IAL UNIT 1

Edexcel International Advance Level Business
Revision Notes
UNIT 1: MARKETING AND PEOPLE
1.1.1 THE MARKET
An Introduction to Marketing
• A market is any place where buyers and sellers can meet e.g. amazon.co.uk or a shopping mall
• Different markets have different characteristics and are affected differently by changes
• The aim of marketing is to help identify, anticipate and satisfy consumer needs and wants
profitably
o Needs are considered to be essential e.g. shelter or food
o Wants are desires which are non essential, even if consumers consider them to be essential
e.g Nike trainers
• Market research is essential in helping businesses to identify products/services they can develop in
response to the needs and wants that their customers have
o Market research is the process of systematically gathering data from consumers which
can be used to influence the business decisions
Characteristics of Mass Markets & Niche Markets
Mass Markets Niche Markets

• Products are less unique as they are • Products are more specialized and unique as
aimed at broad market segments they are aimed at narrow market segments
• Low average costs due large scale • High average costs due to small scale
production economies of scale production
• Low prices lead to greater o They do not benefit from economies of
affordability and higher sales volumes scale
• Low prices lead to lower profit margins • High prices make products less affordable and
• Primark is an example of a clothing lead to lower sales volumes
company that focuses its product on the • High prices can allow businesses to
mass market earn higher profit margin
• Louis Vuitton is an example of a fashion
company that aims its products at a niche
market
Market Size & Market Share

• The size of a market can be measured through sales volume or sales value
o Sales volume is the number of products sold i.e the physical number of units sold
o Sales revenue = price x quantity sold i.e the financial value of the units sold
IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 1

• The market share that a business enjoys is the proportion of the total sales of a product/service
compared to the market as a whole e.g. Tesco has 26% of the UK grocery market
• Market Share can be calculated as follows:
Worked example
In 2022 the UK coffee shop/cafe market was worth £4.6bn. Sales of Starbucks Coffee were £328m in 2022.
Using the data, calculate, to 2 decimal places, the market share of Starbucks Coffee in the coffee shop/café
market. You are advised to show your workings. (4)
Step 1: Identify annual sales of Starbucks Coffee £328m
Step 2: Identify total market sales in the coffee shop/cafe market £4.6bn
Step 3: Substitute figures into the formula
Step 4: Present the answer to two decimal places 7.13%

1 Mark for knowledge of the formula and 3 marks for correct working
Full marks for the correct answer
By providing the formula and showing your working out, even if you do not get the right
answer, you will still be able to gain some marks.
Brands
• A brand is a name, imageA, or logo which helps one product/service stand out from its competitors
• Branding is one of the key ways in which businesses achieve product differentiation
Some famous brands
• Brands are unique and are protected by law

• Brands add value, often making the product/service more desirable to consumers
o Adding value is the process by which firms increase the price that the consumer is willing to
pay
• Brands influence the position of the business within its market
o Businesses operating in mass markets use branding to stand out from the competition

o Businesses operating in niche markets use branding to communicate their offering to a
small, well-defined group of consumers
o Strong brands are more likely to be able to charge higher prices for their products than
weaker brands
o The perceived quality of a strong brands products is better than that of weaker brands
Dynamic Markets
• A dynamic market is a market that is subject to rapid or continuous changes

• Many markets are becoming more competitive and change is inevitable
o Those businesses which do not adapt are less likely to survive in the long run
o The mobile phone market is a good example of a dynamic market
• Businesses with monopoly power (e.g. Amazon) might not face the same dynamic pressures as
businesses in more competitive markets
• Many markets are dynamic but others change very slowly e.g. the market for eggs and milk has
been relatively stable for years
Changing technology ensures that the mobile phone market is dynamic
There are four areas to consider when examining dynamic markets
• Online retailing
• How markets change
• Innovation and market growth
• Adapting to change
1. Online retailing
• Online retailing involves selling products via the internet
The Advantages & Disadvantages of Online Retailing for Firms & Consumers
Advantages Disadvantages
• Provides business access to more • There may be high costs for website
consumers, including internationally development, maintenance, and promotion
• Enables longer trading hours as the • Online retailing is dominated by larger
business is open 24/7 businesses that are more well-known

• Cheaper to run as it lowers fixed and • High levels of competition mean that it will be
variable costs compared to bricks and expensive to make a website stand out
mortar retailers • There is a lack of personal contact with
• Businesses can collect data by tracking customers
consumer behaviour which helps • Consumers may find it difficult to get the
with primary market research desired level of customer service
• Consumers can receive offers that they are • Consumers may find it difficult to return
more likely to benefit from unwanted products
• Consumers can shop at a time that suits • Online purchasing opens consumers up to
them credit card fraud
2. How markets change
• Changing market conditions offer new opportunities for firms, but also pose threats
• The following changes cause markets to be dynamic
o Changing consumer tastes and preferences e.g. consumers desiring electric vehicles in
place of traditional petrol/diesel
o Changing demographics e.g many developed countries have an increasingly older
population who have different wants and needs to previous markets
o The amount of competition e.g. international trade means larger market sizes but also
more competition between an increasing number of firms
▪ Competition can be direct i.e. the sale of similar products or indirect e.g. airlines
compete with each other but also with other forms of transport such as trains
o Changing legislation e.g. laws around environmental standards create new markets
3. Innovation and market growth
• Product innovation involves the adaptation or improvement of existing products e.g. improved
video cameras on laptops
• Process innovation involves the adaptation or improvement of existing processes e.g. just in
time stock control
• Market growth is the measurement of the change in the entire market, expressed as a
percentage of the original size
o The businesses market share does not necessarily increase automatically as the entire
market continues to grow
• Market growth can be caused by numerous factors e.g.
o Increasing population sizes can increase demand in certain markets
o Increasing incomes can increase demand in certain markets
o Changing tastes and preferences can cause the market to grow e.g. the growth in the
electric car market
Worked example
Sales of electric vehicles were 267 203 in 2022. This was a 40% increase from the previous year. How
many electric vehicles were sold in the UK in 2021? Round your answer to the nearest whole car. You are
advised to show your workings. (4)

Step 1: Find the number of electric cars sold in 2021 267 203
(this represents a 40% increase on the previous year 0
Step 2: Reduce 267 203 by 40% 267 203/1.409
(this reduces the market sales by 40%)
Step 3: Answer 190 859.29 electric
vehicles
Step 4: Final answer 190 859 cars
(Round the amount to the nearest whole car)
1 mark for knowledge of the formula

Up to 3 marks for application (correct working)
4. Adapting to change
• Recognizing and adapting to market changes allows businesses to thrive in dynamic markets
• Strategies to adapt to change include
o Create flexible business structures, especially in terms of operations and people
management
o Meet customer needs, by carrying out market research and communicating with customers
o Invest in staff training, new products and processes
o Innovate so as to gain the first mover advantage
How Competition Affects the Market

• Competition occurs when at least two businesses are providing goods/services to the same target
market
o The more businesses in the market, the more intense the competition
• Competition can be direct or indirect
o Direct competition occurs when the business is targeting customers with the same
product as a competitor
o Indirect competition occurs when firms sell different products but compete with each other
for the customers disposable income e.g. cinema and theatre companies are in indirect
competition
• Competition results in many benefits for the customer, such as
o Businesses offer lower prices
o Businesses produce better quality products
o Businesses provide better customer service
• However, the absence of competition reduces incentives for businesses to innovate, be efficient
or offer consumers lower prices

The Difference Between Risk & Uncertainty
The difference between risk and uncertainty
• Risk is the potential threat to business success

o Risks can be from inside the business (internal) or from outside the business (external)
o Risks can be measured and prepared for using risk management
• Uncertainty is when outcomes are difficult to predict
Examples of Risk & Uncertainty
Risk Uncertainty
• Technical failures due to the breakdown • Businesses continue to face uncertainty after
of essential equipment Britains’ exit from the European Union
• Cyber security threats • Will the economy go into recession?
• Loss of key staff • Will energy prices continue to rise?
• Currency fluctuations for firms trading • What will happen to interest rates?
internationally • How will rivals react to a new product launch?
You can make use of the concepts of risk and uncertainty in strategy focused questions. For example,
when evaluating a particular strategy you could explain the possible risks as well as the rewards
associated with it. Moreover, there are no certainties in business and outlining potential uncertainties
before making a recommendation at the end of an essay is a good way to demonstrate evaluation skills.
1.1.2 Market Research

Product & Market Orientation
• A product orientation is an approach to marketing that focuses on the characteristics of the

product rather than the needs of the consumer
o The emphasis will be on creating a product first and then finding a market
o The business has a belief that the product is superior i.e. it will sell itself
o One problem with being too product orientated is that over time your business may move
further and further away from what the market is looking for, thus increasing the risk of
business failure
o E.g. Gillette's razors can be classed as a product oriented business as the business
focuses on the quality of its products and regular innovations aim to increase sales

A product orientation is an approach often used by inventors who research, test and produce a
product well before market research has taken place
• Market orientation is an approach to marketing that focuses on the needs of consumers and
uses this information to design products that meet customer needs
o Consumers are at the centre of marketing decisions
o Products will be developed which respond to consumer needs
o The result of market orientation is that the firm will benefit from increased demand, increased
profits, and a valued brand image as its products become more desirable
o E.g. Universities often develop new courses based on the feedback they receive from
students and employers
Market orientation aims to develop products to meet needs identified by consumers during the
market research process
Primary & Secondary Market Research Data
• Market research is the objective collection, compilation and analysis of information about a
market
• Effective market research will help the business

o To reduce risk when launching new products or entering new markets
o Anticipate future needs and wants of consumers
o To understand consumer behaviour
o To identify potential consumer demand
o To identify how much consumers are prepared to pay
o To identify competitors and gauge their potential strengths and weaknesses
• Market research data can be quantitative or qualitative

▪ Both forms are useful and any data analysis should ideally include a combination of
the two

Primary research
• Primary research is the process of gathering information directly from consumers in the target
market using field research methods such as surveys, interviews, etc
o This gathers information that is new and does not necessarily exist in any format
Primary Research Methods
Method Explanation
Surveys • The most widely used method of gathering primary research is to
use sampling by using surveys
• This is where you would ask a series of questions to a certain number of
people (respondents)
• The results from the ‘sample’ are used to make inferences in which the results
of the sample are extrapolated to be true for the wider population
• A wide range of respondents can be reached using online survey tools such
as Survey Monkey
Observation • This involves hiring someone to stand in an appropriate location and study
consumer behaviour in a store or perhaps judge the potential consumer traffic
at a particular location
o Researchers may observe the impact of packaging on consumer choice,

or the impact that the particular placement of a product in a store may
have on consumer choice
Interviews • The questions may be set up in a very similar way to a survey, however, an
interviewer asks the questions
• This method takes longer but does allow the interviewee to ask follow-up
questions and gather the information that can easily be missed when
conducting surveys
Test marketing • Free samples are provided for a limited period to the target market to gauge
their response to the product
Focus groups • Free range discussions led by a marketing specialist to collect detailed
feedback on all aspects of the marketing mixfrom the target market
• Usually limited to a small group of 12-15 people
• The group typically meets for 90 minutes to 3 hours

The Advantages & Disadvantages of Primary Market Research
• Information gathering • The sample size may be too small and unrepresentative of
is focused on the needs of all of the customers leading to unreliable results
the business and will not be
available to its rivals
• The business can get in- • Bias may mean that researchers can guide respondents
depth information from to answer questions in a particular way
respondents, for example, o Similarly, respondents may be influenced by the
reasons behind certain responses of others, or not provide accurate
behaviour information
• Primary market research • A business may need to hire a specialist market research
is more up-to-date and can agency to help and the process can be expensive and time-
be used to ask specific consuming
questions and so will be
more relevant
Secondary research
• Secondary research involves the collection, compilation, and analysis of data that already exists
o Typical methods include purchasing market reports from specialist companies or
accessing government statistical portals which provide useful information
The Advantages & Disadvantages of Secondary Market Research
• Information is already available and • Information has been collected for other purposes and
so is quicker to collect than primary so may lack relevance or may not be factually correct
research thereby saving time e.g. Wikipedia
• Information is often free (e.g. • Can be expensive to purchase market specific secondary
government websites and internet data from specialist companies e.g. MINTEL reports
sources such as Statista)
and is cheaper to collect leading
to lower costs compared to primary
research
• Suitable for a small business that lacks • Information may be out-of-date, especially in dynamic
a large marketing budget and/or markets
expertise

The use of ICT to Support Market Research
• ICT can be used to support market research in the following ways:
1. Company websites
Websites allow businesses to collect primary data more cheaply e.g. tracking consumer searches
and analyzing customer reviews as well as collecting secondary data about rivals e.g. prices and
special offers. Pop-ups
used on websites can also be an effective way of gathering information
2. Databases
These can be used to store large amounts of customer information e.g. Tesco loyalty
cards. Databases are also effective in collating customer e-mail addresses so that targeted
customers can be surveyed later via e-mail
3. Social networking
Focuses on gathering information about consumers via online social channels such as Twitter
and Facebook. It is also useful as a method of running quick polls and surveys or tracking opinions
about brands
Market Segmentation
• Market segmentation is the process in which a single market is divided into sub markets or
'segments'
o Each segment represents a slightly different set of consumer characteristics
o Firms often segment their markets according to factors such as income, geographical
location, religion, gender, or lifestyle
• A market for a good such as crisps is not simply seen as one market e.g. the crisp market is divided
up into many market segments such as
o Dinner party snacks (Walkers Sensations, Pringles, Burts) are targeted at middle to upper
earners/professionals with a premium price
o Health conscious crisps (Walker's lite, Walkers baked, Revita lite) are targeted at the
health conscious market
o Lunch box value snacks (multipacks, hoola hoops, etc) are targeted at families and the
mass market
The Advantages & Disadvantages of Market Segmentation
• Recognizes • Not everyone within a segment will behave in the same
that consumers are not all way
identical - consumer groups do not
all share the same tastes and
preferences

• Products and marketing activities • May be difficult to identify a
can be altered to meet different segment and consumers can belong to multiple
needs of different groups of segments at the same time
consumers and targeted more
precisely
• Less expensive and • Segmentation requires more detailed market
wasteful than marketing products research which can prove costly (but beneficial) to the
at wide market segments business
• May increase loyalty if the • A segment may be identified but it may be too small
consumer feels that their needs and unprofitable to cater f
are being met which can lead to
repeat purchases
1.1.3 Market Positioning

Market Positioning & Market Mapping
• Market positioning refers to the process a business goes through when launching a new product
or service
o The business decides where they want to position the product in the market with regard to
price, quality, branding, and customer perception
• Market mapping is a tool for identifying the position of a product within a market
o A market map refers to a two-dimensional diagram that shows the attributes or
characteristics of a product in comparison to rivals’ products
o Only two criteria can be chosen e.g. price and quality, age and income, etc.
M&M has positioned itself as low price and low quality in this example of a market map
Market Map Analysis
• If there were no spaces left on the market map, it indicates that the market is saturated
o This means that there are no opportunities to exploit a market niche in the market
o Competition is likely to be high and profits low
• However, the existence of a space on the market map may indicate the existence of a market niche

o This needs to be researched carefully before the business commits e.g. it looks like there is
a gap in the market in high price / low quality area in the map above
o This gap does not represent a worthwhile market as the business would find it impossible
to build and maintain a loyal customer base
The Usefulness & Limitations of Market Mapping
Usefulness Limitations
• Market gaps can be identified which • A gap in the market may exist because it is not
may enable a business to come up profitable to fill
with ideas for new products
• Mapping a market may require primary
• Comparisons can be made between research which can be expensive
a business’ products and those of its
rivals - where are the business’ • Only two criteria can be chosen which may
products positioned about its rivals? prove too simplistic
• Market maps are simple to • Markets are often dynamic and a market map
construct and offer a visual only provides insight at a specific point in time
illustration of the position of a product
in the market
Competitive Advantage of a Product or Service
• Competitive advantage refers to the features of a business and its products that are
perceived as superior to its rivals by customers
• It is how a firm’s product is made both distinctive and defensible

o Distinctive means that it is different from the competitors
o Defensible means that the business can prevent competitors from copying it
Some of the main sources of Competitive Advantage

• There are many ways a firm can gain competitive advantage including innovation, reputation
(branding), and building strong relationships with stakeholders, adding value, differentiation,
market segmentation and price leadership
• Examples of the source of businesses competitive advantage include:

o Quality e.g. Audi is well known for the exceptional quality of the finishing inside their cars
o Delivery times e.g. Amazon Prime delivers products within 24 hours of ordering
o Low Price e.g. Primark is considered to provide the best value/low price combination
o Reliability e.g. Apple Macs have an excellent reputation for long life and reliability
o Ethical stance e.g. Tony's Chocolonely only uses cocoa in their chocolate which is 100%
free of slave/child production
o Design e.g. Dyson vacuum cleaners stand out from the crowd with their original design
The Purpose of Product Differentiation
• Product differentiation is an attempt by a business to distinguish its products from those of

competitors
o This involves creating functions or features of the product (or firm) which help it to stand out
from its competitors
o Strong product differentiation helps the firm to develop its competitive advantage
o The development of product differentiation often helps a firm to create a unique selling
point for its product which can be used in marketing
o Product differentiation may be tangible (clearly visible) or it may be a perception that is
created about the product in the consumer's mind
• Successful product differentiation helps the business to increase demand for its
products, increase brand loyalty, and allow the business to charge higher prices
• Examples of successful product differentiation include:

o In 2014 Hyundai Cars in Singapore introduced a three year warranty on all new cars when
the industry standard was one year
o Green & Black use Fairtrade cocoa AND sugar in the production of their chocolate
Adding Value to Products/Services
• Adding value is the difference between the price that is charged to the customer and the cost
of inputs required to create the product or service
o E.g. customers are prepared to pay more for potatoes when they are packaged as oven
chips than they would be willing to pay for a bag of potatoes

Some of the methods of Adding Value
• The methods of adding value overlap with some of the features of product differentiation
o Marketing and branding
Building brand identification and customer loyalty to the brand allows the firm to charge a
higher price for its products thus increasing the added value e.g Yeezy 350 V2 sneakers sell
for $250 a pair
o Functions and features
Adding unique features allows the firm to charge a higher price for its products thus
increasing the added value e.g. Samsung Galaxy Watch 5 has robust health tracking tools
built into it, along with an amazing screen
o Customer service
Businesses that ensure they have a good reputation for customer service can charge a
higher price for their products thus increasing the added value e.g. John Lewis is considered
to provide the best customer service amongst department stores in the UK
o Customisation
Allowing customers to design or create their products allows the firm to charge a higher price
thus increasing the added value e.g. MoonPig birthday cards can be completely customised
o Packaging
Apple products are well known for their superior packaging which creates an exciting
opening experience for the customer. This allows the firm to charge a higher price for its
products thus increasing the added value.
Businesses may use several methods of adding value. It's important to understand that adding value
adds raises costs, but it is worth it if the increase in selling price outweighs the costs associated with
the method e.g. if improving the packaging costs £1 per unit and the firm can raise its selling price by
£1,40 per unit, then the firm can improve its profitability by changing the packaging.
1.2.1 Demand
An Introduction to Demand
• Demand refers to the number of goods/services customers are willing to buy at a given price
o Effective demand occurs when customers are willing and able (they have the money) to buy
at a given price

• There is an inverse relationship between the quantity demanded by customers and the price
o As the price increases, the quantity demanded decreases
o As price decreases, the quantity demanded increases
o Hence the demand curve slopes downwards from left to right
This can be illustrated in the diagram below
A demand curve showing how a change in price will lead to a change in quantity demanded (QD)
Diagram Analysis
• An increase in price from £10 to £15 leads to a movement up the demand curve from point A to B
o Due to the increase in price, the quantity demanded (QD) has fallen from 10 to 7 units
• A decrease in price from £10 to £5 leads to a movement down the demand curve from point A to
point C
o Due to the decrease in price, the QD has increased from 10 to 15 units
When writing about a movement along the demand curve we use the term quantity
demanded
Factors Leading to a Change in Demand
• A change in price leads to a movement along the demand curve

• However, a change in any other factors affecting demand will shift the entire demand curve to
the left or right
o These are called non-price factors affecting demand
The non-price factors affecting demand result in a shift of the entire demand curve

• For example, if a firm increases its Instagram advertising, there will be an increase in
demand as more consumers become aware of the product
o This is a shift in demand from D to D1. The price remains unchanged at £7 but the demand
has increased from 15 to 25 units
A change in any non-price factor will lead to a change in the position of the demand curve
Diagram Analysis
• The initial demand curve is seen at D

o At a price of £7, 15 units are demanded
• If the price remains constant at £7 but demand decreases due to one of the non-price factors of
demand (e.g. decreasing incomes), the entire demand curve shifts to the left from D to D2
o Demand has decreased from 15 units to 5 units
• If the price remains constant at £10 but demand increases due to one of the non-price factors of
demand (e.g. increased advertising expenditure), the entire demand curve shifts to the right from
D to D3
o Demand has increased from 15 units to 25 units
Non-price Factors Affecting Demand
Non-price Factor Explanation Example Affect on Demand

Change in the price • Substitutes goods • If the price of VW cars Shifts the demand
of substitutes are replacement increases then the demand curve for Ford cars to
goods e.g. different for Ford cars might rise the right
brands of car
Change in the price • Complementary • Cars and petrol: if Shifts the demand
complement goods the price of petrol rises the curve for cars to
are goods that demand for cars may fall the left
are consumed
together
Change in consumer • As a consumer’s • Branded goods e.g. Shifts the demand
incomes income Superdry hoodies curve for branded
rises demand - as consumer incomes goods to the right
for normal goods) rise demand for branded
increases goods will increase
• As a consumer’s • Own label products e.g. Shifts the demand
income supermarket curve for own label
falls demand hoodies - as consumer goods to the right

for inferior goods) incomes fall, demand for
increases own label goods will
increase
Fashions, tastes & • If goods/services • Plant based foods have Shifts the demand
preferences become more become more popular in curve for plant-based
fashionable then recent years foods to the right
demand them
increases
Advertising & • If more money is • Coca Cola spends an Shifts the demand
branding spent on advertising average of $4bn per year on curve to the right and
or branding, then this advertising and branding makes it more price
increases consumer inelastic
awareness and
brand loyalty
Demographics • If the structure or • A decrease in the number Shifts the
size of a country’s of babies being born will demand curve for baby
population changes, reduce the demand for baby products to the left
then the demand for products
goods/services will
also change
Seasonality • Demand varies at • In cold climates, the demand Shifts the demand
different times of for gas and electricity will curve for energy to
the year fall in the summer months the left
External shocks • An unexpected • The outbreak of Covid- Shifts the demand

event can change 19 lead to panic buying of curve for toilet rolls to
the demand goods such as toilet rolls the right
Remember, a change in any non-price factor which leads to less demand will shift the entire demand
curve to the left but a change in any non-price factor which leads to more demand will shift the
entire demand curve to the right.
1.2.2 Supply
An Introduction to Supply
• Supply is the number of goods/services businesses are willing to sell at a given price in a
specific time period
• There is a direct relationship between supply and price
o As the price increases, the quantity supplied increases
o As the price decreases, the quantity supplied decreases
o At higher prices, businesses are incentivised to supply more of the product
o Hence the supply curve slopes upwards from left to right

A supply curve showing how a change in price will lead to a change in the quantity supplied (QS)
Diagram Analysis
• An increase in price from £7 to £9 leads to a move up the supply curve from point A to B
o Due to the increase in price, the quantity supplied (QS) has increased from 10 to 14 units
• A decrease in price from £10 to £7 leads to a movement down the supply curve from point A to
point C
o Due to the decrease in price, the quantity supplied (QS) has decreased from 10 to 7 units
When writing about a movement along the supply curve we use the term quantity supplied.
Factors Leading to a Change in Supply

• A change in price causes a movement along the supply curve
• A change in any other factor affecting supply will shift the entire supply curve to the left or right
o These are called non-price factors affecting the supply
Changes to any of the non-price factors affecting supply will shift the entire supply curve to the left
or right

• E.g. If a firm's cost of production increases due to the increase in the price of a key resource,
then there will be a decrease in supply as the firm can now only afford to produce fewer products
• This causes a shift in supply from S to S1. The price remains unchanged at £7 but the supply has
decreased from 10 to 2 units
A diagram showing how a change in any non-price factor of supply will shift the entire
supply curve left or right
Diagram Analysis
• The initial supply curve is seen at S
o At a price of £7, 10 units are supplied
• If the price remains constant at £7 but supply decreases due to one of the non-price factors of
supply (e.g. worker's wages increase), the entire supply curve shifts to the left from S to S1
o Supply has decreased from 10 to 2 units
• If the price remains constant at £7 but supply increases due to one of the non-price factors of
supply (e.g. costs of production fall), the entire supply curve shifts to the right from S to S2
o Supply has increased from 10 to 20 units
Non-price Factors Affecting Supply
Non-price
Explanations Examples Affect on Supply
Factor
Change in the • An increase in costs of • A clothing Shifts the supply
costs of production makes manufacturer: an increase in curve for clothing to
production it more expensive to energy and labour costs will the left
produce each unit and a increase the costs of making
business will be able to each item
produce less at a given
price
New • Advances in • Robots have replaced many Shifts the supply curve
technology technology will lead to workers in car for cars to the right
lower costs of factories and this
production and increases productivity
businesses will be able

to produce more at a
given price
Indirect taxes • The government • VAT - the rate of Shifts the supply
increases indirect taxes VAT increased from 17.5% curve for all
on businesses which to 20% in the UK in 2011 businesses to the left
causes an increase in
the costs of
production as firms have
to pay extra costs
Government • A subsidy given by the • Electric vehicles - a subsidy Shifts the supply
subsidies government to to the largest battery curve for electric
businesses will reduce producer in the UK lower the vehicles to the right
the costs of production costs of production for
electric cars
External shocks • An unexpected • The outbreak of Covid- Shifts the supply
event can change the 19 caused many hotels, bars, curve for hotels, bars,
supply and restaurants to close and restaurants to
down the left
Remember, a change in any factor which leads to less supply will shift the supply curve to the left but
a change in any factor which leads to more supply will shift the supply curve to the right.
1.2.3 Markets
The Interaction of Supply & Demand

• In a market, prices for goods/services are determined by the interaction of demand & supply
• A market is any place that brings buyers & sellers together to trade at an agreed price
o Markets can be physical (e.g. McDonald's) or virtual (e.g. eBay)
o Buyers agree on the price by purchasing the good/service
o If they do not agree on the price then they do not purchase the good/service
• Based on this interaction with buyers, sellers will gradually adjust their prices until there is
an equilibrium price and quantity that works for both parties
o At the equilibrium price, sellers will be satisfied with the rate/quantity of sales
o At the equilibrium price, buyers are satisfied that the product provides benefits worth
paying for
A graph showing a market in equilibrium with a market clearing price at P & quantity at Q Diagram
Analysis

• If the price is set at £20, demand will equal supply and equilibrium is reached
o 600 units will be demanded and supplied
o If the price was set above equilibrium, supply would be greater than demand and there
would be a surplus
o If the price was set below equilibrium demand would be greater than supply and there
would be a shortage
Dynamic Changes in Markets

• There are 4 diagrams that can be used to show the causes and consequences of changes to the
non-price factors of demand and supply
The Impact of Changes to the Non-price Factors of Demand and Supply
Cause Diagram Explanation

A rise in • The original equilibrium was at P1 and Q1
demand • A rise in demand causes the demand
curve to shift to the right from D1→ D2 (perhaps
due to an increase in home working)
• At the original price of P1, there is now a
shortage as demand exceeds the supply
• The shortage causes prices to rise from P1 to P2
• A new equilibrium develops at a price of P2 and a
quantity of Q2 units
• The business revenue (P x Q) has changed from
P1Q1 to P2Q2
A fall in • The original equilibrium was at P1 and Q1
demand • A fall in demand causes the demand
curve to shift to the left from D1→ D2 (perhaps due
to an external shock)
• At the original price ofP1, there is now a
surplus as supply exceeds demand
• The surplus causes prices to fall from P1 to P2
P1Q1 to P2Q2
A rise in • The original equilibrium was at P1 and Q1
supply • A rise in supply causes the supply curve to shift to
the right from S1→ S2 (perhaps due to an increase
in productivity)
surplus as supply exceeds demand
• The surplus causes prices to fall from P1 to P2
P1Q1 to P2Q2

A fall in • The original equilibrium was at P1 and Q1
supply • A fall in supply causes the supply curve to shift to
the left from S1→ S2 (perhaps due to an increase in
the costs of production)
shortage as demand exceeds the supply
• The shortage causes prices to rise from P1 to P2
P1Q1 to P2Q2
When answering questions on changes to markets, remember that a change in the price of the good leads
to a movement along the demand or supply curve, not a shift in the demand or supply curve.
Practice drawing and labelling demand and supply diagrams accurately, describing them step-by-step, this
will help you gain analysis marks. You can also use demand and supply diagrams to illustrate changes in
total revenue.
1.2.4 Price Elasticity of Demand (PED)
An Introduction to Price Elasticity of Demand (PED)

• When there is an increase in price, there will be a fall in the quantity demanded and when there
is a fall in price there will be an increase in the quantity demanded
• The question businesses are interested in is, by how much will the quantity demand change?
• The Price elasticity of demand helps us to calculate how responsive the change in quantity
demanded will be to a change in price
o The responsiveness is different for different types of products
Calculation of PED
• The PED value is always negative

• PED can be calculated using the following formula
• To calculate a % change, use the following formula
Worked example
The price elasticity of demand for popcorn at the cinema is –0.8. The current price of a box of popcorn is
£5. Using the data, calculate the percentage change in quantity demanded following a £1 increase in the
price of a box of popcorn. You are advised to show your work.
(4)
Step 1: Calculate the percentage change in price
£5 - £1/£5 x 100 = 20% (1 mark)

Step 2: Insert the data you have been given into the formula
(1 mark)
Step 3: Rearrange and solve for x

x = -0.8 x 20 (1 mark)
x = -16%
Step 4: Present the final answer

The quantity demanded falls by 16%. (4 marks for the correct answer)
Remember, if the price decreases QD increases and if the price increases QD decreases. In this case
price increases therefore QD must fall.
Interpretation of PED Numerical Values

• The numerical value of PED indicates the responsiveness of a change in quantity demanded to a
change in price
• PED will always be negative due to the inverse relationship between price and quantity
o If the price goes up, the quantity demanded goes down
o If the price goes down, the quantity demanded goes up
Interpretation of PED Values
Numerical
Type of Good Explanation Examples
Value
>1 Elastic • Demand is more responsive • Luxury products such as
to a change in price cars, smart watches,
foreign holidays, cinema
visits, jewellery, and
• The %∆ in QD is more branded goods
than proportional to the %∆ in P
Between Inelastic • Demand is less responsive to • Necessities such as

a change in price bread, milk, eggs, and
0&1 potatoes; fuel; rent;
toothpaste, etc.
• The %∆ in QD is more • Addictive products such
than proportional to the %∆ in P as cigarettes and sugary
foods

Students often confuse the negative sign of the answer to PED questions. Do not assume that the negative
is mathematical such that an elasticity of -1 is smaller than, for example, -0.3. It is larger (more price
elastic).
The PED will always be negative indicating the inverse relationship between price and quantity
Factorsdemanded i.e. when
Influencing price
the increases,
Price QD decreases,
Elasticity and when the price decreases QD increases.
of Demand
When interpreting the value of PED do not say that ‘the product is elastic or inelastic’, it is better to say
that ‘demand for the product is price elastic or price inelastic’.
The factors which determine if a product is more price elastic or price inelastic in demand
Brand Loyalty
• The aim of advertising and marketing expenditure by a business is to shift the demand curve to the
right and make the demand more price inelastic
o E.g. Coke consumers are more brand loyal to Coke and refuse to buy Pepsi, even though
their taste is very similar
Availability of substitutes
• PED will be more price inelastic (lower) for goods that have fewer substitutes
o E.g. Petrol has fewer substitutes and is more price inelastic whereas chocolate bars have
more substitutes and are more price elastic
The proportion of income taken up by the product

• The smaller the proportion of income we spend on a product the more price inelastic the
demand will be
o E.g. A small amount of income is spent on salt and so the demand for salt will be more price
inelastic whereas buying a new car takes up a bigger proportion of consumer income and
so is more price elastic in demand
Luxury or Necessity
• Necessities are required as part of consumers' daily needs and are therefore more price
inelastic in demand
o E.g. Bread, milk, petrol, gas and electricity might be considered to be necessities
• Luxuries are not essential and are therefore more price elastic in demand
o E.g. Smoked salmon, Nike Air Jordans, and foreign holidays might be considered to be
luxuries

Time
• The longer the time period under consideration the more price elastic the demand for a good or
service is likely to be (consumers have more time to search for substitutes)
• The shorter the time period under consideration the more price inelastic the demand for a good or
service is likely to be
o E.g. If the price of petrol increases making driving more expensive, there is little that
consumers can do in the short term. However, they may switch to alternatives such as public
transport or bicycles in the long term.
The Significance of PED to Businesses

• If businesses can determine the price elasticity of demand for their products, they can adjust
their pricing strategy to maximise their revenue
• If the demand for their products is relatively price inelastic (PED < -1), raising the price will lead to
an increase in total revenue. However, lowering the price will lead to a fall in total revenue
o Price skimming strategies are best employed for products that are price inelastic in
demand
• If demand for their products is relatively price elastic (PED > -1), raising the price will lead to a fall
in total revenue. However, lowering the price will lead to a rise in total revenue
o Competitive pricing strategies are best employed for products that are price inelastic in
demand
The Relationship Between Price Elasticity of Demand and Total Revenue
Price Increase or Impact on total

PED Diagram Result
Decrease Revenue
Elastic Greater than 1 Increase Decrease
(Between 1 and ∞)
Decrease Increase
Inelastic Between Increase Increase
0 and 1
Decrease Decrease

1.2.5 Income Elasticity of Demand (YED)
Definition & Calculation of YED
• Changes in income result in changes to the demand for products

▪ Businesses are interested in how much the quantity demanded will change for
different products
• The Income elasticity of demand (YED) reveals how responsive the change in quantity
demanded is to a change in income
Calculation
• YED can be calculated using the following formula
Worked example
An individual’s income falls from £450 per week to £405 per week. As a result, their demand for take away
meals falls from £50 per week to £30 per week. Calculate the income elasticity of demand for take away
meals.
(4)
Step 1: Calculate the % change in QD
% change QD =
% change QD = 40% (1 mark)
Step 2: Calculate the % change in Y

% change Y =
% change Y = 10% (1 mark)
Step 3: Insert the above values in the YED formula

YED = (1 mark)
Step 4: Present the final answer

Final answer = +4 (4 marks)
A 10% fall in income leads to a 40% fall in demand

Interpretation of Numerical YED Values
• The YED value can be positive or negative and the value is important in determining the type of
good
• A good with a positive YED value is considered to be a normal good

o Normal goods can be classified as necessities or luxuries
• A good with a negative YED value is considered to be an inferior good

Interpretation of the Numerical Values of Income Elasticity of Demand
Numerical
Type of Good Explanation Examples
Value
>1 Luxury • Demand rises when income • Cars, smart watches,
rises and demand foreign holidays, cinema
falls when income falls visits, jewellery, and
• Demand is responsive to a change branded goods
in income (income elastic)
0-1 Necessity • Demand is not very responsive to a • Staple food items such
change in income (income as bread, milk, eggs,
inelastic) and potatoes; fuel;
toothpaste
<0 Inferior • Demand rises when income falls • Public transport;
(negative income elasticity) domestic holidays;
• Demand falls when income rises canned foods;
unbranded/own label
goods
The Factors Influencing YED
• YED is influenced by many factors in an economy that changes the wages of workers
o During a recession wages usually fall and demand for inferior goods rises while demand
for luxury goods falls
o During a period of economic growth and rising wages, demand for luxury goods increases
while demand for inferior goods decreases
o Other influences on income include minimum wage legislation, taxation, increased
international trade
• YED is also influenced by the nature of the good as discussed above

o Luxury or necessity (both are classified as normal goods)
o Inferior or normal good

The Significance of YED to Businesses
• Understanding the income elasticity of demand is useful to businesses as it can help them plan their
production and products
o Planning in this way will help them to generate higher profits and have less exposure to
downturns in the economy
• Production planning
o A business needs to plan how much it is going to produce which will help it determine the
number of resources such as raw materials and labour it will need
o If a business can determine YED for its products and can accurately predict changes in income
then it can plan whether to increase or decrease production
o It can help managers with financial planning
o Production planning is easier when YED is relatively inelastic as demand is likely to be more
constant
• Product planning
o The economy goes through different stages over time from recession to recovery and growth
and so incomes will fluctuate
o This is known as the Business Cycle
o During a recession producers of inferior goods will benefit from higher demand, but will lose
out when incomes rise and consumers return to normal goods
o Some businesses might have different products in their product portfolio to take account of
this
▪ E.g. Tesco has its Finest, Standard, and Value range to appeal to all income segments of
the market
▪ E.g. During the 2008 recession, Waitrose introduced its ‘Essentials’ range of products to
appeal to more budget conscious shoppers
▪ E.g. VW owns Skoda, Audi, and Porsche and has different products within its ranges to
appeal to different income groups
1.3 MARKETING MIX AND STRATEGY

1.3.1 Product or Service Design
An Introduction to the Marketing Mix
• The marketing mix (4Ps of marketing) provides a framework for businesses to create and
implement successful marketing strategies
• The 4Ps represent the key elements of a marketing strategy: product, price, place, and
promotion
• These four components work together to satisfy the needs and want of a target market while
achieving the company's objectives
• By understanding and manipulating the marketing mix, businesses can differentiate
themselves from competitors
• A marketing mix is an essential tool for any company looking to maximize its marketing impact and
achieve long-term success

Each business combines the different elements of the marketing mix in unique ways to maximize
their profitability
The Design Mix

• The product design mix refers to the combination of elements that make up a product's design
o These elements include function, aesthetics, and cost
• Balancing the elements of function, aesthetics, and cost, helps the product design to be
both functional and attractive, while also being cost-effective for both the manufacturer and the
consumer
o Some manufacturers aim to balance all three elements e.g. Fentimans ginger beer is
relatively affordable and is packaged in eye catching bottles and the product itself is very
good quality
o Other manufacturers may focus on one aspect, more than the others e.g. Asda own brand
of ginger beer is produced at the lowest possible cost and sold to consumers at a very low
price
Fentimans prioritises all three elements of the product design while Asda focuses on cost

Changes in the Design Mix to Reflect Social Trends
• Social trends refer to changes in attitudes, behaviours and lifestyles of people
o Changes to any of these require companies to adapt their products to remain relevant to
their customers
• Social trends can significantly impact the product design mix, especially about concerns
over resource depletion and ethical sourcing
Two Current Changes in Social Trends Which Require Adaptation to the Design Mix
Current Changes in
Explanation
Social Trends
Changes as a result • Customers are becoming increasingly aware of the need to conserve
of Concerns to natural resources and reduce waste
Resource Depletion • The product design mix may change to reflect waste minimisation, re-use,
and recycling
• Companies may choose to design products that use fewer materials,
are more durable, and can be easily disassembled for recycling or
repair
o E.g. In October 2020, Superdry announced that all of their jackets
would use recycled polyester in their lining (made from plastic
bottles) as opposed to new polyester
Changes about • Ethical sourcing means that products are produced without exploitation
Ethical Sourcing of workers or environmental damage
• Companies may change their product design mix to incorporate
sustainable materials and production processes
o E.g. Tony's Chocolonely is committed to producing chocolate that
is made from cocoa farmed with 100% slave free (or child)
labour
1.3.2 Branding & Promotion

Types of Promotion
• Promotion is an important element of the marketing mix as it plays a crucial role in generating
customer awareness, interest and desire for a product/service
o A business can communicate its value proposition to potential customers and differentiate
itself from competitors
o Promotion helps to build brand awareness and loyalty which can lead to repeat purchases
and referrals
• The promotion element of the marketing mix includes a variety of promotional methods
The different types of promotional methods available to a business to communicate with their target market

• Each method has advantages and disadvantages associated with their use
• Businesses must select the most appropriate methods for their product/service, target audience
and budget
An Assessment of the Different Promotional Strategies
Method Explanation Advantage Disadvantage

Advertising • Promotion occurs • It can reach large audiences • Can be expensive
through paid and increase brand • The effectiveness of
channels such as awareness advertising can
television, radio, print • Can also be used to create a be difficult to
media (magazines), and specific brand image or measure
online advertising message e.g. the advertising • Many customers tune
campaign run by Compare out or ignore ads
the Market (Meerkat)
Direct • Involves communicating • Businesses can target • Can be intrusive as
Marketing directly with customers specific audiences and customers may
through email, text personalise their message to perceive it as spam
message, social media or individual customers • Can also be costly,
post • Direct marketing is especially if
also measurable, which businesses do not
enables businesses to track have an established
their results and adjust their customer database or
strategy accordingly need to purchase leads
Sales • Marketing techniques that • Can quickly boost sales or • Can be expensive
Promotions encourage the purchase customer engagement especially if the
of a product or service by • Can help to clear out promotion requires a
offering temporary stock or promote a new heavy discounting
incentives or discounts product • Can attract deal-
such as free samples, buy • Can encourage impulse seeking
one get one free (bogof), purchases customers who may
discount coupons, loyalty • Can be targeted to specific not be loyal to the
cards, and rebates segments of customers brand
(customers have to mail in • May reduce the sales
to receive money back) of full-priced products
Personal • Occurs when a • Allows businesses to build • Can be expensive due
Selling salesperson interacts with relationships with their to the cost of hiring
potential customers one- customers and understand and training sales
on-one, either in person their specific needs staff
or through digital • Enables businesses to • The impact of personal
communication channels provide personalised advice selling can be limited
and guidance to customers as it is difficult to
scale to large
audiences
Sponsorship • This is an agreement in • Can help to build brand • Can be expensive,
which a company awareness and credibility especially for high-
provides financial or profile events or
other support to an properties

event, team, or • Can create emotional • May not directly drive
organization in exchange connections with target sales
for marketing exposure audiences • May be subject to
• Can take many forms, • Can support specific business negative publicity if
such as logo placement objectives, such as entering the sponsored entity
or naming new markets or reaching experiences a scandal
rights (Arsenal Emirates new customers or controversy e.g. In
Stadium) 2022 Kanye West was
dropped by Adidas
after his anti-Semitic
outbursts
Public • The business seeks to • Can enhance a business's • PR can be time-
Relations (PR) build relationships with the reputation and credibility consuming and is
public and manage their • This can lead to increased difficult to measure the
reputation customer loyalty and sales direct impact of PR
• Public relations activities • Can be cost-effective when activities on the profits
can include media compared to advertising or of a profits
relations, crisis personal selling
management and
community outreach
• E.g.in 2018 KFC in Ireland
ran out of chicken due to
some supply chain issues
and ran a brilliant PR
strategy in which they
rearranged the letters in
their name to FCK and
owned the problem
Digital • Refer to any form of • Can be highly targeted • Can be easily ignored
Communications marketing or to specific customer or filtered out by
communication that is segments customers
delivered electronically, • Can provide real-time • May require significant
such as social media, engagement and investment in
search engine feedback from customers technology or data
optimisation (SEO), infrastructure
or mobile apps such as • May be subject to data
Instagram and Twitter privacy regulations or
• Can be used for building security breaches
brand awareness, • May not be effective
generating leads, or for reaching older or
driving sales less digitally-savvy
customer segments.
Types of Branding
• Branding is the process of creating a unique and identifiable name, design, symbol, or other
feature that differentiates a product/service or company from its competitors
• Branding is important to a business for a variety of reasons:

o Branding establishes recognition and identity

o Branding builds trust and credibility
o Branding differentiates a business from its competitors
o Branding creates an emotional connection with customers which helps to generate repeat
purchases
o Branding supports marketing and advertising efforts
The three different types of branding available to businesses
Manufacturer/Corporate branding
• This refers to the use of a company name or logo to promote all the products or services offered
by the company
• This type of branding is used by companies like Nestlé, Nike, and Apple
The Advantages & Disadvantages of Corporate Branding
• Creates a strong brand recognition and • If a company's reputation is damaged by a
reputation for the company, which can product it can have a negative impact on all
increase customer loyalty and trust the products offered under that brand
• Allows the company to leverage its existing • If the company faces intense competition in
reputation and customer base to introduce one market 9e.g smartphones), it may affect
new products more easily the sales of all the products offered across
• Helps to build economies of other markets (e.g laptops and desktops)
scale by promoting multiple
products under one brand, which can reduce
marketing costs and increase profitability
Product branding
• This refers to the use of a unique name, design, or symbol to promote a specific product
• E.g. KitKat, Coca-Cola, and McDonald's Big Mac

The Advantages & Disadvantages of Product Branding
• Creates a distinct identity for the product • The cost of creating and promoting a new
which can help to differentiate it from brand for each product can be expensive
competitors and increase brand loyalty • Introducing new products under different
• Allows the company to market different brands is difficult as the business must build a
products to different segments of the new brand for each product from scratch
market e.g. Coco Cola and Coke Zero • Different products within the brand may
• Can help to build customer loyalty and trust have different levels of quality which can
by associating the product with a specific affect customer satisfaction
quality and benefits e.g Dyson Vacuum
Cleaners
Own brand product
• Own brand or private label branding refers to the use of a retailer's name to promote a specific
product or service and is often used by supermarkets
• E.g. ASDA chocolate, Tesco's Finest range, and Sainsbury's Basics range
The Advantages & Disadvantages of Own Brand Products
• It can help retailers to differentiate themselves from • Own brand products may have
their competitors by offering unique products a lower perceived quality than
• It allows retailers to offer products at a lower cost than branded products which can affect
branded products which can help to increase sales and customer loyalty and trust
profitability
• It can help to build customer loyalty by offering exclusive
products that are not available elsewhere
The Benefits of Branding

• Strong branding can provide several benefits to a business, including:
1. Added Value
Strong branding can add value to a product by creating a perception of quality, reliability, and
trust.
2. Ability to Charge Premium Prices

Customers may be willing to pay more for a product that is associated with a well-established
brand as they perceive products with strong branding to be of higher quality and therefore worth
the extra cost.
3. Reduced Price Elasticity of Demand
Strong branding can also reduce the price elasticity of demand for a product (customers are less

sensitive to price changes). This is because customers who are loyal to a brand are more likely
to continue purchasing the product even if the price increases.
Ways to Build a Brand

• Brands can be built using any one, or a combination of the following methods:
o By developing unique selling points (USPs)
o Through advertising
o Through sponsorship
o Through the use of social media
Examples of the way Brands have been Built
Method Explanation Example

Unique selling • USPs are the features that make a • Apple is known for its innovative
points (USPs) product/service stand out from its and sleek design and use of quality
competitors materials, which sets its products apart
• Brands can build their reputation from its competitors
by emphasising these unique • The company has built its brand around
qualities in their marketing efforts this USP and is recognised worldwide for
its premium design
Advertising • Brands can create compelling ads that • Coca-Cola has successfully built its
resonate with their target audience, raise brand through advertising
brand awareness, and communicate their • Iconic ads over the years have become
value proposition synonymous with the brand
With the right advertising strategy, • E.g. The "Share a
brands create a strong emotional Coke" campaign encouraged people to
connection with their audience and inspire buy Coca-Cola bottles with their friends'
brand loyalty names on them and was a massive
success
Sponsorship • Partnering with events, organisations, or • Nike has sponsored many high-profile
individuals can help brands gain athletes and sports events, such as the
exposure and build their reputation by Olympics and the World Cup
aligning themselves with positive • Nike has built a reputation for being a
associations or values brand that champions excellence and
inspires people to be their best
Social Media • With the right social media strategy, • Glossier has a strong presence on
brands can build a loyal following platforms like Instagram and it engages
and create a community around their with its audience and shares user-
brand generated content
• Glossier's social media strategy has
helped the brand build a loyal
following
Changes in Branding & Promotion to Reflect Social Trends
• Businesses which respond quickly to changing social trends can better meet the needs of their
customers

• Being able to quickly adapt their branding and promotion strategies will ensure that they maximise
communication opportunities with their customers, which will help to develop brand loyalty and
increase profits
• Three current social trends businesses are aware of and adapting to, include viral marketing, the
use of social media, and emotional branding
• Viral Marketing
Is a strategy where businesses use online platforms to promote their products by creating content
at specific times, which can easily be shared and commented on. E.g. During the COVID-19
pandemic, Coca-Cola and McDonald's ran campaigns that emphasised community which
aligned with the public's need for social support
• Social Media
As social media platforms evolve, businesses must also adapt their social media strategies to
keep up with the latest trends E.g. Instagram has been a popular platform for businesses to
promote their products through influencer partnerships. More recently many businesses have
shifted their focus to promoting their brands through short-form video content on platforms
like TikTok
• Emotional Branding
Emotional branding is a strategy where companies build strong emotional connections with their
customers by appealing to their values, beliefs, and emotions. E.g. Brands like Patagonia and
TOMS have built their entire brand identities around their commitments to environmental and social
causes, which resonates with customers who prioritise these values
1.3.3 Pricing Strategy

Types of Pricing Strategies
• Choosing the right pricing strategy is essential for a business to be profitable, competitive, and
successful in the long run
Different Types of Pricing Strategies
Pricing Strategy Explanation
Cost plus • The business calculates the cost of production and then adds a
markup to determine the final price
• The markup covers the cost of production plus the business's
desired profit margin

• This pricing strategy is simple and is commonly used by
manufacturers that produce standardised goods e.g. washing
machines
Price skimming • The business sets a high price for a new product/service when it
is first introduced to the market
• This is effective when an established brand is introducing a new
product and there is a high demand for it e.g successive models
of Apple's Macbook Air
• The high price helps the business to recover its development and
marketing costs quickly
• The business will then gradually lower the price to ensure sales
continue
Penetration • The business sets a low price for a new product/service when it is
first introduced
• This is effective when a business wants to quickly capture market
share and attract price-sensitive customers e.g. many new perfumes
launch using penetration pricing
• Once they have enough customers, the business will start to raise the
price
Predatory • The business sets prices so low that it drives its competitors out of
the market
• This strategy is illegal in many countries as it is considered anti-
competitive and harms customers by reducing choice in the market
Competitive • The business sets its prices based on its competitors' prices
• This is effective when a business is in a highly competitive market and
wants to maintain its market share
• The business must continually monitor its competitors' prices and
adjust its prices accordingly to remain competitive
Psychological • This pricing strategy takes into account the customer's emotions,
beliefs, and attitudes towards the product/service E.g. a business
may set its prices at £9.99 instead of £10 as customers perceive the
former as a better value
Factors Influencing the Choice of Pricing Strategy
• By understanding their customers, competitors, and costs, businesses can set prices that maximise
revenue and profitability
• Pricing can play a significant role in positioning the brand in the market and help a firm to compete
effectively
• A business needs to consider various factors when setting its pricing strategy
o Understanding these factors can help a business make informed decisions about its
pricing and increase its chances of success

Factors to Consider when Choosing a Pricing Strategy
Number of USPs/ Price Elasticity of Demand Level of Competition in the

Amount of Differentiation Business Environment
• Products with many USPs • A business needs to • In highly competitive
and high differentiation consider the price markets businesses may
can command higher elasticity of demand when need to set their prices
prices setting its prices low to remain
• E.g Dyson vacuum cleaners • E.g If a business is in a competitive
have unique features which highly competitive market • E.g. The budget airline
allow the company to with many substitutes, industry is highly
charge a premium price lowering prices will competitive and airlines
increase revenue keep their prices low to
• Businesses should set increase demand
lower prices If the product • In less competitive
is price elastic markets, businesses may
• Businesses should set be able to set higher
higher prices If the product prices
is price inelastic
Strength of the Brand Stage in the Product Life Cycle Costs and the Need to
Make a Profit
• A strong brand with a loyal • In the introduction stage, • Prices must cover
customer base can prices may be set lower to the cost of production
command higher prices attract customers and build and provide a
• E.g. Nike’s strong brand market share reasonable profit
allows it to charge • In the growth stage, prices margin
premium prices for its can increase as demand for • E.g. A restaurant needs
athletic shoes and apparel the product increases to consider the cost of
• In the maturity stage, ingredients, labour, rent,
prices may need to be and other expenses
lowered again when setting menu
prices
Exam questions frequently ask you to be able to justify the most appropriate pricing strategy for a good
or service. When studying the data provided, consider the points above and then make a
recommendation. For example, in launching a new product with a strong brand identity, it may be
appropriate to use a price skimming strategy to recover research and development costs.
Changes in Pricing to Account for Social Trends
• Both online sales and price comparison sites have had a significant impact on pricing strategies
• Retailers must continually adapt to remain competitive in these markets
Online Sales
• Online sales offer customers convenience and 24/7 accessibility
• Retailers have shifted their focus to online sales and adjusted their pricing strategies
• One way that pricing has changed to reflect this trend is through the use of dynamic pricing
o Retailers can adjust prices in real-time based on factors such as demand and competition

oPrices are higher when supply is lower and vice versa
• Retailers may also offer different prices for online purchases compared to in-store purchases to
ncentivize customers to shop online which may mean the retailer requires fewer physical stores
o This will reduce the retailer’s costs
Price Comparison Sites
• Retailers have had to adjust their pricing strategies to remain competitive in an online marketplace
where customers can easily compare prices e.g www.comparethemarket.com
• Pricing has changed to reflect the rise in price comparison through the use of price-matching
policies
o Retailers now offer to match the prices of their competitors to prevent customers from
switching to a competitor with a lower price
• Retailers may also use pricing algorithms to monitor the prices of their competitors and adjust
their prices automatically
1.3.4 Distribution
Types of Distribution Channels
• Distribution channels refer to the various intermediaries through which goods/services move from
the manufacturer to the end customer
The three different types of distribution channels businesses can use to move products from the
manufacturer to the end consumer
Four Stage Distribution Channel

• A traditional channel consists of four stages: producer, wholesaler, retailer, and consumer
• This channel is commonly used for products such as groceries, clothing, and electronics
o E.g. The Coca-Cola Company produces the soft drink and then sells it to a wholesaler, who
in turn sells it to a retailer
o The retailer then sells the soft drink to the end customer
Three Stage Distribution Channel
• The three stage distribution channel eliminates the wholesaler stage, with the producer selling
directly to the retailer
• This channel is often used for products with high demand or where the cost of distribution is high
• This channel is often used for products with high profit margins, where the manufacturer can afford
to sell directly to the retailer and still make a profit
o Eg Toshiba produces laptops and sells them directly to retailers like Currys, who then sell
them to the end customer

Two Stage Distribution Channel
• The two stage distribution channel eliminates both the wholesaler and retailer stages, with the
manufacturer selling directly to the end consumer
• This channel is commonly used for products that are sold online or through direct sales channels
o E.g. RyanAir sells its service (passenger tickets) directly to the end customer on their
website
Changes in Distribution to Reflect Social Trends
• Changes in distribution have been impacted by social trends such as the growth of e-
commerce and the shift from product-based businesses to service-based businesses
• By understanding these trends, businesses can adjust their distribution strategies to better meet the
needs of their customers and stay competitive in the marketplace
The Growth of E-commerce
Explanation Example
• Online distribution has become • Amazon is known as a third-party
increasingly popular due to the logistics provider (3PLs)
convenience and accessibility it offers to • They provide businesses with
consumers the infrastructure and online
marketplace which allows them
• Many businesses now use drop- to reach a wider audience and increase
shipping, which allows them to sell sales without having to invest in their
products without holding stock distribution infrastructure
o Once the business has sold the • Many businesses now generate the
products, they are shipped bulk of their sales selling on Amazon
directly from the producer to the
customer
o This reduces the cost and
complexity of distribution, making
it easier for businesses to sell
online

The Shift from Product-based Businesses to Service-based Businesses
Explanation Example
Consumers increasingly value experiences over Uber delivers a taxi service through a mobile app
material possessions and this shift has impacted
The distribution involves matching drivers with
distribution, as the delivery of services is often quite
customers in real-time
different from the delivery of physical products
The service is distributed directly to the end
Distribution for service-based businesses may
consumer without the need for wholesalers or
involve delivering services to customers directly,
retailers
such as through a mobile app or website
With no need for wholesalers or retailers, business
This requires a different set of distribution
costs reduce and profitability may increase
capabilities than traditional product-based
distribution
1.3.5 Marketing Strategy

The Product Life Cycle
• The product life cycle describes the different stages a product goes through from its conception
to its eventual decline in sales
• There are typically five stages in the product life cycle: development, introduction, growth,
maturity, and decline
The five stages a product goes through over its life span - from development to decline (and
ultimately withdrawal from a market)
• The implications for cash flow and marketing vary at each stage of the product life cycle

• Companies should tailor their marketing strategies and manage their cash flow to ensure long-
term profitability and success
The Implications of the Product Life Cycle for the Business cash flow and Marketing
Strategy
Stage Explanation Implication

Development • The focus is on designing and • Cash flow is usually negative during
developing the product this stage, as the company is investing
• The business usually incurs heavily in the product without
high costs for research and generating any revenue
development, market research, • The marketing strategy during this
and product testing stage is focused on creating
awareness and generating
interest in the product
Introduction • The stage begins when the • Cash flow is usually negative as the
product is launched business usually incurs high costs for
• Characterised by slow sales promotion, advertising and distribution
growth as the product is still • Marketing efforts are focused on
new and unknown to most creating awareness and generating
consumers interest in the product
Growth • The product enters this stage • Cash flow usually
when sales begin to increase turns positive during this stage as
rapidly sales revenue increases and costs are
• The business focus shifts to spread out over a larger volume of
building market share and production
increasing production to meet • The marketing strategy is
the growing demand to differentiate the product from its
competitors and build brand loyalty
Maturity • Characterised by slowing sales • Cash flow is usually positive during
growth as the product reaches this stage as sales revenue continues
its peak in terms of market to come in and costs are reduced
penetration through economies of scale and
efficient production processes
• The marketing strategy aims
to maintain market share and
increase profitability by cutting costs
and finding new markets
Decline • Starts when sales begin to • Cash flow usually turns negative as
decline as the product becomes sales revenue declines and costs
obsolete or is replaced by associated with the product's decline
newer products increase
• The business focus shifts to • The marketing strategy may involve
managing the product's decline discontinuing the product, reducing its
and reducing costs price to clear inventory, or finding
new uses for the product

Extension Strategies to the Product Life Cycle
• Extension strategies refer to the techniques used by businesses to extend the life of a product
beyond its natural life cycle
• These strategies are designed to boost sales and maintain profitability for a product that
has reached the decline stage of its life cycle
• There are two types of extension strategies:
o Product-related extension strategies
o Promotion-related extension strategies
• By making product and promotion-related changes businesses can continue to appeal to
customers and extend the life of their products
Product-related extension strategies
•Involves changing or modifying the product to make it more appealing to customers and extend
its life cycle and can be achieved in one of three ways:
o Product improvements e.g. Samsung releases new versions of its Galaxy Smartphone
every year with upgraded features and improvements to the previous model
o Line extensions e.g. Coca-Cola introduced Diet Coke and Coke Zero as line extensions of
its original Coca-Cola
o Repositioning e.g. when IBM's personal computer division started losing market share to
other brands, it repositioned its products as high-end business machines and focused on the
enterprise market
Promotion-related extension strategies
• Involves changing the marketing and promotion of the product to extend its life cycle and could
include one or more of the following changes:
o Changes to advertising e.g Kellogg's continues to recreate adverts for its Corn Flakes
cereal which has been around since 1906
o Price promotions e.g. Cyber Monday occurs on the first Monday after Thanksgiving in the
USA and electronic firms discount prices significantly to boost sales of their products
o Sales promotions e.g. many coffee shops offer a loyalty program where customers can
earn a free drink for every six consumed
Boston Matrix & the Product Portfolio
• The Boston Matrix is a tool used by businesses to analyse their product portfolio and
make strategic decisions about each product
• The matrix classifies products into four categories based on their market share and the market
growth rate
o Cash Cow
o Problem Child/Question Mark
o Star
o Dog

The classification of products in the Boston Matrix according to their market share and the growth
rate in the market as a whole
• By categorising products into these categories, businesses can allocate resources more
effectively, optimising their cash flow and developing marketing strategies that align with the
product's potential
The Implications of Product Classification in the Boston Matrix for the cash flow and
Marketing Strategy
Product Type Explanation Implications

Cash Cow • Cash cows are products with • They generate significant positive
a high market share in a cash flow but have low growth
mature market (the entire potential
market is no longer growing) • The business invests minimal
resources in cash cows as they are
seen as stable sources of income
• Marketing efforts focus
on maintaining their market
share and profitability
• Cash cows are valuable assets and
can be used to fund the development
of new products
Problem • Problem child or question mark • There is often a negative cash
Child/Question products have a low market flow as businesses usually invest in
Mark share in a high-growth market problem child products to increase
• These products have the their market share and turn them into
potential to become stars if the stars

company invests in their • If the investment does not result in
development growing the business may discontinue
the product
• Marketing efforts focus on increasing
their market share and brand
recognition
Star • Star products have a high • They generate significant positive
market share in a high- cash flow and have the potential for
growth market continued growth
• The company typically invests • Marketing efforts focus on
in stars to maintain or increase building brand recognition,
their market share increasing market share, and
maintaining profitability
• Stars are valuable assets and the
business should focus on maximising
their potential
Dog • Dog products have a low • They generate little revenue for the
market share in a low-growth company and have no growth
market potential
• Businesses often move away
(divest) from these to focus on more
profitable products
• Marketing efforts for dog products are
minimal or zero
Marketing Strategies for Different Types of Markets
• Marketing strategies vary depending on the type of market being targeted

o Mass markets, niche markets, business-to-business markets (B2B), and business-to-
consumer (B2C) markets
Mass Markets
• Mass markets are characterised by large numbers of customers who have similar needs and
wants e.g. retail clothing
• Mass markets focus on building brand awareness and appealing to a broad audience
o Advertising campaigns are usually designed to reach as many people as possible and use
mass media such as TV, radio, and print ads
o The messages are often simple and the goal is to create a strong brand identity that
resonates with a large segment of the population
Niche Markets
• Niche markets are characterised by smaller groups of customers with specific needs and
want. e.g organic food stores, luxury car dealerships
• Marketing strategies focus on targeting a specific segment of the population and building
relationships with them

o Advertising campaigns are usually more targeted and may use social media to reach
potential customers
o The messages are often more detailed and often include technical information that is
relevant to the specific needs of the target market
Business to Business (B2B)
• B2B marketing focuses on selling products to other businesses e.g. software companies selling
to other businesses; manufacturers selling parts to other manufacturers
• In B2B marketing, the emphasis is on building relationships with other businesses and
demonstrating how your product can help them be more successful
o Advertising campaigns may include case studies that demonstrate the value of your
product/service
o The messages are often more technical and may focus on features and benefits that are
relevant to other businesses
Business to Consumer (B2C)
• B2C marketing focuses on selling products/services directly to consumers e.g clothing retailers
• In B2C marketing the emphasis is on building brand loyalty and creating a positive customer
experience
o Advertising campaigns may include social media ads or influencer marketing campaigns that
appeal to the emotions of consumers
o The messages are often more emotional and may focus on the lifestyle benefits of using
the product/service
Developing Customer Loyalty

• Developing customer loyalty helps businesses to grow and be successful in the long term
• Customer loyalty drives repeat purchases which helps the firm to reduce marketing costs when
launching new products
• Three commonly used methods of building customer loyalty include providing excellent customer
service, offering loyalty cards, and offering saver schemes
Examples of how Businesses Develop Customer Loyalty
Method Explanation Example

Customer service • When customers have a positive • Zappos is an online retailer that
customer service experience, is well known for its exceptional
they are more likely to customer service
return and recommend the o They offer free shipping
business to others and returns
o Their customer service
representatives are
available 24/7

Loyalty cards • A popular way for businesses to • Sephora has a loyalty program
encourage repeat customers called "Beauty Insider."
• These cards typically offer o Members earn points for
rewards or discounts for every purchase they
frequent purchases make
o They can redeem those
points for beauty
products or experiences
Saver schemes • These schemes typically • Sainsbury's offers a Christmas
offer discounts or special saving scheme
pricing for customers who save o Their discounts are then
money with them usually between 2% and
• This helps customers gradually 6%
save up some money that can
be used at periods when food
bills are usually higher e.g
Christmas
UNIT 4: MANAGING PEOPLE

1.4.1 Approaches to Staffing
An Introduction to Staffing
• Effective human resource management (staffing) is important to business as it ensures that the
organization has:
o The right people, in the right roles, with the right support, with opportunities to succeed
• This will lead to higher productivity, more profits and a positive work environment
• Human resource management focuses on how employees can be:

o Effectively recruited
o Effectively deployed (used)
o Effectively developed and trained
o Effectively motivated
o Effectively managed and led
Staff as an Asset & as a cost
• Staff represent both an asset and a cost to a business
• Staff are an asset to a business as they bring knowledge, skills, and expertise to the business
o Staff can increase productivity, drive innovation and enhance customer service - all of which
contribute to the success and profitability of the business
o Staff can help to build a positive reputation for the business through their interactions with
customers, suppliers, and other stakeholders

• Staff also generate costs to a business - and for many businesses staffing costs are one of the
largest costs they have
o There are costs associated with hiring and training workers
o There are costs associated with managing workers as managers have to be hired
o There are costs associated with paying the salaries of full time workers
o There are costs associated with paying wages of hourly staff
o There are costs associated with offering staff additional benefits, such as company cars,
pensions, healthcare etc
o There are costs associated with letting workers go (redundancy payments)
The Impact of National Minimum Wages on Staffing Costs
• If the government introduces (or raises) a national minimum wage it will apply to employees who
receive a wage, rather than a salary
• Businesses that employ workers on a wage basis will face higher labour costs
• Businesses that employ workers on a salary basis are less likely to be affected by the introduction
of a minimum wage, as they already pay a fixed amount regardless of the number of hours worked
Developing a Flexible Workforce

• Flexible working is the development of a culture where workers are equipped to do different
roles or where they work in a range of employment patterns (full-time, part-time, zero hours
contracts, work from home etc)
• Developing a flexible workforce can bring many benefits to a business

o Each specific approach should be assessed as there are potential disadvantages to each
Allowing workers to work from home is just one of several methods available to businesses to
develop a flexible workforce

Multi-skilling
• Multi-skilling is the process of training workers to fulfil multiple job roles within a business
o E.g. South West Airlines trains staff to handle multiple roles including check-in, baggage
handling and customer service
The Advantages and Disadvantages of Multi-skilling
• Business utilise their workforce more • May require significant investment in
efficiently which reduces labour costs training and development
and increase productivity • May not be appropriate for all job roles,
• It can help to improve patient outcomes especially those that require a high level
in healthcare industries as workers of expertise
with a broader range of skills can provide
more comprehensive care
Part-time and temporary working

• Someone who works part-time may only work two or three days a week
• Someone who works temporarily shows up for work whenever the business needs them
o E.g. Amazon employs temporary workers to handle seasonal spikes in demand such as
Christmas
The Advantages and Disadvantages of the Business of Part-time & Temporary working
• Flexible working arrangements can help • Flexible working arrangements can
businesses to attract and retain talent, create challenges in terms of
especially staff who value work-life balance communication and collaboration
• This may improve productivity, as staff can (especially if staff are working remotely)
work during their most productive • Monitoring and managing flexible
hours and avoid distractions workers can be more difficult
Outsourcing
• Apple outsources much of its manufacturing to Foxconn in China
o This allows the company to produce products at a lower cost and maintain competitive
pricing
The Advantages and Disadvantages of Outsourcing
• This may allow businesses to access • This may lead to a loss of control over
specialised skills that may not be available quality and delivery, especially if the
in-house outsourcing partner is based in another
• May reduce labour costs country
• This may create ethical concerns,
especially if the partner is based in a
country with lower labour standards or
human rights abuses

The Distinction Between Dismissal & Redundancy
• Dismissal (firing or sacking) is the termination of employment by an employer against the will of
the employee
o Employees are usually terminated due to their misconduct (e.g. violating company policy)
or poor performance
o The employer may choose to dismiss them immediately (without notice or compensation) or
provide a notice period which they can work out
• Employees are made redundant when the job is no longer available and the business reduces the
size of its workforce
o The termination is not due to any fault of the employee
o The employer must follow certain legal procedures, including providing notice and paying
redundancy compensation
Different Approaches to Employer/Employee Relationships

• The nature of the employer/employee relationship is vastly influenced by whether there is
an individual approach or if the company is operating under a collective agreement
Individual and Collective Bargaining Approaches Explained
Individual Approach Collective Bargaining

• Focuses on the relationship between an • A process whereby a group of employees
employee and their employer (represented by a trade union) negotiate with their
• Assumes that each employee is employer for better wages, working conditions and
unique and has their own goals, benefits
motivations, and interests • Employees have more bargaining power when
• It emphasises the need for tailored they negotiate collectively rather than as
compensation packages that cater to each individuals
employee's unique skills and needs • The employment relationship is seen as a power
• The employment relationship is a struggle between two parties with conflicting
voluntary agreement between two parties in interests
which both negotiate their respective roles, o The employer wants to maximise profits by keeping
responsibilities and benefits labour costs low
• The employer has the power to hire, fire, and o The employees want to maximise their wages and
set the terms and conditions of benefits
employment o The union acts as the collective voice of the
employees and bargains with the employer on behalf
of all workers
1.4.2 Recruitment, Selection & Training

The Recruitment & Selection Process
• Recruitment is the process of attracting and identifying potential job candidates who are suitable
for a particular role

o Recruitment activities include job advertising, job fairs, social media outreach and
referrals from current employees
o The goal of recruitment is to create a pool of qualified candidates who can be considered
for the role
• Selection is the process of choosing the best candidate

o Selection activities often involve reviewing CVs and conducting interviews or assessment
tasks
o The goal of selection is to hire the most suitable candidate for the job
The recruitment and selection process
1. Define the role

• Businesses should determine exactly what is required and part of that is developing a job
description and a person/job specification
o A job specification outlines the qualifications, skills, experience, and personal qualities
required from a candidate for a specific job e.g. problem solver, good communicator, able
to code in Java etc.
o A job description outlines the duties, responsibilities, and requirements of a particular job
2. Determine the best source of candidates
• The business can advertise the role internally, externally, or a combination of both
o Internal recruitment is the process of hiring employees from within the organization
▪ Internal recruitment can be beneficial as it encourages employee development,
builds morale and can save time and money on training
o External recruitment is the process of hiring employees from outside the organization
▪ External recruitment can bring fresh ideas, experiences and perspectives to the
organization
3. Advertise
• Businesses with a strong social media presence can use these platforms to advertise cost
effectively e.g. Facebook, LinkedIn, TikTok
• Depending on the nature of the business, there may be specialist recruitment portals through
which they can advertise and these tend to cost more e.g. The Times Educational Supplement is
one of the main publications used to recruit teaching staff
4. Receive applications
• The application stage involves collecting information from potential candidates
• A business may have its own application form which should gather information such as personal
details, qualifications, and work experience

• Applicants may also be asked to submit their curriculum vitae (CV) and cover letter explaining why
they believe they are the right person for the role
• Someone within the business must be nominated to manage the application process
o This person (possibly together with others) will draw up a shortlist of candidates from the
many applications received
o The shortlist usually includes 3-5 candidates who are invited to interview
5. The selection process
• This process varies significantly between organisations
• Businesses must decide on the most appropriate method which will help them to identify the best
candidate
o The most commonly used methods include interviews and assessment tasks
• Interviews
Involves meeting (face to face or virtually e.g. Zoom) and asking questions about their skills,
experience, and knowledge. It is important to prepare a set of relevant questions to ask all
candidates and to ensure that the interview is conducted in a fair and consistent manner
• Assessment tasks
Provide shortlisted candidates with the opportunity to demonstrate their skills and suitability for the
job. The assessment tasks may include psychometric tests, group exercises, presentations, and
interviews
Costs Associated with Recruitment, Selection & Training
• Recruitment, training, and selection are essential processes for any business to attract, develop,
and retain a skilled workforce
• These processes involve significant costs for businesses which can impact their overall
profitability and competitiveness
The Costs of Recruitment, Training & Selection
Recruitment Costs Training Costs Selection Costs

• Recruitment costs refer to • Training costs refer to the • Selection costs refer to
the expenses incurred in expenses incurred in the the expenses incurred
the process of hiring new process of providing training to in the process of
employees new or existing employees selecting
• These include advertising, • These include the cost of candidates for
recruiting, interviewing, and trainers, training materials, and employment
screening candidates facilities • These include
• High labour turnover • The effectiveness of training background checks and
rates can significantly can impact these costs visa costs
increase these costs o If the training is not • High labour turnover
o When employees effective, rates can increase
leave the business employees may selection costs as the
they have to spend require additional business has to spend
money and time training or take longer more regularly
recruiting and to learn new skills,
training new which can increase
employees to fill the the cost of training
vacant positions

By reducing labour turnover rates and improving the effectiveness of their training programs,
businesses can minimise these costs and improve their overall profitability and competitiveness
Types of Training Provided by Businesses
• Different types of training have their advantages and disadvantages for the business
Three common types of training that businesses put their new employees through
Induction training
• Induction training is a type of training that new employees receive when they start working for a
company
o It introduces them to the company, its culture, policies, procedures, and their job roles and
responsibilities
▪ E.g. when new employee joins Marks & Spencer they receive induction training that
covers customer service, product knowledge, store policies, and safety procedures
The Advantages & Disadvantages of Induction Training
• Helps new employees to understand their • Can be time-consuming and expensive
job roles and responsibilities to organise
• Introduces employees to the company • May not cover all aspects of the job role
culture, policies, and procedures • May not be effective in all cases, leading
• Improves employee confidence and to employee dissatisfaction and higher
motivation turnover rates
• Reduces the time taken for new
employees to become productive

On the job training
• A type of training that takes place while employees are working in their job roles
o It allows employees to learn new skills and knowledge from colleagues while performing
their job duties
▪ E.g. A sous chef at The Ivy Restaurant in York may receive on-the-job training
from the Chef to learn how to prepare new dishes, use new equipment, or improve
their cooking techniques
The Advantages & Disadvantages of On the Job Training
• Employees learn new skills and knowledge • Employees may make mistakes while
while performing their job duties learning, which can impact productivity and
• Training is tailored to the employee's quality
specific job role and responsibilities
• Training is often more practical and • Can be disruptive to the workplace as
relevant to the employee's job duties it requires the trainer to devote time to
• Can be cost-effective as it takes place training the employee
during working hours • May not be effective in all cases, leading
to employee dissatisfaction and higher
turnover rates
Off the job training
• A type of training that takes place outside of the workplace

o It can be in the form of workshops, seminars, conferences, or online courses
▪ E.g. Teachers can attend exam board training days at which they learn how to better
teach the syllabus and help their students to prepare for their exams
The Advantages & Disadvantages of Off-the-Job Training
• Employees learn new skills and • Can be expensive to organise, especially
knowledge outside of the workplace, if travel and accommodation are required
which can bring fresh ideas and • Employees may miss work while attending
perspectives to the workplace training, which can impact productivity
• Training can be tailored to the • The training may not be directly applicable to
employee's specific needs and interests the employee's job role or the needs of the firm
• Training can be used as a reward or
incentive for high-performing employees
• Can be cost-effective if training is
provided online or through webinars

1.4.3 Organisational Design
Understanding Organisational Structure Terminology
• Organisational structure outlines the reporting relationships, roles, and responsibilities of
employees in the organisation
• Businesses must determine what the best structure is for them to effectively implement their ideas
and achieve their objectives
o They should consider how the structure may affect the management and effectiveness of
operations and communications
o A well-designed organisational structure helps to promote clarity, efficiency, and
accountability
o
Key terminology used in organisational design
1. Hierarchy
• A hierarchy refers to the levels of authority within an organization
o It describes the ranking of positions from top to bottom
o The higher the position in the hierarchy, the more authority and power it holds
o The hierarchy usually includes top-level management, middle-level management, and lower-
level employees
2. Chain of command
• The chain of command is the formal line of authority that flows down from the top management to
lower-level employees
o It defines who reports to whom and who is responsible for making decisions
o The chain of command helps to establish a clear communication channel and helps to
maintain accountability within the organization
3. Span of control
• Span of control refers to the number of employees that a manager or supervisor can effectively
manage
• It is based on the principle that a manager can only effectively manage a limited number of
employees
o A narrower span of control means that there are more layers of management
o A wider span of control means that there are fewer layers of management
4. Centralised and decentralised structures

• In a centralised structure, decision-making authority is concentrated at the top of the organization
with senior management making most of the decisions
• In a decentralised structure, decision-making authority is distributed throughout the organization,
with lower-level employees having more decision-making power
o Decentralisation can promote flexibility and innovation, while centralisation can promote
consistency and control
Different Types of Organisational Structure
• Businesses typically structure their organisation in one of three ways

o Tall organisational structures
o Flat organisational structure
o Matrix organisational structure

The Different Structures & the Impact they have on Business Efficiency & Motivation
Tall Organisational Structure Matrix Organisational

Flat Organisational Structure
Structure
• Characterised by multiple • Characterised by fewer • The structure is
levels of management and a levels of management and usually built around
more centralised decision a more decentralised specific products or
making process decision-making process projects e.g. KitKat has its
• A long chain of command • A short chain of command team within Nestlé
• Common in large • Common in small • It combines the functional
organisations with complex organisations or start-ups areas of a business (HR,
operations e.g. government e.g. tech start-ups and finance, marketing, sales)
agencies and universities small businesses with a specialist team that
operates inside the
business
Advantages Advantages Advantages

• Provides a clear hierarchy of • Promotes a culture of • Promotes cross-
authority and defined roles collaboration and open functional
and responsibilities communication collaboration and
• Promotes • Decision-making can communication
specialisation and expertise be faster and more • Allows for specialisation
within each department or efficient and expertise within each
function • Encourages creativity and functional area
• Offers opportunities for innovation, as employees • Enables efficient allocation
career advancement and have more autonomy and of resources
promotion within the flexibility and coordination of
organization • All of the above increases multiple projects
• All of the above increases efficiency and motivation • All of the above increases
efficiency and motivation efficiency and motivation
Disadvantages Disadvantages Disadvantages
• Can create communication • This can lead to role • This can lead to conflicts
barriers between the upper ambiguity and a lack of a over priorities and
and lower levels of the clear hierarchy resources
hierarchy • May not provide clear • This can create confusion
opportunities for career over roles and

• Decision-making can be advancement or responsibilities particularly
slow as information must promotion when multiple managers
pass through multiple layers • This may require are involved
of management employees to take • Requires a high degree
• This can lead on multiple roles and of communication and
to bureaucracy and responsibilities leading to coordination, which can be
excessive levels of burnout and overwhelm challenging
management • All of the above reduce • All of the above reduce
• All of the above reduce efficiency and motivation efficiency and motivation
efficiency and motivation
1.4.4 Motivation in Theory & Practice

The Importance of Employee Motivation
• Motivation refers to the inner desire or willingness that propels a person to take action
and achieve a specific goal or outcome
o Motivation can be intrinsic, coming from within a person (values, beliefs etc)
o Motivation can be extrinsic, coming from external factors (rewards or punishments)
• Motivation plays a critical role in a business's success and can have a significant impact on
productivity, reliability and loyalty of the workers, and labour turnover rates
1. The impact of motivation on productivity
• Motivated employees are more productive and efficient as they are more likely to be engaged in
their work and take initiative to meet or exceed their goals
• They will generate higher levels of output and quality
• Increased productivity results in higher profits for the business
2. The impact of motivation on the reliability of workers

• Motivated employees are more likely to be reliable and dependable
• They take pride in their job, show up on time, meet deadlines, and take fewer sick days
• This leads to increased trust between the business and its employees and higher productivity
3. The impact of motivation on turnover rates

• Motivated employees are more likely to stay with the company long-term which reduces
the turnover rate
• Lower turnover rates reduce the need for costly recruitment and training
Motivation Theories: Taylor's Scientific Management
• Developed by Frederick Winslow Taylor in the early 20th century

• It focuses on breaking down complex tasks into simpler ones, standardising work processes, and
providing workers with clear instructions and training to achieve maximum efficiency
• Many manufacturing businesses use Taylor's principles to structure their staff benefits e.g. piece
rate pay
o Production lines involving human labour are often set up based on these principles

Taylor's method starts with a scientific analysis of what is involved in a job and then breaks it down
into parts for which employees can be trained
1. Study and analyse the work process

• Carefully analyse each step of the work process
• Break down complex tasks into simpler ones and identify the most efficient and effective way to
perform each task
2. Standardise the work process
• This involves creating detailed procedures and instructions for each task so that workers can
follow these procedures consistently
3. Select and train the workers
• Workers should be carefully selected based on their skills and abilities
• Train workers to perform their tasks efficiently and effectively
o This training includes both technical skills and the proper attitudes/behaviours required
to be successful (e.g patience in a repetitive task)
4. Provide incentives for performance
• Scientific management emphasises the use of incentives to motivate workers
o This may include bonuses or piece-rate pay
Ways in which Businesses use Taylor's Scientific Management
How Businesses use

Taylor's Approach
• Workers are trained • Increased efficiency which lowers costs • Overemphasis on
to perform only one • Standardised procedures for work efficiency reduces worker
task which they become processes that everyone follows can satisfaction and creativity
very skilled at help reduce errors and inconsistencies • Workers may
• Workers are usually only • Specialisation of labour leads to disengage from work if they
paid for the completed greater efficiency and productivity are reduced to working in a
work (piece rate pay) e.g. • Clear hierarchy and lines of authority machine-like system
$0.16 per T-shirt completed can lead to more efficient decision- • Limited applicability as this
by garment workers in making and communication approach may not work for
Bangladesh • Improved training and development roles that require high levels
can lead to better performance and job of creativity, problem-solving,
satisfaction or interpersonal skills

• Potential for exploitation as
this approach may be used to
extract more work from
workers without compensating
them fairly e.g many 'sweat
shop' labourers get paid using
this method
Motivation Theories: Mayo's Human Relations Theory

• Mayo's Human Relations Theory was developed by Elton Mayo in the 1930s and focuses on
the importance of social factors in the workplace
o These include factors such as communication, motivation, and job satisfaction
• Mayo suggests that the key to improving productivity and job satisfaction lies in understanding
and improving the relationships between workers, supervisors, and management
Ways in which Businesses use Mayo's Human Relations Theory
How Businesses use Mayo's

Approach
• Empowering employees in • Improved job satisfaction • Time-consuming as
decision-making e.g, creating • Increased productivity as building positive relationships
teams which decide their priorities workers feel valued and requires time and effort
• Team-building activities are supported • Lack of control as workers
used to build relationships • Better communication as take more decisions
• Providing feedback and workers value open and honest • Resistance to change as
recognition to employees e.g communication which reduces some workers and managers
Worker of the Week misunderstandings and conflicts may be resistant to the
• Creating a positive work • Employee changes required by Mayo's
environment by promoting open empowerment increases theory
communication and providing worker's sense of ownership and • Potential for
support to employees e.g. responsibility conflict as attempts to build
offering wellness programs • Stronger teams as there is a stronger relationships can
• Encouraging employee sense of community and team also lead to conflicts and
development by offering training spirit disagreements
programs, mentorship • Limited applicability as it
opportunities, and career may not work for businesses
advancement paths which require a high degree
of individual autonomy and
independence

Motivation Theories: Maslow's Hierarchy of Needs
• Maslow's Hierarchy of Needs is a theory of human motivation that outlines five tiers of human
needs that must be met for individuals to reach their full potential
Maslow's Hierarchy of Needs
Maslow's Hierarchy of Needs applied to business

1. Physiological Needs
Businesses can provide necessities for their employees e.g comfortable work
environment, access to clean water and food, and adequate rest breaks
2. Safety Needs
Businesses can provide job security, fair pay, benefits, and safe working conditions for their
employees
3. Love and Belonging Needs
Businesses can encourage teamwork and generate a sense of community and belonging within
the workplace
4. Esteem Needs
Businesses can provide recognition for employees' accomplishments, and provide a positive work
culture that values individual contributions
5. Self-Actualisation Needs
Businesses can help employees achieve this need by offering opportunities for employees
to pursue their passions and interests e.g Barclay's was known for supporting elite sportspeople
by allowing them time off work in the day to continue their training (the focus was on getting the job
done, not having to be in at a certain time)
The Advantages & Disadvantages to Business of Applying Maslow's Hierarchy
• Higher employee satisfaction: By meeting the needs • One size does not fit all: Businesses need
of employees, businesses can create a more satisfying to tailor their approach to meet the individual
work environment which can lead to increased

productivity and lower turnover rates needs of their employees
• Increased motivation: Businesses can motivate their • Expensive: Meeting many individual needs
employees by offering incentives that align with their can be costly, especially when offering perks
specific needs and desires such as the use of a company car
• Improved employee performance: Employees who • Time-consuming: Requires significant effort

feel valued and supported by their employers are more from management to connect individually to
likely to perform at a higher level understand which opportunities for personal
growth are desired
Motivation Theories: Herzberg's Two Factor Theory

• Herzberg's theory suggests that there are two types of factors that affect employee motivation and
job satisfaction - hygiene factors and motivators
o Hygiene factors are elements that do not necessarily lead to job satisfaction, but their
absence can cause dissatisfaction which decreases motivation e.g poor teamwork in the
workplace
o Motivators are elements that lead to job satisfaction and motivation e.g. increased
responsibility
An explanation of how the lack of hygiene factors causes dissatisfaction while addressing the
motivators increases satisfaction. Increased satisfaction leads to increased productivity and
profitability
How businesses can use hygiene factors to decrease dissatisfaction
• Pay fair wages/salaries

If an employee is not paid a fair wage for their work, they may become dissatisfied and demotivated
• Offer excellent working conditions
If the workplace is dirty, unsafe, or uncomfortable, employees may become dissatisfied and
demotivated e.g Google has a reputation for providing amazing workplaces which include gourmet
restaurants, laundry services and dog care

• Offer employment contracts which provide job security
If employees feel that their job is not secure, they may become anxious and demotivated and
contribute less to the business goals
How businesses can use motivating factors to increase satisfaction
• Build a recognition and rewards culture

When employees are recognised and rewarded for their hard work, they are motivated to continue
performing well e.g. Sales person of the month award
• Offer opportunities for growth and development
When employees are given opportunities to learn new skills and advance in their careers, they are
motivated to continue working for the company e.g. set in place a 3 year growth plan which helps
the worker move towards a reach job role
• Provide challenging work which requires problem solving
When employees are given challenging work that allows them to use their skills and abilities, they
are motivated to continue performing well
Financial Incentives to Improve Performance

• Financial incentives are rewards or payments given to employees in return for their labour - or
improved performance
Types of Financial Incentives & Their Links to Motivational Theory
Incentive Type Explanation Link to Motivational Theories

Piecework • Employees are paid according to • Taylor's Scientific
the number of units or pieces they management
produce
• Commonly used in manufacturing or
assembly-line settings and encourages
workers to produce more and increase their
output
Commission • A percentage of sales revenue paid to • Hygiene factor in Hertzberg's
workers who sell products or services Theory
• Commonly used in sales roles and • Connects to Esteem Needs
motivates staff to sell more and increase in Maslow's
their sales revenue Hierarchy (salesperson of the
month)
Bonus • An additional payment is given to staff as a • Connects to Esteem Needs
reward for achieving specific goals, in Maslow's
completing projects on time, or exceeding Hierarchy (achievement)
performance expectations • Herzberg believed
• Motivates staff to work harder and achieve bonuses as the main form of
better results payment would negatively
influence individual behaviour
in the workplace (this was part
of the problem in the banking

industry leading up to the 2008
financial crash)
Profit share • A portion of the company's profits are • Motivator in Herzberg's
distributed among staff which encourages Theory as it creates buy in to
them to think like owners, work increased
collaboratively and focus on the responsibility (help the
company's overall goals organisation succeed; be an
owner) and is seen as a form
of recognition
Performance- • Staff are paid based on their performance • Hygiene Factor in
related pay which (theoretically) motivates staff to work Herzberg's theory - and has
harder and achieve better results been proven to cause
• This form of payment has been severely significant
criticised as discriminatory and open to dissatisfaction when utilised
abuse by managers
Non-financial Incentives to Improve Performance

• Non-financial incentives are rewards or motivators not directly related to money
• These incentives are usually intangible and include methods that lead to recognition, praise, job
satisfaction, and work-life balance
Types of Non-financial Incentives & Their Links to Motivational Theory

Incentive Type
Explanation Link to Motivational Theories
Delegation • Involves transferring responsibility from a • Maslow's 'Esteem' Needs as staff
manager to their staff contribution is valued
• Gives employees a sense of • A 'motivator' in Herzberg's Two
ownership and control over their work, Factor Theory (increase in
which can lead to improved productivity responsibility)
Consultation • Involves seeking the input of staff on • Maslow's 'Esteem' Needs as staff
decisions that affect their work contribution is valued
• This inclusion can increase staff
engagement and commitment, leading to
improved productivity
Empowerment • Involves giving staff the authority and • Maslow's 'Esteem' Needs as staff
resources to make decisions and take contribution is valued
action without first receiving management • A 'motivator' in Herzberg's Two
approval Factor Theory (increase in
• Increases staff sense of ownership and responsibility)
responsibility, leading to improved
productivity
Team working • Involves creating opportunities for staff • Mayo's Human Relations Theory
to work collaboratively encourages teamwork
• Staff can share ideas and expertise,
leading to improved productivity and
innovation
Flexible working • Involves providing staff with the option to • Maslow's 'Self Actualisation' as
work remotely, or to adjust their hours to schedules can be adjusted to allow
suit their lifestyle staff to attack their aspirations

• Can increase staff satisfaction and work- • A 'motivator' in Herzberg's Two
life balance leading to improved Factor Theory (personal growth)
productivity and reduced turnover
Job enrichment • Involves adding more challenging or • Mayo's Human Relations Theory as
meaningful tasks to a job it encourages the development of
• Staff feel more motivated and engaged, staff
leading to improved productivity • A 'motivator' in Herzberg's Two
Factor Theory
Job rotation • Involves moving staff between different • A 'motivator' in Herzberg's Two
roles in the business Factor Theory (the work itself)
• Exposes staff to new challenges and
experiences which can increase
motivation, understanding and skill
Job enlargement • Involves expanding staff's job duties to • Mayo's Human Relations Theory as
include additional tasks or responsibilities it encourages the development of
• Engaging with a variety of tasks can staff
increase motivation and job satisfaction, • A 'motivator' in Herzberg's Two
leading to improved productivity factor Theory (the work itself)
When you are asked to asses a compensation package that a business is wanting to offer, there are several
factors you should consider before answering:
• The context of the business: Is it a manufacturing facility or a team of creative designers?
• The Industry norms: Does the data provide any insight into what competitors are doing?
• The balance of the compensation package: ideally it should include appropriate financial and non-
financial incentives to maximise employee productivity and retention.
• The case study usually provides good data which helps you to answer the above questions and base
your answer on, so refer to it as supporting evidence.
1.4.5 Leadership
The Distinction Between Management & Leadership
• Leadership is about having a vision, sharing that vision with others and providing direction
• Management is the day-to-day organisation of the business, its resources and its staffing
The different characteristics of leaders and managers

Key differences between leadership and management
• Vision vs. Execution
Leadership focuses on creating a vision, setting direction, and inspiring others to follow
Management focuses on executing plans, organising resources and ensuring tasks are completed
on time
• Influence vs. Control
Leadership focuses on influencing others to achieve a common goal by inspiring and motivating
Management focuses on controlling resources and processes to ensure that objectives are met
• People vs. Processes
Leadership focuses on people, their needs, and their motivation
Management focuses on processes, structures and systems
• Long-term vs. Short-term
Leadership focuses on the long-term vision and strategy
Management focuses on short-term goals and targets
• Creativity vs. Efficiency
Leadership encourages creativity and innovation
Management focuses more on efficiency and productivity
Different Types of Leadership Styles

• Leadership styles are different approaches to leading and managing a team or business
• They reflect the behaviours and attitudes of a leader towards their team members and
influence the organisational culture, productivity and performance
• A successful leader will be able to use a variety of leadership styles depending on the situation to
achieve the best results for their business
• Four common leadership styles include:
Four commonly used types of leadership styles
• The choice of leadership style can be influenced by the business circumstances, as well as the
nature and size of the business
1. When does the autocratic leadership style work better?

• This style is more appropriate where there is a need for quick decision-making, such as during a
crisis

• It may also be more suitable in a small business where the owner is the primary decision-maker
and has complete control over the business
2. When does the paternalistic leadership style work better?
• This style is more appropriate where the staff are uneducated or inexperienced
• They require more guidance and support from their leader
• It can also be effective where the leader needs to build a strong sense of loyalty from their
employees
3. When does the democratic leadership style work better?
• This style is more appropriate when the business needs to encourage creativity, innovation, and
employee engagement
• It is also effective in larger firms where decisions require input from multiple stakeholders, or
where there is a need to build consensus
4. When does the laissez-faire leadership style work better?
• This style is more appropriate where the staff are very experienced and require minimal supervision
• It is also effective where the leader wants to build a culture of independence and self-motivation
1.5 ENTRPRENUERS AND LEADERS

1.5.1 Role of an Entrepreneur
Entrepreneurs Create & Set up a Business
• Businesses are usually started by an entrepreneur

• An entrepreneur is a person who is willing and able to create a new business idea or invention
and takes risks in pursuing success
o Successful entrepreneurs can identify and pursue opportunities, create value for
customers and build thriving businesses
What do Entrepreneurs do?
They Organise Resources They make Business Decisions They take Risks
• An entrepreneur must be • Entrepreneurs must be able to • Entrepreneurship involves
able to gather make decisions that will taking risks - financial,
and coordinate the determine the success or personal, or professional
resources necessary to failure of their business • E.g. An entrepreneur may
start and operate a • E.g. A restaurant owner may invest their life savings into a
business need to decide what type of new venture or quit a secure
• E.g. When Michael Dell food to serve, where to locate job to start their own
started his computer the restaurant, business
company from his and what prices to charge. o They may also take
garage, he had to These decisions require a risks by introducing
organise resources such combination of market new products or
as space, computers, research, creativity, and entering new markets
software tools, and business skill • These risks can pay off with
employees, and manage • Making the wrong decisions great rewards, but they can
the finances can lead to wasted resources, also lead to failure and
lost opportunities, financial loss
and ultimately business
failure

Entrepreneurs run & Develop an Existing Business
•There are many examples of successful entrepreneurs who have been brought in to run or
expand an existing business
• These individuals bring a unique entrepreneurial spirit into the business which helps to drive it
forward and expand
Examples of Entrepreneurial CEOs
• Howard Schultz was hired by Starbucks in 1982 as Director of Retail Operations and Marketing.
He later left to start his own coffee company but returned to Starbucks in 1987 as CEO. Under his
leadership, Starbucks expanded globally and became one of the most recognised brands in the
world
• Marissa Mayer was brought in to lead Yahoo! in 2012 as CEO. She implemented several initiatives
to revitalise the struggling company, including acquisitions, product improvements, and a
renewed focus on mobile
Employees can Demonstrate Entrepreneurship Within a Business
• Intrapreneurship refers to the practice of promoting entrepreneurial thinking and

behaviour within an existing business
o It involves empowering employees to think and act like entrepreneurs
o The business encourages them to take risks, innovate, and develop new ideas and
projects that may benefit the business
• Intrapreneurship allows businesses to tap into the creative potential of their employees and
generate new products/services or processes that can drive growth and competitive advantage
• This helps to create a culture that generates a sense of ownership and engagement among
employees which increases motivation and helps to retain top talent
• To promote intrapreneurship businesses may provide resources to employees or
offer incentives/rewards for successful projects
Examples of Intrapreneurship in Business
Google Sony Playstation 3M
• In 2004, Google introduced • In the early 1990s, a group • 3M's "15% rule" is a policy that
Gmail, a free email of engineers at Sony allows employees to spend up to
service that quickly gained proposed the idea of 15% of their work time pursuing
popularity due to its large creating a video projects outside of their normal
storage capacity and game console to compete job
intuitive interface with Nintendo and Sega • Post-It Notes were developed
• Gmail was developed by a • The proposal was initially by two employees, Spencer
team of Google employees rejected by senior Silver and Art Fry
as part of the management. The engineers • Post-It Notes were initially
company's "20% time" persisted and a senior marketed as a solution for
policy, which allows executive supported them bookmarking pages in books,
employees to spend 20% of • Sony PlayStation was but they quickly became popular
their work time on personal launched in 1994 and quickly for all sorts of purposes
projects became one of the most • Today they generate billions of
• Gmail became a huge popular gaming consoles of all dollars in annual revenue for
success and is now one of time 3M
the most widely used email
services in the world

Barriers to Entrepreneurship
• Entrepreneurship can be a challenging journey and many barriers can prevent individuals
from starting or growing a successful business
Identifying barriers to entrepreneurship can help a business or individual overcome them
• Entrepreneurial capacity
Entrepreneurial capacity refers to an individual's ability to think creatively, take risks, and identify
and seize business opportunities
• Access to finance
Many aspiring entrepreneurs struggle to secure the funding necessary to start or grow their
businesses. Lack of access to finance is a major barrier to entrepreneurship, especially for those
from disadvantaged backgrounds
• Lack of training/know-how
Starting and growing a successful business requires a range of skills, including marketing, finance,
management, and leadership. Aspiring entrepreneurs may struggle to develop a viable business
plan, attract customers, or manage their finances effectively
• Fear of failure/lack of confidence
Entrepreneurship is inherently risky and individuals/businesses may be held back by a fear of failure
or a lack of confidence. They may worry about the financial risks involved in starting a business or
fear the stigma of failure
Entrepreneurs Anticipate Risk & Uncertainty
• Risk is something an entrepreneur can plan for
o The probabilities of outcomes are known or at least understood and considered
o Risk taking is a conscious decision and often the greater the risk the greater the reward in
business
The difference between risk and uncertainty

• Uncertainty in business is caused by unexpected factors (internal or external to the
business) outside of the entrepreneur’s control even though they are sometimes predictable
• Factors which typically cause uncertainty to include:
o Environmental factors such as the Japanese Tsunami in March 2011
o Economic changes such as Covid lockdowns, Brexit or collapses in the banking system
o The entry of new competitors
o Changes in local and national legislation (laws)
o Changes in the political party governing the country
• Successful entrepreneurs can manage risk and quickly respond to uncertainty in the business
environment
The CEO of Airbnb Exemplifies Entrepreneurial Response to Uncertainty
Brian Chesky (Co-founder) & Airbnb Response to the Covid-19 Pandemic

• In 2020, the COVID-19 pandemic caused many people to cancel their travel plans and
stay home to avoid exposure to the virus
• This had a major impact on Airbnb's business
• Rather than wait for the pandemic to pass, Chesky quickly pivoted their business
strategy to meet the changing needs of their customers
• They launched a new service called "Online Experiences," which allowed people to
participate in virtual tours, cooking classes and other experiences from the comfort of
their own homes
• Airbnb also took steps to address the health and safety concerns of its customers
by implementing enhanced cleaning protocols and providing hosts with a guide on
how to prepare their homes for guests during the pandemic
• By quickly pivoting his business strategy and addressing the concerns of his customers,
he was able to drive his business forward and position Airbnb for continued success in
the future
1.5.2 Entrepreneurial Motives & Characteristics

Characteristics & Skills Required by Entrepreneurs
• Entrepreneurs require a unique set of characteristics and skills
The skills and characteristics required by entrepreneurs

• The characteristics have been explained through the different sections in 1.5.1
• Perhaps one of the most valuable skills of an entrepreneur is the ability to communicate
persuasively
o Persuade potential financial backers of the merits of their idea
o Persuade people to join them in creating the product/service
o Persuade customers of the value of their product/service
• All of the skills work together to create and drive an innovative idea towards success
Reasons Why People Set up Businesses
• People set up businesses for a variety of financial and non-financial reasons
Financial & Non-financial reasons for Setting up a Business
Financial Reasons Explanation Example

Profit • People want to create a profitable • Amancio Ortega, the founder
maximisation business that generates of Zara, built a fast-fashion empire
substantial revenue and profit for that has become one of the most
themselves and their shareholders profitable clothing retailers in the
world
Profit satisficing • Occurs when the entrepreneur is • Yvon Chouinard, the founder
not solely focused on maximising of Patagonia, created a successful
profits but rather achieving outdoor clothing and gear company
a satisfactory level of profit that was initially built to help
• This is common among small finance his climbing expeditions
businesses, where the owner may
prioritise their work-life balance
Non-financial Explanation Example
Reasons
• Some entrepreneurs may have a • Anita Roddick, started The Body
Ethical stance particular ethical stance (e.g. Shop, as she wanted to create a
environmental sustainability or company that would
social justice) that they want to promote environmental
build their business around sustainability, fair trade and
human rights
• These entrepreneurs aim to create • Blake Mycoskie, the founder
Social a business that seeks to address of TOMS Shoes, created a
entrepreneurship a social or environmental business model that donates a pair
problem while also earning a of shoes to a child in need for every
living pair sold

• Many people want to be their boss • Travis Kalanick and Garrett
Independence and have control over their work Camp, the co-founders of Uber,
• They may be dissatisfied with started their business with a desire
traditional employment for independence and the ability to
structures or desire the freedom work from anywhere
and flexibility that comes with
running their own business
• With the advent of technology, • Sara Sutton, the founder
Home working many people have started of FlexJobs, had a desire for
businesses from their homes and independence and the ability to
this offers them more work from home and this led her to
flexibility and a better work-life create a successful online job board
balance that specialised in remote and
flexible work opportunities
1.5.3 Business Objectives

Survival & Profit Maximization
• Businesses can have a range of objectives when they start up

o These objectives may change over time
• The aim of most start up businesses is to survive the initial entry into the market and to generate
enough cash flow to remain in business
o Effective cash flow management is more important than gaining an income or seeking
profit maximization
• Once that has been achieved the business objective usually switches to profit maximization
o Profits benefit shareholders as they receive dividends & also increase the underlying share
price
▪ An increase in the underlying share price increases the wealth of the shareholder
Other Business Objectives
• Business objectives may change over time

• The core objective usually remains profit maximisation, but the business may choose to also focus
on a range of other objectives
o E.g. If a business focuses on employee welfare, it will increase its costs but raise the morale
and productivity of its workers. In this example, the increased costs will reduce the level of
profit in the short term, but may lower costs in the long term as they can retain
employees which lowers recruitment and training costs

Common Business Objectives
Objective Explanation
Sales maximisation • The focus is on generating the maximum revenue possible by selling its
products/services
• The firm should raise prices to achieve revenue maximisation when their
product is price inelastic in demand
• The firm should lower prices to achieve revenue maximisation when their
product is price elastic in demand (see subtopic 1.2.4 for more information)
Market share • Market share refers to the percentage of total sales in a particular
market that a company holds
• A business may aim to increase its market share by producing and
selling better quality products than its competitors
Cost efficiency • Cost efficiency refers to a company's ability to produce and deliver its products
at the lowest possible cost
• This objective is crucial for companies that operate in highly competitive
markets as low costs enable them to compete with low prices
Employee welfare • This objective refers to a company's commitment to providing a healthy and
safe working environment for its employees
• A business may aim to promote employee welfare by offering competitive
wages, comprehensive benefits packages and promoting a healthy work-life
balance
Customer • A business may aim to achieve customer satisfaction by delivering high-
satisfaction quality products, providing excellent customer service and offering attractive
pricing
o E.g. A restaurant may aim to achieve customer satisfaction by offering a
welcoming atmosphere, friendly service and delicious food
Social objectives • Social objectives refer to a company's commitment to addressing social or
environmental issues
• This objective is increasingly important for businesses that aim to operate
sustainably and build a positive reputation
o E.g. Superdry aims to reduce its environmental impact by using sustainable
materials and minimising waste, while also promoting fair labour practices
and contributing to social causes in the communities where it operates
1.5.4 Forms of Business

Common Forms for Start Ups
• When an entrepreneur starts a business, they will often start operating as a sole trader
• Over time, they may change the form of business to gain more funding or provide more
security for the owners about limited liability

The different types of business structures available to the owners
• Three of the most common forms of business at start up are sole traders, partnerships and private
limited (Ltd) companies
• Each one of these forms has various advantages and disadvantages associated with the structure
An Explanation of Sole Traders, Partnerships and Private Ltd Companies
Form Explanation Advantage Disadvantage

Sole Trader • A business that has a • Easy and inexpensive to set up • Unlimited liability,
single owner (although • The owner has complete meaning the owner
they may still hire control over the business is personally
employees) • All profits belong to the owner responsible for any
• Simple tax arrangements debts the business
incurs
• Limited access to
finance and capital
• Limited skill sets
Partnership • Two or more people join • Easy to set up and inexpensive • Unlimited liability
together to form a • Shared responsibilities and • Potential for
business decision-making disputes between
• Good examples of this • More skills and knowledge are partners
type of business include available • Profits are often
lawyers and • Increased access to finance and shared equally,
accountants capital regardless of the
contribution
• Difficult to transfer
ownership
Private Ltd • The ownership of the • Limited liability, meaning the • More expensive and
Company business is broken down owners are not personally time-consuming to set
into a specified responsible for the company's up
number of shares debts • More complex legal
• These shares can be • Access to greater finance and requirements and
sold by the owner, capital regulations than sole
usually to friends and • Easier to transfer ownership traders

family or to venture • Can have a professional image • Annual financial
capitalists and reputation reporting and auditing
• Decision-making often are required
rests with the person • Shareholders have little
appointed to run the control over the
company, often called company as the founder
the Managing Director usually imposes their
or CEO agenda
Other Forms of Business

• Several other forms of business have also gained prominence in recent years,
including franchising, social enterprises, lifestyle and online businesses
• There is a growing trend in setting up lifestyle businesses as people demand flexibility and a
better work-life balance
1. Franchising
• Franchising is a business model where an individual (franchisee) buys the rights to operate a
business model, branding, and support from a larger company (franchisor) in exchange for an
initial lump sum plus ongoing fees
• The franchisee operates the business under the franchisor's established system and receives
training, marketing support, and ongoing assistance
o E.g include Domino's Pizza, KFC, Burger King
2. Social enterprises
• A social enterprise is a business that has the primary purpose to create social or environmental
impact (in addition to generating profits)
• Profits are usually reinvested back into the business or used to create positive social change or
address an environmental issue
• E.g. Warby Parker is an eyewear company that donates a pair of glasses to someone in need for
every pair of glasses sold
3. Lifestyle businesses
• Lifestyle businesses are typically small, owner-operated businesses that prioritise a specific
lifestyle or personal interest of the owner over profits or growth
• These businesses are often run from home or in a location that allows the owner to maintain a
particular lifestyle or work-life balance
o E.g include yoga instruction, personal training, business coaching
4. Online businesses
• Online businesses often have low overhead costs and can operate from anywhere with an
internet connection
• These businesses are still required to have a legal structure such as a sole trader or private
limited company

o E.g include e-commerce stores, online courses, and software as a service (SaaS)
companies e.g. Save My Exams!
Becoming a Public Limited Company (PLC)
• When a business is growing rapidly it may require a significant amount of capital to fund its
expansion
• To secure this funding, it may choose to transition from a private limited company (LTD) to a
public limited company (PLC)
• This is a complex process with many legal requirements and involves undergoing a stock market
flotation
The Benefits of becoming a Public Limited Company (PLC)
Access to Capital Shared risks Increased liquidity
• Significant amounts of capital • The risks associated with • A company's shares

can be raised very quickly ownership are spread become more liquid (they
• This is often a more cost among a larger group can be bought and sold
effective way to raise capital of shareholders more easily) on a public
than borrowing money from • This reduces the financial stock exchange
banks or other lenders risk to any individual • This can increase the
value of the company's
shares and make it easier
for shareholders to
buy/sell shares
Extended decision-making Greater public profile

• The company will have a board • Becoming a PLC can
of directors made up of raise a company's public
independent directors and profile and increase its
representatives from major visibility with customers,
shareholders suppliers, and potential
• This can extend the decision- investors
making process and bring in • This increased visibility
additional can help the company
expertise/perspectives that can attract new
help the company grow and business and grow its
expand customer base
• The top three initial public offerings as of March 2023 are:
o The Saudi Arabian oil company, Saudi Aramco, raised $29.4 billion in its IPO in December
2019
o The Chinese e-commerce company, Alibaba Group, raised $25 billion in its IPO in 2014

o The Japanese telecommunications company, SoftBank Corp., raised $23.5 billion in its IPO
in 2018
When assessing the best form of business to be used in a particular situation (or if a business should change
its form), the decision needs to consider any evidence provided about the business owner, the product, the
nature and size of the market, the funds required, and the level of profitability. For example, a business which
is generating sales of £30k a year is unlikely to be ready to become a public limited company, but it may well
benefit from transitioning from a sole trader to a private limited company.
1.5.5 Business Choices

Definition of Opportunity Cost
• Opportunity cost is the loss of the next best alternative when making a decision
• Due to the problem of scarcity, choices have to be made about how to best allocate limited
resources amongst competing wants and needs
• There is an opportunity cost in the allocation of resources
o When a consumer chooses to purchase a new phone, they may be unable to purchase
new jeans. The jeans represent the loss of the next best alternative (the opportunity cost)
o When a business decides to allocate all of its resources to producing electric vehicles, it
may be unable to produce petrol vehicles. The petrol vehicles represent the loss of the
next best alternative (the opportunity cost)
o When a government decides to provide free school meals to all primary students in the
country, they may be unable to fund some rural libraries which may have to close. The
libraries represent the loss of the next best alternative (the opportunity cost)
Business Choices & Potential Trade-offs
• An understanding of opportunity cost may change many decisions made by businesses

• Factoring the opportunity cost into a decision often results in different outcomes & so a
different allocation of resources
• A trade-off occurs when two things cannot be fully achieved
o Having more of one thing may mean having less of another
Examples of Potential Trade-offs
Focus Explanation of the Trade-off

Product • Choosing to spend money upgrading an existing product may result in the
loss of the next best alternative - research and development on a new product
Customer sales • A firm selling organic avocados are offered a supply contract by a
supermarket who wants to buy all of their stock each month, but at a low price
• The supermarket is a prestigious customer
• The firm decides to not accept the contract as the opportunity cost (loss of
prestigious customer) is worth less than the lost revenue to existing customers
• Foregoing market research may help the business to get its product to
Market research market quicker, however, the trade off is that the product may not have the
features/qualities desired by the market

• Choosing to operate as a partnership will mean that a business loses the
Business benefits of operating as a private limited company (Ltd)
ownership
• Businesses have a limited amount of money to spend on promoting their
Promotional products. Choosing to sponsor an elite athlete means that the business may
methods
have to give up other forms of promotion, such as radio advertising
• If a business decides to use a competitive pricing strategy it loses the
Pricing strategy opportunity to price skim
1.5.6 Moving From Entrepreneur to Leader

Transitioning from an Entrepreneur to Leader
• Moving from an entrepreneur to a leader can be a challenging transition

• The skills and mindset required to successfully launch and grow a business are often different
from those required to lead and manage a team
Entrepreneurial leadership versus CEO Leadership
• Some entrepreneurs are unable to make this transition and have to hire a CEO with whom they
can work very closely to drive the business forward
Difficulties Faced by Entrepreneurs in Transitioning to a Leader of a Growing Business

The need to delegate Trust and verify Learning to listen
• Entrepreneurs need to • As a leader, it's important to trust your • Entrepreneurs are often
learn to delegate tasks team members to do their jobs driven by their ideas and
and responsibilities to effectively visions
others • It's also important to verify that tasks • As a leader, it's important to
• This can be difficult for are being completed correctly and listen to the ideas and
entrepreneurs who are on time perspectives of others
used to having control

over every aspect of their • Finding the right balance
business. between trusting your team and
verifying their work can be a
challenge
Having an open mind Being less reactive Developing emotional

intelligence
• Leaders need to be open • Entrepreneurs are often used to • Leaders need to be able to
to new ideas and willing taking quick action and making understand and manage
to adapt to changing decisions on the fly their own emotions, as well
circumstances • As a leader, it's important to take as the emotions of their
a more strategic and team members
measured approach to • Many entrepreneurs are
decision-making used to being driven
by passion and
enthusiasm rather than
emotional intelligence and
empathy

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Edexcel International Advance Level Business

Mass Markets Niche Markets

Market Size & Market Share

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 1

• Market Share can be calculated as follows:

Step 4: Present the answer to two decimal places 7.13%

Some famous brands

• Brands are unique and are protected by law

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 2

• A dynamic market is a market that is subject to rapid or continuous changes

Changing technology ensures that the mobile phone market is dynamic

There are four areas to consider when examining dynamic markets

• Online retailing involves selling products via the internet

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 3

2. How markets change

3. Innovation and market growth

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 4

1 mark for knowledge of the formula

How Competition Affects the Market

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 5

The difference between risk and uncertainty

• Risk is the potential threat to business success

Examples of Risk & Uncertainty

1.1.2 Market Research

• A product orientation is an approach to marketing that focuses on the characteristics of the

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 6

Primary & Secondary Market Research Data

• Effective market research will help the business

• Market research data can be quantitative or qualitative

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 7

Primary Research Methods

o Researchers may observe the impact of packaging on consumer choice,

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 8

The Advantages & Disadvantages of Secondary Market Research

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 9

• ICT can be used to support market research in the following ways:

The Advantages & Disadvantages of Market Segmentation

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 10

1.1.3 Market Positioning

Market Map Analysis

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 11

The Usefulness & Limitations of Market Mapping

Competitive Advantage of a Product or Service

• It is how a firm’s product is made both distinctive and defensible

Some of the main sources of Competitive Advantage

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 12

• Examples of the source of businesses competitive advantage include:

The Purpose of Product Differentiation

• Product differentiation is an attempt by a business to distinguish its products from those of

• Examples of successful product differentiation include:

Adding Value to Products/Services

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 13

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 14

Factors Leading to a Change in Demand

• A change in price leads to a movement along the demand curve

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 15

• The initial demand curve is seen at D

Non-price Factor Explanation Example Affect on Demand

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 16

External shocks • An unexpected • The outbreak of Covid- Shifts the demand

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 17

Factors Leading to a Change in Supply

IAL/BUSINESS/WBS11/01/REVISION NOTES FOR SYLLABUS 2023-2025 18

Non-price Factors Affecting Supply