UNIT 1: MARKETING AND PEOPLE.

1.1. Meeting customer needs:

Risk: Exists because entrepreneurs commit resources (like money) that could be lost. Entrepreneurs
are able to control these. They make a conscious decision to take a risk and to a certain extent they
choose the level of risk they take.
Uncertainty: This exists because businesses operate in an ever-changing environment and are
subject to changing external factors (such as legal, economic and social factors). This cannot be
controlled by businesses. Although it is known that uncertain events might occur, their timing is
often impossible to predict.
Marketing: a range of activities done by a business to sell its products. It involves:
● Understanding customers’ needs
● Understanding the dynamics of the market
● Developing successful products
● Promoting the business and its products.

Mass market:
- Targeting a large population of the market with a generic product
- Requires production on a large scale and investment in capacity
- Potential for high sales revenue
- Competes with many other businesses in the market
- A lot of promotion will be needed involving mass market techniques such as TV and
newspapers.
- Business will have to be competitive on price in order to succeed.

Niche market:
- Targeting a small population of the market with a specialised product
- Production on a small scale
- Low volumes but high profit margins
- Few competitors but limited number of potential customers
- Promotion through specialist mediums
- Direct marketing
- Business will have to compete on quality and customisation in order to succeed.

Dynamic markets: markets that constantly change. Factors that contribute to this change:
● Economic growth
● Demographic changes
● Changes in legislation
● Innovation
● Social change
● Changes in legislation

Ways to adapt in a dynamic market:

 - Being flexible in the way they operate
- CArrying out market research to have a better understanding of their customers
- Investing in new technology, people and products
- Continuous improvement - the ongoing desire of getting better at what they do.

Market size: this can be measured by value (total amount consumers have spent on the product) or
volume (total quantity sold by a business).
Market share: the proportion of a particular market held by a business. It is calculated as:

Sales of a business ÷ Total sales in the market x 100

Market research: involves gathering, presenting, and analysing information about the marketing and
consumption of goods and services.
Sampling: provides an insight into the market, but saves money as the whole population is not
needed. A sample must be representative, unbiased and large enough to represent the whole market.
It can be:
- It is quicker and easier than trying to collect research from everyone (which is impossible).
- The bigger the sample size, the more representative it will be
- More time consuming and therefore more expensive
- Difficult to conduct a large sample size.

Primary research: this is research collected first hand, it is:

- Specific to the needs of the business
- More up to date and reliable
- Better for two-way communication and follow-up questions
- Often better to collect qualitative data
Secondary research: this is research that already exists, conducted by another organisation, it is:
- Easily accessible and a good starting point
- Fast and less time-consuming
- Often better if you want to collect quantitative data
- Some data can be free but detailed reports can be expensive to purchase
- It is not always up to date or specially tailored to the business’s needs.

Product oriented: this is focused on production efficiencies and the product itself (product features,
profit margins and efficiency).
Market oriented: focused on consumer needs. Understanding customers and developing products
that meet their needs (customer attitudes, characteristics and how the product is used).

Limitations of market research:

- It is often biased
- A small sample limits the reliability of the research
- Causality can be hard to identify
- Collecting it is very time-consuming.
Correlation: correlation helps businesses understand the relationship between two factors.
However, a strong correlation does not necessarily mean that one variable leads to another.
ICT and market research: ICT can support the collection and analysis of market research data in a
number of ways. Specific tools might include:
● Collecting data through websites
● Social media/networking
● Analysing information in databases

➔ Technology can make the collection of market research data much faster and more specific
to individual customers. This data can also be processed more effectively so that trends,
patterns and correlations can be uncovered and used to help make marketing decisions.

Market segmentation: market segmentation allows a business to:

- Differentiate itself from its competitors
- Develop and build its brand
- Identify and satisfy the needs of a specific group of customers
- Reach its customers with relevant marketing activities such as advertising
- Focus the business activities
- Build loyalty towards its brand and products.

Market positioning: A business will consider how it positions itself within a market in relation to its
competitors. The process of positioning involves deciding on the nature and characteristics of the
products and services it sells and who its target market is. One tool a business can use to carry out
this process is a market map.
Market maps: this is a technique used to understand how products/businesses are viewed relative
to competitors, based on two relevant characteristics.
- It helps businesses decide whether to set up in a market, asking the question: “Is there a
gap/opportunity?”
- It is a useful process for comparing similarities and differences between businesses - market
positioning
- It helps a business gain a better understanding of its competition
- It is useful as a market research tool to gain an understanding of customer perceptions.
- It only considers two main variables and markets and customer perceptions are often very
complex.
- A market map is a planning tool and different stakeholders h¡may have a different opinion of
where the business is or should be positioned.
Positioning: factors a business may consider when positioning a product or the business are:
- The attributes of the product, such as features and quality
- The origin of the product/business - such as its heritage
- The classification of the product/business

Head-to-head competition: when a business targets the same customers as other businesses. There
doesn’t always have to be a gap in the market for a business to be successful. Businesses can target
the same customers as its rivals and be successful if there is enough demand in the market or they
are able to meet customer needs better than their competitors, for example by offering more choice
or better customer service.
Competitive advantage: this is a set of unique features of a business and its products that are
perceived by customers as significant and superior to the competition. Businesses that have a
competitive advantage will often differentiate their products from those of their competitors. A
competitive advantage can only be achieved through three areas of practice:
1. Innovation: this is the ability of a business to create new and unique products. These can
sometimes be legally protected through a patent.
2. Architecture: this refers to the relationships within a business that create a synergy and
understanding between suppliers, customers and the employees of the business.
3. Reputation: brand values are hard to replicate and may take years to develop.

Differentiation: product differentiation is the process of making a product different from a

competitor’s products. Differentiation may be achieved through:
- Developing unique brand characteristics
- Creating unique product features
- Providing a unique/better customer experience
- Building good relationships with customers
- Offering a price that undercuts the competition.

Adding value: adding value is the basic purpose of all businesses. A business starts with raw
materials, takes them through a process and then sells them to customers at a price greater than the
combined cost of the raw materials and the process involved in the transformation.

Different ways of adding value:

- Branding (developing a strong brand identity through promotion)
- Better design/features
- Customisation
- Good customer service
- Speed of service and response time to customers
- Packaging
- Frequent buyer offers (rewards for repeat purchase)

1.2. The market:

Demand: the amount of a product that consumers are willing and able to purchase at a given price.
Demand curve: demand can be shown on a graph.. Y = price, X = quantity demanded. The demand
curve always slopes downwards because the quantity demanded is lower at a higher price. In most
markets, as price falls the quantity demanded will increase. A change in price up will result in the
level of demand falling.

Factors affecting demand:

 ● Prices of substitute products: if a market own-brand version of a branded item has a lower
price then the demand for the branded item will fall
● Seasonality: this is demand for goods at different times of the year. For example, demand for
skiing clothes will increase in winter (skiing season).
● External shocks: these are factors beyond the control of a business, such as the arrival of a
competitor in the market, government legislation, economic climate or social factors.
● Demographics: the age of the population or if there are more women than men will influence
the demand for certain goods.
● Advertising and branding: if there is a successful advertising campaign the demand for some
items might go up.
● Fashion, tastes and preferences: these will increase sales in certain items.
● Changes in consumer incomes: if salaries for consumers go up, then the demand for eating
out or holidays will go up.
● Prices of complementary products: sometimes products are bought together, such as cereals
and milk. If the price of cereal goes down then more cereal or milk could be bought.

Supply: the amount of a product that suppliers will offer to the market at a given price. The higher
the price of a particular good or service the more that will be offered (supplied) to the market.
Supply curve: the supply curve always slopes upwards because the quantity supplied will increase as
the price rises. In most markets a change in price will alter the point of supply along the curve.
In some cases, supply will not change no matter what the price is. For example, the number of seats
at a concert.

Factors affecting supply:

● Changes in the costs of production: such as wages, raw materials, energy, rent and
machinery.
● External shocks: such as world events, wars (left) and weather effects (left or right).
 ● Introduction of new technology: this makes the production process more efficient (right)
● Indirect taxes
● Government subsidies (right).

Excess demand and supply: when there is a set price by the market, let's say for example $2, at this
price supply meets demand and the market will clear. If the price increases, say to $5 there would be
surplus (excess supply) because there would not be enough willing buyers at this price. If the price
fell to $1 there would be a shortage (excess demand) as many buyers would be happy to purchase
goods at this price, but not enough producers would be willing and able to supply at this price. Over
time, a market will always find its equilibrium price.

Price elasticity of demand: the responsiveness of quantity demanded to a change in price. It can be
calculated as:

Price elasticity of demand = Percentage change in quantity demanded ÷ Percentage change in

price

- Ignore the negative when calculating PED, just focus on the decimal number.

The impact of price elasticity of demand: for some goods a price change will result in a larger
percentage change in the quantity demanded and for others a smaller percentage change in the
quantity demanded. A steep demand curve represents a relatively price inelastic product, whereas, a
price elastic product will have a flat demand curve.

Price elastic Price inelastic

 Price increase Leads to a bigger percentage Leads to a smaller percentage
decrease in quantity decrease in quantity
demanded. Revenues fall. demanded. Revenues rise.

Price decrease Leads to a bigger percentage Leads to a smaller percentage

increase in quantity increase in quantity
demanded. Revenues rise. demanded. Revenues fall.
Impact on decision-making: where demand is price inelastic a business may be able to raise prices
to increase revenue, because there will be a smaller percentage change in the quantity demanded
than the percentage change in revenue per unit.
Where a product is price elastic a business will have to think very carefully about any changes it
makes to its pricing strategy. Lowering prices should significantly increase the quantity demanded,
therefore boosting sales revenue, as long as competitors don’t react.

Factors influencing PED:

- Number of substitutes/competitors
- Relative effort/costs of switching to another product
- Extent to which the product is considered a necessity
- Perceived value of the brand
- Time: the PED for a product will tend to fall over time as consumers find substitutes
- Percentage of income spent on the product.

Income elasticity of demand: the responsiveness of demand to a change in incomes. It can be

calculated as:

Percentage change in quantity demanded ÷ Percentage change in incomes

Income elastic demand: this means that a percentage change in incomes would lead to a
proportionate or greater percentage change in the quantity demanded. Goods that have income
elastic demand include: cars, TVs, holidays and clothing.
Income inelastic demand: this is where a percentage change in incomes will lead to a
proportionately lower change in the quantity demanded. These products might be considered
necessities, such as some food types.

Impact on decision-making: businesses that sell goods with high income elasticity will be affected by the
cyclical nature of the economy. In a recession (a period of temporary economic decline), demand will fall
significantly for products that have a high income elasticity of demand.
Businesses selling goods that have income inelastic demand are likely to find demand, and therefore sales,
more stable during economic shifts.
Regardless of whether a business's goods are elastic or inelastic it should use economic factors to help
plan for changes in production. For example, a supermarket stocking luxury products with a high YED
may switch to value brands with a lower YED or even inferior goods.

Factors influencing YED:

- Whether the product is considered a necessity
 - Whether the product is considered a luxury
- The price relative to people’s incomes.

1.5. Entrepreneurs and leaders:

Entrepreneur: individuals who set up and run a business and take the risks associated with these.

Stages in setting up a business:

1. Idea - the business idea of the entrepreneur, without it the business cannot start.
2. Research - the viability of the business idea has to be researched. This might involve carrying out
market research and analyse the competition to decide whether the idea is likely to work.
3. Planning
4. Financing - entrepreneurs will provide some of the money needed to set up the business. Finance
might also be needed when the business is ‘set up and running’
5. Location - the location an entrepreneur chooses will depend on the nature of the business. Some
people, such as tradespeople or traders, offer services to the local area. Other work from home
and yet offer services nationally, such as website designers. Restaurants and shops may be located
close to their target market customers.
6. Resources - the business plan will contain a list of the resources needed to set up and run the
business. Entrepreneurs will also have to find suppliers of materials, utilities, and other
day-to-day resources.
7. Launch - this is an exciting time for an entrepreneur. It is when the business starts trading. Some
entrepreneurs organise an opening event. Special launches like this are designed to create good
public relations with customers, so that people become aware of the new enterprise.

Intrapeneur: employees who use entrepreneurial skills, without having to risk their own money, to find
and develop initiatives that will have financial benefits for their employer.

Barriers to entrepreneurship:
- Lack of finance: some people with a good business idea do not start trading because they don’t
have the necessary finance. The main problem is that the providers of capital and loans may be
reluctant to lend money to entrepreneurs. This is because the failure rate can be high for new
businesses and financial institutions cannot afford to lose money.
- Lack of entrepreneurial capacity: to be successful in business people have to be equipped with the
necessary entrepreneurial skills and characteristics.
- Becoming an employer: employing a person for the first time is quite a big step in the
development of a business, employers have responsibilities to their employees. For example,
employees have to be paid a regular wage, employees might be entitled to sick pay and other
benefits, health and safety issues have to be considered.
- Lack of ideas: some people would like to run their own business, but do not have any original
ideas. A lot of markets are saturated or so competitive that the potential for profit is limited. It is
possible to take out a franchise or copy the ideas of others. However, for many people this does
not reflect the ‘spirit’ of enterprise.
 - Fear of failure: the failure rate for business start-ups can be high. Many new entrepreneurs may
not realise that statistically their chances of successes may be quite low. However, many do
recognise that failure is a possibility and a fear of failure stops them from starting an enterprise.

Characteristics of entrepreneurs:
- Self-confidence: entrepreneurs believe that they can succeed
- Self-determination: they have to keep going when they come up against problems
- Self-starter: they are willing to work independently and make decisions
- Initiative: they are proactive and adapt to change
- Commitment: entrepreneurs commit to the project and put in time to make it work, often
working night and day.

Skills of entrepreneurs:
- Organisation: there is lots to coordinate when setting up a business alone
- Financial management: cash flow management can be challenging for small businesses
- Managing and communicating with people
- Negotiating: negotiating deals and contracts with suppliers and customers.

Business objectives:
● Financial objectives:
- Survival
- Profitability
- Growth
- Market share
- Shareholder value
- Sales maximisation: an attempt to sell as much as possible in a given time period
- Cost efficiency
● Non-financial objectives:
- Personal satisfaction
- Brand recognition
- Sustainability
- Customer satisfaction
- Employee welfare
- Social objectives

Opportunity cost: this is the benefit lost from the next best alternative to the one that you have chosen.
Non-monetary opportunity cost: often opportunity cost cannot be calculated in financial terms. It is
frequently not possible to calculate the monetary value of a decision if the choice has an impact on brand
awareness, employee morale or goodwill.
Trade-off: the compromise when having to choose between two factors.
Choices: deciding between alternative uses of resources.