Business Notes

Created by Julia

Unethical Business Practices

• Financial Dishonesty
• Environment Neglect & Damage
• Exploitation of Consumers
• Exploitation of Employees
• Exploitation of Suppliers

Common Business Objectives
i. Growth
ii. profit
iii. Protecting Shareholder Value
iv. Ethical Objectives

Exploitation of the Suppliers

• Child Labour

Exploitation of the Consumer

• Tobacco/Alcohol Industry
• Gambling
• Personal Data

To what extent should businesses prioritize ethical behaviour as their business objective?
D - Define
E - Explain
A - Advantages
D - Disadvantages

Table 3.1 - The advantages and limitations of having ethical objectives and practices

Advantages

Improved corporate image
- Acting ethically and in a socially responsible way can help to enhance the corporate image and reputation of a business. Conversely, the media will report unethical business behaviour which could seriously damage the firm’s corporate image.
Increased customer loyalty
- Customers are more likely to be loyal to a business that does not act immorally. For example, The Body Shop has established a large customer base worldwide based on its ethical policy of not testing its products on animals.
Cost cutting
- Ethical behaviour can help to cut certain costs, e.g. being environmentally friendly can reduce the amount of (excess) packaging. Ethical objectives and strategies can help the firm to avoid litigation costs (expenses associated with legal action taken against a business) that might otherwise arise from unethical and irresponsible activities.
Improved staff morale and motivation
- Ethical behaviour can help a business to attract and retain highly motivated staff. People are more likely to be proud of the firm they work for if it acts ethically and within the law. This also helps to improve productivity and employee loyalty.

Limitations

Compliance costs
- The costs of being socially responsible are potentially very high. For example, producing organic agricultural products is far more expensive than growing and harvesting genetically modified crops due to the additional time and oney involved.
Lower profits
- If compliance costs cannot be passed onto consumers in the form of higher prices, the firm’s profitability is likely to fail. An ethical dilemma for the business exists when ethical decision-making involves adopting a less profitable course of action.
Stakeholder conflict
- Not all stakeholders are keen on the firm adopting ethical objectives such as profit maximization. Speculative shareholders and investors may be more interested in short-term profits than the firm’s long-term ethical stance. So, managers may be pressurised into pursuing other goals.
The subjective nature of business ethics
- Views about what is considered right or wrong depend on the beliefs and principles held by individuals and societies. Legislation cna help to provide guidelines about what is socially acceptable, but even these are somewhat subjective in nature.

Businesses should prioritize ethical behaviour as their business objective and there should be very few unethical decisions made by a business. While unethical behaviour may be more effective at cutting costs, it can severely damage the reputation of your business and only really benefits in the short-term. A long-lasting and well-established business should will have very ethical behaviour.

Business Objectives

Strategic

• Medium-long term
• Goal of growth & profit maximizing
• Improve market standing, image & reputation, market share
• Decided by the senior leadership team or board of directors

Tactical

• Short term, day-to-day
• Affect a section of the org.
• Goal of survival or maximizing sales revenue
• Used by the workforce to work towards achieving the strategic objectives of the organization.

Corporate Social Responsibility (CSR)

• Conscientious consideration of ethical and environmental practise related to business activity
• Acting morally toward all of its various stakeholder groups and the well-being of local communities and society as a whole

Determining Factors for Acting in a Socially Responsible Way:

• Involvement, influence, and power of different stakeholder groups
• Corporate culture and firm’s attitude
• Social expectation and awareness; experience
• Exposure and pressure from mass media
• Compliance costs
• Laws and regulations

Question 3.3 [p. 47]

d) Discuss whether acting ethically ultimately provides McDonald’s and Burger King with competitive advantages.

Internal Factors

• Corporate Culture
• Type & Size of Organization
• Experience
• Human Resource Management
• Finance
• Marketing / Brand
• Operational Practices

External Factors

• Social
• Technological
• Economic
• Environmental
• Political
• Legal
• Ethical

SWOT Analysis
S - Strengths
W - Weaknesses
O - Opportunities
T - Threats

Ansoff Matrix

A tool to help companies decide how and where to expand their business.
Four generic growth strategies are identified.

Market Penetration

• Existing market, existing product or service
• Increase sales to the existing market

Market Development

• New market, existing product or service
• New customers for existing products/services

Product Development

• Existing market, new product or service
• New product/service

Diversification

• New products/services sold in new markets

BMT - STEEPLE

External Factors

• Factors that affect all businesses in the economy and are beyond the contrl of any individual organization

Internal

• Constraints and opportunities within the field of control

STEP analysis, PEST analysis, PESTLE analysis, STEEPLE analysis

P - Political
E - Ecinomic
S - Social
T - Technological

Social & Cultural

• Attitude of society
• Education on environmental protection
• Demographic changes
• Multiculturalism / Religions
• Role of women in business

Question 46.2

Economic

• Government policies
• Attitudes and actions of foreign countries
• Levels of business and consumr confidence in the economy

Government

Controlled inflation, economic growth, reduced unemployment, international trade balance

What is inflation?

How Inflation Has Changed the Price of a Cup of Coffee Over Time

1970 - 0.45
1990 - 1.00
2010 - 1.59

The spending power of one dollar is the goods that can be bought with that dollar. The spending power of moeny can change over time. If one dollar buys fewer goods this year than it did last year, then the value of money has fallen and this must have been cased by inflation.

Consumer Price Index

The 8 Major Groups of the Consumer Price Index

• Apparel
• Transportation
• Education and Communication
• Other Goods and Services
• Recreation
• Medical Care
• Food and Beverages
• Housing

What Causes Inflation?

Inflation - The persistent tendency for prices to rise

• Money
• Demand
• Increasing Costs
• Expectations

How Does Inflation Work?

Inflation represents the rate at which the cost of goods and services increase over a period of time.

Demand-Pull - When demand for goods/service exceeds production capacity.
Cost-Push - When production costs increase prices.
Built-In - When prices rise, wages rise too, in order to maintain living costs.

Controlled Rate of Inflation

Inflations also lead to…

• Less price-competitive trading overseas
• Fall in export earnings
• Lower national output
• Higher unemployment

Question 46.4

High Level of Unemployment

• Social costs
• Economic costs

Types of Unemployment

• Frictional unemployment (transitional unemployment)
• Seasonal unemployment
• Technological unemployment
• Regional unemployment
• Structural unemployment
• Cyclical unemployment (demand deficient unemployment)

Demand-Side Policies

• Expansionary fiscal policy (reduce taxes/increase government spending)
• Expansionary monetary polict (reduce interest rates/increase borrowing & spending)
• Protectionist measures (placing tariffs - tax on foreign goods)

Supply-Side Policies

Business Cycle

• Recovery > Peak/Boom > Recession > Stump > Recovery

Strategies

• Cost reduction
• Price reduction
• Non-pricing strategies
• Branding
• Outsourcing

Balance of Trade

(less of) Import Expenditures
(more of) Export Earnings

Exchange Rates

• Measures the value of the domestic currency in terms of foreign currencies

Opportunies & Threats of:

• Appreciation
• Depreciation

Question 46.6 Gijs Van Oosten Jeans

Protectionist Measures - used to safeguard domestic businesses from foreign competitors

1. Tariffs
2. Quotas
3. Subsidies
4. Embargos
5. Tehcnical and safety standards

Environmental

• Society
• Environment
• External Costs / Negative externalities

Passive Smoking - Packaging Waste - Global Warming - Air & Noise Pollution

Natural Disasters

• 2011 Japanese Earthquake/Tsunami
• 2021 Haitian Earthquake
• 2021 BC Floods

Medical Scares/Pandemics

• 2003 SARS
• 2020 COVID-19
• 2021 Monkey pox

Political { Fiscal Policy
|
Laissez-Faire | Expansionary
| Deflationary
|
vs. | | |
| v v
|
Interventionist { Taxation Gov’t Policies

Taxation

• Direct (income, inheritance, corporation)
• Indirect (sales taxes, excise duties - gas/tobacco)
• Progressive (income tax)
• Regressive (airport tax)
• Proportional (sales tax)

Policies

Governments will spend revenues raised by taxes and other means to finance:

• Infrastructure
• Social Security
• Education
• Transporation
• Health Care
• National Defense
• Law & Order

Legal

• Consumer Protection Legislation
• Employee Protection Legislation
• Competition Legislation
• Social & Environmental Legislation

Ethical

• Google - Good quality workers
• The Body Shop - Good publicity
• TOMS - Donation
• Whole Foods Market - Attract & retain customers

Internal Assessment

1. Select a real business issue/problem that relates to any part of the syllabus
2. Use one of the four key concepts
3. Write research question - forward or backward looking
4. Use primary and/or secondary research - 3-5 source documents
5. Length of paper has max. 1,800 words
6. Fully reference 3-5 osurce documnets in bibliography

Preliminary Approval & Research

• end of Year 1 & Summer

First Draft & Feedback

• September - October of Year 2

Final Copy

• November - December of Year 2

Internal Assessment

Teacher Assessment
December - March of Year 2

Submission to IB for Moderation
March - April of Year 2

SL - 30%
HL - 20%

20 Hours

To what extent has Good Co. Steveston’s innovative use of social media marketing been successful? (Creativity)

To what extent are Hyundai’s electric cars ecologically and economically sustainable? (Sustainability)

How effective is Airbnb’s abolishment of location-based pay in recruiting employees? (Change)

How effective has Linkedin’s employment network for people with Down’s Syndome in retaining employees? (Ethical)

Stakeholders - Unit 1.4

Stakeholders - to have an interest or be impacted by a decision or activities of an organization

Internal - members of the business
External - not part of the business but have direct interest or involvement

Change

Key Concept - inquiry into the concept of change involves understanding and evaluating causes, methods, and consequences of change itself.

FRIA

F - Fear of the unknown
R - Rejection due to misunderstanding
I - Interest (support from staff)
A - Acceptance of the need for and purpose of change

Questions

1. Explain stakeholders that might be concerned about Twitter’s changes. [4 marks]

2. To what extent should businesses like Twitter listen to the views of their various stakeholder groups? [10 marks]

Stakeholder Mapping Model

                               Level of Interest

                         Low                      High

                    A                        B

Level Low Minimum Effort Keep Informed
of
Power High C D
Keep Satisfied Maximum Effort

Internal Economies of Scale

Technical Economies

• use capital and machinery to mass produce
• high fixed costs of their equipment and machinery are spread over the huge scale of output, reducing the average cost of production

Financial Economies

• borrow large sums of money at lower rates of interest

Managerial Economies

• specialization in managerial roles leads to higher productivity
• avoid a duplication of effort in planning, communication, marketing, distribution and production processes

Specialization Economies

• similar to managerial economies, but with division of labour of the workforce
• specialist labour increases productivity

Marketing economies

• multinational companies can save on marketing costs by using the same campaign worldwide
• transaction costs is also minimized when selling in bulk to a single customer

Purchasing Economies

• buying resources in bulk

Risk-Bearing Economies

• enjoyed by conglomerates (firms with diversified portfolio of products in different markets)
• can spread fixed costs (R&D, Marketing)
• offset unfavourable market condition with their diversity of products and markets

External Economies of Scale - Cost-saving benefits of a large-scale operations arising frmo outside the business due to its favourable location or general growh in the industry

• Technological Progress

• Improved Transportation Networks (think Canada Line)

• Skilled Labour

• Regional Specialization (think Murano, Italy or Champagne, France)

Can a business become too large?

Yes - Diseconomies of Scale

Internal Diseconomies of Scale

• management lacks control and coordination, causes communication problem and slows down decision-making
• poorer working relationships; decreases motivation and morale
• lower productive efficiency due to workers becoming bored with repetitive tasks
• bureaucracy and complacency

Exrernal Diseconomies of Scale

• higher rents for busy districts (think Silicon Valley)
• competition for labour with higher pay and financial benefits to attract and retain staff
• Overcrowding - Traffic congestion

Internal vs External Growth

Internal

• changing price
• improved promotion
• better products
• greater distribution network
• offer preferential credit
• increased capital expenditure (investment spending)
• training & development
• value for money

External

• mergers and acquisitions (M&A)
• takeovers
• joint ventures
• strategic alliances
• franchising

Describe two ways of internal growth Starbucks has used. To what extent is this desirable for Starbucks?

M&A

Horizontal Integration

• Amalgamation of firms in the same industry
• Larger market share & power
• ie. Carlsberg & Chongqing Brewery

Vertical Integration

• Different stages of production

Forward Vertical Integration

• Heads towards the end stage of production (towards the consumer)
• ie. Coffee manufacturer acquires a chain of cafes

Backward Vertical Integration

• Towards earlier stage of production
• ie. Coffee manufacturer acquires coffee bean supplier

Lateral INtegration

• FIrms with similar operations but do not directly compete with each other
• ie. Tata Motors acquired Jaguar & Land Rover

Conglomerate M&As

• Firms are in completely distinct and diversified markets
• ie. Proctor & Gamble and Jim Pattison Group

Multinational Companies

• a company that does business in two or more countries around the world and/or operates facilities such as warehouses or distribution centres in at least one foreign country

Question 6.2

MNCs in UAE

(a) Define the term multinational companies.
(b) Explain how change might affect the location of multinational companies.
(c) Examine the benefits to multinational companies oeprating in foreign countries such as the UAE.

Tim Hortons Accelerating Global Growth with Plans to Launch in India in 2022

• The first TIms restaurant in India is set to open in New Delhi and there are plans to launch over 300 locations across the country over the nect 10 years.

• Time Hortons currently has over 5,100 restaurants across 13 countries and growing, including in the United States, Mexico, Spain, the United Kingdom, across the Middle East, China, Thailand, and the Philippines.

• The latest Tims expansion plans for the United States were announced recently, with Tim Hortons restaurants set to open in Texas later this year.

Decision Trees

| a quantitative decision-making tool, showing the probable outcomes of different strategic options.

                                           |- Success
                   |- Chance Node (circle) |
                   |                       |- Failure

Decision Node (square) |
| |- Success
|- Chance Node (circle) |
|- Failure

---

                                      |- Success (40%, $30 mil)

Chance Node - Launch New Product (8 mil)

                                            |- Success (80%, $3 mil)

Chance Node - Improve Existing Product (1.5 mil)

Disadvantages

• Proabilities are only estimates and subject to forecasting errors
• Subjective and biased approach to decision making; ignores qualitative factors
• Does not reduce scale and scope of risks involved in decision making
• Delay in decision making can invalidate data presented

(i) Demographic Change

• net birth rate
• net migration rate
• retirement age
• women in the workforce
• aging population

increased dependent psp.
reduced labour mobility (geographical or occupational)
changes in consumption patterns
changes in employment patterns

(ii) Changes in Labour Mobility

Geographically

• Let’s move to…

Occupationally

• Easier for the younger population
• May need new qualifications
• Anti-discrimination employment practices may encourage labour mobility

(iii) Immigration

1. pay & renumeration
2. employment opportunities
3. seasonal factors
4. domestic instability
5. higher standard of living

(iv) Flexitime | Teleworking | Homeworking | Hybrid Working

(v) Gig Economy

Labour markets where workers are typically on short term, flexile, freelance, and temporary contracts

Examples:

• Uber driver
• Modelling
• Fiverr
• Airbnb

Portfolio Worker - people involved in a number of jobs carried out simultaneously, often on a temporary basis

Question 7.2 for homework

Six Change Approaches

1. Education & Communication
2. Participation & Involvement
3. Facilitation & Support
4. Negotiation & Agreement
5. Manipulation & Co-Option
6. Explicit & Implicit Coercion

1 - Mean - sum of all items divided by number of items in data sets
2 - Mode - the number that occurs more frequently than any other value in a data set
3 - Median - the middle number in a data set when all items are ranked in numerical order
4 - Bar Charts - visual representations of categorical data in which the height & width of the bars is used to show the values of the quantities measured
5 - Pie Charts - visual statistical tool used to divide data sets into segments to illustrate numerical proportions
6 - Infographic - type of visual tool used ot show information using a combination of texts, images, and graphics
7 - Quartiles - the technique of dividing a data set (such as ranking sales revenue of one store against the industry or IB examination results from a particular IB School) into four proportionate parts
8 - Standard Deviation - the average distance from the mean value of all points in a data set (how small or large the spread of results)

Unit 2.3 - Leadership and Management

Management

• the practice of achieving an organization’s objectives by using and controlling the available resources in an effective way

Leadership

• the process of influencing and inspiring others to achieve organizational goals
• a leader fosters motivation, respect, trust, and loyalty from the workforce
• tend to focus on the broader goals or visions with no definitive time frame in mind

Functions of Management

Planning - setting the course of action to achieve organizational objectives

Commanding - give instructiosn and orders to their teams and subordinates; enforce discipline

Controlling - responsible for performance of teams, corrective measures should be taken if performance targets are not being met

Coordinating - ensure all departments strive to achieve the goals of the organization with the resources available

Organizing - organize resources; delegate tasks to workers in order to ensure deadlines are met

Leadership Styles

Autocratic Leadership Style

• leader makes decisions without reference to anyone else
• high degree of dependency on the leader
• can create de-motivation and alienation of staff
• may be valuable in some types of business where decisions need to be made quickly and decisively

Paternalistic

• acts as a father figure
• paternalistic leader makes decision but may consult
• belives in the need to support staff
• negative: perceives workers are less than capable so they control and guide the workers
• positive: perceives workers as capable so they nurture, support, and develop the workers

Democractic Leadership Style

• may help motivation and involvement
• workers feel ownership of the firm and its ideas
• improves the sharing of ideas and experiences within the business
• can delay decision making

Laissez-Faire Leadership Style

• ’Let it be’ - the leadership responsibilities are shared by all
• can be very useful in businesses here creative ideas are important
• can be highly motivational, as people have control over their working life
• can make coordination and decision making
• time-consuming and lacking in overall direciton
• relies on good team work & interpersonal relations

Situational Leadership Style

• assumes there is no optimal style of management or leadership for all businesses
• focuses on the behavior of effective leadership
• no single best style, need to be flexible and adaptive

Scientific Thinking and Management

• based on objectivity, facts, and empirical evidence
• decisions are made rationally and logically; easier to justify

Intuitive Thinking and Management

• based on personal beliefs, perceptions, and instincts
• considers issues that may not be quantifiable - impact on well-being of stakeholders or ethics

Hofstede’s Cultural Dimensions

• how organizational cultures may differ from one country to another

Hofstede’s Cultural Dimensions

• culture is “the collective mental programming of the huamn mind which distinguishes one group of people frmo another”

1. Power Distance
2. Individualism vs. Collectivism
3. Masculinity vs. Femininity
4. Uncertainty Avoidance
5. Long Term vs. Short Term Orientation
6. Indulgence vs. Self-Restraint

Power Distance

• the strength of a society’s social hierarchy

Individualism vs. Collectivism

• measures the extent to which people feel they should care for themselves (individualism) vs. caring for or being cared for by the family network or society (collectivism)

Examples of Collectivism:

• China
• Latin America
• Pakistan

Masculinity vs. Femininity

• focuses on the extent to which a culture conforms to traditional gender values and traits

Masculinity - assertiveness, competitiveness, ambition, status, achievement

Examples:

• Japan
• Hungary
• Iran

Femininity - relationships, cooperation, communication

Examples:

• Thailand
• Sweden
• Latvia

Long-term vs. Short-term Orientation

• looks at the extent to which a particular culture values making sacrifices today for the benefits of the future

Examples of Long-term:

• China
• Thailand
• India
• Japan

Examples of Short-term:

• Caribbean
• West Africa
• Colombia

Indulgence vs. Self-Restraint

• measures whether a culture is able to enjoy the freedom of leisure or expression of opinions
• cultures with high self-restraint may be reluctant to offer their personal opinions and feel guilty for engaging in trivial activities.

Examples of Indulgent:

• Finland
• Sweden
• Canada
• Australia

Examples of Self-Restraint:

• China
• Pakistan
• Estonia

Unit 2.4 - Motivation

Why Bother With Motivation?

1. Higher Morale & Job Satisfaction

2. Improves Corporate Image

3. Better Workplace Relationships

4. Lower Labour Turnover

5. Lower Absenteeism

6. Higher Profits

Signs of Poor Motivation

• High Absenteeism & Labour Turnover Rates

• High Wastage Level - defective output

• Increasing Customer Complaints

• Poor Punctuality - Less Punctuality

• Increasing Number of Disciplinary Problems

Intrinsic motivation

• When people work on tasks out of their own desire

• Tasks are chalelnging, stimulating, or satisfying

Motivational Theories

1. Taylor’s Scientific Management

2. Maslow’s Hierarchy of Needs

3. Herzberg’s Motivation-Hygiene Theory

Taylor’s Scientific Management

Principle of Scientific Management (1911) - piece rate payment systems

• Workers are motivated by money
• Higher productivity could be achieved by setting output and efficiency target related to pay
• Advocated for division of labour / specialization
• Differentiated piecework - payment for standard level of output, another rate if level is exceeded

Comment on aspects that Taylor failed to address in his theory.

• Non-phsyical contributions of workers (ie. Teachers, doctors, etc.) are heard to measure
• Non-financial factors for motivation
• Workers don’t want to be told what to do
• Piece-rate payment systems lead to repetitive and monotonous tasks

Maslow’s Hierarchy of Needs

5’s

• Self Actualization
• Self-Esteem
• Social Needs
• Safety Needs
• Survival Needs

Self-actualization

• Accomplishment
• Devleop fully
• Fulfill potential
• Personal growth

Esteem needs

• Achievemnet
• Reputation
• Respect
• Responsibilities
• Status

Love and belonging needs

• Acceptance
• Affection
• Fitting in
• Friendship
• Group identity

Safety needs

• Job security

• Predictability

• Stability

• Steady job

• Physiological needs

• Basic necessities

• Biological needs

• Pay

• Survival

Herzberg’s Motivation-Hygiene Theory

Hygiene/Maintenance Factors - to create motivation, it is essential to remove factors that cause dissatisfaction

• To prevent dissatisfaction
• Rules, regulations, policies, supervision, working condition
• If tey fall below a desirable level, it would result in dissatisfaction
• Expectations that can be taken for granted
• Not effective in motivating workers

Motivation Factors - “the will to work, due to enjoyment of the work itself”

• Democratic mangement style
• Job enlargement - more varied tasks
• Job enrichment - more complex and challenging tasks
• Job empowerment - more decision making power to workers

McClelland’s Acquired Needs Theory

Managing a gruop of people wiht different personalities and needs is challenging

Three types of needs to boost motivatio nand productivitiy:

1. Need for Achievement (n-Ach)
2. Need for Power (n-Pow)
3. Need for Affilitation (n-Aff)

Deci & Ryan’s Self-Determination

Fundamental and positive human tendency to grow

Three core requirements that facilitate growth:

1. Autonomy - have control over what a person does
2. Competence - confidence in doing a particular task; sense of effectiveness, value, and mastery
3. Relatedness - need to interact, be connected to others

Adams’ Equity Theory

• Naturally compare efforts and rewards to those of others
• Remuneration package (salary plus fringe benefits)
• Level of equity (fairness) affect level of motivation

Inputs

• expertise
• experience
• enthusiasm
• effort

Outputs

• remuneration
• recognition
• rank
• responsibilities

Equity impacts level of motivation on three levels:

Equity Norm

• Workers expect an equitable remuneration for their contributions

Social Comparison

• Comparisons of inputs and outputs with their peers

Cognitive Distortion

• Being undercompensated demotivates workers
• They may alter input (put in less effort) and/or (negotiate for a pay raise)

Vroom’s Expectancy Theory

People will put effort in a task if they think their role will help achieve the required result

Level of effort & motivation decreases when workers feel like they lack the ability, expertise, or skill

Motivation = Expectancy x Instrumentality x Valence

(rate from 0 to 1)

When faced with options:

Workers will choose one with greatest motivation force

Expectancy - experience, capability, self-confidence, difficulty

Instrumentality - likelihood that performance will lead to rewards (trust, control, policies)

Valence - the value of the expected rewards (preference, needs, values)

Labour Turnover - measures the percentage of the workforce that leaves the organization in a given time period

Labour Turnover = Number of Staff Leaving/Total Number of Staff x 100

Why does staff leave?

CLAMPS

C - Challenge
L - Location
A - Advancement
M - Money
P - Prestige
S - Security

Methods of Recruitment

External Recruitment

1. Newspaper/Internet advertising
2. Specialist trade publication
3. Commercial employment agencies
4. Job centres
5. University career fairs
6. Employee referrals
7. Headhunting (senior level) <3

Internal Recruitment vs. External Recruitment

1. Cost Effective 1. More Applicants

2. Less Down-time 2. Fresh ideas

3. Less Risk 3. Less time resources needed (just hire once)

4. Motivational 4. No previous politics

Selection Process

1. Application form

2. Curriculum vitae (Resume)

3. Cover Letter

4. Interviews

5. Testing (Psychometric, Aptitude, Intelligence, Trade tests)

6. References

Types of Training

1. Induction Training (ie. orientation) - meet key personnel, tour premises, handbook

2. On the Job Training - learn as you go (shadowing, mentoring, job rotation, practice simulation)

3. Off the Job Training - Professional development

Types of Appraisal

1. Formative Appraisal

2. Summative Appraisal

3. 360-Degree Feedback

4. Self-Appraisal

Financial Motivation

1. Profit-related pay / Profit sharing
2. Performance-related pay
   • Performance bonus, loyalty, bonus, pay raise, gratuity
   • Commission
3. Employee share ownership schemes
   • Westjet, Starbucks
   • Used mostly for senior management
4. Fringe Benefits

Google: Reasons to work there

How businesses choose their communication methods

• Personal preferences
• Organizational structures
• Security issues and concerns
• Skills and training of the users
• Ease of use
• Size of business
• Storage needs
• Locations of sender and receiver
• Urgency
• Cost

Barriers to communication

• High costs
• Technological breakdowns
• Jargon
• The fear of technology
• Geographical location and distance
• Internal politics
• Poor presentation skills
• Poor or negative body language
• Inaccurately transmitted gossip
• Physiological barriers
• Cultural ignorance
• Language proficiency

How does poor communication hinder businesses?

• Low morale
• Errors and mistakes
• Loss of competitiveness
• Lack of coordination and control

Objectives and limitations of introducing new and improved changes

Improvements

• Improved speed, access and accuracy
• Improved motivation and productivity
• Greater potential to reach a wider audience

Limitations

• Costs
• Threats to security
• The need for change management

Gods of Management - Charles Handy

• Zeus - Power cultures
• Apollo - Role cultures
• Athena - Task cultures
• Dionysian - Person cultures

Zeus - Power cultures

• The King and Father of the gods and rules the weather as well as law, order, and justice.
• In Greek mythology, the most powerful and strong God.
• Organization culture that has a strong, dynamic leader with an entrepreneurial spirit.
• For example, Steve Jobs - Apple

Apollo - Role cultures

• Apollo is more aesthetic and embraces order and rules, as well as arts, knowledge, and healing
• Employees are rational and roles are clear-cut and discharged with clearly defined procedures
• Defined by their job descriptions rather than their personality.
• Weakness - the ability ot adapt quickly or generate change.
• For example, civil services

Athena - Task cultures

• Goddess of intelligence and wisdom.
• Management is concerned with solving a series of problems.
• Draws on all its resources from across all departments to meet current needs.
• Recognizes and maximizes the benefits of expertise held by its staff.
• For example, management consultancies, research organizations

Dionysian - Person cultures

• God of wine, parties, and festivals.
• Organization exists to serve the individual.
• No clearly identified leader.
• Little allegiance to the organization or project leader.
• For example, accountants, consultants, surgeons, and lawyers.

Unit 3.1 - Introduction to Finance

Introduction (AO2) - The role or purpose of finance for businesses can be categorized either as capital or revenue expenditure

Capital Expenditure

• Finance spent on fixed assets (or non-current assets)
• Exmaples - land, buildings, equipment, machinery and commercial vehicles
• Long-term benefits
• Source of finance - long-term sources
• Used as collateral

Collateral

• Can you think of examples of using collateral in our daily lives?
• Why is collateral important to a business?

Reasons for Capital Expenditure

• To increase production capacity
• To improve efficiency
• To replace worn-out, damaged, and/or obsolete equipment/machinery
• To comply with changing legislation and regulations

Revenue Expenditure - Finance spend on the daily operations of a business. E.g. wages, salaries, raw materials, etc.

• Generate value to the business today, rather than in the future
• Costs must be controlled, so revenue covers production costs so there is benefit

Unit 3.2 - Sources of Finance

Sources of Finance (AO2) - Is the general term used to refer to where or how businesses obtain their funds

Internal sources of finance (AO2)

• Personal funds
• Retained profits
• The sale of assets

External sources of finance (AO2)

• Share capital
• Initial public offering (IPO)
• Share issue/share placement
• Overdrafts
• Trade credit
• Crowdfunding
• Leasing - Sale-and-leaseback
• Microfinance
• Business Angels
• Loan capital
• Mortgages
• Business development loans
• Debentures

(Common mistake + exam tip on pg. 227)

Advantages and disadvantages of microfinance providers (AO2)

Advantages

• Accessibility
• Job creation
• Social wellbeing

Disadvantages

• Immorality
• Limited finance
• Limited eligibility

What do business angels consider before investing?

• Return on investment
• The business plan
• People
• Track record

Short- and long-term sources of finance (AO3)

• Cash flow is important to a business. Effective managers pay careful attention!
• Problems arise, so managers consider different sources of funds to deal with short and long term needs
• Short term sources of finance - < 1 year - trade credit, overdraft, and crowdfunding
• Long term sources of finance - > 1 year mortgages, debentures, share capital, etc.

What is effective financial management?

• Business failure is often attributed to the lack of strategic financial planning and control
• Different sources of finance are used in different and changing business situations
• Serious cash flow problems can cause liquidation or bankruptcy
• Ethical dimensions associated with financial management
• Financial accounts must be reported in a legal and ethical (transparent) way

Choosing sources of finance (SPACED)

• Size and status of firm
• Purpose of finance
• Amount required
• Cost of finance
• External factors
• Duration

3.3 - Costs and Revenues

Cost and Price

• Cost refers to the expenditure incurred by the business
• Price is the sum paid by the customer to purchase a good or service

Types of costs

• Set-up costs - items of expenditure needed to start a business, e.g. purchasing machinery and equipment

• Running costs - ongoing costs of operating the business, such as wages and salaries, insurance premiums. etc.

• Fixed costs - costs of production that a business has to pay regardless of how much it produces and sell

• Variable costs - costs of production that change in proportion with the level of output sales

• Direct costs - specifically related to an individual project or the output of a particular product - variable costs such as raw materials, or fixed costs.

• For example, the direct costs of purchasing a commercial building include consultancy costs, solicitor’s fees, etc.

• Indirect costs - overheads - those that cannot be clearly traced to the production or sale of any single product

• For example, rent and lighting, insurance premiums, security, etc.

• Can be fixed costs as they do not directly relate to the level of output or variable costs

Common mistake and Exam tip

• Page 239. Would you have made the same mistake?
• Page 240. Do you understand why indirect or direct costs can be both variable and fixed? Be very clear on what these costs are. (Bear in mind when you watch the video)

Revenue - sales revenue or total revenue

• Revenue refers to the money coming into a business, usually from the sale of goods and/or services
• Sales revenue = Price x Quantity sold
• A business earns Profit if there is a positive difference between its revenues and costs

Revenue formulae

• Total Revenue (TR): TR = P x Q
• Average Revenue (AR): AR = TR/Q since P = TR/Q then AR = P

Revenue streams - refers to the money coming into a business frmo its various business activities, such as sponsorship deals, merchandise and receipt of royalty payments.

• Advertising revenue - over 80% of the revenues from social media firm Twitter comes from advertising
• Transactions fees - low cost airlines earn around 20% of their revenue from these alternative revenue streams
• Franchise costs and royalties - McDonald’s operates franchises. IB earns royalties from the sale of textbooks
• Sponsorship revenue - a form of below-the-line- promotion whereby the sponsorfinancially supports an organization in return for prominent promotional display
• Subscription fees - use or access a good or servic, based on a formal agreement
• Merchandise- theme parks merchandise
• Interest earnings - interest on deposit (cash)
• Dividends - from holding shares of other companies
• Donations - non-profit organizations
• Subventions - subsidies offered from the government

Final Accounts

The Purpose of Final Accounts (AO2)

Financial Reporting - To put it simply, we are talking about Accounting

Final Accounts - Two Statements

• Profit and loss account - reports the revenues and expenses of a business at the end of a specified period
• Balance sheet - reeports the value of assets and liabilities of a business at a particular point in time
• Legal requirement in most countries for companies to have their final accoutns audited
• Chartered Professional Accountant (CPA)

Who are the users of final accounts (stakeholders)?

Internal - Manage the business and to aid strategic decision-making

• Shareholders - owners of a company
• Employees - staf to assess the likelihood of pay rises
• Managers - to judge the operational efficiency of their organization

External - To aid evaluative judgments, such as the firm’s ability to pay suppliers or financiers

• Competitors - to make comparisons of their financial positions
• Government - tax authority examines final accounts to ensure correct amount of tax
• Financiers - commercial banks or business angels check the final accounts before loans/funds approval
• Suppliers - to grant trade credit
• Potential investors - to assess whether to invest

The profit and loss account (AO2, AO4)

• Income statement
• Profit is the positive difference between a firm’s revenues and its costs
• Revenues are the inflows of money from ordinary trading activities
• Costs are the outflows of money rfom a business arising from its operations

3 sections of the income statement

• The trading account
• Gross profit = Sales revenue - Costs of goods sold (COGS)
• COGS = Opening stock + Purchases - Closing stock

The profit and loss (P&L) account

• Profit = Gross profit - Expenses
• Expenses are the indirect or fixed costs of production
• Ways to cut expenses:

1. Rent charges could be negotiated
2. Fuel consumption could be reduced
3. Administration costs could be examined

Gross Profit

• the trading account * the profit and los account * the appropriation account *

Sales Revenue - the value of products sold to customers minus any returns or discounts

COGS - term for direct costs of the gioods that are actually sold, such as raw materials and wages for labour

COGS = Opening Stock + Purchases - Closing Stock

The appropriation account

• Dividends - the amount of profit after interest and tax that is distributed to the owners (shareholders)
• Retained profit - profit after interest and tax is kept by the business for its own use as an internal source of finance

The Principles & Ethics of Accounting Practice

• Integrity
• Objectivity
• Professional Competence & Due Care
• Confidentiality
• Professional Behavior

Balance Sheet - a record of an organization’s financial position at a specific date containing information on the value of an organization’s assets, liabilities, and the capital invested by the owners

Assets (-) Liabilities = Owner’s Equity

• Legal obligation of a business to repay its lenders or suppliers at a later date.

Assets - items owned by or owned to a business and h9old a monetary value

How are assets categorized?

Fixed Assets

• any asset that is purchased for business use, rather than selling, and is likely to last for more than 12 months from the balance sheet date
• (Examples - tangible fixed assets - equipment, machinery, property, land and buildings, fixtures, vehicles - intangible fixed assets - brand names, goodwill, copyrights, trademarks)

Current Assets

• refers to cash ro any other liquid assset that is likely to be turned into cash within 12 months of the balance sheet dat
• (Examples - cash, accounts receivable, supplies, inventory)

How are liabilities categorized?

Long-term Liabilities

• debts that are due to be re-paid after 12 months
• (Examples - Bank, loans, mortgage payables)

Current Liabilities

• debts that must be settled within 1 year of the balance sheet date
• (Examples - accoutns payable, paying tax to the government, dividends to shareholders)

Owner’s Equity - shows the internal sources of funds for a business

3 Parts to Owner’s Equity

1. Share capital - refers to the amount of money raised through the sale of share. The figure shows the value raised when the shares were first sold, rather than their current market value

2. Retained profit - the amount of net profit after interest, tax and dividends have been paid

3. Reserves - will record any proceeds from retained profits in previous trading years

Depreciation (HL)

Appreciation: increase in value of fixed assets over time

Depreciation: fall in value of fixed assets over time

1. Wear & Tear - usage causes wearing out and increases maintenance costs
2. Obsolete Assets - newer and better products become available

Market Value: Price of asset that a buyer is willing to pay

Book Value: The value shown on a balance sheet; the price the asset was bought on

Straight-Line Method

Annual Depreciation = (Purchase Cost - Residual Value) / Lifespan (Years)

Units of Production Method - calculates depreciation based on usage rather than time

Depreciation per unit = (Purchase Cost - Scrap Value) / Expected Number of Units over lifetime

Depreciation Expense = Depreciation per unit x Number of units produced

Reducing (Diminishing/Declining Balance Method)

Net Book Value = Historical cost (-) Cumulative depreciation

Homework: What are some limitations to the balance sheet and final accounts?

3.6 - Debt/Equity Ratio Analysis

Ratio Analysis - a quantitive management tool that compares different financial figures to examine and judge the financial performance of a business (benchmarking)

Suppose you have a recipe for making brownies that calls for 2 cups of floru and 1 cup of sugar. What is the ratio?

Suppose there are 50 employees in a company: 30 female and 20 male. What is the ratio of employees?

Ratio Analysis

• to examine firm’s profitability (short-term) and liquidity (long-term) financial position
• assess ability to control expenses
• compare actual figures with projected/budgeted figures (variance analysis)
• assist in decision-making

Ways to Compare

Historical comparisons - compare same ratio in two different time periods for the same business

Inter-firm comparisons - comparing same ratio of business in the same industry

Types of Financial Ratios

Profitability Ratios

• Relevant more to profit-seeking businesses
• ie. Ratio of profit to sales revenue

Liquidity Ratios

• Ability of a firm to pay short-term liabilities
• ie. Working capital to short-term debts

Efficiency Ratios

• Show how well a firm’s resources are used
• ie. Avg number of days it takes to collect money
• Ie. Time for inventory turnover

Shareholders Ratios

• Measure the returns to shareholders
• ie. Earnings per share

Gearing Ratio

• Long-term liquidity position of a firm
• Creditors and investpors will be interested
• High degree of gearing means inadequate long-term liquidity (large amount of debts)
• Highly geared firms = more risky because of vulnerability to increases in interest rates

Gross Profit Margin

• Value of gross profit as a % of sales revenue

GPM = (Gross Profit / Sales Revenue) x 100

If a business has a gross profit of 200 mil, then the GPM is 80%.

For every 80 is gross profit

The higher the GPM ratio, the better it is for a business

Vi-Tech Toys is a well-established toy manufacturer that specializes in creating innovative and high-quality toys for children of all ages. The company’s gross profit margin has been declining in recent years due to several factors, including:

1. Rising raw material costs
2. Increased competition
3. Lack of product differentiation

What can they do to improve GPM?

1. Explore alternative materials
2. Develop new product lines
3. Focus on branding and marketing
4. Streamline operations

How can a business improve its GPM?

• Changing the firm’s promotional strategies
• Launching new goods and/or services that have a higher gross profit margin

Profit Margin - a profitability ratio that measures a firm’s overall profit (after all costs of production have been deducted) as a percentage of its sales revenue.

PM = (Profit before interest & tax / Sales Revenue) x 100

The higher the profit margin ratio figure, the better the organization’s control over its expenses. (Indicates greater efficiency in managing the firm’s overheads)

To improve the profit margin ratio, reduce unnecessary expenses:

• Insurance
• Lease payments for capital equipment and other fixed (non-current) assets
• Mortgage payments
• Phone and internet services
• Rent on commercial buildings/land
• Salaries for management and administrative personnel
• Utility bills

Practice Exercise

Vivida’s Kitchen Co. declares an annual gross profit of 5.5 million, and expenses of $1.5 million.

a) Calculate Vivida’s Kitchen Co.’s gross profit margin (GPM)
b) Calculate Vivida’s Kitchen Co.’s profit margin ratio.

Profitability & Liquidity

Return on Capital Employed (ROCE) - measures the financial performance of a firm compared with the amount of capital invested

(Net profit before interest & tax / Capital employed) x 100

• The higher the ratio, the better off the business
• 20% ROCE = for every 20 profit is generated

Current Ratio - calculate the ability of an organization to meet its short-term debts (within the next twelve months of the balance sheet date)

Current Assets / Current Liabilities
e
Between 1.5 to 2.0 is desirable; at least 1.0

• cash
• stock (inventory)
• debtors
• bank overdrafts
• trade creditors
• short-term loans

Acid-Test (Quick) Ratio

Similar to current ratio, except acid test ratio ignores stock when measuring short-term liquidity

Current Assets less Stock / Current Liabilities

Should be at least 1:1 - less than 1:1 suggests working capital difficulties or liquidity crisis

Homework: Read Chapter 3.6 & 3.4 Quiz on Monday

Efficiency Ratio Analysis (HL only)

Efficiency

• Enables a business to calculate the value of its liabilities and debts against its equity
• Show how efficiently an organization’s resources have been used

Efficiency Ratios

1. Stock Turnover
2. Debtor Days
3. Creditor Days
4. Gearing Ratio

Stock Turnover - Number of times a firm sells its stock within a time period (usually within a year)

Costs of Goods Sold / Average Stock or (Average Stock / COGS) x 365

The higher the number, the more stock is being sold; therefore, the more profit generated

Debtor Days - Number of days it takes a firm, on average, to collect money from its debtors

(Debtors / Sales Revenue) x 365

Credit Control is te firm’s ability to collect debts within a suitable time frame (30-60 days)

Creditor Days - Numbert of days it takes, on average, for a business to pay its creditors

(Creditors / Cost of Sale) x 365

• The higher the ratio, the better, since repayment itme is prolonged
• Higher ratio may result in penalties for late payments, which will hurt cash flow

Gearing Ratio - Used to assess an organization’s long term liquidity position

• Creditors & Investors will be interested
• High degree of gearing means inadequate long-term liquidity (large amount of debts)
• Highly geared firms = more risky because of vulnerability to increase in interest rates
• Examines the firm’s capital employed that is financed by long-term debts, such as mortgages & debentures

(Long-term Liabilities / Capital Employed) x 100

Example: A firm has 15 million in capital employed. What is the gearing ratio?
Answer: 33.3%

Insolvency vs. Bankruptcy

Insolvency - whe indiviudals or business organizations are unable to settle their debts when they are due because of a lack of funds or cash

1. Cash Flow - firm cannot make payment owed to creditors

2. Balance Sheet - when liabilties are greater than its assets

Insolvency vs. Bankruptcy

Bankruptcy - Formal and legal declaration of an individual or business’ inability to settle its debts, even if they sell their assets.

3.7 - Cash Flow

Working Capital

• Insolvency (lack of working capital) is the largest cause of business failure

• Liquidity - how easy an asset can be turned into cash

Cash deposits vs. Company vehicle
Debts from customers vs. Land

Working Capital = Current Assets - Current Liabilities

Current Assets:

1. Cash
2. Debtors
3. Stocks

Current Liabilities:

1. Overdrafts
2. Creditors
3. Tax

The Working Capital Cycle - Expect Delays

       Cash

Sales Production Costs

Current Ratio

• Measure of liquidity
• Compares the value of current assets with value of current liabilities
• It is safer to have more current assets on hand than current liabilities

Current Assets / Current Liabilities

The Difference Between…

• Cash vs. Profit

Consider trade credits where you record profit before receiving cash

• Sales Revenues & Cash Inflows

Sales revenues only comes from customers (selling of inventory)
Cash inflows can come from selling off assets, bank loans, donations, grants, etc.

Reasons for Cash Flow Forecasts

1. Banks and other lenders need to assess the financial health of a business seeking external finance
2. Helps managers anticipate periods of potential cash deficiency by adjusting timing of receipts (cash inflows) and payments (cash outflows)
3. Aids in planning process

Causes of Cash Flow Problems

• Overtrading
• Overborrowing
• Overstocking
• Poor Credit Control
• Unforseen Changes

Management of Working Capitall

• Seeking alternative sources of finance
• Improving cash inflows
• Reducing cash outflows

Seeking Alternative Sources of Finance

• Overdrafts
• Sale and leaseback
• Selling off fixed assets
• Debt factoring
• Government assistance
• Growth strategies

Improving Cash Inflows

• Tighter credit control
• Cash payments only
• Change pricing policy
• Improved product portfolio
• Improved marketing planning

Limitations of Cash Flow Forecasting

• Competititors - Successful rivals may impact cash flow as sales decline
• Changing fashion and tastes - A double-edged sword depending on whether it’s favourable for your business’ products
• Economic changes - Lower interest rates encourage borrowing and consumer/investment expenditure
• External shocks - Unpredictable crises (war, stock market crash, health scare)

3.8 - Investment Appraisal

Investment

• Purchase of an asset with the potential to yield future financial benefits
• Sacrificing spending today for capital that will increase production in the future

Investment Appraisal - Quantitative techniques used to calculate the financial costs and benefits of an inbestment decision

• Payback period
• Average rate of return (ARR)
• Net present value (NPV)

Payback Period

Period of time for an investment project to recoup cost of the initial investment

Initial Investment ()

Example: Monica is considering buying a 8000. What is the payback period?

— 45 months

Payback Period Example

One Two Vi Corporation is planning to invest in new machinery requiring intial investkent of 25 million per year for 7 years. Calculate the payback period of the project.

Payback Period Example #2

Suppose the construction of a new sports compelx that costs $1 million is expected to generate the following net cash flows over the first four years:

Year 1 - 350,000
Year 3 - 450,000

What is the payback period?

Payback Period - Advantages

• Simplest and quickest method
• Useful for fimrs with cash flow proble s
• Breka-even before capital needs to be replaced (useful esp. in today’s fast-paced technology)
• Can compare different investment projects with different cost
• Less prone to forecasting errors (short term)

Payback Period - Disadvantages

• Encourage a short-termism
• Contribution each month not constant
• Focuses on time, not on profits

Average Rate of Return

• Calculates the average profit on an investment project as a percentage of the amount invested
• Average rate of return
• Compared with the base interest rate

[(Total profit during projects lifespan / Number of years of project) / Initial amount invested] x 100

ARR Advantages and Disadvantages

Advantage

• Easy comparisons (since it is a perventage)

Disadvantage

• Ignores timing of cash inflows (problems with seasonal factors)
• Useful lifespan is arbitrary
• There are two common ways to calculate ARR, causing confusion
• Should not be the only method used in making decisions

Question 21.5 - Victoria Mayers Holidays Co. P. 322

Net Present Value (NPV)

If you have 105.

The present value of 100

Present Value: future amount of money that has been discounted to reflect its current value, as if it existed today (affected by interest or inflation)

Compound Interest: work out the interest for the first period, add it to the total, and then calculate the interest for the next period

Discounting: reverse of calculating compound interest, using a discount factor

NPV = Sum of Present Values - Cost of Investment

Advantages

• helps managers to make more informed decisions
• more realistic than the ARR, especially for projects that are medium to long term
• more informed comparisons between projects of varying durations

Disadvantages

• discount rate (discount factor) can be subjective at times - interest rate and/or inflation rate can vary significantly over the course of an investment project

Quantitative

Payback Period, ARR, NPV

Qualitative → Porsche

P - Projections
O - Objectives
R - Risk Profile
S - State of the Economy
C - Corporate Image
H - Human Relations
E - External Shocks

Unit 3.9 - Budgeting

Cost & Profit Centres

• a department or unit of a business that incurs costs but is not involved in earning any profit
• each unit need to be aware and accountable for their contribution towards the org’s costs
• a manager is likely assigned to monitor
• unit of a business that incurs both costs & revenues
• used by large & diversified businesses that have a broad product portfolio
• produce independent profit & loss accounts

Cost & Profit Centres are often organized by:

1. Function: Finance, Human Resources, Marketing
2. Product: Basketball, Golf, Soccer, Track (Nike)
   Geography: Canada, UK, China (McDonalds)

Main Roles of Cost & Profit Centres:

1. Organization & Control Function
2. Autonomy Function
3. Motivating Function
4. Accountability Function

Budgeting

• a financial plan of expected revenue nad expenditure for an organization or department for a given time period
• an essential part of managing business organizations and shoujld be in line with the aims of the business

Types of Budgeting:

1. Flexible Budgets
2. Incremental Budgets
3. Marketing Budgets
4. Production Budgets
5. Sales Budgets
6. Staffing Budgets
7. Zero Budgeting

Considerations when Constructing a Budget:

• Benchmarking Data
• Negotiations
• Organizational Objectives
• Historical Data
• Availability of Finance

Variances

Budgetary Control: use of corrective measures taken to ensure actual outcomes equal the budgeted outcomes

Favourable Variance (check-mark) & Adverse Variance (x)

Importance of Budgets in Decision Making

Planning & Guidance > Coordination > Control > Motivational

Internal Assessment

A research project that requires students to apply business management tools and theories (content) to a real organization issue or problem (context), using a conceptual lens (concept).

1. Select a real business issue/problem that relates to any part of the syllabus
2. Use one of the four key concepts
3. Write research question - forward or backward looking
4. use primary and/or secondary research - 3-5 source documents
5. Length of paper has max. 1,800 words
6. Fully reference 3-5 source documents in bibliography

• Preliminary Approval & Research - end of Year 1 & Summer
• First Draft & Feedback - September - October of Year 2
• Final Copy - November - December of Year 2
• Teacher Assessment - December - March of Year 2
• Submission to IB for Moderation - March - April of Year 2

SL - 30%
HL - 20%

20 hours

Research question: To what extent will Toyota’s plan to launch a range of 15 new electric vehicles by 2025 improve its low market share in the UK’s EV industry?

Key concept: Sustainability
Name of organization: Toyota

(including the Business Management Toolkit):

• Sustainability and the triple bottom line (featured in the TSM)
• Business Management Toolkit: Ansoff’s Matrix
• Unit ___, etc.

Unit 4.1 - Marketing

Needs & Wants: Marketing exists to address people’s needs and wants

Psychology behind decisions

• Price
• Color
• Size
• Quality
• Special Features
• Convenience

The 4 P’s

• Products
• Price
• Place
• Promotion

Describe a recent purchase and the buying process behind it

flowchart LR
Product-->|4 P's|Decision

Marketing Skills

• Management skills
• Decision-making skills
• Identifying needs & wants
• Anticipating future needs/wants
• Providing customer service/experience
• Earning a profit or surplus

Market Orientation

A marketing approach that focuses on making products that they can sell, rather than selling products that they can make. The focus is on the customer’s needs and wants.

Greater Flexibility & Lower Risk High Costs for Market Research

Product Orientation - This approach focuses on selling products that they make, rather than making products that they can sell. Innovative products were unknown to the mass market.

Ability to Hike Price, More Control over Operations, High Failure Rate

Commercial Marketing

• to meet the needs and wants of customers in a profitable way
• ethics play a small role

Social Marketing

• designed to bring about social change using concepts from commercial marketing

Market Share

Market Concentration

• Top 5 smartphone companies has 69% of the market

Market Growth

Market Leadership - the position of a business having the largest market share in a given market for a particular good or service

• Sports Apparel
• E-Commerce
• Aircraft Manufacturing
• Carbonated Soft Drink
• Fast Food Chain

Advantages:

• Premium prices
• Lower production costs
• Longer product life cycles
• Favorable distribution terms
• More publicity and brand exposure
• Easy to attract qualified employees

Market Research

Using existing information → Secondary research:

• Market analyses
• Academic journals
• Government publications
• Media articles
• Other online content

Creating new information → Primary research:

• Surveys
• Interviews
• Focus groups
• Observations

Primary Research - gathering new data first-hand for a specific purpose

Surveys/Questionnaires

• a specific series of questions, aimed ot avoid bias with objective wording
• up-to-date and unique data
• costly & time-consuming

Interviews

• one-on-one discussions to investigate personal cirucmstances and opinions
• belief, attitudes, feelings can be examined in detail
• non-quantifiable info; difficult to analyze

Focus Groups

• small discussion groups to gain insight into attitudes and behavior of respondents
• group tend to share similar customer profile (ie. teenaged online gamers)

Observations

• involves watching how people behave and respond in different situations
• can be done in a controlled environment or in real life

Market Analyses

• characteristics and outlook (trends) for a product or industry (ie. market size, market share, growth rate)

Academic Journals

• periodical publications from educational and research institutions
• written by industry experts and academics

Government Publications

• census, social trends, labor market developments, trade statistics, unemployment figures, inflation rates

Media Articles

• newspapers, business-related journals/magazines, documentaries, books, websites

Primary Research

Uses

• Provides direct information about customers’ tastes and preferences.
• Provide sinformation about reasons for purchases.
• Provide sunique information that can give a competitive advantage.

Limitations

• Can be expensive and time-consuming to carry out.
• Staff may need training to carry out the research.
• Can be difficult to construct effective questions and experiments.

Secondary Research

Uses

• Provides information at lower cost than primary research.
• Provides broader contextual information about the whole economy, population or general trends.
• Published information is often already available.

Limitations

• The business must rely on the research methods of others.
• Information that the business wants may not exist
• Existing information may not be fit for the business’ purpose; it coudl relate to a different issue, different subject or different target market.

Sampling Methods

Population - Sample

Quota Sampling - certain nubmer of people (quota) from different market segments is selected; grouped by shared characteristics (age, level)

Random Sampling - giving everyone in the population an equal chance of being selected for the sample

Stratified Sampling - choosing a number of respondents frmo each stratum (segments) that is proportional to the population

Results from Data Collection

Non-Sampling Errors

• Human error or behavior

Sampling Errors

• Sample size too small
• Sample size not respresentative of population
• Inappropriate sampling method used
• Bias in the research

Presentation of Data

• Bar charts
• Pie charts
• Line graphs
• Histograms
• Scatter diagrams
• Tables

Ethical Consniderations of Market Research

5D’s

• Damage
• Deceitful
• Deceptive
• Disclosure
• Detachment