1. Unit 3 Revision Unit 3 Building a business 50% of the GCSE
1 hour 30 minutes
QWC is marked
6/8/10 mark questions (is one grade!)

2. Marketing
Planning and designing the research
Doing the research
Analysing the research
Reduce the risk of product failure
Understand their customers and communicate with them effectively
The process of anticipating, identifying and meeting customer needs in a profitable way.
Keep up to date with market trends
Market segment– A group of customers in a market that have similar characteristics and needs. E.g. By age, income, type of sports they like, car they drive.
Helps businesses to...
Carry out market research
Tailor products to customer needs
Target promotions at specific groups.
Market research to identify and understand customers
Developing and testing products
Communicating products and services to customers
Market research – process of gathering information about customers, competitors and market trends by collecting primary and secondary data.
They might then make decisions – does the product need to be changed? Is the marketing mix appropriate? Should we withdraw the product?
Quantitative– data that can be expressed as numbers and statistically analysed.
(Desk research) Information that already exists. Information collected is more general, less time consuming, effective for quantitative data.
Sales data
Internet sites
Local newspapers
Government statistics
Secondary research
(field research) is collecting information that did not exist before. Information is accurate, up to date specific the needs, direct customer contact, good for qualitative.
Surveys
Focus group
Questionnaire
Observation
Qualitative
Information
about opinions,
judgments and
attitudes.
Primary research

3. Place– direct to customers, to retail. wholesale, via the internet.
The PRODUCT must meet the needs of the customer. The business must consider differentiating their product from others.
Who will it be targeted at?
What is our USP?
What will our ingredients be?
The PRICE is important because:
The price gives an indication of quality
Changes in price can have a big influence on demand.
Branded products generally have a higher price than non branded as they are more expensive to produce and promote.
Product – must be different, must meet the needs of a customer, USP, packaging, brand.
Price – gives an indication of quality, can have significant influence on demand. Luxury = premium price. Generic/non branded – low price.
The Marketing Mix
A combination of factors which help a business to take into account customer needs when selling a product.
Often called the 4 P’s
Promotion– creating awareness, communicating product benefits and features, strong brand image, boosting sales.
The PLACE is about having a produce available to customers when and they want it.
Direct to customers
Distributing through retailers/shops, this helps customer experience and customer service.
Wholesale, where sells in bulk to wholesaler who breaks down the bulk and sells to retailers.
Place– direct to customers, to retail. wholesale, via the internet.
The PROMOTION is the way a business makes consumers aware that a product is for sale. Reasons for this include:
Creating awareness
Building strong brand image
Boosting sales

4. Product life cycle
Repeat Purchase – Where customers buy a product or service more than once and keep coming back. (customer loyalty)
Methods to encourage this might include:
Special promotions
Reminder adverts
Product innovations
Customer loyalty schemes (loyalty cards)
When consumers buy a product for the first time to assess if they want to buy it again. This might include:
Penetration pricing (low trial price to launch product)
Free samples
Advertising
Viral marketing e.g. Facebook
Extension strategies – method used to increase the life of a product and prevent it falling into decline.
Develop a wider product range
Find new markets
Change appearance or branding
Sales growth slows down, repeat customers continue to buy. Market becomes saturated as competitors bring out rival products.
The product is launched/ released onto the market.
If launch is successful, sales increase sharply and profit may be made.
Eventually product is outdated and there is a big fall in the sales, leading to withdrawal.
Introduction
Growth
Maturity
Decline
How can we innovate products to compete with competitors? Should we use extension strategies.
How can we encourage repeat purchase and build customer loyalty.
What promotion methods will encourage customers to trial a product?
How can we meet demand and maintain customer service?

5. Ways to differentiate:
Boston Matrix – a product portfolio analysis tool used to plan the development of products.
Market segment– a group of buyers with similar characteristics and buying habits. Age, gender, lifestyle, income.
Star – A very successful product but growth has to be funded to keep up with demand and cash flow may be a problem.
Problem children– presents a problem, should business invest to increase sales?
Market mapping – diagram can be used to compare and position products and identify a gap in the market where customer needs are not being met.
Dog – few prospects, but should the business continue to sell it if it is profitable and it funds other products.
Cash cow– little growth, but an established and profitable product that can support others
A brand – is a named product which consumers see as being different from other products.
Differentiating a product –making a product different from others in some way. To gain advantage over competition.
Ways to differentiate:
Unique
Catchy name
Packaging
Customer service
Design, function or formulation.
Branded:
Consumers more willing to trial products in a brand range.
Loyalty
Premium prices
Repeat purchase
Greater awareness of.
Generic/non branded:
Very little difference between product of one business to another.
Nothing to differentiate a product by.

6. Activity 1
Marketing

7. (The variables that contribute to a successful design)
Scientific research process
Good quality allows for premium price to be charged.
Quality – important so that:
Research and development
Builds a strong brand image
Linked to customer needs
Prototypes
Quality control
Examining or test a product for quality once a product has been made. Usually at once stage in the production process.
Way of differentiating
Testing
Design and research development
Design mix
(The variables that contribute to a successful design)
Function
Cost
Appearance
Quality assurance
Involves focusing on quality at every stage of the process.
Checklist
Quality as the focus of every process.
Involve customers and suppliers at the design stage.
Aim for zero defects.
Responsibility of every employee.
Quality as part of the culture.
Function
How well a product does what it is meant to do.
E.g. For a laptop this would include the processing speed, memory and performance.
Cost
Cost closely linked to price, businesses try to keep costs low but more functionality leads to more cost.
E.g. A bigger screen size on a laptop will increase cost.
Appearance
Style and elegance are important for many products.
E.g. Laptops get thinner and available in different colours.

8. Managing Stock
Managing stock is about managing the materials that a business holds in a the most efficient way.
Just In Case – stock management system. Involves having a backup of stock at all times.
Stock
Materials that a business holds. Some could be materials that are used in the production process and others may be the finished stock waiting to be delivered to customers.
Maximum Stock level – the most stock the business can hold
The difference between these two is how long it takes for stock to arrive.
Re-order level– the point at which new stock will be ordered
Minimum stock level – the lowest amount of stock the business will hold, is a safety net or buffer stock so they never get to zero, in case there is an increase in demand.
Just In Time (JIT) – a stock management system where stocks are only delivered when they are needed by the production system and no stocks are stored by the company. Usually appropriate for large manufacturers.
There are Advantages and Disadvantages of different stock control methods...
Cost – it can cost to store stock. But can cost if you have too much and have to sell it cheaply.
Production needs - if they run out they cant continue with production.
Price – can get discount for ordering bigger quantities.
Benefits of holding stock:
Can meet unpredicted surges in demand.
Can replace damaged goods
Can receive benefits for buying in bulk
Benefits of holding little or no stock:
Reduced storage costs
Less chance of damaged or stolen stock.
Employees can focus on tasks rather than stock.

9. v Cost effective operations Methods of increasing output:
Productivity
This is output per worker. It measures how much each worker produces over time. E.g. 5 cars per worker.
Total output
number of workers
It can be improved by increasing output or reducing costs whilst still producing the same output.
Methods of increasing output:
Training employees better.
Invest in better equipment.
Introduce more effective work practices.
Work overtime.
Motivate employees.
Methods of reducing costs:
Cheaper suppliers.
Better design of products.
Cheaper labour costs.
Cutting overhead costs.
Streamline the production process.
Relocation.
Increased productivity
Competitive prices
Cost effective operations can help businesses to lower prices and as a result be more competitive.
Lower costs
Lower prices
Attract more customers
Increased sales and profits

10. Activity 2
Meeting customer
needs

11. Effective customer service
Customer service is the provision of service to customers before, during and after a purchase.
Effective customer service
The drawbacks of poor customer service
Meet and exceed needs of customers.
Provide high-quality products and services.
Innovation (keep moving forward).
Spot problems and potential problems.
Listen to customers.
Deal effectively and quickly with complaints.
Be on time.
Train staff in customer service.
Poor customer satisfaction.
Poor brand images.
Inability to differentiate a product and gain a competitive advantages.
Inability to charge a premium price.
Fall in sales and profits. Sales changing to rival products.
Fall in repeat purchase and customer loyality.
GOOD CUSTOMER SERVICE
To meet customer needs, businesses must provide effective CUSTOMER SERVICE:.
Dispatching orders quickly.
Being 100% accurate in orders/deliveries.
Offering excellent after-sales care.
Providing a personal service.
Going the ‘extra mile’ to get what customers want.
Being convenient.
Being polite and friendly.
Responding immediately to any complaints.

12. Consumer protection laws
The Sale of Goods Act
This relates to the products and services being sold by businesses.
Be of merchantable quality
Match their description
Be fit for purpose.
The Trade Descriptions
Act
This relates to how businesses deal with and sell to customers. All businesses must not:
Give false information
Fail to give (withhold) important information
act aggressively (force to sale)
Impact of consumer protection laws…
Drawbacks
Businesses must know the law and keep up to date
Laws can restrict businesses from operating as they would wish.
Businesses have to comply with laws by changing their products and practices and this can be costly.
Benefits
A business that follows the law is less likely to receive fines or be sued by customers.
Meeting consumer protection laws can improve a business's image.
Improved relationship with stakeholders.
Good publicity is followed.

13. The communication process
For communication to be effective:
The SENDER has to choose an appropriate MEDIUM to reach the RECEIVER.
FEEDBACK should also be available to ensure the
INSUFFICENT or EXCESSIVE communication can have an impact on:
employee motivation
Customer service
The number of mistakes made
The understanding of employees
Speed and implementation of decisions
The image/brand of the business (through advertising)
FORMAL COMMUNICATION is approved by the organisation. It lays down rules of communication within a business.
Barriers to effective communication
Using inappropriate mediums or system failure.
Being angry or tired.
Cultural differences.
Use of jargon. This depends on the skill or knowledge of the sender or receiver.
INFORMAL COMMUNICATION (also known as ‘the grapevine’) is also used in business, such as gossip. It can get in the way of effective communication.

14. Activity 3
Meeting customer
needs

15. Improving cash flow Improving cash inflows Why is cash so important?
The total amount of money being transferred into and out of a business.
Why is cash so important?
A business can still be profitable but run out of cash. If a business’s outflows are greater than its inflows (or the outflows occur at a faster rate) then it could run out of cash and trading will cease.
Improving cash outflows
Delay paying invoices.
Leasing rather than buying.
Reduce stock orders.
Improve credit terms with suppliers
Use cheap suppliers
Improving cash inflows
Increasing sales revenue.
De-stocking
Reduce credit terms with customers.
Encourage customers to pay early (incentives).
Use short-term sources of finance, e.g. Overdrafts and short-term loans
Managing cash flow
FINANCIAL MANAGEMENT is about changing monetary variables such as cash flows to achieve financial objectives such as improved cash flow.
INFLOW
Business
Keep cash in the business
OUTFLOW
Speed it up/increase
Slow it down/reduce

16. Improving profit is not easy
A financial gain, esp. the difference between the amount earned and the amount spent in buying, operating, or producing something.
Improving profit is not easy
Techniques to raise revenue or cut costs can affect the performance of the business and in the long-term this could reduce profits. For example:
Cutting material costs > Lower quality products
Cutting labour costs > Lower motivation of workforce
Cutting investment > damages long-term competitiveness
Improve products > expensive development costs
Increase prices > customers switch to competitors’ products
Improving profit
To improve profits a business can focus on two areas: increasing revenue or lowering costs.
Increasing revenues
NUMBER OF PRODUCTS SOLD x AVERAGE PRICE = TOTAL REVENUE
A business could increase revenues through:
Improved marketing
Better products
Increasing its selling price
Businesses must be careful! The impact an increase in price has on revenue depends on how sensitive demand is to change in price.
Cutting costs
FIXED COSTS + VARIABLE COSTS = TTOAL COSTS
A business could reduce its costs by:
Cutting costs of raw materials, labour or research and development costs
Cutting its marketing

17. Break-even charts & analysis
Break-even analysis is a useful tool to help a business make decisions and set targets, and plan for the future. It is a useful tool for answering ‘what if?’ questions such as: what would be the impact of an increase in variable costs in profit?
TOTAL REVENUE is the amount of money earned by a business from selling products. It increases directly with the number of products sold.
VARIABLE COSTS e.g. Materials, change directly with the number of products made.
TOTAL COSTS are the sum of all the costs at any level of output.
The point on the graph where total costs and revenue meet is the BREAK-EVEN POINT.
The FIXED COSTS line is horizontal. Fixed costs, e.g. Rent, do not change at any level of output
When TOTAL REVENUE is above the break-even point the business makes a PROFIT. Below it, it makes a LOSS.

18. Using break-even analysis
Break-even charts & analysis (2)
Formulas to know
Total revenue = quantity sold X average price
Total costs = fixed cost + variable cost
Break-even = fixed costs ÷ sales revenue / price per item – variable cost per item.
Price – variable cost is called CONTRIBUTION.
The margin of safety
The MARGIN OF SAFETY is the amount of output between the actual level of output where profit is being made and the break-even level of output. This is how much production could fall before the business starts to make a loss.
Using break-even analysis
A business might use break-even when:
Understanding the past (were past decisions on price correct)
Setting and achieving production targets
Launching a new product
Starting a new business
Developing a business plan

19. Comparing sources of finance
Financing growth
A business can use INTERNAL (from within the business) or EXTERNAL (from outside the business) sources of funds to finance growth.
OVERDRAFT
LOANS
TRADE CREDIT
SHARE ISSUE
EXTERNAL SOURCES
PRIVATE LIMITED
COMPANIES (LTD)
PUBLIC LIMITED
COMPANIES (PLC)
BUSINESS
INTERNAL SOURCES
OWNERS
FUNDS
RETAINED
PROFIT
STOCK MARKET
FLOTATION
BORROWING
ASSET
SALES
Comparing sources of finance
RISK. Selling shares may mean owners lose control, or cash-flow problems may result from meeting loan-repayment terms.
COST. The cost of borrowing varies across different sources.
AVAILABILITY. Some sources, such as loans or share capital, might not be accessible.
Questions to consider
When choosing sources of finance a business should consider:
Is it a short-term or a long-term requirement?
How much finance is required?
If we borrow it how much will it cost (interest rate %)?
What sources are available to our business?
What level of debt can we manage?

20. Activity 4
Finance

21. Organizational structures
Organisational structure is the way in which a business is structured to achieve its objectives. This is normally through a HIERARCHY.
Hierarchy
A structure of different levels of authority in a business organisation, one on top of the other.
Organisation charts
Organisational structures can be shown through organisational charts.
Centralised
These decisions are made by senior managers (normally at head office).
Decentralised
These decisions are delegated to regional employees at local stores and branches.
Size
As businesses want to expand they will naturally employ more people, increasing the CHAIN OF COMMAND and SPAN OF CONTROL. The size and structure of an organisation can have an impact on communication, control and flexibility of a business.
A business can DOWNSIZE (reduce size) or DELAYER (reduce the number of layers in the hierarchy) to:
Reduce costs
Improve efficiency
Improve communication
Organisational structure
A business can be organised in a number of ways.
Product divisions
Regional divisions
Functional areas such as marketing or finance
Centralised
Decentralised
Increased control and standardisation
Decisions developed to branches or divisions that may know their local customers better
Decisions can be slow
Loss of control

22. Why have a motivated workforce?
Motivation theory
Why have a motivated workforce?
Motivation can lead to:
A hard-working and flexible workforce, that is willing to ‘go the extra mile’ for the business
Greater commitment to the organisation
Less time off with illness
Improved customer service
Improved communication within the business.
Maslow suggested that people are motivated by five needs. In theory, people are driven to meet these needs in order, starting with the physiological needs.
Creating job opportunities, promotion and training to allow employees to achieve their potential.
Creating promotion opportunities, empowering employees, using rewards to recognise the achievements of employees.
Organising the workforce into teams, creating opportunities for employees to socialise.
Ensuring long-term progression and job security.
Providing a clean and safe working environment and well-paid jobs.

23. Choosing a payment system
Remuneration
REMUNERATION is the payments systems adopted by a business to pay and reward employees.
Time-based systems
Salaries
Results-based systems (suitable where output or success can be measured)
Fringe benefits
Wages for part-time or full-time workers
For non-manual jobs
Piece rates
Company car
Overtime
For professional workers
Commission
Healthcare
Bonus schemes
Pension schemes
Company discounts
Types of worker
Part-time workers
Full-time workers
Temporary workers
Freelance workers (self-employed)
Manual workers (blue collar)
Non-manual (white collar)
Different types of employees will require different types of payment systems to ensure they are motivated and paid fairly.
Choosing a payment system
The following things can influence the choice of payment systems:
Nature of the job – a piece rate system might not fit the job of a secretary.
Cost – a business will choose the most cost-effective option.
Motivation – pay, as we have seen it, is closely linked to employee motivation.
Flexibility – a business might pay a one-off fee to a consultant so that they do not have to pay them over a long period of time.
Different payment systems motivate workers in different ways. For example, a commission system will motivate sales staff to sell more. Choosing the right payment system will maximise the output of workers. The wrong system could waste money.

24. Activity 5
People

25. Pressure group activity
Ethics in business
Pay the lowest rates possible?
Recycle the resources used
Businesses have to determine if an activity or decision is morally right or wrong.
Do more for local communities
Pressure group activity
Pressure group methods include lobbying, protests, working with businesses and boycotting products.
Profits or ethics?
TRADE-OFF – this is when something is given up in order to gain or achieve something else. Is there a trade-off between profits and ethical behaviour?
Is this correct? Acting ethically can lower business profits. Paying higher wages, recycling and only using ethical suppliers is likely to raise costs and lower profits.
Or is this? Acting ethically can be appealing to customers and can motivate employees. This may lead to higher productivity and more sales, which will balance the cost of ethical issues.
Pressure groups – organisations that try to get businesses to change what they are doing. Pressure groups focus on issues such as animal rights, workers’ rights, the environment and world poverty.
Pressure groups can cause bad publicity or businesses that act unethically, which can damage their reputation.

26. Environmental effects
Environmental issues
Most business operations will have an impact on the ENVIRONMENT in the short-term
and long-term. All businesses have to manage in order to achieve long-term success.
Environmental effects
The environmental impact of a business is closely linked to its growth. As businesses expand they will normally have a bigger impact on the environment.
Short-term effects
Long-term effects
Traffic congestion through transport and deliveries.
Climate change
Air, noise and water pollution through manufacturing and industry.
Depletion of land, food and natural resources
Recycling is one way of reducing the environmental impact on business.
Other ways include:
Use of renewable energy
Replenishment and conservation of natural resources
Bio-degradable packaging
Reduction in food miles
Social enterprise.
Business opportunities
As consumers are becoming m ore environmentally aware, there is an opportunity for businesses to differentiate their products to meet customer needs and make them ‘greener’, e.g. The development of hybrid cars. There are also growing opportunities for businesses in ‘green’ industries, such as energy conservation and solar power.

27. Economic issues affecting international trade
Developing countries and opportunities for UK businesses
Lower cost of production in developing countries.
Products cheaper when bought from abroad and sold in the UK.
The import of cheap natural resources.
Increased demand from foreign markets as countries develop.
Developing countries may also be a threat to the UK businesses, i.e. If the UK buys cheap imports, then UK businesses may suffer.
Policies affecting international trade
Governments can encourage international trade by supporting exports, or can restrict imports in order to protect their home markets.
Tariffs and customs duties tax imports and make them more expensive.
Quotas put a limit on the number of imports.
An export subsidy will reduce the price of exports and encourage exporting firms.
Whether importing or exporting UK businesses may suffer or benefit from these policies.
Factors influencing trade
There is a range of factors that
influence opportunities for
international trade.
How developed each country is (including income, wages and the quality and technology of products).
Government regulations on imports and exports (including import protection, QUOTAS and export SUBSIDES)

28. Taxation can affect consumers and businesses
Government and the EU
The UK government and EU laws govern the way businesses in the UK operate, trade and deal with customers. Government intervention aims to encourage competition, help businesses run efficiently and protect customers and employees.
EU Regulations
Taxation
Value added tax (VAT) – a tax on the value of sales of a business. Businesses that sell more than a certain amount will register to pay VAT.
Income tax – a tax on the income earned by workers and sole traders.
National Insurance Contributions (NIC) – a tax on earnings of workers and sole traders linked to state benefits.
Corporation tax – a tax paid by limited companies on the profits of the company.
Taxation can affect consumers and businesses
Government and EU regulations include:
Accounting regulations
The Trade Descriptions Act
Health and safety laws
The minimum wags
Maternity and paternity rights.
Taxes high
Spend less
Spend less
Consumers
Businesses
As a result
Spend more
Spend more
Taxes low
Businesses will often take measures to avoid government intervention. For example:
Moving to a country such as Ireland, where corporation tax is lower
Producing products in countries with a lower minimum wage
Selling products in countries with relaxed health and safety laws.
Regulations
Benefits
Drawbacks
Minimum wage
Small businesses are able to compete with big businesses who might force down wage rates.
High costs of labour will reduce profits.
Maternity and paternity rights
Better relationships with employees and work-life balance.
Working days lost while employee on maternity / paternity leave.
Health and safety regulations
Fewer work-related accidents and injuries.
Costs of health and safety regulations can hinder productivity.

29. Activity 6
The Wider World

30. Try your best and
good luck!