encourages people to keep passing on marketing
14.4. Factors influencing choice of messages to others
distribution channel They maybe in the form of video clips, interactive flash
games, e-books, text messages, social media
Industrial product or consumer product
Geographical dispersion of target market 14.7. An integrated marketing mix
Level of service customers expect
Technical complexity of the product If the marketing mix is not integrated, it may confuse
Unit value of product customers who will stay away from the product and find
Number of potential customers alternatives. This will lower long-term sales
Competitors actions The most effective marketing decisions will –
Based on the marketing objectives
14.5. Internet and 4C’s Affordable within the marketing budget
Integrated and consistent with each other
Internet is transforming the ways in which businesses Integrated with the 4 C’s of marketing
market their products and manage relationships with
customers
Selling goods directly to consumers (B2C) or to
15. The Nature of Operations
businesses (B2B) through e-commerce
Online and mobile advertising (pop ups, social media, 15.1. Operations
websites)
Sales contacts are established by visitors leaving their The operations department deals with using resources
details on sites (inputs) to create final products (outputs)
Collecting market research data by encouraging visitors They are aiming to produce goods and service of the right
on the websites to answer questions quality and the required quantity, at the time needed in
Ability to use dynamic pricing the most cost-effective method
They are concerned with –
Advantages Disadvantages Efficiency of production – produce at the lowest
Poorer countries may not possible cost
Relatively inexpensive
have internet access Quality – maintain quality standards and keep
Consumers can’t touch, smell, improvising
Reaches a wider target feel the product before – Flexibility and innovation – keep adapting to the
market limiting their willingness to dynamic business environment
buy online

2. This will increase productivity but may also be

15.2. Production process –
expensive to implement
transformation 3. Purchase more machinery/technology –
1. Employing more machinery will allow the
Conversion of inputs into outputs is known as the company to increase output and reduce the
transformation process amount of labour employed
It involves adding value to the product 2. Plus, it will ensure good quality and maximum
efficiency
Factors influencing the degree of value 3. But it is expensive and labourers may be
scared to lose jobs, reducing their motivation
added to worker harder
4. More efficient management –
1. Design of the product
1. Failure to purchase enough materials, poor
2. Efficiency with which the input resources are schedules will reduce the efficiency of the
combined and managed business
3. Ability to convince consumers to pay more than the
price of inputs
15.7. Is raising productivity always the
15.3. Operations stages answer?

1. Converting a consumer need into a product/service Higher productivity doesn’t guarantee success for a
2. Organising efficient operations business
3. Deciding on suitable methods of production Higher productivity may lead to higher wage demands,
4. Setting quality standards raising the firm’s costs of production
5. Ensuring they are maintained Quality of management will determine the success of the
policies implemented and thus the success of a business
Effectiveness and efficiency are different. A product
15.4. Resources
maybe efficient but not effective, leading to its failure
1. Land – natural resources businesses require
2. Labour – both manual and mental labour. Quality of 15.8. Efficiency and effectiveness
labour highly influences the operational success and
maybe improved through training and motivation Efficiency is producing output at the highest input to
3. Capital – tools, machinery and other man-made output ratio
resources required for production Effectiveness is producing goods and services that satisfy
4. Intellectual capital – intangible assets of the business. customer needs and wants
Human capital – trained and knowledgeable Being effective involves meeting business’s corporate
employees, structural capital – IT systems, relational aims by satisfying consumer needs, profitably
capital – relations with suppliers, customers
15.9. Factors influencing choice of
15.5. Production and productivity resource (labour VS capital)
Production is the absolute measure of the quantity of 1. Nature of product
output that a firm produces in a given time period 2. Prices of inputs
Productivity is a relative measure of how efficiently inputs 3. Size and ability of firm
are converted into outputs. 4. Intended image
Labour productivity = total output/total employees
Capital productivity = output/capital employed
16. Operations Planning
15.6. Ways to raise productivity
16.1. Operations decisions
1. Improve training –
1. Increasing training will make the workforce 1. Link with marketing
more flexible and efficient. 1. Operations manager needs to know market
2. But it is expensive and time consuming demand forecasts to be able to match supply
2. Improve motivation – and demand. This is known as operations
1. Using Herzberg’s and Maslow’s theories
planning.
workers motivation levels can be increased 2. If sales forecasts are accurate:

1. Easily match supply to demand Amount of added value depends on inputs and different
2. Keep inventory levels to a minimum factors.
efficient level
3. Reduce wastage The following factor affecting Added Value are not
4. Employee appropriate number of operational management issues:
factors of production
5. Produce the right product mix Design of Products: Make it cost-effective to produce
2. Availability of resources while having high-quality visual appeal to justify a higher
1. Production of goods and services requires – price.
land, labour, capital, raw materials Operational Efficiency: To cut waste and boost
2. Lack of these will influence operations productivity to lower per unit costs and increase value.
decisions: Branding: Create strong branding to make consumers
1. Location – locate in areas with abundant willing to pay more than the production cost, like with
supply of materials luxury clothing, stationary etc.
2. Nature of production method – if labour
productivity is high, business may use 16.4. Efficiency Production leading to
labour intensive production method
3. Automation – if technology is cheaper, Effective Sustainability
business may decide to switch to
automated production method. One of the main goal of an operations manager is resource
3. Technology management. they plan to optimize resource use by being
1. Technological developments have changed the efficient in product and minimize negative impacts on future
production process generations through compliance to sustainability.
2. They help the process become more efficient One major misunderstanding occurs through knowing the
and cost effective difference of productivity and production. The difference is:

Production is the measure of the total output in a given

16.2. The Transformational Process period.
Productivity is the measure of how inputs are converted
Definition: An activity or group of activities that transform one into outputs per time period.
or more input, adds value to them, and produce outputs for
customers. There is an calculation of calculating productivity and that is
It takes the following inputs: by using the labour/Capital productivity equation.
Labor productivity (number of units per worker) = Total
Enterprise Output in a given time period / Total Workers Employed
Land Capital productivity (number of units per worker) = Total
Capital Output in a given time period / Total Capital Employed
Labour There are also ways to raise productivity and they are:

Adds value to them via production, whether capital or labour Boost Skills: Training improves productivity but is costly
intensive. and risks losing staff.
Transform them into the following output: Enhance Motivation: Financial and non-financial incentives
can motivate employees and cut costs. Although Non-
Finished goods
financial incentives are usually preferred as it does not
Services
raise labour cost.
Components for other firms
Upgrade Equipment: New and improved technology
increases output. However, it requires large investment
16.3. Contribution of Operations and retraining for employees.
Improve Management: Effective management can raise
Contribution of operation to improve added value: productivity level by handling resources and workers
effectively.
Efficiency: Minimize production costs to stay competitive
by improving efficiency. However, high productivity does not guarantee success as:
Quality: Ensure goods or services meet their intended
purpose. Wage demand: Increased effort for higher productivity
Flexibility & Innovation: Adapt to new processes and might cause workers to seek higher pay, which could
cancel out the productivity gains.
products.
Worker Resistance: Workers might be reluctant to follow
necessary steps to raise productivity. Improving

productivity by 20% could cause job losses and potential Benefits of Sustainability Drawbacks of Sustainability
industrial disputes if sales don’t grow. Creating recyclable products
Management Role: If the management quality is poor, Recyclable products can cut
is likely to be costly and time-
success is unlikely. Therefore, high quality management waste disposal cost
consuming
that involves workers and values their input can improve
Lowering waste from It might require Investing in
productivity and acceptance.
operations decreases overall worker training and advanced
Efficiency or Effectiveness?: Despite raising productivity, it
production costs equipment
might not lead to success as productivity is measured via
efficiency and not rather effectiveness. Purchase of resources from Sustainable supplies to make
sustainable suppliers product might be more
Effectiveness should be focused on as well, it means meeting supports sustainability and expensive, raising overall
the needs of the customers profitably. They, combined reduces bad publicity risk costs
together, gives the best outcome. Efficiency is focused on It might not be suitable for
reducing the average cost of production while effectiveness is business target audience
ensuring that the product that is being produced meets the income
needs of their targeted audience profitably.

Sustainability of operation 16.5. Need for flexibility and innovation

It is done via maintaining business operations long term by Flexibility is the business’s ability to vary production with
focusing on environmental protection and preserving quality changes in demand
of life for future generations. Ways to increase flexibility –
Ways to operate business sustainably: Increase capacity
Hold higher stocks
Using recycled materials Have a flexible workforce
Producing goods that can be recycled Flexible flow production equipment
Waste management in production
Buying sustainable resources from suppliers
Reducing energy usage and carbon emission
Process innovation
Lowering the usage of non-biodegradable materials such
It involves the use of new, advanced technology to
as plastic
improve production
Why business wants sustainability in their operation: Done through using CAM, CAD, robots, faster machines,
computer tracking inventory system, etc
To comply with strict laws on environmental issues Gives a competitive edge
Pressure group activity exposing environment-damaging Better quality
businesses Higher reputation and brand loyalty
Businesses should follow through on corporate Expensive
responsibility promises through their senior
management.
16.6. Labour Intensive vs Capital
Sustainable practices can improve public relations,
enhancing positive publicity. Intensive
Consumers are more likely to buy eco-friendly products,
increasing sales. Benefits of Labour Intensive Benefits of Capital Intensive
Production Production
Benefits of Sustainability Drawbacks of Sustainability Low machine expense Economics of Scale
Going green may require Interesting and varied work
Lower Energy Costs: Using
costly investments like solar thus higher employee Consistent quality
less energy saves money.
panels motivation
Fall in production usage and One-off design/Job production
Eco-friendly materials might
sales of plastic and non- processed product can be Low average cost of
be pricier and less effective
biodegradable materials made that meets customer production
than plastics
draws eco-conscious buyers requirements precisely.
Using recycled materials Recycled materials often need Lower start up cost as buying
reduces need for new raw extra cleaning or processing, numerous machines to begin Higher ability to supply to
materials. Thus, potentially heightening production operation increase cost of a Mass market
decreasing costs completion time business by a great margin

Drawbacks of Labour Drawback of Capital Intensive 16.8. Diseconomies of scale

Intensive Production Production
Lower output level in Factors which lead to a rise in average costs of production
High fixed cost
comparison arising with increased scale of operations beyond a
Cost of financing the certain size.
Skilled, High-paid workers
machinaries or finding
might be required for overall
operation
sufficient finance might be Types of diseconomies of scale
time-consuming
Quality of the product made 1. Communication problems
High maintenance cost and
depends on experience, 1. In a large firm, the feedback provided will be
higher cost for repairs as
motivation and skill of each poor
skilled workers are necessary
worker 2. The chain of command may be long leading to
Due to constant improvement distortion of messages
in technology. It leads to 3. This may cause poor decision making
2. Alienation of the workforce
latest equipment
depreciating fast and 1. The bigger the organisation, the more difficult
becoming obsolete. it becomes to involve every worker.
2. They may feel demotivated due to lower job
satisfaction
The approach of the production method that should be
3. Poor coordination
chosen depends on:

Nature of the product How to avoid diseconomies of scale

Brand Image
Relative cost of Labour and Capital 1. Management by objectives: This will help avoid
Size of Business coordination problems
Accessibility to finance 2. Decentralisation: This gives divisions a considerable
degree of autonomy and independence.
16.7. Economies of scale 3. Reduce diversification: Businesses that concentrate on
‘core’ activities may help to reduce coordination
Cost benefits arising with increased scale of operations problems and some communication problems.

Types of economies of scale 16.9. Production methods

1. Purchasing economies 1. Job production

1. Bulk buying economies 1. Producing a single, one-off item, specifically
2. Suppliers may offer discounts on bulk designed for the customer
purchases 2. It is labour intensive
3. They will want to keep large customers happy 3. Specific consumer needs are met, higher
so may provide good quality goods and on time reputation and loyalty
delivery 4. Specialised products are produced, ability to
2. Technical economies charge higher prices
1. High output will lower unit costs 5. Cannot enjoy economies of scale
2. Fixed costs are spread across the output, 6. Expensive as requires skilled labour and
lowering its output training
3. Financial economies 2. Batch production
1. Banks and other financial institutions will be 1. Producing products in separate groups where
willing to provide loans to larger businesses the entire groups goes through the production
2. They may be willing to charge lower interest process together
rates to them 2. Enables division of labour and specialisation
4. Marketing economies 3. Economies of scale
1. Costs of advertising and promotion maybe 4. Easy to alter batches according to demand and
spread over a larger output, lowering unit costs preferences
5. Managerial economies 5. High storage costs – work in progress
1. Employing specialists and managers will be inventory
easier for large firms as their salary will be 6. Workers may get bored and demotivated
spread over a larger output 3. Flow production

1. Producing products in a continuous process niche market regardless of dominance of large businesses in
through the use of technology terms of market share.
2. Higher output
3. Economies of scale
4. Consistent and standardised quality 17. Inventory Management
5. Low labour costs
6. High initial costs 17.1. Inventory
7. Lower job security
4. Mass customisation Materials needed for the production of goods and
1. It involves the use of computer aided services.
production to meet specific customer needs at
mass production costs Types:
2. Allows businesses to focus on differentiated
marketing 1. Raw materials
3. Increases added value 1. Purchased from outside suppliers
4. Low unit costs 2. Work in progress
5. Customer needs are met 1. Work in progress is any product which is not
yet converted into finished goods.
2. Depends on time period of production and
16.10. Production methods – making production method used.
the choice 3. Finished goods
1. Good ready to be sold to consumers
1. Size of market – if the market is small, flow production
can not be used, batch or job production is more 17.2. Inventory management
appropriate
2. Amount of capital available – employing flow Without effective inventory management, there maybe
production is expensive and requires a high initial many problems.
capital investment. Small firms may not be able to Insufficient inventories to meet unforeseen changes in
afford this and therefore use job or batch production demand
3. Availability of other resources – using flow production Out-of-date inventories maybe held
requires a high supply of unskilled workers and huge Wastage due to incorrect storage conditions
land area. Job production requires highly skilled High storage and opportunity costs if extra inventory is
workers. The chosen production method may even held
depend on whether the company is able to allocate Poor management may lead to delayed deliveries,
these resources. ignoring discounts, etc
4. Market demand exists for products adapted to specific
customer requirements – if the company wants low
costs but has a differentiated target market, mass
17.3. Inventory holding costs
customisation is the best option.
1. Opportunity cost – working capital tied up in inventory
could be used elsewhere. Higher interest rates, higher
Problems of changing production the opportunity cost of holding inventory.
methods 2. Storage cost – inventories must be held in
appropriate, safe conditions to avoid wastage. Higher
Job to batch: high equipment costs, need for extra working inventory, higher the storage costs
capital and fall in employee morale 3. Risk of wastage and obsolescence – if inventories are
Job/batch to flow: high capital cost, costs of employee kept unused, they may become obsolete, lowering the
training, need for accurate demand forecasts value of such inventories and increasing the
business’s expenses

Conclusion: Production method

Costs of not holding inventories
Traditional differences between production methods are
becoming less obvious. Technology allows large businesses 1. Lost sales – business may not be able to supply all
to meet the diverse range of customer needs, which could customers, leading to loss of sales and revenue
threaten small firms that focus on niche markets with 2. Idle production resources – if raw material inventories
specialized products. However, as consumers become run out, expensive equipment and workers will be left
wealthier, there will still be demand for unique and idle, leading to loss of output and wasted resources.
specialized items, so small firms can continue to thrive in the

3. Special orders could be expensive – urgent orders

given to suppliers may lead to extra delivery,
administration costs
4. Small order quantities – higher average costs as the
company will not benefit from economies of scale

17.4. Optimum order size

Operations managers must ensure they have enough
stocks to allow for smooth production. The maximum inventory is 60000 units. The buffer inventory
Operations managers usually order their inventories on level is 10000 units and the reorder level is 20000 units. The
the basis of the Economic Order Quantity (EOQ) reorder quantity is 50000 units (60000-10000)
EOQ is the optimum inventory level where the costs
incurred are minimum (both re-ordering costs and stock- 17.6. Just-in-Case (JIC) Inventory
holding costs)
Control
This management system targets to lower the risk of running
out of inventory to the minimum by holding high buffer
inventory levels.
Benefits of JIC inventory Drawbacks of JIC inventory
management management
JIC makes it highly unlikely to
run out of inventory, so High capital cost as finance is
production can continue required to invest in
even with major supply inventories
delays.
Other costs such as space,
Lower requirement to
holding and other variables
forecast sales as accurately
The reorder costs decrease as the order size increases, associated with inventory,
as with JIT due to high
showing a downward sloping graph. increasing overall expense of
inventory level
Whereas, the stock-holding costs increase as the order business
size rises, showing an upward sloping graph. Takes advantage of
The Economic Order Quantity is shown where the stock- Inventories are highly likely to
purchasing economics of
holding costs and re-order costs curves intersect. lose its value due to potential
scale by ordering supplies in
change in fashion or
large quantities, lowering
technology
17.5. Inventory control graphs average supply cost

Inventory-control graphs record the buffer inventories,

maximum inventory.
17.7. Supply Chain Management
They help in determining the right order time and
supply chain: the network of all the business activities
quantity.
involved in creating a product for sale, starting with the
Buffer inventory – minimum inventory held to deal with
delivery of raw materials and finishing with the delivery of
delays in delivery and unforeseen demand changes
the finished product.
Maximum inventory level – the maximum quantity of
supply chain management: Management of the entire
inventory the company can hold, space and financial
production flow of a product (from raw materials to
terms
finished product) to minimise costs as well as improve
Reorder quantity – the number of units ordered each time
customer service.
Lead time – time taken for the supplier to deliver the raw
materials Supply chain management targets to decrease the time
Reorder stock level – the level of inventory which will period of converting inputs into outputs.
trigger a new order Supply management system shorten the time period by:

Build sturdy and consistent communication with suppliers

to ensure on-time and high-quality delivery of raw
materials.
Improve transport systems to speed up delivery.

Speed up new product development to stay competitive in To buy machinery, capital equipment while set-up of the
the market business. It is called start-up capital
Use technology and flexible workforces to speed up To fund its day-to-day expenditure. It is called working
production. capital
Reduce waste at all stages to cut costs. While business expansion
Needed to merge/acquire other businesses
Benefit of effective supply chain management: Unforeseen expenses and difficulties
Fund research and development
It can create happier customers by providing high quality
customer service by ensuring fast, on-time delivery of
quality products. 18.2. Capital expenditure
Reducing expenses on buying, storing, and producing
goods by saving time and decreasing waste will lower Long term spending (more than one year) like purchase of
operating cost. assets
Improvement in inventory management and efficiency,
will inevitably lead to higher business profits. Revenue expenditure

17.8. Just in time (JIT) inventory control Short term, day-to-day expenditure like wages, salaries,
insurance
It is an inventory control system which avoids the need to
hold inventories. They arrive just as and when required 18.3. Working capital
Requirements for JIT It is the finance required to pay for day-to-day expenses
It is the lifeblood of the business
Excellent relations with supplier Without sufficient working capital, a business will become
Flexible and multiskilled production staff illiquid (cannot repay its short-term debts)
Flexible equipment and machinery Working capital = current assets - current liabilities
Accurate demand forecasts
Latest IT technology How much working capital is required?
Excellent employee-employer relations
Quality must be priority Too high of working capital leads to opportunity cost of
too much capital being tied up and can be used
Advantages and disadvantages elsewhere
Working capital requirement of a business is determined
by its working capital cycle
Longer the cycle, greater the amount required

18.4. Internal sources

1. Profits retained in the business

The retained earnings of a business can be used as a

JIT evaluation source of finance to fund expansion, purchase of assets
These do not have to be repaid and are a permanent
JIT requires employees to be accountable for their source of finance
performance and suppliers to be reliable But they may not be enough and new businesses may not
JIT may be unsuitable when: have this option
Costs of halting production exceed inventory holding
2. Sale of assets
costs
Expensive IT systems cannot justify potential cost savings Assets which are no longer needed/fully employed can be
Global inflation makes holding inventories cheaper sold in order to get funds
It will help raise permanent capital for the business
18. Business Finance They can be sold to a leasing company and leased back
for business use. But, through this fixed cost will rise
Also, these assets could have been used as collateral or
18.1. Why does a business require be used during future expansions

finance? 3. Reductions in working capital

Lowering the amount tied up in working capital may free Maybe given for fixed/varying interest rates
up some money to be used elsewhere Fixed provide greater certainty but maybe more
It will help reduce the opportunity cost of tying up money expensive
in current assets like inventories and trade receivables Companies will have to provide collateral/security to
But this may negatively affect the company’s liquidity obtain the loan
position, affecting stakeholders like potential investors, They require a business plan and cash flow forecast
bankers, etc
2. Debentures

18.5. External sources A company can issue bonds to potential investors and pay
a fixed rate of interest for the life of the bond
Short term sources No collateral security is required

1. Bank overdrafts 18.8. Sale of shares – equity finance

Most flexible Limited companies issue shares when first formed and
The bank allows the business to overdraw its account use it to purchase necessary assets
High interest rates They can sell shares anytime required up to a limit of their
Bank can ask the business to repay anytime authorised capital
It is a method of permanent finance
2. Trade credit
Way to sell shares:
The business can lower the credit period provided to Public issue by prospectus: company advertises its
trade receivables and ask for greater period from trade share sale and invites interested people to apply for
payable them. It is very expensive
Customers may switch to competitors if they provide Arranging a placing of shares with institutional
greater credit period investors without the expense of a full public issue:
Suppliers may not provide discounts this is done by the means of a rights issue. The short-
term share price falls which reduce shareholders
3. Debt factoring confidence

This involves selling of a company’s trade receivable

claims to a debt factor for immediate money 18.9. Debt or equity capital –
Lowers risk for the business evaluation
Full amount is not given
Debt finance benefits:
18.6. Medium-term sources Ownership is not diluted
No permanent increase in liabilities as the loans will
1. Hire purchase be repaid
Lenders have no voting rights
It is a way of purchasing an asset for credit where money Interest is paid before corporation tax
is paid in instalments over the time Equity benefits:
It helps avoid large initial cash payment Never needs to be repaid
Ownership of asset is obtained Dividends must be paid whenever the business has
enough profits
2. Leasing

It allows a business to obtain the use of an equipment by 18.10. Other sources of long-term
paying a fixed rental charge, instead of buying the asset
Leasing company is responsible for maintenance and
finance
repairs
1. Grants
No ownership is gained, can’t be used as collateral during
bank loans Grants may be given with certain conditions up on
number of jobs, location, etc
3. Medium-term bank loan
They do not need to be repaid

18.7. Long term sources 2. Venture capital

1. Long-term bank loans It is the risk capital invested by wealthy individuals in

business start-ups which have good profit potential but

can’t find other sources of finance

Venture capitalists provide advice for the business
owners
But they may expect a part of ownership in the business

18.11. Finance for unincorporated

businesses
Unincorporated = sole trade & partnership
Can not raise finance from the sale of shares
Unsuccessful in raising finance through sale of
debentures
Sources of finance –
Overdrafts 18.15. Making the decisions – factors
Loans influencing
Credit from suppliers
Borrow from friends and family
Own savings 19. Costs
Grants
Crowdfunding
Microfinance 19.1. Uses of cost information
Helps calculate accurate profit and losses, calculate
18.12. Microfinance profitability, liquidity
Helps make informed pricing decisions – marketing
Involves selling financial services to poor, low-income department
customers or small businesses who do not get finance Allows comparisons to be made, identify cost cutting
from banks techniques and implement required strategies
High interest rates Help set future budgets
Managers can make decisions about resource allocation
Crowd-funding Help in decision making

Crowdfunding websites allow entrepreneurs to promote 19.2. Classification of costs

their business and encourage individuals to each invest a
small amount 1. Direct costs – costs which can directly be identified
Effective form of promotion with one unit of output. Ex. raw materials
Investors may expect a return on investment
2. Indirect costs – costs which can not be directly
Investors, when the business is successful will receive: identified with one unit of output. Ex. rent
initial capital plus interest, equity stake in the business 3. Fixed costs – costs which do not change with output in
Must keep accurate records of thousands of investors the short run. Ex. rent, insurance
Increased risks of idea being copied 4. Variable costs – costs which vary directly with the
output. Ex. raw materials, wages
18.13. Importance of business plan 5. Marginal costs – cost of producing one extra unit of
output
Business plan is a detailed document giving information
about a business to convince external stakeholders to 19.3. Break even analysis
lend money to the business
Helps gain loans and credit facilities Break even point is where neither profit nor loss is made.
Helps lower risks Total revenue = total costs
Below the break even point, a business makes losses and
18.14. Financial Stakeholders above the break even point the business makes profits

1. Every transaction has 2 effects – debit and

credit
2. Accruals
1. All prepayments and overdue must be
recorded in the books of accounts
3. Money-measurement principle
1. Only items with a monetary value should be
recorded
4. Conservatism – prudence concept
1. Accountants should provide for all losses but
never anticipate a gain
5. Realisation concept
1. Revenue and profits should only be recorded
when the legal title of the goods is transferred.

20.2. Income Statement

Margin of safety
A record of the company’s profits, revenue and expenses
The amount by which current sales level exceeds the over a given time period
break-even point Trading account – shows gross profit and cost of sales
Indicates how much sales could fall without the firm going Profit and loss account – shows overall profit and
into losses overhead expenses
Appropriation account – shows dividends and retained
earnings
Break even equation
Break-even level of output = fixed cost/contribution per Uses of income statement
unit
Contribution per unit = selling price – variable cost per Measure and compare the performance with competitors
unit or over time
Actual profit can be compared with estimated profit
Banks & creditors need the information to decide whether
Break even analysis – uses or not to lend the business
Prospective investors assess the level of risk and earnings
Easy to construct and interpret
on investment
Managers can redraw the graph to see effect of changes
Low quality & high-quality profit is identified
in costs and prices on profits and break-even points
Helps in decision making
Gives information relating the margin of safety 20.3. Statement of financial position
Records a business’s assets, liabilities and capital at a
Break even analysis – evaluation certain point of time
Sources of shareholder’s equity:
Assumption that costs and revenue is represented by
Selling of shares – share capital
straight lines is unrealistic
Retained earnings of a company
Not all costs can be classified between fixed & variable
No allowance for inventory levels
Unlikely that fixed costs remain unchanged throughout 20.4. Non-current assets
Assets kept for long term use
20. Accounting Ex. land, machinery
Intangible assets – goodwill, copyrights, patents
Fundamentals
Current assets
20.1. Accounting Concepts and
Short term assets which can easily be turned into cash
Conventions Ex. trade receivables, cash, bank balance, inventory

1. Double-entry principle
Current liabilities

Short term debts

Ex. overdrafts, trade payables

Working capital
Current assets – current liabilities

Shareholder’s equity
Share capital + retained earnings

Non-current liabilities
Long term debts
Ex. loans, debentures, bonds

20.5. Other published accounts 20.7. Liquidity ratios

1. Cash-flow statement – 1. Current ratio
1. Focuses on the cash available in the business
2. Includes a company’s cash inflows and outflows Current assets/current liabilities
over the year Safe ratio between 1.5-2
2. Chairman’s statement – Depends on the industry
1. General report about the company’s major
2. Acid test ratio/quick ratio
achievements and future plans
3. Chief executive’s report – Current assets – inventory/current liabilities
1. More detailed analysis of the previous year Safe ratio between 1-1.5
4. Auditor’s report
5. Notes to accounts

20.6. Profitability ratios

1. Gross profit margin – compares gross profit with
revenue. How successful the company is in
maintaining its cost of sales

Gross profit margin = gross profit/revenue * 100

1. Operating profit margin – compares operating profit 20.8. Limitations of ratio analysis
with revenue. How successful is the company in
maintaining its overhead costs? Incomplete analysis
Limited use on its own. Must be compared with other
Operating profit margin = operating profit/revenue * 100 business or over time
Some may be window dressed
Ignored qualitative information
Only provides the problem, doesn’t suggest solution

20.9. Users of accounting information

1. Managers

Measure business performance

Compare against targets, previous time periods and
competitors
Assist in decision making
Control and monitor the operation of each department

To set targets or budgets for the future and review these To see if the business is profitable and likely to expand,
against actual performance. which could be good for the local economy
To determine whether the business is making losses and
2. Banks: whether this could lead to closure.
To decide whether to lend money to the business
To assess whether to allow an increase in overdraft 20.10. Limitations of published
facilities accounts
3. Creditors, such as suppliers:
Future plans
To see if the business is secure and liquid enough to pay Performance of each department/division
off its debts Company’s effect on the environment
To assess whether the business is a good credit risk Research & development plans
To decide whether to press for early repayment of debts.

4. Customers:
Accuracy of published accounts

To assess whether the business is secure Window dressed accounts

To determine whether they will be assured of future Done to influence stakeholders to lend money/invest
supplies
To establish whether there will be security of spare parts
and service facilities.
21. Forecasting and
5. Government and tax authorities: Managing Cash Flows
To calculate how much tax is due from the business
To determine whether the business is likely to expand and 21.1. Cash Flow
create more jobs and be of increasing importance to the
country’s economy It is the difference between a company’s cash inflows and
cash outflows
To assess whether the business is in danger of closing
down, Without sufficient cash flow, a business can become
insolvent and force the business into liquidation
creating economic problems
To confirm that the business is staying within the law in Cash flow forecast is the estimate of a firm’s cash inflows
terms of accounting regulations. and outflows
Net monthly cash flow is the estimated difference
6. Investors, such as shareholders in the company: between inflows and outflows
Opening cash balance is the amount a business has at the
To assess the value of the business and their investment beginning of each month
in it
To determine what share of the profit’s investors are
receiving
21.2. Need for cash flow planning for
To decide whether the business has potential for growth entrepreneurs
If they are potential investors, to compare these details
with those from other businesses before making a New businesses have less credit time
decision to buy shares in a company Banks may not be willing to lend
If they are actual investors, to decide whether to consider Limited finance at the beginning
selling all or part of their holding.

7. Workforce:
Cash VS Profit

To assess whether the business is secure enough to pay A profitable business may fail due to insufficient cash
wages and salaries Having enough cash – short term goal
To determine whether the business is likely to expand or Good profits – long term goal
be reduced in size
To determine whether jobs are secure 21.3. Cash inflows
To find out whether, if profits are rising, a wage increase
can be afforded 1. Owners capital
2. Bank loans
8. Local community:
3. Customer cash purchase
4. Trade receivables payments

Cash outflows 21.6. Management of trade receivables

1. Annual rent Not providing credit to customers. May lead to fall in
2. Lease payment competitiveness and loss of sales
3. Electricity, water bills Selling claims to a debt factor. May not receive full
4. Labour costs payment
5. Variable costs Identify credit worthiness of customers
Offer discounts for prompt payments
Cash flow forecasts – limitations
Management of trade payables
Inaccurate figures if inexperienced
Unexpected costs may arise Increasing the range of goods bought on credit. Suppliers
Wrong assumptions as a result of poor market research may not provide discount or may refuse to provide further
supplies
21.4. Causes of cash flow problems Extend the period of time taken to pay. Suppliers may be
reluctant to supply
1. Lack of planning – cash flow forecasts help us plan for
the future in terms of the amount of cash needed. Management of inventory
Without planning a business may have insufficient
cash reserves. Maintain small inventory levels
2. Poor credit control – inefficient management of trade Using computer systems to record inventory
receivables. A business must keep reminding its credit JIT inventory system
customers about the amount they owe, if not they may
become bad debts. 21.7. Cash management
3. Allowing customers too long to pay debts – the
business may offer too long credit periods when Use cash flow forecast
compared to what it receives from suppliers Plan for future and range external finance when needed
4. Expanding too rapidly – overtrading will increase cash
outflows causing cash flow shortage
5. Unexpected events – only estimates, not 100%
Working capital increase – permanent
accurate. There maybe unforeseen rise in outflows or
Long term loans
fall in inflows
Issue of shares

21.5. Ways to improve cash flow

23. # Capacity Utilisation and
1. Increase cash inflow
Maximum Capacity
Maximum capacity refers to the total possible level of
output that can be undertaken/sustained by a business in
a given time period.
Capacity utilisation refers to the proportion of maximum
output capacity currently being achieved. It measures the
efficiency of the business usage of its resources.

The following formula rate of capacity utilisation measures

exactly that:
2. Lower cash outflow Capacity Utilisation = Current Output Level Maximum Output
Level × 100

23.2. Operation at maximum capacity

and minimum capacity
When capacity utilization is high or near max capacity, fixed
costs like rent and machinery depreciation are shared among
many units. This means average or unit fixed costs are lower.

When capacity utilization is low, these fixed costs are spread High workload can increase employee stress, affecting
over fewer units. Thus, average fixed costs become higher. their performance negatively.
Production mistakes are costly due to no slack time.
Benefit of Operating at Maximum Capacity: Increased orders may lead to lost customers if not
managed, it will put the long term customer relation with
Average fixed cost is at lowest possible level the business in danger.
Employee feel their job is secure due to constant high Continuous machine operation can delay maintenance,
demand and feel proud of being a part of the business, risking future issues.
increasing their loyalty. It can lead to fast depreciation of the machineries used by
If corporated business, it increases people willingness to the business.
invest, which might raise finance.
Business can use this for marketing purposes which might Therefore, each business aims to operate near maximum
entice potential customers to check out the “hype”. (optimal) capacity rather than the full capacity. They keep the
spare capacity for unforeseen events that can inevitably
Drawbacks of Operating at Maximum capacity: occur.

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This version was created by Isha Dheepak on 19/08/24 for strictly personal use only.
These notes have been created by Ria Agrawal for the 2023-2025 syllabus
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