Pearson Edexcel GCSE (9-1) Business Revision Guide PDF

Pearson Edexcel GCSE (9–1) Pearson Edexcel GCSE (9–1) DOWNLO AD...

Pearson Edexcel GCSE (9–1) Pearson Edexcel GCSE (9–1) DOWNLO AD NOW FOR Business REVISION ON THE Revision Guide + App GO! The revision series for Pearson Edexcel GCSE (9–1) from Pearson. Including the PEARSON REVISE APP Pearson Edexcel GCSE (9–1) This book will help you to: Take control of your revision and Business Business confidently prepare for exams: Organise your revision with the one-topic-per-page format Quick quizzes for every GCSE Business topic Check your understanding with worked examples Track your revision progress Develop your exam technique with exam-style practice in the app Revision Guide + App questions and full answers Revise on the go with links Revision Guide + App Speed up your revision with helpful hints and tips to Revision Guide pages. Track your revision progress with at-a-glance check boxes Aim higher with target grades for every question and worked example. Also available: Pearson Revise Revision Workbook Practise every topic in this book, with the accompanying Pearson Edexcel GCSE (9–1) Business Revision Workbook. It gives you target grades for every question, guided practice and a 1-to-1 page match with this Revision Guide. www.pearsonschools.co.uk [email protected] CVR_ED_GCSE_RG_BUSINESS_0716_CVR.indd 1 30/06/2020 16:20  Edexcel REVISE PEARSON EDEXCEL GCSE (9–1) Business REVISION GUIDE Series Consultant: Harry Smith Author: Andrew Redfern Also available to support your revision: Revise GCSE Study Skills Guide 9781292318875 The Revise GCSE Study Skills Guide is full of tried-and- trusted hints and tips for how to learn more effectively. It gives you techniques to help you achieve your best – throughout your GCSE studies and beyond! Revise GCSE Revision Planner 9781292318868 The Revise GCSE Revision Planner helps you to plan and organise your time, step-by-step, throughout your GCSE revision. Use this book and wall chart to mastermind your revision. For the full range of Pearson revision Question difficulty titles across KS2, KS3, GCSE, Look at this scale next to each Functional Skills, AS/A Level and 4 exam-style question. It tells you how difficult the question is. BTEC visit: www.pearsonschools.co.uk/revise  1-to-1 page matc h wit the B h usine Contents Revis ss ion W ISBN orkbo 97812 ok 9 21907 09 Theme 1: Investigating Theme 2: Building a business small business 49 Business growth 1 The dynamic nature of business 50 Public limited companies (PLCs) 2 Risk and reward 51 Financing growth 3 The role of business enterprise 52 Why business objectives change 4 The importance of added value 53 How business objectives change 5 The role of entrepreneurship 54 Business and globalisation 6 Customer needs 1 55 International trade 7 Customer needs 2 56 Competing internationally 8 The role of market research 57 Ethics and business 9 Types of market research 58 Environmental issues 10 Market research data 59 Product 1 11 Market segmentation 60 Product 2 12 Market mapping 61 The importance of price 13 Competition 62 Pricing strategies 14 Competitive markets 63 Promotion 15 Aims and objectives 64 Promotion, branding and technology 16 Differing aims and objectives 65 Place 17 Revenues and costs 66 Integrated marketing mix 18 Profit and loss 67 Business operations and production 19 Break-even charts 68 Business operations and technology 20 Using break-even 69 Managing stock 21 Calculating cash flow 70 Suppliers and procurement 22 The importance of cash to a business 71 Managing quality 23 Short-term sources of finance 72 Customer service and the sales process 24 Long-term sources of finance 73 Gross and net profit 25 Limited liability 74 Profit margins and ARR 26 Types of business ownership 75 Interpreting quantitative business data 27 Franchising 76 Limitations of quantitative data 28 Business location 77 Organisational structures 29 The marketing mix 78 The importance of effective communication 30 Influences on the marketing mix 79 Different ways of working 31 The business plan 80 Different job roles and responsibilities 32 The nature of business planning 81 Effective recruitment 33 Stakeholders 82 Developing employees 34 Stakeholder conflict 83 The importance of training 35 Technology and business 84 Motivating employees 1 36 Principles of consumer law 85 Motivating employees 2 37 Principles of employment law 86 Exam skills: Case study 38 The economy and business 87 Exam skills: Short-answer questions 39 Unemployment and inflation 88 Exam skills: ‘Calculate’ questions 40 Interest rates 89 Exam skills: ‘Analyse’ questions 41 Exchange rates 90 Exam skills: ‘Justify’ questions 42 External influences 91 Exam skills: ‘Evaluate’ questions 43 Exam skills: Case study 92 Formulae 44 Exam skills: Short-answer questions 1 93 Glossary 45 Exam skills: Short-answer questions 2 95 Answers 46 Exam skills: ‘Analyse’ questions Pearson Edexcel publishes Sample Assessment Material 47 Exam skills: ‘Justify’ questions and the Specification on its website. This is the official 48 Exam skills: ‘Evaluate’ questions content and this book should be used in conjunction with it. The questions in Now try this have been written to help you practise every topic in the book. Terms in blue can be found in a glossary on page 93. Remember: the real exam questions may not look like this. ii  Investigat Had a look Nearly there Nailed it! small bus ng i iness Enter prise entrepren and The dynamic eurship nature of business Businesses operate in dynamic markets. New opportunities arise and new businesses and business ideas are created. Wherever there is a need for a product or service, an entrepreneur may take the chance to meet that need with a new business venture. Changing technology Changing consumer needs As new technology develops, new business Society is constantly changing. These changes opportunities arise. New technology can lead to consumers spending their money in often improve products and services, and different ways. New business opportunities make them more desirable in a number can arise because of new consumer wants and of ways. New technology can: needs caused by: make products and services faster changes in fashions make products smaller (more compact) changes in the economy make products and services cheaper changes in national demographics make products and services easier changes in lifestyle, such as the way to use consumers spend their leisure time make products safer. changes in technology. Obsolescence The introduction of new technology and the changing nature of consumer needs means that products and services can become obsolete very quickly. Many products are designed to only last a short time, and consumers are encouraged to buy newer and improved versions of these products. This is called planned obsolescence. Worked examp le 2 Give two examples of the way in which new business ideas can be generated. (2 marks) 1 A new idea, such as a new invention. 2 Developed from existing ideas, such as by making slight changes and improvements to an existing product or service (innovation). ly one can be unique (the on Digital music downloads are an example A new business venture of how new technology makes products other existing ideas. and services obsolete. Physical CD sales of its kind) or similar to in the USA dropped by more than 75% between 2005 and 2014. Level of uniqueness: arket big Left highly unique Unoccupied Entrepreneur M ca n enough Right generic business gap in the thinks they be tt er fo r another market do it competitor Now try this 1 Explain one opportunity that the introduction of new technology creates for a business. (3 marks) 4 2 Explain one way in which a gap in the market creates a business opportunity. (3 marks) 1  ing Investigat ss Had a look Nearly there Nailed it! ine small bus and Enter prise ship entrepren eur Risk and reward Before an entrepreneur starts their own business or sets up their own company, they will consider the risks and rewards associated with their business venture. Some businesses may be considered higher risk than others, but they may also offer greater rewards to their owners. Working out the risk Risk is worked out by considering the probability of a negative outcome occurring and the impact of the negative outcome. Starting any business will involve taking a risk because there are so many unknown factors that affect long-term business success. Rewards Risks There are both Business success – personal Business failure – through poor cash rewards and satisfaction, excellent products/services, flow, fall in sales revenue or the action risks associated growth, and awards and recognition of competitors with starting a Starting a business business. Profit – where revenue Financial loss – an owner may lose the exceeds costs over a capital they invest in the business if it fails. period of time This could include their personal belongings if the business has unlimited liability Independence – many business owners Lack of security – not working for someone will value the freedom of working for else means no guaranteed income, sick pay themselves over working for someone else or holidays How can risk be reduced? What makes some businesses riskier Carry out detailed market research than others? (you can revise market research on page 8). Seasonal demand, such as for ice cream. Produce a business plan (you can revise A small market. business plans on pages 31–32). A highly competitive market with lots of Ensure that the business is competitive competitors. (you can revise competition on pages 13–14). An owner who knows little about the Raise sufficient start-up finance (you can product or market. revise finance on pages 23–24). at could lead Consider the factors th Worked examp le 3 to business failure. Alt might be a personal do hough Option D wnside for Sonia, business failure. Sonia Fletcher set up as a sole trader selling cakes made it is not likely to cause answer as it is a from organic ingredients. Which one of the following is Option B is the correct an example of a risk for Sonia’s business? risk for the business. Select one answer: A Sonia has estimated that demand will rise over the next six months ✗ Sonia has calculated a negative cash flow for August B C Sonia is anticipating that the cost of flour will fall next year D Sonia has estimated that she will need to work an extra 5 hours per week to meet demand for her products  (1 mark) Now try this 4 Explain one reason why someone might want to set up their own business. (3 marks) 2  Investigat Had a look Nearly there Nailed it! small bus ng i iness Enter prise entrepren and The role of eurship business enterprise A business or enterprise is a person or organisation with the purpose of producing goods and services to meet the needs of customers. A business might produce its own goods or buy them from a supplier and sell them to customers. What businesses do SUPPLIERS PRODUCTION CUSTOMERS / CONSUMERS BUY SELL FROM BUSINESSES TO Supplier: a business that Production: using raw materials, labour Customer: a person or organisation sells (supplies) products and machinery to make products. that buys the product or service. to another business. Consumer: the person that uses (consumes) the product. The purpose of all products and services is to meet the needs of customers, often in order to make a profit. Adding value £100 £30 Value Successful businesses will be able to add value to their products and added: what services. A business can add value to its product by lowering variable the business adds costs or adding something that will make customers willing to pay a £70 higher price. More convenience Unique selling point Price Variable Adding value cost is very closely Ways to add value Better design linked to profit. Greater speed of service Branding Improved quality Worked examp le 6 B and E are things that customers would B would Which two of the following might be the best ways in which an be willing to pay more for. Option and oven-cleaning business could add value to its products? provide a better all-round service, e. The Select two answers: (2 marks) Option E would improve convenienc the A Employing an accountant to manage cash flow other three options might improve business but would not add value. ✗ O B  ffering free after-care visits to check customer satisfaction C Making sure they have an excellent relationship with the bank D Buying a van with the name of the company clearly Now try this 6 written on the side Discuss why a business may find ✗ E P roviding a weekend service so that customers do not it difficult to add value to its need time off work products or services. (6 marks) 3  ing Investigat ss Had a look Nearly there Nailed it! ine small bus and Enter prise ship entrepren eur The importance of added value Adding value is important to a business for a number of reasons. A business must decide how best to combine the features of its products to add value. The benefits of adding value Unique selling point The added value of a product goes A unique selling point (USP) is another towards paying off a company’s fixed costs. way to add value to a product. A USP will The higher the added value, the sooner also help a business compete. costs can be paid off and the quicker a business will make a profit. The more value Developing a USP can be aided a business can add to its products, the through understanding customer more chance the business has of success, needs and market mapping. survival and long-term growth. Well-designed Mix and match packaging Convenient Most products combine a range Unique combination shop of ingredients of features to add value and location improve competitiveness. The most successful products are Freshly the ones that are able to keep Friendly handmade costs down as they add new service features or benefits. Good-quality Free drink with Organic fillings every sandwich bread Option C will add value through raising after- sales service, and Optio n D will add value through a stronger bran Worked examp le 1 willing to pay more for d image. Customers are these things. Which two of the following are strategies that a professional gardener might use to help their business achieve high levels of added value? Select two answers: (2 marks) A Ensure a profit is made on every ✗ D D  evelop a strong brand awareness job completed in the local area B Give price discounts E Compare the prices of competitors every month ✗ C V  isit every customer 48 hours after work is completed to take feedback Now try this 1 Which one of the following is most likely to be a reason why a business would try to add value to its products? Select one answer: (1 mark) A To increase the materials it buys B To add a USP C To differentiate its product D To improve its chances of survival in the long term 4  Investigat Had a look Nearly there Nailed it! small bus ng i iness Enter prise entrepren and The role of eurship entrepreneurship An entrepreneur is a person who owns and runs their own business. Entrepreneurs are risk-takers who have an initial idea and the willingness and confidence to see it through. What do entrepreneurs do? Risk-taking Showing initiative Have an idea Take a risk Organise the resources to set up a business Enterprise skills Establish and grow a successful Make business business decisions Employ people Willingness to undertake a new venture Approximately 40% of businesses fail within their first four ye ars of trading. Entrepreneurs innovate Entrepreneurs create new products through invention and innovation. ££ £ INVENTION INNOVATION RESEARCH AND POTENTIAL PRODUCTS PRODUCTS READY TO DEVELOPMENT AND PROCESSES SELL TO CUSTOMERS Benefits to the economy Worked examp le 1 Entrepreneurs benefit the economy by: creating products and services to Which two of the following are key features meet people’s needs of enterprise? Select two answers:  (2 marks) creating jobs A Employing at least one worker generating economic activity through B Having the right qualifications to run consumer spending a business paying tax to the government ✗ C Being prepared to take risks exporting goods abroad. ✗ D Having a willingness to take on a new venture E Registering as a private limited company When answering questions about enterprise, remember that it involves the things required to sta rt a new business. Now try this 1 Which two of the following are key enterprise skills? Select two answers:  (2 marks) A A willingness to take risks B A willingness to employ at least five workers C A willingness to take the initiative D A willingness to follow a course of study in business E The ability to raise finance 5  ing Investigat ss Had a look Nearly there Nailed it! ine small bus business Spotting a nity oppor tu Customer needs 1 If a business is to make products and services that are desirable and profitable, they must be able to meet customer needs successfully. A business that can meet customer needs will encourage repeat purchase and attract new customers. What customers want When making decisions about products and services, customers will make a decision based on the balance Choice of the four factors shown in the diagram. All of the factors are linked through price, because a business’s ability to provide a product at the right Price price will depend on the level at which it meets the other factors. For example, improving the standard of product quality by using better-quality raw materials may increase costs, which will have an Quality Convenience effect on the price. Meeting customer needs Customer need Example Price Charging a price that is 20% lower than competitors’ prices Choice A restaurant serving a menu that offers more than 30 different dishes Convenience A business offering customers next-day delivery on all items Quality A clothes manufacturer using only the highest grade of cotton in all garments Worked examp le 4 Explain one reason why a business might sell a wide range of products.  (3 marks) by In this answer, the student starts A business would sell a wide range of tom er needs. identifying a reason linked to cus products to give customers more choice. The student then goes on to exp lain If customers have more choice, it is a cho ice would why providing customers with more likely that they will find a product the reason be beneficial. They have developed that meets their needs. As a result, the pment. with two linked strands of develo business will increase its sales because You do not need to give context in an all customers will find something that ‘explain’ question. they like. Now try this 1 State one way that a business could meet customer needs through providing high-quality products.  (2 marks) 6  Investigat Had a look Nearly there Nailed it! small bus ng i iness Spotting a busin oppor tunit ess Customer needs 2 y A business cannot treat all of its customers the same way. Customers with similar needs will be influenced in different ways by their personal circumstances and characteristics. A business must understand the differing needs of its customers so that it can continue to generate sales and survive. Personal circumstances Family needs Financial needs Customers with children will People with different incomes have different needs from a will choose to buy products and couple with no children services at different price points Understanding Personal tastes and preferences customers Emotional needs All customers have personal Some customers may have preferences based on style, colour, strong emotional connections function and personal taste to certain brands and products Customer needs and different products A customer’s needs will differ for different A – Customer A – Customer preference preference B - Customer B - Customer preference preference types of products. In some cases, the for a flight for to a flight Spainto Spain for a pair for ofahiking pair of boots hiking boots right price may be more important than choice. In other circumstances, it may be the other way around. For example, a customer buying a short- haul flight to Europe may value price and convenience over quality or customer service. However, the same customer buying a different product, such as a pair of hiking boots, may be willing to Choice Price Choice Convenience Price Customer service Convenience Customer service Choice Price Choice Convenience Customer Price service Convenience Customer service Quality Quality Quality Quality pay a high price if they receive excellent customer service (advice from a specialist) and a high-quality pair of boots. Worked examp le 2 Now try this 2 Which two of the following are likely to be the Which one the following is a reason why customer most effective methods that an office furniture service is important to the success of a small business? business might use to meet customer needs? Select one answer:  (1 mark) Select two answers: (2 marks) A Customers are the ones who add value A Securing repeat purchases by customers B A small business wants to get repeat purchases ✗ Fulfilling customer orders quickly B C Customers will buy a product if the price is right C Setting non-financial objectives D It has to meet legal requirements ✗ D Selling furniture at a competitive price E Advertising on local radio Option B Only Options B and D have anything to do with meeting customer needs. Option D is an is an example of convenience and providing good customer service. example of meeting customer needs through appropriate pricing. 7  ing Investigat ss Had a look Nearly there Nailed it! ine small bus business Spotting a nity oppor tu The role of market research A business will carry out market research appropriate to its size and the nature of its market. The purpose of market research is to help a business to understand its customers, competitors and the market in which it operates, in order to make informed decisions about its products and services. Identify gaps in the market or opportunities Identify and understand Identify and understand competitors customer needs The purpose of market research Understand how well the business Understand trends in is doing, such as customers’ the market, such as opinions of its products Inform business decisions and market growth reduce the risk associated with making business decisions Worked examp le 2 Lisa Gallagher believes there is a growing market for gardening services. She has conducted some market research to test her idea and has summarised her findings. Type of household Percentage Service 1 Single – no children 7 10% Single – with children 11 Service 2 12% Single – pensioner 28 Service 3 49% Couple – no children 9 29% Combination of Couple – with children 31 the 3 types Couple – pensioners 14 Figure 1 of service Table 1 Study Table 1 and Figure 1. According to this information, Make notes Quantitative which two conclusions can Lisa draw from the data? skills on what the Select two answers: (3 marks) data tells you. It is important ✗ A 1 00% more single pensioners than pensioner couples are that you interpret the data interested in Lisa’s business correctly before you begin to B L isa should not offer Services 2 or 3 as there is no demand choose the correct answers. C Her main two segments are couples with no children and Once you are sure that you singles with children understand the data, eliminate ✗ D M ore than half of people prefer something other the options that you know are than Service 1 incorrect. Why are Options B, E C ouples with children are more likely to use Service 1 C and E incorrect? Now try this 6 Discuss why a business may conduct extensive market research before it begins trading. (6 marks) 8  Investigat Had a look Nearly there Nailed it! small bus ng i iness Spotting a busin oppor tunit ess Types of market y research Primary research (field research) is collecting Secondary research (desk research) is information that did not exist before. This first- the process of gathering secondary data, hand contact with customers is valuable to a which is information that already exists. business in understanding its market. Internet sites Focus groups Sales data Local newspapers Observations Surveys Secondary Primary research research Experiments Telephone Government directories reports Social media Questionnaires Market reports More accurate More general Up to date Less time-consuming Specific to needs Effective at collecting quantitative data Effective at collecting qualitative data Many businesses use social media as a cheap way to Direct customer contact collect information on market trends, customer opinions Market research questions and the actions of their competitors. Focus on… Example questions Customers What do our customers value? What benefits are offered by Worked examp le 3 our product? Which two of the following are the benefits of How can we improve our products? conducting secondary market research instead of How much are our customers primary market research? (2 marks) willing to pay? Select two answers: Competitors Who are our closest rivals? What is their market share? A It adds value to the products What makes them competitive? ✗ B I t is less time-consuming Market What is the price of existing ✗ C I t offers a wider range of information products or services? D It is more specific to the target market How many people are buying E It will lower the costs of production these products? Is the market growing or shrinking? Ways of collecting market research data include: What are the latest trends? multiple-choice questions yes/no questions sliding scales such as 1–10 customer comments. Now try this 2 Which one of the following would not be an appropriate method of market research for a new small business? Select one answer: (1 mark) A Employing a specialist market research company to carry out a survey of 10 000 people B Using published statistics about market trends C Asking customers to fill in a short questionnaire on the premises D Conducting an interview 9  ing Investigat ss Had a look Nearly there Nailed it! ine small bus business Spotting a nity oppor tu Market research data There are two categories of market research data: qualitative data – information about people’s opinions, judgements and attitudes quantitative data – data that can be expressed as numbers and statistically analysed. Effective market research is likely Size and scale to link quantitative and qualitative Market research can be expensive and small information together. For example, businesses may only do a little. Larger businesses it would help a business understand may pay a market research company to carry a 20% fall in customer satisfaction out extensive primary research. The greater the ratings if a focus group revealed sample size (proportion of the population) used, that this was due to the layout of the more accurate the research will be. the business’s new website. Bias Reliability Bias is the inclination to agree with an idea. Market research In order to make good data can be biased if customers give the answers that they business decisions, research think the business wants them to give, for example when a data should be reliable – it small business owner collects the opinions of family. Bias also should come from a occurs by not surveying a representative sample of people. representative sample and For example, a cafe owner will receive different feedback on his the questions should enable menu from people eating lunch to those just wanting a drink, so people to give accurate and only asking those people will result in biased data. relevant answers. ✗ ✓ with the This leads the customer to agree Don’t you agree that this Tick your colour preference biased. statement so the data would be product should only be for this product. available in black? Yes/No red green black answer, so People with 0 or 3+ pets cannot How many pets do you have? How many pets do you have? the data would be inaccurate. 1 2 3 0 1–2 3+ Worked examp le 5 Other methods include interviews, consumer pa nels Apple produces home electronics, including the iPad and iPhone, for or questionnaires/surve ys. the mass market. Product design is an important part of its success. (a) Give one method of collecting qualitative market research. (1 mark) a Focus groups This is a good start to n. (b) Analyse the impact on Apple of using qualitative market research to 9-mark ‘analyse’ questio w improve its understanding of customer needs. (9 marks) The student should no is Qualitative research will give Apple information about whether develop their answer. Th st tw o consumers think their computers, iPads and iPhones are may include at lea ed good-quality products. This will enable Apple to change their different reasons appli Ap ple. product design so that consumers will pay more. to the context of Now try this 1 Define the term ‘market research’.  (1 mark) 1 2 Give one way in which a business might collect quantitative market research data. (1 mark) 3 Explain one way in which market research data might benefit a business. (3 marks) 10 4  Investigat Had a look Nearly there Nailed it! small bus ng i iness Spotting a busin oppor tunit ess Market segmentation y A market segment is a group of buyers with similar characteristics and buying habits. Segmenting a market allows a business to understand its customer needs and to target its customers better. How to segment a market In order to accurately segment its market, a business must have a good A market can be segmented in many ways, based understanding of its customer needs on the characteristics and needs of customers. through effective market research. Age – e.g. 18–25 Gender – e.g. female Income – e.g. socio- economic group Demographics – e.g. young couple Location – Lifestyle – e.g. Newcastle e.g. adventurous Benefits of segmentation Limitations of segmentation Market segmentation allows a business to: Targeting a range of different customers meet specific customer needs with different products and services can differentiate its products be costly. focus on a specific group of customers Focusing on one group of customers can cause a business to miss another target its marketing activity opportunity. develop a unique brand image Customer characteristics change over build close customer relationships. time, such as lifestyle, income and demographics. Businesses have to continually upd ate their understanding of their customers as customer nee ds change over time. Worked examp le 4 Explain one way in which effective marketing can Make sure that you: help improve the products of a business. (3 marks) identify one way (for example, If a business understands its customers’ needs, product development) its products and services can be developed to make two further expansion meet these needs. This means that the products points about the way that will be more attractive and desirable, leading to a you have identified. greater number of sales. Now try this 1 Define the term ‘market segment’. (1 mark) 2 Explain one reason why a business may choose to segment its market. (3 marks) 2-4 11  ing Investigat ss Had a look Nearly there Nailed it! ine small bus business Spotting a nity oppor tu Market mapping Market mapping helps businesses to position their products by identifying gaps in the market. Market maps High quality Key A market map is a diagram that can be used Marco’s Cafe to position and compare products in a The Beach Hut The Village Cafe market. It is also used to identify gaps in Low High The delicatessen the market, which are opportunities where price price Gap in the market customer needs are not being met. A market map will compare businesses based on two A market map showing a variables, such as price and quality. potential gap in the market Low quality for a new cafe business. Benefits of market mapping Head-to-head competition Helps to identify potential gaps in a market (opportunities). There doesn’t always have to be a gap in the market for a Helps businesses to identify their closest rivals. business to be successful. Supports market segmentation. Businesses can target the same Helps businesses to make decisions about customers as other businesses marketing and positioning its brand. and still succeed: Limitations of market maps if there is enough demand in the market (enough Based on opinions and perceptions, rather than customers) on accurate data. if the business is able to Compares businesses based on only two meet customer needs variables, which is simplistic. better than its competitors Can be difficult to identify the most (by offering more choice or appropriate variables. better customer service). Worked examp le 2 A High Price B According to the market map, which one Option D Gloria’s Styles Tribes Arkadia of the following describes a gap in the is the only Stylistic Toni and Guy market? (1 mark) quadrant Debonair Belize Select one answer: Ashes where there A H  igh price / traditional are no other Traditional Fashion B H  igh price / fashion businesses. X-men Barber Shop C L  ow price / traditional Hair Today ✗ D Low price / fashion Grade One Men’s Cuts C Low Price D Now try this 4 Which two of the following are most likely to be important in spotting a new business opportunity in the cycling market? Select two answers:  (2 marks) A Being able to produce a product cheaply D Identifying the possible competitors B Recognising a new gap in the market E Having a large amount of personal savings C Being a keen cyclist 12  Investigat Had a look Nearly there Nailed it! small bus ng i iness Spotting a busin oppor tunit ess Competition y A business might use a number of criteria to analyse the strengths and weaknesses of its competition in order to adjust its business offering and differentiate its products and services. Better customer Wider product range service Stronger brand image More convenient Lower prices Ways to compete location Better design Higher quality Differentiation How to differentiate products Product differentiation is about making a product different from others Instead of competing head-to-head, in some way. It helps businesses: businesses can try to differentiate their products. to position their products and target different market segments Head-to-head competition to gain an advantage over rivals when BUSINESS PRICE PRICE COMPETITOR faced with competition. It allows consumers to see clearly that Differentiation their needs are being met more effectively BUSINESS COMPETITOR by one product than by another. Worked examp le 2 Which two of the following methods are mostly likely to differentiate a driving school from Options A and its rivals? C are ways Select two answers:  (2 marks) in which a ✗ A P roviding high-quality tuition D O perating in a competitive business can B Operating as a sole trader market differentiate ✗ P roviding a personalised service C E P roviding a service for the what it does. community Now try this 2 Which two are the most likely methods that a small independent music store might use to compete with a large supermarket chain that also sells CDs? Select two answers:  (2 marks) A Lower its prices below that of the supermarket B Launch an advertising campaign on national television C Provide an ordering service for hard-to-find CDs for their customers D Open up two new stores in the town E Focus on improving the quality of customer servicevv 13  ing Investigat ss Had a look Nearly there Nailed it! ine small bus business Spotting a nity oppor tu Competitive markets What is a competitive market? A market is competitive when there are a large number of businesses relative to the number of potential customers. Competition is also high in markets where businesses sell very similar products and services that are difficult to differentiate. difference The market for sugar is highly competitive because there is little n one produce r’s sugar and another ’s. This means that busines ses betwee may also be conside red. On the mainly compete on price, although quality and confect ionary product s can be highly differen tiated, other hand, cakes allowing businesses to compete in different ways. Competition and business Drawbacks of highly competitive decision-making markets Some of the decisions that a business A business that operates in a highly might make in a highly competitive competitive market might have to: market include: lower prices in order to compete improving efficiency accept lower profit margins finding ways to improve competitiveness cut back on expenditure (see page 13 to revise competition) be careful about how and when it expands differentiating its products and services monitor its competitors closely. lowering its prices giving customers special offers Consumers benefit from competition as it encourages cutting costs. businesses to lower their prices and also to improve quality and customer service. Worked examp le 4 The student has explained how pric e Explain one reason why a business might decide to lower the is one way that a business might price of its products. (3 marks) compete against rival businesses. An ‘explain’ question does not A business might decide to lower its prices in order require you to analyse the benefit to remain competitive against other businesses. s and drawbacks (e.g. the fact that If a business lowers its prices, it will seem more the business might also lower its pro appealing to customers compared to other fit margins by reducing its prices). alternatives. As a result, customers may choose it over rivals and its sales revenue may increase. Now try this 1 State one possible method a business could use to differentiate its product. (1 mark) 2 Explain one reason why a differentiated product might benefit a business.  (3 marks) 1-4 14  Investigat Had a look Nearly there Nailed it! small bus ng i iness Putting a b u idea into p siness Aims and objectives ractice All businesses set objectives. Sometimes these are financial objectives, which can be expressed in money terms. Businesses also have non-financial objectives. These are more personal and may involve helping others. Most businesses will The objectives hierarchy have an overarching Aims are the general goals that a business sets. Aims aim that is supported An aim can be the purpose for a business’s existence. by a number of SMART Objectives are more specific than aims, but Objective Objective Objective objectives, often they contribute to a business achieving its aims. 1 2 3 specific to functions of Objectives can be either financial or non-financial. the business. Typical objectives for a start-up Financial objectives Survival Sales and Profit Market Financial sales revenue share security Non-financial objectives Personal Independence Challenge Social benefits Customer Business satisfaction and control or goals satisfaction awards and recognition Worked examp le 2 Both Option A and Option E are Which two of the following are the most likely reasons why an examples of non-financial objectives. individual would want to start a business? Option A involves helping others, while Select two answers:  (2 marks) Option E is about independence and ✗ A T o use the profits of a business to make a difference control (being your own boss). Op tions B To work fewer hours each week B–D are not really viable objectives for C To avoid paying income tax starting a business. D To show their boss that they are as good as them ✗ E T o control their own future Now try this 2 Which one of the following is the most likely reason why Sonia decided to set up a business? Select one answer:  (1 mark) A She wanted to have more spare time B She wanted to have more independence when making business decisions C She wanted to make a guaranteed profit D She wanted to reduce the number of risks she had to take 15  ing Investigat ss Had a look Nearly there Nailed it! ine small bus usiness Putting a b actice idea into p r Differing aims and objectives As a business develops and grows, so do the ambitions of the entrepreneur or owner who runs it. This means that different businesses have different aims and objectives. It also means that the aims and objectives of a business change, depending on its current stage of development. Business A Business B Business A has been running for six months. Business B is a chain of 15 stores It has started to gather a loyal customer nationwide. It has been established for base and to receive repeat purchases. 12 years and in the last five years has Initial customer reviews are positive. become the second largest of its type in Business A’s objectives are to: the market. It is a public limited company survive (PLC). Turn to page 50 for more on PLCs have independence and control Business B’s objectives are to: achieve 100% customer satisfaction become market leader achieve financial security. achieve a sales revenue of £200 million donate 1% of all profits to charity. These objectives are appropriate for Business These objectives are appropriate for Business B A because many small businesses fail within the because a large successful business may have a first few years of opening. The owner wants the realistic ambition to become market leader. Its independence of running their own business. success over the last 12 years and its shareholders Customer satisfaction is very important if the will mean that the business will have profit targets. As business is to grow. a large business, it may also wish to give something back to society by donating to charity. Worked examp le 4 The student has Explain one reason why a business would set financial objectives. (3 marks) explained why financial performance is important A business would set a financial objective because most to a business and how a businesses are judged on their financial success. If the objective financial objective linked is to increase revenue as a percentage of sales (units) then this to revenue would to help would be a quantifiable objective and easy to measure. Increasing achieve this. revenue increases the likelihood of the business making a profit. Now try this 1 Give one example of a non-financial objective. (1 mark) 2 Define the term ‘market share’. (1 mark) 1-3 16  Investigat Had a look Nearly there Nailed it! small bus ng i iness Putting a b u idea into p siness Revenues and costs ractice A business must understand the difference between the price it charges to customers and the cost of producing its products. If it knows how many products it sells, it can calculate its total revenue and its total costs. It can then calculate profit. Quantitative Fixed and variable costs skills Calculating revenue Fixed costs do not vary with Revenue, sales revenue or turnover is the the output produced by a amount of income received from selling goods business, e.g. business rates. or services over a period of time. It can be Variable costs change directly calculated using the formula: with the number of products made, Revenue = Price × Quantity ! LEARN IT e.g. raw materials.  Variable costs R N I T ! £ £ = £ × LEA = Cost of one £ unit × Quantity produced Fixed costs, e.g. Quantitative Total costs business rates skills Total costs are all the costs of a business. TC = + It can be calculated using the formula: EARN L IT! Total costs (TC) = Total fixed costs (TFC) + Total variable costs (TVC) Variable £900 = £400 + £500 = £400 + (£5 × 100) costs, e.g. wages Worked examp le 2 Hancock’s is a small pottery business that specialises in garden plant pots. It has the following financial information for one month. Number of pots produced and sold: 150 Average price per pot: £10 Fixed costs per month: £500 Quantitative Be careful. Variable costs per pot: £2 skills You could Which one of the following represents the total costs for Hancock’s arrive at an incorrect answer during the month? to this question if you use Select one answer:  (1 mark) the numbers incorrectly in A £450 ✗ C £  800 your calculation. B £650 D £1500 Now try this 6 October November The following table shows the costs, revenues and profits of a cleaning company for a two-month period. Revenue £14 000 £12 000 Complete the table with the four missing figures.