SG BM Unit 4.1 (CB)1 KEY DECISIONS THAT BUSINESSES MAKE What will be the objectives of the business? What will the business include in its business plan? Which goods or services will the business produce ? How will the business organise production? Where will be business produce its goods and services? What price will be business charge for its goods or services? Who will the business employ?

SG BM Unit 4.1 (CB)2 KEY DECISIONS THAT BUSINESSES MAKE How will the business motivate its workers? What marketing decisions will be made? What will determine if the business makes a profit or a loss? How will the business retain market demand for its goods or services? How will profits be used Will the business expand or stay the same size?

SG BM Unit 4.1 (CB)3 KEY DECISIONS THAT BUSINESSES MAKE - CREDIT What decisions does a business have to make in order to get the best marketing mix? What decisions does a business have to make in order to get the best combination of the factors of production?

SG BM Unit 4.1 (CB)4 KEY DECISIONS THAT BUSINESSES MAKE What will be the objectives of the business? Survival ………. Growth ………. Increase market share ….. Increase sales ….. Reduce costs ….. In setting objectives, the influences of stakeholders are important: Owners (shareholders, sole trader etc) want maximum profit Employees want good pay and working conditions Management want the business to survive. Customers interested in value for money, high quality standard etc Government want to ensure all legal requirements are applied.

SG BM Unit 4.1 (CB)5 KEY DECISIONS THAT BUSINESSES MAKE Which goods and services will be produced; and therefore - What resources, like raw materials and workers, are needed to produce these goods and A new business will normally decide to offer a good or service for which they believe there is a gap in the market - eg a taxi service in a new Suburb. How will the business organise production? what inputs (resources) will be required; where supplies of these resources will be purchased; how production will be organised - eg machine/labour intensive; what quality controls will be needed what stocks will need to be kept; how the finished product/service will be delivered to its customers.

SG BM Unit 4.1 (CB)6 KEY DECISIONS THAT BUSINESSES MAKE People V Machines Capital Intensive: large amounts of capital used relative to the amount produced. Labour Intensive: relatively large amounts of labour are used. NB See diagram in Textbook – botttom of page 142 How many goods and services will be produced ?  Draw up a production plan/budget.  Caluculate break-even point of production – fixed and variable costs of production as well as price of product must be taken into account.

SG BM Unit 4.1 (CB)7 capital intensive labour intensive  purchase costs  installation  upgrading technology  training  recruitment  training  replacement  financial - payment KEY DECISIONS THAT BUSINESSES MAKE  installation

SG BM Unit 4.1 (CB)8 KEY DECISIONS THAT BUSINESSES MAKE Who will the business employ? Skilled/unskilled workers? Pay rates? How are they selected?  Application form versus CV  Interview?  Test Centre?  Psychological testing Where will the business locate? Depends on: Type of product/service produced Infrastructure Labour force requirements Customers Government incentirves Closeness to supplies

SG BM Unit 4.1 (CB)9  Knowing your market?  Reaching your market? Market Research Marketing Mix Market Research methods  Questionnaires  Consumer panels  Hall tests  Product Tests Desk Research Field Research Advantages and disadvantages?

SG BM Unit 4.1 (CB)10 Marketing Mix  Place  Product  Price  Promotion The combination of the main elements of marketing- the 4 Ps ‘Fit for purpose’; quality; image; availability “Worth” or “value” Encourages the sale of goods and services. How the product is made available for sale.

SG BM Unit 4.1 (CB)11 Stage 1 - develop ideas (brainstorming, scientific research, identify a market) Stage 2 – detailed analysis (extensive MR, estimated costs, safety checks) Stage 3 – prototype or development state (experiments on a model) Stage 4 – test marketing Stage 5 – Lift-off! (product launched) Stages in Product Development

SG BM Unit 4.1 (CB)12 Product passes through stages between initial development, to decline. Product Life Cycle Different length – depending on whether product will become obsolete quickly (eg computer industry) and some will go on for years (eg Heinz beans)

SG BM Unit 4.1 (CB)13 The need for an extension strategy  When are extension strategies used?  Why is the maturity stage a good time in terms of generating profits? When a product is in the decline stage of its product life cycle No development costs - high costs for establishing in market paid - high sales.  Why do some products have short life-cycles? Anything to do with fashion  Why do some products have long life-cycles? Think of any product that has stood the test of time - Mars bars, Kit-kats, Coca-cola and the list goes on!!!!!!

SG BM Unit 4.1 (CB)14 How can a ‘brand name’ help sell a product? BRANDING A brand is a product with a unique, consistent and easily recognisable character. What is often guaranteed by a brand name is consistency, quality, performance, design, advertising and packaging. Brands build customer loyalty. Prices often reflect this.

SG BM Unit 4.1 (CB)15 Deciding on a price for your product Deciding on a price for your product The relationship between price and demand for the product increase price decrease price demand increases demand falls Costsof producing goods and services Competitors’ prices Consumer demand Price is determined by:

SG BM Unit 4.1 (CB)16 Pricing Strategies (methods of pricing products)  Cost plus  Price matching  High-price strategy  Low-price strategy  Destroyer pricing  Skimming

SG BM Unit 4.1 (CB)17 Cost plus 1 Calculate cost of production 2 Add on profit margin Selling price = Cost + Profit Price matching 1Identify prices across market – competitors’ prices 2 Price accordingly High-price strategy Presenting a quality image? Want high profit levels? Then, set price as high as market will take

SG BM Unit 4.1 (CB)18 Low-price strategy Want to increase market share? Then, set your prices at a lower level than your competitors - “appeal to customers’ pockets” Destroyer pricing Set prices very low, possibly even running losses Allows you to become established, destroying ????? Skimming Set a high price when product is launched Once product established, reduce price to increase market availability

SG BM Unit 4.1 (CB)19 Promotion Advertising - plays a major role in promoting a product - advertising visible on all forms of media Examples of promotional activity special offerslinked offerscompetitions“bogof” financial packages delayed payment tokens limited time sales Promotion boosts sales by attracting (and keeping) customers informs and persuades consumers to buy goods and services

SG BM Unit 4.1 (CB)20 Place options available Shops (and within shops?) Shopping centres Benefits??? Retail parks Benefits??? Direct Selling/Mail Order Benefits??? Internet shopping Benefits??? Which is best and why?

SG BM Unit 4.1 (CB)21 Place ‘Place’ involves making the product or service available to consumers in the most appropriate way - most convenient or least costly. TraditionalModernDirect Manufacturer Wholsaler Retailer Customer Manufacturer Customer Manufacturer Large Retailer Customer

SG BM Unit 4.1 (CB)22 The need for an integrated mix: The marketing mix 4 Ps cannot be studied separately, and decisions about any one of them should not be made without an overall strategic vision. This strategic focus will lead to the 4 Ps being welded together into an integrated and co-ordinated mix. Eg There is no point in setting low prices for a consumer product that is to be sold through exclusive retailers supported by expensive advertising in high- income readership papers and magazines.

SG BM Unit 4.1 (CB)23 Decisions on how best to combine the various resources needed to provide the product is central to decision making. FACTORS OF PRODUCTION LAND …..LABOUR …. CAPITAL ….. ENTERPRISE See Textbook Page 146 Case Study.