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Principles of Business Revised
Principles of Business Revised
Principles of Business
LEVEL3 DIPLOMA IN BUSINESS ADMINISTRATION
LEARNING OUTCOMES
1. Understand business markets
2. Understand business innovation and growth
3. Understand financial management
4. Understand business budgeting
5. Understand sales and marketing
CONTENTS
Characteristics of Market Page 3 - 5
Business Innovation
Financial Management
Managing Budget
LEARNER DECLARATION
FULL NAME
STUDENT ID BATCH
I declare that this assignment is my own work and that I have correctly acknowledged the work of
others.
SIGNATURE DATE
Page 3
GLOSSARY OF TERMS
Meaning Example
Analyse A chair is used for sitting on. It can be used for standing on
to reach something but its most common purpose is to be
sat on. It normally comprises a seat; a backrest and is
Separate information into supported by legs.
components and identify their
characteristics. Most chairs have four legs spaced to give stability to the
chair. Chairs can have three legs, again it is the
Discuss the pros and cons positioning of the legs under the seat which provides the
(advantages and disadvantages) of a stability and makes a chair fit for purpose.
topic or argument and make
reasoned comment. Chairs can be made in many different styles and use a
variety of materials. The design and material choice are
reflected in the cost of the chair. Traditionally chairs were
made of wood however there is now a vast array of
materials used in chair production such as metal, plastic,
rubber and fabric. The material used will affect the weight
of the chair. Chairs are often used alongside a table, for
example whilst eating or working. They are used to
support body weight in a sitting position. The height of a
chair is very important as if it was too high or too low it
would not function at a table and may be uncomfortable.
CHARECTERESTICS OF MARKETS
A market is a place where people go to buy and sell goods and services. At the most basic level of
an economy, we have markets. A market is simply a situation where people are engaged in buying
and selling goods and services, also called outputs. It does not need to be a physical place and
money does not need to be exchanged. As long as something is given in exchange for something
else, a market exists.
This type of market is characterised by a large A competitive market means that there are a
number of small businesses that sell the same large number of buyers and sellers of the same
types of products with the same characteristics. output. Competitive markets involve either
It's easy for businesses to enter the market and perfect or imperfect competition. Imperfect
leave it. Everyone has all the information and competition is the most common type of market
technology needed to make smart and informed structure. All real markets are based on
decisions in the marketplace. imperfect competition, where one or more of the
conditions for perfect competition is lacking.
In a perfectly competitive market, businesses
have to compete on price because all the
products are basically the same.
Monopolistic competition is a market structure Oligopoly is a market structure with a few sellers
with many competitors who each own a small who dominate a single market. The companies
market share and sell a slightly different good or compete by differentiating their message,
service. There are no barriers to entry and exit. product, or service. Barriers to entry are very
In monopolistic competition, companies set their high, and each firm can influence the market by
own prices and find a way to uniquely changing price or supply.
distinguish their product. This product could be
A classic example of an oligopoly is Coco Cola
of different quality, from a unique location,
and Pepsi corporation which hold major market
marketed and packaged for a niche, or
share for the fizzy drinks. These companies
distributed differently.
dominate the market with a standard product,
A classic example of monopolistic competition is control pricing, and attempt to market something
the fast-food hamburger industry. Several unique about the drinks the company provides.
companies sell burgers, including McDonald's,
Burger King etc. Each company makes a
hamburger differently, sets a unique price, and
markets a slightly different message.
Monopoly
A monopoly is a market structure with one seller and multiple buyers. The seller is a price maker
that has created large barriers to enter the market. (E.g. Luxottica is directly involved in the
production of world’s 80% of eyewear - http://www.luxottica.com/en/eyewear-brands)
Page 5
ANSWER SHEET
(Perfect competition - large number of buyers and sellers, no barriers to entry or exit, perfect
information, zero transaction costs; Imperfect competition - incorporates monopolies,
monopolistic competition, oligopoly)
In Perfect competition, the large number of sellers and buyers is represented by the fact that
businesses are based on the same types of products with the same characteristics, which means
that they deal with the distribution of products that are necessary for a person in everyday life.
Being small businesses, there are no entry or exit barriers, thus encouraging potential businesses.
For such a business, which is at the beginning of the road, to work, there must be the best possible
information. In a perfectly competitive market, companies have to compete on price, so they have
to eliminate transaction costs.
In Imperfect competition, all real markets are found. Imperfect competition means that at least one
condition is not met to be perfect competition. In the monopoly there is only one seller who deals
with setting prices and several buyers. Monopolistic competition is a market structure with many
competitors in which each holds a small share of the market and sells slightly different goods or
services. It's easy to enter or exit the market. Each company sets its own price for products and
have a unique way to differentiate their products. The oligopoly is a market structure with several
vendors dominating a single market. Barriers to entry are very high, and each firm can influence the
market by changing price or supply.
(Monopolies: all consumers will purchase a specific product from one business, the business
will set the price for that product; Monopolistic competition: consumers will purchase
differentiated products that are similar but not identical from different businesses, businesses
will compete to sell their product, demand for the product will affect the price)
In a monopoly, the seller sets the price for a product, and consumers will buy that product from a
single business.
In monopolistic competition, consumers will buy different products that are similar from different
businesses. Businesses will compete with each other to sell their product, which affects the price.
At the same time, the price is affected by the high demand for products.
In the oligopoly, businesses will compete with each other to attract consumers by differentiating the
message, by the products or services they offer. Thus, this can affect the price of the product and
at the same time, being difficult to stay on the market.
Page 6
ANSWER SHEET
1.3 Explain how organisation’s goals may be shaped by the market in which it operates?
(Based on the above market condition, the aim of the organisations vary. In a monopoly, the
organisations’ aim may be to make a profit or maximise the profit. Whereas, in a monopolistic
condition, as the products are highly differentiated and the aim of the company may be to
make their product unique and achieve a competitive advantage.)
In monopolistic competition, the goal of the business could be to differentiate its product, making it
unique, focusing on it to attract customers. In the oligopoly, the purpose of business could be to
capture the market through the differentiated message and the product or service. And in the
monopoly, the business being dominant, the only goal I can think of is maximizing profit, possibly
maintaining of the bussines at the same level.
(Based on the legal identity, the businesses in the UK are divided into corporate and non-
corporate businesses. The non-corporate businesses are sole traders and partnerships
where the owner of the business have unlimited liability. i.e. they are responsible for any loss
made by their business. The corporate businesses are limited companies (public and private)
and have limited liability. i.e. the company is a separate legal entity from its owners and
directors. The difference between a private and public limited company is; public limited
companies can offer shares to public whereas a private limited company cannot)
As a sole trader, the requirements will be less stringent than in a company. Even so, there are
plenty of benefits if you operate as a limited company.
As a limited company you will need to ensure that you comply with the requirements of the
Companies Act 2006. These requirements include:
- to operate the company in accordance with its articles of association
- keeping the company records up to date
- File your company accounts and corporation tax return.
It is a legal requirement that all businesses register themselves with HMRC for corporation tax.
If your business employs staff, then you must comply with certain legal obligations that arise under
various employment-related laws.
Page 7
BUSINESS INNOVATION
Definition
Business innovation is the art of creating, a process of inventing or introducing something new in
the business environment. This may include the development of a new product or service, an
innovative way of delivering a service which improves the efficiency as well as profitability for
business or a unique product or service that makes the company stand out from its competitors.
We often think of innovation today in terms of technology. While it's true that technological
innovations in the recent past have been groundbreaking, innovation can come in many forms. It
can be a creative new teaching method to enhance student engagement. It can be a unique
incentive program to reward high-performing employees, or it can be a process such as lean
methodology, a model which streamlines workflows and eliminates waste to keep costs low while
maintaining quality.
BUSINESS INNOVATION
Internally the company may have a marketing department that would complete research in the
market and analyse the sales trends and availability. Other support and guidance within the
business would come from Directors, Management, Stakeholders, Workshops, Customer Service,
Training and Development and Research and Development departments. Externally the company
could bring in experts in their field, advertising companies, partnerships, networking, trade events,
trade bodies, various industry groups and government.
1 IDEA GENERATION
Involves brainstorming new ideas
2 IDEA SCREENING
Close evaluation of the idea, Market research and Concept studies to check the feasibility
3 CONCEPT DEVELOPMENT
Create a prototypes or models, Test on few customers and get feedback
4 MARKET STRATEGY
Derive the 4Ps – Product, Price, Place and Promotion
5 FEASIBILITY ANALYSIS
Organise private groups to test the product (beta version, model, prototype etc.) and
evaluate the user experience. The collected feedback is analysed and then determine if the
product in development has potential to make profit.
BUSINESS INNOVATION
7 TEST MARKETING
Evaluate the whole marketing plan and company validate the whole concept. This helps the
company to understand how well the product may be received by the market before the
launch.
8 TEST MARKETING
Evaluate the whole marketing plan and company validate the whole concept. This helps the
company to understand how well the product may be received by the market before the
launch.
Page 10
ANSWER SHEET
Business innovation is the art of creating, a process of inventing or to introduce something new in
the business environment. This could include developing a new product or service, an innovative
way to delivering a service that improves efficiency as much as profitability for the business, or a
unique product or service that makes the competition stand out from the competition. Business
innovation can be found in any field, but nowadays, the field in which innovation is constantly found
is that of technology.
(Uses of models of business innovations: Industry model innovation - moving into new
industries or creating new industries, Revenue model innovation - generating revenue
through offering reconfiguration (product/service/value mix) and pricing models), Enterprise
model innovation - changing extended enterprise and networks with employees, suppliers,
customers and others)
There are a lot of different business models, each company having a model that depends on the
product and services it produces.
Business model innovation is inevitable in any industry, if the current model does not work, ie if
sales for a particular product remain at a constant, unpredictable or declining level.
Business model innovations allow companies to find out how consumers appreciate their products
and how customers might have new experiences. So, the model must be profitable. The only way a
company can find out if their product is profitable or not is by testing the market.
Models of business innovation allows the company to know the market and the needs of the
consumers it addresses. So, through this model you can find out what role the product offered
plays in the lives of consumers. Businesses take advantage of this information to meet the needs of
consumers and to grow.
Through business innovation models, new markets are created, thus discovering what potential
customers lack, what is not yet on the market.
Page 11
ANSWER SHEET
(Internal sources: market research (primary, secondary), customer focus groups, workshops,
senior management teams, boards of directors, internal stakeholders, External sources -
local enterprise partnerships, Business Networking groups (BNI, Chambers of Commerce),
websites, industry, government (policy, guidance, funding), trade bodies, Intellectual Property
Office, trade events, external stakeholders)
Internally, the company may have a Marketing Department that can do market research and
analyze sales trends and availability. Other support and guidance could come from Directors,
Management, Stakeholders, Workshops, Customer Service, Training and Development and
Research and Development departments.
Externally, the company could bring in experts in their field, advertising companies, partners,
networking, trade events, trade bodies, various industry groups and government.
(Idea generation: SWOT analysis, market research); Idea screening: eliminating unsound
concepts, target market; Concept development and testing: intellectual property issues,
product/service features, product/service benefits, consumer reaction to product/service
concept; Business analysis: estimating likely selling price, estimating sales volume,
estimating profitability and break-even point; Beta testing and market testing: production of
physical prototype or mock-up, testing the product; Technical implementation: estimation of
resources required, finalise quality management system, resource estimation; Review of
market performance and product pricing: customer reaction, impact of the product on existing
portfolio)
1. Idea Generation
This development process is the one in which new ideas must be brought, to discuss on their basis
and certain common points can be reached, which could make several ideas a reliable one.
2. Screening Idea
In this process, an idea is analyzed very carefully, Market research and Concept studies to check
the feasibility
3. Concept development
This is the process in which prototypes or models are created, tested on several consumers and
feedback is obtained
4. Market strategy
It starts from the 4Ps - Product, Price, Place and Promotion
5. Feasibility Analysis
Groups are organized to test the product and evaluate the user experience. The received feedback
is analyzed and then it is determined if the developed product has potential to produce profit.
Page 11
ANSWER SHEET
FINANCIAL MANAGEMENT
Efficient financial management is key to the business success. Therefore, the finance department
in a company play and important role is the day to day running of the business aa well as in the
overall success of the business. Every business must ensure that projects undertaken are viable
and organisation has the capacity and resources to deliver the project. Financial viability is the
ability of the organisation to continue to achieve its operating objectives and fulfil its long-term
goals. Organisations must consider if they have adequate resources and if resources are cost
effective and fit for purpose. They must also analyse the adequacy of staff levels, plant, machinery
and logistics. Poor financial management can cost money to the company and it can even lead to
insolvency or business being dissolved. In case of sole traders and other non-corporate business,
poor financial management can lead to the debt being carried to owner’s personal assets and the
owner of the business can become bankrupt affecting his or her family.
Accounts: It is a record of all financial transactions of the company and the purpose is to provide
details of organisation’s financial position to potential investors and other stakeholders.
Accruals: Accounts on balance sheet that are liabilities and non-cash-based assets. This account
may include accounts payable, accounts receivable, future tax liabilities, future interest expense
etc.
Assets: This may include fixed assets such as machinery, building, land, inventory etc. and
intangible assets may include patents, trademarks, copyright, brand recognition etc.
Balance Sheet: Financial statement summarise company’s assets, liabilities, shareholders equity
etc. This portray what company owns and owes.
Cash Flow: Revenue or expense stream that changes a cash account over a given period.
Creditors: A person or a company that give permission to borrow money to pay it back at later
stage.
Depreciation: A method of allocating the cost of a tangible asset over its useful life.
Fixed Costs: A cost that does not change with an increase or decrease in the amount of goods.
Gross Profit: Money left over from revenues after accounting for the cost of the goods sold.
Net Profit/Income: Companies total income calculated by taking revenues and adjusting for the
cost of doing business, depreciation, interest, taxes and other expenses.
Page 13
MANAGING BUDGET
Managing Budget
Budget is used to plan the finances and helps to adapt to the changing business needs. A budget
helps to evaluate an investor’s current and future financial state using the known information and to
predict cash flow, asset values etc.
This process may include:
Reviewing income and expenditure
Targets and objectives of the business growth
Directions and responsibilities (KPIs)
Support innovation
Training for staff
01 02 03 04 05 05
£ 1000 per Staffing Cost - Resources - Training - Total Expense Therefore
month £ 400 £ 300 £ 100 - £ 800 leaving £ 200
for
emergencies
Managing Budget
To manage budget, you must understand what money is available and how much money has to be
spent in order to maintain the department/business. In order to manage the budget you must
identify your priorities and timescales. You must understand resources you need (extra resources
that may be required in case of unforeseen circumstances) and accurately record all incomings and
outgoings which will help you analyse and monitor these against the plans.
Page 14
ANSWER SHEET
Efficient financial management is the key to a successful business. In fact, the financial department
of a company plays an important role in the daily life of a business as much as in the success of a
business. Financial viability is the ability by which the organization continues to achieve its goals
and achieve long-term goals. So without financial viability a project could not exist being very
important to know if the company can continue its activity or if it can bring new products in its
portfolio.
(Consequences of poor financial management: variance against the budget and business
plan, wastage, cashflow problems, insolvency, legal implications, reputation and sales
affected, theft, insolvency, cessation of business operations)
Poor financial management can cause significant financial damage to the company, which can lead
the company to insolvency or even bankruptcy. In the case of sole traders and other non-corporate
businesses, poor financial management can lead to debts for the owner's personal assets and the
owner of the business can become bankrupt affecting his or her family.
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ANSWER SHEET
(Financial terminology: income, expenditure, transaction, cashflow, accounts, gross profit, net
profit, capital, debtors, creditors, turnover, profit and loss account, balance sheet, fixed costs,
variable costs, break-even point, tax, VAT, assets, depreciation, investments, accruals, stock,
liabilities, shares)
(Uses: to control income and expenditure; to establish numerical priorities and targets; to
provide direction and co-ordination; to assign responsibilities; to improve efficiency; to
monitor performance; to inform management decisions; to plan future activities; supporting
innovation; funding training)
The budget is used to plan finances and to help with the changes the business needs. The budget
helps to evaluate the current and future financial statement of an investor and to preview cash flow,
asset values, etc.
(How to manage a budget: identifying priorities and timescales; negotiating and agreeing
financial resources; accurate recording of income and expenditure; monitoring income and
expenditure against planned activity; taking corrective actions if budgets are not met;
investigate unaccounted variances; updating budgets)
To manage a budget you need to know what money is available and how much money is needed
to maintain your department or business. In order to be able to manage the budget, priorities and
timescales must be identified. You must always be aware of the needs of the business and the
money that is available
Page 16
Marketing is the process that identifies and anticipates customer needs and satisfies those needs
profitably. In the end, marketing's central focus is the end user of a business' product or service.
The Marketing Mix consists of elements that can influence perceptions of customers constructively
towards organisations product and services. Marketing mix in marketing literatures defined as
selling right product, with right price, using right promotion at the right place. Traditionally marketing
mix contains four elements such as; Product, Price, Place and Promotion.
Product Price
The actual offering of the company to its How much customer should pay for the product
customers. It can be tangible (goods) or (Pricing strategy, payment period, discounts,
intangible (services) (Brand Name, Quality, financing, credit terms etc.)
Warranty, Appearance, After Sales Service etc.)
Place Promotion
All the activities performed by the company to All communication and selling activities to
ensure the availability of the products to its persuade people to buy the product
targeted customers (Distribution channels, (Advertising, Sales Promotion, Personal Selling,
Logistics, Inventory, Order processing) Public Relations)
Page 17
A Sales Process
1. Prospecting
Sales process include identifying the target market and generating leads through networking,
referrals, social media, direct approach etc.
2. The Approach
Next step is to contact those leads through calls, mailing, face to face and create the rapport
and trust.
4. The Presentation
Once the needs are clearly understood, the next step is to meet those needs though
explanation and demonstration of the product and its features and benefits.
5. Overcome Objections
Overcome any doubts or objections from prospective customers and be open for negotiation
if required.
6. The Close
Once the customer is convinced and clear all the questions, close the deal, sign contracts if
required organise the delivery.
7. Follow-up
Follow up the customer with a call after the sales and see how they are using the new
product, collect feedbacks and ensure the relationship is maintained.
Marketing Sales
Both sales and marketing are aimed at increasing the revenue. Although they are two different
functions, both works together to increase the revenue for the company. For example, Marketers
generate the leads and Sales professionals close the deal. Both functions share mutual objective
and therefore, how the objective is achieved must complement each other. Both Marketing and
Sales aim is to increase the sales and gain feedback so that they can use those information to
attract more leads and sales through creative advertising and campaigns.
Page 18
Marketing is the process that identifies and anticipates customer needs and satisfies those needs
profitably. In the end, marketing's central focus is the end user of a business' product or service.
The Marketing Mix consists of elements that can influence perceptions of customers constructively
towards organisations product and services. Marketing mix in marketing literatures defined as
selling right product, with right price, using right promotion at the right place. Traditionally marketing
mix contains four elements such as; Product, Price, Place and Promotion.
Primary market research is carried out by Secondary market research makes use of
organisation itself to collect information or existing data from secondary sources such as
feedback about the products or services. government statistical reports, newspapers,
magazines, data bases, and internet. The
This type of research is also called field
advantage of doing secondary research is its
research since all the information is collected
low cost and time. However, data from
from primary sources or in other words it refers
secondary sources may not conform to the
to the collection of first-hand data.
objectives of current research and may affect
the reliability of analysis.
The brand provide an organisation with uniqueness and may lead to competitive advantage. The
name, logo, design, trade mark will reflect the image and culture to the audience market. Therefore
the customer will associate a brand with the company and recognise it for value, quality, service
and benefits.
Page 19
ANSWER SHEET
(Marketing: a process that identifies and anticipates customer needs and satisfies those
needs profitably. Principles of marketing (marketing mix: the 4 Ps such as Product, Price,
Place and Promotion))
Marketing is the process in which the consumer's needs are identified and anticipated and what
profitability the satisfaction of those needs brings. Here comes the marketing mix that refers to
selling the right product, at the right price, using the right promotion, in the right place. Traditionally,
the marketing mix consists of the 4Ps: Product, Price, Place and Promotion.
(Sales process: Prospecting for sales, the approach, establish customer needs, the
presentation, overcoming objections, the close, follow-up)
The first step in the sales process is prospecting. At this stage you find potential consumers and
determine if they need any product or service offered.
The second step has you in preparation for initial contact with a potential customer, researching the
market and collecting relevant information about your product or service.
In the approach stage, you make the first contact with your client, this contact can be either face to
face or through the phone or the internet.
In the presentation phase, you try to actively demonstrate how the product or service offered meets
the needs of the potential consumer.
In the handling objections phase, you listen to your prospect's conerns and address them. Also at
this stage many of the unsuccessful salespeople drop out of the process.
In the closing stage, you get the decision from the client to move forward.
In the follow-up stage, stay in touch with the consumer, not only for a future business, but also for
possible recommendations.
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ANSWER SHEET
Primary market research is carried out by organization itself to collect information or feedback
about the products or services.
Secondary market research makes use of existing data from secondary sources such as
government statistical reports, newspapers, magazines, data bases, and the internet.
Through surveys offered to customers you can get various information about their desires, so you
know what to improve to thrive.
Through questionnaires, the business finds some indicative answers to their questions.
A carefully planned and well-written comment card is a good tool to allow customers to express
their opinions and to provide valuable feedback on the experience as a customer in the store.
Through word of mouth recommendations, you can earn a lot, because a satisfied customer can
bring you more customers.
By measuring customer satisfaction, you can find out more information, find out how the products
offered meet the needs of customers, find out if their experience in the store was to their liking, if
the information received satisfied their interests, etc.
Through purchasing models, you can find out what is bought more often, where a certain market
predominates and thus you can use this information to grow your business.
Taking advantage of your preferences and sales trends, you can always keep up with demand,
thus offering customers what they want.
Through the successful development of a product you can attract new customers.
Through brand awareness / reputation, you can stay on the market and at the same time you can
attract new customers by recommending old ones.
ANSWER SHEET
ANSWER SHEET
(Positive relationships between sales and marketing: information sharing, joint planning,
alignment, common goals, trust and respect between functions and activities, open
communication to achieve common agendas, consultation on important topics, teamwork,
shared Client Relationship Management functions.
Potential areas of conflict between sales and marketing: cultural (differing mind-sets leading
to misunderstanding), economic (profit margin vs. ease of sale), informational
(communication, physical separation), organisational (responsibility, decision making))
END OF ASSESSMENT
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PROFESSIONAL DISCUSSION
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