1. Edexcel GCSE // Business Studies Unit 3 (building a business) Sou-maya Bejaoui

2. Marketing -Identifying and understanding customer needs -Providing products and services that meet needs PROFITABLY The marketing process -Identify and understand customers  developing and testing products/services  communicating to customers through products/services Why? -Reduce risk of failure -Understand the customers -Encourage customers to buy them -Keep up to date to meet customer needs Sou-maya Bejaoui

3. Market Segmentation -Groups that has similar needs -Benefits -Helps businesses carry out market research - tailor products to customer needs -And target promotions at the specific group/s Market Research - gathering information about customers, competitors and market trends using secondary and primary data -Questions that might be asked - was the right type of research used? -How accurate is the research? -Is there any important information the research does not tell us? Sou-maya Bejaoui

4. Product trial and repeat purchase Product trial – buy a product the first time to assess whether they would buy it again -Advertising -Low trial prices -Public relations -Free samples -Viral marketing, e.g. Facebook Repeat Purchase – customer will continue to buy the product more than once due to customer loyalty THIS WILL GENERATE SALES AND REVENUE -Special promotions -Reminder adverts -Product innovations -Customer loyalty schemes (loyalty cards) -The cost of retaining existing customers can be LESS THAN attracting new ones Sou-maya Bejaoui

5. Product life cycle Introduction – this product is launched/released onto the market Growth – if the launch is successful, sales increase sharply, product makes profit Maturity - sales growth slows down, repeat customers continue to buy + become loyal, market has many competing products/rivals Decline – products becomes out-dated and there is a big fall in sales leading to withdrawal of products -Business can increase the life of a product buy using EXTENSTION STRATEGIES -Appealing to a new market segment -Product mix/Product portfolio analysis – what products to launch and when -when to withdraw a product -What products are doing well/badly now and in future -How to increase sales -Cash flow – money moving in and out of a business (changes over the life of a product) Sou-maya Bejaoui

6. The Boston Matrix -Tool to develop products Star – very successful product but growth has to be funded to keep up with demand -cash flow may be a problem Cash Cow – little growth, profitable product that can support others Problem Child – presents a problem, should the business keep investing to increase sales? Dog – few prospects, should the business keep funding if it’s profitable? Sou-maya Bejaoui

7. Branding and Differentiation Brand – a named product which customer see as being different from other products Branded products: -Customers are more willing to trial a product in the branded image -Encourages customer loyalty -Customers trust brand which leads to repeat purchases -Brands can charge premium prices -Consumers have greater awareness of brands -Brands can lead to increased sales and market share Market mapping -Shows the difference between branded products -Product Differentiation – making a product different from others, it helps businesses: -target different market segments -Gain an advantage over rivals -Allows customers to see that their needs are being met more effectively from one product over the others (rivals) Differentiating a product -Unique/catchy product name -Quality -Design, formulation or function -Packaging -Customer service Sou-maya Bejaoui

8. Successful marketing Product -Making sure the product meets their and differentiate the products Price -gives customers an indication of quality -Changes in price has an influence on demand -Branded products = higher price as they are more expensive to produce and promote Place -Consumers are aware there is a sale -Creating awareness -Benefits/features to customers -Build strong brand image -Boost sale Promotion -Have the product where the customers want it Research + Development  Prototypes  Testing Design Mix: a product that can differentiate it from the other products Function = how well a product does what it is supposed to do Cost = keeping costs low but functionality and appearance raises costs, the better the technology the more expensive the product Appearance = style and elegance Sou-maya Bejaoui

9. Managing stock -Managing the materials a business holds -Max. stock level = max amount of stock the business can hold -Re-order level = point at which the new stock will be ordered -The time it takes for stock to arrive -Buffer stock/minimum stock level = lowest amount of stock business will hold -Safety net in case there is a surge in demand Just In Time: stock control management system -Stock is delivered only when needed -Must have good relationships with suppliers - Good well-organised production system -Regular demand for products Benefits of holding stock: -Businesses can meet unpredicted surges of demand -Businesses can replace damaged goods -Business can receive discounts for bulk buying -Limited problems Benefits of holding little/no stock: - Cost saving in not having to store stock -Less chance of damaged or stolen stock -Employees can focus on other tasks than managing stock -Reduce costs of production making products pricing more expensive Sou-maya Bejaoui

10. Managing quality Quality control and quality assurance Benefits of good quality: -Allows for premium price -Strong brand image -Meeting customer needs -Differentiating a product Quality assurance checklist: -Have quality as the focus of every process -Involve customers and suppliers at design stage -Aim for zero defects -Have quality as the responsibility of every employee -Have managers who ensure there are systems in place to assure good quality -Meet a quality standard Sou-maya Bejaoui

11. Cost-effective operations/competitions and effective customer service Methods of increasing output: -Train employees better -Invest in better equipment -Introduce more effective work practices -Work overtimes -Motivate employees Methods of reducing costs: -Improved purchasing (cheaper suppliers) -Better design of products cheaper labour costs -Cutting overhead costs -Streamline the production process -Relocate Effective customer service checklist: -meet and exceed needs of customers -Provide high-quality products and services -Innovation -Spot problems -Deal with complaints quickly and effectively -Be on time -Train staff in customer service Drawbacks of Poor Service: -Poor customer satisfaction -Poor image brand -Inability to differentiate a product and gain a competitive advantage -Inability to charge premium price -Falling in sales and profits -Fall in repeat purchases and customer loyalty Sou-maya Bejaoui

12. Consumer protection laws The sales of Goods Act: -Be merchantable quality -Match their description -Be fit for purpose The Trade Descriptions Act -Give false information -Fail to give important information -Act aggressively towards the sales (forcing the sale) Drawbacks of consumer protecting laws - Businesses have to keep up to date with the law -Laws restrict business from doing what they want -Businesses must comply with the laws by changing their Products/practices which can be costly -Bad publicity if law is not followed Benefits of consumer protecting laws -A business that follows the law is less likely to be sued by consumers or receive fines -Improves the business’ image -Improved relationships with stakeholders -Good publicity Sou-maya Bejaoui

13. Improving cash flow Why is cash important? -A business can still be profitable but run out of cash -If OUTFLOWS are greater than INFLOWS the business will run out of cash and trading will cease Improving cash OUTFLOWS -Delay paying invoices -leasing rather than buying -Reduce the stock orders -Improving the credit terms with suppliers -Using cheaper suppliers Improving cash INFLOWS -Increasing sales revenue -De-stocking -Reduce credit terms with customers -Encourage customer to pay early -Use short term finances, e.g. overdrafts and short term loans Sou-maya Bejaoui

14. Improving profit Techniques to raise revenue or cut costs can affect the performance of the business. In the long terms, this could reduce profits. Cutting material costs  lower quality products Cutting labour costs  lower motivation of workforce Cutting investment  damages long-term competiveness Improve products  expensive development costs Increase prices  customers switch to competitors’ products Improving profit may include increasing revenue or lowering costs. Increasing revenues NUMBER OF PRODUCTS SOLD X AVERAGE PRICE = TOTAL REVENUE -Improving marketing -Better products -Increasing its selling price (the impact in increasing the price has for it to affect the revenue depends on how sensitive demand is to the change of the pricing) Cutting costs FIXED COSTS + VARIABLE COSTS = TOTAL COSTS -Cutting costs of raw materials, labour or research costs -Cutting its marketing Sou-maya Bejaoui

15. Break-even charts Variable costs = materials or the change directly made of products Break-even point = the point on the chart where TOTAL COSTS meets REVENUE Total revenue = above the break-even point (profit) and below the break-even point (loss) Total revenue = the amount of money earned by a business. This increases directly with the no. of products that are sold Total costs = the sum of all the costs of the output Fixed costs = horizontal line, e.g. rent (does not change according to the level of output Margin of safety = amount of output between actual level of output where profit is made and the break-even point. This is how much production could fall before the business starts to make a loss. Formulas: TOTAL REVENUE = QUANTITY SOLD X AVERAGE PRICE TOTAL COSTS = FIXED COSTS + VARIABLE COSTS BREAKEVEN = FIXED COSTS / SALES REVENUE ------------------------------------------ PRICE PER ITEM – VARIABLE COST PER ITEM (contribution) Sou-maya Bejaoui

16. Break-even analysis - helps a business make decisions and set targets (answering “what if” questions) Lowering the break-even point -Fall in fixed price/variable costs = lowering of break-even point -Increase in price = lowers the number of units needed to ‘break-even’ A business might use break-even analysis: -To understand the past (e.g. were the decisions on price correct?) -Setting and achieving production targets -Launching a new product -Starting a new business -Developing a business plan Sou-maya Bejaoui

17. Financing growth Internal sources -Owners funds -Asset sales -Retained profit External sources -Overdraft -Loans -Bonds -Trade credit -Stock market flotation (LTD and PLC) The business should consider: -Is it a short term or long term requirement? -How much finance is required? -What will the interest rate be? -What sources are available? -What level of debt can we manage? Sou-maya Bejaoui RISK Selling shares means owners lose control Cash flow problems may result COST The cost of borrowing varies according to the type of source AVAILABILTY Some sources may not be accessible, e.g. share capital or loans

18. Organisational structure -A way the business is structured to achieve objectives -Hierarchy (structure of different authorities) Centralised – decisions made by senior managers (head office) -Increased control -Decisions are slow Decentralised – decisions passed on to regional employees (local stored and branches) -Passed on to branches/divisions that may know their local customers better -As businesses expand they employ more people therefore increasing the chain of command and span of control -The size and structure of an organisation can have an impact on communication control and flexibility of a business -A business can downsize/reduce the number of layers in the hierarchy to reduce costs, improve efficiency, improve communication Sou-maya Bejaoui

19. Motivation theory Motivation can lead to: -A hard-working and flexible workforce + ‘go the extra mile’ -A better commitment to the organisation -And improved customer service -An improved communication within the business Maslow’s hierarchy of needs Theory: people are motivated by five needs Sou-maya Bejaoui -Creating job opportunities, promotion and training -Empowering employees, using rewards to recognise their achievements -Organising the workforce into teams, creating opportunities for employees to socialise -Ensure long-term progression and job security -Providing a clean, safe working environment and well-paid jobs

20. Communication sender  medium  receiver  feedback Insufficient/excessive communication has an impact on: -Employee motivation -Customer service - The number of mistakes made -The understanding of employees -Speed and implementation of decisions -The image/brand of the business Barriers to effective communication -Using inappropriate mediums or email system failure -Being angry or tired (aka me rn) -Cultural differences -Use of jargon (fancy, technical words) -And gossip! Sou-maya Bejaoui

21. Remuneration -Payments system adopted by a business to pay/reward an employee Types of workers -Part time -Full time -Freelance workers (self-employed) -Manual workers (blue collar) -Non-manual (white collar) -Different types of employees require different types of payment systems to ensure they are motivated and paid fairly Choosing a payment system – this can influence the choice of payment system -Nature of job -Cost (a business will choose the most cost-effective option) -Motivation -Flexibility (a business might pay a one-off fee to a consultant so they don’t need to pay them over a long period) Sou-maya Bejaoui

22. Ethics in business Trade-off – something is given up in order to gain something else. Acting ethically can appeal to customer and motivate employees  leads to higher productivity and more sales Pressure groups: -Organisations that get a business to change what they’re doing -Focusing on issues like animal right, workers rights, the environment and poverty -These cause bad publicity for business that act unethically and damage the reputation Methods include: -Lobbying -Protests -Working with other businesses -Refusing to work with businesses -Boycotting (staying away from) products Sou-maya Bejaoui

23. Environmental issues Short-term effects: -Traffic congestion through transport and deliveries -Air, noise and water pollution through manufacturing and industry Long-term effects: -Climate change -Depletion of land, food and natural resources Other ways: -Recycling -Replenishment of conservation of natural resources -Bio-degradable packaging -Reduction in food miles -Social enterprise Business opportunities - An opportunity to differentiate their product by becoming ‘greener’ Sou-maya Bejaoui

24. Economic issues affecting international trade Factors influencing rate: -How developed each country is (income, wages, the quality and technology of products) -Government regulations on imports and exports (including import protection, QUOTAS, and expert subsidies) Developing countries and opportunities for UK businesses: -Lower costs of production in developing countries -Product cheaper when bought from abroad and then sold in the UK -The import of cheap natural resources -Increased demand from foreign markets as countries develop Governments can encourage international trade by supporting exports or restrict imports in order to protect their home markets Policies affecting the international trade -Tariffs and customs duties tax imports and make them more expensive -Quotas put a limit on the number of imports -An export subsidy will reduce the price of exports and encourage exporting firms -Whether importing or exporting UK businesses may suffer or benefit from these policies Sou-maya Bejaoui

25. Government and the EU EU regulations -Accounting regulations -The Trade and Descriptions Act -Health and safety laws -The minimum wage -Maternity and paternity wages Businesses do this to avoid government intervention: -Move to a country where corporation tax is lower, e.g. Ireland -Producing products in countries with a lower minimum wage -Selling products in countries with relaxed health and safety laws Taxation -Value Added Tax (VAT) -Corporation Tax -Income Tax -National Insurance (NI) High taxes = consumers spend less and businesses profits and dividends fall Low taxes = consumers spend more and business profits and dividends rise Sou-maya Bejaoui Minimum Wage Benefits = small business able to compete with big business who may force down wage rates Drawbacks = higher costs of labour will reduce profits Maternity/Paternity rights Benefits = better relationships with employees and work-life balance Drawbacks = working days lost while employee is on leave Health and safety regulations Benefits = fewer work-related accidents Drawbacks = costs of health/safety checks can hinder productivity