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Flashcards · J204 · Topic 1

Business activity, marketing and people flashcards

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1 Business activity

Enterprise
Spotting an opportunity and developing an idea for a business.
Entrepreneur
The person who takes the risk of starting and running a business.
The four characteristics of an entrepreneur to know for J204
Creativity, risk taking, determination and confidence. In a case study, name the characteristic, quote the evidence and say why it helps the business start or survive.
Risk and reward in enterprise
Risk is what may be lost: money, time, income given up. Reward is what may be gained: profit and independence.
Purposes of business planning, and what a business plan helps with
Planning reduces risk and helps the business succeed. A plan helps with identifying markets, obtaining finance, identifying the resources needed and achieving aims and objectives. Limits: forecasts may be wrong, it takes time, it must be updated.
Unlimited liability
Personal assets can be used to pay business debts. Applies to sole traders and partnerships.
Limited liability
A shareholder loses no more than they invested. Applies to private limited (Ltd) and public limited (plc) companies. It limits what the owner personally loses; it does not remove the debt.
Which type of ownership suits which business?
A start-up with small capital is often a sole trader or partnership; an established business needing large funds may become a plc.
A partnership owes £40,000 and has assets of £31,000. What is the shortfall the partners must cover?
Shortfall = debts − assets = £40,000 − £31,000 = £9,000. With unlimited liability, the partners' personal assets can be used to pay it.
The five business aims and objectives in J204
Profit, survival, growth, providing a service and market share.
Why do objectives change over time and differ between businesses?
They change as a business evolves: survival first, then profit, then growth. They differ because of size, ownership, motives and the market (for example a charity aims to provide a service; a challenger in a crowded market aims for market share).
A firm has sales of £63,000 in a market worth £450,000. What is its market share?
Market share = firm's sales ÷ total market sales × 100 = 63,000 ÷ 450,000 × 100 = 14%.
Internal and external stakeholders, and what each wants
Internal: owners (profit, growth), employees (pay, security, conditions). External: customers (quality, value, service), suppliers (orders, prompt payment), government (tax paid, rules followed), local community (jobs, little disturbance).
How can stakeholders affect a business?
Customers stop buying, employees leave, suppliers change terms. Interests often conflict, such as wages versus profit, or growth versus community peace.
The four routes to organic growth, and how organic compares with external growth
Increasing output, gaining new customers, new products, winning market share. Organic growth is slower, cheaper and easier to control; external growth is faster but costs more, and the businesses may not fit together.
Merger, takeover, and horizontal, vertical and diversification growth
Merger: two firms agree to combine. Takeover: one firm buys another. Horizontal: same stage of production. Vertical backward: buy a supplier; forward: buy a customer or retailer. Diversification: a new market or product (a brewer buying a hotel).

2 Marketing

The three purposes of marketing named in the J204 specification
Identify and understand customers; inform customers; increase sales.
Primary and secondary market research: methods
Primary (first-hand): questionnaires, interviews, trialling, focus groups. Secondary (already exists): newspapers and magazines, census, websites, internal data.
Primary versus secondary research: advantages and disadvantages
Primary: fits the exact question and is up to date, but slower and costlier. Secondary: cheaper and quicker, but may be old, gathered for another purpose, and rivals can see it too.
Which research method suits which purpose?
Opinions and reasons: interview or focus group. Many people, simple answers: questionnaire. Reaction to a real sample: trialling. Size of a group in an area: census. Past sales trends: internal data.
Quantitative versus qualitative data
Quantitative: numbers (counts, percentages, averages); shows how many. Qualitative: opinions and reasons; shows why. Good decisions use both.
The five bases of market segmentation in the specification, with a benefit and a drawback
Age, gender, income, location and lifestyle. Benefit: the whole marketing mix can be aimed at one group. Drawback: extra research and sometimes extra products.
A gym's sales are £48,000 in a £600,000 market. The market grows to £640,000 and its sales reach £54,000. What happens to its share?
Before: 48,000 ÷ 600,000 × 100 = 8%. After: 54,000 ÷ 640,000 × 100 = 8.4% (1 d.p.). Its sales grew 12.5% while the market grew 6.7%, so it gained share.
Market share rises from 13% to 14%. Is that a 1% rise?
It is a rise of one percentage point, but a percentage change of (14 − 13) ÷ 13 × 100 = 7.7%.
Product: design, invention and innovation; and the product life cycle
Invention is something brand new; innovation is an improvement to an existing product. Life cycle: introduction (low sales), growth (fast rise), maturity (peak, flat), decline (falling).
Price skimming versus penetration pricing
Skimming: high price first, then lower; suits a new product with few rivals. Penetration: low price first to win market share; suits a crowded market.
Cost-plus, competitor and promotional pricing
Cost-plus: unit cost plus a mark-up; simple but ignores rivals. Competitor: close to rivals' prices for similar products. Promotional: a short-term price cut for stock clearance or attention.
A product costs £4.50 to make and is priced at cost plus a 30% mark-up. What is the price?
30% of £4.50 = £1.35, so the price is £4.50 + £1.35 = £5.85.
Methods of promotion in the specification: point of sale and advertising
Point of sale: price reductions, loss leaders, competitions, free samples. Advertising: social media, websites, print media, television, radio. Choose by audience, reach and cost.
Loss leader versus promotional price
A loss leader is one item sold below cost to draw shoppers in. A promotional price is a temporary cut to an ordinary product.
Place: digital versus physical distribution channels
Physical: shop, market stall; customers can see and touch the product. Digital: website, app, online marketplace; reaches further.
Why must the four Ps fit together? Give an example of a clash.
All four should send one message to the chosen segment. Clash: a premium gym with a high fee that advertises large discounts and fills the building with cheap equipment; the price and product signals disagree.

3 People

Purpose of the human resources function
To identify and meet the human resource needs of a business: how many staff, which skills and when, then recruiting, selecting, motivating, training and keeping them.
Chain of command and span of control
Chain of command: the route that authority and instructions follow down the levels. Span of control: how many subordinates one manager directly supervises.
Authority and delegation
Authority: the power to make decisions and give instructions. Delegation: passing a task and the authority for it down the structure.
Tall versus flat organisational structures
Tall: many layers, narrow spans, slower communication with a risk of distortion, many promotion steps, less delegation. Flat: few layers, wide spans, faster communication, few promotion steps, more delegation.
With a span of control of 5 at every level and 125 staff at the bottom, how many layers are there?
1, 5, 25, 125: four layers. A wider span means fewer layers (a flatter structure).
Ways of working other than full-time
Part-time, flexible working, temporary, working from home, working whilst mobile, self-employed. For example, temporary work covers short-term demand but brings less loyalty; working from home saves office space but is harder to supervise.
Choosing a method of communication
Letter: a formal record. Email: detail plus a written record. Text: short and urgent. Phone: a quick two-way answer. Meeting or presentation: discussion with a group. Social media: public, fast customer contact. Website: information at all hours.
How digital technology influences communication: benefits and risks
Benefits: faster messages, remote working, cheap reach to wide markets, instant customer feedback. Risks: information overload, data security, equipment and training costs.
Reasons to recruit, and internal versus external recruitment
Reasons: replace leavers, business growth, skill gaps. Internal: cheaper, quicker, a known candidate, but a narrow choice and it leaves a vacancy. External: wider choice and new ideas, but slower, dearer and an unknown candidate.
Job description and person specification
Job description: what the job involves. Person specification: what the candidate needs to be like.
Selection methods, and recruitment versus selection
Methods: CV, application form, letter of application, interviews, tests, group activities, references. Recruitment is finding applicants; selection is choosing between them.
Financial and non-financial methods of motivation in J204
Financial: pay, bonuses, profit sharing, fringe benefits. Non-financial: praise, award schemes, working environment.
A bonus is 3% of sales above £30,000. Sales are £44,000. What is the bonus?
Sales above £30,000 = £14,000. Bonus = 3% × £14,000 = £420.
Why do motivation and staff retention matter?
Motivation brings better performance and helps retention. Retained staff already know the business and its customers, and the business saves the time and expense of recruiting replacements.
Induction, on-the-job and off-the-job training
Induction: an introduction to the business; quick settling in. On-the-job: learn while working; cheap and relevant, but slower output and bad habits can pass on. Off-the-job: learn away from work; specialist, but costly and time away.
The four areas of employment law named in the specification
Discrimination, the right to a contract, holidays and hours of work. Describe the impact in general terms: higher admin and training costs, set against fairer treatment and a stronger reputation.

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