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IGCSE
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- Unlimited liability
- Share the profits
- Business ceases to exist if one partner leaves
- Decisions binding on all partners
- Difficult to raise finance
Private limited companies: Often a small to medium-sized company,
owned by shareholders who have limited liability. The company cannot sell
its shares to the general public
- Usually a very small number of shareholders
- Usually fairly small
- Can only be sold privately
- Often difficult to sell shares because it must be sold privately
- Only a few shareholders, ownership is not separated from control
- May be difficult to raise finance
- Profit belongs to shareholders
- Legal documents must be completed when setting up the business
- Limited liability
- Shareholders vote on major decisions taken by the company
- The business continues even if one or more shareholders die
Public limited companies: Often a large company; owned by shareholders
who have limited liability. They can sell its shares to the general public
- Usually a very large number of shareholders
- Most common form of organisation for very large companies
- Shares can be offered to the public and other organisations
- Quick and easy to sell their shares
- There are often thousands of shareholders
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Advantages:
- Reduces risks for each business and cuts costs
- Each business brings different expertise to the joint venture
- Market and product knowledge can be shared
Disadvantages:
- Any mistakes made may damage the reputation of all firms in the joint
venture
- The businesses ay have different business cultures or styles of leadership,
making decision making difficult
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- Gain status e.g. being a lawyer is normally seen as a important job and its
normally a job of high status
- Friendship
Motivation are the factors that influence the behaviour of workers towards
achieving set business goals
The concept of human needs - Maslow's Hierarchy
1. Physical needs: basic needs we must have to be able to survive. They
include water, food etc.
2. Safety needs: We need to be safe from physical danger and individuals
need to know that they have job security
3. Social needs: Most people want to be accepted by others and to feel
that they are loved and trusted. It is important to have friends and belong to
a group where social activities can be shared and enjoyed together
4. Esteem needs: Individuals want to be respected and to have their
achievements recognised by others. For some people, having a certain
status is also an important need
5. Self-actualisation: Not everyone will reach their full potential, but for
some individuals it is a very important need. A lot of people rarely achieve
this because they may set more challenges for themselves
Key motivational theories: Taylor and Herzberg
Taylor's theory:
Taylor believes that workers are only motivated by money, so scientific
management is used to reduce inefficiency. This is achieved by finding the
fastest way of performing each task and training all the workers to use the
same method. The piece-rate method is developed from Taylor's research,
workers are paid a fixed amount for every unit they produce.
Herzberg's theory:
Herzberg's theory is separated into two factors, hygiene factors and
motivators
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Financial rewards: Cash and non-cash rewards paid to workers which are
often used to motivate workers to increase their efforts. These include:
Financial rewards:
- Hourly wage rate: Payment to workers based on a fixed amount for each
hour worker. A advantage of this is that the business only pays workers for
the number of hours they are at work. However, this type of payment is not
linked to how much they produce e.g. one worker may produce 28 units in
an hour but another worker produces 20 units.
- Salary: Fixed annual payment to certain grades and types of staff not
based on hours worked or output. A advantage of this is that workers do not
receive more pay if they have to work long hours to complete a task.
However, the salary is not linked to their efforts
- Piece-rate: Payment to workers based on the number of units produced. A
advantage of this is that workers are only paid for the number of items they
produce. However the quality of goods produced may be poor because
workers try to work too quickly to increase their output and pay
- Commission: Pay based on the value of sales made by the staff. A
advantage of this is that the pay is linked to the value of goods. However,
workers are never certain how much they will earn
- Bonus scheme: An additional reward paid to workers for achieving
targets set by managers, this is a method of performance-related pay which
is a bonus scheme used to reward staff for performing to the required
standard. An advantage of this is that it is linked to performance targets.
However, if targets set are unrealistic then workers would become
demotivated. Also, if the target is group-bases and the target is reached all
worker in the group will receive the bonus even if some have worked harder
than other, which can cause conflict.
- Fringe benefits: Non-cash rewards such as discounts of company's
products, healthy insurance etc often used to recruit or retain workers and
to recognise the status of certain employees. An advantages of this is that
they can help in recruitment and retention of workers. However, fringe
benefits are often linked to status and not performance
- Profit-sharing: An additional payment to workers based on the profits of
the business. An advantage of this is that it is directly linked to the
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Managers
They day-to-day running of a department is usually the responsibility of a
manager, they are responsible for making sure that the decisions of the
directors are carried out, delegating tasks to members of their department,
motivating workers, and solving problems that may arise within the
department
Supervisor and other workers
In large departments, supervisors may be responsible for giving out tasks to
workers and other workers must complete their tasks efficiently at the
required quality standard set by the managers and work towards achieving
individual, group or department targets
2.2.3 The role of management
Functions of management - Planning organising, co-ordinating,
commanding and controlling
Planning: Looking at where the business is not and where it wants to be in
the future. Once this has been decided, management must then set clear
objectives and decide on the actions needed for these to be achieved
Organising: This function of management is about preparing and
organising the resources needed to achieve the planned goals and
objectives. Management will have to decide the best way of completing
important tasks at the lowest possible cost to the business
Commanding: This function involves the control and supervision of
subordinates. Commanding should also aim to motivate workers towards
achieving the planned objectives.
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Coordinating: Making sure that all of the different parts of the business are
working together towards achieving the business's goals and corporate
objectives
Controlling: Involves checking to make sure that the plan is working
Importance of delegation; trust versus control
Delegation is important because it is not possible for the managers to
complete all the tasks that are set out to be done. So delegation gives
authority to subordinates to control so the workload is decreased for the
managers and spread more evenly across other workers. This enables
managers to have more time to focus on more complex tasks of greater
importance. Delegation can also help motivate the workers because they
are given responsibility, which makes them feel like they are valued. It can
help with increasing the flexibility and developing their skills.
2.2.3 Leadership styles
Features of the main leadership styles - autocratic, democratic and
laissez-faire
Autocratic: A leadership style where the leader makes all the decisions
Democratic: A leadership style where workers take part in decision-making
Laissez-faire: A leadership style where most of the decisions are left to the
workers
Objectives
Decisionmaking
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Autocratic
Set by the
leader without
any input from
workers
Taken by the
leader without
any input from
workers
Democratic
Set by the leader,
but the workers
are consulted
Laissez-faire
Usually set by the
leader with or without
the input from workers
Workers are
encouraged to
take part, but
leader still makes
Delegated to workers
who take the
decisions
Supervision of Closely
workers
supervised by
the leader
Availability of
information
Communicati
on
Motivation
levels
Workers are
given very
limited
information
about the
business
One-way, from
leader to
worker. No
feedback
Likely to be low
Likely to be high
No supervision by
leader
Part-time workers
Benefits:
- Provides greater flexibility, so if workers are sick then part-time workers
can cover their duties
- Business can often attract well-qualified workers
- Sometimes they are more productive than full-time workers
Limitations:
- Increase in induction and training costs
- Could be communication problems
- Quality of service may not be as good as full-time workers
Full-time workers
Benefits:
- They know the business better than part-time workers
- They may be more experienced
- They may be more loyal to the business
- Available for longer hours
- Carry out more tasks
Limitations:
- Workers may not be always so motivated
- More expensive than part-time workers
2.3.2 The importance of training and the methods of training
Importance of training to a business and workers
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Oral communication: Most appropriate when more than two people need
to discuss things
Benefits:
- Easy to communicate
- Direct feedback
- May help build relationships between employees or even customers
- Personal contact
Limitations:
- May be hard to make an appointment as people may be busy
- Takes up quite some time
- No permanent record
- Receiver might not listen
Written communication: Provide a permanent record of a message and
can be looked at more than once to check understanding
Benefits:
- The information is clear and can be looked at more than once
- Message cannot be changed
- Can be sent to many receivers
Limitations:
- Slower way of communicating
- Messages may be lost or destroyed
- Time consuming
- No personal contact
Main types of written communication include:
- Purchase order
- Minutes of meeting (written record of what was discussed at a meeting)
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- Consumers today often look for something slightly different and unique
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explain any questions that the interviewee doesn't understand and they can
often tell if the interviewee is replying honestly or not. However, this is more
expensive if a trained interviewer was used and if a trained interviewer was
not used then the data may be bias.
Postal surveys: Questionnaires are posted to people's homes and asked to
complete and return them. An advantage of this method is that it is a good
way of getting opinions from a wide spread group of people from different
areas and this is a cheaper option. However, most of these mails are
considered junk mail so they get thrown away.
Online surveys: This uses the internet to carry out surveys. An advantage
of this is that it can cover a wide geographical area and anyone with
internet access can take part. Also, the results can instantly be collected
and analysed. However, they are normally seen as electronic junk mail so
people may not have any interest in replying
The need for sampling: It is too expensive, time consuming and almost
impossible to get every view of every consumer in the market. This is where
sampling comes in, samples are a representative sample of the target
market selected to take part in market research. Samples are taken to
predict what the whole market wants and don't wants, this is a less timeconsuming method and a cheaper method. However, the samples may
produce bias or misleading results.
Factors influencing the accuracy of market research data
- The sample chosen may be too small
- The business may have chosen the wrong type of method to collect the
data
- People may not answer the questions truthfully
- Questions asked may be bias, which forces the interviewee to not give
their true view
- Language may be unclear
- Secondary data may be out of date
- Data may be recorded incorrectly
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Pictograms
Advantages:
- Data is presented by pictures
Disadvantages:
- Difficult to show exact quantities using pictures
Line graphs
Advantages:
- They clearly show trends
- Values can be read from both axis
- Data can be added for future time periods
Disadvantages:
- They can be difficult to draw and accuracy depends on choosing
appropriate scales for both axes
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How stages of the product life cycle can influence marketing decisions,
e.g. promotion and pricing decisions
Product
Introduction
Only a basic
model of the
product is
available
Growth
Changes
might be
made to the
product as a
result of
feedback
from
consumers in
the test
market
Brand image
helps to
create
customer
loyalty
Maturity
Extension
strategies
might be
used to keep
the product
in this, the
most
profitable
stage of its
life cycle
Price will
remain
similar to
that of
competitor
products
Promotional
activities are
aimed at
reminding
the
customers
that the
products are
still available
The product
is now
available for
purchase
through a
wide
distribution
network
Price
Prices might
lower than
competitors
prices to
attract
consumer
Promotion
High
promotional
activity
Promotional
activity still
high to
continue
persuading
customers
Place
The product
may be
offered for
sale in
specially
selected
outlets
The product
is more
widely
available,
which helps
to increase
sales
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Decline
The product
and
packaging is
not altered
The price
might be
reduced to
maintain
sales or sell
off the
remaining
stock before
withdrawing
the product
Advertise the
products at a
lower price
The product
is only
available in
profitable
outlets
3.3.2 Price
Pricing methods: cost plus, competitive, penetration, skimming and
promotional; their benefits and limitations
Market skimming: Setting a high price for a new product that is unique or
very different from any other product on the market
Advantages:
- Profit earned is very high
- Helps to recover research and development costs
Disadvantages:
- Laws may have been placed to stop this
- It may backfire if competitors produce similar products at a lower price
Penetration pricing: Setting a low price to attract customers to buy a new
product
Advantages:
- Attracts customers more quickly
- Can increase market share quickly
Disadvantages:
- Possible loss of revenue due to lower prices
- Cannot recover development costs quickly
Competitive pricing: Setting a price similar to that of competitor's
products which are already established in the market
Advantages:
- Business can compete on other things such as service
Disadvantages:
- Still need to find ways of competing in order to attract sales
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Cost plus pricing: Setting price by adding a fixed amount to the cost of
making or buying the product
Advantages:
- Quick and easy to work out the price
- Makes sure that the price covers all of the costs
Disadvantages:
- Price might be set higher than competitors or more than customers are
willing to pay, which reduces sales and profits
Loss leader pricing/Promotional pricing: Setting the price of a small
number of products at below cost to attract customers into the outlet in the
hope that they will buy other products priced to earn a profit
Advantages:
- Good way to sell off unwanted inventory before it becomes out of date
- A good way of increasing short term sales and market share
Disadvantages:
- Revenue on each item is lower so profits may also be lower
Recommend and justify an appropriate pricing method in given
circumstances
When deciding the price you should consider:
- Is it a new or existing product?
- Is the product unique?
- Is there a lot of competition in the market?
- Does the business have a well-known brand image?
- What are the costs of making and supplying the product?
- What are the marketing objectives of the business?
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Effect on revenue
Increase
Price elasticity of
demand
Price inelastic demand
Decrease
Decrease
Increase
Decrease
Decrease
Increase
Increase
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Channels of distribution
Advantages
Disadvantages
Channels of distribution
1
Channels of distribution
2
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Channels of distribution
3
Channels of distribution
4
- Another middleman so
more profit is taken
away from the producer
- The producer loses
even more control of
the marketing mix
- Another middleman is
added so even more
profit is taken away
from d producer
3.3.4 Promotion
The aims of promotion
Promotion: Marketing activities used to communicate with customers and
potential customers to inform and persuade them to buy a business's
products
- Attract the attention of consumers by making them aware of the product
- Persuading consumers to buy to product
- Explaining how a product is better than competitors' products
- Creating and developing brand image
- Encouraging wholesalers and retailers to stock the product
- Reassuring consumers
Different forms of promotion and how they influence sales, e.g.
advertising, sales promotion
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Opportunities of
e-commerce to
businesses
Increased
market the
business is able to
sell its goods and
services to more
consumers
Reduced costs
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Opportunities of ecommerce to
consumers
Convenience
Consumers can
order their
products from the
comfort of their
own homes
Wider choice
Hacking A
consumers are
less likely to
buy products
from new
business they
dont know
Better
information
the website can
provide potential
consumers with
all the information
they need about
the goods and
services
Consumers are
now able to buy
goods which they
would not have
had access to if
they were only
able to uses local
shops
Lower prices
competition is
worldwide and this
reduces prices
consumers
personal details
or bank account
details might be
stolen
Better
information
Consumers are
able to read about
the goods and
services available
from websites of
different
businesses
Returning
items it can
be inconvenient
and expensive
to return goods
which do no
meet the
consumers
needs
No personal
service There
is no face-toface contact
between the
consumer and
seller
Place - affects whether or not the consumer wants to go to the shop, this
depends on how convenient it is to reach, how far away it is and how
important it is to go there
Price - affects whether or not the consumer wants to buy the product, if its
too expensive they may not be willing to pay for the product, if it is too
cheap they may think the product is dodgy
Promotion - affects whether or not the consumer is aware of the product
and how many consumers are aware of the product
Product - affects whether or not the consumer wants to buy the product, if
it is not unique enough or not useful then consumers may not want to buy it
3.4.2 The nature and impact of legal controls related to marketing:
Impact of legal controls on marketing strategy, e.g. misleading
promotion, faulty and dangerous goods
Legal controls: laws that control the activity of businesses
- Protect consumers from faulty and dangerous goods
- Prevent the businesses from using advertising to mislead consumers
- Protect consumers from being exploited in industries where there is little or
no competition, also known as monopolising
These laws impact the decisions the business has to make including the
pricing of the product, the quality of the product and the advertisement
used to promote the product
Growing in other countries can increase sales, revenue and profits. This is
because the business is now available to a wider group of people, which
increases potential customers
Problems of entering foreign markets, e.g. cultural differences and lack
of knowledge
- Difference in language and culture: It may be hard to communicate
with people in other countries because of language barriers and as for the
culture, different images, colours and symbols have different meanings and
importance in different places so for religious reasons, it may not be
appropriate to use some images in advertisements
- Lack of market knowledge: The business doesn't really know the new
market that they are entering into and consumers may not know the
business so it may lead to failure
- Economic differences: The cost and prices may be lower or higher
depending on the economy of the country so businesses may not be able to
sell the product at the price they want to earn a profit
- Social differences: Different people will have different needs and wants
from people in other countries such as the UK and India.
- Difference in legal controls to protect consumers: The business may
have to spend more money on producing the products in a certain way that
the country wants it to be produced so it protects consumers
Benefits and limitations of methods to overcome such problems, e.g.
joint ventures
Joint venture: an agreement between two or more businesses to work
together on a project
Advantages:
- Reduces risks and cuts costs
- Each business brings different expertise to the joint venture
- The market potential for all the businesses in the joint venture is increased
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