BUSINESS MANAGEMENT

4.1 What are the Key Decisions that Businesses Make?

Key Business Decisions

What product will we make?

What will its price be?

Who will we employ?

Where will we produce the goods?

Will we grow?

What Product to Produce?

• Market Research

• The Marketing Mix

• Methods of Promotion

Market Research

FIELD research is finding the information out yourself. This is also known as PRIMARY research.FIELD research is finding the information out yourself. This is also known as PRIMARY research.

GOOD POINTS

•It’s useful for finding out new information.

•You can use questionnaires, telephone surveys, product testing etc.

•the information will be up-to-date, relevant and specific.

BUT

•It’s expensive to collect, it’s time consuming and needs a large sample size to be accurate.

Since Marketing is about giving the customer what they want, it makes sense to try to find out what that is.

Would you mind

answering a few

questions for us?

DESK research is finding out by using someone else’s work. This is also known as SECONDARY research.

DESK research is finding out by using someone else’s work. This is also known as SECONDARY research.

GOOD POINTS

•It’s useful for looking at the whole market and analysing past trends to predict the future.

•It involves looking at market research reports, newspaper articles, government publications etc.

•the information will be cheaper than field research and it should be instantly available.

BUT

•It’s not always relevant to your needs and can often be out-of-date.

Market Research

Market Research• Market research provides managers with information about what customers want and need and what will influence them to buy a product.

• Market research is used to find out:•Consumer wants regarding existing products

•What makes consumers buy a firm’s products

•What customers think of new products

•What customers what from future products

•What competitors are doing to satisfy customers

Methods of Market ResearchMethod Advantages DisadvantagesFace to face Interviewer can ask

questionsInterviews take time

Interviewers must be trained

Telephone survey

Immediate responses

Can get lots of responses

Resentment toward interviewers

Focus group In-depth, wide ranging responses

Can be difficult to analyse info

Postal survey Inexpensive to produce and analyse

Low response rates

On-line survey

Inexpensive to produce

Easy to analyse

Simple questions so responses of limited value

Product testing

Info gained about the actual product

Can be difficult to analyse information

Desk research

Inexpensive

Wide range of sources

Data is available to competitors

Data may be out of date

USING A QUESTIONNAIRE

• Questionnaires are used to obtain meaningful information from a large and varied group of consumers.

• The business will analyse the responses and modify the product/service to appeal to the market

HINTS ON PREPARING QUESTIONNAIRES

• Questions should not rely heavily on the respondent’s memory

• Begin with a few factual, easy to answer questions

• Include some closed Yes/No response question

• Follow up closed questions with open questions

• Finish with a filter question designed to place the respondent in a market segment

Marketing - What is it?

Marketing is more than just selling or advertising - it is the

art of making it as easy as possible to get potential

customers to buy your product.

Product - the firm must

come up with a product that

people will want to buy

Price - The price must be one that the

customer thinks is good value for

money

The 4 Ps of the Marketing Mix

Marketing M

ix

Place - The product must be for sale in a place the customer will find

convenient

Promotion - The product

must be promoted so that potential

customers know it exists

• The marketing mix (4 Ps) cannot be studied separately and decisions about any one of them should not made without an overall strategic vision. This will lead to the 4 Ps being welded into an integrated mix.

• Eg, there is no point in setting low prices for a product that is to be sold through exclusive retailers and advertised in high income readership papers and magazines

Promotion/Advertising

Businesses advertise for 4 reasons:

•To make consumers aware of new products

•To remind consumers about existing products

•To persuade consumers to switch from rival products

•To improve the image of the businessAdvertising can be either informative where the product is described and only facts are given, or persuasive where they try to convince the consumer they need the product by using celebrities for example (celebrity endorsement)

Promotion MethodsMethod InformationBOGOF (buy one get one free)

Eg Boots 3 for the price of 2. Customer usually buys more than required

Free gifts Eg fast food restaurants. May be used to increase demand at quieter times of the year

Loyalty cards Eg Tesco, Boots. Regular customers save points to spend in store. Also used to monitor customer purchases

Discounts Encourage purchase of particular product. May be money off voucher

Competition Eg prize draw on wrapper of product if purchased

Point of sale advertising

Special display cases in store

Sales Encourage people to visit shops theywouldn’t normally.

Advertising MethodsMethod Advantages Disadvantages

Television Reach millions

Target audience

Expensive

Cinema visual/sound impact target particular films. captive audience

Expensive

Leaflets and Junk Mail

Cheap to produce Easy to ignore

Newspapers/

magazines

Know their readers – can target

Often read twice

Can be expensive

Radio Target audience, cheaper Smaller audience

Poster/billboard High visual impact

In place for long time

Can’t contain much information

Internet High visual impact

Can link to buy product

Choosing a Method of Advertising

Product Method ReasonChristmas function in Royal Hotel

Local newspaper – Oban Times

Not too expensiveReaches target audience

New restaurant opens in Oban

Menus delivered to doors by postman

Fairly inexpensiveCustomers keep info

Cadbury launch new chocolate bar

TV and cinema adverts

Info must reach large audience

Rock Concert to be held in Hampden

? ?

Branding

• Branding was originally used to tell one person's cattle from another

Now …

• A brand is the name we recognise when we see a product – i.e. it is used to tell one product from another.

• Many are well-known and easily recognised – they are used to help persuade the public to buy one product rather than another

Write down the first brand name you think of as I read out some

products

• Mobile phone• Fizzy juice• Sportswear• Fast food

• Cat food• Baked beans• Breakfast cereal• Crisps

Did many people say the same

brand name for each product? If

so, this is probably the “market leader”

Can you name some Scottish Brands?

Now some Global brands

WORLD’S TOP 4

BRANDS

What is a Logo?A logo is a symbol or mark used to identify a product or brand

Companies will spend a lot of money having an appropriate logo designed for them – it often

reflects the name of the company or the nature of their business

Importance of BrandingA brand is a product which in the eyes of customers is

seen as different from other similar products. Branding helps differentiate one product from another.

•Strong branding means that the firm can charge a premium price because the product is perceived as

high quality, it has high visibility due to the amount of advertising and brand loyalty.

•Brands are facing challenges – customers are more price conscious and there has been an increase in the

number of quality “own brands”

Importance of BrandingSome customers are faithful to one particular product/brand.

Marketeers strive to persuade customers that their product is better than competitors’ products and obtain brand loyalty which would allow them to charge higher prices.

Organisations may add an existing brand name to a new product to increase the products chances for success.

Price

• A low price in order to attract sales. This makes it possible for a successful firm to sell large quantities at low costs.

• An average price in relation to competitors. The firm will need to use other elements of the marketing-mix to compete ie product, promotion and place

• A high price. Firms can charge a high price if they are seen as being better than their rivals in meeting the needs of customers.

The main pricing decision that an organisation takes is whether to charge:

PriceCharging the right price is very important. You will want

to make sure you cover your costs and make a profit.

Penetration Pricing

the firm charges a low price when the product is new to create interest. Once the product has become established the firm will increase the price.

Hour-Based Pricing

used to price services when a price is quoted per hour of labour eg gardener.

Penetration Pricing

the firm charges a low price when the product is new

Cost-Based Pricing

working out how much the product cost to make and then adding a percentage extra.

Destroyer Pricing the firm charges a low price that they know is unprofitable for their competitors and once they have driven the competition out of the market they will raise prices. This is illegal if it can be proven

Competitive Pricing

Keeping prices in line with competitors eg petrol prices

Undercutting competitors would get sales but if image is important, charging a low price might give the message that the product is cheap and nasty!

When to use the Pricing Strategies

Method Used

Destroyer Can be used for establishing new products, eg bus company offers low price ticket when establishing new route

Often used by large firms who can afford it!

May be intended to remove competitors from market

Penetration Used for new products likely to be on the market in the long term – costs will be covered over time

Customers will try it due to low price

Skimming Customers willing to pay high price

Often used for high quality products

May be used when launching new product with limited life cycle (in order to cover development costs) eg new computer games

Markets are segmented into different groups of people. The main ways of doing this are:

Age: eg the teenage market or the over 55’sSocial class: class A (professional to class E (unemployed)

Gender: men and women eg both use bikes but they have a different design

Location: Haggis is more popular in Scotland than in LondonCulture or religion: different groups have their own unique products eg bagels, lassi etc.

We’re all different ages -

we want different

things

Product•Be market-led, not product-led: find out what your customers want by using market research and then make it, rather than making a product and then trying to sell it •Get the detail of the product right: the design must be fit for the purpose; the product name must be catchy; there must be a broad product range to give all your potential customers options.

•Know your product’s Life Cycle: Introduction, growth, maturity, decline

•Make your product different from the competition: this is what all firms are after – product differentiation.

How to Prolong Product Life Cycle

• Change or modify the product• Alter distribution pattern• Change the price• Use a promotional campaign

Place• The ‘place’ is where the

final exchange occurs.

• Refers to all activities undertaken by companies in distributing products to targeted consumers.

Shopping Centres

Retail Parks

Direct Selling/Mail Order

Internet Shopping

Shopping Centres

Internet Shopping

Shopping Centres

Retail Parks

Internet Shopping

Shopping Centres

Direct Selling/Mail Order

Shops

In Store

On line

Website

Mail Order Catalogue

Retail Outlets

Effects of Technology on “Place”

• New technology has changed the ‘place’ where the final exchange occurs.

• For example, banking was always carried out across the counter in a bank.

We now use:– automated tellers

– telephone banking

– online computer banking

The Internet• Many products now available via the internet• 24/7 access for customers• Wider choice for customers• Customers shop in comfort of their own home• Products often cheaper (fewer overheads)• Businesses have larger, worldwide market• Fewer costs involved – may not require retail property

PlaceMANUFACTURERS

A DCB

CONSUMERS

Company warehouse

WholesalersEg Bookers

Company outlets eg Ikea

Retailers eg Soroba Shop

RetailersEg Tesco

Eg direct from farmer to customer

Advantages and Disadvantages of Different Channels

Channel Advantages Disadvantages

Producer to consumer

Cheaper – no middle man. Better quality

May have to collect

Manufacturer wastes time selling goods

Producer to wholesaler to retailer

Wholesaler often provides specialist products

Goods more expensive as wholesaler has mark-up

Producer to wholesaler to retailer to customer

Small retailers can obtain variety of goods

Goods more expensive as wholesaler and retailer will add to cost

Producer to retailer to customer

Cheaper than chain including wholesaler

Retailers bear marketing costs

Retailer will have a mark-up so increasing the cost

Who to Employ

When looking for new staff, organisations must consider

• Skills

• Qualifications

• Funds available

Who to Employ – People v Machines

• Technology and equipment used more than human labour

• Used in flow production eg car assembly factories

CAPITAL INTENSIVE

Who to Employ – People v Machines

• Human labour is used in greater proportion than capital

• Used in job production or small scale processes

LABOUR INTENSIVE

CAPITAL INTENSIVE

ADVANTAGES DISADVANTAGES

Large scale production – economies of scale

Breakdowns can occur

Products identical – consistent quality

Costly to increase or decrease level of production

Production much quicker than by hand

High cost of buying, maintaining and replacing equipment

LABOUR INTENSIVE

ADVANTAGES DISADVANTAGES

Increase production easily through overtime

Workers costly to employ

Labour provides personal touch

Finding the right staff can be difficult

Useful if individual products required eg creative products

Human error

Industries Improved by Technology

• Large scale production – assembly lines

• Health services – eg scanners, life support equipment

• Communications – TV, radio, telephone systems, satellites, internet

Whether to Grow• Increase size of premises

• Amount of funds available

• Number of workers available

• Amount of equipment, technology, vehicles

• Number and variety of products

Increasing Sales Revenue means increasing the money received from

sales

Increasing Sales Volume means increasing number of items sold

Combination of Factors of Production

• Land• Labour• Capital• Enterprise

Car factory requires lots of land and capital

Designers require labour and capital

Farmers require large amount of land

You need to know how businesses decide …

FOUNDATION/GENERAL• What to produce

– Market research– Marketing mix - 4Ps– Methods of promotion– Effect of promotion on demand

• What to charge– Factors determining price– Different pricing strategies

• Who to employ– Factors affecting employment

eg skills, qualifications etc– People versus machines– Improving products services

through technology• Where to produce

– Location decisions (see 3.1)• Whether to grow

– How growth affects sales and profits

CREDIT• Explain why businesses may

vary elements of the marketing mix

• Draw and explain stages in the product life cycle

• Suggest extension strategies to prolong product life cycle

• Explain importance of branding• Suggest and justify different

types of advertising and promotion

• Select and justify appropriate pricing strategy

• Advantages and disadvantages of different channels of distribution

• Describe interdependence between the factors of production