1) Understanding business activity

Need : Something that is essential in our daily lives.

Wants : Something that is not essential in our daily lives but can improve the quality of life.
Scarcity : This is caused by the lack of supply and high demand making the product rare.
The demand is higher than the supply.
Opportunity cost : Opportunity cost is the benefit lost from choosing an alternative option.
(An alternative lost when a decision is made).

Factors of production :

Land : Anything that comes naturally from the planet. This covers the plants grown on land
as well as resources that are extracted from underground like oil and gas and from the sea
like fish.

Labour : Anything that is related to manpower required to produce goods and services.

Capital : Capital is the man made machinery/equipment which is used to produce goods and
services.

Enterprise : an organisation or business managed by one or more individuals who are able
to take the initiative to make decisions and take calculated risks. business enterprise.

What is added value ?

Added value is the cost added to the cost of production. This is so that it can cover additional
costs like labour, rent and marketing while leaving any remainder as profit.

Added value is the difference between the actual price to produce goods and services and
the price that customers are paying for.

Specialisation: The process where a business focuses on a particular industry or segment of

a market.
Specialization in business involves focusing on one product or a limited scope of
products so as to become more efficient.

Benefits of specialisation Limitations

More products are produced at a lower cost The business is not able to change
production to take advantage of market
The quality of products is higher due to the trends.
fewer mistakes on the production process
 The employees may demand higher wages
The production process is faster.
If the production process is closely linked, a
delay at one stage of the process will delay
the whole process

Division of labour is when employees concentrate on a part of the manufacturing process and
become highly skilled, resulting in greater efficiency on individual tasks.

Since they are highly skilled they can create greater efficiency. But since the work is repetitive ,
the workers can lose motivation.

The three stages of economy

Primary sector - extraction of raw materials

Secondary sector - The raw materials extracted from the primary is now being processed to mak
Consumer products.

Tertiary sector - This is where the business provides services to other businesses and
consumers such as banking, insurance etc.

Mixed economy is an economic system where there is a mix of privately owned and government
owned businesses. Gives flexibility to the businesses in the private sector.

Private sectors are like the organization which are owned by idnivduals or groups o findiviudals .
tThese companies need to earn profit to compensate the owners for their investment in the
business.

Organisations in the public sector are less focused; they are created by the government in order
to provide public services. For instance, they are more focused on creating jobs for people,
making the product available to people at a lower cost generally aimed to improve individuals life
quality.

Entrepreneurs are the person who starts a business/ organizes and runs the business.

Some characteristics of successful entrepreneurs is that they are risk takers , self motivated,
confident , innovative , creative and leadership.

Business plan is a report that outlines the objectives of business and how the business plans to
achieve them.

This allows the entrepreneur to set clear objectives ( e.g. how they can be achieved and how
they are going to do it), they can be also used to support applications for bank loans( like for
banks to see how and when the business will make a profit and be more likely to lend money).
They can identify the risks involved in starting the business.

How can the government support business start ups?

The government can support the business start ups by tax breaks( meaning that the government
lowers that tax percentage so they can use the money for improvement etc). Lower rate of tax
than the established businesses.

The governments can also give grants which are essentially government giving money to support
the business. This is also known as subsidy.

Another way is through the training schemes which is like teaching the entrepreneurs the skills
involved in running a business.

Measuring the business size.

The number of employees

-> The lower means that smaller the business
-> But the business might be more capital intensive and less labour intensive meaning that they
might not require as many employees.
Value of output - The total valuation of the goods that the business output
-> Business that make greater revenue are considered as larger
-> Small businesses can also generate a large amount of revenue but can be seen as small
because they sell their products at a high price.
Capital employed - The money that has been invested into a business to buy equipment and
machinery
- It might be more labour intensive meaning that they do not invest the majority of their
money on capital.
- More money invested into the capital equipment means that the company is larger in
general terms.
Market share - The percent of total sales that a particular company has in their overall industry
- Business with higher market share is considered as large
- Business can have characteristics of a large firm such as having more than 250
employees but still have a small market depending on the size of the industry.

How do businesses grow?

Internal growth and external growth :

Internal growth (or organic growth) is when a business uses its own resources to expand its
operations.

External growth is when a business buys or joins with other businesses. This process is also
known as integration.

What problems does business growth cause ?

Problems associated with grwoth Methods for overcoming this problem

 Increased cost : the business will need Grow the business slowly. Less capital being
additional finance to pay for capital equipment used up too quickly and it is easier to manage
and extra labour of the expansion the finance.

More difficult to control : As the business Allow the managers to delegate.

grows, they become more complex. This Employ more managers so that the workload
makes the communication and organising can be distributed.
resources more difficlt

Lower quality : Since the management of the Use additional staff training to ensure that
business becomes more difficult, mistakes mistakes are not made
are more likely to occur and the quality of the
products would be affected. Quality control or quality assuaracne.

Some businesses might choose to not grow because of

1) Lack of capital do not have enough finance to expand the business

2) The market - Some businesses might operate in a small market with a limited number of
customers
3) Owner’s objectives – Some business owners might just want enough money for living.

Why do some businesses fail ?

This might be due to the lack of management skills - finance or etc

Changes in the business environments - factors that are out of the business’s control, changes in
economy or etc.

There are also liquidity problems - Meaning that the business might be out of cash therefore not
able to pay back any debts to their suppliers and lenders.

New businesses are at greater risk of failure because

Lack of skills Entrepreneurs often have a very good

understanding of their product but lack the
skills needed to make this product into a
successful business

Difficulty in raising the fund / finance New business often have limited sources of
finance available to them forcing themto
borrow money. If they do not repay the money
then the business will fail

Insufficient market research Couldn’t identify the potential number of

customers beforehand so the product does
not sell enough to reach the breakeven point
or etc.

Lack of accurate record Some businesses fail because they do not

keepa ccuarete record of the costs, sales or
revenues. Might end up in debt.
Some businesses might choose to expand because they are able to diversify, which is basically
when one of their products loses fame then they could still experience sales from the other
products or services.

Increase customers -The business might choose to expand to increase their customers so that it
can increase their revenue and the market share.

Economies of scales - Meaning that as the scale of operation increases, the unit costs decreases
so it means that less production cost.

Unincorporated business -

Sole traders are the businesses that are owned and operated by one person.

Partnerships is a business that is owned and operated by at least two people.

-> Benefit is that the partners can raise more capital than a sole trader.
-> Share their expertise

Unlimited liability is when the business goes bankrupt the owner would have to be responsible for
all the debts of the business.
Limited liability is when the business is registered with teh government as accompany. So
shareholders receive a separate legal identity. So the owners would only be responsible for the
amount of money that they have invested.

Private limited companies are the business that sells shares (they can choose who to sell their
shares to ) , they have limited liability. (Do not publicly traded shares)

Public limited companies are also businesses which sell their shares but they sell their shares
available for the public selling them on the stock marketer. They also have limited liability. The
public limited companies tend to be much larger than private limited companies as more people
buy their shares.

Franchise is a form of business agreement where a business owner (franchisor) sells the right to
supply their goods and services under their recognised brand name to the franchisee.
Joint ventures is when two businesses work together to complete a project, but they do not
merge to become a bigger business.
Choosing what type of ownership would fit :

Want more control -> smaller

The amount of finance needed -> require more finance -> sell shares

The amount of risk involved - unincorporated businesses carry a higher level of risk as they have
unlimited liability.

Business objective is a goal that an organisation wants to achieve in order to reach its long term
goals.

SMART target

A bit out of syllabus

Common business objectives -

Survival ( some businesses might only aim to survive -> might be goal for small businesses
which struggle with cash flow problems)

Growth - Many business aim to get bigger

Profit - Many businesses are dependent on profit for survival, growth and to keep owners and
shareholders satisfied.

Market share - Their goal might be to increase the market share less competition.

The social enterprise is a business that has social objectives as well as an aim to make a profit.
(to benefit society) it does make profit.

Stakeholders are anyone who has an interest in business and its activity.
The possible conflict between each stakeholders

Topic 2:

Topic 3 :

3.1 :

Marketing is the process of identifying and anticipating and satisfying customer wants and needs
profitably.

Market research in order to identify consumer’s needs and then develop products which suit the
demand.

Customer loyalty :

Business has to maintain the customer base in order to remain profitable. Must have strong
relationships with its customers.

Customer relationship :

Maintaining customer relationships is important. Using market research they are able to
understand what customers want more specifically. This is known as relationship marketing.
Market changes :

Market is a place where buyers and sellers meet to trade.

Target market is the specific segment of the market that a business aims to sell to.

For instance Apple ‘s target market is people who show interest in buying new technologies or
seek to get new phones.

Why might spending habits change ?

Income : If the consumer’s income decreases they will buy less goods and services. If their
income increases, they are more likely to buy goods and services but also more likely to more
expensive goods.

Competition : If a competitor changes one aspect of marketing ( for instance lowering the price),
the consumers might want to buy the alternative option ( from the competitor) .

Price : If the price of a product rises, the demand for it often falls and vice versa

Advertising and promotion : By advertising and promotion, it encourages consumers to demand

the products and change their spending habits.

Fashion - If there is a specific popular fashion, this can create consumer demand for certain
products or services.

Business might respond to the changing spending patterns by :

Adapting their products

Launching new products

Selling their current products in new markets

Closing down unprofitable products and locations

Why might some markets become more competitive than others ?

If there is an increased number of businesses that enter the market, it becomes more
competitive.

Other factors might be :

Globalization - The increase in trade between countries and the sales of products all over the
world has led to increase competition

Technology - Changes in technology mean that more businesses can trade through the internet
making it more easier for the customer to access a variety of products.
Government regulation : Changes in laws made it easier for businesses to enter specific markets
( also known as deregulation). Some laws might also lower the operating costs of a business like
reduction in taxes.

Communication - Changes in communication technology and methods such as social media

allow customers to share information about products.

Response to changing spending patterns and increased competition :

- Develop new products - using the market research, business cna develop new products
to meet the wants of customer
- Improve customer relationship : By improving customer relationships and building
customer loyalty, the business can gain competitive advantage -> customer retention so
they are loyal to the business.
- Reduce costs through improved efficiency - By using their resources more efficiently,
business can reduce their average costs , hence they can lower the prices -> more sales
- Expand into new markets - by looking for buyers in other markets , business can reduce
the impact of changing consumer spending patterns or increased competition
- Improved advertising and promotion : By increasing their use of advertising and
promotion, businesses can convince customers to buy their products instead of the
alternatives.

Mass marketing -

Business that operates in the mass market to produce products that are sold to most of the
market. These products meet the general need and appeal to the majority of the market. Often
sold for low prices.

Niche market -

Business that operates in a niche market which produces specialized products that meet a
specific need and appeal to a smaller part of the market. Sold in low quantities for a high price.

Mass marketing Niche marketing

Benefits : High sales at low prices Business can focus on their

means that the costs are consumer and meet their
spread over a large number changing needs
of units.
There is little competition,
Economies of scale. which gives businesses a
large market share.
Good source of regular
income , less chance of cash Businesses can charge
flow issues premium prices.

Limitations : More difficult to identify Can attract big businesses

customer needs. making it harder for the
smaller businesses to
Less customer loyalty as the compete against.
 products are less unique.
Sales can be low and have a
limit.

Fewer economies of scale;

higher costs because the
output is lower

Market segmentation :

Breaking the market into clearly identifiable groups with shared characteristics

In other words this means that a single market is divided into groups each of which has distinct
customer preferences.

The segmentation can be based on the location :

People can live in certain countries or regions who have common characteristics.

Age or gender - Customers may be divided into segments either by age or by gender as many
many people have similar interests at the same age and are equal to the gender.

Socioeconomic status :

Different levels of income will influence the types of goods and services that are purchased.

What are the benefits or market segmentation?

Since markets are separated into different consumer groups, products can be changed to meet
specific needs hence adding added value.

By targeting specific markets, resources are not wasted on trying to sell goods and services to
customers who are not interested in them.

Market segmentation often identifies new markets for the products offered by a business which
increases the business's potential sales revenue.

Recommending a market segmentation strategy :

Potential revenue - The business will have to look at the number of potential consumers in each
market segment. If the market is too small it is not likely that the business will be able to generate
any profit when also factoring in the potential cost of entering the market segment in the first
place.

Future growth : If the market segment is unlikely to grow in the future, then it might not be worth
the money to invest
The brand - If the business decides to compete in a market, its brand must match the market. For
instance, a budget brand would not likely to succeed if it entered a market segment with
expensive premium brands.

3.2 : Market research :

Why do businesses use market research ?

It gives a business a better understanding of its potential target market and allows it to develop a
product that meets the customer needs and wants.

It also informs the business of what the competition is doing to meet the needs and wants of the
target market.

Market and product orientation :

Two types of market research :

여기서부터 A market oriented business identifies the customer’s needs and wants through
market research before developing the products. The business frequently researched customer
needs and wants through customer buying surveys and then developed products to meet them.

Product oriented business develops its products before it knows what the consumer’s wants and
needs are. For instance Apple because the technology develops quickly and it feels that when
the research comes in the market for technology would have changed.

Advantages of market orientation :

It can attract potential customers by meeting their specific needs.

It can create brand loyalty because the business is trusted to respond to changes in consumer’s
desires.

Advantages of product orientation :

Fewer costs are need ed for market research

There is less reliance on the data that may be outdated. Market research data can take a long
time to collect by which time the market may have changed for instance like technology.

Primary market research :

Primary market research is the research that has been conducted for the first time and for a
specific purpose. This means that the business will collect original data to answer specific
questions about its target market.

Benefits of primary research :

Data is relevant to the business’s specific product
It gives the business a competitive advantage because the information is kept from the
competitors ; can develop a USP
It gives the business more control over how the information is collected; more accurate data

Drawbacks :

It is expensive to collect the data because the process takes a long timer and requires many
resources.
Sometimes people taking part in the research may not give an honest answer

Methods of primary market research :

Methods of primary market research :

Focus groups : getting groups of consumers to discuss different aspects of a product

Interviews - One to one discussion with people

Online surveys - Asking potential consumer a series of structured questions through a website or
social media

Postal questionnaires :

Asking a list of structured questions through a standard form sent through the mail.

Quantitative data - These are answers to questions about quantity. The data is numerical and is
about collecting statistics and numbers.
Qualitative data - These are answers to questions about the consumer’s ideas and opinions. The
information is more detailed and specific than quantitative responses.

Benefits Limitations

Interview The interviewer can ask more Time consuming

detailed questions - > more Only a limited number of
specific information people can be interviewed.

Postal questionnaire As everyone is asked the It requires the information to

same questions , they are be sent through mail - > high
easier to analyze and cost
compare
Participants may not send the
Quantitative data can be a questionnaire back
good indication of a
consumer's likes and
opinions.

Online survey Minimal costs It is easy to ignore

Quantitative data can be People may give false
immediately analyzed information

Focus group It is a good source of Time consuming and

qualitative data -> consumer expensive
opinions can be collected and Only 6 - 10 people meaning
 compared that their opinions may not
represent the market as a
It is quicker and cheaper than whole.
conducting interviews with
individuals

Random sampling is when participants are selected at random from the population meaning that
everyone has the opportunity to be selected.

Quota sampling - The participants are separated into groups that share common characteristics
such as being the same age, gender or having the same income level. A specific number of
participants are then targeted from each group. This can be more time consuming for the
business due to the different groups which have to be targeted specifically.

Secondary market research is based on research that already exists and has been conducted at
some point in the past for other purposes but can give the business valuable information about
its products and its potential consumers.

Internal secondary sources : These are the sources of information that are produced by the
business but not for the purpose of market research.

Sales records, customer feedback, workforce feedback , management feedback.

External secondary sources :

These are the sources of information that are produced outside the organisation :

Online sources
Government sources
University studies

Benefits Limitations

Online sources They are free to access The information could be

They can save time because prejudiced, biased or eleven
the informations is already false as anyone can post
available online.
The information may have
been posted a long time ago
making it out of date and
accurate

Government sources The information cannot be The information was not

edited by anyone outside the collected for the specific
organization so that data is purpose of the business
reliable product
The government usually Government sources are not
provides the information for often updated. The data
free. might be outdated
 Commercial Market reports The information is usually The reports can be very
very detailed and specific to expensive
an industry or group of They are still not specific to
products individual business or
They are usually updated products so there may be
every year making the gaps in the information that
information up to data more the business would have to
accurate research anyway.

Accuracy of market research :

Validity - The data may not suit the purpose, especially in secondary market research

Reliability - Rather the people gives the honest responses

Use - The research may have a limited use and therefore will not often be used again

Accuracy - The statistical analysis and open questions may be entirely accurate.

Shelf life - The research is only valid for a very limited amount of time.

Language - The participant may be asked questions they do not understand because of the
language used

Sampling - The sample size may be too small to represent the population
Bias - The information may be biased or misleading because the person giving the information
may be trying to persuade other people to change their point of view.

Presentations and use of market research results :

Tables : Shows relationships between two variables

Bar charts :

Bar charts use vertical or horizontal bars to represent the values of particular items

Pictograms :

Pictogram is a variation of bar charts but instead of bars, stacks of pictures are used.

Pie charts :

Pie charts show the total figure split into different categories.

Line graphs :

Line graphs are used to show changes in data over a period of time. They show the size and
speed of the changes that comparisons can be made. However, if there is no time element to the
data then line graphs are not really suitable.