Vocational Business Revision Guide - Schudio · McDonalds, KFC, Dominoes pizza. A Franchise is a structure where the business allows qualified members of the public to set up one

NCFE Level 1 / 2 technical award in Business

Enterprise from 2018

Unit 1 revision guide (40% of the total qualification grade)

Name: Tutor: Class:

CONTENTS PAGE Learning outcome 1: Entrepreneurs, business organisations and stakeholders

Page 3: Entrepreneurs

Page 4: Business aims and objectives

Pages 5- 6: Legal structures

Page 7: Organisational structures

Page 8: Stakeholders and stakeholder engagement

Learning outcome 2: Marketing mix, Market Research and Market Types

Page 9: Marketing mix and product

Pages 9 - 10: Product life cycle

Page 11: Extension strategies in the product life cycle

Page 12: Product development and Innovation

Pages 12 - 13: Boston matrix

Pages 14 - 15: Place – Factors affecting location choice and distribution channels

Page 16: Demand, supply and price equilibrium

Page 17: Pricing strategies

Page 18: Promotion objectives and methods

Page 19: Market research: Data types

Page 20: Market research: Primary research

Page 21: Market research: Secondary research

Page 22: Market types and orientation

Learning outcome 3: Operations Management

Pages 23 – 24: Production methods

Page 25: Outsourcing

Page 26: Lean production techniques

Page 27: Maintaining and improving quality

Learning outcome 4: Customer Service, Internal Influences and Challenges of Growth

Pages 28 – 29: Customer service

Pages 30 – 32: Internal challenges of growth

Learning outcome 5: External influences and challenges of growth

Pages 33 – 34: External influences

Page 35: External challenges of growth

Learning outcome 1: Being an entrepreneur, aims, objectives and business structures.

1.1 Entrepreneur – definition

An entrepreneur is someone who takes the risk to start-up their own business idea. Starting up your own business is very risky as new businesses can easily fail. Not everyone has the characteristics or right motives to set up their own business.

Entrepreneur – motives

Entrepreneurs want to set up their own businesses for a number of reasons:

Entrepreneur – skills and characteristics

Not everyone can be entrepreneurs; successful ones usually have key skills and characteristics:

Motives Financial motives such as: Having a better income and Making a large profit.

Personal motives such as: Being your own boss and making your own rules. Turning a hobby into a

business. Social motives such as:

Wanting to do something for the community, charity work, running a club.

Skills and characteristics

Confidence to set up a successful business and to

gain customers.

Motivated as you are the boss and there is nobody

telling you what to do

Determined and accept their will be knock backs

along the way.

Results focused to get the jobs done to the best of

your ability no matter what.

Initiative and good decision making: To be able to think on your feet

and make the best decisions for the business.

Analytical ability: Be able to review and reflect

business actions and decisions you make.

Communication: Be able to deal with customers, suppliers and investors

professionally.

1.2 Business Aims and Objectives

Aims and objectives are set targets /goals that entrepreneurs set themselves and their business to achieve over a period of time. Aims are long term goals (e.g. be the biggest business in the market in 10 years) while objectives are short/medium goals (increase sales by 10% in 3 years). These aims and objectives can be either financial or non-financial.

Financial Aims and Objectives

Are targets / goals that relate to money.

Profit is when all the money coming into the business, prices paid by customers (sales revenue) exceeds all of the costs that businesses have to pay (rent, stock, wages etc).

Non-Financial Aims and Objectives

Are targets / goals that do not relate to money.

Financial aims and objectives

Break Even: This is to make sure the business makes enough sales revenue to cover its costs so that profit equals zero and that the

business does not lose money. Usually new small businesses will aim for this.

Profitability: This is to make sure the businesses sales are more than

the businesses costs so that the business makes profit.

Increasing revenue: This is when the business aims to get more and more customers so

that the business achieves more sales.

Profit maximisation: This is when the business aims to increase its level of profits by

making more sales and/or reducing costs.

Non-Financial aims and objectives

Customer satisfaction: This is when the business

aims to make customers as happy as possible by meeting

their needs and gain better reviews.

Expansion: This is when the business aims to grow for

example opening up more stores.

Employee engagement / satisfaction: This is when the business aims to make

employees as happy as possible so they work harder

for the business.

Diversification: This is when the business aims to make completely different products to new customer groups that the business

currently sells. E.g. when a sweet making business starts making and selling candles.

Ethical / corporate responsibility: This is when the business aims

to do good things. E.g. no animal testing, plant a tree for every one cut down, remove plastic

packaging.

1.3 Structures

Legal Structures

Legal Structures consider the different types of businesses that can be set up.

In your exam you need to be able to understand the different types of legal structures, their liability, available sources of finance and the pros and cons of

choosing each legal structure.

Legal Structures

Partnership

Sole Trader

Franchise Co-operative

Public Limited Company (plc)

Private Limited Company (plc)

Liability

Unlimited Liability

Limited Liability

Unlimited Liability means that the business and the

entrepreneur (owner) have the same legal identity. This means that if the business goes bankrupt, so does the

entrepreneur. If money is still owed to the bank, personal

belongings of the entrepreneur (house, car etc)

will be taken to cover this debt.

Limited Liability means that the business and the

entrepreneur (owner) have a separate legal identity. This means that if the business

goes bankrupt, the entrepreneur does not. So personal belongings of the

entrepreneur are safe and will not be taken to cover any outstanding debt owed.

1.3.1 Legal Structures

Legal Structure

Definition Advantages Disadvantages

Sole Trader

When there is one owner of a business and has unlimited liability.

One owner means that he/she keeps all of the profits and makes all of the decisions for the business.

Unlimited liability (page 4). One owner may mean that less money (finance) can be raised to fund the business from loans or personal sources. Also one owner means that the workload is higher compared to having multiple owners.

Partnership

When there are two or more owners of a business. Partnerships have unlimited liability.

More owners may mean that more money can be raised between each partner to fund the business. Workload is also shared between each partner.

Unlimited liability (page 4). There could be arguments and conflicts over decision making, as well as having to share all of the profit.

Private Limited Company (ltd)

LTD’s can have one or more owners. This legal structure allows shares to be sold to raise more money for the business, but shares can only be sold to family and friends as they are not listed on the stock market. They have limited liability (second word in its name).

Limited liability (see page 4). More money (finance) can be raised by selling more shares to people the business knows. As shareholders are known, the business cannot be bought out by strangers that may take the company in a different direction.

Less shares can be sold compared to PLCs as the business is not listed on the stock market. Its a more expensive legal structure compared to sole trader and partnerships due to having limited liability.

Public Limited Company (plc)

PLC’s are companies listed on the stock market, so anyone in the world can buy shares and become an owner. As the first word shows, the public can be owners of this business by buying shares on the stock market. It also has limited liability.

Limited liability (see page 4). This legal structure can raise more money for the business as anyone in the world can buy shares as they are on the stock market.

There is a risk that a stranger can buy 51% of the shares and takeover the ownership of the business away from the original owners. Just because they are on the stock market does not mean they will attract investors. It costs a lot more money to put the business on the stock market.

Franchise

Lots of well known businesses are Franchises. E.g. McDonalds, KFC, Dominoes pizza. A Franchise is a structure where the business allows qualified members of the public to set up one of their stores for them. The cost of setting up is split between the company and the person setting the store up and profits are split.

Limited liability (see page 4). The business does not have to raise all of the money for each new store as the entrepreneur wanting to run the store has to share the start up costs. Running a McDonald’s is likely to get more sales and profits quickly compared to the entrepreneur running their own burger fast food store.

The business does not keep all of the profits for each store and has to split these with the entrepreneur running the store. The entrepreneur running the store cannot make their own decisions on e.g. menu choices and have to stick to the business rules on the store.

Co-operative

A business structure which is owned and run by its members (not investors), usually employees. The co-op is a well known co-operative in the UK, where its employees run the business and decide what to do with the profits during meetings each year.

Usually Limited liability (see page 4). As the business is owned by its members and not investors, profits are not the main goal and usually profits are kept within the business to help the business become bigger and better.

As all members get a say in how to run the business, business decisions are sometimes slower. Co-operatives find it harder to gain investment from investors as profits are not the main goal and are often put back into the business.

1.3.2 Organisational Structures

This is a chart that shows the chain of command in a business with the boss at the top and the workers at the bottom. It shows who is the boss of who.

The chain of command (the arrows) shows who has authority over who. Orders are passed down the chain (arrow) and feedback is passed back up the chain (arrow).

In the tall structure the chain of command of the finance manager is that he / she receives orders from the assistant managing director and gives orders to the finance assistant.

Span of control is the number of employees a manager is directly in charge of. In the flat structure above the Marketing Manager is responsible for 10 marketing staff. In the tall structure about, the Marketing Manager is responsible for 2 marketing team leaders.

A Tall organisational structure has many layers of managers, while a Flat organisational structure has few layers of managers.

A business may decide to change its organisational structure from a Tall to a Flat structure (like in the above) by delayering and making redundancies.

Delayering is when a business removes a whole management layer from a business to save wage costs, but the cost savings only occur in the long-run after redundancy payments have been given to the managers that lose their job.

Advantages of a tall organisational structure Advantages of a flat organisational structure • More managers’ will mean that is easy to control

all of the employees because each manager has a smaller span of control compared to a flat structure with fewer managers.

• Managers have previously been promoted to that job and so are more experienced and skilled. The business will work more productively and have better ideas with more skilled experienced people.

• The more managers, the more chance of promotion for the employees who may stay with the business as a result.

• Lower wage costs (after redundancy payments

have been made). Long-term cost savings. • Decisions can be passed down the hierarchy

quicker. • Employees at the bottom could be more

motivated as they can do some manager jobs as there are fewer managers. They may feel less pressured with fewer managers giving orders. However they are less skilled and may feel that they are being put under more stress.

Tall organisational structure Flat organisational structure 1 Managing Director

1 Marketing Manager

1 Finance Manager

1 HR Manager

1 Production Manager

2 Marketing team leaders

1 Finance assistant manager

10 Supervisors

10 Marketing staff

1 Assistant Managing Director

3 Finance Clerks

3 HR Assistants

50 Machine operators

1 Managing Director

1 Marketing Manager

1 Finance Manager

1 HR Manager

1 Production Manager

10 Marketing staff

3 Finance Clerks

3 HR Assistants

50 Machine operators

1.4 Stakeholder Engagement

A stakeholder is anyone that has an interest in a business. Internal stakeholders are people that are found within the business, while external stakeholders are found outside the business.

Advantages of meeting stakeholder needs (stakeholder engagement)

• Employees and managers will be more motivated, work harder and provide a better quality service to customers if they are happy with their pay and job security.

• All workers will also stay working for the business if they are happy (greater retention). • Happier workers and managers care more about the business and will come up with

better business ideas on how to make more sales / reduce costs to increase profit for the business.

• Customer will keep returning if they are happy with the prices and quality. • Shareholders (owners) will get more profits if stakeholders are happy and will receive

more money (dividends) which will also increase their share price (business worth).

Wants businesses to pay the correct taxes and create jobs for local

communities. Want loans to be paid back to them.

Internal Stakeholders

Employees (workers)

Managers Owners (Sole trader /

partnership)

Owners desire profits so they can receive higher

dividends (money) from the business.

Managers want better pay and bonuses.

Employees want to keep their job, higher pay and a chance of promotion.

External Stakeholders

Suppliers

Government

Local communit

y

Want cheap prices and good quality products /

services

Want to be paid on time and receive regular orders

from the business.

Do not want noise, air pollution. Also want job

opportunities.

Customers

Shareholders (owners of plc’s)

Financial providers

(bank)

Learning outcome 2: Marketing The key role of marketing is to identify and satisfy customer wants by carrying out market research and designing an effective marketing mix.

2.1 Marketing Mix

The marketing mix is the 4 P’s. These are the four key elements of the marketing department to gain as many customers as possible.

2.1.1 Marketing Mix: Product

A Tangible product is a product that can be touched or held.

For example a can of drink, Shoes, a Football, and Musical Instruments.

An Intangible product is a product that cannot be touched or held.

For example a haircut, car insurance, bus journey, and downloadable music.

2.1.2 Marketing Mix: Product life cycle

The product life cycle is a diagram that shows the different stages of sales products achieve, from when they are first launched into the market.

Place

Promotion

Price Product

Customers’ wants and needs

“What shall we

sell?”

“How much shall we charge?”

“How shall we let customers know about

our product?”

“How do we get the

product to the

customer?”

0 Time

Sales Revenue

Introduction

Growth Maturity

Decline

2.1.2 Marketing Mix: Product life cycle

Introduction: When the product is first launched onto the market.

Growth: When sales start to rise and the product becomes more popular.

Maturity: An established well known product where sales growth starts to slow.

Decline: When the product becomes old, outdated and sales start to fall.

You need to understand that customer knowledge, sales, amount of advertising, market share and profit will differ during different stages of the product life cycle, this is explain in the table below:

Stage Introduction Growth Maturity Decline Customer knowledge

Knowledge is low as the product

has only just been released.

Knowledge is

starting to rise.

Knowledge is at its maximum, and

customers’ interest is at its

highest level.

Customer interest in the product

drops as it becomes less fashionable.

Sales

Sales are low as the product has only just been

released.

Sales are increasing as the

product is becoming popular.

Sales are at its maximum, but

there is no further room for sales

growth.

Sales are falling as customers

switch to newer products.

Amount of advertising

Lots of advertising to

make the product known to

customers.

Lots of advertising as the

product is still new.

Less advertising as the product is

well known.

Advertising is very low, as the

product is already well known.

Amount of competition

Depends on if it’s a brand new

invention or not.

Competitors may start to release

their own version of the product.

There are now lots of

competition in the market.

Competition may bring out newer

products.

Profits

Are very low, it is likely the

business is losing money at this

stage due to low sales and

spending lots on advertising.

Profits are

beginning to rise due to higher

sales but profits are still low due to high costs of

advertising.

Profits are at its highest due to very high sales

and lower costs of advertising.

Profits fall.

0 Time

Sales Revenue

Introduction

Growth Maturity

Decline

2.1.2 Marketing Mix: Product life cycle – Extension Strategies

Extension strategies are ways in which a business tries to extend the product as life and stops the product from reaching the decline stage of its life cycle.

Types of Extension Strategies:

1. New advertising campaigns For example launching new adverts to get the product back into the public eye and make the adverts persuade customers to still buy the product.

2. New pricing strategies Decrease prices or having special offers such as buy one get one free, or 50% off. Lower prices will increase sales for the product.

3. New product features Bringing out new versions of the product, e.g.:

• New i-phone with better features. • New Ford Fiesta model. • A new flavoured drink (such as strawberry flavour Pepsi Max).

The effect of extension strategies

Product development and Innovation

Product development is when a business comes up with new product ideas.

Innovation is when businesses release new product ideas onto the market.

The benefits of product development and innovation:

1. The business remains competitive as they are bringing out better products than rival businesses.

2. The business can enter new markets to gain more customers. For example When Apple started to make i-pads as well as phone, when Lucozade started to sell sports drinks rather than just energy drinks.

3. To help the business increase its market shares so the business can gain more customers.

2.1.3 Marketing Mix: Product: Boston Matrix

The Boston Matrix analyses all of the businesses products by dividing them into four categories based on the products market share and level of growth of sales in the market (market growth).

Market Share

Market Growth

Dogs

Cash Cow

Question Marks

Star

Market Share is a term used frequently in business. Market Share is the percentage of all the sales in that market that belongs to a particular firm. For

example if 200,000 tablets were sold last year in the UK and 100,000 of these sold were Apple i-pads, then Apple will have a 50% market share in the tablet market as

half of all tablet sales are made by them.

Market Growth is another term used frequently in business. Market Growth looks at whether sales in the whole market are increasing or not. For example the

market for downloadable online music and films will be growing much higher compared to the market of buying CD’s and DVD’s.

High Low

Slow

Fast

Market Share

Market Growth

Dogs

Cash Cow

Question Marks

Star

Boston Matrix product categories

Description

Star

High Market Share - Fast Market Growth

Star products are in the growth stage of their product life cycle. These are products with increasing sales and popularity although due to high advertising costs profits are low.

Cash Cow

High Market Share – Slow Growth Market

Cash Cows are mature products that have been around for a while. They earn lots of profits as sales are high but stable and not much money needs to be spent on advertising as they are

well known.

Question Marks

Low Market Share – Fast Market Growth

Question Marks are newly release products. Success is uncertain as they have only just been released and so sales are

slow at the moment, but could be high in the future. Lots of advertising is spent as they are new products and so profits are

very low.

Dogs

Low Market Share – Low Market Growth

Dogs are old products, been around for a while and are now outdated so sales and profits are falling.

Product: the link between the Product Life Cycle and the Boston Matrix

High Low

Slow

Fast

0 Time

Sales Revenue

Introduction

Growth Maturity

Decline Question

Marks

Stars Cash Cows

Dogs

2.1.4 Marketing Mix: Place

Place in the marketing mix considers two important decisions:

1. Which location the business should choose 2. How the business should get its products to its customers

1. Place: Choice of location

A farmer, car factory and clothes shop would choose locate in three completely locations. Can you think of the reasons each would consider to be the most important factors when choosing a location?

Businesses that deliver their products around the UK and

Europe such as Amazon, BMW and Dairy Farmers may want to be near motorways, train

stations or ports. Also infrastructure such as good

broadband speeds is important for businesses that are internet

based.

Whether a business should locate near similar businesses depends on if they

can compete on product quality and

prices.

If raw materials are big and bulky such as large sheets of steel for a car factory, then the business may want to locate near suppliers to

reduce delivery costs and get its stock quicker.

Factors affecting location choice Transport

links and infrastructure

Availability of staff

If the business expects customers to travel to them (e.g. clothes shop), then the business must set up in

an area which is easy to get to. E.g. good public transport, city / town centres.

Businesses requiring specific skills may want to locate in places where they

can hire the correct workers. For example

BMW needs high quality engineers and so may

locate near universities that train engineers.

Customer location Location of raw

materials

Location of competitors

More and more businesses and customers are now using E-Commerce (buying and selling over the internet). For businesses this has lowered costs as there is less need for a physical shop, and for customers it is convenient as they can order from their own phone or computer without the need in going to the shop. However, customer will have to wait usually at least 24 hours for delivery and businesses will have to spend more money on designing and creating a website. Businesses may also need to hire more employees to manage the website and the internet sales. Some service businesses such as hairdressers still need a physical store as they cannot cut hair over the internet; however there has been a growth in mobile hairdressers that use the internet as the main way to book home appointments.

2.1.4 Place: Channels of distribution

A business can sell its products through a number of different channels:

Different Channels of distribution

Agents

Wholesalers

Retailer

Agents are employed by the business to sell its products to customers. Agents usually receive commission when they make a

sale.

Wholesalers are like giant warehouses. Wholesaler’s bulk buys the businesses products and store then at its warehouses ready for sale.

Bookers, Macro and Costco are examples of wholesalers. Wholesalers only sell to business customers.

Retailers are the high street shops that the general public use to buy the businesses products.

Business / producer

Business / producer

Business / producer

Business / producer

Agent

Wholesaler

Retailer

Customer

Wholesaler

Retailer

Customer

Retailer

Customer Customer

Option 1: Apple could sell its new I-phone via Apple agents who sell to big warehouses (wholesalers) that can buy the I-phones in bulk. Small sole trader retailers then buy the i-phones from wholesalers to sell in their shops / market stalls. This is the least popular choice because each layer earns profit so they increase prices when selling down the chain onto the next person. Small businesses use this because they cannot buy in bulk from agents. Option 2: Apple may sell straight to wholesalers rather than using sales agents. This means that Wholesalers get a better deal as agents do not increase the price to earn commission. Small shops (retailers) then visit these wholesalers (warehouses) such as Bookers to buy i-phones. Option 3: Apple could bypass wholesalers and sell its i-phones in bulk straight to retailers. Usually only larger stores will be able to buy Apple products in bulk. For example when Argos sells i-phones they will order i-phones in bulk straight from Apple. By not using Wholesalers it means even more costs are saved as wholesalers usually increase the prices to make profit for themselves. Option 4: Apple could sell its i-phones direct to customers. This has become more and more popular due to internet sales (E-COMMERCE), which means that more and more people can order straight from the business. Using fewer businesses along the way (wholesalers and retailers) means that customers can get the product for cheaper straight from the producer (Apple in this case). E-Commerce also means that there is less need to have a high street shop in an expensive city / town centre location.

Option 1

Option 2

Option 3

Option 4 Direct / E-commerce

Page 15

Demand

2.1.5 Marketing Mix: Demand and Supply in determining prices

When you are a customer would you buy more if the price goes up or down?

• Customers will buy more when the prices are lower

If you were to sell items would you prefer to sell more at a higher or lower price?

• Businesses will prefer to sell more at a higher price to gain more profit

In the exam you will not be expected to draw the above demand and supply diagram but you may be asked to label the axis, demand curve, supply curve and/or equilibrium price.

The demand curve represents the customers wanting to buy the product (chocolate). As you can see it slopes downwards. This is because at a lower price customers will demand a higher quantity of chocolate as it’s more affordable. When the prices are high, fewer customers can afford it and so less is demanded.

The supply curve represents the businesses wanting to sell the product (chocolate). As you can see it slopes upwards. This is because at a higher price businesses want to sell more of the product to gain more profits. They will not want to sell very many chocolate bars at a low price as less profit is earned.

The equilibrium price is where the demand and supply curves meet. This will be the price because it’s the only point where the quantity of customers wanting to buy the products matches the quantity of products for sale. If the price was higher than this there will be left over supply, if the price was lower than this there will be too much demand and not enough supply.

Supply

Demand

Price

Quantity of chocolate bought and sold

0

Demand and supply for Chocolate

Equilibrium Price

70p

100

2.1.5 Marketing Mix: Pricing Strategies

Businesses have difficult decisions when setting the prices for its products. The table below shows the different pricing strategies a business could use for its products:

Pricing strategy

Definition Advantages of setting this price

Disadvantages of setting this price

Cost plus pricing

When a business adds a percentage mark up on top of its costs. E.g. If it costs £10 to make the products, a 10% cost plus pricing strategy will make the selling price £11 (10& more than the costs)

The business can control exactly how much profit they want to earn from each sale by adding a specific amount extra on top of the costs.

This pricing strategy does not take into account similar businesses prices and does not take into account the equilibrium price so they may not sell all of their products.

Price Skimming

This is when a business sets a very high price for a brand new product. Usually for new inventions that use new technology.

A high price gives off a high quality brand image of the product. A high price means that higher revenues and profits are made per sale.

High prices can put off customers who may wait until the product is older (mature) before purchasing it when prices fall.

Penetration pricing

This is when a business sets a very low price for a brand new product.

It’s a good way to break into the market and gain market share for businesses with no reputation.

Low prices means that very little profit will be made for each sale. It could also give the business a lower quality brand image.

Psychological pricing

Using 99p instead of £1, £99 instead of £100.

This can make the product sound like a good deal and that its good value for money even though its only 1p cheaper than nearest whole number.

It makes it harder for workers to calculate sales and profits compared to rounded off prices. Also it means that businesses must keep lots of spare change as customers are not paying rounded numbers.

Loss leaders This is selling the product for less than the cost of making it. For example if it costs 50p to make bread but the business sells it at 45p. This is usually used by businesses who sell lots of products to try to entice customers into the store.

It attracts customers to go into the shop with the hope that they buy lots of items and not just the loss leader product. Loss leader prices are usually for everyday items such as bread and milk and usually customer will buy more than just the everyday items from the shop.

The business loses money and profits on the particular product when its price is lower than the cost of making it. There is also no guarantee that the customer will buy other items.

Competitive pricing

Setting prices the same as other businesses selling similar products.

This allows the business to be competitive and increase demand as customers accept prices that are similar for all sellers.

The price doesn’t make the business stand out as it is not cheaper or more expensive than similar businesses.

Promotional pricing

A short term technique to boost sales. E.g. 50% off.

Can lead to a sudden increase in sales straight away as the customer thinks they are getting value for money.

It is only useful in the short term. If prices are 50% off for years, customers will expect the prices to be low and not see if as a special offer.

2.1.6 Marketing Mix: Promotion

Why should a business promote itself? (Promotional Objectives)

Promotion Advantages Disadvantages Advertising Adverts can cover a wide area so more

customers can see them. Adverts can use videos to demonstrate how the products work using famous well known people to promote the brand image.

Advertising is often more expensive than other forms of promotion (especially national TV, radio, and magazines). Customers often ignore adverts and change radio / TV channels when adverts are on.

Sales Promotion

A great way to increase sales in the short term as customers will see it as an offer not to miss out on.

It only works in the short term, if it’s buy one get one free for months then it becomes the norm and not seen as a special offer.

Personal Selling

Face to face communication allows customers to ask questions about the product. The business can personalise the promotion to suit the customers’ individual needs.

Speaking to customers one at a time means that not many customers will see and hear about the promotions. It will take a long time and be very expensive to hire staff to communicate to thousands of customers.

Direct Marketing

Usually very cheap and quick to send leaflets, flyers and menus through the post to the local community or via email to current customers which contact email addresses are stored.

Being regarded as junk mail shows that most customers do not read this type of mail and throw it in the bin / delete the email, so few customers are attracted by it. The business cannot send email unless they have customer details.

Promotional objectives

(goals)

To increase consumer knowledge

To develop customer loyalty and brand image

To encourage customers to

purchase

To communicate with customers

To increase market share

Promotional methods

Advertising (promoting the business using local or national

media such as TV, radio, newspapers, magazines and social

media)

Sales Promotion (promoting the business using

special offers such as buy one get one free (BOGOF), 20% off)

Personal selling (promoting the business using face-to-face

communication between the business and customers. This can be done in shopping centres, high

streets, or door to door sales)

Direct Marketing (Is sometimes known as junk mail. This is when the business sends

promotions through then post or via email such as price lists and

special offers)

2.2.1 Market Research: Data types

Market Research involves collecting information about customers, competitors and trends in the market.

For example a new hair salon would want to research what type of styles customers in the local areas prefer; what other hair salons offer and the prices they

charge. This information is then used to help meet customer needs and get an edge over competition.

Typical questions in a research questionnaire for a restaurant:

Results from the above question:

Q.6) How much would you pay for a three course meal?

Please circle

Under £10 £10 - £15 £16 - £20 £21 - £25 Over £25

Q.7) Please can you tell us why you selected that price option:

Please write your answer below:

________________________________________________________________________________________________________________________________________________________________________________________________________________________

Q6 is an example of Quantitative data. Quantitative data is research that can easily be analysed in a numerical way. For example in this question we can add up how many customers picked each price option.

An advantage of quantitative data is that it is easy to compare results between the options customers selected, and graphs can be created to show these results. The graph to the left shows that most customers will pay £10 - £15, so the business should charge this amount to gain sales.

A disadvantage of quantitative data is that it doesn’t tell us why customers selected that particular answer. Why did most customers pick £10 - £15?

0

5

10

15

20

25

30

Under £10 £10 - £15 £16 - £20 £21 - £25 Over £25

Q6. Price customers will pay

Q7 is an example of Qualitative data. Qualitative data is research based on opinions (open ended questions).

An advantage of qualitative data is that the answers are more detailed and tells the business why the customer answered in a particular way.

A disadvantage of qualitative data is that it is difficult to compare results, and results cannot be easily put into a graph because every customer can give a completely different answer to each other.

2.2.2 Market Research: Primary Research

Primary research involves collecting brand new information first hand.

The advantages and disadvantages in using Primary Research

Advantages Disadvantages

Primary research is brand new research that has just been collected, so it is up to date and is based upon the current market. Primary research is also specific to the businesses needs. The business will only research questions and topics they need information on and so it is more relevant for them.

It can take a lot of time and cost a lot of money to research a large number of

potential customers. The business may have to pay extra for workers to carry

out the research.

Customers may not be willing to answer questions, talk over the phone

or be observed.

Telephone Interviews: This is when workers from

the business ring up potential customers to ask questions

over the phone. Lots of customers can be unwilling

and think that the business is trying to sell them

something.

Observations: This is when a business’s workers watch rather than

ask questions. E.g. Workers can observe the times of the day when

certain areas of the town centre are at its busiest for certain customer

groups. This only gains quantitative research as no opinions are gained

from the customers.

Primary Research methods

Questionnaire: This is when a business manager creates a survey made up of quantitative and qualitative questions. The workers ask these questions to potential customers to gain an idea of their opinions. Some customers may not like to be stopped in the street to answer the questions.

Focus Group: This is when the business invites a small group of potential customers into a meeting room who discuss the business idea and its products. Workers from the business can make notes on customer’s detailed opinions (qualitative research).

2.2.3 Market Research: Secondary Research

Secondary research involves using information that has already been collected by someone else for a different purpose.

The advantages and disadvantages in using Secondary Research


It is very cheap and quick to access as the research has already been carried out. It is useful for businesses that do not have the time or money to carry out their own research.

It can be out of date and may not reflect the current market

environment.

It is not specific to the business as the research was carried out for a different

purpose by someone else so the business may not find out all of the

information they want to know.

Research Papers: Universities and professional academics often publish their

own research papers on specific topical areas. E.g. An investigation into ethics and

whether stakeholder engagement is important.

News Articles: The media produces news stories about

different businesses and trends every day. Public Limited

Companies finances are open to the general public and it is often that news articles relate to how much profit different PLC’s have made. News articles also feature trends

and popular products such as the fidget spinners and the trends of

healthy eating. Secondary Research methods

Government reports: The government creates reports each month covering a range of statistics such as: income levels in different areas of the UK, number of businesses in different areas of the UK, number of people without jobs in different areas of the UK. Online national statistics is an example of government reports.

Competitor Annual Reports: Many businesses especially PLCs produce an annual report each year on its website to show all stakeholders how well the company has performed over the year. This is useful for new businesses wanting to set up a similar business to see how popular current businesses are.

2.2.4 Market Types

Business may aim to sell its products to a Mass or Niche Market

Mass Market: Is where the business aims its products to the majority of the market.

Niche Market: Is where the business aims its products to a small part of a market.

Market Mass Market examples Niche Market examples Car Ford Fiesta Ferrari

Clothes New Look Gucci Food Fruit Organic fruit Tools B&Q Lefty tools – for left handed people

Television BBC (variety of shows) MTV (Music only)

2.2.5 Orientation Types

Orientation refers to the way in which a business focuses in order to create its products.

Market Orientation: This is a customer-led approach. When a business focuses its product developments around customers wants, through high levels of market research with high levels of customer engagement. E.g. If Apple conducted research to find out what customers would want in the next new i-phone.

Product Orientation: This is when a business focuses its product developments on its own strengths rather than engaging with customers. There is little / no market research and customer engagement. E.g. If Apple creates their new i-phone based on what they are good at, and their own opinions rather than engaging with customers.

Mass Market characteristics

High number of sales

Large number of competitors

Wide customer base

Profit margins per sale is low

Niche Market characteristics

Sales volume is low

Small number of competitors

Specialised products

Profit margins per sale is

high

Learning outcome 3: Operations Management 3.1.4 Production Methods

Production methods are the ways in which the business’s products are made. There were three types of production methods: Job, Batch and Flow production. Due to advancements in technology there is now a fourth method of production called Mass Customisation.

Job Production Is making one off

items one at a time.

Batch Production Is making different products in groups.

Flow Production Is making identical

products continuously on a production line

Mass Customisation Due to the

advancements in technology and the

internet, products can be made continuously (flow production) but each one personalised

based upon the customers order.

Producing different flavours of soup in groups. E.g. 1,000 Tomato soups, then 1,000 vegetable soups.

Producing the same identical television model over and over on a production line.

Making a one-ff personalised wedding dress or birthday cake.

Customers order Nike trainers online and use software to add personalised touches to the trainers e.g. name, colours. All

customers’ orders are made continuously but the technology allows each different personalised touch to be added onto the

trainer throughout the production.

Customers that order new cars online e.g. from Audi can also customise the model to their tastes e.g. colour, interior design

add-ons. The same Audi model is made continuously (flow production) but the robotics adds specifics to each car

differently e.g. robots can change paint colours car by car, can fit different design features for each car.

Advantages and disadvantages of different production methods

Advantages Disadvantages Job production

Unique one-off products can sell for a high price with high profit margins. Each product meets the customer’s specifications.

Requires very highly skilled workers to be able to make each product unique to the customer’s order. High labour costs with skilled workers. As each product is made individually, the business cannot benefit from bulk buying stock for lower costs. Very high prices per product.

Batch Production

Lower costs to make each product compared to Job production as products are made quicker in groups. Different variety of products (e.g. flavours) meets different customers’ tastes.

It can take a while to switch between batches before the next group of products can be made. There is no unique individual feature on each product as groups if identical products are made.

Flow Production

Continuous production means that the products are made much quicker. As this is the quickest method of production has the lowest cost per product made. Lower costs means that prices can be lowered to attract more customers.

Every product is the same and so there is no uniqueness as they cannot be personalised to meet individual customer needs. This type of production requires large investment in production line technology and robotics. Workers could become bored doing the same job all day long creating the same identical product.

Mass Customisation

This has the benefits of flow production plus the ability to personalise each product to the customers’ tastes. Very quick continuous production. Personalisation allows the business to charge more for the product.

Requires large investment in specialist technology and robotics that can switch between tasks to customise each product through the production line (very costly). It’s hard to order stock in bulk in advance as the customer can choose specific elements to add onto each product.

3.1.1 Outsourcing

Rather than a business trying to organise and complete all roles, it may use Outsourcing. Outsourcing is when a business contracts out some of its operations to another business.

Examples of outsourcing

A school might outsource its cleaning and catering to outside companies. Instead of finding their own cleaning staff, chefs and canteen workers, the school might use external agencies that provide the staff for them to carry out the roles.

A pub / nightclub might outsource the door staff (bouncers) using an external door staff business rather than employing their own door staff.

How outsourcing work

By using external businesses to provide the workers, it means that the business doesn’t have to recruit, train or pay these outsourced employees themselves. Instead the business gives a lump sum fee to the external company who in return provide all of the workers.

Advantages of outsourcing Disadvantages of outsourcing

It saves the business time as they do not have to recruit individual workers themselves; instead they just pay an external business money to provide everything that is required. The business does not have to employ more managers that would have had to recruit, control and pay these workers if they were a part of the business rather than the outsourced company. The external company completes all of these tasks and will provide the physical resources (e.g. food equipment if the catering is outsourced) saving the business money. It can save the business costs due to the need for fewer managers recruiting and controlling employees for the business. The fee paid to the external company could be less that the costs to the business of managing these roles themselves.

The business has to pay large

payments to the external business for them to carry out the outsourced

activities for the business. The external business will be aiming for profits and so will usually charge more than what it could cost the business to employ their

own workers.

A large degree of trust is placed on the external business to provide the right

workers and physical resources to do a good job for the business.

The external business will supply their

workers and physical resources to lots of different businesses and may not be able to provide its services all of the time. E.g.

A door staff business may have 10 bouncers and all 10 may already be used

by other pubs during a busy sporting weekend.

3.1.2 Lean Production

Lean Production is a process that eliminates waste from the production process to reduce costs.

Advantages and disadvantages of different production methods


Just-in-time (JIT)

Costs are saved as the business only orders the exact amount of stock they need. Businesses do not over order stock and waste money. Businesses do not need to store stock and do not need have warehouses to store stock. There is less waste of stock that perishes or brakes due to storing it.

If the supplier is late with deliveries, there is no stock available to be made into products. If a business has a sudden increase in demand they may not have enough time to get stock quickly to make these products. If the stock gets damaged then there is no spare stock to use for that order.

Cell production

Workers will be more motivated when working together in teams than on their own. Motivated workers will work harder to save costs. Working in teams means that jobs could get done quicker saving time.

Working in teams on different task could be less productive than individuals working on their own doing one specialist job. Teams need to be dedicated and focused when working together to complete the tasks.

Kaizen

Employees will be motivated and work harder as they can see managers listening to their ideas and putting them into action. Every time a cost-saving idea is put into practice the business will make more profit by having fewer costs.

Employees must be committed and get employee benefits or they may not want to offer cost saving ideas. Managers must be approachable and consider employees views.

Lean Production techniques

Cell production

This is when production is split up into different teams. Each team is

then responsible for part of the production process.

Kaizen

Is continuous improvement. Employees work together and come up with waste and time saving ideas that managers

implement one step at a time.

Just-in-time (JIT)

This is a process of ordering stock only when it is needed for

production rather than buying in bulk and storing it.

3.1.3 Maintaining and improving quality

Think of business that you regard as selling high quality products. Compare these businesses to others that you think sell low quality products. Finally, consider the benefits to the business that sells high quality products compared to the business that sells low quality products. E.g. Nike compared to Hi-Tec trainers.

Benefits to businesses of maintain and improving its “quality” image

• Quality allows the business to be seen as better than its rivals (competitive advantage).

• Customers will pay higher prices for a product they regard as high quality. • Customers will be more satisfied as a higher quality business will make less

faulty products and so fewer customers will want refunds. • The business will have less waste as there are fewer faulty products.

Quality Control

This is when a business hires quality inspectors who check the products for

faults once they have been made, at the end of the production process. They make sure the products work and have no visual

damage.

Quality Assurance

Is the opposite of quality control. This is when product quality checks are carried out

by each worker during each stage of the production process, so no products are fully made before being rejected and stops errors being made during production. There is no

need to employ quality inspectors at the end of the production process.

Benchmarking Is when a business compares one area of

its business to another, and aims to improve the quality of the least performing area. E.g. if the business’s Eastleigh store is performing better in customer service

ratings that its Winchester store, then they will use the expertise of the Eastleigh store

to improve the quality of the Winchester store.

Total Quality Management (TQM) This is when a business creates a whole

culture of improving quality and improving customer satisfaction. Each worker is given

responsibilities to improve quality, and treat other workers if they were the customer so

that improvising quality is always of the heist concern.

With each worker checking quality throughout the production process means that each product should be right with no faults. There should be fewer faulty

goods reaching the end of the production line. There is also no need to employ quality inspectors.

Having a dedicated quality inspector makes sure no faulty products reach the customer. The workers have less workload as they do not have to check the quality. However, there are usually more faulty products at the end of production.

It creates healthy competition between business areas trying to be better than one another. All areas of the business aims to be as good as the best area so quality is always improving to be the best area.

Employees are always looking at ways to improve quality giving an increasingly better product / service to customers. There will be much less waste and so reduces businesses costs. Employees will also be motivated as they can offer their own ideas to improve quality.

Page 27

Learning outcome 4: Customer Service, Internal Influences, and Challenges of Growth.

4.1 Customer Service

Customer service is the experience the customer has when engaging with a business. It is important to provide a positive experience to the customer before, during and after the purchase.

Customer expectations before and during placing an order:

• Helpful friendly polite staff to answer questions and provide information. • Employees who have excellent knowledge on the best products suited for

different customers. • Easy to use website / app .

Customer expectations after placing an order:

• After sales service and helpline. • Follow-up call to make sure the customer is happy with the product /

service. • The business responds to customer feedback to improve the service.

4.1.2 Why customer service is important to businesses

Why good customer service is

important for businesses

Provides positive word of mouth

advertising as happy customers tell their

friends.

Sets the business apart from the

competitors

Improves the business’s reputation

Gives the business positive brand

awareness

Encourages customers to come

back (repeat purchases)

Customers become loyal to the

business (customer loyalty)

4.1.3 Why should a business try to measure how good they are at customer service?

4.1.4 How customer service can be measured by businesses

Inform future product development: A record of

customers’ opinions is important in helping the

business plan for the future and create better products

and services to attract more customers in the future.

Customer retention: Loyal customers are key to maintaining and

increasing sales in the future. Loyal customers are more likely going to

recommend the business to their friends (free word of mouth advertising). It is

therefore important for a business to see how many loyal customers the business

has.

Why measure customer

service

To identify strengths and weaknesses: If a business knows how good their customer service ratings are, judged by its customers ,they can then correct any weaknesses’ with it and promote their strengths to achieve more sales.

Competitiveness: This is so the business can see whether they are offering a better service compared to rival businesses. This helps them develop something unique which may attract more customers who look for a business that gives them a better experience.

How customer service is measured

Customer satisfaction scores: Businesses often ask customers to rate their satisfaction on a scale of say 1 to 5 (5 being very satisfied) after they have purchased from the business. This allows the business to add up how many customers selected each score and compare results each month.

Repeat business data: Businesses can use loyalty cards and keep a record

of how many customers come back each week / month / year to see whether they

are keeping hold of loyal customers. If customers come back they must be

happy with the service.

Customer surveys: Using surveys like survey monkey

allows the business to gather quantitative and qualitative

results by asking closed answer and open questions

to the customer. This can give the business detailed

feedback from the customer.

Level of complaints /compliments: The business can calculate how many times each month a customer was unhappy / happy with the service and compare the data month by month to see if customer service has got better or worse.

Mystery shoppers: The business can pay a member of the public to act as a customer and purchase something from the business. The workers do not know that this is an undercover shopper, who then completes detailed feedback on their experience within that business. E.g. they could order a meal from a restaurant and then comment on the food quality, speed of service and how well they were treated by the workers.

4.2 Internal Influences that affect a business

Internal influences are factors that come from within the business that can affect how successful they are as a business. There are lots of potential internal influences that could cause the business to be more or less successful.

Internal factors affecting the success of a business:

Aims and Objectives

These are goals set by the business. Aims are long term goals, while objectives are shorter / medium term goals. Aims and objectives influence a business success and operations because this is what all workers in each department are working towards. For example if an objective of a small business is to survive its first year as a business, there should be no expectation of the business making large sums of profits. You might expect the business to be very careful with its spending to keep costs low.

Staff

Staff Motivation: The more motivated workers are for the business the harder they will work, and the more they will go out of their way to help the customers out, providing a better service. De-motivated workers will cause a negative effect on the business. Staff skills, qualifications and experience: The more skilled, qualified and experienced the workers are the less likely they will make mistakes leading to unhappy customers. However, the more qualifications, skills and experiences the workers have will mean that the business may have to spend more money on higher wages to keep them working for the business.

Financial position of the business

Businesses do not have unlimited sums of money available and most small businesses have very little spare cash after all stock, bills, and wages have been paid. With little money the marketing department may not be able to create expensive advertising campaign. With little money the Human Resource department may have little money to spend on staff training e.g. improving customer service.

Operational issues

Faulty machinery and equipment could slow down production which could result in customers waiting longer to receive the products. If the business uses just-in-time but the suppliers do not deliver products on time, this can cause a delay in production, resulting in customer service rating fallen as customers do not get the products when promised. If workers are not motivated, quality standards could slip and customers could receive more faulty products. If a business uses outsourcing e.g. for its website but the external company has too many other businesses they are working for. The website may not be maintained correctly.

4.2 Theories of motivation

Employee motivation is very important for a business (page 30). For your exam you need to be aware of the different ways in which a business can motivate a worker, outlined by 3 motivational theorists below:

Maslow

Maslow believed that workers are motivated to achieve different levels of needs. The worker starts at the bottom need and tries to work their way up the pyramid. The higher up the business can get them, the more motivated they are.

The more motivated the worker will be, the harder they will work, the less likely they will quit, and the more likely they will go out of their way to help the customers.

Mayo

Mayo considered that meeting workers social needs at work was the most important way to motivate workers and get them to work harder. Mayo said that team working and positive relationships between workers and managers was very important in making workers feel more motivated to work harder.

Herzberg

Herzberg believed that there were a number of motivators and a number of hygiene factors that can affect workers motivation. The motivators cause workers to work harder, while the hygiene factors if not met will make the worker feel de-motivated, and therefore may not work as hard and possibly quit.

Herzberg’s motivators Herzberg’s hygiene factors

Recognition for doing a good job. Be given greater responsibility.

Promotion opportunities. Workers to carry out Interesting

jobs.

Happy and safe working

conditions. Not too much supervision by the

manager at work. Pay: Must be acceptable.

Basic needs

Safety needs

Social needs

Self Esteem needs

Self Actualisation

The need to survive in life, food, hunger and water. Money (getting paid) will fulfil this need.

Safe working conditions (e.g. hard hats, fire evacuation training). Also having good job security such as a permanent contract rather than a temporary one.

Opportunity to work in teams and socialise e.g. canteen, parties.

Workers want to be singled out and feel good at work. The business could praise them, reward them (employee of the month), offer bonuses and promotion opportunities.

When the worker reaches their full potential e.g. become the manager or promoted to their dream job at work.

Social Needs and relations at work. 4.3 Internal challenges of growth

As a small business gets bigger and bigger it become harder and harder to manage and keep control of all of the business.

Imagine there was just one shop in Southampton to begin with, which had 10 employees. As the business become more and more successful they not only employed more workers to cope with the extra demand but also opened up more shops around the UK. What problems could exist now that the business has 10 shops in the UK and 20 employees at each shop?

Internal challenges of

growth

1. Maintaining customer service levels

With more stores, customers and employees it becomes harder and harder to make sure that each customer is having a positive experience with the business and that each employee is providing the right service. This makes it more important that managers recruit enough employees who can provide the same customer service as before rather than rushing through each customer because there are more of them.

2. Diseconomies of scale

As the business grows, inefficiencies start to happen and cost per unit starts to rise. This is called diseconomies of scale.

Three types of diseconomies of scale:

1. Control: It becomes harder to control the business as it gets bigger, with more stores and employees. In a small business the owner / managing director may know all of the employees by first name and all work in the same office and so it would be easier to control. It is difficult to manage the business when it grows so big and now has lots of different locations with lots more employees for the owner / managing director / other managers to control. As a result of less control, mistakes happen, workers may get away with more which all increases unit costs.

2. Coordination: It becomes harder to make sure that all areas of the business in all the different locations have the right amount of resources (employees, stock, and equipment). A small one shop business is much easier to coordinate as the manager is based at just one location, focusing everything on just one location. With a growing business in lots of locations, stock may get sent to the wrong place, it may take longer to recruit replacement workers, and it may take longer to fix equipment as there are lots of locations to manage at the same time.

3. Communication: Imagine the game Chinese whisper. The more and more managers and employees the business has, the larger the chain of control will become in the organisational structure. The larger the business, the longer it will take to get orders and information communicated to all areas of the business. Whilst workers are waiting for orders / information, mistakes may happen and the communication may be passed on incorrectly.

Learning outcome 5: External Influences 5.1 External Influences

External influences are things outside of the businesses control that can affect the success of the business. External influences consider government factors, economic changes, social changes and competition changes.

External influence

How changes in the external influence can affect a business.

1. GDP (Gross Domestic Product)

GDP is the total amount of goods and services made in a country. In basic terms it’s the total amount of money made in the country.

GDP rising means that more people are spending money in the country. This can impact the business in a positive way as it means more customers could spend in their business. GDP falling will have the opposite effect, less spending could mean that the business needs to cut costs or cut the number of employees.

2. Interest rates

When a business borrows money they have to pay interest. Interest rates calculate how much extra it costs the business to borrow. Interest is also given by the bank to businesses and the public as a bonus for saving money with them in bank accounts.

If interest rates rise, businesses have to pay more money to borrow from the bank and so may not be able to afford to borrow money to expand. This is also true to customers, they will less likely borrow money to buy products such as cars and holidays. If interest rates rises more customers may save their money in the bank rather than spend it on businesses. The opposite will happen if interest rates fall. Businesses and customers will borrow more to expand / spend. Customers will save less and spend more.

3. Changes in the living wage

The living wage is a national minimum wage for people aged over 25. The government increases this each year which means that businesses have to pay low skilled workers more each year. In 2018 the living wage is £8.73 per hour and will increase to over £9 over the next couple of years.

As the living wage rises businesses have to pay more to workers increasing their costs and lowering profits. Businesses may have to increase prices to cover these costs. As workers earn more money they can afford to buy more luxury items like cars and holidays.

4. Changes in employment

Employment is a measure of how many people currently have jobs. Unemployment is the opposite, it measures how many people do not have jobs.

As employment levels rise, more and more people have jobs and so earn more wages. This means more and more people will afford to buy luxury items such as cars and holidays. However, as people become richer they may start to buy more branded items and so shop less as second hand / cheaper alternatives such as Poundland.

5. Changes in fashion and trends

Fashion and trends are changes in customer tastes. Customers tastes are different now compared to 30 years ago and so business must change to meet the new fashion and tastes.

The growth in mobile apps and social media has made business spend money developing apps and hiring workers to run social media websites like Facebook. Meeting changing tastes and trends means that the business maintains and increases sales as they are still relevant.

External influence

How changes in the external influence can affect a business.

6. Changes in the competitive environment Rival businesses may enter the market to try to steal customers away from current businesses.

If there are more competitors setting up, the business may have to lower prices or offer more unique products to stop customers going elsewhere.

7. Availability of skills locally Businesses need to make sure that there are enough potential workers with the right skills in the area that could work for the business.

If an airline business needs to recruit an aircraft engineer but there are none available to work for the business can cause problem for the business.

The business may have to poach workers from another rival business by offering much higher wages, or they will have to spend more money on training workers without that skill to gain the skills to do the job. This could also take time.

8. Changes to legislation

Legislation are law changes:

The UK government has created a number of different laws that affect businesses:

• Protect the environment e.g. amount of pollution, recycling and disposal of waste.

• Protect customers e.g. right to a refund if the products are faulty and no false advertisements.

• Data protection so customers’ personal information is not leaked out to hackers who could steal credit / debit card details.

• Protect employees e.g. 48 hour maximum working week, health and safety training laws, and anti discrimination laws.

New laws usually mean that business will have to spend money on making sure that the businesses changes so they meet these laws. Failure to meet laws could result in fines and compensation being paid out.

9. Changes in tax rates Governments have to collect money from taxes in order to fund public goods and services like school, hospitals, and roads.

Types of taxes: • VAT: This tax is put onto most products

that we buy from shops. It is currently 20%. So when you buy e.g. a cooked Pizza from Dominos for £18, actually £3.60 of this goes to the government as VAT tax and the business keeps £14.40.

• Income tax: Is the amount of tax a worker has to pay when they earn wages, either working for another business or self employed as a sole trader or partnership. The higher wages the more tax is paid.

• Corporation tax: Is the amount of tax ltd’s and plc’s have to pay. It’s a tax on profits, the more profit is made the more tax is paid.

If VAT tax rises, prices for many products and services are higher so customers cannot afford as many products meaning fewer sales. If VAT tax falls, prices for many products and services are lower so customers can now afford more meaning higher sales. If income tax rises, workers have fewer wages so they much spend less money on luxury items such as restaurants and buy cheaper items such as shopping at Aldi instead of Waitrose. If income tax falls, wages increase so more luxury products and services are bought by customers. If corporation tax rises it means that the business keeps less profit, so shareholders get fewer dividends and workers may not get pay rises. The opposite will happen if corporation tax falls.

5.2 External challenges to growth

Not only does the business face internal challenges when growing in size (page 32), they also face a number of external obstacles when growing.

Additional physical resource requirements: Physical resources include buildings, equipment and stock. When growing a business may need to raise money to afford to purchase or rent more buildings, fit them out with the right equipment (machines, tills, shelves etc). There needs to be buildings / offices / equipment available for sale or rent or the business will struggle to grow. They may have to find new suppliers in new areas.

Additional human resource requirements: As the business grows,

it must recruit new workers and managers to operate and run the

growing sections of the business e.g. a new store. If there are not many people without jobs, the business may have to

offer higher wages to attract them to work for the business.

Understanding local legislation: Different countries have different laws

relating to business. Examples:

There is a ban on advertising cigarettes and alcohol in the UK but lots of other countries

still allow this.

Many Caribbean countries such as Barbados ban camouflage clothing, so fashion

businesses need to consider this when selling to the Caribbean.

In Saudi Arabia most public places have

spate entrances and seating areas for men and women to limit the amount that each

gender mixes.

Understanding local laws are important so that the business doesn’t get a bad reputation

fines and bans from local governments.

Local culture sensitives: Different areas have different cultures. E.g. When McDonalds grew into India they had to completely change their menu not to offend culture and religion. Half of people in India are vegetarians so McDonalds had to offer more meals suited to vegetarians. Also Hindu’s do not eat Beef. This was initially a problem for McDonald’s as most meals include beef and so they had to redesign their menus to offer meals that didn’t offend people in India. If McDonalds didn’t consider local cultural sensitive’s they would have likely failed in India and received many complaints. This shows that when businesses grow they must consider local cultures.

External challenges of

growth

Documents

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