Notes From Bbc2

8/7/2019 Notes From Bbc2

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Market research

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Marketing is about responding to consumers' needs. It is important to find out

what these needs are before launching a new product.

A business conducts market research to help identify gaps in the market and

business opportunities.

What is a market?

A shop is an example of a market

Businesses sell to customers in markets. A market is any place where buyers and

sellers meet to trade products - it could be a high street shop or a web site. Any

business in a marketplace is likely to be in competition with other firms offering similar

products. Successful products are the ones which meet customer needs better than rival

offerings.

Markets are dynamic. This means that they are always changing. A business must be

aware of market trends and evolving customer requirements caused by new fashions or

changing economic conditions.

Market research

There is far more to marketing than selling or advertising. Put simply, marketing is about

identifying and satisfying customer needs.

The first step is to gather information about customers needs, competitors and market

trends. An entrepreneur can use the results of market research to produce competitive

products.


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New magazines will hope to retain customers after their launch

The first step for a new business or product is to attract trial purchases.

A new magazine may run special offers to get customers to try the first issue, hoping

that repeat sales are generated. The magazine will soon close if customers fail to buy

future issues. The aim of a special offer scheme is to convert trial purchases into repeat

sales.

Market research involves gathering data about customers, competitors and market

trends.

Collecting market research

There are two main methods of collecting information:

Primary research provides new data for a specific purpose

y Primary research (field research) involves gathering new data that has not beencollected before. For example, surveys using questionnaires or interviews with groups of

people in a focus group.

y Secondary research (desk research) involves gathering existing data that has alreadybeen produced. For example, researching the internet, newspapers and company

reports.

Factual information is called quantitative data. Information collected about opinions

and views is called qualitative data.

Accurate market research helps to reduce the risk of launching new or improved

products.

Some businesses opt out of field research and rely instead on the know-how and

instincts of the entrepreneur to guess customer requirements. They do this because

market research costs time and money. Existing business can make use of direct

customer contact to help them identify changing fashion and market trends.

Market Segments


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Most markets contain different groups of customers who share similar characteristics and

buying habits. These collections of similar buyers make up distinct market segments.

Targeted marketing

Breaking down a market into submarkets can lead to a business opportunity.

For example, a magazine publisher can target a specialist journal at one group of

customers of similar age, gender, class or income.

Another tool used to help identify a business opportunity is a market map. A market

map is a diagram that identifies all the products in the market using two key features.

A market map showing a gap in the marketThe diagram above shows how four local cafs are competing in terms of price and

quality.

The red circle identifies a gap in the market. There is a business opportunity for a new

caf offering standard quality products at standard prices.

Competition

The chocolate bar market is very competitive

A competitive market has many businesses trying to win the same customers.

Amonopoly exists when one firm has 25% or more of the market, so reducing the

competition.


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Competition in the market place can be good for customers. Governments encourage

competition because it can help improve these factors:

y Price: If there are several retailers, each retailer will lower the price in an attempt towin customers. It is illegal for retailers to agree between themselves to fix a price. They

must compete for business.

y Product range: In order to attract and satisfy customers, companies need to produceproducts that are superior to their competitors.

y Customer service: Retailers that provide customers with a helpful and friendly servicewill win their loyalty.

The marketing mix

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A company needs to consider the marketing mix in order to meet their

consumers' needs effectively.

Elements of the marketing mix

The marketing mix is the combination ofproduct, price, place and promotionfor any

business venture.

Marketing Mix

No one element of the marketing mix is more important than another each element

ideally supports the others. Firms modify each element in the marketing mix to establish

an overall brand image and unique selling point that makes their products stand out

from the competition.

Using the marketing mix


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The luxurious perfumery at The Galeries Lafayette Department store in Paris only sells premium brands

An exclusive brand of jewellery uses the best materials but comes at a high price. Such

designer brands can only be bought at exclusive stores and are promoted using personal

selling sales assistants. By contrast, cheap and cheerful jewellery for the mass

market is best sold in supermarkets and can be promoted using television adverts.

Market research findings are important in developing the overall marketing mix for a

given product. By identifying specific customer needs a business can adjust

thefeatures, appearance, price anddistribution method for a target market segment.

New technologies and changing fashion means goods and services have a limited

product life cycle. Ideally, the marketing mix is adjusted to take account of each stage.

For example, the life of a product can be extended by changing packaging to freshen a

tired brand and so boost sales.

Market stalls generally sell inexpensive items

There is no single right marketing mix that works for all businesses at all times. The

combination of product, price promotion and place chosen by a business will depend on

its size, competition, the nature of the product and its objectives.

The overall marketing mix is the businessmarketing strategy and is judged a success

if it meets the marketing departmentsobjectives, eg increase annual sales by 5%.

Consumer protection


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Businesses must must never be misleading about their products

The law gives customers protection against unfair selling practices. You do not need to

know specific Acts but you do need to understand how fair trading regulationsprotect

consumers.

The consumer has basic legal rights if the product is:

y given a misleading descriptiony of an unsatisfactory qualityy not fit for its intended purpose

Sale and Supply of Goods Act 1994

This Act says that all products have to be of a 'satisfactory quality'. This means that they

have to:

y be safey last for a reasonable amount of timey be fit for their intended purposey have nothing wrong with them (unless the defect was noted at the time of sale)

Trade Descriptions Act

A fake Rolex watch

According to the Trade Descriptions Act, false or misleading information must not be

given about products. For example, accurate information must be given about who

made the product.

Fake designer goods that are marketed as genuine are a clear breach of the Trade

Descriptions Act.

Consumer Credit Act 1974

This Act protects you when you borrow or buy on credit. The Consumer Credit Act states

that:

y Businesses must have licences to give credit.y No one under 18 is to be invited to borrow or buy on credit.y Businesses have to state an Annual Percentage Rate (APR). If you sign a credit

agreement at home you have several days in which you can tear up the agreement. This

is called a 'cooling off period'.business can adjust the features, appearance and packaging of a product to

create competitive advantage.

What is a product?


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Brands use packaging and logos to create a brand image

A product is a good or a service that is sold to customers or other businesses. Customers

buy a product to meet a need. This means the firm must concentrate on making

products that best meet customer requirements.

A business needs to choose the function, appearance and cost most likely to make a

product appeal to the target market and stand out from the competition. This is

calledproduct differentiation.

How product differentiation is created:

y Establishing a strong brand image (personality) for a good or service.y Making clear the unique selling point (USP) of a good or service, for example, by

using the tag line quality items for less than a pound for a chain of discount shops.

y Offering a better location, features, functions, design, appearance or selling price thanrival products.

Having a brand image helps products to stand out in a competitive market

Firms face a dilemma if they choose to launch a premium brand. Improving the quality

or appearance of a product adds to the cost of making it. In turn, this means that the

business must charge higher prices if they are to make a profit.

An alternative marketing strategy is to produce a budget brand. If a mobile phone has

limited functions and a standard design then it can be manufactured cheaply. The low

production costs allow for discount pricing.

Product life cycleThe product life cycle diagram shows that four stages exist in the working life of most

products.


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Product life cycle diagram

These are:

1. Launch2. Growth3. Maturity4. DeclineIn the launch and growth stages sales rise. In the maturity stage, revenues flatten out.

Getting a product known beyond the launch stage usually requires costly promotion

activity.

At some point sales begin to decline and the business has to decide whether to withdraw

the item or use an extension strategy to bolster sales. Extension strategies include

updating packaging, adding extra features or lowering price.

Product differentiation

A product portfolio is the range of items sold by a business. It can be analysed using

the Boston Matrix.

Boston Matrix

Star products have a high market share in a fast growing market.

Cash Cows have a high market share in a slow growing market.


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Question marks or problem children products have a low market share in fast

growing markets.

Dogs are products with a low market share in slow growing markets.

Firms with just a few items in their product portfolio or who have all their products at

the same stage in theproduct life cycle are in the dangerous position of having all

their eggs in one basket. Such firms may prioritise broadening their product range.

A business must take many factors into account before deciding on the price of

a product.

Pricing strategies

Remember there is a big difference between costs and price. Costs are the expenses of

a firm. Price is the amount customers are charged for items.

Firms think very carefully about the price to charge for their products. There are a

number of factors to take into account when reaching a pricing decision:

y Customers. Price affects sales. Lowering the price of a product increases customerdemand. However, too low a price may lead customers to think you are selling a low

quality budget product.

y Competitors. A business takes into account the price charged by rival organisations,particularly in competitive markets. Competitive pricing occurs when a firm decides its

own price based on that charged by rivals. Setting a price above that charged by

the market leader can only work if your product has better features and appearance.

y Costs. A business can make a profit only if the price charged eventually covers the costsof making an item. One way to try to ensure a profit is to use cost plus pricing. For

example, adding a 50% mark up to a sandwich that costs 2 to make means setting the

price at 3. The drawback of cost plus pricing is that it may not be competitive.

There are times when businesses are willing to set price below unit cost. They use

this loss leader strategy to gain sales and market share.

Pricing new products


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Half price sales are an example of penetration pricing

A business can choose between two pricing tactics when launching a new product:

y Penetration pricing means setting a relatively low price to boost sales. It is often usedwhen a new product is launched, or if the firms main objective is growth.

y Price skimming means setting a relatively high price to boost profits. It is often usedby well-known businesses launching new, high quality, premium products.Promotion

There is much more to promotion than advertising. Businesses use various

methods to gain publicity.

Customer awareness

Promotion refers to the methods used by a business to make customers aware of its

product. Advertising is just one of the means a business can use to create publicity.

Businesses create an overall promotional mix by putting together a combination of the

following strategies:

Promotional material on a high street in Shanghai

y Advertising, where a business pays for messages about itself in mass media such astelevision or newspapers. Advertising is non-personal and is also called above-the-line

promotion.y Sales promotions, which encourage customers to buy now rather than later. For

example, point of sale displays, 2-for-1 offers, free gifts, samples, coupons or

competitions.

y Personal selling using face-to-face communication, eg employing a sales person oragent to make direct contact with customers.

y Direct marketing takes place when firms make contact with individual consumers usingtactics such as junk mail shots and weekly special offer emails.

There is no one right promotional mix for all firms. The combination of promotional

elements selected takes into account the size of the market and available resources.

Large businesses have the resources to use national advertising. Small firms with limited

resources and a local market may instead opt for leaflet drops to promote their

activities.

Place

As part of its marketing strategy, a company needs to decide where best to

distribute a product.

What is place?


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Place is the point where products are made available to customers. A business has to

decide on the most cost-effective way to make their products easily available to

customers.

This involves selecting the best channel of distribution. Potential methods include

using:

Telesales is one possible channel of distribution

y Retailers. Persuading shops to stock products means customers can buy items locally.However, using a middle man means lower profit margins for the producer.

y Producers can opt to distribute using awholesaler who buys in bulk and resells smallerquantities to retailers or consumers. This again means lower profit margins for the

manufacturer.

y Telesales and mail order. Direct communication allows a business to get products tocustomers without using a high street retailer. This is an example ofdirect selling.

y Internet selling or e-commerce. Online selling is an increasingly popular method ofdistribution and allows small firms a low cost method of marketing their products

overseas. A business website can be both a method of distribution and promotion.

Developing new or improved channels of distribution can increase sales and allow a firm

to grow.

When hiring large numbers of staff, organisation is i mportant. Everyone within

the company needs to understand their role.

Structuring a business

Managers need to organise their staff and keep them motivated

As a business grows in size and takes on more staff, managers need to make sure

employees understand their role within the company.Organisation is the way a

business is structured.

One method of organisation is to set up departments covering the four main areas of

business activity:

y finance


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y human resourcesy marketingy operations

Organisation charts are diagrams that show the internal structure of the business.

They make it easy to identify the specific roles and responsibilitiesof staff. They also

show how different roles relate to one another and the structure of departments within

the whole company.

An organisational chart showing the structure of a company

For example, the Marketing Manager in the Midlands can see at a glance that she is in

charge of ten subordinates, and that her line manager is the Director of Marketing.

Organisational terms

There are a number of technical terms you need to learn:

y Hierarchy refers to the management levels within an organisation.y Line managers are responsible for overseeing the work of other staff.y Subordinates report to other staff higher up the hierarchy. Subordinates are

accountable to their line manager for their actions.

yAuthority refers to the power managers have to direct subordinates and makedecisions.

y Delegation is when managers entrust tasks or decisions to subordinates.y Empowerment sees managers passing authority to make decisions down to

subordinates. Empowerment can be motivational.

y The span of control measures the number of subordinates reporting directly to amanager.

y The chain of command is the path of authority along which instructions are passed,from the CEO downwards.


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y Lines of communication are the routes messages travel along.

Types of organisation

The staff structures of a tall organisation and a flat organisation

Tall organisations have many levels ofhierarchy. The span of control isnarrow and

there are opportunities for promotion. Lines of communication arelong, making the

firm unresponsive to change.

Flat organisations have few levels ofhierarchy. Lines of communication areshort,

making the firm responsive to change. A wide span of control means that tasks must

be delegated and managers can feel overstretched.

In centralised organisations, the majority of decisions are taken by senior managers

and then passed down the organisational hierarchy.

Decentralised organisations delegate authority down the chain of command, thus

reducing the speed of decision making.

One method of reducing costs is to remove a layer of management in a hierarchy while

expecting staff to produce the same level of output. This is calleddelayering.

Firms recruit, select and train staff in different ways with varying degrees of

success.

Recruiting staff

Without the right staff with the right skills, a business cannot make enough products to

satisfy customer requirements. This is why organisations draw upworkforce plans to

identify their future staffing requirements. For example, they may develop plans to

recruit a new IT Manager when the current one plans to retire in eight months time.

Recruitment is the process by which a business seeks to hire the right person for a

vacancy. The firm writes ajob description and person specification for the post and

then advertises the vacancy in an appropriate place.


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Job applicants

y Job descriptions explain the work to be done and typically set out the job title, locationof work and main tasks of the employee.

y Person specifications list individual qualities of the person required, eg qualifications,experience and skills.

Firms can recruit from inside or outside the organisation.

y Internal recruitment involves appointing existing staff. A known person is recruited.y External recruitment involves hiring staff from outside the organisation. They will

bring fresh ideas with them but they are unknown to the company - will they fit in?

Managers must decide on the best method to assess and select applicants for ajob. Application forms, CVs, references, interviews, presentations, role-

play and tests can be used to show if an individual is suitable for the specific job on

offer.

Many organisations are as concerned about attitude as they are about skill. There is

little point in appointing the best qualified or most skilled applicant if they have a poor

attitude toward work or cannot operate as part of a team. This is particularly important

in small firms with very few staff.

Training

Induction is the training given to new workers so that they understand their role and

responsibilities and can do their job.

Staff should learn new skills throughout the course of their career to stay productive.

Training improves technical, personal or management skills and will increase staff

efficiency. There are two main training methods:

Workers in a call centre

y On-the-job training where experienced members of staff explain a job or a skill.y Off the job training where outside experts are paid to explain a job or a skill.

An annual staff appraisal is a chance for an employee to discuss their recent work and

future training needs with their line manager in a meeting.

Retaining workers is important to a firm because it costs time and money to hire and

train a replacement. Appraisal and training helps motivate staff and so improves

staff retention.


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Companies can motivate employees to do a better job than they otherwise

would. Incentives that can be offered to staff include increased pay or

improved working conditions. Motivational theories suggest ways to encourage

employees to work harder.

What is motivation?

Motivation is about the ways a business can encourage staff to give their best.Motivated staff care about the success of the business and work better. A motivated

workforce results in:

A manager needs to be able to motivate their staff

y Increased output caused by extra effort from workers.y Improved quality as staff take a greater pride in their work.y A higher level of staff retention . Workers are keen to stay with the firm and also

reluctant to take unnecessary days off work.

Managers can influence employee motivation in a variety of ways:

y Monetary factors: some staff work harder if offered higher pay.y Non monetary factors: other staff respond to incentives that have nothing to do with

pay, eg improved working conditions or the chance to winpromotion.

Payment methodsManagers can motivate staff by paying a fair wage. Payment methods include:

y Time rate: staff are paid for the number of hours worked.y Overtime: staff are paid extra for working beyond normal hours.y Piece rate: staff are paid for the number of items produced.y Commission: staff are paid for the number of items they sell.y Performance related pay: staff get a bonus for meeting a target set by their manager.y Profit sharing: staff receive a part of any profits made by the business.y Salary: staff are paid monthly no matter how many hours they work.y Fringe benefits: are payments in kind, eg a company car or staff discounts.


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Non-pay methods of motivation

Managers can motivate staff using factors other than pay through:

y Job rotation: staff are switched between different tasks to reduce monotony.y Job enlargement: staff are given more tasks to do of similar difficulty.y Job enrichment: staff are given more interesting and challenging tasks.y

Empowerment: staff are given the authority to make decisions about how they do theirjob.

y Putting groups of workers in a team who are responsible together for completing acertain task.

y Motivational theoriesy Managers can make use of a number ofmotivational theories to help

encourage employees to work harder.

yy Maslow argues that staff can be motivated through means other than payy Taylorism argues that staff do not enjoy work and are only motivated

by threats and pay. Managers motivate staff by organising employees' work and

paying by results, eg piece rate pay - payment per item produced.

y Maslow suggests there are five hierarchies or levels of need that explain whypeople work. Staff first want to meet their survival needs by earning a good

wage. Safety needs such as job security then become important, followed by

social, self-esteem and self-fulfilment needs. Moving staff up a Maslow level is

motivational.


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yy The five levels of motivation described by Maslow

Production methods

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Entrepreneurs need to decide which production method is best for them. Goodcustomer service is valuable and leads to increased sales.

Job, batch and flow production

Production is about creating goods and services. Managers have to decide on the

most efficient way of organising production for their particular product.

There are three main types of production to choose from:

Flow production is used in soft drink production

y Job production where items are madeindividually and each item is finished before thenext one is started. Designer dresses are made using the job production method.


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y Batch production where groups of items are made together. Each batch is finishedbefore starting the next block of goods. For example, a baker first produces a batch of

50 white loaves. Only after they are completed will he or she start baking 50 loaves of

brown bread.

y Flow production where identical, standardised items are produced onan assembly line. Most cars are mass-produced in large factories using conveyor belts

and expensive machinery such as robot arms. Workers have specialised jobs, forinstance, fitting wheels.

y Choosing a production methody The best method of production depends on the type of product being made and

the size of the market. Small firms operating in the service sector, such as

plumbers or beauticians, opt for job production because each customer has

individual needs. Niche manufacturers of items such as made-to-measure suits

would also use job production because each item they make is different.

y Batch production is used to meet group orders. For example, a set of machinescould be set up to make 500 size 12 dresses and then adjusted to make 600 size

12 dresses. Two batches have been made.

yy Job production is used to make expensive pieces of designer jewelleryy Flow production is used to mass produce everyday standardised (all the same)

items such as soap powder and canned drinks.Economies of scale lead to lower

unit costs and prices. Not many small manufacturers can afford the investmentneeded to mass produce goods. They instead opt for either batch or job

production.

y There is usually a trade off between unit costs and meeting specific customerneeds. Flow production offers economies of scale and low costs for a one-size-

fits-all product.

Customer service

Customer service is the experience a customer gets when using products made by the

business. Satisfied customers make repeat purchases and recommend the product to

friends, leading to additional word-of-mouth sales.

Customers want to buy goods and services that meet their needs at a price they can

afford. For example a caf thrives when friendly staff serve tasty, well made meals, in

generous portions, at competitive prices.


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How to improve customer service

Good customer service is especially important in businesses dealing directly with the public, such as

hotels

Successful businesses define the quality orstandard of service needed to meet

customer needs. For instance, a caf can aim to take no more than 5 minutes to serve

any customer once they have ordered their meal.

Ensuring that quality standards are met requires:

y Training so that staff understand their role and responsibilities. For instance, askingevery customer if they are happy with their meal.

y Innovation or introducing new ideas and methods. For example, altering the menuevery three months keeps customers interested and helps a caf to stay one step ahead

of the competition.

y Listening to customers helps a business adjust its products to better match consumerneeds and respond to any problems.

Price versus customer service

Customers compare price with customer service. Few customers expect high

quality service when buying low priced items. For instance, travellers using a budget

airline accept that they must pay for extras such as an in-flight meal. First class

customers expect luxury seats and free champagne. The challenge facing all businessesis to remain competitive. They must keep prices competitive while offering a better

service than rivals

Efficiency, productivity and competitiveness are linked. Better productivity

means increased efficiency which results in a higher level of competitiveness.

Efficiency and productivity

Efficiency is about making the best possible use of resources. Efficient firms maximise

outputs from given inputs, and so minimise their costs. By improving efficiency a

business can reduce its costs and improve its competitiveness.

There is a difference between production and productivity. Production is the total

amount made by a business in a given time period. Productivity measures how mucheach employee makes over a period of time. It is calculated by dividing total output by

the number of workers. If a factory employing 50 staff produces 1000 tables a day, then

the productivity of each worker is:

1,000 tables/50 staff = 20 tables


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Graph showing staff efficiency

An increase in productivity from 20 tables to 25 tables, without any increase in costs,

means the firm has improved efficiency. The resultant lower unit costs increase profit

margins.

Staff productivity depends on their skill, the quality of machines

available andeffective management. Productivity can be improved

through training,investment in equipment and better management of

staff. Training andinvestment cost money in the short term, but can raise long-term

productivity.

Other methods of cutting costs

As well as improving productivity, a business can cut costs by:

Reducing electricity usage can lower overheads

y Reducing overheads such as administration, eg making some support staff redundant.Customer service may suffer as a result of this.

y Relocation to countries where staff with appropriate skills can be hired at lower wages.y Improving management so staff are motivated to work harder, or are better used.y Redesigning the product so an item is easier and cheaper to make.

Lean production is a set of measures that aim to reduce waste during production.

Waste reduction methods, such asjust in time ordering of stock, will increase

efficiency.

Ensuring quality means making sure that products are made to a minimum

standard or better. The cost of doing this should be covered by extra sales.

What is quality?


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Hand made items are often higher quality than mass produced items

Quality is about meeting the minimum standard required to satisfy customer

needs.High quality products meet the standards set by customers - for example, a

high quality washing-up liquid can claim that one squirt is sufficient to clean a family's

dirty plates after a meal. A poor quality washing-up liquid requires several squirts.

In many industries a quality standard is laid down by independent organisations such

as the British Standards Institution (BSI). Firms benefit by adjusting the way they

work to meet these standards. Businesses hope that the cost of improving quality will be

more than covered by extra sales.

How to ensure quality

Producing faulty goods incurs repair costs and damages the reputation of the firm. There

are two main approaches to achieving quality:

Mass produced items need to be checked for quality standards

y Quality control where finished products are checked by inspectors to see if they meetthe set standard.

y Quality assurance where quality is built into the production process. For example, allstaff check all items at all stages of the production process for faults. In this way

everyone takes responsibility for delivering quality. Successful quality assurance results

in zero defect production.

Introducing quality assurance requires Total Quality Management (TQM), in which

managers try to bring about a change in business culture, convincing employees to careabout how products are being made and to do their part to ensure standards are met.

Managing and storing stock effectively is important for a business in order to

maintain production and sales.

What is stock?


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Stock is any item stored by a business for use in production or sales. Stock can be:

1. Raw materials and components waiting to be used in the manufacturing process,eg tyres stored by a car factory.

2. Finished goods held in store so that a customer order can quickly be met fromstock.

Holding stock incurs warehouse storage costs and ties up working capital. Funds

must be found to pay for materials, components and unsold goods with interest.

Running out of one item of stock could bring the whole factory to a halt. Staff must stillbe paid even though they do not have the parts to carry on production.

Stock control aims to hold sufficient items on site to enable production while

minimising stock holding costs. There are two methods of stock control -just in

case andjust in time.

Just in case

Thejust in case method of stock control is best explained using a diagram called a bar

gate stock graph. You need to understand the meaning of:

Bar gate stock graph

y Maximum stock level: the largest amount of items to be stored on site (500).y Minimum stock level: the lowest amount of items to be stored on site (100).


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y Reorder level: the amount at which new stock is ordered. 400 items are ordered and ittakes two weeks lead time for ordered stock to arrive. There is always a buffer

stock of 100 items held in case deliveries are held up or there is an unexpected large

order.

y Just in time

yy A fork lift truck collecting stock in a warehousey Just in case stock control is costly. To reduce spending and improve

competitiveness, a business can switch to an alternative method of stock control

calledjust in time. With just in time, a business holds no stock and insteadrelies upon deliveries of raw materials and components to arrive exactly when

they are needed. Instead of occasional large deliveries to a warehouse,

components arrive just when they are needed and are taken straight to the

factory floor.

y The benefits of reduced warehouse costs must be balanced against the cost ofmore frequent deliveries and lost purchasing economies of scale from bulk buying

discounts.

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