Final exam notes BUSINESS AND ENTERPRISE II

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1 Final exam notes BUSINESS AND ENTERPRISE II WEEK ONE - Business Environments PESTEL analysis Political Economic Socio-cultural Technological Environmental Legal SWOT analysis Strengths Weaknesses Opportunities Threats Internal environment (employees etc.) Micro-environment (customers, stakeholders etc.) Macro-environment (political, socio-cultural etc.) Market Economic Legal Technological Social WEEK TWO - Innovation and Entrepreneurship Innovation Conversion of knowledge and ideas into new or improved products/processes/ services Innovation is a specific function of entrepreneurship Entrepreneurship The process of creating or seizing an opportunity and pursuing it to create something of value regardless of current available resources Takes on financial risk in the hope of profit Do something different rather than doing better what is already being done 1

2 Capitalist economic growth is fuelled by creative destruction Typewriting used to be a profession, now disappeared because of widespread availability of portable computers What if we don t invest in innovation? e.g. Kodak Schumpeterian Cycle of Innovation and Entrepreneurship We are now in the fifth wave Opportunities for innovation 1. Unexpected occurrences 2. Incongruities 3. Process needs 4. Industry / market changes 5. Changes in demographics 6. Changes in perception 7. New knowledge WEEK FOUR - Business Models How do we create, deliver and capture value? The Business Model Canvas Key resources Key partners Key activities Channels Customer relationships Value propositions Customer segments Revenue streams Cost structure Examples of simple / complex business models: Complex: Freemium model Spotify Complex: Razor and blades model Gilette, Nespresso, HP printers Simple: Franchise model McDonald s, Dunkin' Donuts 2

3 Sustainability Meeting today s needs without sacrificing those of future generations 1. Reduce dependence on fossil fuels 2. Reduce dependence on synthetic chemicals 3. Reduce destruction of nature 4. Meet human needs fairly and efficiently We should view sustainability as opportunity, not compliance. But be careful: competitive advantages soon become competitive necessities. Corporate Social Responsibility Cadbury Palm Oil scandal Cadbury fell from being most trusted NZ brand to 36th place Tells us that a brand is no longer what we tell people it is, it is what people tell each other it is. WEEK FIVE - Marketing = Customer Orientation Marketing is as much an art as a science Motivation Internal drive that dictates our behaviour Involvement SOCIAL ENVIRONMENTAL ECONOMIC LOW INVOLVEMENT HIGH INVOLVEMENT NEED RECOGNITION NEED RECOGNITION INFORMATION SEARCH PURCHASE PURCHASE EVALUATE ALTERNATIVES 3 POST-PURCHASE EVALUATION POST-PURCHASE EVALUATION

4 SATISFACTION TRUST LOYALTY How can we understand consumers and what they like / don t like? Experiments Surveys Focus groups The job of the marketer is to convince consumers that particular goods/services will solve their problems Four eras in the history of marketing PRODUCTION ERA A good product will sell itself SALES ERA We can persuade customers to buy with good advertising MARKETING ERA Create products which satisfy customers needs RELATIONSHIP ERA Create long-term relationships with customers Profits through customer satisfaction Four types of utility Form utility Time utility Place utility Possession utility 4

5 WEEK SIX - Marketing Strategy Segment(s) to target Position in customer s mind Competitive differentiation Design the marketing mix Market segmentation Dividing customers into segments, made up of particular characteristics, needs etc. Anchor milk Mega - extra Vitamin D Blue Top - Kiwi classic Skim - health conscious Cadbury chocolate Roses - special occasions and celebrations Old Gold - higher quality cocoa, dark chocolate Bubbly - youthful, something different Competitive differentiation Finding a point of difference which proposes value to the customer Lower cost? Higher quality? Easier to use? Better service? Subway have loyalty programme, school lunch programmes, healthier menu options as a result, fastest growing franchise worldwide with more branches globally than McDonald s Positioning Positioning is about communicating important attributes and positioning the brand and its characteristics in the customer s mind. Diet Coke (feminine) vs Coke Zero (masculine) Different positioning of two low-calorie products Marketing Mix Product A bundle of value that satisfies a customer s need(s) Price Money charged for the product Place (distribution channels) Systems for moving products from producer to consumer 5

6 Promotion Communication with target market (marketing) The classical view is that buyers will recognise needs, evaluate decisions and come to a rational conclusion - the reality, however, is far less logical and far more complicated than this. Cognitive dissonance When a customer s behaviour doesn t match their beliefs. Buyer s remorse often results from this. Situational factors Life events or personal circumstances which affect buying behaviour e.g. bad mood > retail therapy (shopping) to feel better Reference groups MEMBERSHIP ASPIRATIONAL Groups which we actually belong to Groups used as role models for what we want to become NEW PRODUCT EXISTING Self-image comes into play too - are you what you buy? MARKET PENETRATION MARKET DEVELOPMENT PRODUCT DEVELOPMENT DIVERSIFICATION NEW MARKET EXISTING 6

7 WEEK SEVEN - Marketing Mix (4 Ps) The marketing mix brings concepts to life and helps us do business. Marketing offering We need to provide every customer with an offer - something with proposed value. EXAMPLE OF A HIGHER QUALITY OFFERING e.g. Louis Vuitton - their offering is luxurious, elegant, sophisticated. Superb packaging, hand-crafted and of high quality. EXAMPLE OF A LOWER QUALITY OFFERING e.g. Dollar Shave Club - nothing special like customer service, just high-quality razors sent to your home. They save money and pass those savings onto the consumer. Augmenting the product CUSTOMER AUGMENTED PRODUCT ACTUAL PRODUCT CORE BENEFIT WHAT WE SAY WHAT WE DO WHAT OTHERS SAY WE DO The SAY DO triangle A brand is no longer what we tell people it is A brand is what others tell each other it is (Rise in social media sites like Twitter and Facebook facilitate this) Product life cycle Introduction, Growth, Maturity, Decline Product development process Generate ideas, screen ideas, business analysis, prototype, test marketing, commercialisation Ways to create product identity Brand, brand name, brand equity, logos, symbols etc. 7

8 Ways to expand products into the market Think: what has been overlooked by competitors? Expand product line (series of related products offered by a firm) Expand product mix (complete portfolio of products offered by a firm) Brand extension (extending brand name onto new products) What factors should we consider when pricing products? OBJECTIVES Increase market share? Increase sales? Increase profits? GOVERNMENT REGULATIONS We don t want to break laws (e.g. price collusion to force another firm out of the market) MARKET DEMAND Do people want our product? Consider price elasticity - if we change price, how will quantity demanded react? CUSTOMER PERCEPTIONS Is offering it at a lower price going to affect the product s perceived value? BREAK-EVEN ANALYSIS (Because you don t want costs to exceed revenue obviously) Different methods of pricing: COST-BASED VALUE-BASED OPTIMAL DYNAMIC SKIM PENETRATION LOSS LEADER PARTICIPATIVE FREEMIUM Based on financial costs Based on value received by customer Create demand curve for every product Changing prices according to supply and demand Introductory price is high, lower the price later (e.g. iphone) Introductory price is low, in the hope of increasing sales Selling a product at a loss in the hope that they will buy other products that you offer Pay what you think it is worth (e.g. AdBlock) Free, but a premium product comes with a price (e.g. Spotify) DISTRIBUTION STRATEGY A STRATEGY WHICH DETAILS HOW WE GET THE PRODUCT FROM PRODUCER TO CONSUMER Product moves through intermediaries such as wholesalers / agents / brokers to the customer. Logistics is concerned with organising this distribution between producer and consumer 8

9 WEEK EIGHT - The co-creation of value The role of the consumer is changing and our mindset is changing too. If we produce products which are designed to satisfy customers needs, why not involve them and find out what they need? CUSTOMER LIFETIME VALUE It is better and cheaper to retain customers than gain new customers Relationship marketing is focused on creating relationships with customers, which increases the lifetime value of customers. The three dimensions of customer lifetime value: The job of the marketer is to maximise customer lifetime value by carefully focusing on maximising particular dimensions. TIME How long does our relationship with the customer last? FREQUENCY How many times do our customers come back and buy? SHARE OF WALLET What share of their total spending goes towards our business? How can we increase customer lifetime value? Customer loyalty programmes (e.g. Airpoints, Fly Buys) Up-selling Persuading consumer to buy a better version of something Cross-selling Suggesting other items consumer might like too Bundling Bundling complementary products together Relationship marketing is once again vital for maximising and maintaining the lifetime value of the customer. 9

10 Five types of customer relationships: Basic Reactive Accountable Proactive Partnership Only sells the product Sells product and encourages customer to contact if they need help/advice Sells product and calls back the customer and asks if there are any problems Sells product, then calls back regularly to check on customer and perhaps even try to get the customer to buy other products Maintains a consistent and healthy relationship with customer and how we can better serve them CO-CREATION OF VALUE Businesses collaborate with customers, creating products which satisfy customers needs - in essence, they create value with their customers. BEFORE Firm creates value Presents offer to the market Value captured through revenue from consumer WITH CO-CREATION OF VALUE Firm AND consumer create value together 10 FIRM FIRM creates value Value captured from CONSUMER CONSUMER

11 WEEK NINE - Managing and Motivating How do we get people to do things? Without motivation, nothing happens. Humans seek meaning through experience - we are social beings, so we produce meaning through our interactions with others. What skills do managers needs? Technical, conceptual, interpersonal and decision-making skills What are the three types of managerial roles? Decisional Making rational decisions after evaluating alternatives Informational Using management dashboard with KPIs Interpersonal Work is accomplished through the help of others Maslow s Hierarchy of Needs A lot of motivation theory is based on this classical hierarchy - humans are motivated by satisfaction of their needs. We are sociological beings and we seek rewards and create meaning through relationships. Edgar Schein s Career Anchors Service to others? Managerial competence? Pure challenge? Career anchors are the reasons why we are anchored in our work. PROCESS THEORIES OF MOTIVATION: EXPECTANCY THEORY Determining our level of motivational force: - Do I believe that I can do the job? - What rewards will I get? - Will I value those rewards? Maximising these three elements maximises our motivational force. EQUITY THEORY If senior management are getting paid unfairly more, then employees lower down the hierarchy will sense the lack of equity, which can demotivate them. 11

12 McGregor s Theory X / Theory Y Theory X Humans don t like to work, so need to motivate them to do so Managers need to use force and control them Theory Y Humans are naturally wired to want to work Managers need to use rewards to enhance creativity and increase productivity of their workers Herzberg s Two Factor Theory Motivational factors Promotion opportunities, recognition, achievement etc. Hygiene factors Pay, relations with others, job security etc. These two types of factors either lead us to be satisfied or dissatisfied. Goal Setting Theory Setting specific, measurable, achievable, realistic and time-limited goals (SMART goals) can be an effective way to motivate employees Management by Objectives Setting objectives for different individuals / departments. Then use the control cycle (one of the 4 classical PLOC functions of management) to evaluate progress against set benchmarks. Positive reinforcement Negative reinforcement Punishment Given rewards for good behaviour Takes away negative consequences Giving out negative consequences MAX WEBER German economist and sociologist Bureaucracy The exercise of control based on expertise and experience. MARY PARKER FOLLETT American management consultant Integrative conflict resolution Conflict is good and should be embraced - to resolve conflict, neither side should compromise, and finding alternatives which meet both their needs. 12

13 WEEK TEN - Human Resources and Labour Relations Managing your workforce is crucial if you want your business to succeed What are the trends in the workforce? More diversity An ageing workforce International division of labour Unionism in decline WORKFORCE MANAGEMENT UNIONS Protect and advance the interests of workers COLLECTIVE BARGAINING Process of negotiation between workers union and employer HUMAN RESOURCE MANAGEMENT Planning how to recruit employees, encourage training and development, evaluate and pay them. What challenges does an HR manager face? - Encouraging and maintaining employee loyalty - Aligning workforce with organisational needs and goals - Establishing work-life balance for employees (QWL - Quality of Work Life) THREE STAGES OF THE EMPLOYMENT LIFE CYCLE Hiring, Termination, Retirement STAFFING Job analysis Recruitment and selection Induction / orientation Training and Development Performance Planning and Appraisal Remuneration and other rewards 13 Employment Termination

14 WEEK ELEVEN - Systems and Operations Management Designing, creating, controlling and improving operational processes INPUTS CONVERSION OUTPUTS Inputs are transformed into outputs along the supply chain. Systems are a collection of parts working together Systems thinking is about looking at everything together and seeing how the parts fit together and work as a whole. Outsourcing can be good and bad: PROS Lower costs / prices, better support for international customers CONS Product safety issues, reduced jobs domestically Quality control Measure quality against established standards Quality assurance after the product has been manufactured Comprehensive policies across the company to ensure quality is consistent across production line Quality control is important, but quality assurance is vital. GENERAL THINGS FOR THE FINAL EXAM Section A Section B Short answer questions (write no more than half a page) Four questions worth 10 marks each Application questions (write no more than 1 and a half pages) Three questions worth 20 marks each Be able to define and explain key concepts Be able to recall case studies and examples to demonstrate understanding of those concepts Structure your answer carefully, and use the word limit wisely 14