Gcse business studies revision notes

tutor2u™
GCSE Business Studies
Key Study Notes for Exams in 2004
Authors: Dan Cottrell, Charlie Boddington
Cranleigh School
www.tutor2u.net
Online Learning Resource of the Year
© Dan Cottrell, Charles Boddington 2004

INTRODUCTION
This Tutor2u GCSE Core Notes 2004 provides comprehensive study notes for the entire GCSE
specification of the main UK examination boards. It has been written to allow you to cover all the
key topics, in the right amount of detail. No more. No less.
What does Core Notes cover? Each examination board and indeed every traditional GCS
Business Studies textbook splits into to its own sections. We have split the courses into six main
sections, following the major sections of the boards, but your board might approach it in a slightly
different order. No problem.
How should you use the Core Notes? These notes have been designed to allow you to make
effective use of your revision time. The notes contain the things you need to know – explained
clearly, and in a logical order. Work through each section carefully – and go back again over the
areas you fight a bit difficult.
We also recommend that you add your own notes, questions and answers so the Core Notes
become personal to you. We’ve left plenty of space to make your own adjustments, highlight the
key points or make references to your textbook. Remember - TAKE OWNERSHIP and ADD
VALUE!
We are happy to receive suggestions about this edition of GCSE Business Studies Core Notes
2004. Perhaps you have some suggestions about areas that you think should be included in the
next edition. Please email us at feedback@tutor2u.net.
We would like to thank Jim Riley, Managing Director of Tutor2u for his excellent support and
guidance and also to John Cottrell for his proof reading and learned advice.
Good luck with your studies and our best wishes to you in the exams!
Dan Cottrell & Charlie Boddington

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GCSE Business Studies – Key Study Notes 2004
© tutor2u™ 2004 Page 4 of 165
Contents
Marketing......................................................................................................................................................................................9
What is Marketing?.......................................................................................................................9
Introduction .................................................................................................................................................................................................9
Kinds of Market...........................................................................................................................................................................................9
Marketing Orientation ............................................................................................................................................................................10
Role of Marketing in a Business...........................................................................................................................................................11
Market Segmentation .................................................................................................................12
Introduction ...............................................................................................................................................................................................12
Market Segments......................................................................................................................................................................................13
Mass and Niche Markets........................................................................................................................................................................14
Marketing Research ...................................................................................................................15
Introduction to Marketing Research...................................................................................................................................................15
Primary Research......................................................................................................................................................................................15
Questionnaires...........................................................................................................................................................................................16
Advantages and Disadvantages of Primary Research ....................................................................................................................17
Secondary Research.................................................................................................................................................................................17
Uses of Marketing Research..................................................................................................................................................................18
Marketing Strategy, Objectives and Plans...............................................................................19
Marketing Strategy..................................................................................................................................................................................19
Marketing Objectives...............................................................................................................................................................................19
Marketing Plans........................................................................................................................................................................................19
SWOT Analysis...........................................................................................................................................................................................20
Marketing Mix...........................................................................................................................................................................................20
Products and Brands .................................................................................................................22
Introduction ...............................................................................................................................................................................................22
New Products.............................................................................................................................................................................................22
Services and Goods Marketing .............................................................................................................................................................23
Brands and Branding...............................................................................................................................................................................23
Packaging....................................................................................................................................................................................................24
Product Life Cycle.....................................................................................................................................................................................24
Product Portfolio & the Boston Matrix..............................................................................................................................................26
Pricing .........................................................................................................................................28
Introduction to Pricing............................................................................................................................................................................28
Pricing Strategies .....................................................................................................................................................................................28
Promotion ...................................................................................................................................30
Introduction ...............................................................................................................................................................................................30
Advertising..................................................................................................................................................................................................30
Public Relations ........................................................................................................................................................................................31
Personal Selling.........................................................................................................................................................................................31
Direct Marketing.......................................................................................................................................................................................32
Sales Promotion........................................................................................................................................................................................32
Place (Distribution) ....................................................................................................................34
Introduction ...............................................................................................................................................................................................34
Distribution Channels..............................................................................................................................................................................34
Overseas Markets......................................................................................................................................................................................34
E-Commerce...............................................................................................................................................................................................35

Production..............................................................................................................................................................................37
Production Process....................................................................................................................37
Stages of Production .................................................................................................................38
Primary Production ..................................................................................................................................................................................38
Secondary Production .............................................................................................................................................................................38
Tertiary Production...................................................................................................................................................................................38
Methods of Production ..............................................................................................................40
Job Production...........................................................................................................................................................................................40
Batch Production......................................................................................................................................................................................40
Flow Production........................................................................................................................................................................................41
Production Efficiency.................................................................................................................43
Introduction ...............................................................................................................................................................................................43
Efficiency ....................................................................................................................................................................................................43
Strategies to Improve Efficiency..........................................................................................................................................................44
Lean Production .........................................................................................................................45
Introduction ...............................................................................................................................................................................................45
Cell Production..........................................................................................................................................................................................45
Kaizen (Continuous Improvement)......................................................................................................................................................45
Just-in-time (“JIT”) Production.............................................................................................................................................................46
Economies of Scale ...................................................................................................................47
Introduction ...............................................................................................................................................................................................47
Internal Economies of Scale..................................................................................................................................................................47
External Economies of Scale.................................................................................................................................................................48
Diseconomies of Scale.............................................................................................................................................................................48
Quality Management ..................................................................................................................50
What is Quality? .......................................................................................................................................................................................50
Why is Quality Important?.....................................................................................................................................................................50
Quality Control..........................................................................................................................................................................................51
Total Quality Management....................................................................................................................................................................51
Business Location .....................................................................................................................53
Introduction ...............................................................................................................................................................................................53
Factors Affecting Location.....................................................................................................................................................................53
Stock Control..............................................................................................................................56
Introduction ...............................................................................................................................................................................................56
Stock Management..................................................................................................................................................................................56
Managing People......................................................................................................................................................58
Recruitment, Selection and Retention......................................................................................58
Introduction ...............................................................................................................................................................................................58
Recruitment Planning..............................................................................................................................................................................59
Methods of Recruitment ........................................................................................................................................................................59
Handling Applications.............................................................................................................................................................................61
Methods of Selection ..............................................................................................................................................................................61
Employee Retention.................................................................................................................................................................................62
Training .......................................................................................................................................64
Why is Training Necessary?...................................................................................................................................................................64

Induction Training....................................................................................................................................................................................64
Methods of Training.................................................................................................................................................................................64
Government Training Schemes.............................................................................................................................................................65
Motivation ...................................................................................................................................67
Importance of Motivation......................................................................................................................................................................67
Motivational Theory.................................................................................................................................................................................67
Management Styles....................................................................................................................71
Introduction ...............................................................................................................................................................................................71
Evaluation of Management Styles.......................................................................................................................................................72
McGregor’s Theory X and Y....................................................................................................................................................................73
Rewarding Employees ...............................................................................................................74
Introduction ...............................................................................................................................................................................................74
Financial Rewards.....................................................................................................................................................................................74
Non-financial Rewards...........................................................................................................................................................................76
Groups at work ...........................................................................................................................78
Trade Unions ..............................................................................................................................................................................................78
Industrial Action.......................................................................................................................................................................................78
Changing Role of Trade Unions............................................................................................................................................................79
Benefits of Trade Unions........................................................................................................................................................................79
Other Groups in the Workplace............................................................................................................................................................80
Communication ..........................................................................................................................81
Introduction ...............................................................................................................................................................................................81
Importance of Communication.............................................................................................................................................................81
Communication and Motivation..........................................................................................................................................................81
Methods of Communication..................................................................................................................................................................82
Effective Communication.......................................................................................................................................................................82
Barriers to Communication....................................................................................................................................................................83
Business Objectives...........................................................................................................................................85
Forms of Business Ownership and Operation ........................................................................85
Introduction ...............................................................................................................................................................................................85
Sole Trader..................................................................................................................................................................................................85
Partnerships ...............................................................................................................................................................................................86
Limited Companies...................................................................................................................................................................................87
Co-operatives ............................................................................................................................................................................................89
Franchises...................................................................................................................................................................................................89
Public Sector and Privatisation ............................................................................................................................................................91
Organisation of a Business.......................................................................................................93
Introduction ...............................................................................................................................................................................................93
Span of Control and Hierarchies..........................................................................................................................................................93
Delegation ..................................................................................................................................................................................................95
Business Departments.............................................................................................................................................................................96
Nature of the Organisation of a Business.........................................................................................................................................97
Business Aims and Objectives .................................................................................................98
Introduction ...............................................................................................................................................................................................98
Business Objectives..................................................................................................................................................................................98
Alternative Aims and Objectives..........................................................................................................................................................99
Changing Objectives................................................................................................................................................................................99

Stakeholders.............................................................................................................................101
Introduction ............................................................................................................................................................................................101
Stakeholders versus Shareholders.....................................................................................................................................................101
Social Responsibility.............................................................................................................................................................................102
Ethics.........................................................................................................................................................................................................102
Starting a Business..................................................................................................................103
Introduction ............................................................................................................................................................................................103
Entrepreneurs .........................................................................................................................................................................................103
Start Up Finance....................................................................................................................................................................................104
Business Plan..........................................................................................................................................................................................104
Advantages of Small Businesses .......................................................................................................................................................105
Growing a Business.................................................................................................................106
Introduction ............................................................................................................................................................................................106
Mergers and Acquisitions....................................................................................................................................................................107
Constraints on Growth.........................................................................................................................................................................107
Rationalisation.......................................................................................................................................................................................108
International business and globalisation........................................................................................................................................108
External Environment and Business........................................................................................110
The Business Environment .....................................................................................................110
What is a Business?..............................................................................................................................................................................110
Business Activity....................................................................................................................................................................................110
Main Types of Business Activity........................................................................................................................................................111
Types of product ....................................................................................................................................................................................111
Markets.....................................................................................................................................................................................................112
Main Functions in a Business ............................................................................................................................................................112
Profit, Loss and the Entrepreneur .....................................................................................................................................................112
External Factors Affecting Business......................................................................................114
Introduction ............................................................................................................................................................................................114
Main Factors...........................................................................................................................................................................................114
Changing External Environment .......................................................................................................................................................114
Business and Competition...................................................................................................................................................................115
Social Environment and Responsibility...........................................................................................................................................115
Legislation ...............................................................................................................................................................................................116
Ethics.........................................................................................................................................................................................................117
Pressure Groups .....................................................................................................................................................................................118
Environmental Issues............................................................................................................................................................................118
Technological Change ..........................................................................................................................................................................118
Economic Environment ...........................................................................................................122
Types of Business Activity...................................................................................................................................................................122
How Business Activity is Changing..................................................................................................................................................122
Types of Economy..................................................................................................................................................................................123
Private and Public Sector Business...................................................................................................................................................123
Government Economic Policy ............................................................................................................................................................124
Taxation....................................................................................................................................................................................................125
Government Spending..........................................................................................................................................................................125
Interest Rates..........................................................................................................................................................................................126
Labour Market........................................................................................................................................................................................126
Gross Domestic Product (GDP) and Consumer Spending...........................................................................................................127
Exchange Rates......................................................................................................................................................................................128

Business and the Global Economy....................................................................................................................................................129
Business and Europe.............................................................................................................................................................................130
European Single Currency (“Euro”)...................................................................................................................................................131
Social and External Costs....................................................................................................................................................................131
Accounting and Finance..........................................................................................................................133
Profit ..........................................................................................................................................133
What is Profit and Why is it Important? ........................................................................................................................................133
Sources and Uses of Finance .................................................................................................135
Introduction ............................................................................................................................................................................................135
Choosing the Right Source of Finance............................................................................................................................................136
Short Term and Long Term Finance..................................................................................................................................................136
Internal and External Finance............................................................................................................................................................137
Sources of External Finance...............................................................................................................................................................138
Debentures ..............................................................................................................................................................................................139
Bank Loans and Overdrafts.................................................................................................................................................................139
Leasing......................................................................................................................................................................................................140
Hire Purchase..........................................................................................................................................................................................140
Debt Factoring........................................................................................................................................................................................140
Government Finance.............................................................................................................................................................................140
Trade Credit.............................................................................................................................................................................................141
Retained Profits .....................................................................................................................................................................................141
Own Capital.............................................................................................................................................................................................141
Working Capital.....................................................................................................................................................................................141
Sources of Finance for Public Sector Organisations....................................................................................................................141
Financial Accounting ...............................................................................................................143
Introduction ............................................................................................................................................................................................143
Financial Statements............................................................................................................................................................................143
Profit and Loss Account.......................................................................................................................................................................144
Revenue and Capital Expenditure.....................................................................................................................................................146
Balance Sheet.........................................................................................................................................................................................147
Depreciation............................................................................................................................................................................................148
Cash flow statement.............................................................................................................................................................................149
Legal Obligations...................................................................................................................................................................................149
Decision-making and Financial Accounts ......................................................................................................................................149
Analysing Financial Performance...........................................................................................151
Introduction ............................................................................................................................................................................................151
Profit and Profitability .........................................................................................................................................................................151
Liquidity....................................................................................................................................................................................................153
Financial efficiency...............................................................................................................................................................................153
Business Costs ........................................................................................................................158
Introduction ............................................................................................................................................................................................158
Fixed and Variable Costs .....................................................................................................................................................................158
Standard Costing and Variances.......................................................................................................................................................159
Break-even ..............................................................................................................................................................................................159
Budgeting and Business Plans...............................................................................................162
Introduction ............................................................................................................................................................................................162
Cash Flow Forecasting .........................................................................................................................................................................162
Business Plans ........................................................................................................................................................................................164

MARKETING
What is Marketing?
Introduction
What makes someone buy a product? Or more importantly, what makes them buy the product you are trying
to sell? In business, you need to persuade a customer to part with money in exchange for a good or a
service. You have decide on what the product is going to be like (e.g. shape, colour, size, features); at what
price are you going to sell it; where you are going to sell it (e.g. in a shop, over the Internet, by mail order);
and how you going to help the customer find out about the product (e.g. advertise in the local newspaper or
on the radio). Marketing is all of these things.
A market is a group of consumers, who could be individuals, businesses or governments who might buy this
type of product – for example, the market for running shoes or the market for fresh flowers.
And marketing is often defined as:
“The process of identifying, anticipating (predicting) and satisfying customer needs
profitably”
What does it mean?
Identifying – finding out by using marketing research about current products, the possibility of new
products, and about current markets and possible new markets.
Anticipating (predicting) – analysing the data collected and using the managers’ skills to judge
what might happen in these markets and how the products might be suited or changed, adapted or
updated.
Satisfying customer needs – making sure the person, business or government is happy with what
they are buying, will not complain and will be happy to buy again if appropriate.
Profitably – adding value to the product so when sold, the price of the product is greater than cost
of the inputs.
All of these marketing activities take place in a market.
Kinds of Market
There are four main kinds of market:
Industrial markets: the market for manufactured products aimed at businesses, i.e. capital goods
e.g. engineering, construction.
Consumer markets: the market for goods and services that are sold to households e.g. clothing,
shampoo, holidays.
Commodity markets – market for primary products or raw materials e.g. steel, coal, coffee.
Financial markets: the market for services that dealing with money e.g. banking, insurance,
accounting.
Much of your study of marketing will focus on consumer markets - since this relates to the kinds of products

and services that you, your friends and family buy.
Goods bought in consumer markets can be categorised in several further ways:
Fast-moving consumer goods (“FMCGs”)
- These are high volume, low unit value, fast repurchase.
- Examples include: Ready meals; Baked Beans; Newspapers.
Consumer durables
- These have low volume but high unit value. Consumer durables are often further divided into
“white goods” (e.g. fridge-freezers; cookers; dishwashers; microwaves) and “brown/black
goods” (e.g. DVD players; games consoles; personal computers).
Soft goods
- Soft goods are similar to consumer durables, except that they wear out more quickly and therefore
have a shorter replacement cycle. Examples include clothes, shoes.
Services (e.g. hairdressing, dentists, childcare)
Not all markets are the same. Some are very large, some small. Some markets are focused on a particular
location; others operate around the world. We need a measure of a market – most often we talk about
“market size”.
Market size means the number of customers in the market (either current or potential buyers) and the
amount (value or volume) that they buy.
One business rarely sells to all the customers in the market. They will have a share of the market with the
rest shared out amongst one or more competitors.
Market share by value: using sales in a specific period (usually one year).
Market share by volume: using units sold or bought as a measure of size.
Market share is an important idea. There is lots of evidence to show that businesses that enjoy a large share
of a market achieve higher profits than smaller competitors.
Marketing Orientation
Businesses can develop new products based on either a marketing orientated approach or a product
orientated approach.
A marketing orientated approach means a business reacts to what customers want. The
decisions taken are based around information about customers’ needs and wants, rather than what
the business thinks is right for the customer. Most successful businesses take a market-orientated
approach.
A product orientated approach means the business develops products based on what it is good at
making or doing, rather than what a customer wants. This approach is usually criticised because it
often leads to unsuccessful products - particularly in well-established markets.
Most markets are moving towards a more market-orientated approach because customers have
become more knowledgeable and require more variety and better quality. To compete, businesses need to
be more sensitive to their customers needs otherwise they will lose sales to their rivals.

On the other hand some products are argued to create a need or want in the customer, especially products
with a very high technological content. Mobile phones have moved from being a business accessory to being
a big consumer brand item, with many additional gadgets, such as pictures, video and Internet access.
Innovations create the need rather than the customer being able to second-guess how new technology is
going to develop.
Role of Marketing in a Business
Marketing is perhaps the most important activity in a business because it has a direct effect on profitability
and sales. Larger businesses will dedicate specific staff and departments for the purpose of marketing.
It is important to realise that marketing cannot be carried out in isolation from the rest of the business. For
example:
The marketing section of a business needs to work closely with operations, research and
development, finance and human resources to check their plans are possible.
Operations will need to use sales forecasts produced by the marketing department to plan their
production schedules.
Sales forecasts will also be an important part of the budgets produced by the finance department,
as well as the deployment of labour for the human resources department.
A research and development department will need to work very closely with the marketing
department to understand the needs of the customers and to test outputs of the R&D section.
Key Terms in this Section
Term Definition
Consumer
Markets
Markets for goods and services that are sold to households
Industrial markets Markets for goods and services sold to other businesses
Market A market is the demand for a particular product or service
Market share
The proportion of the overall market that is held by one particular business or product.
A market is “shared” amongst competitors
Market Size
The “value” or a market over a period of time (usually measured over one year).
Sometimes market size is also measured in terms of volume (e.g. the number of units
sold in the period)
Marketing
Orientation
A business that basis its marketing decisions on the needs and wants of customers

Market Segmentation
Introduction
A market for a product is made up of different types of consumer who buy the product, which can be
subdivided into segments.
Market segments are an important part of marketing because markets consist of customers with similar
needs. For example, consider the wide variety of markets that exist to meet the following customer needs:
Need Market Segments Created to Meet the Customer Need
To eat Restaurants; fast-food outlets; grocery supermarkets
To drink Coffee bars; wine & spirits production; milk production
To exercise Health & leisure clubs; sport equipment; walking holidays
To travel Airlines; railways; motor car industry; holiday industry
To
socialise
Introduction agencies; sporting events; pubs
As you can imagine, such markets (if they were not further divided) would be very broad and of little use to
someone wanting to make sensible marketing decisions.
Fortunately for those involved in marketing, customers in a market are not the same. Customers differ in
the:
Benefits they want
Amount they are able to or willing to pay
Media (e.g. television, newspapers, radio stations) they see
Quantities they buy
Time and place that they buy
It therefore makes sense for businesses to segment the overall market and to target specific segments of a
market so that they can design and deliver more relevant products and services
By splitting the market into segment it is easier to analyse who buys the product and then aim to target these
customers specifically. For instance if you know that it is mainly young men under 21 who buy your product
you might then advertise in magazines such as FHM or Loaded.

Market Segments
The main ways in which market can be segmented are into:
Socio-economic grouping – see notes further below
Age of the customer – for instance teenagers or old age pensioners
Gender – male or female
Size and composition of customer households – a household of say two unmarried adults, or a
single person living only or a family with 2 children and a per dog
Geographical location – e.g. London, Scotland
Ethnicity and/or religion – e.g. Islamic or Anglo-Italian
Educational background of customers – e.g. graduates or school leavers
Segmentation that divides the market into groups based on factors such as age, gender and family size is
known as “demographic segmentation”.
Socio-economic segments are widely used in marketing.
The six standard socio-economic groupings in the UK are:
Group Description
A Higher managerial, administrative or professional e.g. surgeon or company director
B Intermediate managerial, administrative or professional e.g. teachers, solicitors
C1 Skilled non-manual e.g. sales assistants, shop floor supervisors
C2 Skilled manual e.g. electrician, plumber
D Semi skilled e.g. assembly line workers, cleaners
E Unskilled, pensioners and unemployed
Age is a particularly important grouping because:
Members of the same age group tend to be at the same stage of their family life cycle, e.g. new
parents, and thus to have similar wants.
Consumers of a similar age also have similar financial circumstances (e.g. retired people living on a
pension and savings will have a different income they can spend compared with students at
university).

Mass and Niche Markets
A mass market product is a product that appeals to a large number of different segments, such as Coca
Cola. Sales in a mass market are much greater than in a niche market, potentially leading to economies of
scale as well.
A niche market product appeals to a just a few segments or perhaps just one, a specialist product, e.g.
Railway Modeling magazine. There will be less competition and a chance to charge higher prices, but small
sales and not much opportunity for economies of scale.
A business will need to decide whether it wants to have a mass market product or a niche market product. It
can then adjust its marketing mix (see further). For example, a niche market product will have a higher price
probably than a mass market product and promotion will be different since different segments will need to be
targeted.
Term Definition
Demographic
segmentation
Defining a market segment in terms of factors such as age, gender and family
size
Geographic
segmentation
Defining a segment in terms of where customers are located
Market segment A group of customers with similar needs and wants
Mass market Goods and services that appeal to many customer segments
Niche market Goods and services that appeal to a narrow or small customer base
Socio-economic
segmentation
Defining a market segment in terms of income and occupation

Marketing Research
Introduction to Marketing Research
Marketing research means finding out about the product and its market place. It is an important part of
identifying and anticipating customers needs. Once the product has been bought, marketing research can be
used to see if the customer was satisfied.
A business might carry out marketing research to:
Find data and information that help a business understand what customers want now or in the
future.
Find out whether current products are satisfying customers.
Test new products by asking potential customers to try out the product.
Assess the results of its promotional strategy – e.g. test the effectiveness of an advertising
campaign.
Understand the activities and strategies of competitors.
The two main kinds of marketing research are
Primary research
Secondary research
Primary Research
Primary research involves getting original data directly about the product and market. Primary research
data is data that did not exist before. It is designed to answer specific questions of interest to the business -
for example:
What proportion of customers believes the level of customer service provided by the business is
rated good or excellent?
What do customers think of a new version of a popular product?
To collect primary data a business must carry out field research. The main methods of field research are:
Face-to-face interviews – interviewers ask people on the street or on their doorstep a series of
questions.
Telephone interviews - similar questions to face-to-face interviews, although often shorter.
Online surveys – using email or the Internet. This is an increasingly popular way of obtaining
primary data and much less costly than face-to-face or telephone interviews.
Questionnaires – sent in the post (for example a customer feedback form sent to people who have
recently bought a product or service).
Focus groups and consumer panels – a small group of people meet together with a “facilitator”
who asks the panel to examine a product and then asked in depth questions. This method is often
used when a business is planning to introduce a new product or brand name.

In most cases it is not possible to ask all existing or potential customers the questions that the business
wants answering. So primary research makes use of surveys and sampling to obtain valid results.
Sampling is where a small section of the relevant population is asked a number of questions or is given the
opportunity to use a sample of the product to indicate what the whole population would think about the
product.
For example, for a recent advertising campaign 108 people were asked whether they would choose the new
MG ZT to drive over a Mercedes 3 series. 88 people said they would choose the MG ZT, enabling MG to say
that 8 out of 10 people prefer the MG (or over 80% of the driving population in the UK).
The four main types of sampling are:
Quota sampling – asking people who share certain characteristics (e.g. aged between 18-25).
Random sampling – everyone has an equal chance of being asked a question.
Stratified sampling – population is segmented by a common characteristic.
Cluster sampling – target population is divided into groups (normally by geographical region) and
random sample taken from these groups.
Questionnaires
Questionnaires are one the main tools in the use of field research. A questionnaire contains a series of
questions which gather primary marketing research data for the business.
Questionnaires need to be designed carefully. The design of the questionnaire depends on the following:
Objectives of the questionnaire – what information is needed, at a minimum, from customers who
complete the questions?
The type of person who is going to be asked – questions need be easy to understand and also
easy to answer depending on the person who is answering.
How the questionnaire is going to be taken? – A face-to-face questionnaire might include
different questions to an emailed questionnaire. An interviewer will be filling in a face-to-face
questionnaire and the person may be able to ask for the question to be rephrased if they do not
understand it the first time.
The types of questions that can be asked can be split into three groups:
Simple yes/no answers – e.g. have you seen the new advert for cornflakes
Multiple choice – a number of options are available to the answer
Sliding scale – a value is placed on an answer e.g. how do rate the performance of this product –
less than satisfactory, satisfactory, excellent (or could use a scale of 1-10 with 10 being excellent
and 1 being dreadful!).
Once the questionnaires are complete, the data is collated and analysed.

Advantages and Disadvantages of Primary Research
The main advantages of primary research and data are that it is:
Up to date.
Specific to the purpose – asks the questions the business wants answers to.
Collects data which no other business will have access to (the results are confidential).
In the case of online surveys and telephone interviews, the data can be obtained quite quickly (think
about how quickly political opinion polls come out).
The main disadvantages of primary research are that it:
Can be difficult to collect and/or take a long time to collect.
Is expensive to collect.
May provide mis-leading results if the sample is not large enough or chosen with care; or if the
questionnaire questions are not worded properly.
Secondary Research
Secondary research involves obtaining market information from existing information and material. This
information is known as secondary data.
The main sources of secondary data are:
Published financial information (e.g. accounts of competitors)
Government reports (e.g. data from the National Statistical Office)
Data from consumer groups (e.g. Which? magazine surveys of consumer products)
Reports from marketing research companies (e.g. Mintel, Keynote)
Internal business records – e.g. sales reports
Press cuttings
Trade and industry associations
Typical information that might be found using secondary includes:
Size of the market and how fast it is growing.
Competitors – how many; sales and profits; pricing strategies; product development.
Age and occupational profile of consumer in a region.
Key trends in the market – e.g. how are customer needs and wants changing?
The main advantages of using secondary research are:
Provided the information exists, it is usually quicker and cheaper than primary research. It can
provide a perspective on the whole market, giving the business a feel for whether they should spend

more money on developing products for that market. For instance they could find out that there are not
enough potential customers for the product to break even.
The main disadvantages of using secondary research are:
It is out of date quickly.
It is available to all the other businesses, so does not provide many advantages against competitors.
The data may not exactly fit the purpose of the research.
A good example of using secondary research effectively is in the launch of a new product. Government
statistics could provide information on the size of the market, the socio-economic groups in a launch area.
Competitors’ brochures and websites could give information on pricing, product sizes and features of existing
products in the market.
Uses of Marketing Research
As we said earlier, it is vital that a marketing-orientated business understands as much as possible about its
customers and the way in which they are already being served by competitors.
Marketing research is particularly important in launching a new product. Marketing research is aimed at
reducing the risk of failure. It tries to find out how the customer will react to the new product. If they are
negative in their findings, then either the product is shelved, or adjustments are made.
The uses of marketing research are often to find out:
Answers to questions on whether the customer will buy the product and how often?
What they are willing to pay?
What type of customer is interested in the product?
Where it should be sold?
A small business would probably find large-scale primary research too expensive. Instead they often rely on
asking friends and family, or customers. However, small businesses increasingly have access to the
extensive amount of material available on the Internet.
A small business can also use the local business organizations such as the Department of Trade and
Industry (DTi), Training Enterprise Councils (TECs) and Chambers of Commerce.
Term Definition
Marketing
research
The gathering, recording and analysing of data about questions relating to a product
or service and its market
Primary research Marketing research data collected specifically for a marketing research project and
obtained directly from the relevant source.
Sampling Obtaining research results from a small group to represent the views of a larger group
Secondary
research
Marketing research data that has already been collected, analyses and used for other
purposes or published for general reference

Marketing Strategy, Objectives and Plans
Marketing Strategy
Marketing strategies explain how the marketing function fits in with the overall strategy for a business.
Examples of marketing strategies could be:
Business Strategy Example Marketing Strategies
Launch new products
Expand distribution (e.g. open more shops)
Grow sales
Start selling products into overseas markets
Increase selling pricesIncrease profits
Reduce the amount spent on television advertising
Implement a public relations programmeBuild customer
awareness
Invest more in advertising
Once a strategy has been identified, then the business must develop an action to turn the strategy into reality.
The starting point for this plan is the setting of marketing objectives.
Marketing Objectives
Marketing objectives are the specific targets for marketing set by the business to achieve their corporate
objectives.
Examples of marketing objectives might be:
Increase sales by 10%
Launch a new product by the end of the year
Achieve a 95% customer satisfaction rating
Increase the number of retail outlets selling our products by 250 within 12 months
It is important for a business to set marketing objectives because managers can then have targets for their
work. They can then measure more effectively the success or failure of their marketing strategies to achieve
these objectives.
Marketing Plans
The marketing plan is a detailed document that explains how all the different elements of the marketing mix
will be used to achieve the marketing objectives.
A marketing plan is usually prepared following a review of the current situation (sometimes called a
“marketing audit”) that looks at questions such as:
What are our existing products and brands?
Are the markets we do business in growing? If so, how fast?

Who are our competitors? What advantages (if any) do we have over them?
How effective has our marketing been in recent history? Are there ways in which we could achieve
the marketing objectives differently and more profitably?
SWOT Analysis
An important part of the planning process is looking at the existing position of the business and trying to
decide how factors external to the business may affect the business.
A business can perform a SWOT analysis as away of deciding which marketing strategy to use. The
business performs an audit on the internal and external nature of the business looking at the current and
future situation. An audit is a review of all the business’ activities.
Internal Explanation Strategy Implications
Strengths Reviews the business’ current strengths
such as a good brand or strong sales
performance
Can develop the strengths, perhaps in the
way they promote the product, or wish to
develop new products (Virgin have used
their strong brand name to launch several
products)
Weaknesses Reviews the business’ current
weaknesses such poor response times to
requests for information or late deliveries
Can implement strategies to eradicate these
weaknesses e.g. more resources put into a
better warehousing system for the despatch
of goods.
External
Opportunities Reviews the business’ future
opportunities e.g. new technology making
it easier to manufacturer certain goods or
new markets abroad
Can use strategies to take advantage of the
potential opportunities e.g. developing new
products to meet the potential increased
demand
Threats Reviews the business’ future threats,
mostly from increased competition from
other firms or from changes in the
economic situation.
Can employ strategies to ward off these
problems, e.g. setting lower prices or
increasing promotion
Marketing Mix
The marketing mix deals with the way in which a business uses price, product, distribution and promotion to
market and sell its product.
The marketing mix is often referred to as the “Four P’s” - since the most important elements of marketing are
concerned with:
Product - the product (or service) that the customer obtains.
Price - how much the customer pays for the product.
Place – how the product is distributed to the customer.
Promotion - how the customer is found and persuaded to buy the product.
It is known as a “mix” because each ingredient affects the other and the mix must overall be suitable to the
target customer.

For instance:
High quality materials used in a product can mean that a higher price is obtainable.
An advertising campaign carried in one area of the country requires distribution of the product to be
in place in advance of the campaign to ensure there are no disappointed customers.
Promotion is needed to emphasise the new features of a product.
The marketing mix is the way in which the marketing strategy is put into action - in other words, the actions
arising from the marketing plan.
Term Definition
Marketing mix The marketing decisions taken about products, prices, promotion and place
(distribution)
Marketing
objectives
Specific, measurable, achievable objectives for the marketing function
Marketing plan
The action plan that describes in detail what marketing activities are to be carried out
Marketing
strategy
A description of the overall approach taken by a business towards marketing in order
to achieve the business objectives
SWOT analysis A method of assessing the current situation of the business focusing on the things
within its control (strengths and weaknesses) and outside of its control (opportunities
and threats)

Products and Brands
Introduction
What is a product? A product is “anything that is capable of satisfying customer needs”. This definition
therefore includes both:
Physical products – e.g. cars, washing machines, DVD players, take-away pizzas.
Services – e.g. dental treatment, accountancy, insurance.
Products are at the heart of marketing. The product needs to exist for the other elements of the mix to
happen.
Part of the marketing of the product is through product differentiation. This means making the product
different from its competitors. Product differentiation can be achieved through:
Distinctive design– e.g. Dyson; Apple iPod.
Branding - e.g. Nike, Reebok.
Performance - e.g. Mercedes, BMW.
Most businesses sell more that one product. Often they will produce several similar products that appeal to
different customers. A collection of such products is known as a “product group” or “product range”.
Good examples of product groups include:
Dell’s range of desktop and laptop computers.
Sony’s range of DVD players and televisions.
There are several advantages to having a product range rather than just one product:
Spread the risk – a decline in one product may be offset by sales of other products.
Selling a single product may not generate enough returns for the business (e.g. the market segment
may be too small to earn a living).
A range can be sold to different segments of the market e.g. family holidays and activity holidays.
However a greater range of products can mean that the marketing resources (e.g. personnel and cash) are
spread more thinly. Recently Unilever, who make over two hundred well known brands such as Dove and
Flora margarine, decided sell some of their product names to concentrate their investment on fewer products
and brands.
New Products
To grow fast, businesses need to develop new products. But before a business can launch a new product, it
needs to go through several stages before it appears in the market place.
The main stages are:
Marketing research – find out what customers want, who they are, and where the gaps are in the
marketplace.

Product development and testing – make prototypes; experiment by allowing a sample of
potential customers to trial the product before it is launched.
Distribution of product to outlets – the product cannot be sold unless it is in a position for
customers to buy it – books will need to be in the bookshops and hammers in the hardware stores.
Promotional launch to inform customers features of new product – this might be done locally,
nationally or internationally – the customers need to know that the product is ready, available and
that it might be the sort of thing they want to buy.
At the first two stages (marketing research and product development/testing) many products are rejected
because the findings of research shows that it will not be successful or they cannot make a satisfactory
prototype. Product testing might show that customers react badly to the product.
The new product launch needs all the elements of the mix to be in place to be successful.
Services and Goods Marketing
Products can be split into two broad categories:
Goods – physical products that you can touch and feel, e.g. food and clothing
Services – products that are non-physical – watching a film or going to school
Marketing services can be different to marketing goods.
Services, such as banking, are mainly marketed through product differentiation. Similar products are adjusted
to the target audience, for instance instant access account and long-term deposit accounts, or accounts for
children. Businesses then use heavy promotion to highlight these differences.
It differs from goods marketing, because goods have greater opportunity to use packaging and physical
product design.
Brands and Branding
A brand is a product with unique character, for instance in design or image. It is consistent and well
recognised.
The advantages of having a strong brand are:
Inspires customer loyalty leading to repeat sales and word-of mouth recommendation.
The brand owner can usually charge higher prices, especially if the brand is the market leader.
Retailers or service sellers want to stock top selling brands. With limited shelf space it is more likely
the top brands will be on the shelf than less well-known brands.
Some retailers use “own-label” brands, where they use their name of the product rather than the
manufacturers like Tesco’s “Finest” range of meals and foodstuffs. These tend to be cheaper than the
normal brands, but will give the retailer more profit than selling a normal brand.
Some brands are so strong that they have become global brands. This means that the product is sold in
many countries and the contents are very similar. Examples of global brands include: Microsoft, Coca Cola,
Disney, Mercedes and Hewlett Packard.
The strength of a brand can be exploited by a business to develop new products. This is known as brand
extension – a product with some of the brand’s s characteristics. Examples include Dove soap and Dove

Shampoo (both contain moisturiser); Mars Bar and Mars Ice Cream.
Brand stretching is where the brand is used for a diverse range of products, not necessarily connected, e.g.
Virgin Airlines and Virgin Cola; Marks and Spencer clothes and food.
The logo on a product is an important part of the product. A logo is a symbol or picture that represents the
business. It is important because it is easy to recognise, establishes brand loyalty and can create a
favourable image.
Packaging
Packaging is sometimes known as the “fifth P” in the marketing mix. It is closely associated with product
because it is in what most goods are delivered to the customer.
The main purposes of packaging are to:
Protect the product on its journey from the manufacturer and warehouse to retailer and then to
customer (who might use the packaging for storage e.g. jam jar).
Promote the product by communicating information about the product.
Packaging also contains key details on usage/storage and safety (most products need to comply with
packaging legislation).
Product Life Cycle
The product life cycle is an important concept in marketing because it describes the stages a product goes
through from when it was first thought of until it finally is removed from the market. Not all products reach this
final stage. Some continue to grow and others rise and fall.
The main stages of the product life cycle are:
Introduction – researching, developing and then launching the product.
Growth – when sales are increasing at their fastest rate.
Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new competitors
in market or saturation.
Decline – final stage of the cycle, when sales begin to fall.
This can be illustrated by looking at the sales during the time period of the product.

A branded good can enjoy continuous growth, such as Microsoft, because the product is being constantly
improved and advertised, and maintains a strong brand loyalty.
Extension strategies extend the life of the product before it goes into decline. Again businesses use
marketing techniques to improve sales. Examples of the techniques are:
Advertising – try to gain a new audience or remind the current audience, e.g. the recent Kellogg’s
Cornflakes adverts.
Price reduction – more attractive to customers.
Adding value – add new features to the current product, e.g. video messaging on mobile phones.
Explore new markets – try selling abroad, e.g. Robbie Williams trying to sell more records in the
US.
New packaging – brightening up old packaging, or subtle changes such as putting crisps in foil
packets or Seventies music compilations.

Product Portfolio & the Boston Matrix
A business with a range of products has a portfolio of products. However, owning a product portfolio poses a
problem for a business. It must decide how to allocate investment (e.g. in product development, promotion)
across the portfolio.
A portfolio of products can be analysed using the Boston Group Consulting Matrix. This categorises the
products into one of four different areas, based on:
Market share – does the product being sold have a low or high market share?
Market growth – are the numbers of potential customers in the market growing or not?
How does the Boston Matrix work? The four categories can be described as follows:
Stars are high growth products competing in markets where they are strong compared with the
competition. Often Stars need heavy investment to sustain growth. Eventually growth will slow and,
assuming they keep their market share, Stars will become Cash Cows
Cash cows are low-growth products with a high market share. These are mature, successful
products with relatively little need for investment. They need to be managed for continued profit - so
that they continue to generate the strong cash flows that the company needs for its Stars
Question marks are products with low market share operating in high growth markets. This
suggests that they have potential, but may need substantial investment to grow market share at the
expense of larger competitors. Management have to think hard about “Question Marks” - which
ones should they invest in? Which ones should they allow to fail or shrink?

Unsurprisingly, the term “dogs” refers to products that have a low market share in unattractive,
low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever,
worth investing in. Dogs are usually sold or closed.
Ideally a business would prefer products in all categories (apart from Dogs!) to give it a balanced portfolio of
products.
Term Definition
Boston matrix Analysis of products into four categories based on market growth and market share
Brand A product with unique character, for instance in design or image. It is consistent and
well recognised.
Brand / product
extension
Making new products based on the original brand’s characteristics
Product A good or a service that is capable of satisfying customer needs
Product
differentiation
Making a product different from its close rivals, e.g. different colours, shape or
design features
Product life cycle
Describes the stages a product goes through from when it was first thought of until it
finally is removed from the market

Pricing
Introduction to Pricing
The law of demand states that, for nearly all products, the higher the price the lower the demand. In other
words, sales will fall if prices are put up. However higher prices can also mean higher profits. So how does a
business decide how to set a price for its products?
A business needs to set a price which maximises their sales revenue. Sales revenue is the total amount of
money made from sales and is the price of the product multiplied by the number of sales.
For a new business with a new product setting a price can be difficult to do because they have no experience
of what customers are prepared to pay.
Get the price too high and sales are lost, too low and people who are prepared to pay more are not going to.
Businesses use a variety of methods to work out what price they might set:
Past product data.
What competitors or similar markets have as prices?
Surveys and questionnaires.
They are several factors that the business will need to consider in setting the price:
The state of the market for the product – if there is a high demand for the product, but a shortage
then the business can put prices up. Recently, when the US government decided to publish
guidelines on what to do in the event of war, following the terrorist attacks on their country, people
rushed out to buy masking tape. There was quickly a shortage and prices went up. Union Jack
flags during the Jubilee year were also subject to higher prices for the same reason.
The state of the economy – some products are more sensitive to changes in unemployment and
workers wages than others. Makers of luxury products will need to drop prices especially when the
economy is in a downturn.
Pricing Strategies
There are several different pricing strategies available to a business:
Strategy Description
Cost-plus pricing Setting a price by adding a fixed amount or percentage to the cost of making the
product
Penetration pricing Setting a very low price to gain as many sales as possible
Price skimming Setting a high price before other competitors come into the market
Predatory pricing Setting a very low price to knock out all the other competition
Competitor pricing Setting a price based on competitors prices
Price discrimination Setting different prices for the same good, but to different markets e.g. peak and off
peak mobile phone calls
Psychological
pricing
Setting a price just below a large number to make it seem smaller e.g. £9.99 not
£10

A new business that is entering the market might try the following strategies:
If they are first into the market then they might use price SKIMMING.
If they are trying to establish themselves in the market then PENETRATION pricing.
Sometimes a business may use a loss leader. This is a product where the price is so low that the retailer
may not make any profit or even a loss on the sale, but does attract shoppers to buy other full price products.
Orange juice has been used by businesses such as Rank Hovis McDougall to entice supermarkets to stock
more of their other products.
Price skimming has been used for the launch of high technology products, such as DVD players and
Personal Digital Assistants (“PDA’s”) - which were far more expensive than they are now when they first
arrived in the market.
Term Definition
Price skimming Setting a high price when a new product first enters the market
Price penetration Setting a low a price so make lots of sales quickly

Promotion
Introduction
Promotion is the way in which a business makes their product known to the customers, current and potential
The three main methods of promotion are:
Advertising
Public relations
Merchandising
These main areas form a part of the promotional mix that includes direct mailing, personal selling and sales
promotion. A business will use a range of promotional activities for its product, depending on the marketing
strategy and the budget available.
The way in which promotion is targeted is split into two types:
Above the line promotion – paid for communication in the independent media e.g. advertising on
TV or in the newspapers. Though it can be targeted, it could be seen by anyone outside the target
audience.
Below the line promotion – promotional activities where the business has direct control e.g. direct
mailing and money off coupons. It is aimed directly at the target audience.
Advertising
Advertising presents or promotes the product to the target audience through media such as TV, radio,
billboards to encourage them to buy.
When deciding which type of advertising to use – known as an advertising medium – a business needs to
consider the following factors:
Reach of the media – nationally or locally, the number of potential customers it could reach.
Nature of the product – the media needs to reflect the image of the product; a recruitment ad
would be placed in a trade magazine or newspaper but a lipstick ad would be shown on TV or
women’s magazines.
Position in product life cycle – launch stage will need different advertising from extension
strategies.
Cost of medium – radio cheaper than TV, but may want to consider cost per head if reaching a
larger audience.
In the printed media, advertising can take two forms:
A classified advert is normally put into a newspaper by an individual and is expressed solely in
words and numbers.
A display advert is where space is bought in the newspaper or magazine and can be filled with
words and/or pictures.

Display adverts have more impact, but are more expensive.
Advertising can also be split into two main types:
Persuasive advertising - this tries to entice the customer to buy the product by informing them of
the product benefit.
Informative advertising - this gives the customer information. Mostly done by the government
(e.g. health campaigns, new welfare benefits).
Sometimes a business will employ an advertising agency to deal with its needs. An agency plans,
organises and produces advertising campaigns for other businesses. The advantage of an agency
managing the campaign is that it has the expertise a business may not have, e.g. copywriters, designers and
media buyers.
Businesses need to be fully aware of the laws that govern advertising. The main law is the Trade
Descriptions Act – goods advertised for sale must be as they are described. Also the advertising industry
has its own Code of Practice, and is regulated by the Advertising Standards Authority where complaints
about the nature of advertising can be dealt with.
Public Relations
Public relations is a broad series of activities involving a business managing its relationships with different
parts of the public, e.g. customers, the media and investors.
The main objectives of public relations are:
To achieve favourable publicity about the business at no cost.
To build the image and reputation of the business and its products, particularly amongst
customers.
To communicate effectively with customers.
Public relations (PR) has the following advantages over advertising in terms of promotion:
No direct charge is made for PR, though a business will need to pay for its own PR department or
external PR consultant.
PR is arguably more powerful because the message the business communicates through PR is often
more believable than paid for advertising.
However there is no guarantee that PR will reach its target audience (newspapers may fail to print the story)
whereas advertising must be printed since the space in the newspaper is paid for.
Personal Selling
Personal selling is where businesses use people to sell the product directly to the customer. The sellers
promote the product through their attitude, appearance and knowledge. They aim to inform and encourage
the customer to buy the product.
A good example of personal selling is found in department stores on the perfume and cosmetic counters. A
customer can get advice on how to apply the product and can try different products. It is worth noting that
this part of the department store is often the most profitable.

Direct Marketing
Direct marketing is aimed directly at the customer, so bringing the promotional activity straight to the target
audience e.g. direct mailing or door-to-door sellers.
Examples of business than rely on direct marketing are:
QVC (TV Selling)
Boden (clothes from catalogues)
Sunday Times Wine Direct (wine through flyers in newspapers)
Direct marketing has the following advantages and disadvantages:
Advantages Disadvantages
No intermediaries (e.g. retailers) to take part of
the profits
Costs of distribution of promotional material
Producer can control own marketing
Costs of making distributional material (e.g.
catalogues for Next)
Chance to reach customers who would not
have gone to the shops
Sales Promotion
Sales promotion is the process of persuading a potential customer to buy the product. It can be part of the
personal selling process.
The main methods of sales promotion are:
Money off coupons – customers receive coupons, or cut coupons out of newspapers or a products
packaging that enables them to buy the product next time at a reduced price.
Competitions – buying the product will allow the customer to take part in a chance to win a prize
(e.g. Coca Cola ring pulls).
Discount vouchers – a voucher (like a money off coupon).
Free gifts – a free product when buy another product.
Point of sales materials – e.g. posters, display stands – ways of presenting the product in its best
way or show the customer that the product is there.
Loyalty cards – e.g. Nectar and Air Miles; where customers earn points for buying certain goods or
shopping at certain retailers – that can later be exchanged for money, goods or other offers.
Examples of recent sales promotions are:
Tesco computers for schools
Cadbury’s sport in the community
Café Nero free coffee card
Loyalty cards have recently become an important form of sales promotion. They encourage the customer to

return to the retailer by giving them discounts based on the spending from a previous visit.
Loyalty cards can offset the discounts they offer by making more sales and persuading the customer to come
back. They also provide information about the shopping habits of customers – where do they shop, when
and what do they buy? This is very valuable marketing research and can be used in the planning process for
new and existing products.
Term Definition
Above the line
promotion
Paid for communication in the independent media
Below the line
promotion
Promotional activities where the business has direct control e.g. direct mailing and
money off coupons
Direct marketing Marketing which is aimed straight at the customer
Personal selling Using people to sell the product directly to the customer
Public relations
Managing relations with the outside world, mainly the media, but also the local and
wider community
Sales promotion Process of persuading customers to buy the product

Place (Distribution)
Introduction
Distribution is how the business gets its products to the customers. It does this through four main distribution
channels:
Wholesalers
Distributors / Sales Agents
Retailers
Direct
Distribution Channels
Wholesalers “break bulk” – they buy in large quantities from manufacturers and then break them into
smaller quantities to sell to retailers. This reduces transport costs to the manufacturer (few journeys to
wholesaler rather than many journeys to retailers) and retailers can order in smaller amounts from
wholesalers.
Agents provide a link between sellers and buyers. They are not employed by the company but sell the
products or services for a commission. The best examples of an agent are a travel agent or an estate agent.
For instance the travel agent will sell travel companies holidays to potential holidaymakers and take a cut of
the sales revenue.
Some businesses miss out the wholesaler, especially large multiples such as supermarkets. They can order
directly from the producer and then use their own system of distribution. The advantage for a producer is that
they get greater control over the marketing of their product.
Other businesses use direct marketing as their key distribution channel. This is where they sell directly to
the customer. The most common channels for direct marketing are:
Direct mail
E-mails
Mail-order catalogues
Telephone sales
Overseas Markets
Many businesses sell into overseas markets. This is known as “exporting”. Exporting is not easy, for the
following reasons:
Exchanges rates can change, making the prices of goods coming into or going out of the country
sometimes more expensive, sometimes much cheaper.
Language barriers mean that it can be difficult to communicate with potential buyers.
Different cultures mean that products are not suitable for certain countries, e.g. on religious
grounds.

Gcse business studies revision notes

Gcse business studies revision notes

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