Chapter 1.1- What is a business?

● The nature of business:

○ A business aims to meet the needs and wants of individuals or organisations
through various activities, such as:
■ Creating a good
■ Providing a service
○ Businesses input resources and process them to generate a desired output.
This is how added value is created to their goods/services

■
○ The resource inputs are:
■ Human- the right quality and quantity of people required to make the
product or provide the service. Even highly automated businesses require
at least one human input
■ Physical- the right quality and quantity of materials, machinery and
land space required to make the product or service. Even
internet/e-commerce businesses require some physical space and a
computer
■ Financial- the right quantity of cash and other forms of finance required
to make the product or service
■ Enterprise- enterprise is the ability that an entrepreneur possess in order
to come up with a business idea and make it a reality
○ Production processes that add value:
■ Capital-intensive- use a large proportion of land or machinery relative
to other inputs, especially labour. In some instances, the land or
machinery may have special qualities, such as specialised equipment or
land that is rich with some resource
■ Labour-intensive- use a large proportion of labour relative to other
inputs, especially in comparison to land or machinery. Labour intensive
operations may involve highly skilled employees or fairly low skilled
workers
○ Product outputs are:
■ Goods- these are tangible products that we can physically use. They may
be produced in the primary or secondary sector
 ■ Services- these are intangible and the buyer cannot physically interact
with. They come from the tertiary sector
○ Business functions:
■ Human resources:
● Ensuring that appropriate people are employed to make the
product or service
● HR department must recruit people, train them, dismiss them (if
necessary) and determine appropriate compensation
■ Marketing:
● Ensuring that the business offers a product or service that is
desired by a sufficient number of people or businesses for
profitable operations
● Marketing department must use appropriate strategies to promote,
price, package and distribute the product or service
■ Finance and Accounts:
● Ensures that appropriate funds are made available to make the
product or service
● Finance and accounts department must forecast requirements,
keep accurate records, procure financial resources and ensure
proper payment of goods and services acquired to operate the
business
■ Operations management or production:
● Ensuring that appropriate processes are used in order to make the
product or service and that it is of the desired quality
● Operations management/production department must control the
quantity and flow of stock, determine appropriate methods of
production and look for ways to produce the good/service more
efficiently
● Primary, secondary, tertiary and quaternary sectors:
○ Primary sector- part of the economy that engages in the extraction or production
of raw materials
○ Secondary sector- part of the economy that engages in the production of
finished goods
○ Tertiary sector- the part of the economy engaged in the delivery of services
○ Quaternary sector- the part of the economy engaged in the production,
processing and transmission of information. Quaternary sector activities are
based on advanced knowledge and include IT services, consultancy and R&D
 ■
● Sectoral change:
○ Changing economies are closely linked to complex social contexts
○ Advanced sectors demand complex social contexts for business success
○ Raw material extraction relies on few skilled workers and many low-skilled
workers
○ The quaternary sector needs highly skilled workers and informed consumers
○ As the economy develops, social technologies improve and vice versa
○ Technological developments are not always linear
○ Innovations in one area can render other technologies and jobs obsolete. For
instance, computerised word processors made typewriters and typists obsolete
○ Obsolete jobs are replaced by new ones often considered as high skill
○ Businesses can succeed by anticipating and adapting to changing environments
○ Developed economies typically shift away from the primary sector
○ Shifting from one sector-based economy to another can strain resources
○ Secondary sector businesses may demand specialist skills that are scarce
○ Financial resources are redirected from one sector to another during this shift
○ Economies based on tertiary or quaternary sectors need fewer physical
resources compared to tangible goods production
○ Shifting to the secondary sector can weaken environmental protections
○ Manufacturing firms in developing countries often have a more significant
environmental impact as compared to developed economies
● Challenges and opportunities for starting up a business:
○ Reasons for starting up a business or enterprise:
 ■ Rewards- working for someone else means that you do not get to keep
all the rewards yourself, whereas having your own business would ensure
that you get to keep a higher proportion of rewards as compared to being
an employee or manager within a firm
■ Independence- working for yourself means that you are your own boss
and not following someone else’s rules. Individuals with an
entrepreneurial spirit may feel constrained by bosses, procedures and
policies in large organisations, so starting up a business results in them
setting rules, policies and procedures to their liking
■ Necessity- sometimes businesses are started by individuals whose
positions were made redundant or who could not find work. The necessity
of an income leads them to start up a business
■ Challenge- some people just want to see if they can ‘make it’ themselves.
Starting a business typically requires one person initially to perform all
functions of the business. Over time, if the business is a success, the
business owner then has to learn new skills, as their role changes to
accommodate a larger and more complex operation
■ Interest- many interesting businesses are set up by people with a
passion for something who want to just keep doing what they enjoy doing
■ Finding a gap- businesses may see or find an untapped opportunity in
order to achieve ‘first-mover advantage’. Sometimes businesses stumble
into opportunities that they were not looking for
■ Sharing an idea- if you are interested in something and want to promote
it, then starting up a business would allow for that
● Process of starting up a business:
○ Features of all successful start-ups:
■ The business idea
■ Planning
○ The business idea refers to the fundamental activity that the business will do.
The business idea can be market-driven or service-driven
○ Having a business plan will reduce the risks associated with starting up a
business

■
○ Steps for starting up the business:
■ Organising the basics- the entrepreneur would have to consider the
location of the business, what to name the business, what legal structure
to implement and operational structure, if there is sufficient business
infrastructure to make the business feasible- suppliers, potential
customers and government services
■ Refining the business idea through market research:
 ● Determine how to distinguish the business in the market
● Identify a specific market segment to target
● Answer key questions- how to conduct market research, target
market, concept testing, USP, communication strategy
■ Planning the business:
● Once the concept has been narrowed, the entrepreneur should
write the business plan; a document that addresses all the issues
that need to be planned before operations begin
● The business plan will be useful to multiple stakeholders,
especially potential owners of shares and financial institutions
● The business plan requires the entrepreneur to think through
most of the specific elements of how the business will operate
● For investors and financiers, the business plan can provide some
confidence, as it indicates that the business has foreseen
potential issues and is trying to address them
■ Establishing legal requirements:
● Laws impact legal organisation, labour practices and
operational practices
● Registration is required for businesses, even sole traders
● Corporations and other entities must comply with host country
laws
● Specific licences and inspections may be necessary
● Investigate tax requirements, including income taxes, payroll
taxes and benefits contributions
■ Raising the finance:
● Money is needed to start and support operations until profitable
● Investor/lender confidence in accounting and auditing procedures
● Attract start up funds from entrepreneur or other investors
● Equity capital means partial ownership
● Capital can be a mix of investment (selling shares) and loans
● Consider lenders and their terms for loans
■ Testing the market:
● Consideration of how the business will be launched, such as a
pilot; a small scale organisation to test consumer reaction
● Define criteria for success of the pilot in order to assess consumer
reactions
● For capital-intensive manufacturing, initial launches can be
expensive and slow to adapt to market feedback
● Some business, like restaurants, can easily respond to feedback
by adjusting menus and other aspects
● The purpose of market testing is to confirm consumer receptivity
and increase the chances of business success
● Challenges that a new business may face:
○ Following the steps above doesn’t guarantee success for start-ups
○ Common reasons for business failure before opening are:
■ Problems with basic organisation
■ Insufficient or poor quality market research for products or services
■ Poor planning
■ Inability to convince investors or lenders
■ Inadequate financial management
■ Unsuccessful launches and low sales
○ Failure can still occur despite a good business idea and strong plan
○ Possible reasons for failure are:
■ Lack of brand recognition in the marketplace
■ Difficulty in recruiting skilled labour
■ Inaccurate anticipation of competitor reactions
■ Limited capital during economic downturns
■ Stress-related problems among managers or executives
○ Many external factors can lead to business failure

○
Chapter 1.2- Types of business entities
● Difference between the public and private sectors:
○ Private sector- is the portion of an economy not controlled or owned by the
government
○ Public sector- those portions of the economy owned or controlled by the
government. For example, government services, public schools and state-owned
corporations
● Main features of the most common types of profit-based (commercial)
organisations:
○ Sole trader- a business owned and operated by one person. No legal
distinction exists between the business and the owner. Thus, the owner has
unlimited liability for the liabilities of the business and the business ceases to
exist when the owner dies
○ Partnership- is a business owned and operated by two or more people. No
legal distinction exists between the business and the partners, each of whom
are responsible for 100% of the liabilities of the partnership
○ Most common profit making businesses:
■ Sole traders
■ Partnerships
■ Privately held companies or corporations
■ Publicly held companies or corporations
○ Sole traders:
■ Features of a sole trader:
● The sole trader owns and runs the business- sole traders may
employ other people, including those empowered to make some of
the decisions. But, the sole traders make management decisions
and have ultimate responsibility for the business
● No legal distinction exists between the business and the sole
trader- the sole trader is the business and is liable for all debts of
the business and any other claims (unlimited liability)
● Finance is usually limited- sole traders typically have limited
finance, either because their personal savings are limited or any
external sources may be reluctant to lend finance due to the high
failure rate of start-ups
● The business is often geographically close to the customer- a
sole trader is typically a small business. This allows for the sole
trader to interact with customers on a more personal level and get
to know their customers on an individual basis, thus providing a
more personalised service
● The sole trader has privacy and limited accountability- most of
the time, sole traders do not have to declare their finances to
anyone except tax authorities or potential lenders of finance
● Registering the business is easy, inexpensive and quick- sole
traders have less legal paperwork to fill out and file. Also, sole
traders make all decisions themselves and do not have to spend
 time in the decision making process to when setting up the
business
■ Advantages of sole traders:
● Complete control over all important decisions
● Flexibility in terms of working hours, products and services, and
changes to operations
● Privacy, as sole traders generally do not need to divulge
information
● Minimal legal formalities
● Close ties to customers, which give a competitive advantage
■ Disadvantages of sole traders:
● Competing against established businesses all by yourself can be a
daunting challenge
● There may be stress and potential ineffectiveness because the
sole trader makes all the decisions, with limited time to make
them and limited opportunity to seek advice from others
● Lack of continuity
● Limited scope for expansion
● Limited capital- focus of the business will be on having sufficient
working capital
● Unlimited liability
○ Partnerships:
■ Features of partnerships:
● Decisions are made jointly by the partners- partners may
employ other people, however they still make all management
decisions. Partners also own the business, each partner having a
percentage ownership
● The business is owned and managed by more than one
person- number of partners is technically unlimited, however the
typical number is 2-20
● No legal distinction exists between the business and the
partners- partners have unlimited liability, even if they only own a
small percentage of the business
● Finance is usually more available than for sole traders-
finance can come from the partners savings or from financial
institutions, as they are usually more willing to provide finance to a
partnership than to a sole trader, as partnerships are considered
more stable
● Some partners may be ‘sleeping partners’- meaning that they
provide some finance as an investment into the partnership and
expect a share of the profit. A sleeping partner provides no other
role in the business
● The partnership can offer a more varied service than a sole
trader- different partners may bring different expertise and the
 product or service offerings of the business can vary. For example,
a law firm run as a partnership would have lawyers specialising in
all fields, criminal law, commercial law, etc
● Partners typically have a greater degree of accountability
than a sole trader- it may not be a legal requirement in most
countries, however having a deed of partnership can be very
useful. A deed of partnership is a legally binding document that
sets out the rights and duties of the partners. A deed of
partnership includes:
○ Responsibilities
○ Financing
○ Division of profits
○ Liabilities
○ Procedures for changing circumstances
● Partnerships are more stable than sole traders and have a
higher likelihood of continuity- drawing up a DOP will slow
down the registering of the business, but it will help the
organisation in the long term
● Partners do not necessarily share all of the profits equally-
profits in partnerships are typically distributed based on each
partner's ownership percentage. A partner who contributes more
financing may receive a larger share of profits. In partnerships with
active and sleeping partners, active partners may receive
agreed-upon salaries or drawings as expenses before profit
allocation, which is then done based on ownership percentages
■ Advantages of partnerships:
● Partners often bring different skills and qualities, partnerships
may have more efficient production as a result of the
specialisation and division of labour
● Partners bring more expertise than one person can
● As partnerships are perceived as having greater stability and
lower risk, they generally have access to more finance
● Partners can help in emergencies or when others are ill or on
holiday
● Partners have a higher chance of continuity
■ Disadvantages of partnerships:
● Each partner has unlimited liability. However there is one
exception to this liability, which is when in the DOP, a partner/s are
declared as “limited partners”, thus having limited liability but
also limited control
● Partnerships typically have less access to loans from banks and
other financial institutions, as compared to corporations. Limited
finance can often prevent the business from funding its
expansion or maximising opportunities for making profit
 ●An individual partner does not have complete control over the
business and has to rely on the goodwill and work of others
● Profits must be shared among the partners
● Partners may disagree, which in the worst case could lead to the
break-up of the partnership
○ Companies or corporations:
■ Advantages of being a shareholder:
● Price of the shares may increase in value if the company is
performing well- this may be in theory and not in practice,
however the value of a company is based on its profits. As profits
increase, so should the total value of its shares. Therefore,
individual shares of stock in the company should increase in
value at the same rate
● The company issues a portion of the company profits as
dividends- the amount of money each shareholder receives
depends on the number of shares they own. With small or new
companies, dividends are often not paid or are relatively small.
With large, established companies, dividends are often paid
regularly- on a quarterly basis. Shareholders invest in the
company partly because they want regular dividend income that
comes with share ownership in that company
● Shareholder has limited liability
■ Disadvantages of being a shareholder:
● The price of the shares may decrease in value if the company
is not performing well- if profit declines, then so will the value of
individual shares
● The company may choose not to issue dividends if it does
not have to- companies that are doing poorly may not have
sufficient cash on hand to be able to pay dividends. Businesses
that are growing rapidly would also need money to support the
growth. As a result, many companies rarely or never pay
dividends
● As “owners” often own only a fraction of the shares of the
company, owning shares in a firm may not mean that an individual
shareholder has any meaningful say in decisions about the
business
■ Reasons for becoming a company:
● Enhanced status of being a company is generally recognition that
the business has become successful
● Selling shares is a good source of finance, especially one with
growing working capital requirements
● Becoming a company increases the stability of the business, as
a company has legal existence separate from its owners
 ● Companies typically have improved chances of gaining further
finance, especially loans from financial institutions and
governments
○ Privately held companies and publicly held companies:
■ Privately held company- an incorporated business offering limited
liability to the owners. In most countries, shareholders of privately held
companies cannot sell their shares unless they have first been offered
to existing shareholders; the shares cannot be traded on a stock
exchange and there are limits on the numbers of shareholders
■ Publicly held company- an incorporated business offering limited
liability to the owners. The shares of the company are traded on some
public exchanges. Most publicly held companies must disclose
considerable information about the company, including financial
information
■ Main features of a company:
● The shareholders own but do not run the business- their
purchase of shares provides finance, but otherwise the
shareholders have little input in the day-to-day running of the
business. Instead professional managers are normally employed
to make all management decisions
● The business and the owners are legally separate entities- the
shareholders are not liable for any debts of the business (limited
liability). A person owning shares in the company can decide to
sell the shares for any reason whatsoever
● The details of the company formation are legally recorded
and are matters of public record- to form a company, owners of
the business must have two documents drawn up and registered
with the appropriate government agency; the documents are:
○ Memorandum of association- this document records the
key characteristics and the external activities of the
company being created. For example, the memorandum
will provide basic information on the objectives of the
business and record the share capital initially required
○ Articles of association- this document specifies how the
company will be regulated internally. For example, it will
explain the initial organisation of the executives of the
company, with their titles and areas of responsibilities
(CEO, CFO, etc) and the rights/responsibilities of each
shareholders
● Greater finance is generally available- the initial offering of
shares represents a one-time injection of capital to the
business. Once the business sells its shares, it receives the price
paid at the IPO (initial public offering). Thereafter, the initial shares
and future gains/losses in price are to benefit/cost of the
 shareholder only, unless the company issues and sells additional
shares to raise more capital
● A company is held to a high degree of accountability- the
owners and the company are separate entities, so from time to
time the company must provide information to the shareholders so
that they can understand the condition of their investment.
Information on a company is generally provided by:
○ Published, audited annual company reports
○ AGM (annual general meeting) open to all shareholders
○ EGM (extraordinary general meeting) if called by the
shareholders
● Companies have greater stability and a higher chance of
continuity- when a shareholder dies or sells shares, the company
continues to operate. The death of a shareholder or the sale of
shares has no direct impact on the company
■ Advantages of companies:
● Finance is more readily available than for sole traders or
partnerships- companies are perceived as having greater stability
and lower risk than sole traders and partnerships. Individuals and
institutions are more likely to invest and banks and financial
institutions are more likely to make loans to companies
● The investor has limited liability- investors can only lose the
value of their shares and nothing else. Each investment is limited
and thus their risks are spread out many companies
● There is continuity
● There are possibilities for expansion- companies have more
opportunity to expand because generally they last longer and have
more access to finance
● Established organisation structure- managers and workers do
not have to change every time a shareholder sells shares. This
stability can help the business develop long term relationships
with customers and suppliers alike. It can also allow the business
to hire individuals with expertise for individual positions who will
enhance the performance of the business
■ Disadvantages of companies:
● Setting up a company can take time and cost a great deal of
money to fulfil the necessary legal requirements- whether
reorganising into a company or starting a business as a company,
the owners must retain lawyers, have legally required paperwork
filled out, and file papers with the appropriate government
agencies
● Selling shares does not guarantee that the desired or
intended amount of finance will be raised- sometimes IPO’s
are unsuccessful and a business has sold itself for relatively little
 cash. Thus reorganising a business as a company or starting up a
company involves risk
● Owners risk partial or entire loss of control of the business-
owners of a company, especially for a publicly held company the
owners must give up some control of their business. Former
owners still retain 51% of the shares, they must still answer to the
new owners. In the case of public companies, loss of control can
be significant. Original owners can have a very small percentage
of the shares after the firm has gone public
● There is a loss of privacy- a publicly held company is required to
fulfil a number of legal obligations, including publishing its
accounts publicly. So in instances when the companies
performance has been weak-sales are down or profits are -ve- the
future performance can be further jeopardised, some customers
may not want to purchase from or do business with a weak
company
● A company has no control over the stock market- share prices
may fall, which can damage the image of the company. The share
price may fall due to no reason of the business, but some external
factors, such as elections, natural disasters, etc
● A company has limited control over who buys its shares- in
the scenario when a competitor may want to take over the
business. If the shareholders are willing to sell their shares, the
company cannot prevent a takeover. Companies are especially
vulnerable to being taken over if their share price falls
○ For profit social enterprises:
■ Private sector companies:
● Social enterprise- is a business that advances a social purpose
in a financially sustainable way. While aiming to do social good,
social enterprises rely on business models, have sales revenue
and reinvest what profits they make in the business. Social
enterprises do not depend on philanthropy
● Social enterprises vary in their legal organisation. Some take the
form of sole trader, partnership or company
■ Public sector companies:
● Some social enterprises, typically organised as companies,
operate in the public sector
● For profit social enterprise- an organisation with many
similarities to a normal social enterprise, except it often earns a
profit, some of which may be distributed to owners. The primary
aim is to provide a social service
■ Cooperatives:
● Cooperative- is a business organisation owned and operated by
its members, who share any profits
 ●Types of cooperatives:
○ Financial- is a financial institution with ethical and social
aims that are of higher importance than profits
○ Housing- is run to provide housing for its members. A
common trait of housing cooperatives is owning an
apartment in which each member is entitled to one
housing unit in the building. The members own the
building and surpluses are reinvested in the building and
its operation, so costs to individual members are lower.
Housing cooperatives typically have control over who can
become a member which increases the likelihood of
social harmony in the building
○ Workers- is a business that is owned and operated by the
workers themselves and the wages of the managers and
workers are similar. Providing employment to workers is a
priority. Workers cooperative emerges when a business
is about to fail. Workers, fearful of losing their jobs,
take over the business, sack the managers (or reduce
their pay drastically), and reinvest all of the profits in the
business (rather than paying them out as dividends)
○ Producer cooperative- is when groups of producers
collaborate in certain stages of production. Producer
cooperatives are typically common in agriculture. The
aim is to maximise the utilisation of an expensive piece
of equipment that individual members by themselves
cannot afford. Also, cost efficiencies can only be achieved
when a stage of the production process is carried out
on a large scale, so many producers pool in their
resources to obtain cost efficiencies
○ Consumer- provides a service to its consumers who are
also part owners of the business
■ Common features of for profit social enterprises:
● Profit is important, but not the priority, social aims take
precedence- the main aim is to earn profits sufficient to sustain
the business
● High degree of collaboration between the business and local
community- for-profit social enterprises usually signify a desire
for cooperation between the business community and the
government because both recognize a need being met by
ordinary business activity or by government
● Cooperatives are more democratic than other for profit
organisations- in for profit social enterprises, decision-making
tends to be more consultative and transparent
● Operates with the same functions as any business
 ■ Advantages of for profit social enterprises:
● Favourable legal status is achieved- the legal structure of a for
profit social enterprise allows individuals to engage in activities
that are good for humans, society and the environment, without
being liable or accountable to shareholders
● Strong communal identity- for profit social enterprises often
have highly motivated employees and other stakeholders working
together with a common sense of purpose. Employees often
report a high degree of satisfaction, knowing that they have a
positive impact on society
● Stakeholder community benefits- for profit social enterprises
help many stakeholders and the government, because for profit
social enterprises tackle human, social or environmental problems
that the government does not address
■ Disadvantages of for profit social enterprises:
● Decision-making is complex and time-consuming- for profit
social enterprises take a long time to make decisions, as they
need to be consultative and transparent. So, if many parties are
involved with the decision, the extended decision making time can
limit the effectiveness of the business
● Capital may be insufficient for growth- the business model of a
for profit social enterprise may not be sufficient in the long term.
As, without large profits, for profit social enterprises would struggle
to survive and expand
● Capital may be insufficient for financial strength- for profit
social enterprises tend to have lower profit margins and profits
than traditional for profit businesses because they try to make their
products and services as inexpensive as possible, which results in
them not having sufficient financial strength to survive during times
of economic recessions
○ Non-profit social enterprises:
■ Non profit social enterprise- is an organisation with many similarities to
a normal social enterprise, except that it is less willing to earn a profit
or surplus. The primary aim of a non-profit social enterprise is to
provide a social service
■ Features of NPO’s:
● Some businesses operating in the private sector do not aim to
make profits at all. These businesses are also social enterprises
(their main aim is for a social purpose), but they are different from
for profit social enterprises in that they do not aim to make any
profits whatsoever
● Though these social enterprises are run as businesses, they
generate surplus rather than profit. A surplus is similar to profit,
however rather than being distributed to owners like profit, it is
 used to advance the social purpose of the business through
means of reinvesting that amount back into the enterprise
● Surplus= total revenues - total costs
■ Types of non profit social enterprises:
● Non governmental organisation:
○ Are NPO’s with a humanitarian or social purpose.
○ NGOs are independent of government, but they often
receive government grants or funding and cooperate
with government
○ The aim of these various social enterprises is to support a
cause that is considered socially desirable
○ Some NGOs are concerned with a single issue and others
with a broader spectrum and some have no political
affiliation or agenda, while others have political aims
● Charities:
○ Are a specific form of NGO whose aim is to provide as
much relief as possible for those in need
○ Charities differ from other NGOs in that their focus is on
philanthropy and a desire to help those who cannot help
themselves
■ Common features of non profit social enterprises:
● Profits are not generated- instead, these businesses generate
surpluses and surpluses are used to advance the social purpose
of the business. Sometimes non profit social enterprises retain
surpluses for the capital requirements of the organisation.
Typically, the surpluses are used directly to provide the goods and
services for which the non-profit social enterprise was created
● Donations are important- these businesses cannot rely on
government funding or other forms of income, so a large part of
their revenue comes from donations
● There is unclear ownership and control- NPOs struggle with
questions of ownership, governance and decision-making,
especially regarding board composition and the influence of major
donors. Selecting capable managers and determining fair
compensation, particularly in large non-profits, raises contentious
debates. Failing to address these challenges leads to stakeholder
discontent and hinder the organisations mission
■ Advantages of non-profit social enterprises:
● Help people or causes in need- governments and other
organisations rarely have sufficient resources to solve all of the
needs of the local community. However, NPOs try to address as
many needs as they can which is crucial and valuable to the
development of the community
 ● Foster a philanthropic spirit in the community- people may
feel good about helping others, which leads to positive attitudes in
the community, thus making it a better place to live and
improves business climate
● Foster informed discussions in the community about
allocation of resources- the actions of non-profit social
enterprises can lead to better information about local or
distant problems, issues and causes. With better information,
individuals and organisations can carry out more informed
decision making
● Can innovate- employees or members are forced to be creative;
by trying new ideas and tactics to address problems and find
solutions. This is useful because non profit social enterprises do
not generate surpluses, so they do not have any funds for
reinvestment
■ Disadvantages of non profit social enterprises:
● Intense lobbying from non-profit social enterprises can lead
to socially undesirable goods- intense lobbying effects refer to
the significant impact that aggressive advocacy efforts by NPOs
can have on government policies and regulations, potentially
leading to socially undesirable consequences
● Sometimes the employees have a passion than ill serve the
organisation or its cause- this basically means that their
intentions may have well meaning, however their actions do not
● Funding can be irregular- this is because they are dependent on
donations, which is unreliable during economic recessions
Chapter 1.3- business objectives
● Vision and mission statements:
○ Vision statement- a philosophy, vision or set of principles which steers the
direction and behaviour of an organisation. It is more ‘forward looking’ and is
centred on the long term aims and highest aspirations of a business
○ Mission statement- states a company’s purpose and explains why the business
exists. A mission statement generally includes the business aims and its most
important values. It is more ‘grounded’ in the aim of accomplishing objectives to
achieve the mission

○
● Aims, objectives, strategies and tactics:
○ Business objectives- the articulated, measurable targets that a business must
meet to achieve the aims or long term goals of the business. It is critical that
the objectives are specific and measurable
○ Strategic objectives- the long term goals of a business that indicate how the
business intends to fulfil its mission. Strategic objectives usually include
performance goals, such as increasing market share or improving profitability
○ Tactical objectives- short-to-medium term targets that will help a business
reach its strategic goals, if only they are consistently met. Whereas, strategic
objectives are typically set by the BOD with top executive management, tactical
objectives are usually set by executive management working with
middle-level management
○ Common business objectives:
■ Strategic- sometimes referred to as ‘global objectives’- they are the
medium to long term objectives set by senior managers to guide the
company in the right direction to achieve its aims
■ Tactical- are the medium to short term objectives set by middle
managers to achieve the strategic objectives
■ Operational- are the day to day objectives set by floor managers and
sometimes the workers themselves, so that the company can reach its
tactical objectives
○ Strategic and tactical objectives:
■ Strategic objectives need to be SMART
 ■ Tactical objectives tend to be greater in number than strategic objectives
and are usually set by middle managers
■ Operational objectives are set by floor managers, to ensure that the
tactical objectives will be met
○ SMART objectives:
■ S-specific: objectives should relate to the nature of the business and be
unambiguous
■ M-measurable: the objective should be measurable in some way
■ A-achievable- when the business has achievable objectives, then they
can be motivational. Objectives that are not reasonable can have the
opposite effect, resulting in demotivated employees who give up.
Achievable goals can also reduce disagreements/tensions and
distractions
■ R-relevant- objectives must be relevant either towards a specific
department or employees in general. Without relevant objectives, the
employees wouldn’t understand how to achieve the objective
■ T-time specific: if objectives do not have a time frame or deadline, they
are simply not meaningful
○ Business strategies:
■ Business strategy: is a plan to achieve a strategic objective in order to
work towards the aims of the business. This strategy will be medium to
long term and will require senior managers to make the decisions
approved by the owners and/or the CEO
■ Strategies involve:
● Careful analysis of where the business is
● Development of a plan (strategy) for how to get to where the
business wants to be (aims)
● Careful consideration of how to implement the strategy
● Periodic evaluation process to determine whether the plan is
working
■ Business tactic: is a plan to achieve a tactical objective to work towards
the strategies of the business, which themselves are the path to reaching
the aims of the business. This tactic is short term and will require middle
managers to make decisions approved by senior managers
■ Tactics are less closely tied to the long term health of the firm, instead
focusing on how to achieve measurable targets within the strategy
● The need for organisations to change objectives:
○ Businesses often need to change objectives. Sometimes this requires
changing strategic objectives
○ Typically, this involves changing tactical objectives and day-to-day floor
managers and supervisors change operational objectives
○ Objectives can change because of changes in these environments:
■ Internal- refers to changes in the conditions within the business
 ■ External- refers to anything outside the business that still impacts its
operation or performance
○ Changes in the internal environment:
■ Leadership- a change of leadership often can lead to a change in aims
and objectives. Sometimes new leaders are brought into a company with
a different leadership style from their predecessors
■ HR- conditions related to HR can change and can alter objectives all the
way down the hierarchy. Industrial action, which refers to actions taken by
unions or other forms of organised labour, can often precipitate change in
an organisation
■ Organisation- business organisations change. A merger or acquisition
can cause the new organisation to rethink many of its objectives. In other
cases, some internal pressures may cause an organisation to modify one
aspect of its business. However, given the interconnectedness of all the
business functions, changes in one area would require changes in
another, including changes to strategic or tactical objectives
■ Product- products are sold in a marketplace. Sometimes the
performance of the product in the market place may require changes in
either the product or even an entire product line
■ Finance- all business activity must be financed. When the circumstances
of finance change, especially when sources of finance become fewer and
the amount of finance decreases, organisations have to modify their
strategies or change the objectives of their business
■ Operations- most businesses should be innovating constantly, not just by
offering new products, but also by developing better methods for
producing or delivering their core service or product, which is done by
innovating their operations. Changes in operations can necessitate other
changes in objectives
○ Changes in the external environment:
■ Social- refers to changes in society or culture. Social changes may force
the business to reappraise its objectives
■ Technological- with the rapid era of technological advancement,
businesses face the potential for significant environmental shifts.
Technological innovations can quickly render a business’s product
obsolete or uncompetitive, compelling them to adapt. Also,
competition may necessitate changes in production techniques to lower
costs. Furthermore, businesses need to be more mindful of their actions
due to the increased transparency due to IT
■ Economic- changes in market conditions or even just changes in the
economy can have a profound influence on businesses and force them
to change strategic and tactical objectives
■ Ethical- changes in ethical values in a society encourage or even force
a business to change its practices
 ■ Political- change to the political system may force businesses to change
their approach. This is why MNC’s carry out a “country risk assessment”
before investing in a particular country to determine the likelihood that
drastic political change in a country put at risk the investment or
operations of a business there
■ Legal- regulation, taxes and other factors would force businesses to
operate differently and respond to changes made to those factors
■ Ecological: going “green” can impact businesses by causing them to
change their practices drastically in order to be more ‘eco friendly’
● Corporate social responsibility:
○ CSR- is the view that businesses, rather than focusing solely on increasing
shareholder value, should contribute to the economic, social and environmental
well-being of society
○ Reasons for why organisations set ethical objectives:
■ Building up customer loyalty- customers are more likely to return to a
business they trust and respect and ethical objectives and action can
foster this
■ Positive image- both existing and potential customers are likely to shop
at businesses with good reputations
■ Developing a positive work environment- businesses that have well
motivated staff who enjoy working for the business puts the business at a
competitive advantage. Businesses with strong ethical objectives can
attract many employees which would improve morale and motivation
■ Reducing the risk of legal action- being unethical can be very costly.
Also, customers would reduce due to the negative brand image or reports
indicating unethical behaviour, which could lead to the business going to
trial. Even though the business wins the case in trial, there would already
be significant damage to the firms reputation
■ Satisfying customers ever-higher expectations for ethical behaviour-
with improved ICT and the internet, business decisions and actions are
more visible than ever before. Today, consumers are aware of what is
considered ethical and unethical behaviour. They often punish unethical
behaviours by not patronising certain businesses. Few businesses can
disregard public opinion
■ Increasing profits- opportunities for businesses to be ethically
responsible are growing. Often banks will not lend to dubious businesses,
clothes manufacturers will not use sweatshop workers and coffee houses
use fair trade coffee. Many people seek out and purchase from
businesses that behave ethically, which can lead to higher profits
○ Impact of implementing ethical objectives:
■ The business itself- although in the long run the business may
experience benefits, however in the short term, costs are likely to rise
and employees may resist changes if they are accustomed to a certain
norm
 ■ Competitors- may have to respond in order to maintain their market
position
■ Suppliers- if the business is implementing ethical objectives, such as
buying from other ethical businesses, suppliers may have to respond to
protect their orders
■ Customers- likely to trust the business more and develop a strong
brand loyalty
■ Local community- businesses that have and follow ethical objectives
see an improvement in their relationship with local community, which
can be beneficial in terms of employment and goodwill
■ Government- feeling pressure from voters and other stakeholders are
increasingly recognising businesses with ethical objectives, thus creating
a government-business environment fostering ethical objectives
○ Linking ethical objectives to CSR:
■ Ethical objectives are specific goals based on established codes of
behaviour
■ CSR is the idea that a business has an obligation to have a positive
impact on society
■ Businesses assess their actions as part of their CSR policy. A business
may implement specific ethical objectives as a result of this assessment
■ CSR is broader and less specific than ethical objectives
■ CSR involves acting as a responsible corporate citizen, benefiting
society in all matters
■ CSR includes obeying laws, interacting responsibly with customers and
reducing environmental impact
■ Embracing CSR can lead to a sustainable business model
■ Strong links with society and the environment can make a business a
valued part of society
● SWOT analysis:
○ S- strengths
○ W- weaknesses
○ O- opportunities
○ T- threats
○ Format:

■
 ○ SWOT Matrix:

■
■ Types of strategies
● Growth- best achieved by combining the strengths of a business
with the market opportunities, which produces the most positive
short term strategy available from the matrix. The business
should pursue growth strategies when it is confident that it has no
big issues in any other area
● Defensive- are adopted when a business is at its most vulnerable-
which is when threats and weakness exist in combination,
resulting in the business needing to act quickly and defensively.
They are the most negative short term strategies, but they may
be necessary for survival
● Re-orientation- are adopted when a business focuses on
addressing its weaknesses in order to turn them into
opportunities in the market. Are positive and long term.
Assumes that the business will first address its weaknesses and
then re-orientate itself in a new direction
● Ansoff matrix:

○
○ Market penetration:
■ Occurs when a business grows by increasing its market share and
selling more of its existing products
■ Considered safest option for growth, but opportunities may be limited
by competitors in the market
 ■ Relies heavily on promoting brand loyalty to encourage repeat customers
and promotion to lure customers away from the competition
■ Key factors that increase chance of success:
● Growth potential of the market
● Strength of customer loyalty
● Power and ability of competitors
○ Market development:
■ Expands the market by looking for new markets or market segments in
the existing market
■ Is a riskier strategy than market penetration, as the business may not
understand the new markets
■ Successful market development requires different approaches from
market penetration
■ Key factors to reduce the risk of market development:
● Effective market research
● Having local knowledge
● Effective distribution channel
○ Product development:
■ Is the development of new products for the existing market
■ A new product can be a variation on an existing product
■ Riskier than market penetration, with much of it depending on customer
loyalty towards original products
■ Key factors to reduce the risks of product development are:
● Effective market research
● Strong research and development system
● First mover advantage
○ Diversification:
■ Riskiest growth strategy a business can pursue
■ When diversifying a business combines two risks:
● Lack of familiarity and experience in the new market
● New product is untested
■ Key factors to reduce the risks of diversification:
● Effective market research
● Due diligence testing to determine:
○ Attractiveness of the market
○ Cost of entering the market
● Recognition of the existing business
● Possible tie ups with other businesses with necessary experience
Chapter 1.4- Stakeholders:
● Internal and external stakeholders:
○ Stakeholder- a person or organisation that affects or is affected by a business.
Often classified as internal vs external, market vs non-market, primary vs
secondary
○ Types of stakeholders:
■ Internal- a stakeholder within the business, such as an employee or
manager
■ External- a stakeholder who is external to the business or organisation,
such as suppliers, customers, government, media or the community
■ Market- those that the organisation has a commercial relationship with,
such as customers, suppliers and lenders
■ Non market- stakeholders with which money does not change hands,
such as the media or community
○ Interests of internal stakeholders:
■ Shareholders focus on returns on their investments
■ CEO or managing director focuses on coordinating the business strategy
and delivering profits and returns that satisfy the shareholders
■ Senior managers focus on the strategic objectives for their functional
areas
■ Middle managers focus on the tactical objectives for their functional areas
■ Foremen and supervisors focus on organising tactical objectives and
formulating operational objectives
■ Employees and their unions focus on protecting their rights and working
conditions
○ Interests of external stakeholders:
■ All levels of government focus on how the business operates in the
business environment
■ Suppliers focus on maintaining a stable relationship
■ Customers and consumers focus on the best product that meets their
needs
■ People in the local community focus on the impact of the business in the
local area
■ Financiers focus on returns on their investments
■ Pressure groups focus on how the business has an impact on their area
of concern
■ Media focuses on the impact of the business in terms of news stories
○ Stakeholder analysis:
■
■ Stakeholder mapping:

●
● Group A- these stakeholders, who have minimal interest in the
business and have limited power over it are rarely a problem for
the business. Owners and managers can fairly safely ignore
these stakeholders or at least devote limited energy and
attention to satisfying their interests
● Group B- for owners and managers making this group feel
included is important, as they convey a sense of belonging
● Group C- pivotal group must be kept satisfied. As they have the
power to influence other groups. The business must find ways to
flatter the self esteem of members of this group to make them
feel important
● Group D- these stakeholders are the most important. The
business must not merely communicate with them, it must also
consult with them before major decisions. The business should
focus on their needs compared to others. Failure to involve and
satisfy these stakeholders can have very negative
consequences
Chapter 1.5- Growth and evolution:
● Impact of the external environment on a business:
○ Difference between PEST, PESTLE and STEEPLE:
■ PEST- Political, Economic, Social and Technological
■ PESTLE- PEST + legal and ecological
■ STEEPLE- Sociocultural, Technological, Economic, Environmental,
Political, Legal and Ethical
○ Impact on growth of changes in any of the STEEPLE factors:

■
● Economies and diseconomies of scale:
○ Economy of scale- is the decrease in per unit product cost (avg cost) as
output/activity increases
○ Diseconomy of scale- is the increase in per unit production cost as
output/activity increases
○ Total cost = fixed cost + variable cost
○ Fixed costs- are the costs which do not change according to the amount of
goods or services produced by the business
○ Variable costs- costs which increase or decrease according to the amount of
goods or services produced
𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
○ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑠𝑡 = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
○ As a business expands by producing a greater quantity, variable costs
increase. However, the fixed costs are spread over a greater quantity of
units produced. Resulting in the average costs going down, thus making the
business more efficient, making the business achieve economies of scale
○
○ Internal economies of scale:

■
 ○ External economies of scale:

■
○ Internal diseconomies of scale:

■
○ External diseconomies of scale:

■
● Reasons for businesses to grow or stay small:
○ Reasons for businesses to grow:
 ■ Survival- large firms have a greater chance of surviving. They are less
likely to fail and be taken over by another firm
■ Economies of scale- large firms typically enjoy economies of scale,
which translate into greater profits, higher returns and a healthier
balance sheet
■ Higher status- large firms have greater status than smaller ones. Also
working for a larger, well known firm can increase motivation and
provide status to employees
■ Market leader status- ability to shape market habits, giving the firm a
competitive advantage
■ Increased market share- large companies that have a large market
share can control the market by determining prices and deciding which
services will be the industry standard
○ Reasons for businesses to stay small:
■ Greater focus- small businesses can focus investments where they
want and where they believe the greatest profitability lies. They may
have lower profits than larger businesses, but they have greater
profitability and higher returns
■ Greater prestige- smaller businesses sometimes have a greater sense
of exclusiveness than larger businesses. Resulting in some small
businesses being able to charge more for their goods and services,
leading to higher profit margins
■ Greater motivation- having more prestige can motivate managers and
employees. Typically because they feel that they matter to the business.
Whereas, with larger businesses they sometimes find it difficult to convey
the sense that all employees matter
■ Competitive advantage- being small, providing a more personalised
service and being flexible can give a competitive advantage
■ Less competition- sometimes a market is so small that big businesses
do not want to consider getting involved. This results in a market with
limited competition
○ Decisions trees:
■ Decision trees are a planning tool designed to simplify complex
decisions
■ When a decision needs to be made, the decision is represented by a
square node with possible choices as lines stemming from the node
■ When multiple outcomes are possible, they are represented by a round
node with lines stemming from that node and the outcome written above
the line
■ Example:
 ●
● Costs of the choices are written under their respective choice
lines
● Probability that a choice will succeed or fail is written below the
line for a particular outcome
● Values of each outcome actually happening are written at the end
of each outcome line
● Difference between internal and external growth:
○ Internal growth- sometimes referred to as organic growth. It occurs when a
business grows by relying on its own resources and capabilities: investment in
new products, new sales channels, more stores, etc all to increase sales
○ External growth- occurs when a business expands with the aid of resources
and capabilities not developed internally by the company itself. Instead, the
company obtains these new resources and capabilities by acquiring another
company or forming some type of relationship, like a joint venture with another
organisation
○ Merger- occurs when two companies theoretically equal and legally become one
company
○ Acquisition- when one company purchases a majority or all the shares of
another company
○ Takeover- when one company acquires a majority or all the shares in another
company. Takeover is typical hostile and is successful when the company that is
taking over the business owns more than 51% of shares
○ External growth methods:
■ Mergers and acquisitions and takeovers:
● Only publicly limited companies can be taken over
 ● Horizontal integration- occurs when the two businesses being
integrated are not in the same broad industry, but are actually in
the same line of business and in the same chain of production.
When horizontal integration occurs, the new business will have
increased market share and market power, as well as
economies of scale
● Vertical integration- occurs when one business integrates with
another at a different stage in the chain of production or when
a business begins its operations in an earlier stage through
internal growth. Vertical integration occurs for various reasons,
such as reliable supply, avoid government regulation, reduce
transaction costs and eliminate market power of other businesses.
● Types of vertical integration:
○ Backwards- when a business becomes involved in an
earlier stage in the chain of production. Usually occurs
when a business wants to protect its supply chain
○ Forward- when a business integrates further forward in
the production chain. Usually occurs when a business
wants to ensure a secure outlet for its products
● Conglomeration- when two businesses in unrelated lines of
business integrate. This type of integration is also known as
diversification. Occurs mainly to reduce corporate risk
○ Joint ventures:
■ Joint venture- is an organisation created, owned and operated by two or
more other organisations. A joint venture is legally distinct from the
organisations that created it
■ Are temporary partnerships between two businesses
■ Two parent businesses create a separate business for a specific goal
■ The new business can be dissolved, incorporated into a parent business
or the time frame can extend
■ Transfer of specialist skills, knowledge and expertise can occur
■ One partner may become dominant and buy out the other
■ Leads to increased sales without losing legal identity
■ Combines different areas of expertise for a powerful combination
■ Risk of not achieving desired outcomes or profit sharing disagreements
■ Joint ventures are like partnerships, but with a risk of disagreements
leading to a breakup
○ Strategic alliances:
■ Strategic alliance- occurs when two or more businesses cooperate in
some legal way that enhances the value for all parties. Members of the
alliance retain their independence. A strategic alliance is less binding
than a joint venture, as no new organisation is created
■ Difference between joint ventures and strategic alliances:
 ● More than two businesses may be part of the alliance- they
typically involve more than two businesses
● No new business is created- no new legal entity comes into
existence, instead a strategic alliance is typically an agreement to
work together for mutual benefit
● Individual businesses in the alliance remain independent- the
existing businesses may agree to share resources, however they
remain independent and often otherwise compete against each
other
● Strategic alliances are more fluid than joint ventures- in a
strategic alliance, membership can change without destroying the
alliance
■ The more the businesses that are involved in a strategic alliance, the
more challenging coordination and agreement becomes
■ Without legal existence, the alliance has less force than an enterprise
that has a legal form of organisation
■ Individual businesses may benefit from the alliance, but remaining
independent means that they do not get the capital strength of a legal
merger nor do they enjoy economies of scale that other forms of external
growth provide
■ Greater fluidity of members also means that the alliance lacks stability
○ Franchises:
■ Franchising- a method of distributing products or services where the
franchisor develops products or services and its brand and then sells the
right to use the brand and its products. The franchisee pays a fee and
typically some percentage of revenue or profits to the franchisor
■ An original business (franchisor) develops the business concept and
product/service, then sells to other businesses who buy the right to offer
the concept and sell the product/service
■ Businesses, known as franchisees, buy the right to offer the concept and
sell the product or service. The franchisee sells the products/services
developed originally by the franchisor. Resulting in the franchisee
ensuring that they are being consistent with or identical to the original
business concept developed by the franchisor
■ Franchising is a rapid form of growth, because the franchisor does not
actually have to produce anything new
■ Franchising is particularly attractive as a means to grow globally. This
is because the franchisor is established in their home country and they
can sell to other businesses in other places that they want to expand.
Also, franchisees have local knowledge, which is particularly helpful to
the franchisor
■ Franchisor will provide:
● Stock
● Fittings
 ● Uniforms
● Staff training
● Legal and financial help
● Global advertising
● Global promotions
■ Franchisee will:
● Employ staff
● Set prices and wages
● Pay an agreed royalty on sales
● Create local promotions
● Sell only the products of the franchisor
● Advertise locally
■ Advantages to the franchisee:
● Product exists and is already typically well known
● Format for selling the product is established
● Set up costs are reduced
● Franchisee has a secure supply of stock
● Franchisor can provide legal, financial, managerial and technical
help
■ Disadvantages to the franchisee:
● Unlimited liability
● Royalties have to be paid
● No control over what to sell
● No control over supplies
■ Advantages to the franchisor:
● Gains quick access to wider markets
● Makes use of local knowledge and expertise
● Does not assume risks and liability
● More profits and sign up fees
● Makes all global decisions
■ Disadvantages to the franchisor:
● Loses some control in the day-to-day running of the business
● Can see its image suffer if a franchise fails or does not perform
properly
Chapter 1.6- MNC’s:
● Globalisation:
○ Globalisation- is the process by which the worlds regional economies are
becoming one integrated global unit
○ Globalisation impact on growth of domestic businesses:
■ Increased competition- large foreign businesses can force domestic
producers to become more efficient as the domestic consumer has
more choice. Greater efficiency can mean lower cost goods and services
for consumers. However, one way that businesses become more efficient
is by slowing the growth in wages of its workers and extracting greater
productivity from them
■ Greater brand awareness- domestic producers have to compete with big
brand names, so they need to create their own USP. Sometimes this is
done by emphasising local or national origins of their products
compared to foreign products sold by MNC’s and global firms. Creating a
USP can make many businesses more competitive and efficient
■ Skills transfer- foreign businesses, must use some local knowledge,
which would lead to a two way transfer of knowledge and skills. The
MNC or global firm will learn from local workers hired and workers can
learn new approaches and develop new skills
■ Closer collaboration- regardless of the form of growth, domestic
producers can create new business opportunities
● Reasons for the growth of MNC’s:
○ MNC- a company that operates in two or more countries. It is generally very
large but does not have to be. MNC’s are also referred to as MNE’s (MN
enterprises)
○ Factors that allow MNC’s to grow rapidly
■ Improved communications- not only ICT, but also transport and
distribution networks
■ Dismantling of trade barriers- allowing easier movement of raw
materials, components and finished products
■ Deregulation of the worlds financial markets- allowing for easier
transfer of funds, as well as tax avoidance
■ Increasing economic and political power of MNC’s- this can be of
enormous benefit, especially in middle and low income countries
● Impact of MNC’s on the host countries:
○ Advantages for the host country:
■ Economic growth- MNC’s can boost the domestic economy by providing
employment, developing a local network of suppliers and paying taxes
and providing capital injections
 ■ New ideas- MNC’s may help develop the skills of local employees.
Domestic businesses can benefit from starting their own business with the
skills learned
■ Greater choice of products- the domestic market will benefit as the
variety of products will increase
■ Short term infrastructure projects- MNC’s often help to build
infrastructure
○ Disadvantages for the host country:
■ Profits being repatriated (sent back)- the MNC may pay into the local
tax system, but the bulk of their profits will be rerouted away from the host
country
■ Loss of cultural identity- the appeal of domestic products, ways of doing
business and even cultural norms may be negatively impacted
■ Brain drain- many highly skilled employees may look to work for the
MNC in another country
■ Loss of market share- as MNC’s take over more of the domestic market,
domestic producers may suffer
■ Short term plans- MNC’s may not intend to stay for a long time, if lower
cost producers can be found elsewhere, they may move out at short
notice
Chapter 2.1- Introduction to human resource
management:
● Role HR management:
○ HRM- how an organisation manages its human resources, including retirement
and retention, setting compensation and benefits, and specifying job
responsibilities
○ HRM is essential for all businesses, particularly those in the service and
knowledge based sectors
○ Effective businesses prioritise having the right employees in appropriate roles
○ HR management involves ongoing processes to optimise employee performance
and suitability within the organisation
○ Businesses engage in HR planning to align workforce needs with organisational
goals
○ Proper HR planning ensures that businesses avoid overstaffing (cost
inefficiencies) or understaffing (productivity issues)
○ Successful businesses operate within a structured HR framework to maximise
employee contributions
○ HR planning is integral to matching employee skills with job requirements
○ Large businesses formalise HR processes through comprehensive HR plans
○ Small businesses may not have formal written HR plans but make decisions
based on the owners or HR directors strategy
● Internal and external factors that influence HR planning:

○
○ Demographic changes- shifts in demographic factors, such as birth rates, death
rates, education levels, religion, ethnicity, age
○ Labour mobility- the ability of workers to move occupationally or geographically.
I.e how easily workers can change their place or type of work
○ Immigration- the international movement of people into countries where they are
not citizens. Those who seek permanent residency in the new country
○ Flexi time- a flexible work schedule that allows workers to adjust the starting and
finishing times of their work day
○ Gig economy- an economy where many positions are temporary and
organisations hire independent workers for short term commitments
○ External factors:
■ Technological change- improvements in ICT can lead to more
teleworking and working from home. Infrastructure improvements can
make employing someone who lives further away easier than before
■ Government regulations- changes in laws or government regulations
regarding health and safety issues can influence a potential workforce.
Laws or government regulations can affect maximum weekly working
hours or contractual issues, such as equality in the workplace irrespective
of age, gender, ethnicity or disability. Laws generally determine
obligations such as pension provisions or retirement age
■ Demographic change- an ageing population, reduced fertility rates or
changes in immigration/emigration patterns are some of the demographic
changes that impact the potential employees available and their specific
requirements to work
■ Social trends- changes in society, such as role of women in society, rise
in number of single parent families or work-life balance can all have
significant impacts on labour
■ State of the economy- an economic boom will lead to a strain on the
pool of labour available and consequently lead to increased wages, a
recession will have the opposite effect, as more unemployed workers are
available and so they may accept lower wages
■ Changes in education- some would consider changes in levels of
education a factor of demography. Regardless, rising or falling education
levels can have a direct impact on the suitability of labour for employment.
Also relevant is the range and type of courses available to students
■ Labour mobility- many factors can influence labour mobility, which can
refer either to occupational mobility or geographical mobility. The mobility
of the workforce significantly affects the labour pool
■ Immigration- a shift in immigration can result in new workers being
available or a change in the skillset of newly arrived workers
■ Changes such as flexi time, remote working or gig economy contracts
also influence how people work
○ Internal factors:
■ Changes in business organisation- businesses change the way they
are organised to better meet their strategic objectives. Any reorganisation
can affect the current HR plan. Organisational changes affecting the HR
plan can also occur when a business acquires another business or is
itself acquired
■ Changes in labour relations- labour relations can have a significant
impact on workforce planning. If the labour force chooses to unionise then
 the business would have to contend with the work requirements set by the
union. However, if the power of the union decreases the business may
have more flexibility with workers
■ Changes in business strategy- whether in response to changes in
circumstances in the market or to the business re-orienting itself, changes
in business strategy may lead to amendments to the HR plan
■ Changes in business finance- the financial situation of a business will
have an impact on the HR plan. A business that has limited resources
may not be able to pay the highest wages and salaries which would affect
recruitment and retention
● Changes in work patterns, practices and preferences:
○ External factors such as social trends have influenced these changes in
response to evolving labour pools
○ Employees increasingly seek a better work life balance which has become a
prominent preference in modern work environments
○ Businesses are adapting their practices to align with employees desires for
improved work life balance
○ Internal factors within businesses also contribute to these changes, with new
work practices benefiting both employers and employees
○ Companies are leveraging these changes to enhance productivity and
employee satisfaction
○ The evolving landscape of work practices reflects a blend of societal shifts and
internal organisational strategies
○ The integration of new work patterns aims to optimise efficiency while
addressing employees needs for flexibility and balance
○ Factors changing the working environment:
■ Privatisation and the move away from public sector to private sector
employment
■ Increased migration of potential employees in a country or region and
across the globe
■ Increasing participation of females in the workforce
■ Changing educational opportunities
■ Increasing urbanisation and the consequent rise in stress levels
■ An ageing population and increasing average age of the workforce
○ Changes in work patterns:
■ With ICT improvements, it has become easier to identify which
occupations are expanding and which are contracting
■ This shift allows individuals in contracting professions to identify growing
occupations and acquire the necessary skills for those positions leading
to a more common trend of occupational mobility compared to previous
eras
■ ICT provides opportunities to match individuals seeking positions with
countries or regions experiencing shortages in specific skill sets
 ■ Before the ICT revolution, matching skilled individuals to regions where
their skills were needed was significantly more challenging
■ ICT facilitates faster processing of data regarding skills and demand in
specific geographic regions, enabling easier dissemination of information
about skills, mismatches and job opportunities
○ Changes in work practices:
■ Both nature of work and types of jobs have changed as businesses have
responded to greater demand for flexible working practices
■ Work practices in decline:
● Full time- when employees work the maximum hours per week
accepted by laws
● Permanent contracts- when employees are hired for positions
without a predetermined time limit
■ Work practices on the increase:
● Part time work- when employees work less than the full time
weekly maximum hours
● Temporary work- work that is on a fixed term contract, usually of
a temporary nature. The employee would normally sign up to an
agency who finds them work
● Freelancing- when someone is self employed works for several
different employers at the same time
● Teleworking- work taking place from home or a
telecommunication centre. Usually, the employee would have a
core number of hours they have to work at the office and the
remainder would be from home
● Homeworking- when an employee works from home. Usually, the
employee would have a core number of hours they have to work
at the office and remainder would be from home
● Flexi time- work involving a set number of hours of an employees
own choosing. Usually the employee would have a core number of
hours they have to work at the office the rest is up to the employee
● Casual fridays- when an employee is allowed to wear less formal
dress on friday so that it is easier to go away at the weekend
● Three day weekend- instead of working for 5 8 hours days, the
employee works 4 10 hour days and so has a 3 day weekend
● Gig economy- where organisations hire independent workers for
short term commitments. Some people praise the gig economy for
its flexibility for both employees and employers, while other
criticise it as it means workers are not receiving most of the
benefits of full time employment
○ Changes in work preferences:
■ Many employees are now adapting their work routines to suit changing
lifestyles
■ Methods to adapt work routines:
 ● Career breaks- an employee decides to stop working for a time,
typically a year or more before returning to work in the same
career. Sometimes the employer formalises this which is known as
sabbatical
● Job share- two or more employees decide to share a job in order
to free up more time for other activities
● Downshifting- an employee gives up a senior position or highly
paid employment in order to change career into a different lower
paid field or area of interest
● Study leave- an employee is granted time off work to acquire a
new qualification
● Impact of innovation, ethical considerations and cultural differences:
○ Innovation:
■ Innovation and inertia impact HR processes significantly
■ Innovative businesses prioritise HR strategically above other functions
■ Innovation are driven by people
■ Successful innovation requires recruiting and retaining the right people
■ Developing a supportive and stimulating business environment is crucial
for the creative process in HR planning
○ Ethical considerations:
■ HR planning is closely linked with ethical behaviour reflecting how
businesses treat their employees
■ Stakeholders including employees and the public expect businesses to
treat employees ethically
■ The internet and social networking platforms enable rapid sharing of
information including employee experiences
■ Businesses must prioritise ethical behaviour to maintain reputation and
trust in the digital age

■
○ Cultural differences:
 ■ Cultural differences significantly impact HR planning for businesses with
multicultural workforces
■ MNC’s operating in different countries and domestic businesses
employing migrant workers must navigate cultural diversity
■ Increasing diversity in citizen populations affects workforce composition
● Children of migrant workers growing up as citizens in adopted
countries contribute to workforce diversity
■ Adapting HR plans to accommodate cultural diversity enhances business
success
■ Businesses with diverse workforces are more likely to succeed in markets
reflecting similar diversity

■
● Reasons for resistance to change in the workplace:
○ Discomfort- employees are often happy with the current situation and want to
maintain the status quo
○ Fear- changes often makes employees afraid simply because they do not know
what will happen
○ Insufficient reward- employees often perceive that implementing the change
requires them to do more work without an increase in compensation
○ Lack of job skills- employees may not have the skills necessary to perform in
the changed work environment
○ Loss of control- when managers insist on change, employees feel that they do
not have control over their lives
○ Mistrust- employees sometimes do not trust managers
○ Poor communication- employees do not know why the business needs to
change
○ Poor timing- change is brought for about for the needs of the organisation but
might occur at a time that for either professional or personal reasons may fit
poorly with the needs of employees
○ Prior experience- an employee may have had a bad experience with change in
another organisation or at an earlier time with their current employer
 ○ Social support- an employee who works with a group of people who resist
change may choose to resist for the sake of maintaining social relationships
● HR strategies to reduce the impact of change and resistance to it:
○ Good organisations take a proactive approach to change by leading and
managing employees through the change process
○ Effective change management reduces resistance and facilitates the transition to
new circumstances
○ Steps taken to support employees with changes made:
■ Develop a clear vision and desired outcomes for the change process,
aligning with the organisation's overall aims.
■ Allocate sufficient resources to support and implement the change
effectively.
■ Involve employees from the beginning to foster engagement and
empowerment throughout the change process.
■ Maintain transparent and regular communication with stakeholders about
the progress and challenges of the change process.
■ Provide necessary training to employees to enhance their readiness and
confidence in adapting to the changes.
■ Continuously communicate the benefits of the changes to employees and
stakeholders.
■ Support employees before, during, and after the change to mitigate stress
and facilitate a smooth transition.
Chapter 2.2- Organisational structure
● Organisational charts:
○ Organisational chart- depicts the reporting relationships within an organisation.
All levels of the organisation are depicted and the chart shows who reports to
whom down to the least senior level of employees in the organisation

○
■ Hierarchy- a system organising or ranking people according to power or
importance
■ Line manager- people who have the authority to make decisions and
who bear responsibility for the outcomes of those decisions
■ Staff manager- someone with the authority to communicate a decision
made by the CEO without the responsibility for that decision
■ Chain of command- the official hierarchy in an organisation. The chain of
command indicates who reports to which manager and which manager
has authority over specific employees
■ Span of control- the number of people reporting to a specific manager. A
wide span of control means many people reporting to the manager. A
narrow span of control means a small number of people reporting to the
manager
■ Delegation- assigning authority or responsibility over specific tasks from
one person, a manager to someone lower on the organisational chart.
The manager remains accountable for the successful completion of the
delegated tasks
■ Bureaucracy- refers to any organisation with multiple layers of authority.
Because bureaucracies often have complex approval processes, decision
making is typically slower than in small organisations
■ Centralisation- when a personnel at the main or central office of the
business have the authority for decision making. Personnel not in the
central office implement the decisions made by it. Centralisation can also
occur at one location, when senior management retain all key decision
making functions for themselves and delegate little or no decision making
authority to others
■ Decentralisation- decision making authority is delegated out to offices
from the main or central office. Managers in regional or outlying offices
have authority for making many types of tactical and operational decisions
■ Delayering- the process of removing levels of hierarchy in an
organisation. The aim of delayering is usually to improve an organisations
efficiency by making it less bureaucratic
 ■ Matrix structure- typically exists in contexts where projects and project
completion require involvement from people with different expertise from
different areas of the organisation. In this structure, people work in teams
and report to these people with different expertise. Thus they report to
more than one person when doing their job
○ Types of organisation chart:
■ Tall or vertical organisational structure:
● A tall organisational structure is the traditional organisational form
of a business and is common in well-established businesses
● Features:
○ Many levels of hierarchy
○ Narrow spans of control
○ Centralised decision making
○ Long chains of command
○ Autocratic leadership
○ Limited delegation
■ Flat or horizontal organisational structure:
● Is a modification of a traditional structure
● Features:
○ Few levels of hierarchy
○ Wider span of control
○ Decentralised decision making
○ Shorter chains of command
○ Democratic leadership
○ Increased delegation
■ Organisational structure by hierarchy:
● Individuals at the top have more authority than those below them

●
■ Organisational structure by function:
● Indicates what employees do, they are grouped by department.
Then organised by seniority
 ●
■ Organisational structure by product:
● Presenting organisational structure by what the business produces

●
■ Organisational structure by region:
● Presenting organisational structure according to where the
business operations are

●
● Changes in organisational structures:
○ Project based organisation:
■ Project based organisation- an organisational form, often similar to a
matrix structure that organises work into projects. Thus project-based
organisations create temporary systems for carrying out different projects
■ Designed to be more flexible and responsive to market demands
■ Have project managers who run teams of employees focusing on
individual projects
■ After a project is completed, the team is split up and reassembled to
begin another project
■ Many teams typically operate at once, but they do not interact with each
other because each team is focused on completing its own project
■ Each team borrow members of different departments to complete the
project
■ The business structure is common in construction and IT, where
businesses are often under contract to run multiple projects
simultaneously
■ Also known as a matrix structure

●
○ Shamrock organisations:
■ Shamrock organisation- has three types of employees- full time
professional core, flexible labour force and contractual (outsourced) group
■ The model suggests that businesses can reduce costs, gain a competitive
advantage and increase response time by trimming their workforce
■ Businesses should retain only a multiskilled core focused on the creation
or delivery of a product or service

■
● The first leaf represents the core managers, technicians and
employees essential to the business
● The second leaf is the contractual fringe, because non core
activities are subcontracted out to specialist businesses
● The third leaf consists of a flexible workforce made up of part time,
temporary and seasonal workers
○ Appropriateness of different organisational structures:
■ No single correct form of organisational structure exists
■ Organisations are structured by executives in ways that they believe will
maximise business objectives
■ Large chains of grocery stores are often organised by region
■ Manufacturing firms may be organised by function or by product,
depending on their market nature
■ As objectives or external conditions change, executives often reconsider
and restructure their organisations
■ Large bureaucratic firms periodically delayer to become less bureaucratic
and more responsive to market pressures
■ High tech start ups often have flat organisational structures
■ As start ups grow, management may add levels of hierarchy to bring more
order
Chapter 2.4- Leadership and management
● Introduction to management:
○ Management- the ongoing process of planning, decision-making, organising,
leading, motivating and controlling the financial, human, physical and information
resources of a business or organisation, with the aim of efficiently and effectively
reaching the goals of the business or organisation
○ Leadership- a process of motivating a group or team of people to work towards
the goals of a business or organisation. Unlike management, leadership is an
“art”; an intangible ability to inspire, lead, coerce or charm through charisma and
other affective and intellectual qualities
○ Functions of management:
■ Planning- managers must plan. They must set strategic objectives,
tactical objectives and even operational objectives all of which have
implications throughout the organisation
■ Organising- managers must make sure that the business has sufficient
resources to achieve its objectives. This process requires careful
organisation, as too many resources tie up too much capital; too few
mean that the organisations objectives cannot be met
■ Commanding- managers must make sure that all individuals know which
duties they are to perform. If necessary, managers must also make sure
that employees receive instruction in how they are to perform their tasks
■ Coordinating- managers must bring together the various resources to
achieve objectives. In many businesses various activities are going on,
each activity contributing to the output of the business. Managers must
coordinate these activities, making sure that each activity is done when
and where it is supposed to be
■ Controlling- managers have the power over a given situation to achieve
objectives. They have power to test quality so that processes can be
changed if necessary. They also have power to expand or reduce the
scale of operations as conditions require
● Difference between scientific and intuitive thinking/management:
○ Managers and leaders can approach responsibilities in several ways
○ One categorisations divides managers into those who use deliberative thinking
processes (scientific thinking) and those who follow their intuition
○ Most managers use a combination of both approaches depending on the specific
circumstances
○ Evidence may suggest a certain way to make a decision, which aligns with
scientific management
○ Sometimes, managers disregard evidence and act on a feeling, hunch or gut
instinct
○ Acting on intuition involves broadening the evidence considered in an
unsystematic way
● Management vs leadership:
○ A manager is responsible for planning and overseeing the work of a group,
monitoring progress and ensuring the plan is put into effect
○ A manager deals with complexity
○ Managers are often task-oriented, focused on timely task accomplishment rather
than leading people
○ To get tasks accomplished, managers:
■ Instruct and coordinate people
■ Help subordinates resolve problems
■ Have technical expertise and apply it by setting strict schedules and
giving precise instructions
■ Have authority by virtue of their position in the organisation
■ Generally like to make the organisation function and tend not to challenge
it
○ Contrastingly, a leaders role is more emotional, aiming to inspire people to follow
voluntarily
○ A leader spends significant time and energy building relationships and is
relationship-oriented
○ Leaders:
■ Motivate and inspire with personal qualities
■ Often rely on instincts, even when evidence suggests a less safe option
■ Have vision, attracting followers because of that vision
■ Often envision the organisation doing things in a totally different way and
inspire confidence to bring about systemic change and innovation
○
Chapter 3.1- Introduction to Finance:
● Capital expenditure:
○ Capital expenditure: money spent to acquire fixed assets in a business
 ○ Fixed assets- assets that should last more than one year. Examples are land,
machinery, buildings, vehicles and equipment
○ Most fixed assets can be used as collateral
● Revenue expenditure:
○ Revenue expenditure- is the money used in the day-to-day running of a
business
○ Examples are rent, wages, raw materials, insurance and fuel
○ They do not involve the purchase of fixed assets
○ Funds for revenue expenditure need to be available immediately to keep the
business operational and should provide instant benefits
Chapter 3.2- sources of finance:
● Internal sources of finance:
○ Personal funds:
■ Personal funds- are a source of finance for sole traders that comes
mostly from their own personal savings
■ Advantages:
● The sole trader knows exactly how much money is available to
run the business
● It provides the sole trader with much more control over the
finances than other finance options. It also means that the sole
trader does not need to pay the funds back or rely on outside
investors or lenders who could decide to withdraw their support at
any time
■ Disadvantages:
● Poses a large risk to the owners or sole traders as they could be
investing their life's savings
● If the savings are not sufficient, it may prove difficult to start or
maintain a business, especially if this is the only source of finance
○ Retained profit:
■ Retained profit- profit that remains after a business has paid out
dividends to its shareholders. The profit may be reinvested back into the
business for growth purposes
■ Advantages:
● Cheap and does not incur interest charges
● Permanent source of finance as it does not have to be repaid
● Flexible as it can be used in a way the business deems fit
● Owners have control over their retained profits without
interference from banks or other financial institutions
■ Disadvantages:
● Start ups will not have any retained profits
● If retained profit is too low, it may not be sufficient for business
growth or expansion
● High retained profit may mean that either very little or nothing
was paid out to shareholders. This could be less attractive to
stock buyers than a smaller profitable business that distributes
dividends generously to its shareholders
○ Sale of assets:
■ Sale of assets- is when a business sells off its unwanted or unused
assets to raise funds
■ Advantages:
● Good way of raising cash from capital that is tied up in assets
which are not being used
● No interest or borrowing costs are incurred
■ Disadvantages:
● Only available to established businesses
 ● Time consuming to find a buyer for the assets
● External sources of finance:
○ Share capital (equity capital):
■ Share capital- is the money raised from the sale of shares of a limited
company
■ Advantages:
● Permanent source of capital as it does not have to be repaid. If
the shareholders want to get their money back they have to find a
buyer for their shares
● No interest payments and this relieves the business from
additional expenses
■ Disadvantages:
● Shareholders will expect to be paid dividends when the
business makes a profit
● Ownership of a public limited company may change
○ Loan capital:
■ Loan capital- money sourced from financial institutions such as banks,
with interest charged on the loan to be repaid
■ Advantages:
● Accessible and quick to arrange
● Repayment is spread out over a predetermined period of time,
reducing the burden to the business of having to pay it in a lump
sum
● Large organisations can negotiate for lower interest charges
depending on the amount they want to borrow
● Owners still have full control of the business if no shares are
issued to dilute their ownership
■ Disadvantages:
● Capital will have to be redeemed even if the business is making a
loss
● Collateral is required
● Failure to repay the loan may lead to the seizure of a firm's assets
● If variable interest rates rise, a company with a variable rate loan
could encounter higher debt payments
○ Overdrafts:
■ Overdrafts- when a lending institution allows a firm to withdraw more
money than it currently has in its account
■ Advantages:
● Provides an opportunity for firms to spend more money than they
have in their account, which helps in settling short term debts
such as paying suppliers or wages for their staff
● Flexible form of finance as its demand will depend on the needs
of the business at a particular point in time
 ● Charging interest only on the amount overdrawn can make it a
cheaper option than loan capital
■ Disadvantages:
● Banks can request for the overdraft to be paid back at very short
notice
● Due to the variable nature of an overdraft, the bank can charge
high interest rates
○ Trade credit:
■ Trade credit- an agreement between businesses that allows the buyer of
goods or services to pay the seller at a later date
■ Advantages:
● Businesses are left in a better cash flow position than if cash
was to be paid immediately
● Interest free means of raising funds for the length of the credit
period
■ Disadvantages:
● Debtors (businesses) lose out on the possibility of getting
discounts had they purchased by paying cash
● Delaying payment to creditors or suppliers after the agreed period
may lead to poor relations between the debtors and suppliers,
leading to suppliers refusing to engage in future transactions
with the debtors
○ Crowdfunding:
■ Crowdfunding- when a business venture or project is funded by a large
number of people each contributing a small amount of money
■ Advantages:
● Provides access to thousands of investors who can see and
interact with and share a projects fundraising campaign
● Valuable form of marketing because pitching a project or
business through the online platform can result in media attention
that publicises the business
● Provides an opportunity for feedback and guidance.
Suggestions on how to improve can be made by a team of experts
● The business maintains full control and won’t have to forfeit
control when raising funds. It can decide how to structure the
campaign including how much to ask for and how to operate once
it gets funding
● Good alternative finance option, as it provides another pathway
for businesses that have struggled to get bank loans or traditional
funding
■ Disadvantages:
● Businesses seeking crowdfunding have strong competition. So
businesses need a detailed plan and clever way to differentiate
themselves from their competitors
 ● Subject to thorough security and rejection. It is not enough to
have a solid idea, you need to follow all the rules about what is
allowed and what isn’t. If all requirements are not met then the
campaign will not be published
● Fees need to be paid. Many crowdfunding platforms take a
percentage of the contributions raised. The fees are usually
minimal, but they still reduce the amount of money a project may
otherwise get
● Potential risk of failure
○ Leasing:
■ Leasing- source of finance that allows a firm to use an asset without
having to purchase it with cash
■ Is where a business (lessee) enters into a contract with a leasing
company (lessor) to acquire or use particular assets such as equipment
or machinery
■ This allows a firm to use an asset without having to purchase it with cash
■ Periodic or monthly leasing payments are made by agreement between
the lessor and lessee
■ In some cases the business may get into a finance lease agreement,
where at the end of the leasing period they are giving the option of
purchasing the asset
■ Advantages:
● A firm does not need to have a high initial capital outlay (revenue
expenditure) to purchase the asset
● The lessor takes on the responsibility of repair and maintenance of
the asset
● Leasing is useful when particular assets are required only
occasionally or for short periods of time
■ Disadvantages:
● Leasing can turn out the be more expensive than the outright
purchase of an asset due to the accumulated total costs of the
leasing charges
● A leased asset cannot act as collateral for a business seeking a
loan as an additional source of finance
○ Microfinance providers:
■ Microfinance providers- institutions that provide banking services to low
income or unemployed individuals or groups who would otherwise have
no other access to financial services
■ Services provided include microcredit (small loans), microinsurance and
savings or current accounts
■ Microfinance aims to reach excluded customers and help them become
self sufficient
■ Advantages:
● Do not seek collateral for providing financial credit
 ● Provide or disburse loans quickly and with less formalities to
individuals, groups or small businesses, so they can meet any
financial emergency
● Extensive portfolio of loans including working capital loans,
housing loans, etc
● Promote self sufficiency and entrepreneurship. Which is done
by providing funds to individuals to set up a business that may
need minimal investment but will provide a sustainable profit
■ Disadvantages:
● Microfinance institutions can adopt harsh recovery methods in
the event of the customer not having legal representation
● Offer smaller loan amounts or financial capital than other
financial institutions that provide much larger amounts
● The interest rates on their loans are high and they find it difficult
to offer lower rates. This is because they do not operate in the
same manner as traditional banks and they borrow money from
banks, thus their operating cost per transaction is quite high
despite the large volume of transactions every day
○ Business angles:
■ Business angles- highly wealthy individuals who provide financial
capital to small start ups or entrepreneurs in return for ownership equity in
their businesses
■ They invest in high risk businesses that show good potential for high
returns or future growth
■ May provide one time initial capital injection or continually support the
business through their lifetime
■ Advantages:
● More open to negotiation than other institutions or lenders to
small or start up businesses. This is because they are usually
successful entrepreneurs who understand the amount of risk
involved with establishing a business. Their flexibility and risk
taking attitude make them one of the best sources of finance in
this situation
● No repayment or interest is required. Angel investors fund the
business and in exchange get ownership stake in the business. If
the business succeeds, both the business and angel investor
benefit, if not the angel investor does not get paid back
● They offer valuable knowledge and they focus on helping a
business succeed by using their extensive business experience
coupled with good financial capital
■ Disadvantages:
● Business angels may assume a large degree of control or
ownership, therefore diluting the ownership of the entrepreneur
 ● They may expect a substantial ROI within the first few years, thus
creating additional pressure on the business
● Short and long term finance:
○ Short term finance:
■ Money needed for the day-to-day running of a business and that provides
the required working capital
■ External short term financing is usually expected to be paid back within 12
months or less
■ Examples: bank overdrafts, short term loans and trade credit
○ Long term finance:
■ Funding obtained for the purpose of purchasing long term fixed assets or
other expansion requirements
■ Typically used for the improvement of the business
■ Businesses that take up external long term financing usually have a time
span of more than one year to pay it back
■ Examples: long term bank loans and share capital
● Factors influencing the choice of a source of finance:
○ Purpose or use of funds:
■ Source of finance must match the specific requirements of the business
■ Whether or not the finance needed is long term or short term
○ Cost:
■ Costs such as interest payments, administration cost and costs
associated with a share issue all need to be considered when obtaining
the source of finance
■ Opportunity cost (lost benefit that would have been derived from an
alternative) is also an important consideration
○ Status and size:
■ Public limited companies have more options in obtaining finance
compared to sole traders, because sole traders are smaller and less well
known
■ Large organisations have added collateral that they can use to negotiate
lower interest rates
○ Amount required:
■ For small amounts, firms may consider mostly short term sources of
finance, such as bank overdrafts. Whereas, for larger amounts, long term
bank loans or issuing of shares are available options
○ Flexibility:
■ This considers the ease with which a business can switch from requiring
one form of a source of finance to another
■ Businesses may need additional finance at particular points during their
trading period, possibly due to unexpected changes resulting in them
requiring additional financing
■ The availability of finance in such a short period depends on the flexibility
of the business in adapting to change
○ State of the external environment:
■ Factors that the business has no control over. Such as interest rates or
inflation (persistent increases in average prices in an economy) will
greatly affect the purchasing decisions made by consumers and
producers. This will affect the choices businesses make in sourcing their
finance
○ Gearing:
■ High geared- large proportion of loan capital to share capital
■ Low geared- smaller proportion of loan capital to share capital
■ High geared businesses are viewed as risky by banks and other financial
institutions
Chapter 3.3- Costs and revenues:
● Introduction:
○ Cost- is an expenditure or amount paid to produce or sell a good or service,
including the acquisition of business resources
○ Revenue- is income earned or money generated from the sale of goods or
services
○ Profit- is calculated by subtracting costs from revenue. A high positive difference
(where revenue is higher than costs) is a good indicator of business success
● Types of costs:
○ Fixed costs- costs that do not change with the amount of goods or services
produced. They have to be paid regardless of any business activity the firm
engages in
○ Variable costs- costs that change with the number of goods or services
produced. They are expenses that change in the proportion to business activity.
They are volume related as they are paid per quantity produced
○ Direct costs- costs that can be identified with the production of specific goods or
services. They are expenses that can be traced directly to a specific product,
department or process. Direct costs include raw materials, labour and packaging
costs
○ Indirect costs- costs that are not clearly identified with the production of specific
goods or services. Also known as overheads/overhead costs
○ 𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 × 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑜𝑙𝑑
○ Revenue- a measure of the money generated from the sale of goods and
services
○ Total revenue- the total amount of money a firm receives from the sale of goods
or services
○ Revenue streams:
■ Rental income- a business could receive income from rent it collects
from property it has invested in. A seasonal business could also hire out
its office or factory space during times when demand for its products is
low
■ Sale of fixed assets- this could be from the sale of unused or
underutilised assets in a business
■ Dividends- a business could be a shareholder in other businesses and is
entitled to a share of the profits, also known as dividends
■ Interest on deposits- holding substantial amounts of cash in the bank
can lead to a business earning good levels of accumulated interest on the
money if the interest rates are favourable
■ Donations- these could be cash gifts made by an individual or
organisation targeting mostly charitable organisations
Chapter 3.4- Final accounts:
● Purpose of accounts to different stakeholders:
○ Final accounts are financial statements compiled by businesses at the end of a
particular accounting period, such as the end of a fiscal or trading year
○ These records of accounts, including transactions, revenues and expenses all
help to inform internal and external stakeholders about the financial position and
performance of an organisation
○ Shareholders:
■ Evaluation of business value and profitability during the financial year
■ Shareholders measure the safety of their investment by assessing
business profitability
■ Shareholders examine how efficiently the business is investing capital to
generate a worthwhile return
■ Shareholders are concerned about the performance of directors, thus
deciding whether motivation or replacement is necessary
○ Managers:
■ Used by managers to set performance targets
■ Enables judgement and comparison of performance over a specific
financial period
■ Managers utilise final accounts to establish goals for their performance
■ Final accounts aid in the formulation of budgets for effective financial
planning
■ Budgets, derived from final accounts assist in monitoring and
controlling expenditure in different departments
■ Understanding financial records supports managers in strategic
planning
■ Final accounts contribute to more informed and effective decision
making in businesses
○ Employees:
■ The business being profitable can be an indicator to employees that their
jobs are secure. Which may hint that they get pay rises
■ If salaries do not increase they can consult trade unions to negotiate for
higher salaries
○ Customers:
■ They are interested in knowing whether there will be a constant supply
of a firm's products in the future. This determines how dependent they
should be on the business
■ If a firm lacks security, possibly due to low profitability, customers will
look at other firms supply to satisfy their need or want, wherein the
supply is reliable and guaranteed
○ Suppliers:
■ Suppliers can use final accounts to negotiate better cash or credit
terms with firms
■ They can extend the trade credit period or demand immediate cash
payments
 ■ The security of the business and its ability to pay off its debts is a keen
importance for suppliers
○ The government:
■ Government and tax authorities will check on whether the business is
abiding by the law regarding accounting regulations
■ They will be interested in the profitability of the business, which
determines how much tax it needs to pay
■ A loss making business is a concern to the government, as it increases
chances of unemployment- which is detrimental to the countries
economy
○ Competitors:
■ Businesses will want to compare their financial statements with other
firms to see how they are performing financially
○ Financiers:
■ To check the creditworthiness of the business to determine how much
money to lend- also depends on the gearing of the business
■ Banks will assess the accounts of a business so that they are confident
that the business will be able to pay back the loan with interest
○ Local community;
■ Residents living around a business would want to know the business’s
expansion potential and profitability, because it may create job
opportunities and lead to growth in the community
■ Residents can also be concerned on whether the business would be
environmentally friendly
● Main final accounts:
○ Income statement:
■ Three parts- trading account, profit and loss account and
appropriation account
■ Trading account- shows the difference b/w sales revenue and costs
to the business. Shown at the top part of the income statement, that
establishes the gross profit of the business
■ Profit and loss account- used to find out profit before interest and tax,
how expenses are subtracted from gross profit. Expenses comprise of
indirect costs or overheads
■ Appropriation account: final part of the income statement. Shoes how
the company's profit for period is distributed
■ Format:

●
 ■ Formulas:

●
○ Balance sheet:
■ Balance sheet- a financial statement that outlines the assets, liabilities
and equity of a firm at a specific point in time
■ Snapshot of the financial position of a firm
■ Used to calculate a firm's net worth
■ Provides information on what the firm owns and owes
■ Includes the amount shareholders have invested
■ Total assets must equal total liabilities + equity
■ Three components of the balance sheet:
● Assets:
○ Non current- also called fixed assets. Long term assets
that last the business for more than 1 year. Examples are
buildings, equipment, vehicles and machinery. Some
assets depreciate, which should be taken into account
○ Current- short term assets that last a business less than 1
year. Includes cash, debtors and stock
■ Cash is the money received from the sale of
goods/services, which could be held either at the
bank or by the business
■ Debtors are individuals or other firms that have
bought goods on credit and owe the business
money
■ Stock consistent of inventory- raw materials, semi
finished goods and finished goods
○ 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑛𝑜𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 + 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
● Liabilities:
 ○ Non current- long term debts/borrowings payable after 12
months. Examples are long term bank loans and
mortgages
○ Current- short term debts that are payable by the business
within 12 months. Examples are creditors (unpaid
suppliers who sold goods on credit to the firm), bank
overdraft and tax
○ 𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝑛𝑜𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
○ 𝑁𝑒𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝑡𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
● Equity:
○ Equity- refers to the amount of money that would be
returned to a business if all of the assets were liquidated
○ Liquidation- a situation where all of a firm's assets are
sold off to pay any funds owing
○ Share capital- refers to the original capital invested into
the business through shares bought by shareholders. It is
a permanent source of capital and does not include the
daily buying and selling of shares in a stock exchange
market or the current market value of shares
○ Retained earnings- includes all current and prior period
retained profits (for profits) and retained surpluses (non
profit)
○ 𝐸𝑞𝑢𝑖𝑡𝑦 = 𝑠ℎ𝑎𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑟𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 (for profit)
○ 𝐸𝑞𝑢𝑖𝑡𝑦 = 𝑟𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 (non profit)
○ 𝑁𝑒𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑒𝑞𝑢𝑖𝑡𝑦 (both for and non profit)
■ Formats:

●
 ●

● Intangible assets:
○ Intangible assets- assets that are non-physical in nature
○ Patents- provide inventors with the exclusive rights to manufacture, use, sell or
control the product or process they invented. The inventors are provided with
legal protection that prevents others from copying the idea. Anyone wanting to
use the patent must pay a fee and be granted permission. Typical legal lifespan
is 20 years, but it depends on the useful life of the patent
○ Goodwill- the value of positive or favourable attributes that relate to a
business. Includes a good customer base and relations, strong brand name,
highly skilled employees, desirable location and good reputation. Goodwill is
relevant when a firm purchases another. Goodwill is valued as the amount
paid by the purchasing firm over and above the book value of the firm being
bought
○ Copyright laws- legislation that provides creators with the exclusive right to
protect the production and sale of their artistic or literary work. Copyright laws
only apply if the original ideas are put to use. Typically lasts for 50-100 years
after the death of the creator. Permission must be sought
○ Trademark- a recognisable symbol, word, phrase or design that is officially
registered and that identifies a product or business. They are difficult to value due
to their subjective nature.
○ Intangible assets can be used to ‘window dress’ the value of a firm just before its
purchase
● Depreciation:
○ Depreciation- the decrease in value of a fixed asset over time
○ Reasons for depreciation:
■ Wear and tear- the repeated use of non current assets causes them to
fall in value and more money is needed to maintain them
 ■ Obsolescence- existing non current assets fall in value when new or
improved versions are introduced in the market
○ Straight-line method:
■ Straight line depreciation- a method that spreads out the cost of an
asset equally over its lifetime by deducting a given constant amount of
depreciation of the assets value per annum
■ Requires the following:
● Expected useful life- length of time it intends to be used before
replacement
● Original cost of the asset
● Residual/scrap/salvage value of the asset- estimation of its worth
or value over its useful life

■
■ Advantages:
● Simple to calculate as it is a predictable expense that is spread
over a number of years
● Most suitable for less expensive items, such as furniture
■ Disadvantages:
● Not suitable for expensive assets, such as plant and machinery,
as it does not cater for loss in efficiency or increase in repair
expenses
● Can inflate the value of some assets which have lost the
greatest amount of value in their first or second years, such as
motor vehicles
● Does not take into account the fast changing technological
environment that may render fixed assets obsolete very quickly
○ Units of production method:
■ Units of production depreciation- also called units of activity method, it
calculates the depreciation of the value of an asset based on usage
■ Requires the following:
● Cost basis of the asset- the total amount paid to acquire the asset.
The original value of the asset
● Salvage value of the asset- estimated value if it were to be sold at
the end of its useful life
● Estimated total number of units to be produced- wear and tear on
the machinery is the result of the number of units it is expected to
produce over its useful life. Based on production estimates or
historical information
● Estimated useful life
● Actual units produced
■
■ Advantages:
● This method writes down an asset based on its usage as
opposed to time. Which is a more accurate reflection of the
declining physical value of the asset
● Accurately matches revenues and expenses. As this method is
based on asset usage, it is important to note that the expenses
fluctuate with customer demand. This allows revenues generated
to be matched to expenses when producing financial statements,
hence providing a more realistic view of what is taking place in the
business
■ Disadvantages:
● Only useful to manufacturers or producers, as tertiary
business assets are not valued by usage
● This method is not allowed for tax purposes. It cannot be used
when a business computes its tax returns at the end of the year
● Can be complicated to compute the units of depreciation.
Measuring output is difficult and the depreciation expense must be
calculated each period
Chapter 3.5- profitability and liquidity ratio analysis
● Profitability ratios:
○ These ratios assess the performance of a firm in terms of its profit generating
ability
○ Gross profit margin:
■ Calculated by dividing the gross profit by the sales revenue, expressed as
a percentage
𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
■ 𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒
× 100
■ Strategies to improve gross profit margin:
● A company can raise prices in less competitive markets or
where consumers are less price-sensitive, potentially boosting
sales revenue as demand might not decrease significantly.
However, this strategy could harm the company's image among
loyal customers who may see it as an attempt to overcharge for
higher profits
● A company can lower purchase costs by finding more
affordable material suppliers, thereby reducing the cost of
sales and improving the gross profit margin. It is essential,
however, to ensure that this cost-cutting measure doesn't
compromise the quality of materials, as it could result in
customer dissatisfaction
● A company can employ more assertive promotional strategies
to encourage product purchases. However, it's crucial to avoid
costly campaigns that could raise overall expenses for the
business
● A company can cut direct labour costs by enhancing staff
productivity or increasing the units sold per employee. This
may involve letting go of unproductive staff, but caution is
necessary to avoid demotivating or lowering morale among the
remaining workforce
○ Profit margin:
■ Calculated by dividing the net profit before interest and tax by the sales
revenue, expressed as a percentage
𝑝𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑡𝑎𝑥
■ 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒
× 100
■ A high profit margin could mean that a firm is meeting its expenses very
well
■ A low profit margin could indicate difficulties in controlling its overall costs
■ Additional strategies to improve profit margin:
● A firm can carefully check the indirect costs to see where
unnecessary expenses may be avoided. For example reducing
expenditure on holiday packages for senior managers, however
this demoralises senior managers
● A firm could negotiate with key stakeholders with the aim of
cutting costs. For example negotiating with landlords for cheaper
 rent, however this could result in the firm changing their location
which is less desirable and may result in the firm losing its prestige
○ Return on capital employed:
■ Assesses the returns a firm is making from its capital employed
■ 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 = 𝑛𝑜𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝑒𝑞𝑢𝑖𝑡𝑦
𝑝𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑡𝑎𝑥
■ 𝑅𝑂𝐶𝐸 = 𝑛𝑜𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝑒𝑞𝑢𝑖𝑡𝑦
× 100
■ Important ratio because it analyses and judges how well a firm is able to
generate profit from its key sources of finance. Comparisons should also
be made on the ROCE of past years, together with those other firms to
get a better assessment of the performance of a firm
■ Possible strategies to improve ROCE:
● A firm should try to reduce the amount of long term loans while
still ensuring that profit before interest and tax remains
unchanged or does not fall. The problem with this is that long
term loans may be needed to purchase essential fixed assets
such as machinery which will aid in the further production of goods
that could be sold to generate more profit
● A firm could declare and pay additional dividends to
shareholders. This will have the effect of reducing the retained
profit and hence raising the ROCE, assuming that profit before
interest and tax does not decrease. The drawback is that
reducing retained profit leads to less ploughed back profit for
future investment
● Liquidity ratios:
○ These ratios measures the ability of a firm to pay off its short term debt
obligations
○ Current ratio
■ A ratio that compares a firms current assets to its current liabilities
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
■ 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
■ Recommended range 1.5:2. This range will allow for the availability of
sufficient working capital to pay off the short term debts of the business
■ 1:1 ratio means that the current assets are less than the current liabilities
which could put the firm in financial difficulties when it comes to paying its
creditors
■ High current ratio also means:
● There is too much cash being held and not invested. This could be
used in purchasing non-current assets
● There are many debtors, increasing the possibility of bad debts
● Too much stock is being held, leading to high warehouse storage
costs
■ Possible strategies to improve the current ratio:
● A firm could reduce bank overdrafts and choose instead to seek
long term loans. This helps to reduce the current liabilities and
 hence improve the current ratio. However increasing long term
loans could increase the interest payable and the gearing
ratio of the business thereby its efficiency and future liquidity
position
● Sell existing long term assets for cash. This increases the
available working capital for the business. The disadvantage is
that if the same long term assets are needed back, the business
would have to lease them which can be costly
○ Acid test ratio:
■ A stringent ratio that subtracts stock from current assets and compares
this to the firms current liabilities
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠−𝑠𝑡𝑜𝑐𝑘
■ 𝑎𝑐𝑖𝑑 𝑡𝑒𝑠𝑡 𝑟𝑎𝑡𝑖𝑜 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
■ This ratio indicates to creditors how much of a firms short term debts can
be met by selling its liquid assets at short notice
■ If ratio is less than 1:1 then it means that the business is not in good
financial position
■ Possible strategies to improve the acid test ratio:
● A firm could sell off stock at a discount for cash. This will help
to improve the liquidity position of the business and make more
working capital available to pay off its short term debts. However
selling stocks at a discount could reduce the revenue generated
from the sold stock, thereby reducing the firms profits
● A firm could increase the credit period for debtors to enable
them to purchase more stock on credit. The problem is that this
leads to increased bad debts in the business if the debtors do
not pay
Chapter 3.6- Debt/equity ratio analysis
● Efficiency ratios:
○ These ratios assess how well a firm internally utilises its assets and liabilities.
They also help to analyse the performance of a firm
○ Stock turnover ratio:
■ This ratio measures how quickly a firms stock is sold and replaced over
given period
■ It considers the number of times stock is sold and replenished
𝑐𝑜𝑠𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒𝑠
■ 𝑠𝑡𝑜𝑐𝑘 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 (𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑡𝑖𝑚𝑒𝑠) = 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑠𝑡𝑜𝑐𝑘
𝑜𝑝𝑒𝑛𝑖𝑛𝑔 𝑠𝑡𝑜𝑐𝑘 + 𝑐𝑙𝑜𝑠𝑖𝑛𝑔 𝑠𝑡𝑜𝑐𝑘
■ 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑠𝑡𝑜𝑐𝑘 = 2
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑠𝑡𝑜𝑐𝑘
■ 𝑠𝑡𝑜𝑐𝑘 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 (𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠) = 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
× 365
■ Stock turnover ratio assess how quickly a company sells its stock
indicating efficiency of working capital management
■ A high stock turnover ratio implies swift sales, leading to increased
profits and showcasing effective purchasing decisions. It suggests
good control over inventory with lower chances of goods becoming
obsolete or perishable items expiring quickly
■ Variations in stock turnover exist across industries; manufacturing
companies may have lower turnover than retail businesses
■ The ratio may not be relevant for service industries that lack tangible
products as part of their stock
■ Fast stock turnover is generally favourable, but it is crucial to ensure
profitability rather than selling at low gross profit margins or at a loss
■ Possible strategies to improve stock turnover ratio:
● Slow moving or obsolete goods should be disposed of. This
will help reduce the level of stock. However this could lead to
losses due to the lost sales revenue that these goods have
generated
● Firms could offer a narrower, better selling range of products.
However this may minimise the variety of products offered to
consumers
● Keeping low levels of stock has the added benefit of reducing
the costs of holding stock. However during sudden increases
in demand, businesses with low levels of stock may not have
sufficient amounts to sustain the market
● Adopt the JIT method of production where raw materials are
only ordered when needed. The major drawback is that if there are
any delays in delivery of raw materials this would negatively
affect production and eventually sales
○ Debtors days:
■ This ratio measures the number of days it takes on average for a firm to
collect its debts from customers it has sold goods on credit
𝑑𝑒𝑏𝑡𝑜𝑟𝑠
■ 𝑑𝑒𝑏𝑡𝑜𝑟 𝑑𝑎𝑦𝑠 𝑟𝑎𝑡𝑖𝑜 (𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠) = 𝑡𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒
× 365
 ■ Possible strategies to improve debtor days ratio:
● A firm can provide discounts or other incentives to encourage
debtors to pay their debts earlier. The drawback is that the
business receives less income from these customers than was
originally agreed
● A firm can impose siff penalties, such as fines for late payers.
However, the firm might lose long term loyal customers
● A firm could stop any further transactions with overdue
debtors until payment is finalised. This still does not guarantee
payment though and some debtors may opt to seek alternative
suppliers for their goods
● A business can resort to legal means, such as court action for
consistently late payers. This may harm the reputation that a
business has with its customers
○ Creditor days:
■ This ratio measures the average number of days a firm takes to pay its
creditors. It assesses how quickly a firm is able to pay suppliers
𝑐𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠
■ 𝑐𝑟𝑒𝑑𝑖𝑡𝑜𝑟 𝑑𝑎𝑦𝑠 𝑟𝑎𝑡𝑖𝑜 (𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠) = 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒𝑠
× 365
■ Possible strategies to improve creditor days ratio:
● Having good relationships with creditors such as suppliers may
enable a firm to negotiate for an extended credit period.
However, some suppliers could object to the extension and
refuse to support the business in the future
● Effective credit control will improve the creditor days ratio.
Managers will need to assess the risks of paying creditors early
vs how long they should delay in making their payment. This
may not be an easy task and will depend on the cash flow
position and needs of the business at that time
○ Gearing ratio:
■ This measures the extent to which the capital employed by a firm is
financed from loan capital. Loan capital is a non current liability while
capital employed includes loan capital, share capital and retained profits
𝑙𝑜𝑎𝑛 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
■ 𝑔𝑒𝑎𝑟𝑖𝑛𝑔 𝑟𝑎𝑡𝑖𝑜 = 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑
× 100
■ Gearing ratios help assess a businesses debt level, crucial for
understanding its financial structure
■ Above 50% is high geared and below is low geared
■ High gearing ratios can be seen as risky by financiers
■ Potential reluctance to lend due to the substantial debt burden
■ Shareholders and investors might be concerned about the ability to pay
dividends
■ Low geared business can be seen as too safe as they may not borrow
enough for future growth
 ■ Shareholders may view low geared businesses as offering minimal
returns
■ High geared businesses are more preferred due to their growth strategies
and potential for higher ROIs
■ Possible strategies to improve the gearing ratio:
● Seek alternative sources of funding that are not loan related,
such as issuing more shares. The drawbacks are that it may take
a long time to issue shares and it may go against the objective
of any existing shareholders who do not want to lose ownership of
the business
● A firm could decide not to issue dividends to shareholders so
as to increase the amount of retained profit. But this may lead
to resentment among shareholders, especially if the reasons for
doing so are not well explained
● Insolvency and bankruptcy:
○ Insolvency- a financial state where a person or firm cannot meet their debt
payments on time. Most common solution is declaring bankruptcy
○ Bankruptcy- is a legal process that happens when a person or firm declares that
they can no longer pay their debts to creditors
Chapter 3.7- Cash flow
● Difference between profit and cash flow:
○ Cash flow- money that flows in and out of a business over a given period of time
○ Profit- the positive difference between sales revenue and total costs
○ Cash inflows- monies received by a business over a period of time
○ Cash outflows- are the monies paid out by a business over a period of time
○ 𝑝𝑟𝑜𝑓𝑖𝑡 = 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠
○ 𝑛𝑒𝑡 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 = 𝑐𝑎𝑠ℎ 𝑖𝑛𝑓𝑙𝑜𝑤 − 𝑐𝑎𝑠ℎ 𝑜𝑢𝑡𝑓𝑙𝑜𝑤
○ Two possibilities when differentiating between profit and cash flow:
■ A business can be profitable but have little to no cash (insolvency).
Reasons:
● Poor collection of funds, allowing customers a very long credit
period
● Paying suppliers too early and leaving little or no cash for
operations
● Purchasing capital equipment or many non current assets at the
same time
● Overtrading- purchasing too much stock with cash that is tied up in
the business
● Servicing loans with cash
■ A business can have a positive cash flow but be unprofitable.
Reasons:
● Sourcing cash from bank loans
● Gaining cash from the sales of a firm's fixed assets
● Obtaining cash from shareholders funds
● Cash flow forecasts:
○ Cash flow forecast- the future prediction of a firm's cash inflows and outflows
over a given period
○ Constructing cash flow forecasts:
■ Opening cash balance- this is the cash that a business starts with every
month. Also is the cash held by a business at the start of the trading year
■ Total cash inflows- this is a summation of all cash inflows during a
particular month
■ Total cash outflows- this is a summation of all cash outflows during a
particular month
■ Net cash flow- this is the difference between the total cash inflows and
the total cash outflows
■ Closing cash balance- this is the estimated cash available at the end of
the month. It is found by adding the net cash flow of one month to the
opening balance of the same month
 ■
○ Benefits of cash flow forecasts:
■ A cash flow forecast is a useful planning document for anyone wishing
to start a business. This is because it helps to clarify the purpose of the
business and provides estimated projections for future performance
■ Cash flow forecasts provide a good support base for businesses
intending to apply for funding from financial institutions. This is
because they enable the banks to check on the businesses solvency
and creditworthiness
■ Predicting cash flow can help managers identify in advance periods
when the business may need cash and therefore plan accordingly to
source it
■ A cash flow forecast can help with monitoring and managing cash flow.
By making comparisons between the estimated cash flow figures and its
actual figures, a business should be able to assess where the problem
lies and seek the respective solutions to solve it
● The relationship between investment, profit and cash flow:
○ Investment- the act of spending money on purchasing an asset with the
expectation of future earnings
○ Investment involves wealth creation, including hoping that the asset
appreciates over time
○ Examples- bonds, stocks or property
○ All investments come with risks which is due to unexpected changes in market
conditions in an economy

○
○ Strategies for dealing with cash flow problems
■ Reducing cash outflows:
● A business can negotiate with suppliers or creditors to delay
payment. This helps it to have working capital for its short term
needs. The drawbacks are that negotiating is time consuming
and delaying payment to suppliers could affect future
relationships- suppliers may refuse to supply in the future
● Purchases of fixed assets can be delayed. Assets such as
machinery and equipment take up a lot of the business’s cash
and delaying purchases of them helps to avail cash in the
business. However if the machines or equipment are becoming
outdated/obsolete, delaying the purchase of replacements may
lead to decreased efficiency and higher costs in the long term
● A business can decrease specific expenses that will not affect
production capacity, such as advertising costs. If not well checked,
this may reduce future demand for a business’s products
● A business could look into sourcing cheaper suppliers. This will
help to reduce costs for materials or essential stock,
decreasing the outflow of funds. A possible danger is that the
quality of the finished product may be compromised, affecting
future customer relationships
■ Improving cash inflows:
● A business can insist that customers pay with cash only when
buying goods. This avoids the problem of delayed payments from
debtors, which ties up cash. The disadvantage is that the
business may lose customers who prefer to buy goods on credit
● Offering discounts or incentives can encourage debtors to pay
early. This will reduce the debt burden on debtors as they will
pay less than earlier agreed. The limitation is that after discount
the business will receive less cash than previously expected
● A firm may diversify its product offering. This will help to
increase the variety of goods on offer to customers, potentially
 increasing sales. It is worth remembering that diversification
comes with higher costs and no clear guarantee of sales
■ Looking for additional finance sources:
● Sale of assets
● Bank overdraft
● Sale and leaseback
○ Limitations of cash flow:
■ Unexpected changes in the economy- for example, fluctuating interest
rates could affect borrowing by firms and have a negative impact on their
cash flow needs
■ Poor market research- improperly done sales forecasts due to poor
demand predictions can have a negative effect on future cash sales,
thereby affecting cash inflows
■ Difficulty in predicting competitors behaviour- competitors may
change their strategies often and make it hard for other businesses to
predict their actions and compete with them. This can negatively affect
the cash flow of a struggling business
■ Unforeseen machine or equipment failure- breakdown of machinery is
difficult to predict and it can drastically affect the cash position in a
business
■ Demotivated employees- being demotivated can negatively affect the
productivity of workers, reducing output or sales and leading to less cash
inflow
Chapter 3.8- Investment appraisal
● Introduction:
○ Investment appraisal- the quantitative techniques used in evaluating the
viability or attractiveness of an investment proposal. It assesses and justifies
the capital expenditure allocated to a particular project. It aims to establish
whether a business venture is worth pursuing and if it will be profitable
○ Payback period:
■ Payback period- the length of time required for an investment project to
pay back its initial cost outlay
𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡
■ 𝑝𝑎𝑦𝑏𝑎𝑐𝑘 𝑝𝑒𝑟𝑖𝑜𝑑 = 𝑎𝑛𝑛𝑢𝑎𝑙 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑓𝑟𝑜𝑚 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝑒𝑥𝑡𝑟𝑎 𝑐𝑎𝑠ℎ 𝑖𝑛𝑓𝑙𝑜𝑤 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑑
■ 𝑎𝑛𝑛𝑢𝑎𝑙 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑖𝑛 𝑦𝑒𝑎𝑟 𝑥
× 12 𝑚𝑜𝑛𝑡ℎ𝑠. This formula is used to determine the
specific number of months until the payback is made
■ Advantages of payback period:
● Simple and fast to calculate
● Useful method in rapidly changing industries such as
technology. Helps to estimate how fast the initial investment will be
recovered before another machine can be purchased
● Helps firms with cash flow problems because they can choose
the investment projects that can pay back more quickly than
others
● It is a short term measure of quick returns on investment, less
prone to inaccuracies of long term forecasting
● Business managers can easily understand and use the results
obtained
■ Disadvantages of payback period:
● It does not consider the cash earned after the payback period,
which could influence major investment decisions
● It ignores the overall profitability of an investment project by
focusing only on how fast it will pay back
○ Average rate of return:
■ Average rate of return- measures the annual net return on an
investment as a percentage of its capital cost. It assess the profitability
per annum
(𝑡𝑜𝑡𝑎𝑙 𝑟𝑒𝑡𝑢𝑟𝑛𝑠−𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑠𝑡)

■ 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑟𝑒𝑡𝑢𝑟𝑛 = 𝑦𝑒𝑎𝑟𝑠 𝑜𝑓 𝑢𝑠𝑎𝑔𝑒

𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
× 100
■ Advantages of average rate of return:
● Shows the profitability of an investment project over a given
period of time
● Unlike the payback period, it makes use of all the cash flows in
a business
● Allows for easy comparisons with other competing projects for
better allocation of investment funds
● A business can use its own criterion rate and check this with the
ARR for a project to assess the viability of the venture
 ■ Disadvantages of average rate of return:
● It considers a longer time period/useful life of the project, there are
likely to be forecasting errors. Long term forecasts reduce
accuracy of the results
● It does not consider the timing of cash inflows. Two projects
may have the same ARR but one could pay back more quickly
compared to the other due to faster cash inflows
● Effects on the time value of money are not considered
● Net present value:
○ Net present value- the difference in the summation of present values of future
returns and the original cost of investment
○ Discounted cash flow- uses a discount factor that converts future cash flows to
their present value
○ 𝑁𝑃𝑉 = 𝑡𝑜𝑡𝑎𝑙 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒𝑠 − 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑐𝑜𝑠𝑡
○ Advantages of net present value:
■ Opportunity cost and time value of money is put into consideration in
its calculation
■ All cash flows, including their timing are included in its computation
■ The discount rate can be changed to suit any expected changes in
the economic variables, such as interest rate variations
○ Disadvantages of net present value:
■ It is more complicated to calculate than the payback period or ARR
■ It can only be used to compare investment projects with the same
initial cost outlay
■ The discount rate greatly influences the final NPV result obtained,
which may be affected by inaccurate interest rate predictions
Chapter 3.9- Budgets
● Budget- a quantitative financial plan that estimates the revenue and expenditure over
a specified future time period
● Budgets help in setting targets and are aligned with the main objectives of the
organisation. They enable the efficient allocation of resources within the specified
time period
● Budget holder- a person involved in the formulation and achievement of a budget
● Budget holder is responsible for ensuring that the specified budget allocations are
being met. Most commonly used budgets are sales revenue and cost budgets
● Cost and profit centres:
○ Cost centres:
■ Cost centre- a section of a business where costs are incurred and
recorded
■ They help managers to collect and use cost data effectively
■ Examples of costs collected and recorded are electricity, wages,
advertising and insurance
■ Dividing cost centres:
● By department- examples include finance, production, marketing
and human resources, where each department is a specific cost
centre
● By product- a business producing several products could ensure
that each product is a cost centre. For example one company
produces phones, televisions, computers and so each of these
products could be cost centres because costs are incurred in their
production
● By geographical location- businesses can be located in different
parts of the world. Each of the geographic areas could be cost
centres
○ Profit centres:
■ Profits centres- a section of a business where both costs and
revenues are identified and recorded. These sections allow businesses
to calculate how much profit each centre makes
■ Profit centres enable comparisons to be made so as to judge the
performance in the various sections of the business
■ Profit centres can be divided according to product, department or
geographical location, as long as in addition to cost, revenue is also
generated
○ Role of cost and profit centres:
■ Aiding decision making- cost and profit centres help in providing
managers with financial information about the different parts of a
business. This information can assist them in deciding whether to
continue or discontinue producing a particular product. The production
of high cost and least profitable products can be stopped so that lower
cost and more profitable products can be produced
 ■ Better accountability- cost and profit centres help to hold specific
business sections accountable. For example managers who perform
poorly in their department can be identified and held accountable
■ Tracking problem areas- cost and profit centres enable particular
problem areas in a business to be detected. For example if there are a
lot of complaints on one store which results in a high number of costly
replacements, using the cost centre quick solutions can be made
■ Increasing motivation- providing departmental managers and staff with
incentives (promotion or bonuses) to enable them to achieve set
targets helps to increase their morale within cost and profit centres.
Empowering staff and delegating control to the managers in charge of
these centres also helps to improve motivation
■ Benchmarking- comparing the performance in the various cost and profit
centres can help to find the areas that are most or least efficient. This
monitoring of individual parts of a business can help to improve overall
efficiency in the business
○ Problems of cost and profit centres:
■ Indirect cost allocation- indirect costs such as advertising, rent or
insurance are difficult to allocate specifically to particular cost centres.
They may be allocated unfairly, distorting the overall business
performance
■ External factors- factors beyond the control of the business may
affect specific cost and profit centres differently. There may be more
competition in one centre than in another, thereby negatively influencing
the performance of the centres experiencing greater levels of
competition
■ Centre conflicts- staff and managers could consider the performance in
their own centres to be superior to the overall performance of the
organisation. This could lead to unhealthy competition between the
centres for the firms resources and a lack of sharing vital information
■ Staff stress- the pressure of managing a cost and profit centre may be
very high for some staff, especially if they lack the right skills. This could
lead to staff demotivation
● Constructing a budget:
○ Total income- this is a summation of all income or money received by a
business. For example sales revenue and interest earned
○ Total expenses- this is a summation of all expenses or cost of operations
incurred by a business. For example material costs, salaries and wages, rent and
advertising costs
○ Net income- this is the difference between the total income and total expenses
○ Budgeted figure- this is the estimated amount of money to be received or spent
as set out in the budget
○ Actual figure- this is the amount of money that is definitely received or spent as
a result of business activity
 ○ Variance- the difference between the budgeted figure and the actual figure

○
● Variance analysis:
○ Variance- the difference between the budgeted figure and the actual figure.
Usually calculated at the end of the budget period once the actual amounts are
determined. Can be done for both cost and sales revenue budgets
○ Favourable variance- when the difference between the budgeted and actual
figure is financially beneficial to the firm
○ Adverse variance- when the difference between the budgeted and actual figure
is financially costly to the firm
● Importance of budgets and variances in decision making:
○ Decision making- a process that involves selecting a course of action from
various possible alternatives with the aim of providing a solution to a given
problem
○ Benefits of using budgets and variances in decision making:
■ Planning- by setting targets, managers ensure that budgets help to
provide a sense of direction or purpose for organisations. These should
be realistic targets that are understood by all internal stakeholders to help
in achieving the organisations goals. A budget planning document can
assist in anticipating future problems and devising possible solutions
■ Motivation- budget holders who are responsible for budgetary control
feel empowered and trusted, which boosts their morale. In addition, staff
who are involved in the budgetary process feel recognised as part of the
organisational team, which could even lead to increased productivity
■ Resource allocation- budgets help to prioritise how resources will be
used in the organisation. Since the demands for financial resources could
 be very high, budgets set certain boundaries that ensure that available
resources are not overstretched but are used for specified purposes
based on designated needs
■ Coordination- budgets help to bring people from different departments
together to work for a common purpose. This helps in improving the flow
of communication and ensuring a sense of collaboration between the
people working together. Coordination helps all departments to reach
uniform budget agreements for a more effective achievement of the set
targets
■ Control- budgets act as monitoring and evaluation tools to check how
funds are being spent in each department. Budgets help to control
revenue and expenditure by regulating how money is spent to minimise
losses and wastage of resources. Budget holders need to ensure that
they are within the budget in their spending patterns and especially
ensure that they do not exceed the budget, as this could lead to serious
financial debt problems in the organisation
■ SMART goals- budgets should be set based on the SMART criteria and
should all be in line with organisations objectives
■ Comparison- variance analysis aims to compare actual performance to
budgeted performance, thereby helping to assess organisational
performance
■ Detecting deviations- variance analysis helps in detecting the causes of
any deviations in the budget so that corrective measures can be taken to
rectify them
■ Objective appraisal- variance analysis provides an objective way of
appraising the budget holders responsible for their various departments
○ Limitations of budgeting in decision making:
■ Inflexible budgets that do not consider any unforeseen changes in the
external environment, such as increases in raw material costs, may be
too difficult to stay within and therefore be unrealistic
■ Significant differences between the budgeted and actual results could
make the budget lose its importance as a decision making tool
■ Since most budgets are based on the short term, long term future gains
could be lost by looking only at the current budgeted amount
■ Highly underspent budgets towards the unjustified wasteful expenditure
by managers
■ Setting budgets without involving some people make them feel resentful
and affect their motivation levels
Chapter 4.1- Introduction to marketing
● Introduction:
○ Marketing- the management process of getting the right product to the right
customer at the right price, the right place and the right time
● Market orientation vs production orientation:
○ Product orientation- a business approach that focuses on making the product
first before attempting to sell it
○ Market orientation- a business approach of first establishing consumer demand
through market research before producing and selling a product

○
○ Benefits of a market orientated business:
■ Due to market research, firms have increased confidence that their
products will sell, which reduces the risk of failure
■ Access to market information means that firms can anticipate and
respond quickly to changes in the market
■ Due to regular feedback from consumers from market research, firms are
in a strong position to meet the challenges of new competitors entering
the market
○ Limitations of market orientated business:
■ Conducting market research can be costly and therefore weigh heavily
on a firms budget
■ Due to frequently changing consumer tastes, firms may find it difficult to
meet every customers needs with its available resources
■ Uncertainty about the future could have a negative influence on the
market-planning strategy.
○ Benefits of product orientated business:
■ It is associated with the production of high quality products such as
luxury sports cars or safety products
■ It can succeed in industries where the speed of change is slow and the
firm has already built a good reputation
 ■ It has control over its activities, with a strong belief that consumers will
purchase its products
○ Limitations of product orientated business:
■ Since the firm ignores the needs of the market, it takes risks that may
lead to eventual business failure or closure
■ Spending money on research and development without considering
consumer needs could be costly and not yield any promising results.
● Market share:
𝑓𝑖𝑟𝑚𝑠 𝑠𝑎𝑙𝑒𝑠
○ 𝑚𝑎𝑟𝑘𝑒𝑡 𝑠ℎ𝑎𝑟𝑒 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 = 𝑡𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑚𝑎𝑟𝑘𝑒𝑡
× 100
○ Ways to measure market share:
■ By volume- this measures the number of goods bought by customers. It
is a quantitative measure of the units sold by businesses
■ By value- this measures the amount spent by customers on the total
number of goods sold by businesses. It is the total revenue expressed
with a currency
○ An increase in market share could mean that a business has adopted effective
marketing strategies so that it sells more products and takes business away from
its competitors. This could lead to increased profits and it may result in the
business being a key player in the industry
● Market growth:
○ Market size- the total sales of all firms in a market. Market size represents the
total sales made by all businesses in a given market. Market size can be
measured by value or volume
○ Market growth- the percentage change in the total market size over a period of
time. Market growth is the increase in the number of consumers who buy a good
or service
○ Calculating market size:
 ■
○ Calculating market growth:
𝑚𝑎𝑟𝑘𝑒𝑡 𝑠𝑖𝑧𝑒 (𝑠𝑒𝑐𝑜𝑛𝑑 𝑦𝑒𝑎𝑟) − 𝑚𝑎𝑟𝑘𝑒𝑡 𝑠𝑖𝑧𝑒 (𝑓𝑖𝑟𝑠𝑡 𝑦𝑒𝑎𝑟)
■ 𝑚𝑎𝑟𝑘𝑒𝑡 𝑔𝑟𝑜𝑤𝑡ℎ 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 = 𝑚𝑎𝑟𝑘𝑒𝑡 𝑠𝑖𝑧𝑒 (𝑓𝑖𝑟𝑠𝑡 𝑦𝑒𝑎𝑟)
× 100
● Importance of market share and market leadership:
○ Market share- the percentage of one firms share of the total sales in the market
○ Market leader- a firm with the largest market share in a given market
○ Market share importance:
■ Does not directly indicate profitability but offers insights into revenues,
growth and profit margins
■ Economies of scale:
● Decrease in average production costs with increased scale of
operation
● Bigger firms can serve more consumers in a cost efficient manner
■ Cost efficiency and profit margins:
● Larger firms can secure greater discounts through larger
wholesale orders
● Even if selling at the same price, higher market share and
economies of scale lead to higher profit margins
■ Competitive advantage:
● Larger firms, with higher profit margin, become stronger in the
market
● Can offer more promotions, attracting new consumers and driving
market share higher
■ Compounding effect:
 ● Larger firms operate more efficiently in providing goods or
services
● Efficient operations contribute to capturing more market share,
creating a reinforcing cycle
■ Driving force for growth:
● Firms with a compounding effect use market share as a driving
force
● Efficiency in providing goods or services contributes to capturing
and retaining market share
■ Important things to consider when calculating market share:
● Different results may be obtained, as it can be measured either by
volume or value
● Changes in the time period and market can influence market
share results
● The type of products included may also influence the calculation of
market share
■ Significance of measuring market share:
● Indicates if a firm is a market leader
● Market leader- firm with the largest market share in a specific
industry
■ Market leaders influence:
● Dominance allows the market leader to influence competitors
● Influence extends to areas like winning over consumers, pricing
decisions, distribution coverage, etc
■ Internet age impact:
● The internet age provides significant opportunities for businesses
to become market leaders
○ Benefits of being a market leader:
■ The market leader often has first mover advantage in new markets
■ The market leader enjoys increased sales revenue that translates to
higher profits
■ The business is able to gain economies of scale
■ The market leader could also be the brand leader (providing the product
with the highest market share), the leading brand can act as a good
promotional tool for consumers who would like to be associated with
popular brands
■ Market leaders manage to attract the highest quality development
partners and adopt innovative technologies and processes which help
them continue to outperform their competition
Chapter 4.2- Marketing planning
● The role of marketing planning:
○ Marketing planning- the process of formulating marketing objectives and
devising appropriate marketing strategies to meet those objectives
○ Marketing plan- a detailed document about the marketing strategies that are
developed in order to achieve an organisations marketing objectives
○ Marketing departments need to plan adequately and prepare themselves to face
the competition in the market
○ Marketing plan includes the following:
■ Marketing objectives- must be SMART. For example, increasing sales
by 6% in the next year
■ Key strategic plans- steps that provide an overview of how the
marketing objectives will be achieved. For example, plans on how to sell
new products in existing markets
■ Detailed marketing actions- providing information on the specific
marketing activities that are to be carried out. For example, which pricing
strategies to be used and how products will be distributed
■ Marketing budget- including the finance required to fund the overall
marketing strategy
○ Benefits of marketing planning:
■ Marketing planning helps a firm to identify potential problems and seek
solutions to them
■ Setting SMART objectives improves the chance of success for a firms
marketing strategy
■ Sharing the marketing plan with other business departments improves
coordination and provides the whole organisation with a clearer
picture or sense of where it is heading
■ Devising a marketing budget ensures that resources are not wasted on
unprofitable activities
■ A clearly spelled out plan could improve employees motivation and
inspire confidence about the organisations future
○ Limitations of marketing planning:
■ Marketing plans may become outdated if organisations are not quick to
consider changes in market conditions
■ The process may consume considerable resources in terms of time,
expertise and money in designing the plans
■ Failure to prioritise marketing objectives may make it difficult for firms to
tell whether they are meeting them
● Segmentation, targeting and position:
○ Market segment- a subgroup of consumers with similar characteristics in a given
market
○ Market segmentation- the process of dividing the market into distinct groups of
consumers so as to meet their desired needs and wants
○ Ways to segment markets:
 ■ Demographic segmentation- this considers the varying characteristics
of the human population in a market. Includes:
● Age
● Gender
● Religion
● Family characteristics
● Ethnic groupings
■ Geographic segmentation- this is where the market is divided into
different geographical sectors and considers factors including:
● Regions in a country where consumers reside
● Climatic conditions
■ Psychographic segmentation- this divides the market based on peoples
lifestyle choices or personality characteristics. Such as:
● Social and economic status
● Values
○ Advantages of segmentation:
■ Segmentation helps businesses to identify existing gaps and new
opportunities in domestic and international markets
■ Designing products for a specific group of consumers can increase sales
and hence profitability
■ Segmentation minimises the waste of resources by businesses through
identifying the right consumers for their products
■ By differentiating their products, businesses can diversify and spread
their risks in the market and so increase market share
○ Disadvantages of segmentation:
■ However, market segmentation can be expensive in terms of research
and development, production, and promotion, as a firm attempts to reach
a large segment of actual and potential consumers.
○ Targeting:
■ Target market- a group of consumers with common needs or wants that
a business decides to serve or sell to
■ Targeting - the process of marketing to a specific market segment
■ Mass market- a large or broad market that ignores specific market
segments
■ Targeting strategies:
● Mass marketing- a strategy where a firm ignores the differences
in the specific market segments and targets the entire market.
Businesses consider the common needs or wants of consumers in
the market and aim to sell their products to many customers in
order to maximise their sales
● Segmented marketing- a strategy that targets several market
segments and develops appropriate marketing mixes for each of
these segments. Firms can gain a stronger position in each of
their segments, thereby increasing sales and market share
 ● Niche marketing- a strategy that appeals to smaller and more
specific market segments. It is a good strategy for smaller firms
that have limited resources. These small firms can serve niche
markets where there are few competitors and take advantage of
opportunities that have been overlooked by larger firms. Targeting
specific consumers in these segments enables businesses to
market their products more efficiently and effectively
■ Niche market- a narrow, smaller or more specific market segment
■ Consumer profile- the characteristics of consumers of a particular
product in different markets based on their gender, age and income levels
among other characteristics
● Positioning:
○ Product positioning- involves analysing how consumers define or perceive a
product compared to other products in the market
○ Product position map/perception map- a visual representation of how
consumers perceive a product in relation to other competing products

○
○ Marketers identify crucial product features, like quality, price and image. Then the
firm selects key features to shape its positioning strategy. Lastly, the desired
position is communicated to target customers using the marketing mix
○ Importance of a position map:
■ Can help a firm to establish who its close competitors or threats are in the
market
■ Helps to identify important gaps or opportunities in the market that the
firm could fill by creating or offering new products
■ Simple and quick way of presenting usually sophisticated research data
■ Helps a firm in targeting specific market segments to best satisfy
consumer needs and wants
● Difference between niche and mass market:
○ Niche market:
■ Niche market targets a small group with aligned interests
 ■ Emphasises establishing niche appeal for products or services
■ Specialisation within a broader industry
■ Aims to capture a moderate number of buyers in the market
■ Focus on understanding and targeting a specific consumer group
○ Mass market:
■ Mass market targets a large or broad audience
■ Strategy involves communicating to the largest possible audience
■ Utilises mass communication channels, such as TV commercials
■ Focuses on capturing a wide customer base to find the highest number of
potential customers
■ Organisations can transition from niche market success to targeting a
mass market
● USP:
○ USP- a products feature that differentiates it from other competing products in the
market
○ Importance of having a USP:
■ Helps to establish a firms competitive advantage in its product offering
and helps to attract more customers
■ Leads to customer loyalty as customers can identify something special
about the product in comparison to rival products
■ Leads to improved revenue as customers buy a product or service that
best meets their needs. Some customers can pay top prices for a
reputable brand that they view as being high quality
■ Makes the product or service easy to sell. Sale representatives who see
value in the product or even use the product will find it easier to
passionately and persuasively sell the product to customers
● How organisations differentiate themselves and their products from competitors:
○ Product differentiation:
■ Product differentiation refers to the physical or perceived distinctions
in a product
■ It includes features like durability, performance and reliability
■ Marketers often focus on this type of differentiation to attract customers
■ It can be a short term strategy as innovations may be easily replicated
■ Intellectual property rights like patents and copyrights may not always
provide effective protection
■ Some businesses avoid patenting to keep their product details
confidential, though patents offer protection during their lifespan
■ Without protection, competitors with capital can swiftly replicate a similar
product
○ Service differentiation:
■ Differentiation extends beyond the product to encompass customer
service, delivery and related business elements like installation and
training
 ■ Some organisations may overlook the importance of service
differentiation, viewing it as a straightforward aspect of business without
requiring sophistication
○ Price differentiation:
■ Successful price differentiation acknowledges that each customer is
willing to pay a different price for a product
■ Business can maximise revenue by offering a differentiated product at
varying prices in different market segments
■ In price differentiation, the value of goods is subjective, varying by
consumer, use and operating environment
■ Negotiation often plays a role and some customers are willing to pay
more than the market price for a product or service
○ Distribution differentiation:
■ The distribution channel or path a product takes to reach consumers
serves as an effective means of differentiation
■ Differentiation can be achieved through immediate access to expertise,
easy ordering or high levels of technical service
■ In an unequal market with diverse consumer demands, distribution is
crucial for reaching end consumers
■ A strong distributor manufacturer relationship can be challenging for
competitors to duplicate, making it time consuming and costly
○ Relationship differentiation:
■ Differentiation through personnel involves employees or team
members with customer interactions
■ These individuals are crucial for daily communication with customers,
serving as a vital link between the product and the customer
■ A broken link can lead to business failure, emphasising the importance of
this connection
■ A close relationship between personnel and customers fosters trust,
enhancing overall business performance
■ While closely related to service differentiation, this type primarily
focuses on the people aspect, establishing a unique position for the
organisation
■ Building such relationships takes time but results in a highly
differentiated position for the organisation
○ Image/reputation differentiation:
■ Corporate image is often the result of various differentiators like high
product quality, excellent service or superior performance
■ Communication with customers plays a vital role in shaping and
managing this image
■ New entrants may struggle to establish themselves in markets
dominated by businesses with strong and reputable images
■ A brand alone doesn’t automatically differentiate an organisation- it must
stand for something, be recognised by the target audience and
communicate a unique value
■ Successful brand differentiation requires a significant marketing
budget for effective communication
Chapter 4.3- Sales forecasting:
● Introduction:
○ Sales forecasting- the process of predicting the future sales of a firm
○ It uses quantitative methods to estimate the future sales levels and trends over a
specified period of time
○ Helps in the management of stock and cash flow, and ensures better planning for
growth
○ However can still be affected by numerous external factors
● Sales forecasting terminology:
○ Time series analysis:
■ A quantitative sales forecasting method that predicts future sales levels
from past sales data
■ Key aspects that need to be identified:
● Trend- this is the visible pattern seen after inputting the past sales
data. It can indicate the rise and fall of sales over a given period
● Seasonal fluctuations- these are changes in demand due to
varying seasons in the year. Usually repeated and occur within
one year or less
● Cyclical fluctuations- these are variations tied to the business
cycle in an economy. Can extend for more than one year
● Random fluctuations- these are notable changes or fluctuations
that stand out from a given trend. Unpredictable and can occur at
any time
● Moving averages:
○ Moving average:
■ Sales forecasting method that identifies and emphasises the direction of a
trend

■
 ■
○ Extrapolation:
■ An extension of a trend line to predict future sales

■
○ Variance:
■ Difference between actual sales and trend values

■
○ Benefits of sales forecasting:
■ Alignment of an organisation strategy for better results- when sales
forecasting aligns with an organisation's strategy, it enables the right
resources to be allocated at the right time
■ Better cash-flow management- by considering cyclical, seasonal and
variation factors, financial managers can better plan to improve liquidity
position of the business
■ Increased efficiency- sales forecasting helps the production department
to know the number of goods to produce and to plan for stock required
in the future
 ■ Better workforce planning- accurate sales forecasting can help the HR
department in succession planning regarding the number of staff required
in the future
■ Improved marketing planning- marketers will gain greater awareness of
future trends and be able to adjust their marketing strategies accordingly
to increase their market share
○ Limitations of sale forecasting:
■ Time consuming- takes a long time to calculate because of its complex
nature, especially when considering the calculation of average seasonal
variations in each quarter over a number of years
■ Ignores qualitative external factors- STEEPLE factors can influence
the accuracy of sales forecast prediction
■ The entry of competitors into a market may be unforeseen- this can
significantly change an organisations dynamic and influence its sales
position
■ May be based on present technology- technology may be rendered
obsolete due to technological progress. Hence, products which may
currently be enjoying good sales may lose their market to products made
with latest technology
Chapter 4.4- Market research:
● Purpose of market research:
○ Market research- the process of collecting, analysing and reporting data related
to a particular market
○ Purposes of market research:
■ Identifying customer needs and wants: understanding consumer
satisfaction levels and purchasing behaviour patterns
■ Predictive analysis: anticipating future trends and events. Businesses
preparing for decreased spending during recession period due to decline
in consumer income
■ Risk mitigation for product failure: conducting market research to
understand consumer preferences. Minimising the risk of new product
failure by understanding consumer likes and dislikes
■ Assessment of market strategy effectiveness: evaluating marketing
mix implementation in specific market segments. Measuring how well a
firms marketing strategy aligns with consumer needs and wants
■ Market intelligence: providing up to date information on market activities.
Technological companies investing in R&D to capitalise on first mover
advantage and stay informed of market developments
○ Conducting market research means analysing all the information about the
market in an effort to investigate possible ways for the business to operate
successfully in the market, increase sales, attract its target audience, and gain
competitive advantages
● Market research methods:
○ Primary research- the collection of first hand information from the market
○ Secondary research- the collection of second hand information from the market
○ Primary research:
■ Gathering first hand information directly from the market
■ Purpose of primary research is to understand specific consumer buying
patterns and predicting changes in spending behaviour
■ Conducted by organisations or through market research agencies
■ Advantage of market research is direct access to customer insights,
providing a competitive advantage
■ Disadvantage is that it is time consuming process as requires specialist
researchers, thus incurring higher expenses
○ Secondary research:
■ Gathering second hand information from existing data sources in the
market
■ Purpose of secondary research is to provide an overall background
understanding before conducting primary research
■ Done by analysing pre-existing data rather than collecting new data
directly from the market
■ Advantages:
● Quick and cost effective compared to primary research
 ● Most information is readily available, aiding in quicker decision
making
■ Limitations:
● Potential for outdated information
● Data may not align with the specific needs of the researching
organisation
● Reliability of data sources may vary, leading to potential
inaccuracies
● Primary market research methods:
○ Surveys:
■ Questionnaires are utilised to collect valuable information from a specific
target audience
■ They consist of various types of questions, such as closed (yes/no) and
open-ended
■ Consumer surveys aim to gather specific insights from consumers
regarding products or issues
■ Means to send surveys- by mail, telephone and internet
■ Advantages:
● Enable researchers to collect a large amount of data in short
period of time
● Surveys can be administered and completed easily by
respondents if designed well
● Can be used to collect information on wide range of aspects, such
as attitudes, preferences and opinions
■ Disadvantages:
● Surveys that are poorly constructed and administered can
undermine well intended research
● The answers provided may not be an accurate reflection of how
they feel and some results may be biassed
● Since large samples are used, they can be costly and take a long
time to construct. If random sampling is used then response rates
can bias the results of a survey
○ Interviews:
■ Interview is a conversation during which the interviewer asks the
interviewee questions in order to gain information
■ Can by conducted one on one, face to face, telephone or online
■ Advantages:
● Can provide detailed information on perceptions and opinions of
consumers through in depth questioning
● Usually achieve high response rate because of one on one
attention
● Meaning of questions can be clarified during the interview process
through precise wording tailored to respondent
■ Disadvantages:
 ● Whole process can be very time consuming
● Some interviews may be biassed, therefore influencing
interviewees responses
○ Focus groups:
■ Focus groups involve a small number of individuals convened to discuss
a particular product or concept
■ Participants are chosen to represent the target customers or a specific
segment of them
■ Market researchers pose questions to guide the discussion, encouraging
participants to express opinions, ideas and reactions
■ Participants may also be asked to test a new product during the session
■ Researchers analyse all participant responses to anticipate the broader
markets reaction
■ Advantages:
● Cheap and easy way of gathering market research as it consists
of a small group of individuals
● Can be used to measure the reaction of customers to a firms new
product or the firms strategies
● Help to identify key product requirements as well as other needs
not addressed by the business and its competitors
● Provide insights on the current position of the firms competitors in
the mind of the customer
■ Disadvantages:
● A business could be seeking information about the entire market
however opinion of small number of individuals may not reflect this
● Some members of the group may not express their honest and
personal opinions as they may be hesitant to express their views
as it may differ from other participants
● Focus groups are more costly than surveys as each participant
receives cash
○ Observation:
■ Observation involves attentive watching and comprehending specific
phenomena or human behaviour to gather information
■ Some observations may be scientific and some not
■ Direct method for obtaining data without relying on participant responses,
providing valuable insights into real world behaviours and situations
■ Advantages:
● Direct method of collecting data or information. When studying
human behaviour, researcher can see exactly how people behave
in a given situation
● Large number of individuals can be surveyed in a short space of
time
● Observation is a cost effective way of gathering data
■ Disadvantage:
 ● Complete answers to any problem or issue cannot be obtained.
So this method needs to combined with others
● Secondary market research methods:
○ Academic journals:
■ Academic journals feature scholarly articles written by subject matter
experts, often with first hand experience in a field
■ Articles within these journals are extensively referenced to accurately
attribute information sources
■ Primary objective is knowledge and distribution rather than profit
generation
■ Serve as vital resources for researchers, academics and professionals
seeking authoritative information within their respective fields
■ Advantages:
● Academic journals undergo a peer review process where they are
checked by academics and other experts, thus increasing
reliability
● Good source when firms need original research on a topic as they
consist of reports, reviews of current research and topic-specific
information
● Take less time to publish than books
■ Disadvantages:
● May not be the best source for general interest topics as they
contain information of very specific academic interest
● Peer review process can be time consuming which affects the
provision of the latest or current event information
○ Media articles:
■ Comes in the form of print publications, such as newspapers and
magazines
■ Newspapers encompass a variety of content, including news reports,
feature articles, advertisements and reader correspondence
■ Newspapers served as primary sources for global news distribution, but
readership has declined due to rise of television and internet
■ Newspapers still remain relevant for certain demographics despite
declining readership and offer in depth report and analysis on local and
global events
■ Advantages:
● Cheaper than communicating via television
● Written using reliable resources and edited for accuracy as they
are well researched, which is not the case for some internet
resources
● Widely available and can be found in many retail stores
■ Disadvantages:
● Difficult to communicate events in real time, because process of
producing content, printing and distributing the paper is time
 consuming. Articles may by out of date by the time they are
delivered to the customer
● Can be biassed depending on the type of organisation that owns
them
● Process of producing newspapers are considered a waste of
paper and energy resources
○ Government publications:
■ Government documents serve as official records of government activities,
covering diverse topics
■ Can originate from location, regional or national governments
■ These documents offer insight into government policies, decisions,
regulations and initiatives
■ Crucial resources for researchers, policymakers, journalists and the
public, providing transparency and accountability in governance
■ Examples- reports, white papers, legislative bills, budget proposals and
administrative directives
■ Advantages:
● They provide details about any changes in government policy or
governance in a country
● Provide information which in most cases can only be undertaken
by the government
● They provide useful statistical information on a wide range of
activities such as education, trade and social trends
● The information collected is to inform activities that are up to date
■ Disadvantages:
● Can be difficult to gain access to some official government data
○ Market analyses:
■ Market intelligence reports are commercial publications offering
comprehensive data on specific markets
■ These reports are typically produced by specialised market research
agencies
■ Provide detailed insights into market trends, consumer behaviour,
competitor analysis and industry forecasts
■ Valuable resources for businesses, investors and policymakers to make
informed decisions and strategies in various industries
■ Advantage:
● Information provided is usually accurate and recent as it is carried
out by specialist research agents
■ Disadvantage:
● Obtaining information this way can be quite costly as some
organisations charge a lot for this service
○ Online content:
■ Web research entails gathering information from the internet or online
sources
 ■ The internet offers vast amounts of data, making it a rich resource for
research purposes
■ Provides access to both published and unpublished secondary data,
including articles, reports, blog post and databases
■ Researchers can utilise various search engines and online databases to
locate relevant information efficiently
■ Researchers should evaluate the credibility and reliability of internet
sources to ensure accuracy of data collected
■ Advantages:
● Many websites provide up to date news and information about
current events, trends and interesting topics
● Information is provided quickly and easy to access
■ Disadvantages:
● Information can be inaccurate or biassed as anyone can publish
on the web. Can even be outdated
● Limited amount of scholarly research or information is openly
available on the internet
● Qualitative and quantitative research:
○ Qualitative- the collection, analysis and interpretation of data about consumer
opinions, attitudes or beliefs
○ Quantitative- the collection, analysis and interpretation of numerical data or data
that can be measured

○
○ Qualitative research involves collecting, analysing and interpreting data through
the observation of peoples actions and statements
○ Quantitative research focuses on numerical counts and measurements, while
qualitative data delves into meanings, definitions, characteristics and descriptions
○ Common methods for collecting qualitative data include focus groups and in
depth reviews
○ Surveys and government publications are typically employed for gathering
quantitative data
○ Both offer valuable insights into different aspects of research questions,
contributing to a comprehensive understanding of the topic
● Sampling methods:
○ Sample- group of people selected to represent the population or target market
under research
○ Sampling- process of selecting an appropriate sample
○ Quota sampling:
■ Segmentation entails dividing a population into distinct groups based on
shared characteristics, such as age or gender
■ Each segment is mutually exclusive, meaning individuals belong to only
one group
■ Researchers set targets for the number of individuals to interview within
each segment to ensure representation
■ Segmenting the population allows researchers to gather insights from
diverse perspectives within the target population, leading to more
comprehensive and nuanced findings
■ Advantages:
● Quick and cost effective sampling method, especially where the
proportions of the different groups in the populations are known
● Findings obtained are usually more reliable than those of random
sampling
■ Disadvantages:
● Results obtained are not always statistically representative of the
population as random sampling is not done, leading to statistical
errors
● The interviewer may be biassed in the selection of interviewees
and choose those who will be most cooperative
○ Random sampling:
■ Random sampling ensures that every member of the population has an
equal chance of being selected
■ Selection is typically done using random methods, such as computer
generated random numbers or random selection tools
■ Random sampling helps minimise bias and increase likelihood of
obtaining a representative sample of the population
■ Fundamental technique in quantitative research for generalising findings
from the sample to the broader population with confidence
■ Advantages:
● Random sampling reduces bias as everyone has an equal chance
of being chosen
● Relatively easy way of obtaining a sample
■ Disadvantages:
● Sample chosen may be too small and may not consist of the
target population
○ Convenience sampling:
■ Involves selecting research participants based on their easy accessibility
and proximity to the researcher
 ■ This technique is often used when convenience and practicality outweigh
the need for a representative sample
■ May introduce bias as it may not accurately represent the entire
population
■ Advantage:
● Fast, easy and cheap method of sampling because research
groups are readily available
■ Disadvantage:
● Sample may be biassed and not representative of entire
population
● Importance of properly collected data:
○ Businesses prioritise obtaining a diverse range of results through research,
necessitating appropriate data collection methods with high accuracy
○ Maintaining integrity throughout the research process, regardless of using
quantitative, qualitative, or mixed methods, is crucial
○ Selecting suitable data collection instruments and providing clear instructions
minimises the risk of sampling errors
○ By ensuring methodological rigour, businesses can enhance the reliability and
validity of their research outcomes
○ Attention to data collection methods is fundamental for generating actionable
insights and making informed business decisions
○ Benefits:
■ Ability of the research to accurately answer the research question
■ Ability to repeat and validate a particular study where needed
■ Increased accuracy of findings resulting in an efficient use of resources
■ Good opportunities for other researchers to pursue areas needing further
investigations
○ The primary objective of research is to gather reliable information about a
particular issue or intervention and analyse it to understand the significance of
the sample results.
○ Quantitative data collection and analysis can reveal correlations among variables
and uncover factors that the researcher may have overlooked.
○ Qualitative data collection and analysis offer insights into participants' diverse
experiences, highlighting areas for improvement or change.
○ Upon acquiring necessary knowledge from research findings, researchers should
continuously evaluate the entire process to enhance outcomes in subsequent
research rounds.
Chapter 4.5- The 7 P’s of the marketing mix
● Marketing mix introduction:
○ Marketing mix- the key elements of a marketing strategy that ensure the
successful marketing of a product
○ Product- any good or service that is offered to the market with the aim of
satisfying consumer needs or wants
○ Price- what consumers pay to acquire a product
○ Promotion- ways of convincing consumers why they need a product and why
they should buy it
○ Place- this concerns where the product will be sold and how it will be delivered to
the market
○ People- the human capital in terms of skills, attitudes and abilities necessary in
the production of goods or the provision of services
○ Processes- the procedures and policies pertaining to how an organisation's
product is provided and delivered
○ Physical evidence- the tangible or visible touch points that are observable to
customers in a business
● Product:
○ A product is any good or service that is offered to the market with the aim of
satisfying consumer needs or wants
○ Product life cycle- the course a product passes through from its development to
its decline in the market
○ Stage 1- development:
■ Generating ideas- the process involves generating ideas through a
brainstorming session with various stakeholders such as employees,
department managers and customers. The goal is to identify solutions
that can meet consumer needs and wants effectively. Market research is
conducted to pinpoint any existing market gaps
■ Screening ideas- is the stage wherein ideas are evaluated to determine
which ones to pursue further and which to discard. This involves filtering
out poor ideas that may not be practical or marketable, as well as
considering factors like production costs and potential sales viability
■ Creating a prototype- involves developing an initial version of a product
to visualise and physically examine its features. This prototype enables
the production department to assess its feasibility. Additionally, a limited
group of customers may be given the prototype to gather feedback for
potential improvements
■ Carrying out test marketing- involves launching modified product
samples in a small, representative market segment to gauge potential
demand and sales. This phase allows businesses to assess market
response and make adjustments or withdraw the product if necessary,
minimising costs if the product does not perform well
 ■ Commercialisation- is the stage where a product is fully launched into
the market following successful test marketing. This involves deploying
the complete marketing mix, including product, price, promotion and
distribution strategies to maximise market penetration and sales
■ At this stage, R&D costs are high, as a lot of time, money and effort is
invested in developing the product. There are no sales yet and therefore
no profits are earned. Cash flow is also negative
○ Stage 2- introduction:
■ This is the launch stage of the product onto the market, sales are typically
low due to limited consumer awareness. High costs are incurred during
this phase, potentially resulting in the product not being profitable. Cash
flow is negative because cash outflow exceeds the cash inflow at this
point
■ Price skimming- setting a high price when introducing a new product to
the market
■ Penetration pricing- setting a low initial price for a product with the aim
of attracting a large number of customers quickly and gaining a high
market share
■ High prices or price skimming may be used for brand new technological
products, especially where there are few or no competitors
■ Where there are many competitors, penetration pricing strategy could be
adopted, where low prices are initially charged
■ To increase awareness of the product, informative advertising can be
effective. For expensive products, a strategic approach involves selling
them through exclusive retail outlets that cater to high income consumers,
thereby targeting a specific market segment
○ Stage 3- growth:
■ Increased sales and revenue:
● Market acceptance leads to significant sales volume and revenue
growth
● Rising profits due to economies of scale and reduced unit costs
● Positive cash flow achieved as revenue surpasses costs
■ Price adjustments post launch:
● Penetration pricing strategy can be replaced with higher prices to
maximise profits post-successful launch
● Price skimming products may require slight price reductions due to
increased competition
■ Advertising and distribution strategies:
● Advertising fosters increased product sales and builds brand
loyalty among consumers
● Expansion of distribution outlets to reach diverse consumer
segments across multiple locations
● Discussions initiated on product enhancements and developments
to sustain consumer demand
○ Stage 4- maturity:
■ Promotional pricing- temporarily reducing the price of a good or service
to attract customers
■ Stable sales growth:
● Sales continue to increase, but at a slower rate
● Established product with a stable and significant market share,
resulting in positive cash flow
● Peak sales revenue and high profits, but limited growth due to
increased market competition
■ Promotional pricing strategy:
● Adoption of promotional pricing strategy to deter competitors and
maintain market share
■ Promotion and distribution strategy:
● Promotion focuses on reinforcing sales growth and enhancing
brand loyalty
● Extensive distribution network established to reach a wide
consumer base
■ Product development and extension:
● Advanced plans for new product developments, including
extension strategies to prolong product life cycle
○ Stage 5- saturation:
■ Market saturation and competitor impact:
● Market saturated with numerous competitors leading to peak sales
followed by decline
● Positive cash flow persists despite sales decline
● Intense competition causes some businesses to exit the market
■ Promotional pricing strategy:
● Adoption of promotional pricing to counteract price reductions and
retain market share
■ Extension strategies and promotional activities:
● Use of extension strategies by firms to stabilise market share amid
increased competition
● High levels of promotional activities, including aggressive
advertising to sustain sales levels
■ Geographical distribution and profit stability:
● Establishment of extensive geographical distribution network to
reach consumers efficiently
● Profits remain high and relatively stable despite market challenges
○ Stage 6- decline:
■ Decline in sales and profits:
● Sales steadily decrease leading to reduced profits
● Cash flow begins to decline but remains positive
■ Product appeal and market withdrawal:
● Product loses consumer appeal due to introduction of new models
 ● Potential withdrawal of the product from the market if sales drop
significantly
■ Reduction in promotional activities and price cuts:
● Reduction of promotional activities to minimum levels
● Prices are typically lowered to clear existing stock
■ Optimisation of distribution outlets:
● Closure of unprofitable distribution outlets to streamline operations

○
● Extension strategies:
○ Extension strategies- plans by firms to stop sales from falling by lengthening
the products life cycle
○ Strategies:
■ Selling existing products into new markets
■ Finding new uses for the product
■ Changing the products packaging. This includes changing the design,
appearance and colour of the package to stimulate consumers interest
and persuade them to buy the product
■ Targeting different market segments
■ Developing new promotional strategies
○ Importance of extension strategies:
■ Extension strategies are crucial for sustaining product success in a
saturated market with declining sales
■ Businesses benefit from extending the life of mature products before
sales decline occurs
○ Challenges in determining product life cycle:
■ Difficulty in accurately determining the stage of a products life cycle
■ Some businesses use sales forecasting to aid in this determination
○ Limitations of sales forecasting:
■ May not always yield precise results due to unpredictable trends
■ External factors can significantly impact product demand and sales
○ Impact of external factors of extension strategies:
■ Economic downturns, such as recessions can adversely affect demand
for existing and new products introduced through extension strategies
 ■ Efficient resource management requires firms to understand their product
life cycle to avoid investing in declining products unnecessarily
● Product portfolio analysis:
○ Product portfolio- includes all the products or services provided by an
organisation
○ Product portfolio analysis is the process of evaluating these products
○ Portfolio analysis uses various models to help the business make decisions
regarding its overall product offering and business portfolios
○ A business would want to invest more resources into its profitable products and
phase out those that are not doing well
○ Boston consulting group matrix- an analysis method of a firms product
portfolio regarding its market share and market growth. Market growth rate on
vertical axis and relative market share on horizontal axis
○ Market growth rate shows how attractive a product is in the market. Relative
market share looks at how much of the market a product has captured

■
■ Stars:
● High market growth rate and market share
● Successful products generating substantial income for the
business
● Require significant investment to sustain rapid growth and market
dominance
● Demand high levels of investment, especially in fast growing
markets with intense competition
● Competing firms can rapidly gain market share by attracting new
customers
● Over time, as market growth slows, stars mature to cash cows
● Shift from high growth, high investment phase to stable and
profitability phase
■ Cash cows:
● Low market growth rate and high market share
● Well established products in mature markets
 ● Businesses invest minimal resources to maintain market share
due to stable market conditions
● Product sales are consistently high and highly profitable,
generating substantial cash flow
● Strong market presence allows businesses to charge premium
prices and increase profit margins
● Benefit from stable market conditions and strong brand loyalty
● Require minimal investment while generating significant cash flow
for the business
■ Problem children/question marks:
● High market growth rate but low market share
● Require significant investment to increase market share and
compete effectively
● Operate in fiercely competitive markets, necessitating strong
marketing strategies for success
● High financial resources needed to expand market presence and
gain traction
● Potential for intense competition due to rapid market growth
● Businesses must carefully evaluate which problem children to
develop into stars based on potential growth and market
conditions
● Selective approach required to determine investment priorities and
identify products for potential elimination or redirection
■ Dogs:
● Low market share and low market growth rate
● Operate in stagnant or declining markets, generating minimal
income
● Offer limited future prospects and contribute little to overall
business growth
● Lack of market demand and growth potential
● Pose financial strain on the business due to low revenue
generation
● Businesses with multiple dog products may experience cash flow
problems
● May require replacement or divestiture to allocate resources
effectively and focus on more profitable ventures
○ BCG matrix strategies:
■ Holding- focus here is on products with high market share to ensure they
maintain their current position in the market. Some investment will be
needed to ensure sustained consumer demand
■ Building- this focuses on turning problem children into stars. Money from
cash cows could be invested in promoting or distributing these products to
increase market share
 ■ Harvesting- the focus here is on milking the benefits of products with a
positive cash flow. These products provide the necessary finance which
can be invested in the other portfolio products
■ Divesting- this is where the poor performing dogs are phased out or sold
off. The resources freed up from this will need to be used effectively to
boost the performance of the other products in the portfolio
○ A product portfolio that has a good number of stars and cash cows will be able to
invest in other high market growth products, such as problem children. A
relatively large number of dogs and problem children can seriously drain any
positive cash flow from the business if this is not well managed
○ Limitations of BCG matrix:
■ Focuses on the current market position of the firms products, with little
advice or information for future planning
■ May be a time consuming and complex exercise for businesses to define
or classify their products according to market share and market growth
■ High market share does not necessarily mean high profits. Because sales
revenue could be gained using promotional pricing, which may drive down
a firms profitability

○
 ○
● Branding:
○ Brand- a name, symbol, sign or design that differentiates a firms product from
those of its competitors
○ Branding- the process of distinguishing one firms product from another. Can add
great value to a product and have a strong influence on how consumers view or
perceive a product
○ Aspects of branding:
■ Brand awareness:
● Brand awareness- ability of consumers to recognise the
existence and availability of a firms good or service
● Brand awareness is crucial for consumers to identify and know
about a company's product or service
● Establishing brand awareness is key for effective product
promotion
● It becomes particularly important in competitive markets where
products are similar- strong brand awareness leads to increased
sales
● Higher brand awareness correlates with increased sales and
signals market share dominance to competitors
■ Brand development:
● Brand development involves strategies to enhance and strengthen
a products image in the market
● Aims to increase brand awareness through improving the
recognition and impact of its name, symbol or sign, ultimately
driving higher sales and market share
● Businesses often invest in promotional campaigns like sales
promotions and advertising to persuade consumers to buy their
products and further develop their brands
■ Brand loyalty:
● Brand loyalty- when consumers become committed to a firms
brand and are willing to make repeat purchases over time
● Brand loyalty is when consumers consistently choose a specific
brand over others even at higher prices due to their preference
and perceived added value
 ● Successful businesses employ marketing strategies to nurture
brand loyalty including cultivating brand ambassadors who
promote the brand through positive word of mouth
■ Brand value:
● Brand value- how much a brand is worth in terms of its
reputation, potential income and market value
● Brand value indicates the extra revenue a business can earn from
its products due to its brand name
● Brands with high value are considered valuable assets because
consumers are willing to pay more for them
● Brand values represent a brands personality and serve as a
distinguishing factor that influences consumer choices, making a
business appear unique and superior to competitors
● Emphasising brand values is essential for successful branding,
strengthening a firms identity and market position
○ Importance of branding:
■ Branding is crucial for businesses of all sizes despite the initial investment
required
■ Start ups rely on branding to establish a clear image that resonates with
customers and meets market expectations
■ Established brands can command premium pricing due to their reputation
for quality, ensuring consistent sales and high profit margins
■ Presentation, including colour choices significantly impacts consumer
perceptions and public reception of products and services
■ Branding provides legal protection by distinguishing products and
preventing copying, granting businesses ownership over unique features
■ Effective branding fosters personal identification and emotion connections
with consumers, influencing repeat purchases and positive responses
based on targeted messaging
● Price:
○ Price is a crucial element of the marketing mix as it directly contributes to
revenue generation
○ Unlike other elements like product, promotion and place, price is associated with
revenue rather than costs
○ Price represents the monetary value customers pay for goods or services
○ Setting effective pricing strategies is essential for businesses to achieve their
marketing goals
○ Businesses must establish suitable pricing strategies for both new and existing
products to meet their marketing objectives
○ Cost plus pricing:
■ Cost plus pricing- refers to adding a mark up to the average cost of
producing a product. The mark up is a percentage of the profit a firm
wishes to gain for every product that it sells
 ■
■ Advantages:
● It is a simple and quick method of calculating the selling price of a
product
● It is a good way to ensure that a business covers its costs and
makes a profit
■ Disadvantages:
● It fails to consider market needs or customer value when setting
prices
● Since competitors prices are not considered, a firm could lose
sales if it sets a selling price that is higher than competitors
○ Penetration pricing:
■ Penetration pricing- setting a low initial price for a product with the aim
of attracting a large number of customers quickly and gaining a high
market share
■ Could be used by businesses introducing a new product to an existing
market or entering new markets with existing products
■ As the firm gains market share, it can slowly increase its prices
■ Advantages:
● As the prices are low, consumers are encouraged to buy the
products. This leads to high sales value and market share for the
business
● High sales volume can lead to decreases in the costs of
production and increases stock turnover
■ Disadvantages:
● Gaining a high sales volume does not necessarily mean achieving
high profits, especially where the prices are too low
● Only suitable in markets that are very price sensitive. As
businesses increase their prices over time, they risk losing
potential customers who may seek lower priced products from
rival firms
○ The loss leader:
■ Loss leader- charging a low price for a product, usually below its average
costs, to attract consumers to buy other high priced products
■ Aim is to attract many customers
■ Advantages:
 ● Businesses selling a large number of frequently purchased
products may attract many customers and benefit from high
overall profits
● Businesses may use loss leaders as a promotional strategy to
encourage consumers to switch to their brand instead of buying
the competitors brands
■ Disadvantages:
● Firms using this strategy may be accused by competitors of
undercutting them by using unfair business practices
○ Predatory pricing:
■ Predatory pricing- when a firm deliberately sets a very low price on its
good or service with the aim of driving its competitors out of the market
■ This strategy restricts new competitors from entering the market and
hence acts as a barrier to entry
■ After a certain period of time when there is no competition left in the
market, the firm increases its prices and recoups its profits
■ Advantages:
● The firm gains a dominant position in the market using this
strategy
● Competition is minimised, as financially weaker competitors that
are unable to bear the loss will be driven out of the market
■ Disadvantages:
● Predatory pricing is a form of anti-competitive behaviour and is
illegal in many countries because it is used to restrict competition
● This strategy may work in the short term but it will be difficult to
sustain in the long term as new competitors may enter the market
○ Premium pricing:
■ Premium pricing- involves setting a higher price for a product compared
to competitors products to convey superior quality
■ This strategy aims to create a perception of higher value and exclusivity
among customers
■ Customers are expected to choose the premium priced product based on
the belief that it is of better quality
■ Premium pricing is also referred to as image pricing or prestige pricing
■ It contrasts with price skimming, where high initial price is set and is
gradually reduced
■ In premium pricing, the high price is sustained over time due to the
products perceived high quality and value
■ Advantages:
● As customers are convinced of the high quality of the product,
they do not try to buy it for less. This leaves the firm to concentrate
on improving the products quality or features without worrying
about consumer purchases
 ● A high price on a product can increase the brand value of a firm.
The product then becomes exclusive, where not everyone is able
to afford it. Loyal customers continue to enjoy and buy the
product, further increasing the brand value
■ Disadvantages:
● The firm misses out on price conscious consumers who find the
price too high
● High marketing costs are incurred as a firm will need to create
brand awareness of its product to convince customers that its high
price equates to a high quality product
○ Dynamic pricing:
■ Dynamic pricing- where firms charge different prices for their products
depending on which customers are buying them or when the products will
sell
■ Prices are adjusted based on specific customer preferences and market
conditions
■ Factors considered include demand, supply, competition and other real
time market dynamics
■ Prices are continuously updated to reflect changes in demand and supply
■ Advantages:
● There is the potential high sales and profits, as products prices
can be increased when demand rises
● A firm can beat its competition by easily adjusting to customer
preferences and providing a better experience at a cheaper price
compared to competition
■ Disadvantages:
● Can lead to customer dissatisfaction as some customers end up
paying a higher price for the same product. Those who pay a
higher price tend to become more hostile towards the firm,
reducing its brand image while those who paid a lower price may
become loyal to the firms brand
● It could lead to the loss of sales if customers are knowledgeable
about the prices of products in the market. If a customer comes
across the same product which is priced significantly lower by
another firm, they may opt to buy the lower-priced product from
the competitor
○ Competitive pricing:
■ Competitive pricing- when a firm sets the price of its product relative to
the competitors prices
■ Is a market orientated strategy
■ Prices of competitor products are used for comparison before the firm
arrives at its own pricing strategy
 ■ Requires in-depth research or detailed market analysis of competitor
behaviour to determine their product offerings, including the prices they
charge for their products
■ Advantages:
● Can prevent a firm from losing customers and market share to its
competitors. With adequate intelligence on the competition, a firm
can control the competition and respond to their every move
● As online shoppers depend on pricing before making their final
purchase, adopting a competitive pricing strategy helps to keep a
stable customer base and aids business growth
■ Disadvantages:
● Not sustainable in the long term. It may work in initial stages of
market entry, but in the long term competitors may improvise
based on pricing data and change their pricing strategy entirely to
focus on a different market segment
● A firm will find it difficult to differentiate itself from other
competitors in the market as its pricing strategy is solely based on
the co-market players. The firms brand may not stand out as
customers view the products as being similar to other competitors
products in the market
○ Contribution pricing:
■ Contribution pricing- the calculation of the variable cost of production of
a firms product, after which the products price is set
■ Contribution per unit is the difference between the variable cost per unit
and price per unit
■ Contribution, not profit goes towards covering the unpaid fixed costs of
production

■
■ Advantages:
● The contribution per unit measure is useful as it enables the firm
to know how much profit it will earn for every unit sold beyond the
point where the firm breaks even
 ● Useful strategy for a firm to use if it wants to determine the price to
charge for a special order
■ Disadvantages:
● The price set for each product using this approach may not be
competitive in the market. It is important for firms to check what
competitors are charging before finalising the price
● Allocating costs appropriately across the whole range of a firms
products can be difficult which may lead to inaccurate pricing
○ Price elasticity of demand:
■ PED- a measurement of how the quantity demanded of a good is affected
by changes in its price
■ Pricing strategy affects a firms revenue directly, emphasising the
importance of understanding PED
■ PED quantitatively gauges consumer responsiveness to price fluctuations
■ It helps firms determine if a price change will increase or decrease
revenue
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑
■ 𝑃𝐸𝐷 = 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
■ 0-1 range:
● Classified as inelastic
● Inelastic markets show that a large change in price leads to a
relatively small change in quantity demanded
● Consumers in these markets find it challenging to switch away
from the product despite price increases
■ =1 range:
● Known as unit elastic
● Unit elastic indicates that a percentage change in price
corresponds to an equal percentage change in quantity demanded
■ 1+ range:
● Classified as elastic
● In elastic markets, a small change in price leads to a large change
in quantity demanded
● Highly elastic markets typically have many substitutes available for
the products
■ In extreme cases if PED is 0, then it is called perfectly inelastic demand
and if it is infinite it is called perfectly elastic demand
 ■
○ Price discrimination:
■ Price discrimination- charging different prices to different groups of
consumers for the same product
■ Conditions for effective price discrimination:
● Price setting ability- the firm can vary prices, especially in less
competitive markets
● Different price sensitivities (elasticities of demand) among
consumers- this measures how consumers respond to price
changes
○ If a small change in price leads to a significant change in
quantity demanded (elastic demand), consumers are price
sensitive
○ If a change in price results in a smaller change in quantity
demanded (inelastic demand), consumers are less price
sensitive
● Market separation- products must be segmented or markets
must be separated to prevent easy trading of the product
○ E.g, different prices for adult and children tickets ensures
market separation to prevent ticket trading
■ Advantage:
● Time-based price discrimination can be of benefit to either
consumers or producers. E.g, during peak times, phone
companies charge high prices and so generate higher revenues,
while during off-peak times consumers benefit from the lower
prices charged
■ Disadvantage:
 ● Businesses need to be certain about the type of elasticity of
demand of their consumers. E.g, charging higher prices in a
market with elastic demand could lead to lower sales revenue. If
firms were to charge a lower price in the elastic market, they
should ensure that the extra cost of producing and selling more
products does not exceed the extra revenue
● Promotion:
○ Promotion is concerned with communicating information about a firms products
to consumers
○ The main aim is to obtain new customers or to retain existing ones
○ Promotional activities should be communicated clearly to consumers and provide
useful information to enable them to purchase a firms product
○ Promotional objectives:
■ Creating awareness or informing consumers of a new or improved
product in the market
■ Convincing or persuading consumers to purchase a firms products
instead of its competitors products
■ Reminding consumers of the existence of a product in order to retain
existing customer or gain new customers for a product
■ Enhancing the brand image of the product as well as the corporate image
of the business
○ Above the line promotion- a paid form communication that uses independent
mass media to promote a firms products
○ Below the line promotion- a form of communication that gives a business direct
control over its promotional activities so that it is not reliant on the use of
independent media
○ Through the line promotion- a form of promotion that uses an integrated
approach of combining both above the line and below the line promotion
strategies
○ Above the line promotion:
■ This is a paid form of communication that uses independent mass media
to promote a firms product
■ It includes advertising via television, radio or newspapers to reach a wide
target audience
■ The control/responsibility for advertising is passed to another organisation
■ Advertising:
● Plays a central role globally in passing on information about a
product to a particular target audience
● Choosing the right media is important in ensuring a successful
campaign
● Types of advertising:
○ Informative advertising- the focus is to provide
information about a products features, price or other
specifications to consumers. It increases consumer
 awareness of a firms product to enable them to make
rational decisions about what to buy. It is useful when
businesses want to introduce a new product to the market.
E.g newspapers ads and government campaigns
○ Persuasive advertising- aims to convince customers to
buy one firms product instead of a competitors product. It
persuades consumers to think that they really need the
product and should buy it. It convinces consumers to make
unplanned purchases of a product known as impulse
buying. It also helps in enhancing a products brand image
○ Reassuring advertising- the focus is on existing
customers, to remind them that they made the right
purchasing decisions when they chose to buy the firms
product and they should continue to purchase
○ Below the line promotion:
■ This is when the business has direct control over its promotional activities
■ It does not depend on the use of independent media
■ Can focus the promotional activities on consumers the business knows or
on those that are interested in their products
■ Forms of below the line promotion:
● Direct marketing- this ensures that the product is aimed directly
at the consumers. It eliminates the use of intermediaries and
therefore can save the business money. E.g, direct mail (email or
through post), limitation is that most consumers regard the
information as junk and may not pay any attention to it
● Personal selling- this involves the sale of a firms product through
personal contact. It makes use of sales representatives and can
be done face to face or over the telephone. It is commonly used
when selling expensive products such as cars or technically
complex products such as specialised machinery. Customers will
need to be reassured that they are making the right purchasing
decision. They can then be given personal and individualised
attention. Major disadvantage is the cost involved, as it may be
expensive to retain a team of sales representatives for this type of
selling, especially if they are also paid commission
● Public relations- these are promotional activities aimed at
enhancing the image of the business and its products. It includes
the use of publicity or sponsorships. A business could hold a press
conference where it invites the media and provides information
about a social responsibility project it would like to launch, during
this process the business could showcase its products and gain
free publicity. Through sponsorship, a business may provide
financial support to an organisation, team or event
 ● Sales promotions- these are short term incentives provided by a
business with the aim of increasing or boosting its sales
○ Money off coupons- discounts provided to customers
when a product is purchased. Often found in newspapers,
leaflets or magazines
○ Point of sale displays- can be used for the attractive
arrangement or display of products at the location where
the business sells the items. The main objective is to draw
the attention of consumers to encourage impulse buying.
Commonly used by supermarkets that place products near
the checkouts
○ Free offers or free gifts- giving free samples such as in
supermarkets for food helps encourage sales
○ Competitions- after purchasing a product, customers can
enter a draw where they stand a chance to win a prize in
the competition. This is commonly used during festive
seasons to attract customers
○ BOGOF- a promotional strategy that can be used to attract
new customers or help in eliminating excess stock. Often
used in the maturity or saturation stages of a products life
cycle
○ Through the line promotion:
■ This form of promotion uses an integrated approach of combining both
above the line and below the line promotion strategies
■ A business aims to get a holistic view of the market and reach out to their
customers in as many ways as possible
■ Should lead to improved brand awareness and visibility
■ Drawback is the cost involved in implementing the promotional
campaigns. Hence only well established and financially secure
businesses can afford to carry out this form of promotion successfully
■ Examples:
● 360 degree marketing- this is carried out by integrating both
above and below the line activities to gain a maximum advantage
● Digital marketing- involves offering above the line marketing
benefits while using below the line communication to the
consumer. It uses a cookie-based type of advertising or targeting
method. Cookies are used to target small audiences based on
web browser behaviour. It allows businesses to display
advertisements throughout a users browsing experience once the
user has shown interest in the businesses website. Consumers
are thereby provided with highly personalised communication that
targets their needs or wants
○ This strategy has a ROI as it driven consumer preferences
○ Choosing a promotional tool:
 ■ Cost- does the marketing budget support the use of a promotional
method?
■ Legal framework- has the law been considered when deciding on the
various promotional methods to use?
■ Target market- what specific segment of the market is the product aimed
at?
■ Stage in product life cycle- which promotional strategies will be most
appropriate at the different product life cycle stages?
■ Type of product- has the promotional method considered the nature of
the product and how it would be successfully sold to customers?
■ The strategy depends on how well the marketing department in a
business can read the market and whether there is a good fit between the
consumer and the communication method used. The business will need
to be flexible in their choice and decide on the best method or
combination needed to succeed in achieving their marketing objectives
● Social media marketing:
○ Social media marketing- a marketing approach that uses social networking
websites to market a firms product
○ Incorporates technological concepts to grow businesses via various media
○ Builds relationships, drives repeat business and attracts new customers through
sharing
○ Focuses on gaining website traffic and attention through social media
○ Centres on creating engaging content that encourages sharing
○ Corporate messages spread from user to user, appearing more trustworthy
○ Promotion via word of mouth empowered by technology
○ Benefits:
■ Wide reach- internet platforms allow firms to connect with a vast
audience on a personal level, surpassing email usage in engagement
time
■ Engagement- social media turns consumers into active participants,
providing real-time feedback and insights that surpasses traditional
market research methods
■ Market information- offers valuable data on trends, feedback, public
opinion and buying habits, aiding in refining marketing strategies
■ Cost savings- more cost effective than traditional methods like television
advertising offering targeted campaigns and optimised budgets
■ Brand recognition- social media boosts brand exposure and loyalty
through rapid information sharing and consistent engagement
■ Speed- high internet speeds enable quick dissemination of
advertisements to a broad audience, aligning with the fast paced nature of
digital marketing
○ Limitations:
 ■ Accessibility problems- areas with limited internet access or poor
connectivity may miss out on social media marketing campaigns,
impacting the reach and effectiveness of promotions
■ Lurkers- a significant portion of social media users are passive
consumers, not actively engaging or sharing content. This may limit the
reach and impact of promotional efforts, especially among those not yet
fully engaged in online interactions
■ Used as a supplement- often used alongside traditional marketing
methods rather than replacing them entirely. The ease of joining social
networks results in high competition, making it challenging for businesses
to differentiate themselves solely through social media presence.
Therefore, businesses need to employ a combination of marketing
techniques to achieve optimal results and visibility
● Place:
○ Concerned with product distribution to reach consumers
○ Involves ensuring the right product is available at the right place and time
○ Critical component of marketing mix for businesses
○ Place in the marketing mix:
■ This refers not only to the location of the business, but also the location of
the customers. Businesses should develop strategies to get goods from
their location to the customers location
■ It enables businesses to come up with the best ways to distribute their
products efficiently and effectively to consumers
■ The use of intermediaries (wholesalers and retailers) helps business to
store and market their products and enhance their brand image
■ The growing use of internet makes it easier for business to reach a wide
range of consumers directly with their products
○ Importance of different types of distribution channels:
■ Channel of distribution- the path taken by a product from the producer
or manufacturer to the final consumers
■ Zero intermediary channel- this is where a product is sold directly from
the producer to the consumer
■ One intermediary channel- this involves the use of one intermediary
(retailer or agent) to sell the products from the producer to the consumer.
In most cases it is used where the retailer is operating on a large scale or
where the products are expensive
■ Two intermediaries channels- two intermediaries (wholesalers and
retailers) are used by producers to sell the product to the consumer. The
wholesalers are important for this channel and act as an additional
intermediary between the producer and the consumer. This channel is
useful when selling goods over large geographical distances
 ■

■
● People:
○ Services rely heavily on people for production and consumption
○ Customer experiences can be customised based on individual needs
○ Staff attitude, skills and appearance significantly impact customer
perceptions and preferences
○ Encouraging courteous behaviour and collecting customer feedback are
essential for assessing service effectiveness
○ People act as the transactional link between the organisation and its
customers, delivering services and collecting payments
○ Customer relationship management (CRM) and employee training are crucial for
nurturing long term employee customer relationships
○ Organisations must address cultural differences within their workforce to
foster unity and improve teamwork
○ Understanding cultural dimensions of customers helps marketers to satisfy
diverse customer needs
● Processes:
 ○ Processes encompass procedures and policies involved in delivering products to
consumers
○ Ensures products are delivered in optimal condition, maintaining quality
standards
○ Provides customers with tracking numbers for shipment monitoring and inquiries
○ Crucial for businesses to define and optimise processes for effective marketing
○ Includes processes for identifying customer needs, handling complaints and
managing orders
○ Well managed processes contribute to customer loyalty and repeat business
○ Ways to improve processes:
■ Providing easy and varied payment methods for customers, such as
paying over the internet, paying cash or paying credit
■ Providing after sales services, such as technical support that reduces the
time a customer spends solving problems when using a product
■ Informing customers how long it will take for their order, such as in a
restaurant
■ Exploring and taking measures to speed up the delivery of products to
customers
○ Ensuring the right process is in place can be time consuming, complex and
expensive, especially for start up businesses which lack the experience and
capital that larger businesses may have
● Physical evidence:
○ Physical evidence differentiates services in marketing
○ Intangible nature of services makes it challenging for consumers to evaluate
quality and value before purchase
○ Businesses struggle to position new service products due to their intangible
nature
○ Focusing on tangible aspects of service offerings enhances competitiveness
○ Physical evidence should showcase the service offering to customers before
purchase
○ Positive testimonials enhance business image and boost sales
● Appropriate marketing mixes for particular products or businesses:
○ Marketing mix meets consumer needs by producing the right product, setting the
right price, ensuring availability in the right place and using appropriate promotion
channels
○ Hiring the right people, implementing efficient procedures for product delivery and
optimising visible touch points are also crucial for business success
○ Benefits of 7P’s marketing mix model:
■ It brings together marketing ideas and concepts in a simple manner,
making it easier for a business to market its products or services
■ It assists a business in strategy formulation all the way to strategy
implementation
■ The model allows a business to vary its marketing activities based on
customer needs, resource availability and market conditions
○ Drawbacks of 7P’s marketing mix model:
■ The incorporation of three extra Ps (people, processes, physical
evidence) may be viewed as complicated by businesses used to 4P’s
(product, price, place and promotion)
■ This model misses out on addressing issues related to business
productivity
■ As product is mentioned in the singular, this could mean that businesses
that produce more than one product sell these in isolation which is not
necessarily the case
○ It is important to note that if the message of the marketing mix is not clear and
focused, a firm could risk potential loss in sales, which will affect its long term
profitability. Consumers may not identify with the product and not buy it
○ To be effective and achieve marketing objectives, a business needs to:
■ Be well coordinated so that the elements consistently complement each
other
■ Be clear and focused not abstract or ambiguous
■ Consider the market it is aiming to sell the product to
■ Look into the degree of competition that the product faces
■ Target the right consumer

○
Chapter 4.6- International marketing
● International marketing- the marketing of goods and services across national
boundaries
● Globalisation- the increasing worldwide competition leading to a rise in international
marketing
● How businesses enter international markets:
○ The internet:
■ Businesses use the internet for global marketing due to its wide reach
■ New businesses leverage the internet for cost effective international
marketing
■ Established businesses add internet channels to boost existing marketing
strategies
■ E-commerce (trading over the internet) is a common entry strategy for
businesses
○ Exporting:
■ Can be direct or indirect
■ Direct exporting involves marketing products abroad independently
■ Advantage is full control over products and operations
■ Indirect exporting uses intermediaries like agents to market products
abroad
■ Piggybacking (use of existing distribution channels of one domestic
business by another home country business trying to sell a new product
overseas) is a form of indirect exporting, utilising existing distribution
channels
○ Direct investment:
■ Direct investment or foreign direct investment (FDI) involves setting up
production plants abroad
■ Benefits include accessing local markets and gaining market knowledge
○ Joint venture:
■ Joint ventures involve two or more parties investing in a business project
■ Participants share resources, costs, profits and losses
■ Each party maintains independent business interest
○ International franchising:
■ International franchising involves a franchisor granting permission to a
franchisee in another country to use its brand, trademark and concepts
■ Franchisee pays a franchise fee and royalties based on sales revenue
● Opportunities as a result of entering and operating internationally:
○ Larger market- introducing a company’s products to a new market provides a
greater reach for those products, which increases the customer base.
Enabling the business to gain higher sales and profitability. This is also an
effective extension strategy when an existing product is in the saturation stage of
its product life cycle in the home country but enters a new market to begin its life
cycle afresh
○ Diversification- this provides an opportunity for businesses to spread their
risks by investing in other countries. Diversification reduces dependence on
 gaining sales revenue from just the home market in case of key risks such as
economic downturn
○ Enhanced brand image- the global reach brought about by international
marketing means that the businesses involved can be perceived as more
successful than those that operate only in the domestic market. This creates
greater brand prestige that can drive brand loyalty
○ Gaining economies of scale- a business can increase its scale of operations
through international marketing by selling more products abroad. As a result, this
will reduce the average cost of production and make the business more
competitive. The business can take advantage by increasing its profit mark up
and gaining higher profits
○ Forming new business relationships- marketing overseas can enable a
business to make new contacts with various stakeholders. Such suppliers may
offer better prices for inputs like raw materials compared to suppliers in the home
market. These contacts can provide opportunities for increased efficiency
and profitability for home businesses
● Threats as a result of entering and operating internationally:
○ Economic challenges- the unfair distribution of income in many countries
can pose a major problem for countries wanting to market overseas. Many
developing countries have very low per capita incomes or purchasing power
and therefore lack the income to buy the products being marketed. Fluctuating
exchange rates and differing interest rates also pose planning problems for
businesses willing to market abroad
○ Political challenges- due to the volatile nature of the political arena, unstable
political regimes pose a threat to domestic businesses that are willing to
operate in foreign markets. The ease with which governments can change
regulations also increases the political risk of doing international business. The
increased threats of global terrorism and civil unrest have also heightened
awareness regarding which countries businesses should trade with
○ Legal challenges- different countries have different laws that businesses need
to abide by if they are to market overseas. International marketers must also
adhere to the various consumer protection laws and intellectual property
rights that exist in other countries
○ Social challenges- differences in the demographic or population structures of
different countries are a key consideration for international marketers.
Marketers need to be aware of the disparity among growing younger
populations and segment the markets accordingly if they are to reap any
benefits
○ Technological challenges- the growing use of the internet has increased the
speed at which businesses operate on a global scale. However a number of
developing countries still lack access to this vital resource. This coupled with
limited infrastructure and poor communication systems can have a drastic
impact on how businesses operate
Chapter 5.5- Breakeven analysis:
● Contribution:
○ Contribution- the difference between selling price per unit and variable cost per
unit
○ 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
○ Total contribution- the difference between total sales revenue and total variable
costs
○ 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 = 𝑡𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑡𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠
○ 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 = 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 × 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑
○ Contribution and profit:
■ 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 − 𝑡𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
● Breaking even:
○ Break-even quantity- is the minimum quantity of products that need to be sold in
order to start making a profit
○ Break-even chart:
■ Break even chart- graphical method that measures the value of a firms
costs and revenues against a given level of output
■ Break even quantity- a measure of output where total revenue = total
costs

■
○ Margin of safety:
■ Margin of safety- the output amount that exceeds the break even
quantity
 ■ It is the range of output over which profit is made
■ Greater the difference between the break even quantity and sales level,
greater the margin of safety. Thus leading to more profit being made
■ 𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑠𝑎𝑓𝑒𝑡𝑦 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑜𝑢𝑡𝑝𝑢𝑡 − 𝑏𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑜𝑢𝑡𝑝𝑢𝑡
○ Calculating break even quantity:
𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
■ 𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 = 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
■ TR=TC method:

●
■ Other useful formulas:
● 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 − 𝑡𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
● 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝑡𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠
● Target profit:
○ Target profit output:
■ Target profit output- the level of output needed to earn a specified
amount of profit
𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 + 𝑡𝑎𝑟𝑔𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
■ 𝑇𝑎𝑟𝑔𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑜𝑢𝑡𝑝𝑢𝑡 = 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
● Break even revenue:
𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
○ 𝐵𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
× 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
● Effects of changes in price or costs:
○ Changes in price:

■
■ Shift in total revenue- becomes more steeper. Indicating that the sales
revenue has increased at all levels of output
 ■ Firm will break even at a lower level of output, resulting in higher
profits at every output level
■ Increase in margin of safety
○ Changes in costs:
■ Increase in fixed costs:

●
● Upward parallel shift of the total cost line
● Increase in fixed costs leads to an increase in total costs by the
same amount at every level of output
● Break even quantity also increases and so profit decreases at all
levels of output
● Decreased margin of safety
■ Increase in variable costs:

●
● Increases in variable costs increase the gradient of the total
cost line
● Rise in break even quantity and reduced margin of safety
○ Benefits and limitations of break even analysis:
■ Benefits:
● Help visualise a firms profit or loss at various levels of sales
● A manager can determine the margin of safety, break even
quantity and break even revenue or cost
 ● Formulae and calculations can be used to confirm the break even
charts and to check the results
● Changes in prices and costs and their impact on profit or loss, the
break even point and margin of safety can be compared by using
the charts or by calculation
● Break even analysis can be used as a strategic decision making
tool to decide on key investment projects or whether a business
should relocate or merge with another one
■ Limitations:
● Assumes all the units produced are sold with no stocks built up or
held. Whereas, in reality businesses often hold stocks to cater for
sudden changes in demand. Stocks may also build up because
goods cannot be sold
● Assumes all the costs and revenue are linear. This is not always
the case, for example price reductions or discounts will impact the
slope of the revenue line. Slope of the variable cost line would
change if workers are paid overtime in an effort to increase output.
This change will then influence the slope of the total cost line
● Fixed costs may change at different levels of activity
● Semi variable costs are not usually represented on a simple break
even charts
● Break even chart may not be useful in dynamic business
environments with sudden changes in prices, costs or technology
● Accuracy and quality of the costs and revenue data used
determines the effectiveness of break even analysis. Unreliable or
inaccurate data may influence the conclusions reached in the
overall analysis, leading to wrong decisions made
Tools
Decision trees:

●
● Advantages:
○ Visual image- easy to interpret
○ Holistic choice- can assess all options at the same time
○ Probabilities can be adjusted to scenario plan
● Disadvantages:
○ Probabilities are unreliable
○ Need qualitative assessment for effective decision making
○ Risk not minimised- technique is a starting point. STEEPLE factors not
considered
Force field analysis:

●
● Allocate a score for both driving forces and restraining forces
● Add up both scores, if one score is greater than other then simply change or do not
change
STEEPLE, SWOT, Ansoff and Porters:
● Strategy- method of creating long term sustainable competitive advantage
● STEEPLE:
○ STEEPLE- strategic planning tool to identify factors within the external business
environment which could have an impact on the operation of a business to
identify required changes to strategy

○
 ○
● SWOT:
○ SWOT analysis is a strategy tool to identify which areas you are successful in at
present
○ It allows for identification of issues and is the bases for finding solutions to those
issues

○
● Ansoff matrix:
○ Planning tool for a business to identify its product/market growth strategy

○
● Porters generic strategies:
○

○
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