3.3 Outline one way in which Tangg could add further value to the business, allowing it to push the price up by 50p.

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1 1. Adding value Adding value allows businesses to increase the consumers are willing to pay for a good or service. It can be created by high levels of product design and quality, greater convenience, or a highly brand. Value added is measured by the difference between a product s sales price and the of bought-in materials. If a customer is happy to pay 3 for a cup of coffee whose ingredients only cost a few pence, the value added is very high indeed. Any business attempting to sell products that have little or no added value is unlikely to make any profit. Hint: words from cost, differentiated, price 2. Adding value Choose two ways to add value to each business (draw lines to show your choice): Business Method of adding value a) Express, one-hour service 2.1 Dry cleaning business b) Personal consultations and advice 2.2 Exclusive hairdressers 2.3 Health food supermarket c) Wide choice of organic products d) Prime location in a trendy part of the city e) Home delivery f) An in-store café 3. Adding value Data Response: Tangg is a chain of smoothie bars with a number of outlets in south-west England. Drinks are produced fresh in-store in response to customer orders. On average, each 250 ml smoothie contains 10p of bought-in fruit and vegetables. The drinks are sold in recyclable cups, which the business buys from a supplier at a cost of 2.00 per hundred. The drinks are sold to customers for 3.50 each. The business has estimated its sales volume to be around 1 million in Answer the following questions: 3.1 What is the value added by each smoothie produced and sold? 3.2 What is the estimated total value added for the business in 2009? 3.3 Outline one way in which Tangg could add further value to the business, allowing it to push the price up by 50p. 4. Adding value - multiple choice questions 4.1 Which three of the following statements about added value are true? a) Added value is always equal to the level of profit made by a firm b) Whether a product s feature adds value or not depends on what the customer thinks c) The Ryanair brand adds value because it tells consumers that flight costs are always low. d) A product s added value is equal to the difference between its sales price and the cost of the bought-in materials used to produce it. e) For a product to be successful, it should generate enough added value to cover a firm s internal costs and generate a profit f) Manufactured goods add value but services do not. 4.2 Which two of the following are not examples of a sports goods manufacturer adding value to a brand of trainers? a) Improving design to increase comfort b) Offer an on-line service where customers can personalize designs c) Switching to using cheaper materials so that the shoes do not last as long d) Reducing the number of styles chosen and concentrate on producing those with the highest sales e) Creating an innovative feature that tones muscles when they are worn

2 2. Branding and differentiation Branding involves creating an for a good or service that makes it stand out from the competition. The degree to which consumers see a brand as being different from rival products is known as product differentiation. Developing a highly differentiated can have a number of benefits for a business. Its special features will act as a unique point, attracting customers and discouraging them from rival products. Such brands have a high degree of consumer loyalty, helping to generate high levels of purchase. In turn, this may allow the producer to charge premium prices. Hint: words from brand, buying, identity, repeat, selling 2. Spot the brand: Identify the following well-known brands from the clues given: 2.1 A smoothie brand that claims to be free of sin: 2.2 A long-standing, yeast based spread you will either love or hate: 2.3 A brand of men s toiletries that claims to have an animal effect: 2.4 Online financial services may not be an easy sector to crack, but this brand has proved difficult to beat: 3. Branding and differentiation matching definitions Draw arrows to match each of the definitions on the left to the correct key term on the right: Definitions 1. The extent to which a product is seen to be different from rivals by consumers. 2. A price that is significantly above the average charged within a given market. 3. A feature of a product that can be focused on in order to make the product stand out from rivals. 4. The extent to which customers buy the same brand on a regular basis. 5. The process of creating an identity or personality for a good or service Key terms a) Branding b) Brand loyalty c) First mover advantage d) Market share e) Premium price f) Product differentiation g) Unique selling point h) Value added 4. Branding and differentiation multiple choice questions 4.1 Which 3 of the following are benefits a firm is likely to enjoy by creating a highly differentiated cosmetics brand? a) Consumers become less sensitive to price increases. b) Consumers will only buy the brand if the price charged is below the market average. c) Consumer loyalty is likely to be high. d) There will be no need to advertise the brand. e) Retailers will be more likely to stock the brand. f) Any price increases will lead to large increases in the volume of sales. 4.2 Which two of the following statements about branding and product differentiation are true? a) A brand leader will have the largest percentage share of sales within a specific market. b) A high degree of differentiation reduces the value added to a product. c) Successful brands are products that have no competitors. d) If the price of a brand is increased, the revenue generated will automatically fall. e) Firms in highly competitive markets need products with unique selling points to keep their market share.

3 3. Break even analysis A business breaks even when it produces just enough from its output and sales to cover its costs. Until it reaches this level of production, the firm will be making a. However, once output and sales increase beyond break-even point, the firm will be generating a. Break-even analysis can be useful to firms in a number of ways. It is often used by new firms as part of a business in order to obtain finance from the bank. It can be used by existing firms to show the impact of different on total revenue or the effect of a change in costs, both and variable on the level of profit generated. Hint: words from: fixed, loss, plan, prices, profit, revenue 2. Finding break-even point True or False? Look at this table of a firm s revenues and costs, then decide whether the statements that follow are true or false: Output (units) Total Revenue ( ) Fixed Costs ( ) Variable Costs ( ) Total Costs ( ) 0 0 2, , ,600 2, , ,200 2,000 1,200 3, ,800 2,000 1,800 2, ,400 2,000 2,400 4, At an output level of zero the firm is making a loss of 2, At an output level of 200 the firm is making a loss of 2, At an output level of 400 the firm is still making a loss 2.4 At an output level of 800 the firm is making a profit of 2, Getting the numbers right Study the table below and then answer the questions that follow (Try to justify each of the answers you choose): Output (000s) Total Revenue ( 000s) Fixed Costs ( 000s Variable Costs ( 000s) , , , , The selling price charged by the firm is equal to: a) 12 b) 18 c) 24 d) 36 Justify your answer: 3.2 The firm s contribution per unit (selling price minus variable cost per unit) is equal to: a) 6 b) 12 c) 18 d) 24 Justify your answer: 3.3 The firm s break-even level of output is equal to: a) 25,000 units b) 50,000 units c) 75,000 units d) 100,000 units Justify your answer: 3.4 The firm s margin of safety at an output level of 75,000 units is equal to: a) 0 units b) 25,000 units c) 50,000 units d) 100,000 units Justify your answer: 3.5 The firm makes a profit of 600,000 at an output level equal to: a) 25,000 units b) 50,000 units c) 75,000 units d) 100,000 units Justify your answer:

4 4. Break even charts 1. Cross out the wrong words so that the paragraph is correct. It is often useful to present information relating to a firm s costs and revenues in the form of a break-even chart. Output and sales volume are given on the chart s vertical / horizontal axis; costs and sales (in s) are shown on its vertical / horizontal axis. Lines showing total costs and total revenues are plotted and break-even output is where the two lines cross. The distance between the total revenue and total cost lines gives the cash flow / profit made at any level of output. Before the break-even point the revenue line is above / below the total cost line. Therefore the business is making a profit / loss. 2. Break even charts Gentle Garments opened two years ago and now has sales averaging 600 units a month. It produces very high quality coats for wealthy, middle-aged women. A new Managing Director is determined to get demand up to 800 units a month. He has proposed a new advertising campaign that would cost 15,000 a month. He believes this will achieve his sales target. s Break-even chart for Gentle Garments Revenue Variable costs Fixed costs Total costs Output (units) 2.1 What is Gentle Garments monthly revenue at present? 2.2 What profit is Gentle Garments making in the average month at the moment? 2.3 What is Gentle Garments margin of safety at the moment? 2.4 Examine the new Managing Director s idea for extra advertising. Do you recommend it or not? 3. Impact on break-even point: rise or fall Indicate the impact on the break-even point of a health food store caused by the following changes: Possible changes Impact on break-even point (Rise or fall) 3.1 A fall in the cost of stock as a result of a switch to a cheaper supplier. 3.2 A temporary 10% reduction in prices in an attempt to attract more customers. 3.3 An increase in advertising expenditure in an attempt to attract more customers 3.4 A decision to increase prices after a competitor goes out of business. 4. Explain why: 4.1 The owner of a high-fashion clothes shop may want a very high margin of safety 4.2 It may be hard for a business to lower its break-even point when there s a recession.

5 5. Business cycles Business activity can be heavily affected by the state of the economy. Most firms benefit from periods of economic growth, when output is growing and is low. However, economic growth does not always increase at a rate. It may even become negative, when output is and unemployment is. This pattern of changes is often referred to as the business cycle. The economy is said to be booming when economic growth is above the normal level. It is described as being in recession when it experiences at least six months of growth. Hint: words from - falling, negative, unemployment, rising, steady 2: True or false? 2.1 Technically, a recession is defined as one quarter of negative growth Bonus mark why? 2.2 Small firms are more likely to go out of business than large firms during a recession Bonus mark why? 3 Business cycle multiple choice questions. Circle the right letters. 3.1 Which three of the following are most likely to occur during a boom period within the economy? a) Rising levels of unemployment b) A fall in the number of new businesses setting up c) A rise in profits made by many firms d) An increase in the amount spent by consumers on luxury goods and services e) A fall in sales for most businesses f) More difficulty in filling job vacancies for many firms 3.2 Which three of the following are most likely to happen during a recession within the economy? a) The price of goods and services begins to rise at a faster rate b) An increase in the rate of business failures c) An increase in the amount of investment carried out by firms in order to expand d) Consumers cut back on non-essential spending e) Rising levels of employment f) Many firms reduce their level of output 4. Business cycle matching definitions Draw lines to match each definition on the left to the correct key term on the right: Definitions 1. Where output within the economy falls for two successive quarters, i.e. six months, or more. 2. The rate of increase in the total output produced within an economy in a year. 3. The number of people looking for work but unable to find a job. 4. Changes in the level of demand and output in the economy that tend to be repeated every few years. 5. A period of time when the economy is growing much faster than it usually does. Key terms a) Boom b) Business cycle c) Demand d) Economic growth e) Economy f) Negative growth g) Recession h) Unemployment level

6 6. Business objectives: financial An objective is a or goal. An individual or business aims to achieve it at some point in the future. A financial objective is measured by money, usually either by cash flow or by. Financial objectives are likely to change over time. When a business is first set up, its main financial objective is likely to be cash. Once there is enough cash to pay the bills, the decisions are more likely to focus on increasing profits. Setting clear financial objectives provides targets for everyone within the business. These can be used to how well the business is doing. Hint: words from measure, target, flow, profit 2. Financial objectives - multiple choice questions: Fraser Doherty is a young, award-winning entrepreneur who used his grandmother s secret recipe to set up SuperJam, a highly successful business within the highly competitive UK jam market. 2.1 Which two of the following would have been realistic financial objectives for the business when it was first set up? a) To obtain a 50% share of the UK jam market within six months. b) To generate enough finance to survive the first year of trading. c) To launch all of SuperJam s product range in Europe and the USA within the first year of trading. d) To generate enough revenue to cover all costs within the first two years of trading. e) To work no more than four hours a day during the first year of trading. 2.2 Which three of the following are likely financial objectives for SuperJam, now that it is an established business? a) To increase profits by 10% each year over the next five years. b) To ensure that all the ingredients used are organic and come from Fairtrade suppliers. c) To help set up a project to encourage young entrepreneurs. d) To achieve a 5% share of the UK jam market within the next three years. e) To increase overseas sales by 20% in two years time. f) To win more awards for enterprise in the future. 3. Financial objectives matching definitions Match each of the definitions on the left to the correct key term on the right: Definitions 1. A target or goal set by a business which it aims to achieve in the future. 2. Generating a level of revenue that is greater than the costs incurred by a business over a period of time. 3. A short term business objective, which means generating enough money to pay any debts that fall due. 4. An individual who is good at spotting business opportunities and taking risks. 5. An aim that an individual is passionate about, creating a sense of duty or purpose. Key terms a) Value analysis b) Enterprise c) Entrepreneur d) Market share e) Mission f) Objective g) Profit h) Survival 4. Financial objectives true or false? 4.1 All businesses should have clear financial objectives when they are first set up. 4.2 Many businesses focus on survival when they are first set up, rather than making a profit. 4.3 A business offering a product with high value added is likely to make more profits than a business with low value added. 4.4 A business that is able to prevent other firms from copying its ideas is guaranteed to be profitable.

7 7. Business objectives: non-financial Although one of the key aims for firms is to make a, many entrepreneurs have other, nonfinancial objectives for starting up and running a business. For example, someone might decide to start up a business because they are frustrated in their, or believe they can do better. Other non-financial for starting a business may include the need to prove yourself, or to try and make the world a better place. The sector is becoming more significant in the UK, and includes organisations with social goals, such as bringing clean drinking water to Africa. Hint: words from: job, not-for-profit, objectives, profit 2. Non-financial objectives matching activity: Choose the most likely non-financial objective on the right for each of the entrepreneurs described below: Entrepreneur 2.1. Someone who resents the lack of consultation in their current job and disagrees with company policy Someone who gave up a job some years ago to raise a family all of whom have now left home Someone who left school at sixteen with no qualifications Someone who feels strongly about social injustice. Non-financial objective a) To take on new challenges, perhaps by developing a hobby into a business venture b) A need to overcome feelings of failure and a desire to prove yourself. c) A desire to change the world and improve the lives of others. d) To have more control over decision-making and to be your own boss. 3. True or False? (Write a T or F by each of the following statements) 3.1 The only way of judging the success of a business is by the amount of profit it makes. 3.2 People often set up their own businesses in order to have more control over what they do at work. 3.3 A social enterprise is a business organization that aims to make a loss. 3.4 A social enterprise is an organization that attempts to achieve social goals through business methods and activities. 3.5 People who work for social enterprises are less motivated than those working for other firms because there is no need to make profits. 4. Non-financial objectives - multiple choice questions: 4.1 Stephanie is 30 years old and has decided to set up her own, home-based book-keeping business after being made redundant for the third time. Which two of the following are likely non-financial objectives behind her decision? a) To generate more income than she was earning in her previous job b) To generate more income than she would receive by claiming benefits c) To prove to friends and family that she has the skills to run a business d) To have enough money to retire in 25 years time e) To be able to work more flexibly in order to see more of her family f) To overcome feelings of failure resulting from her job loss 4.2 Harry and Marcus are life-long friends who had planned to start a business since they were at school. They set up Firefly Tonics in 2002 after working for some years for consultancy firms in London. The company produces healthy energy drinks that contain no caffeine or added sugar. Which two of the following are likely non-financial objectives for Harry and Marcus when they set up their business? a) Because they were unable to find a job with another firm b) Because they wanted the challenge of getting a new business off the ground c) Because they enjoyed working together d) Because they knew the idea was guaranteed to work e) Because they believed they would make more money running their own business.

8 8. Business plan A great idea may be important but it is not enough to create a successful business. In order to do this, an entrepreneur will need to carefully how he or she intends to put the idea into practice. In order to do this, an entrepreneur is likely to produce a business plan. This is a document which sets out details of the business opportunity and how it will be achieved. It provides details about the business owners and their, as well as a description of the goods or services to be produced. It needs to contain a great deal of financial information. Central to any effective business plan is a cash-flow, outlining the money coming in and going out of the business. This should also identify how much is needed to get the business started, how much will be required once it is up and running and when it is likely to be repaid. Producing a business plan is, therefore, vital for raising funds from or the bank. Hint: words from finance, forecast, investors, objectives, plan 2. Business plans matching definitions: Match each of the definitions on the left to the correct key term on the right: Definitions 1. The money (capital) that a business needs in order to carry out its plans. 2. Generating a level of revenue that is greater than the costs incurred by a business over a period of time. 3. An individual who is good at spotting business opportunities and taking risks. 4. A document that sets out a business opportunity and how it will be achieved. 5. A document showing the expected cash inflows and outflows in the coming months Key terms a) Break-even b) Business plan c) Cash flow forecast d) Entrepreneur e) Finance f) Investors g) Objective h) Profit 3. Business plan - multiple choice question: Danny wants to set up his own business as a personal fitness trainer and is hoping for a 10,000 loan from the bank. Which 3 of the following pieces of financial information should he include in his business plan? a) Results of some market research Danny carried out into rising obesity levels in the UK. b) Details of the money available for investment into the business from Danny and two family members. c) Details of Danny s GCSE and A level qualifications d) Details of Danny s qualifications as a personal trainer e) Estimates of the business running costs for the first twelve months f) Forecasted revenue generated from clients in the first twelve months, based on market research carried out by Danny. 4. Give two answers for each of the following: 4.1 Give two likely benefits for a new business from drawing up a business plan: 4.2 Give two possible dangers for an existing business from failing to produce a business plan before starting a period of rapid expansion:

9 9. Building the marketing mix The marketing mix refers to four aspects of marketing that are combined in order to achieve a successful marketing campaign. These elements also known as the four P s consist of the product itself, its and the methods used to promote it. The fourth P is making sure that customers can buy it in the right. Having a great product lies at the heart of any business success. This means ensuring that it meets customer. However, even great products can if they are sold at a price which is too low or too high. Success also depends on making customers aware that the product exists and convincing them to try it. Finally, customers have to be able to get hold of products easily or else they may end up buying products instead. Hint: words from fail, needs, place, price, rivals 2. Building the marketing mix definitions: Match each of the definitions on the left to the correct key term on the right: Definitions 1. The way in which the general public views a company or product. 2. Making sure that the product is available at the places the customers want to buy it 3. The part of Promotion that means spending money in order to communicate directly to customers 4. A sales promotion technique which stands for buy one, get one free. 5. The key elements of product, price, promotion and place designed to achieve marketing objectives. Key terms a) BOGOF b) Brand c) Marketing mix d) Place e) Advertising f) Price taker g) Promotion h) Consumer image 3. Building the marketing mix Spot the P: Correctly identify the element of the marketing mix being described in the table below: Feature Element of the marketing mix 1. A supermarket begins a home delivery service for customers who order on-line 2. A computer manufacturer sets up a 24 hour after sales telephone helpline, available free to all customers. 3. A department store sets up point-of-sale displays to support the launch of a new range of cosmetics. 4. A newly established hairdresser offers a 50% discount for customers who return within six weeks 4. Building the marketing mix - multiple choice questions: 4.1 Which two of the following statements about the marketing mix are true? a) Price is the most important element in the marketing mix for any product. b) Price can be used to communicate a product s image. c) The right price is always the one that is cheapest. d) Strong brands tend to set their prices at the same level that their rivals have set. e) Usually, the stronger the brand, the more control the firm has over the price set. 4.2 A firm producing organic breakfast cereals has received complaints that customers are unable to find a newly launched brand in any of the major supermarkets. Which element of the marketing mix needs sorting out? a) Price b) Product c) Place d) Promotion

10 10. Calculated risk 1. Delete the wrong word from each pair (underlined) Businesses are faced with risk at all times. Entrepreneurs make decisions that not only risk their own money and reputations, but also that of other investors and lenders. The riskiest stage for most businesses is at start-up approximately one third fail within the first three years/months. However, even established firms face risks. On average, 80% of new products are unsuccessful but cautious/innovative businesses still continue to develop and launch them. This is because the potential rewards/risks generated by one successful idea can more than make up for a number of failures, i.e. the risk/reward ratio is favourable/unfavourable. Also, those firms that do not develop new products run the risk of not being able to respond to changes in the market. 2. Calculated risk matching activity Match the most likely risk and reward to the business decisions given below: Business decision Reward Risk 2.1. A manufacturer takes out a large loan to buy more machinery. 2.2 A UK supermarket chain decides to expand into the US market A new business uses up its cash to buy stock in order to meet a large order from a new customer. 3. Calculated risk true or false? a) A significant share in the new market is obtained. b) A contract to supply on a regular basis is awarded, increasing profits. c) Output increases, resulting in higher profits. i) Late payment by the customer leads to cash flow problems. ii) Existing level of demand falls, leaving unsold stocks of finished goods. iii) Competition proves higher than expected, leading to disappointing sales. 3.1 Only big businesses face risks big enough to threaten their survival. 3.2 A single mistake is more likely to do threaten the survival of a small business than a large one. 3.3 Initial mistakes can help a business be more successful in the long term. 3.4 A firm that can come up with an idea that is new and different from its rivals is guaranteed success. 4. Calculated risk multiple choice questions 4.1 Which one of the following most accurately explains the purpose of attempting to calculate risk when making business decisions? a) To make sure that a decision involving no risk at all is made b) To attempt to make a decision involving the greatest risk and the least reward c) To try and make a decision where the risks will be outweighed by the rewards d) To make sure that all risks have been identified before a decision is made 4.2 Which three of the following are most likely to be considered when attempting to calculate the risk of a business decision? a) What are the options that involve no risk to the business b) What are the likely benefits for the business if the decision results in success c) What options exist where success is guaranteed. d) What are the likely costs for the business if the decision results in failure e) What actions can managers take to remove any chance of failure f) What are the chances of failure threatening the survival of the business

11 11. Calculating net cash flows At any given time, money will be coming into and going out of a business. Cash inflows might occur when customers pay for goods or services, or when the firm s owner takes out a bank. Cash outflows are created when the business has to pay wages to its staff and pay for stock. cash flow is the difference between total cash inflow and total cash outflow in any one month. If a business has cash flow, it may struggle to keep running smoothly. Hint: words from loan, negative, net, suppliers 2. Calculating net cash flows: multiple choice questions: 2.1 When calculating a firm s net cash flow, which two of the following would be used: a) Overdraft facility b) Total cash inflows c) Total profit d) Monthly sales volume e) Total cash payments 2.2 When calculating a firm s monthly net cash flow, which two of the following would not be included as part of its total cash inflow? a) Cash sales b) Payment of a grant from the government c) Money spent on advertising d) Money invested by the firm s owner e) Rent paid to the owner of the premises used by the firm 3. Calculating net cash flows: Edward Collins runs his own art shop, selling paintings, cards and stationery. He also rents the first floor of his shop to a friend. Below is an incomplete cash flow forecast for January April next year complete it by filling in the missing information: All figures are in s January February March April Total cash inflow 3800 b) 4,500 4,800 Cash payments: Supplies ,300 2,300 2,500 Loan repayment Gas & electricity (paid quarterly) Insurance (paid annually) Other expenses Total cash outflow 3, ,800 d) Net cash flow a) 1,000 c) 1,300 Opening balance 1,000 1,800 2,800 2,500 Closing balance 1,800 2,800 2,500 3,800 Bonus questions: i) Briefly explain what happens to Edward s net cash flow in March. ii) Should he be concerned about this?

12 12. Calculating total costs Businesses face a number of different costs both when they are first set up and as part of their operations. These costs are often split into costs, which change in line with output, and fixed costs which do not. A business will make a profit as long as its revenue is greater than its costs. It is important, therefore, that total costs are managed carefully, in order to make as much profit as possible. Hint: words from: day-to-day, total, variable 2. Calculating total costs: fill in the 4 gaps Output (000s) Variable costs 000s Fixed costs 000s Total costs 000s 0 0 a) b) 500 c) d) Bonus mark: what is the variable cost per unit in the above table? 3. Calculating total costs. Read the following information and use it to answer the questions that follow: HAF Ltd manufactures computer components it has made the following data available: Fixed costs (per month): 100,000 Variable costs (per unit): 2.00 Current output (per month): 50,000 units 3.1 Which one of the following gives the firm s current total costs? a) 120,000 b) 150,000 c) 200,000 d) 300,000 Prove it: 3.2 Then the firm s fixed costs fall by 10% - what will total costs now be equal to? a) 190,000 b) 200,000 c) 210,000 d) 220,000 Prove it: 3.3 In addition to the fall in fixed costs, demand for the firm s products falls by 20% - what will total costs be now? a) 160,000 b) 170,000 c) 180,000 d) 190,000 Prove it: 4. Calculating total costs true or false? 4.1 If a firm s output increases by 50%, its total costs will automatically increase by the same percentage. 4.2 If a firm s total costs are greater than its total revenues over a period of time, it will have made a loss. 4.3 If a firm s total costs are greater than its total revenues for a 6-month period, it will be forced to close down. 4.4 A firm s profits can increase even if its total costs have increased. 4.5 A firm with revenue of 15,000 and a profit of 2,000 has total costs of 17,000.

13 13. Calculating profit Profit is the amount left over from the revenue generated from a firm s sales during a period of time, once the costs have been taken away. If a firm s costs are greater than its revenues, it is said to have made a. Calculating the level of profit allows us, therefore, to measure how successfully a business has performed. New firms often fail to make a profit in the first months of trading, because initial costs are high and sales are low. Profit provides an important source of and a return on the made by the owners of the business. Hint: words from finance, investment, loss, start-up 2. Calculating profit: briefly explain the deliberate mistake in each formula below: 2.1 Profit = total costs total revenue 2.2 Sales revenue = sales price + quantity sold 2.3 Total costs = fixed costs variable costs 3. Changing profit over time: The table below relates to the costs and revenues of a UK firm producing healthy soft drinks between 2006 and 2009 use the data to calculate (and fill in) the missing figures. Then answer the questions that follow: Year Quantity sold 000s Total revenue 000s Total costs 000s Profit 000s i) ii) iii) iv) Now, match the following answers to the questions below: a) 85% b) 25% c) 100% d) 33% e) 50% 3.1 What was the percentage increase in quantity sold from ? 3.2 What was the percentage increase in total revenue from ? 3.3 What was the percentage increase in total costs from ? Bonus points: Give one possible reason why total costs increased by a smaller percentage than the quantity sold 4. Calculating profit true or false? 4.1 A firm s profit can be calculated by subtracting its total costs from its total revenue. 4.2 A firm s total revenue can be calculated by adding its profit to its total costs. 4.3 A firm s total costs can be calculated by subtracting its profit from its total revenue. 4.4 A decrease in sales revenue or an increase in total costs will lead to an increase in profits. 5. Calculations 5.1 A farmer sells 40 pigs a month. The fixed costs are 1,200 a month and each pig eats up 15 of variable costs. At auction, the pigs usually sell for between 45 and 60 each. a) What s the month s profit at 45? b) What s the month s profit at 60?

14 14. Cash flow how to improve it All businesses should aim to keep a net cash flow position. Negative net cash flow means that a business does not have enough cash coming into the business to pay for its cash expenses. This may force the business to apply for an overdraft as a solution; this is expensive if used in the long term. A firm must make sure, therefore, that cash are larger than cash. Hint: words from inflows, outflows, positive, short-term 2. Improving cash flow: multiple choice questions: 2.1 Which two of the following would be most likely to keep a firm s cash flow positive in its first year of trading? a) Ignore late-paying customers to maintain a good relationship b) Rent equipment rather than buy it outright c) Run expensive advertising campaigns frequently to increase demand d) Control running costs as much as possible e) Agree a large overdraft facility with the bank 2.2 James Smead Ltd produces clothes for department stores in the UK. Which two of the following are most likely to help the company recover from a negative cash flow position? a) Sell off any unused machinery and equipment b) Increase the salaries of sales staff in order to encourage them to work harder c) Reduce the price charged to its customers for all new orders d) Increase the price charged to its customers for all new orders e) Offer existing customers a small discount for paying on time 3. Improving cash flow: Samir and Sabina are catering students who want to set up in business together. They plan to provide a service preparing the food for private parties in their local area. They have prepared the following cash flow forecast as part of their business plan. They had expected initial sales to be low but are disappointed with the results. Fill in the gaps and answer the questions that follow: February s March s April s Cash inflow 10,000 1,000 1,400 Delivery van 7, Kitchen equipment 2, Others 600 1,300 1,650 Total cash outflow a) 1,300 1,650 Net cash flow 400 b) d) Opening balance 0 c) 100 Closing balance e) 4. Improving cash flow match the action to its most likely effect Action to improve cash flow Likely effect 1. Sell the Head Office building and rent one instead a) Cash inflow will increase, but costs will be higher in the long term. 2. Sell off machinery that is not being used. b) Cash inflow may increase but profits will decrease. 3. Hold a 20% off everything sale c) Cash inflow will increase immediately but cash outflow may also increase. 4. Offer customers a discount for prompt payment. d) Cash inflow will increase but the business may not be able to respond to a sudden increase in demand.

15 15. Cash flow problems Most businesses aim to make a in the long term. However, on a day-to-day basis having enough cash to keep the business running smoothly is more important. Cash is not the same thing as profit. It refers to the a firm holds in notes and coins, as well as in its bank account. Cash comes into a business from money received from sales of goods or services, i.e. customers who pay up. It is used to meet the firm s, such as obtaining supplies, buying equipment and paying wages. If a business is unable to pay its, it may be forced to close down. Every year, thousands of businesses fail as a result of cash flow problems. Hint: words from: expenses, money, bills, profit 2. Cash flow problems: multiple choice questions: 2.1 Which two of the following are most likely to cause cash flow problems for a new business? a) Being offered a large overdraft facility by your bank b) Failing to agree credit terms on purchases with suppliers c) Spending most of the business start-up capital on new equipment d) Over-estimating running costs e) Refusing to sell to customers on credit 2.2 Which one of the following is least likely to cause cash flow problems for an existing business? a) The unexpected loss of a regular customer b) An unexpected fall in the cost of supplies c) An unexpected increase in energy costs d) An unexpected decrease in the number of cash sales 3. Cash flow calculations: Neat & Tidy is a cleaning business owned by Anita Turner. Complete the following cash flow forecast for the business, (fill in the gaps i), ii), and iii), then answer the questions that follow: Jan Feb Receipts 10,000 10,000 10,000 10,000 10,000 10,000 Payments: 8,500 8,500 12,500 8,500 8,500 12,500 Mar April Net cash flow 1,500 1,500 (2,500) 1,500 1,500 i) Opening balance 1,000 2,500 4,000 1,500 3,000 ii) Closing balance 2,500 4, ,000 4,500 iii) At the end of May, Anita finds out that the rent on the offices used by the business is to increase in June causing her total payments to increase by 500 a month: 3.1 What will be new net cash flow figure for the business in June? a) ( 2,000) b) ( 2,500) c) ( 3,000) d) ( 3,500) 3.2 What will be the new closing balance figure for the business in June? a) ( 2,000) b) ( 2,500) c) 1,000 d)) 1,500 Then, at the beginning of June, two big customers cancel their contracts, causing receipts to fall by 20%: 3.3 What will be the new net cash flow figure for the business In June? a) ( 3,000) b) ( 4,000) c) ( 5,000) d) ( 6,000) 3.4 What will be the new closing balance figure for the business in June? a) 500 b) 1,000 c) ( 1,000) d) ( 500) May June

16 16. Cash flow forecasting A cash flow forecast is a prediction of the money that is expected to come in and go out of a business over a period of time. Cash flow forecasts are usually drawn up on a basis. They are useful in helping a business to identify months when cash are likely to be greater than cash inflows. Then the managers can plan how to deal with a period of cash flow. Firms will also include a cash flow forecast as part of a business plan to obtain finance. New businesses may find it very difficult to make accurate predictions, as they cannot be sure of their level of. Hint: words from negative, monthly, sales, outflows 2. Cash flow forecasts: odd one out! Circle the item that does not belong in each of the groups below (say why for a bonus point!): 2.1 staff wages cash sales credit purchases office rent Why? 2.2 credit sales owner s capital loan repayment cash sales Why? 3. Drawing up cash flow forecasts: Steve set up snack bar near to a sixth form college four months ago. He is worried about how the summer holidays will affect his cash flow and is thinking of applying for an overdraft. He has begun to produce a cash flow forecast (see below) - do him a favour and fill in the missing figures: May 000s June 000s July 000s Aug 000s Total receipts c) 8 22 Total payments Net cash flow 3 2 (3) d) 4 Opening balance 1 b) 6 3 (5) Closing balance a) 6 3 (5) e) Sept 000s Bonus question: is Steve right to think that he will need an overdraft? Explain why: 4. Cash flow forecasting matching definitions Match each of the definitions on the left to the correct key term on the right: Definitions 1. When a firm s cash inflow is less than cash outflow in a given month 2. The movement of money into and out of a firm s bank account 3. The difference between a firm s cash inflow and its cash outflow in a given month 4. The cash available to a firm at the beginning of a given month. 5. The way most firms finance day-to-day negative cash flow Key terms a) Cash b) Cash flow c) Cash flow forecast d) Closing balance e) Cumulative cash f) Overdraft g) Net cash flow h) Negative cash flow i) Opening balance 5. Explain two ways: 5.1 A retail store s cash flow forecast could prove inaccurate. 5.2 A business might find it easier to insist that all customers pay cash.

17 17. Cash flow effect of stock and credit The timing of receipts and payments can be just as important for a firm s cash flow as the amount of money involved. Often, firms sell on credit in order to attract by giving them plenty of time to pay. However, cash flow problems can arise if these credit periods are or if customers do not pay by the agreed date. A business can help its cash flow position by the level of credit received from its suppliers and the amount of time customers are given to pay. Tying up too much cash in stock can also lead to cash flow problems. Cutting stock levels will boost the cash position, e.g. by reducing the level of orders sent to. Hint: words from lengthy, suppliers, maximising, minimising, sales 2. Effect of stocks and credit on cash flow - calculations: Katie Charlesworth makes celebration cakes for birthdays and other special occasions. She has been approached by a top department store which promises to increase orders by 25% in the first three months, if sales go well. The store is insisting, however, on having two months to pay for delivered orders. Complete the case flow forecast below to show the results the first months of trading: Oct s Nov s Dec s Jan s Feb s Owner s investment 10, Credit sales 0 b) 16,000 20,000 25,000 Total cash inflow 10,000 b) 16,000 20,000 25,000 Cost of supplies 6,000 8,000 10,000 10,000 10,000 Other expenses 2,000 2,000 2,000 4,000 2,000 Total cash outflow 8,000 10,000 12,000 14,000 12,000 Net cash flow 2,000 (10,000) 4,000 d) 13,000 Opening balance 0 2,000 c) (4,000) 2,000 Closing balance a) (8,000) (4,000) 2,000 e) 3. Matching. Match up the changes in credit terms to the most likely consequences in the table below: Change to credit terms Possible consequences 1. Offer large discounts to customers for cash sales. a) Supplies may be refused, or suppliers may give preference to other customers. 2. Reduce the credit period given to new and existing customers. 3. Ask suppliers to increase credit period allowed for payment. 4. Multiple choice questions: b) A fall in income from sales, causing profits to decline. c) Sales may be lost to rival firms. 4.1 Which three of the following are most likely to result from a firm cutting its stock levels? a) The firm s revenue will increase significantly. b) The firm may lose discounts on the cost of supplies bought in bulk. c) The firm may struggle to respond to an unexpected increase in demand d) The firm s overheads may increase significantly. e) The firm s staffing costs may increase significantly. f) The firm s cash outflow may fall significantly. 4.2 Which one of the following is most likely to result in a positive net cash flow for a firm? a) Offering credit periods to customers that are longer than those received from suppliers. b) Offering credit periods to customers that are shorter than those received from suppliers. c) Offering credit periods to customers than are the same as those received from suppliers. d) Avoiding credit sales to customers and credit purchases from suppliers altogether.

18 18. Communication Communication is largely about passing on. Good communication is vital if a business is to become and remain successful. It can take a number of forms and be carried out for a variety of reasons. For example, a manager might call a to gather the opinions of workers or pass on instructions. Or a firm might run an advertising campaign to customers about new products. Effective communication can have a number of benefits, improving efficiency, reducing the number of mistakes and creating a more workforce. Poor communication can lead to misunderstandings and within the workplace, increasing costs and reducing profits. Hint: words from disputes, information, motivated, inform, meeting 2. Matching. Draw arrows to match each of the definitions on the left to the correct key term on the right: Definitions 1. When the person who receives the message takes the opportunity to reply. 2. Communication that takes place between a business and individuals or organisations outside the business. 3. Anything that prevents the flow of communication. 4. When the receiver of a message has no chance to give a reply or response. 5. Communication that takes place between individuals or departments within a business. Key terms a) Barriers to communication b) Communication c) External communication d) Information overload e) Internal communication f) Motivation g) One-way communication h) Two-way communication 3. Communication one-way or two-way? Correctly identify whether the examples below describes one-way or two-way communication: Example of communication One-way or two-way? 1. A notice placed on the bulletin board of a school staffroom, announcing the date of the next staff meeting. 2. A telephone survey carried out by the customer service department of a second hand car dealer. 3. A major TV advertising campaign carried out by Marks and Spencer in the months leading up to Christmas. 4. A meeting on the marketing mix, held between a firm s marketing manager and her sales team. 4. Communication - multiple choice questions: 4.1 Which one of the following is not required in order to have effective communication? a) clear and easily understood information. b) Information that is accurate. c) Information with no opportunity for feedback. d) Information that is complete. 4.2 Which two of the following are most likely to result from effective communication? a) Relations between employees and employers are likely to deteriorate. b) The level of mistakes should be reduced, causing costs to increase. c) The firm s understanding of its customers needs should improve. d) The level of employee motivation should increase. e) The chances of all staff working towards the same goal will be reduced.

19 19. Competition Businesses are run by people who, like us, love an easy life. We d all like to get up late and have a relaxed day with a good lunch break and no stress. When businesses have no competition, that s largely how it is. Until recently, this was the position of, with its 90% share of the world market for business software ( Office, i.e. Word, Excel and Powerpoint). Because customers have nowhere else to go, the monopoly, dominant supplier has all the power. It can charge prices, offer poor customer and be slow to. Once a business has strong competitors, it has to work hard to be and to be - focused. Hint: words from innovate, high, customer, Microsoft, service 2. The American chocolate giant Hersheys decides to spend 60 million to break into the UK chocolate market, currently dominated by Cadbury s. Briefly outline the possible impact. Group Effects of Hersheys arrival Likely responses to Hersheys arrival UK consumers UK chocolate manufacturers UK retail (shop) outlets 3. Data Response Sonia loves pizza and believes she can start a successful takeaway business in her home town: Bromley. She and her two brothers have interviewed 120 people and found the following, surprising, results. A local business called Al Capone s is outselling the mighty Domino s Pizza. She is very encouraged by this. % share of Pizza Takeaway in Bromley 15% 40% Domino's Al Capone's Bromley Pizza 45% 3.1 Outline two possible reasons why Al Capone s is outselling Domino s locally. 3.2 Sonia plans to call her outlet 19Pizza, with the promise: Delivery in 19 minutes or your money back. Outline one strength and one weakness of her plan to beat her competitors.

20 20. Competitor strengths and weaknesses Knowing how and where a new business fits into the can significantly improve its chances of success. Market research can help an entrepreneur gather valuable about the market, customers and. Customer research is necessary to find out their views and opinions. Information relating to how, when and why customers use - or do not use - rival products can be vital in analysing competitors strengths and. This can, in turn, help to identify possible in the market that can be successfully exploited. On the other hand, it may reveal the level of competition is very, suggesting that it would be better to not start up after all. Hint: words from competitors, gaps, information, market, strong, weaknesses 2. Competitor strengths and weaknesses matching activity Match each of the definitions on the left to the correct key term on the right: Definitions 1. Sections of a market made up of groups of customers with very similar characteristics and needs. 2. Identifying a consumer need that is not being met at the moment by an effective product or service 3. The final user of a good or service. 4. Firms that operate in the same market and produce similar products. 5. The process of gathering and analyzing information on a market. Key terms a) Competitors b) Competitive advantage c) Consumer d) Customer e) Market research f) Market segment g) Market gap h) Market size 3. Competition strength or weakness When Tracey Ellis set up The Domestic Bliss Agency, she wanted to ensure it stood out from local rivals offering housekeeping services. Below are the results of her competitor analysis: which is a strength and which is a weakness of her competitors? Research findings Competitors Strength / weakness 1. One national cleaning company had a 75% share of the local market. 2. The same national cleaner advertised frequently on local radio. 3. Two smaller local businesses had a reputation for staff turning up late regularly. 4. None of existing competition offered other housekeeping services, such as ironing. 4. Competitor strengths and weakness - multiple choice questions: Which three of the following statements are true? a) Carrying out a competitor analysis guarantees success for a new business. b) Carrying out a competitor analysis can lead to an entrepreneur deciding not to set up in a particular area. c) Carrying out a competitor analysis focuses on what rival firms do well, rather than what they do badly. d) Carrying out a competitor analysis could involve asking questions to other businesses, as well as consumers. e) Carrying out a competitor analysis could include asking consumers to talk about their experience of using rival products. f) Carrying out a competitor analysis will only be successful if it leads to brand new products being developed.

21 21. Competitive advantage Competitive advantage is a term used to describe any factors that help a product or a business to be more successful than its. One way to achieve a competitive advantage is to charge lower than competitors. In order to do this, a business must ensure its are lower than other firms, as Ryanair does in the air travel market. However, price is not the only way of achieving competitive advantage. Many businesses do this by producing brands that stand out. They may be brilliantly or backed by famous actors or celebrities, such as Cheryl Cole s advertising for L Oreal. Hint: words from costs, prices, designed, rivals 2. Competitive advantage matching activity The companies in the table below have all enjoyed a competitive advantage within the markets in which they operate. Match up the correct source of competitive advantage to each one: Company Source of competitive advantage 2.1. Apple a) Clever technically, but also keen to keep prices competitive 2.2. Coca Cola b) A long-standing reputation for high standards of quality and reliability Mercedes c) Focus on designing stylish and trendy products that are fun and easy to use Nintendo d) A no-frills service leading to prices that are consistently lower than rivals Ryanair e) Known to be the original; competitors are always seen as copycats 3. Competitive advantage multiple choice questions 3.1 Which one of the following is least likely to allow a restaurant to achieve a competitive advantage over rivals in the local area? a) By ensuring that kitchen staff and waiters are well trained b) By offering a wider choice than competitors c) By offering the same choices as competitors but at lower prices d) By employing school friends as waiters they aren t very efficient but everyone has a laugh. 3.2 Which two of the following are not likely to result from a firm achieving a competitive advantage within the market? a) Increased sales b) High levels of consumer loyalty c) Falling market share d) Rising profits e) Negative cash flow f) Enough profit to invest in expansion 4. Competitive advantage true or false: 4.1 Competitive advantage can only be achieved by charging prices below those of competitors. True / False Bonus mark say why/why not: 4.2 The only way for a firm to achieve a competitive advantage is by launching brand new products into the market True / False Bonus mark say why/why not: 4.3 Once a firm has a competitive advantage within the market, it will remain the market leader indefinitely. True / False Bonus mark say why/why not:

22 22. Competitiveness Competitiveness is the ability of a business to operate successfully despite the existence of other in the market. The price charged by a firm for the goods or it supplies is an important part of its ability to compete. This is because, although customers do not necessarily always choose the cheapest products available, they expect to receive for money. Other important determinants of a firm s competitiveness include product design, product, brand image and speed of. Most small firms only worry about their competitiveness in relation to local rivals. However, businesses that selling abroad also need to think in terms of their competitiveness and the factors that might influence this. Hint: words from delivery, firms, international, quality, services, value 2. Competitiveness true or false? (write in a T or F by each of the following) 2.1 Competitiveness can be achieved by being the fastest, rather than the cheapest, in the market. 2.2 Firms may be more likely to compete on price when the economy is in recession. 2.3 Small firms only ever need to worry about their ability to compete with other local firms. 2.4 Firms in highly competitive markets are always less likely to be innovative than those operating in markets where competition is low. 3. Competitiveness matching definitions Match each of the definitions on the left to the correct key term on the right: Definitions 1. A key feature of a good or service that is not shared by rivals. 2. The ability of a firm to either sell abroad or compete in the home market against imports 3. The process of turning a new idea into a successful product 4. Any aspect of a product or firm that makes it successful in the market. 5. An individual or firm that buys a product from a business. Key terms a) Competitiveness b) Competitive advantage c) Copycat products d) Customer e) Innovation f) International competitiveness g) Market share h) Unique selling point 4. Competitiveness multiple choice questions 4.1 Tony owns one of several hairdressing salons in the local area. He has decided that the best way of attracting more customers is to reduce the prices he charges, but he is keen to maintain his current profit levels. Which two of the following actions would be least effective in helping him to do this? a) Move to more expensive premises on the high street to improve the salon s image b) Encourage staff to cut down on the amount of hair care products that they waste. c) Increase the amount spent on advertising in order to make the business better known. d) Switch to using cheaper brands of shampoo and conditioner. e) Start charging customers for tea and coffee, rather than offering free drinks. 4.2 Patrick owns and runs a highly successful convenience store in the village where he lives. He has just discovered that Tesco plans to open one of its Tesco Metro stores nearby in the near future. Which three of the following actions are most likely to help maintain competitiveness? a) Put up prices in order to make as much profit as possible before the new store opens b) Set up a same-day home delivery service for customers living in the village. c) Write to the local newspaper to complain about the new supermarket d) Carry out research to find out if there are any unusual product lines that customers would like him to stock. e) Extend his opening hours until 10 pm on weekdays and open on Sundays f) Do nothing and hope that his customers stay loyal.

23 23. Consumer protection 1. Delete the wrong word The government has created a number of laws to protect / connect consumers from being exploited / tainted by businesses. There are two key consumer protection laws. The Sale of Foods / Goods Act gives you the right to take back an unwanted / faulty item and get your money back. The Trades / Graves Descriptions Act makes it an offence for businesses to make false claims about what their products can do. These laws force businesses to spend time and money learning the rules and regulations, then producing goods and services that comply with the law. Otherwise, they run the risk of ending up in court paying expensive lawyers and suffering bad advertising / publicity 2. Consumer protection matching activity Match the key provisions to the correct piece of consumer protection legislation in the table below: Consumer protection legislation Key provision 1. Trades Descriptions Act (1968) a) All sales staff selling food must have hygiene training and all premises must be regularly inspected. 2. Sale of Goods Act (1893) b) Firms must be able to demonstrate that all advertising, labels and public statements made by firms about their products is true. 3. Food Safety Act (1990) c) All items sold on credit must have a clear indication of the annualised percentage interest rate (APR) being charged. 4. Consumer Credit Act (1974) d) All goods must be fit for the purpose for which they are sold. 3. Customer protection - multiple choice questions: 3.1 Which two of the following are benefits for a business resulting from being aware of consumer protection legislation? a) It does not cost a business anything to ensure it is meeting the requirements of UK consumer protection legislation. b) The Government will not allow a business to trade unless it can prove it is meeting the requirements of consumer protection legislation. c) A business can avoid being fined as a result of breaking the law. d) A business cannot be fined as long as it can prove it is aware of consumer protection legislation. e) A business can present a positive public image by being seen to promote consumer protection. 3.2 Which two are the most likely disadvantages from the government passing more consumer protection legislation? a) Businesses will devote fewer resources to keeping up to date with the law. b) The costs of keeping up to date with the law might lead to increased prices charged to customers. c) Fewer people might set up new businesses in the UK because they are put off by the amount of legislation. d) Consumers might become concerned about buying from UK firms, so buy imports instead. e) More foreign firms might attempt to set up in the UK as a result of the legislation. 4. Customer protection true or false? 4.1 The existence of consumer protection legislation can benefit businesses as well as consumers. 4.2 A firm in a monopoly position is less likely to exploit consumers than a firm operating in a highly competitive market. 4.3 The Trades Descriptions Act states that goods should be fit for the purpose for which they are sold. 4.4 When buying services, consumers can trust small firms more than they can trust large firms.

24 24. Creativity Although some great business ideas have come from flashes of inspiration, most successful result from careful, logical thought. This process is known as creativity. Thinking creatively requires an ability to look at a situation and ask questions such as? and why not?. Investigating how things could be done differently can generate new approaches. These ideas can then be turned into products that satisfy customer more effectively. Ideas as creative as the iphone or Nintendo Wii can transform a firm s business success. Hint: words from deliberate, needs, products, why 2. Creativity matching activity The table below identifies a number of entrepreneurs known for having a creative approach to business. Match each one to the business with which they are associated. Entrepreneurs Business 1. Adam Balon, Richard Reed and Jon Wright a) Fifteen Restaurants 2. Richard Branson b) Amstrad 3. Sergey Brin and Larry Page c) Innocent Drinks 4 Steve Jobs d) EasyJet 5. Stelios Haji-Ioannou e) Google 6. Jamie Oliver f) Apple 7. Duncan Goose g) Virgin 8. Alan Sugar h) One Water 3. Creativity true or false? 3.1 The most successful products come from flashes of inspiration. T or F? Bonus point: If it s true, why? If it s not true, why not? 3.2 Generating ideas for new products should only be the responsibility of marketing staff. T or F? Bonus point: If it s true, why? If it s not true, why not? 3.3 Encouraging all employees to think creatively can lead to greater levels of motivation. T or F? Bonus point: If it s true, why? If it s not true, why not? Multiple choice question 4. Read the passage below and answer the question that follows: Ketan Varu set up Spice-N-Tice in 2005 to manufacture and sell curry kits. Each kit contains fresh pre-blended herbs and spices, recipe cards and a shopping list of other ingredients. Ketan s idea came from making up packs for friends who wanted to make curries but did not want spend time and lots of money on jars of herbs and spices sold in specialist shops. Which one of the following is least likely to involve creative thinking? a) Thinking of ways of allowing customers to buy Indian herbs and spices without having to spend lots of money. b) Identifying the recipes for Indian dishes that would be most suited to the curry kits. c) Thinking of ways to simplify recipes for Indian dishes for customers with limited cooking skills. d) Employing a marketing consultant to design the company s website.

25 25. Customer needs The ability to and meet customer needs is essential to business success. To meet customer needs, a business must produce a product and, reliable service. Customers needs change over time and these changes can occur quite suddenly. A business needs, therefore, to keep close to its customers. Market research can play an important role in providing information about customers and what they expect to receive from the goods and services that they pay for. This research can be quantitative or and come from questionnaires or from careful analysis of the firm s customer database. The most successful businesses try to beat customer. Hint: words from efficient, expectations, identify, qualitative, well-designed 2. Customer needs matching definitions Draw arrows to match each of the definitions on the left to the correct key term on the right: Definitions 1. When an individual or firm carries out new, firsthand research. 2. The process of collecting and analysing data in order to improve decision-making. 3. Research involving the collection of large quantities of data suitable for statistical analysis. 4. What customers believe they will receive from the goods or services they buy. 5. Using the results of research that has previously been carried out by another individual or organization. Key terms a) Customer expectations b) Goods c) Market research d) Primary research e) Qualitative research f) Quantitative research g) Secondary research h) Services 3. Researching customer needs primary or secondary Identify whether the following research methods would be classed as primary or secondary: Example of research Primary or secondary 3.1 A garage carries out a telephone survey to find out customer opinions on the standard of service provided 3.2 A new business uses The Yellow Pages to identify the number of competitors in the local area. 3.3 A leisure centre checks on-line newspaper reports on heart disease before producing a new advert. 3.4 A fast-food restaurant leaves short questionnaires on tables. 3.5 A chocolate producer holds an informal discussion with a group of regular customers 4. Meeting customer needs multiple choice question Which two of the following are not benefits to a business from producing products that exceed customer expectations? a) An increase in market share b) An increase in the number of complaints received c) An increase in customer loyalty d) Greater scope for charging premium prices e) Greater risk of going out of business

26 26. Customer Satisfaction Customer satisfaction depends on how well customers expectations are met. A dissatisfied customer will talk in a way about the business to their friends. Customer satisfaction is achieved by keeping your staff thinking about what customers want. This is called customer. It is vital to the success of a firm because it has a big influence on purchase. Choose the missing words from: focus, repeat, negative 2. True or False? For each of the following, mark T for True or F for False Customer Satisfaction leads to: True or False? a) An increase in complaints b) A reduction in the number of returned products c) An increase in the level of sales d) Negative Public Relations e) Staff feeling happier and performing better in their jobs 3. How can we judge customer satisfaction? Customer satisfaction is one of the keys to a business success. Entrepreneur Theo Paphitis suggests that customer satisfaction is achieved through staff knowledge of their customers. For each of the following business situations, how would staff be able to tell if a customer was satisfied or dissatisfied? Think about how a satisfied customer might react and how a dissatisfied customer might react. For example, if a business increases its prices, a satisfied customer is likely to keep buying products whereas a dissatisfied customer may start buying from another shop. Situation Satisfied customer reaction Dissatisfied customer reaction A newsagent increases the price of a can of Coke by 2p An electronics store begins charging 5p for carrier bags A clothing store switches to a cheaper supplier. This leads to lower quality goods, so it lowers its prices. 4. What would you do to keep the customer satisfied? You are the manager. Briefly explain what you would do to ensure the customer remains satisfied in the short term and the long term. a) Anna has been in a shoe shop waiting to try on a pair of shoes for 15 minutes. The shop assistant has been busy dealing with another customer who cannot decide between 2 pairs of shoes. Anna is getting impatient. b) When I rang up yesterday I was told that that this film was suitable for children under 10.. My two sons were absolutely terrified and spent most of the film hiding behind the seat in front

27 27. Customer Service Customers are the most part of a successful business. The experience that a customer has with a business is called customer. Good customer service is about putting the needs of the customer first and looking after them so that they will want to and use the business again. Customer service covers many areas including how a customer is greeted, the range and of products, staff knowledge of products/services, sales service and products being available when customers want them. Words from: service, important, return, quality, after 2. Words for customer service. Put these words into the correct column Accurate, Distracted, Enthusiastic, Helpful, Unsure, Unhelpful, Sincere, Caring, Well presented, Grumpy, Aloof, Negative, Confident, Interested, Negative, Polite, Scruffy, Rude, Positive, Offhand, Unsure Good Customer Service Bad customer service 3. Good or bad customer service? For each of the following situations, state whether you think they show good or bad customer service. Where you choose Bad, suggest how the situation could have been dealt with better. a) A supermarket employee is off to the staff room for a coffee break. A customer stops and asks which aisle the dog food is in. The employee says I am on my coffee break, you will need to find another member of staff to help you. b) A customer rings up the bank to ask for advice. During the call, the member of staff cuts the customer off by mistake and the line goes dead. The member of staff rings the customer back straight away and apologises. c) A customer at a gym goes to complain to a receptionist because the changing rooms are dirty. The receptionist is chatting to another member of staff and takes 5 minutes before acknowledging the customer. After listening to the complaint she says it s nothing to do with me, you ll have to find a member of the cleaning staff d) A customer bought a digital camera 10 days ago and it has stopped working. He returns it to the shop. The sales assistant has a look at the camera and says he has no idea what is wrong with it and that there is no one in the shop to help him as the manager is off sick. He suggests that the customer comes back another day. 4. Anagrams The following are advantages to a business of good customer service. Unscramble them to reveal the correct phrase They should come back again and again The way to build an image of real quality This should pass some positive messages around SEEN A STRIPE BUS DOG NATIO TOE PUR DEPOSIT TO HUMOUR WOVIF

28 28. Design and Design Mix Good product design will take into account three key factors. These are function, cost and appearance. How the firm combines these three elements is called the design mix. 1. Which words/phrase fits which design mix heading? Put a tick in the right box 1.1 How well the product works Function Cost Appearance 1.2 The materials used in manufacture 1.3 Colour 1.4 Easy to use 1.5 How well the product lasts 1.6 How the product feels 1.7 Efficient to produce 1.8 Reliability 1.9 Simple design 1.10 How the product looks 2. Which is the most important element of the design mix for the following products? a) A restaurant offering an all you can eat lunch time menu for the over 60s b) A cleaning product which destroys lime scale immediately c) A designer clothes shop offering a range of unique, highly priced clothing for women 3. Place the products on the diagram according to their design mix For example, the designers of a VW Beetle car focus on the appearance of the car (its shape, a flower included on the dashboard etc) as well as function (reliability, speed, road handling etc) a) Purple Ipod Nano 8GB b) Daz mandarin and lime washing powder c) Nokia N96 mobile phone d) Primark plain white t shirt e) Calvin Klein men s shirt f) Branded bottle of water g) A can of Diet Coke h) A paper clip i) Mayonnaise in a squeezy bottle Function VW Beetle Appearance Cost 4. Considering the design mix Apple s Mac Mini desktop computer is described as the world s most energy efficient desktop computer. The computer is very small, is highly recyclable and uses 45% less energy than a normal desktop computer. Yet it contains features customers would expect from a good computer. The Mac Mini currently retails at around 450 and costs around 300 to manufacture. Explain how Apple has considered each element of the design mix in designing the Mac Mini.

29 29. Economic Growth Economic Growth is the rate of increase in the level of output per year within an economy. It is measured using GDP (Gross Product). GDP means the total of all the goods and services produced in a country in a year. On average in the UK there has been economic growth of approximately 2.25% each year. This means that every year, the economy has been producing 2.5% goods and services than it did in the previous year. In 2008 and 2009, most countries faced a fall in output for the first time in many years, i.e. a recession. Changes in the rate of economic growth and levels of economic activity over time are called the business. Words from: cycle, domestic, value, more 2. Label the business cycle, i.e. put a, b and c on the right places on the diagram The business cycle shows fluctuations in the level of economic growth over a period of time. Output a) UPTURN b) BOOM c) RECESSION Time 3. Data Response. The graph below shows UK Economic growth. Use the graph to help you answer the questions. a) According to the graph, what was the annual (4q, i.e. 4 quarter) rate of economic growth in: i. Quarter 2 in 2006 ii. Quarter 2 in 2009 b) At what stage of the business cycle was the UK in: i. Quarter 1 in 2006 ii. Quarter 1 in 2009 c) Outline the impact on these businesses of the rate of growth in Quarter 1 of 2006 AND Quarter 4 of 2008 BUSINESS Q Q A small business in Brighton town centre which sells luxury handmade chocolates A chain of discount shops called Poundland, selling every item for 1

30 30. Effect on small firms of price changes The price of such as coal, oil, steel and copper depends on supply and. Businesses therefore have little over the price at which they buy these raw materials. Changes in commodity prices can have a impact on businesses such as plumbers, builders and farmers. Words from: demand, small, big, commodities, control 2. Multiple Choice John runs a small plumbing business. He employs 2 members of staff; a plumber who helps him complete jobs and a secretary who takes orders and completes his paperwork and accounts. He rents a small office in the local town. 2.1 The price of copper rises on world markets. What is the most likely reason for this increase? a. The demand for copper has fallen b. The supply of copper has risen c. The supply of copper has risen faster than the demand for copper d. The demand for copper has risen faster than the supply of copper 2.2 Which of the following of John s business costs will be affected by the increase in the price of copper? (You may select more than one answer) a. Rent b. Raw materials c. Electricity bills d. Staff wages e. Vehicle costs 2.3 Which of the following of John s business costs will be affected by the increase in the price of oil? (You may select more than one answer) a. Rent b. Raw materials c. Electricity bills d. Staff wages e. Vehicle costs 2.4 John needs to decide whether to put his prices because of the increase in the cost of copper. Which one of the following is most likely to affect his decision? a. How big is the increase in the cost of copper b. Which supplier he buys his copper from c. Whether the government will allow him to increase his prices d. Whether he expects the price of oil to rise or fall 3. Data response 3.1 John decides not to raise his prices in the short term. Explain 2 effects that his decision may have on his business. 3.2 The price of copper has remained high. After six months, John decides that he needs to raise all of his prices for plumbing jobs by 10%. Explain how John s customers might react to this increase in price.

31 31. Enterprise What is it? Enterprise is the quality that makes someone think for him/herself and then act to turn an idea into a reality. Some enterprising people are driven by a desire to achieve an : to get rich, to be your own or to make a difference to the world (perhaps through a new charity). Others are driven by necessity, e.g. there are no secure jobs locally, so starting a business is the only way to secure a steady(ish). Whatever the motive, enterprise only becomes entrepreneurship when the person takes the initiative to create a business. To do this successfully requires initiative and a range of skills from cash flow management to a talent for showing to staff. Choose words from: boss, leadership, ambition, income 2. Objective test question. Which two of the personal qualities and skills on the right best match the types of business start-up on the left? Answer on the right, e.g. 2.2 = c) d) Business Start-Up Enterprise skills and qualities ANS 2.1 Ted is starting a sole trader social enterprise selling made-to measure beds, and giving 75% of the profit to charities. The market for beds is known to be very, very tough. 2.2 Lola is fresh from college and short of money, but wants to start a fashion clothes shop. In her area, town centre rebuilding makes it hard for any business to see clearly how the future looks 2.3 Cara s dad is willing to lend her 30,000 to start an ice creammaking business, but only if he is confident that she will use the money effectively to minimise his chance of losing his investment a) Determination and resilience b) Good grasp of calculated risk c) Good at planning ahead d) Persuasive dealing with banks/investors e) Can inspire others to give their best f) Hugely motivated to help the homeless 3. Data Response Question Property Market in Runcorn Number of estate agents* Property prices (%)** Liliya came from Russia to go to school in Britain, then on to Manchester University. Within her business course, she researched the 2008/09 property price crash. She was able to produce the graph shown above. By Autumn 2009 commentators were predicting a house price recovery in She was especially interested in the business implications. With the collapse in the number of estate agents locally, wasn t it time to open a new one? 3.1 Outline one example of how Liliya showed enterprise in the text above Use the graph to explain why Liliya thought Autumn 2009 was the right time to open an estate agency.

32 32. Enterprise qualities Whereas all enterprise skills can be learnt, some of the qualities shown by entrepreneurs may come naturally to them. For example, some children show from an early age, whereas others give up too easily. Business success requires personal qualities backed by good organisation and planning. Although is helpful to an entrepreneur, someone who is 100% creative but 0% organised is likely to be a start-up disaster. Therefore enterprise qualities and enterprise need to be balanced. Choose words from: skills, determination, creativity 2. Data Response Question Qualities of Entrepreneurs who succeed and those who fail Risk-taking ability Ability to persuade Showing leadership Quality of decision making Creativity Start-up failure Start-up success Initiative Determination 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 2.1 From this list of enterprise qualities, identify the three that seem to be the most important to success when starting a business Briefly explain why the ability to persuade may be so important Briefly explain why initiative might not automatically lead to business success. 3. Objective test question Emma plans to open a Hair & Nails outlet in Nottingham. She is full of enthusiasm, hoping for success after a poor time at school. She gave up too easily when subjects became difficult. Fortunately she looks great, is very chatty and friendly and shows great creativity with hair styling. She is worried, though, about how to handle the three staff she plans to hire. She is only 24 and they will be older than her. Which two of these enterprise qualities are most likely to prove Emma s weakest. a) Having ideas and showing initiative b) Determination, even when things go wrong c) The ability to persuade others of her point of view d) Showing leadership e) The willingness to take calculated risks f) Creativity

33 33. Enterprise skills Starting a business successfully requires personal qualities such as, but also requires a lot of skills. Whereas some people naturally have enterprise qualities such as determination, everyone can learn to plan ahead. Enterprise skills can be learnt; successful entrepreneurs will be those who learn. In the 2009 recession, the collapse of established businesses such as Woolworth s was seen as an opportunity by some entrepreneurs. They saw new appearing in the market (and in the High Street). As long as they planned carefully, they were able to use their to create profitable new businesses. Choose words from: skills, quickly, initiative, gaps 2. Data Response Question (1) Siggi Hats is where celebrities go to buy their posh hats for weddings or super-posh events. Siggi started in 1979 and is still hugely successful. He said, in 2009: If you want to start up in business do your market research very well; make sure you ve got a product you believe in and that people want the most important thing is to get your pricing right. You have to sit down and work out how much to charge when I started I focused on turning over huge amounts of cheaper hats I learnt to think more and charge more! You need to be very flexible to adapt to the market and you have to make sure you ve got your finances planned out. 2.1 From this list of enterprise skills, identify two shown by Siggi: planning; thinking ahead; seeing opportunities; having drive and determination 2.2. Briefly explain the way in which Siggi showed one of these two skills Briefly explain why it s important in business to be very flexible. 3. Data Response Question (2) The number of business start-ups rose from 432,300 in 2007 to 436,600 in This was a surprising increase given the recession. The number of businesses started by men rose by 1%, whereas the number started by women rose 9%. According to Barclays Bank, the number of new businesses started by men-only was 300,000 and women-only was 90,000 in But the people coming to Barclays Let s Talk Starting workshops was 50/50 men and women. The Bank concludes that women are increasingly interested in starting a business for themselves. 3.1 Outline one possible reason why, in the past, women have been less likely to start up a business than men. 3.2 Outline one enterprise skill that women might be developing, making them more likely to start up on their own. 3.3 Explain how a mindmap could be used to help decide whether or not to start up a business.

34 34. Environmental issues long term There are two main environmental problems facing the world in the long term: global warming and resource depletion. Global warming is thought to be caused by CO 2 ; these, in turn, are caused by many factors but affluence ( ) seems the main one. Western countries buy more, drive more, eat more and heat more and therefore use more of the things that cause the CO 2 emissions. Resource depletion also matters; it means that some resources such as oil are finite, in other words there s enough for now, but not for the future. If oil runs out the implications for economic welfare are especially tough. Choose words from: wealth; emissions; indefinite 2. Data Response Question Different countries argue about which is the most guilty for the CO 2 emissions that are believed to cause global warming. The Table on the right shows emissions by country. It identifies the total figures and the figures per person in the population. Nigeria is a huge country (and a massive oil producer), yet it contributes very little to greenhouse gasses. Study this Table for a few minutes before answering the questions below. Source: U.S. Energy Information Administration Oct 2009 Global CO 2 emissions 2007 Total yearly Per person (million tonnes) (thousand tonnes) China USA Europe Russia India Japan UK Australia Nigeria Outline one reason why the Americans say that China is the most guilty when it comes to global warming. 2.2 Outline one reason why the Chinese say that Americans have the main responsibility for global warming. 2.3 In general, less developed countries such as China, India and Nigeria say that the rich countries should pay the bills for reducing greenhouse gasses. Is this fair? 3. Data Response Question (2) Other Agriculture Industry Fuel generation Causes of Greenhouse Gasses worldwide (total = 100%) Source: World Resources Institute (quoted in The Guardian, October 2009) Within the Transport category, the breakdown was: Road 10.5% Transport Air 1.7% Other 2.5% 0% 4% 8% 12% 16% 20% 24% 28% 32% 36% 3.1 Research shows that most people blame businesses for global warming. Based on the bar chart, are they right? 3.2 Are campaigners right to single out air travel as a particularly serious cause of greenhouse gas emissions?

35 35. Environmental issues short term The environment includes a wide range of situations, from life-threatening to unsightly. In less developed countries, tend to be weak. This can allow businesses and individuals to dump dangerous waste products at landfill or simply by the road. When economic creates more wealth, people start to insist that governments make their lives safer and more pleasant. So environmental legislation gets teeth. In the UK, people worry about air pollution, noise pollution, water pollution and the effects of too much waste and how to dispose of it. Then there are long-term issues such as global and resource depletion. Some people seem to think the world gets dirtier as economies grow and develop. In fact the UK today is hugely less polluted than fifty or a hundred years ago. This is partly a natural result of wealth, and partly a result of action such as the Clean Air Act. Choose words from: sites, government, regulations, warming, growth 2. Multiple Choice Questions 2.1 Which one of the following would be the most dangerous cause of air pollution? a) A factory with a zero emissions policy b) An organic farm, using natural manure on the fields c) A narrow but busy road, with traffic that crawls slowly d) A huge Amazon warehouse, used to store stocks of books ANS = 2.2 Which one of the following would be the most dangerous cause of water pollution? a) Pesticides running off farmers fields into a nearby river b) The liquid from fully treated sewage running into the sea c) River water used for cooling at a factory, then checked, then returned to the river d) Tidal barriers used to absorb wave energy in order to turn it into renewable electricity 3. Data Response Question In July 2009 the government of Brazil uncovered 1,400 tonnes of hazardous waste from Britain. Two companies based in Swindon had collected waste including used syringes, car batteries and soiled nappies and sent it to Brazil disguised as recyclable plastic. The Brazilians were furious, and demanded that the rubbish be sent back to Britain. A complication, though, was that the limited companies ceased trading earlier in The surprise was that the companies set up in 2007 had received a licence from the UK Environment Agency to allow such huge shipments to take place. The British Embassy in Brazil had to step in to avoid severe embarrassment to Britain. 3.1 Outline one case for and one case against bringing in tougher rules for businesses seeking waste disposal licences. For tougher rules: Against 3.2 How might limited company status protect the business owners from financial loss in a case such as this? 3.3 Should limited company status be allowed to protect business owners from financial loss in a case such as this?

36 36. Estimating revenues A business needs to be able to estimate the level of revenue made in the coming months in order to effectively. To do this, it will need to know the it intends to charge for its products and the amount it expects to sell. Having a good idea of the level of future demand will allow a firm to order the right of stock and employ the right number of workers. Being able to predict future prices will show whether it is possible to cover expected and still make a. However, a firm s ability to predict its future revenues depends to a large extent on the conditions in which it operates. Predicting revenue for an existing product with relatively demand is fairly easy. Far, far tougher is to predict revenue for a brand new business. Hint: words from costs, plan, price, profit, quantity, stable 2. Calculations The table below shows the effect on revenue of charging different prices for hamburgers. Fill in the gaps. Estimated price Estimated demand Estimated revenue ( ) (units) ( ) ,000 A = B = 3,500 8, C = 6, Estimating revenue true or false (a bonus mark for explaining why!): 3.1 A firm s estimated revenue can be calculated by dividing its planned sales price by the amount it expects to sell. T/F Reason: 3.2 Predicting the level of sales revenue is likely to be easier when one firm controls a large share of the market. T/F Reason: 3.3 Overestimating price levels could lead to future revenue being lower than expected. T/F Reason: 4. Multiple choice questions 4.1 In which three of the following situations might a pizza delivery business find it most difficult to estimate revenues accurately? a) Where the cost of fuel is subject to large and unexpected changes b) Where new firms offering take-away services are regularly set up in the local area c) Where the price of ingredients can be affected by changes in the weather d) Where the business enjoys high levels of customer loyalty e) Where existing competitors often run promotions such as buy-one, get one free f) Where the business is about to open for the first time next Monday. 4.2 Which three of the following are the most likely consequences for a business that under-estimates the quantity of goods it expects to sell next month? a) The amount of profit made in that month will be higher than expected b) The amount of profit made in that month will be lower than expected c) The business may be forced to cut prices to get rid of unwanted stock d) The business may increase the level of supplies ordered in future e) The business will see an improvement in its net cash flow for that month f) The business may be forced to increase expenditure on advertising g) The variable costs of operating the business will be lower than forecast

37 37. Estimating costs Businesses incur a number of costs, both at start-up and as a result of the day to day activities required to produce goods or services. Individual costs are often described as either being, meaning that they do not change as output changes, or as being, meaning that they do change with the quantity produced and sold. Being able to estimate costs accurately is difficult, especially for new businesses or those planning to develop new or enter new. However, being able to do so is very important, as costs will need to be covered if the business is to survive and make a in the long-term. Costs act as a major influence on the price charged by a business. Accurate cost estimates are also needed so that a business can raise sufficient to support start-up and growth. Hint: words from finance, fixed, markets, products, profit, variable 2. Key terms: Match the definition on the left to the correct key term on the right: Definition 1. A method of paying employees where the amount earned varies depending on the level of output produced. 2. The addition of fixed costs and variable costs. 3. Costs, such as rent and insurance, that do not change with output. Key terms a) Fixed costs b) Net cash flow c) Piece rates d) Profit e) Sales revenue f) Total costs g) Variable costs 3. Estimating costs - calculations: Dennis is a keen gardener who is thinking of using some land on a property that he owns to grow organic tomatoes. He will sell them to local shops and restaurants. He plans to do most of the work himself but will need to hire temporary staff to help plant the fruit, and he plans to pay them on a piece-rate basis. He also plans to rent farm equipment until the business is up and running, in order to cut down on start up costs. Dennis has estimated the first month s costs to be: Variable costs: tomato plants - 1,200; fertilizer - 50; extra labour Fixed costs: advertising - 100; rent of equipment Answer the following questions: 3.1 What would be the effect on total costs if Dennis has underestimated the cost of renting equipment by 25%? a) down by 100 b) down by 40 c) up by 40 d) up by What would be the effect on total costs if Dennis has underestimated the cost of variable costs by 20%? a) up by 160 b) down by 240 c) up by 200 d) up by What would be the effect on total costs if Dennis has underestimated fixed costs by 50%? a) down to 1,650 b) down to 1,800 c) up to 1,950 d) up to 2, What would be the effect on total costs if Dennis has overestimated the cost of tomato plants by 20%? a) down by 100 b) down by 240 c) up by 100 d) up by True or false? 4.1 Fixed costs never change. T/F 4.2 The cost of labour is sometimes treated as a variable cost. T/F 4.3 Underestimating demand can lead to an increase in costs T/F 4.4 Underestimating costs can lead to cash flow problems. T/F

38 38. Ethics Behaving in an ethical manner is about doing what is (morally), rather than simply what is within the law. Supermarket chains may be acting legally when they use their market power to push down the paid to farmers, but many would question whether this is ethical. A firm that behaves in a socially responsible manner attempts to show concern for all its, including its workers, customers, suppliers, the environment and community. However, this may be hard to do in practice. For example, it could mean turning down from customers who behave unethically themselves. Or it might mean a bit extra for supplies. Both of these would cause to be lower than they would otherwise be. In addition, many businesses have been criticised for claiming to be ethical when their policies are as profit-focused as most of their rivals. Hint: words from orders, prices, profits, right, stakeholders 2. Key terms Match the definition on the left to the correct key term on the right: Definition Key term 1. A firm that trades in goods and services in order to a. Ethical behaviour raise funds to support a social cause b. Fairtrade 2. Individuals or groups that are seen by a firm as vital c. Pressure group to its success, e.g. employees, customers d. Primary stakeholders e. Secondary stakeholders 3. A movement that attempts to ensure a fair deal for farmers and workers in developing countries f. Social enterprise g. Sole trader 4 I di id l th t b li th h 3. True or false? 3.1 All businesses operating in the UK are required by law to behave in an ethical manner. T/F 3.2 What is considered to be ethical behavior may change over time. T/F 3.3 A firm that decides to behave in a genuinely ethical manner may experience a reduction in profits in the short term. T/F 3.4 A firm that that decides to behave in a genuinely ethical manner should put the needs of its shareholders before those of its other stakeholders. T/F 4. Exam-style questions: 4.1 Which one of the following supermarket policies could best be described as an ethical business practice? a) Switching from offering customers free plastic carrier bags to selling re-useable shopping bags made from recycled materials. b) Buying in bulk from suppliers in order to pass cost savings on to customers in the form of lower prices. c) Offering financial support to suppliers of dairy products to allow them to switch to more environmentally friendly farming methods. d) Refusing to sell alcohol to anyone under the age of 18 to reduce the levels of teenage binge drinking. 4.2 Identify two possible benefits for the supermarket from appearing to behave in a more socially responsible manner: 1. 2.

39 39. Exchange rates An exchange rate is the price at which one currency can be traded or exchanged for another. For example, the may be for 1.10 euros or 1.40 US dollars. As is the case with the price of goods and services, the exchange rate is determined by the and demand for s at any given time. This means that the value of the is not fixed but is allowed to go up and down. An increase in the demand for s will cause the exchange rate to in value, whereas an increase in the supply of s will cause its value to fall. A strong refers to a situation where there has been a significant in its value against other major currencies. On the other hand, if the suffers a major decrease in value it is described as being weak. Hint: words from - rise, increase, exchanged, supply 2. Exchange rates: true or false? 2.1 A strong pound makes it cheaper for UK manufacturers to sell their goods abroad. 2.2 A weak pound may help to decrease the level of competition faced by UK firms in the home market. 2.3 A strong pound is likely to increase the costs of production faced by UK manufacturers who import raw materials. 3. Impact of exchange rate changes Sophie Ellis imports leather bags from a manufacturer in Portugal for sale in her boutique in Manchester. The average cost per item is 60. Choose one of the following options from (a d) as the correct answer to questions 3.1 to 3.4: a) 22 b) 24 c) 48 d) Assuming an exchange rate of 1 = 1.25 what is the cost per item in pounds of the bags bought by Sophie? 3.2 If Sophie charges 72 per bag, how much profit will she make on each bag sold? 3.3 The exchange rate changes to 1 = what is the new cost per item in pounds of the bags bought by Sophie (assuming their Euro price remains the same)? 3.4 How much profit is Sophie making on each bag sold at the new exchange rate, assuming that she chooses not to change her UK prices? 4. Give two answers for each of the following? 4.1 Briefly outline two types of UK business that would like to see the fall in value. 4.2 Give two possible effects on a UK manufacturer of a rise in the value of the : 4.3 Give two possible responses of UK firms to a fall in the value of the :

40 40. Factors affecting Demand Demand for a product or service is the amount that a customer is willing to purchase. For most products and services, the main factor that affects how much a customer is willing to buy is. The lower the price, the the quantity demanded and the higher the price, the the quantity demanded. Demand is also affected by how much a firm does in order to raise awareness of its products and services and by customers incomes. The demand for ice cream is also be affected by factors such as the weather. Words from: lower, seasonal, higher, advertising, price 2. Objective Test questions 2.1 Will the following lead to an increase (I), a decrease (D) or no change (N) in demand for Mars Bars? a) a price cut of 10% b) the introduction of a new healthy chocolate bar by a competitor c) a large advertising campaign using a high profile celebrity 2.2 Will the following lead to an increase (I), a decrease (D) or no change (N) in demand for Oil? a) a price cut of 10% b) a rise in average income levels c) the building of large wind farms to produce energy for 60% of UK businesses 3. Demand diagram for a branded bottle of water The diagram below shows the daily demand for bottled water in a small shop that is open for 6 days each week. Price per bottle 80p Demand 100 Number of bottles a) What is the weekly demand for this bottled water? b) What is the weekly revenue from selling this bottled water? c) The newsagent increases the price to 90p a bottle. Explain the likely impact on demand. 4. Explain why 4.1 An increase in the price of petrol does not lead to a massive drop in demand 4.2 A hot summer leads to a drop in demand for Cadbury s Dairy Milk bars 4.3 A 40% increase in the price of wheat on world markets leads to a drop in demand for bread at the local bakery

41 41. Factors affecting Supply Supply is the amount of a product or service that is available on the for customers to buy. For all products and services, including commodities, the main factor that affects how much a supplier is willing to produce is price. The the market price for the product or service, the more the supplier is willing to produce. The lower the market price for the product or service, the the supplier is willing to produce. The amount that a supplier is willing to produce is also affected by the cost of the needed to make the product or service. The higher the cost of inputs, the less the supplier is willing to produce. Words from: higher, less, market, inputs 2. Multiple Choice 2.1 Are the following likely to lead to an increase (I), a decrease (D) or no change (N) in the supply of wheat? a) Bad weather which results in damaged crops b) The introduction of a government subsidy for wheat farmers c) A rise in the cost of pesticides d) An increase in the price of oil 2.2 On a Demand and Supply diagram, the supply curve slopes upwards because: a) as price increases, so do costs b) as price increases, suppliers are willing to supply less c) as price increases, suppliers are willing to supply more d) as price increases, customers demand more 2.3 The people of Warminster love coffee shops, but in the past 6 months four have closed down. Which two of these seem the most likely explanation for this? a) The minimum wage has risen from 5.73 to 5.80 an hour b) Landlords have been putting the rents up c) Tax rises have increased the price of beer in the local pubs d) Traffic jams have made it much more expensive for suppliers to deliver e) New E.U. laws on factory safety have been brought in 3. Complete the following table Change Effect on supply Effect on price Effect on sales A bad harvest for coffee beans The government introduces a subsidy on rice production due to recent findings about the health benefits of eating rice New technology is introduced which increases the efficiency of producing computers 4. Explain why 4.1 An increase in supply leads to a fall in price 4.2 A reduction in wage costs leads to an increase in supply

42 42. Financing Growth 1. Missing Words. When a firm s sales rise, it has to find the extra cash needed for extra production. If its cash is strong enough, it may be able to find the finance from inside the business. This is known as finance. If it cannot generate enough cash, it will have to find an source of capital such as a bank. Choose from: external, internal, flow 2. Match up. 2.1 Match the definition on the left with the correct term on the right. Select the definition and then the term. There is only one correct term for each definition. Show your answers by drawing a line from the definition on the left, to the matching term on the right. Definition Shares are offered for sale to the public on the stock exchange i Where money from customers is used to buy new things Where money is borrowed from an external source e.g. bank loan or mortgage A limited company can sell part of its company to others. The money does not have to be repaid. ii iii iv a b c d Term Retained Profit Share capital Personal Funds Flotation on the stock exchange Where business owners uses their own savings to put into the business When shareholders give their dividends v vi e f Sale of Assets Debt Money that the firm has made that it puts back into the business. vii Where a business sells something it owns e.g. buildings or equipment, in order to raise cash viii 2.2 From the list on the right, circle to show whether the sources of finance are from internal or external sources. a) Retained Profit Internal External b) Share capital Internal External c) Personal Funds Internal External d) Flotation on the stock exchange Internal External e) Sale of assets Internal External f) Debt Internal External 3. Multiple Choice 3.1 Alexa runs a furniture company called Furnesse Ltd.; there are currently two shops but Alexa wants to open a third. She thinks this will provide the growth needed to buy more cheaply from suppliers. To finance the new shop, Alexa needs access to From the list below, circle the two most likely sources of finance for the business. a) Retained Profit b) Share capital c) Personal Funds d) Flotation on the stock exchange e) Sale of assets f) Debt 3.2 Consider the options you have chosen for Alexa. Which one of these sources of finance would you recommend to Alexa? Explain why.

43 43. Fixed and Variable Costs A useful starting point for any business attempting to estimate its costs is to identify whether they are fixed or variable. Variable costs directly with the quantity produced and sold by a firm, whereas fixed costs remain unchanged as output changes, at least in the run. However, this does not mean that fixed costs cannot or decrease suddenly for instance, the cost of insurance may rise dramatically after a claim has been made. In the term, all costs are said to be variable, as firms will need to buy new equipment or move to larger premises if output is to beyond current capacity. Hint: words from - change, expand, increase, long, short 2. Fixed or variable which is which? Sweeney s Taxis incurs the following costs say whether they are likely to be treated as fixed or variable: Example of Cost Fixed/Variable 2.1 Office rent paid monthly 2.2 Wages to drivers paid on the basis of 60% of the value of fares received 2.3 Wages to the firm s two receptionists paid on the basis of hours worked 2.4 Petrol and diesel costs 2.5 Interest charges on the bank overdraft used to finance the business start-up 3. Fixed and variable costs: true or false? 3.1 A firm s total costs can be calculated by adding its fixed costs to its variable costs per unit. 3.2 A manufacturing firm s total costs will be equal to zero if its output is zero. 3.3 Fixed costs do not change just because output levels change. 3.4 A rapidly expanding firm may experience increases in fixed costs as well as increasing variable costs. 4. Cost calculations 1. Use the information in the table below to help you fill in the gaps: Output (units) Fixed costs s Variable costs s Total costs s 0 a) 0 b) 20, ,000 c) 180,000 60, ,000 d) 340, , , ,000 e) 5. Cost calculations 2. Carla has just opened her first business a nightclub in Hartlepool. Guests pay 30 which pays for entry, a burger and your first 4 drinks. The weekly fixed costs are 3,600 and the variable cost per guest is 12. Carla s business plan forecasts 200 guests in week 1 rising to 800 by week If the forecast is right, what will be Carla s total costs in Week 1? 5.2 If the forecast is right, what will be Carla s total costs in Week 10? 5.3 In fact Carla proves wrong about the variable costs, which turn out to be 15 per person. 5.3a) What is the effect on Week 1 s total costs if variable costs are 15? 5.3b) Suggest two reasons why variable costs per person may prove higher than expected.

44 44. Forecasting Cash Flows When running a business, the scary thing is knowing that wages, rent and other bills have to be paid, but not knowing whether you ll have enough to pay. A cash flow forecast tries to make it easier. Each future month s cash outflows and cash are carefully estimated. Then the information is put into a. It shows the cash in the bank at the start of each month, the cash flows within the month and then the cash (or ) expected by the end of each month. Missing words: inflows, overdraft, cash, spreadsheet 2. Multiple Choice 2.1 Poppy s is a flower shop that specialises in contemporary floral displays. Poppy s is a small business owned by Julie. Which two of the following are not cash outflows for the business? a) Julie puts some of her own money into the business. b) Julie buys some display stands for the shop. c) Julie received payment for a wedding she has just provided displays for. d) Julie places an advert in the local paper. 2.2 Julie has produced a cash flow forecast for July. Total cash inflow for the business in July was Poppy s total payments were The closing balance for June was Select the net cash flow for July from below. a) 4000 b) ( 1000) c) 8000 d) 1000 e) Select one reason why a bank manager might want to see Poppy s cash flow forecast. a) To help Julie look after her savings b) To make sure that the cash outflows and cash inflows are the same c) To decide whether Poppy s could afford to repay a potential loan d) To decide whether Poppy s will make a profit e) To know whether Poppy s will be able to meet customer demand. 3. Matching. Put these 8 words under the correct column heading. There are two terms for each column. Outflow, Cash at start, Receipts, Payments, Monthly balance, Inflows, Opening balance, Net inflow/outflow Revenue Expenditure Net Cash Flow Cash at start of month 4. Select the correct statements 4.1 The best definition of a cash flow forecast is: a) a measure of how much profit a business makes b) an estimation of cash flowing into a business c) a prediction of how cash flows into and out of a business over a period of time d) a statement of how a business intends to spend its cash. 4.2 All but one of the following are benefits of cash flow forecasting. Select the one incorrect statement. a) A cash flow forecast is a good way of predicting when a business might face a liquidity problem. b) A business can see when an overdraft or other short term borrowing might be required. c) Customers can see whether a business will be able to pay them. d) It helps a business decide whether they can afford to launch a new product.

45 45. Franchising. Starting a business is very, even for experienced businesspeople. For those starting their first business, it can be wise to take a half-way step, by buying into a. Instead of having to make every decision yourself, the franchise owner will tell you how to set up many of the key services or systems. And, if you have carefully, you will have bought into a franchise with a good track record of sales success. Missing words from: franchise, researched, risky 2. Multiple Choice Shama is interested in fashion, she loves shoes. Shama wants to open her own shoe shop but lacks business experience. She has found out that most of Clarks Shoe Shops are owned by 50 franchise businesses. 2.1 Select the two most likely reasons that Shama might want to buy a Clarks franchise. a) Shama will be able to receive thorough training provided by Clarks b) Shama is able to pay a percentage of her revenue to Clarks c) Shama will find it easier to borrow money from the bank to set up her business d) Shama will have flexibility in how she runs her businesses e) Shama will be able to change to new, cooler brands as fashions change 2.2 If Shama had to pay 10% of her royalties to Clarks and her turnover was 380,000 in her first year, how much would she be paying to Clarks? a) Nothing, they want a share of the profits b) c) 3800 d) 370,000 e) Unscramble these common franchise businesses names. 3.1 A Din Zips Zoom (clue, you can even order online!) 3.2 Young It (you ll look great when they ve finished) 3.3 Aw By Us (they can be really long) 3.4 Inland Hi Yo (we all deserve a break sometimes) 3.5 Eg Grub Rink (don t tell whoppers) 4. Select the correct answers 4.1 All but one of the following are reasons why franchising is a successful way for the franchise owner to grow. Which one is not a benefit? a) It allows the business to grow rapidly b) The person buying into the franchise provides the finance, reducing the investment cost of expanding c) Poorly run franchise outlets can ruin the brand s good name. d) The franchise owner benefits from the royalties paid by the small business franchise holders. 4.2 All but one of the following are benefits of buying a franchise. Select the one incorrect statement. a) The business should have an existing customer base so failure should be less likely b) Easier to raise money from bank to buy a franchise c) National advertising is organised by the franchise-owner d) A franchise business will receive a higher profit than an Independent business operating within the same industry.

46 46. Goods and Services 1. Fill in the blanks. Businesses try to sell us goods and services. are physical things i.e. you can touch and feel them. are non-physical things i.e. you cannot touch them. Because services are usually provided faceto-face, staff training and morale has an immediate impact on the. By contrast, as we eat a Mars Bar it doesn t matter to us whether the factory worker was pleasant or grumpy. Choose from: customer, services, goods 2. Match Up From the list below identify whether the businesses sell goods or services (cross out the wrong answer) 2.1 Christine s Hair Salon goods/services 2.2 Toyota goods/services 2.3 Philip s Car Wash goods/services 2.4 Virgin Trains goods/services 2.5 Nokia goods/services 2.6 Coca-Cola goods/services 3. Answer the questions that follow: 3.1 There are two types of goods: consumer goods and producer goods. Explain the difference. 3.2 Below is a list of products. Identify which are a) consumer goods and b) producer goods. Circle a) or b) i) a tractor a) b) ii) a tin of soup a) b) iii) an industrial drill a) b) iv) steel a) b) v) a pair of trainers a) b) vi) a tumble dryer a) b) vii) a bicycle a) b) viii) a Boeing 747 (jumbo) jet a) b) ix) a factory a) b) x) cat food a) b) 4. Unscramble the tiles to reveal a message about different types of goods and services

47 47. Identifying a business opportunity Business opportunities can be identified in different ways. The most common is for someone who works in an industry to spot an opportunity within that business sector, e.g. a BBC TV producer spots the need for a talent agency focused on actors who are great at voice-overs. Next most common is observation, combined with asking Why or Why not?, e.g. Why is there no sit-down pizza place in Woking?. Then come the more businesslike methods such as market and research. Then there are opportunities that arise because of dissatisfaction, perhaps with the customer offered by the local hairdresser or awful management at the local chip shop. Hint: words from service, mapping, quality, market 2. Business opportunity data response Trev is sure that there is room for a new laundry business in Barton. He wants to provide a service based on dropping off dirty clothes in the morning, and picking them up, clean, on the way home from work. Barton has two laundry/dry Cleaners at the moment, one in Longton Road and one in the High Street. To help his analysis, he carried out a detailed count of the number of people passing 4 different locations in Barton on a weekday morning. Rush hour passers-by in 4 Barton locations Barton Centre Barton Station Barton High Street Longton Road People per hour 2.1 Outline one way in which the bar chart gives support to Trev s ideas. 2.2 Outline one other piece of research that would help Trev decide whether to go ahead or not. 3. Business opportunity - multiple choice question: Aliesha has spent 15 years as a nurse, and now wants to sell her small flat in Ipswich to finance a business start-up. She is looking for something to do with catering. Which two of the following are most likely to provide a promising business opportunity for Aliesha. a) Spending 150,000 to take on a large Burger King franchise b) Buying 50% of the shares in a friend s school catering business, to become joint managing director c) An independent, high fashion clothes shop is for sale quite near to her flat d) A closed Chinese restaurant gives scope for opening the first Organic Burger bar in the area e) The large Woolworth s site is available for starting up a Hong-Kong style, huge Chinese restaurant. f) A local private hospital is looking for a catering contractor to supply and serve meals on a daily basis. 4. True or False? 4.1 New opportunities are hard to find these days because consumer tastes and activities don t change over time. 4.2 Some very successful new businesses have started up with no market research at all. 4.3 Buying into a successful franchise such as Subway is probably the least risky business opportunity.

48 48. Impact of government and EU The UK government influences business activity in various ways. There are a number of charged by the government to raise finance for public services that affect businesses such as Corporation (profit) tax. Laws have been passed to firms behaviour in a number of areas. For instance, health and safety legislation forces businesses to their consumers and workers, and fines can be imposed on those that do not. Other laws have been passed that aim to improve workers conditions, including and paternity rights for parents, the national wage and antidiscrimination legislation. Some of this legislation has resulted from the UK s membership of the European Union (EU). Although regulation can increase business and restrict what they can do, it also leads to a number of benefits. Hint: words from regulate, costs, maternity, minimum, protect, taxes 2. Key terms: Match the definition on the left to the correct key term on the right: Definition 1. Rights given to female employees when they have a baby 2. A tax that is paid on most goods and services when they are bought by consumers. 3. Rights given to male employees when they become fathers. 4. Where an individual or group is treated unfairly, perhaps due to their race, gender or age. 5 A id b b i h fi h 3. Multiple choice question Key term a. Corporation tax b. Discrimination c. Income tax d. Interest rate e. Maternity rights f. Minimum wage g. Paternity rights h. Value added tax 3.1 Which one of the following is least likely be seen as a benefit to a UK manufacturer from the existence of health and safety legislation? a) The number of accidents in the workplace is likely to be lower. b) The production process should be interrupted less often, leading to an increase in productivity. c) The cost of administration and staff training are likely to increase. d) The amount of compensation paid to staff having accidents in the workplace is likely to fall. 4. Consequences: Match up the two most likely consequences for each of the changes in tax given in the table below: Change in tax 1. A reduction in the rate of income tax 2. An increase in the rate of value added tax (VAT) 3. A reduction in the rate of corporation tax Likely consequences a. Firms who sell relatively cheap bargain products may see an increase in demand. b. Firms may decide to expand as they have more profit for investment. c. Firms selling expensive, luxury products may see a reduction in demand. d. Firms may find it easier to attract investment from new shareholders. e. Holiday companies, restaurants and other firms in the leisure industry may see a rise in demand. f. Banks and building societies may enjoy an increase in demand for mortgages.

49 49. Impact of Profits and Losses Profit is calculated by the formula minus. If costs are than revenue then the business is making a loss. If costs are than revenue then the business is making a. Many new, small firms will find it hard to make a in their first few months of trading. When estimating profits it is therefore important that new businesses are. Choose words from: profit, cautious, revenue, costs, lower, higher 2. Calculations. Calculate the profit/loss made in each of these situations 2.1 Sunil has estimated that his weekly revenue for his new newsagent shop will be He has also estimated that his weekly costs will be What is his estimated weekly profit? 2.2 Lisa has prepared an estimate of her profits to show the bank manager. She has estimated that her monthly revenue will be 3350 and her monthly costs will be What is her estimated profit for the year? 2.3 Amanda s new ice cream shop will be open 5 days a week in December. The price for an ice cream is She expects to sell 4 ice creams per day. Her total costs per week are 150. Calculate her weekly profit in December. 3. Impact of profits and losses 3.1 For new, small businesses, profits are a guesstimate. The business cannot be sure of its revenues or costs until it has been trading for a while. Toni owns a small bakery in a local town. It has been open for 2 weeks. She employs one member of staff. Before starting her business, she estimated her monthly profit at 800. However, it is still too early to tell. For each of the situations in the table, think about the impact that these will have on Toni s profit levels and on Toni herself. The first one has been done for you. Change Impact on profit Impact on Toni Costs will increase and therefore profit will decrease The government increases the minimum wage by 1 per hour for over 21s. Insurance for the business premises is 10% lower than Toni estimated The price of wheat increases by 10% A competitor closes down leaving Toni s as the only bakery in town May have to take a lower wage herself in the short term, will take longer to cover costs 3.2 The graph below shows the estimated revenues and costs for Dan s new music shop s Revenue Total costs 50 0 Jan Feb Mar Apr a) In which month does Dan start making a profit? b) Assuming Dan s estimates are correct and the trend shown in the graph continues, explain the impact that this will have on i) Dan and ii) the future of the business. Write your answers on the back of this page.

50 50. Import protection and export subsidy 1. Which word is being described? A) the sale of a product or service to a person or business overseas B) the purchase of a product or service from overseas C) a limit on the number of imports from foreign countries D) a tax placed on goods and services which are imported into a country E) an amount paid by the government to businesses who export products to help reduce their costs of production Words from: Subsidy; Quota; Import; Export; Tariff 2. Objective Test question From the list below, identify two advantages of import protection such as quotas and tariffs a) Domestic firms are protected from imports into the market b) There is little incentive for domestic businesses to reduce the costs of production c) Domestic employment is protected d) Customers get a greater choice of products e) Can lead to lower safety standards in domestic markets f) May lead to businesses running out of stock 3. Explain the effects of the EU government imposing import protection and export subsidy measures on the 3 different groups in the table Group Effects of Import protection (Quotas and tariffs) Effects of Export subsidies UK Consumers UK businesses Chinese businesses 4. Data Response question. The EU is considering scrapping current export subsidies on sugar 4.1 Explain why EU sugar farmers want the EU to keep its export protection measures 4.2 Explain how the decision to abolish the export subsidy will affect one stakeholder group, other than the sugar farmers themselves 4.3 Do you think that exports of sugar from the EU should be subsidised? Explain your answer.

51 51. Income distribution Incomes are distributed unevenly within countries and even more obviously, countries of the world. In some countries, the top 5% of income earners earn 50% of the wealth generated in a year. This leaves relatively little for the bulk of the population. Other societies such as Sweden or Cuba are more equal, with a relatively gap between the rich and poor. The wider the income distribution, the higher the proportion of families who with be living in relative. Missing words: poverty, between, narrow 2. Data Response The table below shows the average yearly income per family (US$) in selected countries across the world. (World Bank, World Development Report 2009) 2.1 State two possible reasons for the difference in income between the UK and China 2.2 Explain one action by a UK company that could improve the level of income per head in India 2.3 Explain one action by the UK government that could help to reduce the inequality of international income distribution. 2.4 Explain why a country with a high level of income per head is likely to buy more imports than a country with a low level of income per head. 2.5 Using the chart, which countries are UK businesses most likely to sell their exports to? Explain your answer. 2.6 Explain how the low level of income per head in India affects a business such as Gap which outsources production of some of its clothing to India.

52 52. Interest Rates Interest rates are the cost of money or the reward for money. It is an annual percentage rate set by the Policy Committee of the Bank of England. Changing interest rates can cause problems for businesses, and small businesses can be particularly affected. When interest rates rise, consumer spending because people have to pay more on their mortgages. When interest rates are lowered, consumer spending tends to. These changes in consumer spending affect demand and therefore revenue. In addition, many small and start up businesses rely on borrowed finance such as loans and overdrafts. A rise in interest rates increases the payments businesses have to make to their. Missing words: banks, Monetary, increase, decreases, borrowing, saving 2. Calculations John runs a computer repair business. He has a loan of 100,000 which he used to finance his start up business. Calculate John s annual interest payments if the interest rate is: a) 5.25% b) 8% c) 3% 3. Data response The graph below shows changes in the Bank of England Base Rate, February 2001 to February 2008 ( Study the graph and answer the questions that follow. 3.1 What was the Bank of England Base rate in i. February 2002 ii. October 2005 iii. February 2008 iv. March 2009? 3.2 Ellie owns a small jewellery shop which opened in July The opening was financed by a loan of 50,000 which she had to pay back over 5 years. Explain the impact on Ellie of the increase in interest rate from 3.5% to 4.75% between 2003 and Ellie relies on an overdraft facility provided by her local bank. Explain the effect on Ellie s costs of the fall in interest rates between October 2008 and March Explain in your own words what is likely to have happened to the demand for Ellie s jewellery between October 2003 and February 2009

53 53. Invention and Innovation is showing how an original idea for a new product can work. When the new idea is brought to the market, it is known as an. Innovation adds value to products, as is shown by the price premiums charged by companies such as Apple or Innocent Drinks. An entrepreneur with the quality of will be likely to be inventive and innovative. Words from: creativity, innovation, invention 2. Invention or Innovation? State whether each of the following are examples of invention or innovation: a) The super-small flash memory at the heart of the ipod b) Squeezy bottles for ketchup and mayonnaise c) Probiotic yoghurt drinks d) A new type of battery, which recharges as you walk e) Dyson cyclone cleaning system (that replaced the vacuum cleaner) f) Factory Style chip fryers in a fish and chip shop g) The motion controller that comes with the Nintendo Wii 3. Dragon s Den The TV programme Dragon s Den sees entrepreneurs pitch their inventions and innovations to a panel of investors in the hope that they might help finance their business dream. Here are two ideas being pitched on the Dragon s Den website. Choose one of these and say whether you think it would be a good investment. Give reasons for your answers. (see for more) a) The Cosy Shopper a hygienic, cushioned cover for supermarket trolley baby seats b) Travellersreunited a social network that re-unites backpacking friends 4. The future Copyright Kane Kramer 1979 Apple launched its ipod in The original idea for the ipod was invented long before, by Kane Kramer. But the idea was brought to market by Apple, the innovator. Apple is constantly seeking to innovate in relation to the ipod. a) Outline one new feature the Ipod is likely to have in 5 years' time? Why do you think this? b) REGEN is a recent invention in relation to MP3 players. It is a batteryless MP3 player that's powered by the action of Yo-yoing. It can store up to 200 songs on its built-in hard drive. It has a touch screen LCD display and wireless Bluetooth headphones. You yo-yo the player times and it is ready to go ( Do you think this idea is likely to be a success? Why do you think this?

54 54. Legislation affecting Staff 1. Match the law with the correct description Equal Pay Act Employers must provide safe premises, machinery and working conditions Age Discrimination Act Race Relations Act Disability Discrimination Act Sex Discrimination Act Health and Safety at Work Act Firms must not treat workers with disabilities less favourably than other workers in recruitment or during the course of employment Men and women doing equal work of equal value must receive the same pay People must not be discriminated against on the grounds of colour, race, nationality or ethnic origin It is illegal for an employer to discriminate on the grounds of age in recruitment, promotion, dismissal and training Employers must not discriminate on the grounds of gender in recruitment, promotion, training and terms and conditions of employment 2. Which law has been broken? 2.1 Amy owns a lollipop shop. She employs two workers to act as shop assistants in one of her branches. They are the same age and work the same shifts. James is paid 6.15 per hour and Jenny is paid 6.90 per hour. Which law has the business broken? 2.2 Amy has a lollipop making machine in each of her 3 branches. In one of the branches, the machine has lost the guard covering the blade on the lollipop shape-cutter. An employee reported this 3 weeks ago but she still hasn t fixed it because: It will cost too much and I ve more important things to spend money on. 2.3 Barman required at The Fox Inn, Manchester 2.4 Social worker required to deal with local Indian community. Indian Nationals preferred. 2.5 Temporary labourers needed for City Centre building site. Able-bodied applicants only please 3. Explain why Employment legislation can have both a positive and a negative effect on businesses. For each of the situations below, explain why: 3.1 Employment legislation may help in motivating a workforce 3.2 Employment legislation encourages employers to treat staff fairly 3.3 Employment legislation can increase costs for businesses 3.4 Explain the impact treating all employees fairly and equally may have on the business

55 55. Limited and Unlimited liability A sole trader is an liability business owned by one person. This means that the owner of the business is fully responsible for the of the business if it fails. If the owner of a sole trader business is not able to pay the debts, s/he will be declared. A private company is a small family business with shareholders. The shareholders have liability. This means that if the business fails, the shareholders only lose the amount they have in the business. Missing words from: limited, invested, unlimited, private limited, debts, bankrupt 2. Limited or Unlimited Liability? Place the following words under the correct heading. Do they relate to limited or unlimited liability? Sole Trader High Personal Risk Shareholders Low Personal Risk Private Limited Company Responsible for all debts Lose only the amount invested Protection Separate from owner Business and owner seen as one Loss of personal possessions Risk of bankruptcy Unlimited Liability Limited Liability 3. Multiple Choice 3.1 A shareholder in a private limited company has a) Unlimited liability b) Limited liability c) Complete control over the company d) No rights, because it isn t a public company 3.2 Which of the following features relates to a sole trader business? a) Limited liability b) Easy to sell shares to new investors c) Complete control over the business d) A legal requirement to have an accountant produce financial accounts for the business 3.3 Lisa is a plumber who runs her business as a sole trader. Her business has performed poorly over the past year and she has run up debts of 65,000. Lisa invested 100,000 of her own money in the business and used her flat as security for a loan of 50,000. Her house is worth 250,000. She owes to her suppliers. If she closes her business, how much of the debt is Lisa responsible for paying? a) 65,000 b) 50,000 c) 15,000 d) 100, Which type of ownership? Lucy is a sole trader who runs an events management company. She employs 3 people and for each event she runs she has to borrow up to 100,000 for materials and venue hire. She does not get paid by her customers until after the event has taken place. 4.1 Outline two advantages to Lucy of staying as a sole trader and two advantages to Lucy of setting up a limited company 4.2 Advise Lucy as to which type of business ownership is best for her. Give reasons for your answer.

56 56. Managing Quality 1. Missing Words Quality is a very important part of any business. It is the key to customer. If a customer receives poor quality service in a restaurant they are unlikely to return. If a driver s new car keeps breaking down, she is unlikely to buy that make of car again. The traditional approach to managing quality is quality. This involves putting systems in place which randomly test the quality of products. A more recent approach to quality management involves developing a of quality, where everyone in the business is for the quality of the work that they do. This can be more effective, as it focuses on everyone getting quality right time. Missing words from: control, first, culture, satisfaction, responsible 2. True or False? (Write a T or F by each of these statements) a) Managing quality leads to increased customer complaints b) In a system of quality assurance, everyone in business is responsible for quality c) Quality control means that quality should be a part of every process within the business d) In a service organisation high quality is about providing efficient customer service e) A quality control system leads to 100% of products being checked for quality f) A quality culture leads to more motivated staff 3. Quality Control or Assurance? Do the following statements refer to a system of Quality Control (QC) or Quality Assurance (QA)? a) Products are checked randomly at different stages of production b) Quality is everyone s responsibility c) The focus is on testing finished products for quality d) Quality is part of every process within the business e) Aims for zero defects f) Requires all staff to be trained in the importance of quality g) Reacts to poor quality rather than prevents it in the first place h) Once it is fully established, fewer quality checks should be needed 4. Data response Quality is a key concern of companies such as Heinz. Heinz has recently issued a product recall of a baby food product the Mum s Own Spaghetti Bolognese as small pieces of plastic have been found in a small number of jars which can represent a choking hazard to babies. 4.1 Explain how these faulty products could have ended up on supermarket shelves 4.2 Explain the impact of this product recall on Heinz 4.3 Suggest how Heinz can attempt to ensure that this does not happen again

57 57. Managing Stock. In businesses such as shops, stock ties up a lot of. Therefore firms try to keep stock levels as low as they can. The concern, though, is that a sudden rush of demand will leave empty, which would mean poor customer. Major retailers such as Tesco use computerised systems to help run efficient In Time ordering of stock. Missing words: shelves, cash, just, service 2. Interpreting a stock control chart of tennis rackets at a shop. Look at the graph; answer the questions: a) What is the maximum stock level of tennis rackets that the sports retailer holds? b) What is the re-order level? c) What is the minimum stock level? d) What is the lead time? days 3. Match the key term with the correct definition (Draw an arrow to the right definition) 3.1 Maximum Stock Level a) The minimum stock level held at all times to avoid running out 3.2 Buffer Stock Level b) Having empty shelves 3.3 Over stocking c) When products are ordered and delivered just before existing supplies run out 3.4 Zero stock level d) The highest level of stock that a business wants to keep at any one time 3.5 Just in Time Stock control e) Holding too much stock in the business 4. Just in Time stock control Many businesses, such as Tesco, now operate a Just-In-Time (JIT) stock control system. State whether each of the following is an advantage (A) or disadvantage (D) of a JIT stock control system. a) Ordering in smaller quantities means missing out on bulk buying discounts b) Failure of stock to arrive on time leads to dissatisfied customers c) Reduced costs of storage d) Fresher, more up to date produce e) Cuts the amount of the firm s cash tied up in stock f) May be unable to meet sudden increases in demand g) Improves efficiency 5. Briefly explain Why clothes shops hold Sales in January and July each year.

58 58. Market Knowledge 1. Missing Words Understanding the customers is vital to the success of a new business. In order to start a successful business, an entrepreneur will need good of the market they are thinking of entering. This involves researching what customers and and also what businesses are already supplying. Failure to understand the customers you want to sell to - and the market in which you are operating - will lead to business. Words from: need, rival, knowledge, want, failure 2. How to gather knowledge For the following situations, what do you think would be the most effective method of gathering market knowledge? Think about your knowledge of direct customer contact, primary research and secondary research. Situation Method Justification The owner of a small hairdressing salon wants information on the impact of a new hairdresser she has recently employed A new pizza restaurant, due to open in the next 6 months, needs to gather information on trends in pizza buying amongst customers A large local supermarket wants to judge the impact of a recent change in store layout An ice cream shop has trialled a new flavour and wants to make a decision as to whether to include it in their range permanently A sports shop wants to find out why the sales of a specific sports shoe are falling 3. Direct customer contact in large organisations It is easy for the owner of a very small business to gather market knowledge through direct customer contact. Large organisations such as Tesco and HMV obtain their market knowledge by analysing data from their loyalty cards. 3.1 How do loyalty card schemes help businesses such as Tesco and HMV gather market knowledge? 3.2 Outline one possible benefit of loyalty card schemes to a) The business and b) The customers a) b) 3.3 A very successful BBC TV programme entitled Back to the Floor saw a number of Chief Executives of large organisations spend a week as a junior employee in their organisation. Explain two benefits of this to the business.

59 59. Market Mapping. 1. Which two statements about market mapping are true: a) Market mapping allows the business to plot sales revenue. b) Market mapping is used by all businesses. c) Market mapping is used to identify niches in the market. d) Market mapping means plotting where each brand fits in a two dimensional diagram 2. Look at this market map for the sports and energy drinks market. Red Bull Sugar Free Lucozade Alert High in stimulants Powerade Relentless Energy Drink Red Bull Irn Bru 32 Energy Drink Lucozade Original Energy Red Devil Lucozade Sports Caffeine Low in calories High in calories Biological Synergy Fitness Water Low in stimulants Gatorade 2.1 Sales for sports and energy drinks have been rising sharply in recent years. Jack works for a company which sells bottled water; he wants to move into the energy or sports drinks market. From the list below identify the most likely gap for a new sports or energy drink. a. An energy drink like Red Bull b. A sports drink that is high in stimulants and high in calories c. A sports drink that is low in calories d. A sports drink that is high in calories e. A drink that is high in price and low in calories. 2.2 Jack has discovered that most customers who purchase energy drinks are young men. Jack has made a decision that he will create a brand new fitness drink aimed at twenty something, gym going, women. Looking at the market map, why has Jack made this decision? a. there are potentially more customers in the low calorie, fitness drink sector b. there may be few customers in the low energy, high stimulus sector of the market c. Red Bull is too well established to compete with. d. Gatorade has recently been launched onto the market. 3. Can you complete the cryptogram below? Find out which letters the numbers represent to complete the phrase, some have been done for you to start you off. A B C D E F G H I J K L M N O P Q R S T U V W X Y Z M A M A P G S A O S P G G A P M A

60 60. Market Segmentation : Market segmentation means analysing how a market can be divided into sections. Although the Rolls Royce and the Ford Focus are both cars, they are not in with each other. One is an everyday family car and the other is in the super-luxury end of the market (and costs more than most people s houses). By segmenting the market, you may be able to see where are booming, or may be able to identify a. Missing words from: gap, sales, competition 2. Multiple Choice Bestle and Hopter manufacture washing powder. They have been making and selling washing powder for many years and have seven different brands on the market. 2.1 Identify the most likely reason why Bestle and Hopter have seven different brands available to buy. a) One product would not satisfy all customers needs b) They couldn t decide which product would be the most successful so they made them all c) It means they reach equilibrium pricing. d) They know they have the right marketing mix. 2.2 Identify the two most likely ways in which Bestle and Hopter would segment the washing powder market. a) Location b) Age c) Age left full-time education d) Income e) Size of Household 2.3 Bestle and Hopter make a brand of washing powder which comes in large boxes called ValuWash. From the list below identify the market segment they are targeting. a) Young school leavers b) A low income family of 5 c) A couple of high earning solicitors d) Retired couples 3. Look at the data and then answer the questions that follow. Ellen has been asked by a popular children s author to manufacture some merchandise linked to the very popular series of story books called The Adventures of Tiggi the cat!. Look at the data below Groups (%) that read "The Adventures of Tiggi The Cat!" 6 to 12 months 1 to 3 years 3 to 6 years 7 to 9 years 3.1 Which market segment should Ellen design her toys for? 3.2 Explain your reasoning 3.3 Outline one reason why it would be a mistake to treat the whole age range (6m to 9yrs) as one market. 4. Rearrange the following anagrams to reveal methods of segmenting the market i Nicety Hit iii Den Erg ii Reign Oil iv Coat Lion

61 61. Marketing Mix. 1. Spot the odd one out. Identify the incorrect answer. 1.1 The marketing mix is also known as: a) The 4Ps b) A marketing strategy c) The marketing recipe d) Product, Price, Place, Promotion. 1.2 Methods of promotion commonly used by small businesses are: a) Adverts in the local newspaper b) Leaflets c) Local radio adverts. d) Television adverts. 1.3 One way of differentiating your product from others that already exist is to give it a design feature that is different. The name for this is the: a) Unified Selling Point b) Unique Selling Point c) Unique Selling Proposition d) USP 2. Multiple Choice Erin owns and runs a small beauty salon; her business has been operating for three years. Erin s business, Best for Beauty, is based in a small town and her customers are mostly local. After spending two months in the USA, Erin is the only technician in the town qualified in the latest laser, permanent hair removal techniques. 2.1 Which two of the following are important factors Erin should take into account when setting prices? a) In a small town people can only afford low prices b) If there is no competition locally, Erin can set quite high prices on the laser treatment c) Two months in America would be costly, so she must price high to get her money back d) If the laser treatment works far better than alternatives, she can charge customers slightly more e) The higher the price the lower the demand, so she should set prices as low as possible 2.2 Erin wants to persuade customers to try the Laser Hair Removal. Choose the two most likely methods Erin would use. a) A treatment of the month special price for Laser Hair Removal b) Set up a stall in the local shopping centre offering trials of Laser Hair Removal c) Offer customers buy now and pay later for treatment. d) Offer a 20% discount to customers trying Laser Hair Removal for the first time. e) Offer customers a free bottle of nail varnish if they have a treatment at the salon. 3. Fill in the gaps about distribution channels. Distribution channels can be d or indirect. W can sell their products to r who then sell them to consumer. The c channel and often the f for the consumer is where m sell directly to the c, this is more common due to the growth of the i. Choose from the following: cheapest customer direct fastest internet manufacturers retailers Wholesalers 4. Explain Why: 4.1 A Chinese takeaway might decide to double its spending on door-to-door leaflets locally. 4.2 A producer of top quality fudge might decide to stop distributing through shops and sell online only.

62 62. Maslow s Hierarchy : Theories of motivation attempt to explain why people. Knowing what factors motivate employees to work with enthusiasm can be very useful to businesses. One of the best-known attempts to explain motivation is the Hierarchy of Needs, developed by Abraham Maslow. He argued that needs rise up a ladder, starting with survival needs (food, shelter) and ending with needs. These needs have to be satisfied according to a particular order, or hierarchy. Once a order need is satisfied, workers will move on to other needs further up the. Hint: words from psychological, hierarchy, human, lower, work, 2. Matching activity: Match the type of need, according to Maslow s hierarchy, to the method of satisfying the need on the right of the table below: Type of need Method of satisfying need 1. Physiological needs 2. Security needs 3. Social needs 4. Esteem needs 5. Self-actualisation a) Setting up and funding regular nights out for employees within the same department. b) Providing employees with access to management training. c) Ensuring that pay rises cover any increases in the cost of living. d) Ensuring that the job has challenges that push staff to get the best out of themselves e) Implementing awards such as Employee of the Month or Sales Consultant of the Year f) Ensuring that all employees receive regular health and safety training 3. Exam-style questions 3.1 Which one of the following gives the most accurate definition of motivation? a) The desire to get promoted as quickly as possible. b) The desire to work effectively on an individual basis, rather than as a part of a team. c) The desire to work that comes from within an individual worker. d) The desire to be as happy as possible at work. 3.2 Identify three advantages to a business from having a more motivated workforce: True or false (a bonus mark for explaining the correct answer): 4.1 Businesses that do not attempt to motivate workers may find it difficult to control labour costs. T/F Reason 4.2 According to Maslow, workers will focus on their social needs, once their esteem needs have been satisfied. T/F Reason

63 63. Mind maps Businesses in the music or fashion industries operate in a whirl of changing causes and effects. Therefore it s important to see the way business activities together. A useful method for doing this is to draw up a mind map. Mind maps are that represent a complex idea, problem or situation. A key word, such as competitors, is put at the centre of the diagram. Then branches are drawn to show connecting ideas or issues leading from or to it. The branches can also be drawn and arranged to show the relative of some issues over others. Mind maps encourage a brainstorming approach to - solving and the use of colour and images helps to promote thinking. Hint: words from creative, diagrams, importance, link, problem 2. True or false one bonus mark for giving the correct reason: a) Using mind maps eliminates the risk involved in decision-making for businesses T / F Reason b) Using mind maps encourages decision-makers to identify all of the possible consequences of a particular course of action T / F Reason c) Using mind maps allows decision-makers to attach varying levels of importance to different outcomes Reason T / F 3. Multiple choice questions 3.1 Which one of the following is not a possible benefit of using mind maps? a) They can be used to summarise and present large amounts of information b) They can be used to identify all of the aspects of a complex project c) They can be used as an aid to thinking of creative solutions to business problems d) They can be used to guarantee the success of a complex project 3.2 Which one of the following should not be included on a mind map? a) A key idea at the centre of the diagram b) Lots of colour c) Lots of text d) Lots of images 4. Briefly explain: 4.1 Briefly explain how mind maps can be used to plan ahead: 4.2 Briefly explain how mind maps can be used to make connections: 4.3 Briefly explain how mind maps can be used to make decisions:

64 64. Mistakes: Good and Bad Anyone who starts a brand new business is bound to make mistakes. There are four important categories of mistake: i. Ones you can cope with (perhaps by putting in a lot more time) ii. Ones you cannot (easily) cope with, e.g. mistakes that cost a lot of iii. Ones you from (and therefore may prove a blessing in disguise ). iv. Ones you fail to learn from and therefore may make again. Having a business might help prevent one or two mistakes, but that might prevent the huge amount of learning that takes place when you make a mistake. Hint: words from learn, money, mentor 2. True or false one bonus mark for giving the correct reason: 80,000 Cash balance at month end, JG Seaside Cafe 60,000 40,000 20, ,000-40,000-60,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb 2.1 JG Café opened in February last year and had a terrific summer. In the Autumn the owner (JG) bought a company car and hired extra staff. He was confident that the café had built up a large, regular clientele. Examine the mistake he made. 2.2 In the following year JG was careful to preserve cash in the business, to help it through the winter. In what sense was his earlier mistake a good mistake? 3. Multiple choice questions 3.1 Which one of the following could be thought of as a good mistake? a) Forgetting to pay staff their commission just like last month. b) Losing the biggest customer s insurance details and losing the business c) Selling a whole batch of awful doughnuts, but only realizing after the customers had left d) Closing the shop an hour earlier, but switching back to the old times after just 2 weeks, when sales flopped. 3.2 Which one of the following is the best explanation of a bad mistake. a) A mistake that is made by a bad employee b) A mistake that causes bad publicity for the business c) A mistake that could have been prevented with a bit of care d) A mistake that is largely due to bad luck

65 65. Motivation (Unit 3) Motivation comes from within the person. In other words it occurs when people do things for themselves because they want to. A or greedy person can be persuaded to work hard on a dull job for money but they will not enjoy the process. Indeed they may come to resent it. such as Maslow want people to see that humans need work for far more than just money. People need work for reasons and for the psychological reasons he called self-actualisation. What no-one doubts is that people are really lucky if they can earn good money doing the job they love. Hint: words from social, hungry, psychologists 2. Look at the bar chart then answer the questions below. Survey results on motivation of teenage part-timers Manager is quick to praise I learn new things Good social life Like the people I need the money 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 2.1 According to the bar chart, which one of the following is not a reason why teenagers take part-time jobs. a) To fulfil social needs b) To fulfil self-actualisation (higher order) needs c) To fulfil security needs d) To fulfil the objective of career advancement 2.2 Which one of the following is a true statement about the bar chart data? a) A majority of teenage part-timers are motivated by liking the people they work with b) A majority of teenage part-timers enjoy learning new things at work c) Most of the interviewees are not greatly concerned about the amount they earn. d) The graph proves that all workers are motivated mainly by money. 3. Data response. In the summer 2009 Damian Duff joined Fulham from the newly-relegated Newcastle. As a former Chelsea star, Duff had just been included in a list of the Top 10 Richest Footballers in Britain. Duff, aged 30, joined Fulham at lower wages than he had received at Newcastle. Within ten games for Fulham, Duff was playing his best football for years, scoring goals, tackling back and loving every success by the team. 3.1 What might explain the clear evidence of Duff s high level of motivation at Fulham? Outline two possible factors. 3.2 Why may people be motivated to go on working even after earning all the money they need?

66 66. Organisational structure Apart from one-person businesses, all organizations have a structure a hierarchy. Large businesses have the whole thing planned out as a huge diagram, showing the chain of from top to bottom of the business. Small firms may have nothing written down, but everyone will know who has the to make decisions. Big businesses such as Tesco have to decide whether to power, i.e. make all the important decisions at Head Office. The alternative is to decentralise, i.e. pass power down to local branches or managers. Hint: choose 3 from this list of possible words: decentralize, command, power, centralize, hierarchy 2. Look at the organizational hierarchy diagrams, then answer the questions below. Imperial Computers Boss Vetex Computers Dir V.P. Snr M grs 5 Managers 35 shopfloor staff 6 Managers 20 Supervisors 60 Shop floor staff Imperial Computers has annual sales of 8 million and 112 staff. Competitor Vetex has sales of 6 million a year but makes more than double the profit. The Vetex boss is hugely proud of his staff and takes everyone out for a meal every Friday night. The new boss of Imperial is wondering how to achieve Vetex s high profit level. 2.1a) Which of the two businesses has a wide span of control? 2.1b) Outline one advantage and one disadvantage of the span of control at Imperial Computers. 2.2 How might Imperial s profits be boosted by changing its organizational structure? 3. Matching exercise What the words mean 1. The number of staff answerable directly to a specific manager 2. Passing the power from head office to local branches/managers 3. Organising staff into departments such as Marketing & Finance 4. The power structure from top to bottom of the business ANSWER 1. = 2. = 3. = 4. = The words (or phrases) a) Narrow span of control b) Decentralisation c) Centralisation d) Divisional structure e) Span of control f) Chain of command g) Levels of hierarchy

67 67. Patents and Copyright. If an entrepreneur invents a new product they should file a application. Although this is, once the entrepreneur has registered the idea their creation is and cannot be copied by others. A patent means they have exclusive over how their invention is used and who can manufacture it. Patents are used for registering a new way of doing things. law protects recorded and materials. Choices: written, protected, rights, patent, expensive, copyright 2. Look at this data on the number of UK patent applications made over a five year period, then answer the questions below: Patent Applications from 2003 to Number of Applications Year Patent Applications 2.1 From the list select two of the criteria that must be satisfied for an inventor or entrepreneur such as James Dyson to be granted a patent on an invention? a) the idea must be brand new b) the idea must be able to be used in industry c) the idea could be musical d) the idea could be a new variety of plant e) the idea could have been used by another business already but it has been improved 2.2 Calculate the difference in the number of patent applications made between 2003 and From the list below, identify the two factors most likely to have influenced the number of patent applications made over the five year period. a) These days, there s nothing much left to invent. b) There has been less investment by businesses into research and development in the UK. c) With the 2008 downturn in the economy, there were fewer applications for patents. d) A decline in the amount of manufacturing done in the UK has resulted in fewer patent applications. e) There are fewer inventors living in the UK now compared with five years ago. 3. Unscramble the following inventions, inventors or key terms. 3.1 Madness Joy (clue a modern inventor) 3.2 Ant Pet 3.3 Pole (clue it s a dinosaur) 3.4 Itchy Gorp 3.5 Silence 3.6 Do Pi

68 68. Pressure group activity In October 2009 pressure group Greenpeace announced a Wave March to take place on December 5 th A march in central London would be followed by forming a circle around the House of Parliament. A huge blue wave (by the marchers) would publicise the group s message: Action on Climate Change Now! The Blue Wave idea would attract TV and press and create a day of pressure for more action. This is a classic pressure group activity, designed to create lots of publicity. A pressure group is a group of people who share a common. The purpose may be to protect the interests of members (e.g. the CBI protects the interests of big ) or to promote the cause of change, e.g. Lynx (which wants to stop people buying real fur coats). Choices: goal, environmental, businesses, government 2. Data Response. To promote its environmental messages, last year Friends of the Earth set up: 25 training events 46 public meetings 163 face-to-face meetings with MPs 445 street stalls 94 media stunts 2.1 Give two possible examples of an environmental media stunt 2.2 What might be the point of face-to face meetings with MPs? 2.3 The public meetings included several that were attended by more than 1,000 people. Outline two actions a pressure group might take to publicise such meetings. 3. ANAGRAMS. Find the name of a pressure group within each jumble of letters. Each group name has 3 words. 3.1 PROTEST WAH Clue: Formed when America and Britain invaded Iraq 3.2 AHOY EMPTY TREK VISOR Clue: Formed to protest at the world s failure to help the world s poor. 4. Funding. Not all pressure groups are funded by individuals. Some get their money from businesses that want to defend their interests. The pressure group FOREST is a pro-smoking group that allows the tobacco industry to lobby government at arm s length. In August 2009 the pressure group Energy Citizens ran public meetings that attacked U.S. government proposals on climate change. Journalists found out that the pressure group was funded by the U.S. oil industry. 4.1 Explain why a big business might prefer to communicate through a pressure group, instead of speaking directly. 4.2 Should the law force all pressure groups to state publicly who they get their funding from? Explain your view.

69 69. Primary Research Primary research is gathered -hand usually from customers or those who might become customers. It can be time-consuming, because it is carried out for a particular business with specific that need to be answered, e.g. does our brand appeal to under 19s? Primary research can be, i.e. a survey on a large sample of people. Or it can be, i.e. in-depth research on a small of consumers. Choices: qualitative, questions, first, quantitative 2. Dos and Don ts. When writing a questionnaire, make sure: each question is crystal clear; no question asks two things at the same time; the wording of the questions is not biased (pointing to a particular answer). Are these questions good or bad? State good or bad then briefly explain your reasoning. 2.1 Would you come to this ice cream shop again and recommend it to your friends? 2.2 On a scale of 1-10, do you agree or disagree with the following: I enjoyed the ice cream flavours I chose 2.3 Which of these three interiors would best fit for a make-over of the ice cream shop? 3. Data Response Answers to: Have you any suggestions for improving this ice cream parlour? Others Faster service More flavours Women Men More space No suggestion % 3.1 Identify two answers that seem more important to the men than the women 3.2 Why might men be keener to see more flavours than women? 3.3 Why might women be more keen than men to have more space? 3.4 This survey was carried out on 156 adults as they left the ice cream shop. Outline one possible problem with this sample.

70 70. Product Life Cycle Most products follow a natural life of five stages: development; ; growth; maturity and decline. Different products, though, have very different life times. Crocs shoes had 3-years of growth followed by almost immediate decline. In other words the phase was very short. Cadbury s Dairy Milk has been growing for more than 100 years. The graph below shows yearly ipod sales since birth; it shows a classic life cycle pattern. It also looks like it needs an strategy, i.e. a medium-term plan for extending the product s life cycle. Missing words from: extension, birth, maturity 2. Data response. Note that the data below shows unit sales for 12 months; source: Apple accounts Units (000s) ipod and iphone life cycles (to 2009) ipod iphone 2.4 In which phases of its life cycle was iphone in a) 2006 and b) 2008? 2.1 In which year did annual sales of ipods first hit 50 million units? 2.2 In which phase of its life cycle was ipod in 2008? 2.3 It was 3 years before sales of ipods took off. Outline one possible reason. 2.5 Outline one possible extension strategy that Apple could use for the ipod in The Life Cycle Phases In which phase of their life cycles are each of the following products/businesses? 3.1 The Daily Express newspaper 3.2 Nintendo Wii 3.3 Primark 3.4 Twitter 3.5 Maltesers 4. Explain why: 4.1 Cash flow can be a problem in the birth phase of the life cycle 4.2 It s a mistake to decide that a business can never reverse a pattern of declining sales. 4.3 Buy One Get One Free (BOGOF) is not an extension strategy.

71 71. Product Portfolio (Boston Matrix) The Boston Matrix is a way to analyse how well a firm s brands are doing. For example, sales of the Sunday Express newspaper have been falling for 20 years (it used to be Britain s biggest seller). Clearly it s a bit of a. The Matrix measures a brand s market in comparison to the trends in the market as a whole. For the Sunday Express, the awful truth is that it s losing share in a declining market. So it s definitely a dog. If, like Cadbury, you have lots of brands, the Matrix helps you decide which brands are the big ones for the future, and are therefore worth supporting heavily with. Words from: advertising, dog, share 2. Multiple Choice From the list below identify the one drawback to a business of using the Boston Matrix. a) Able to plan when new products should be introduced or developed b) A business may decide not to invest in a product which could have been revived. c) Can decide whether it is worth investing in existing products d) Knowledge of the markets that their products are in and what their market share is. e) To ensure that they have range of products available at each stage to ensure a future for the business. 3. Look at this product portfolio then answer the questions below: Market Share High Low a) Rising Star b) Problem Child High Market Growth c) Cash cow d) Dog Low 3.1 From the list below match up the definition with the categories above. i) Poor market share; need to be put to sleep ii) Difficult to be sure of its future; needs lots of investment. iii) Steady market; well established products. iv) Likely to give good cash return in future; worth backing with advertising. 3.2 Explain why a cereal company would want a range of brands in its product portfolio, not just one. 4. Rearrange the following phrase. growth and market provides a framework sales share the boston matrix to assess