NATIONAL QUALIFICATIONS CURRICULUM SUPPORT
Business Management
Business Decision Areas I:
Marketing and Operations
Activities and Solutions
[HIGHER]
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Acknowledgement
Learning and Teaching Scotland gratefully acknowledges this contribution to the National
Qualifications support programme for Business Management.
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copyright material: ‘Space Tourism’, ‘Bond film a giant advert’ and ‘Coke’s water bomb’ all ©
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© Learning and Teaching Scotland 2007
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BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
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Contents
Marketing
Activities
Solutions
4
16
Operations
Activities
Solutions
31
36
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
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MARKETING
Marketing
Activities
Activity 1
Identify the three main aims of a marketing department.
Apply each one to:
 a manufacturer of mobile phones
 a banking service.
Activity 2
Explain why there has been an increase in the importance of marketing.
Activity 3
Successful companies use marketing strategies in order to meet their
objectives. Match the following organisations to an appropriate marketing
strategy in the table below. Be able to justify your answer.





Cadbury’s
Tesco
Coca-Cola
Marks & Spencers
Sainsbury’s
increase sales revenue and profits
increase and/or maintain market share
maintain or improve image of product
target a new market or market segment
develop new and improved products
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MARKETING
Activity 4
Organisations can take a product- or market-led approach. Distinguish
between these terms and give examples of products for both approaches.
Activity 5
Salvatore makes fresh spaghetti every day. He mixes the flour, eggs
and water together and rolls it out. The dough is then passed through
his much loved pasta machine, which has been passed down through
several generations of Italian pasta makers. The past a is sold to friends
and neighbours. They assure him that his home -made product is far
better than any which is available in the supermarkets and suggest that
he should increase the size of his operation and sell to supermarkets.
What would Salvatore have to consider when supplying an industrial
market as opposed to a neighbourhood consumer market? What
differences would there be in his operation? Make a copy of the
following box for your answer. The first one is done for you.
Scale of operation
Consumer
Industrial
Small-scale – made to
order as customers
enter shop
Fewer customers but
large-scale mechanised
production; recipes
must be consistent
Quality assurance
Quality of after-sales
service
Reliability of suppliers
Transportation of product
Type of customer
Price he can charge
Packaging
Promotion
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MARKETING
Activity 6
Changes in the marketing environment must be taken into account when any
organisation makes marketing decisions. Identify four different factors and
describe, using examples, how this could apply to a hotel chain such as the
Holiday Inn.
Activity 7
The following are the readership figures for two newspapers, by social
class:
Social class
The Sun
The Times
8%
21%
35%
36%
61%
23%
8%
8%
9.9
1.3
A/B
C1
C2
D/E
Total readership (millions)
In which of the two papers would you advertise:
(a)
a walking tour in the Swiss Alps?
(b)
a package holiday to Butlins?
(c)
Jaguar cars?
(d)
Harrods’ Christmas hamper?
In which of the two papers would you promote:
(e)
a cheap coach travel promotion, i.e. collect five tokens (one
issued each day) and travel anywhere in the UK for £5?
(f)
a collection of classical music CDs – buy two get one free?
(g)
collect two vouchers for a free can of beer?
(h)
a free pair of sunglasses if you purchase another pair for £2.99?
Give reasons for your choices.
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MARKETING
Activity 8
Describe fully ‘branding’ and ‘own brands’.
Activity 9
Draw an example of a product life cycle including four main stages. Label
each axis and identify each stage.
Outline what happens to sales and profits as a product goes through each
phase in a product life cycle.
Activity 10
Explain the importance of a research and development programme to an
organisation.
Activity 11
Justify the use the following pricing strategies when launching a new product
onto the market.
 High
 Market
 Low.
Activity 12
Explain the reasons why an organisation alters its product design.
Activity 13
Explain why pricing strategies such as skimming, dest royer and penetration
are short-term tactics.
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MARKETING
Activity 14
What are the names given to the following types of pricing?
(a)
A night-club charging £10 for entry after midnight and £8
before midnight
(b)
A kilt manufacturer charging for a ‘tailor-made’ kilt
(c)
A market stallholder charging 5p per kg less for apples than
the neighbouring stallholder.
Activity 15
Explain the benefits to customers of buying products from:
 Retailers
 Wholesalers
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MARKETING
Activity 16
Distribution channels
This activity requires you to plot the distribution o f apples, cars,
socks and chocolate from manufacturer to consumer. Draw up a
table as follows and, working from left to right , place the correct
statement under the various headings. An example for carpets is
completed for your information.
Manufacturer
Wholesaler
Retailer
Consumer
Kate buys a new
car
Asda’s fruit
department
Booker
Wholesale Foods
Hartwell’s
Renault Garage
Woolly Socks
Ltd
David buys a bar
of chocolate
Renault Cars
Fruit wholesaler
School tuck shop
Chocolate factory
Linda buys
apples
Sockit (sock
wholesaler)
Brian buys socks
Wholesaler
Karpit (carpet
wholesaler)
Retailer
Cosy Carpets
(High Street
furniture store)
Consumer
Customer
Apple farm
The Sock Shop
Example:
Manufacturer
Woolly Carpeting
Ltd
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MARKETING
Activity 17
Which distribution channel would be used for each of the following and
what are the factors influencing the choice? Copy and complete the table
with your answers.
Product/Service
Channel
Influencing factors
farmer selling fresh
strawberries
a network of computers
a suit for a 6 foot 5 inch
man
bars of soap
perfume
karate equipment
X-ray equipment
Activity 18
Identify and describe appropriate methods of promoting the sales of cars.
Activity 19
Identify products that have been on the market for more than 20 years.
Explain why have they never entered the decline stage of the product life
cycle?
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MARKETING
Activity 20
Identify four ways of extending a product life cycle. Support this with
an appropriate diagram.
Activity 21
(a)
Identify two methods of market segmentation.
(b)
Justify the use of market segmentation.
Activity 22
Describe three advantages and two disadvantages of each of the following
field research techniques:
 Personal interview
 Telephone interview
 Postal survey
Activity 23
Explain the term ‘product mix’. Discuss the benefits it offers an
organisation.
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MARKETING
Activity 24
Read the following article and then answer the questions below.
SPACE TOURISM
Virgin boss Sir Richard Branson has signed a £14 million agreement which
will see his company take passengers into space. The Virgin group has
interests in a range of businesses, including trains, finance, soft drinks,
music, mobile phones, holidays and cars.
The British entrepreneur is having five spaceships built in the US. It will
cost around £100,000 to go on a ‘Virgin Galactic’ spaceship. ‘The price will
come down – there’s no doubt about that. If it is a success we want to move
into orbital flights, and then, possibly, even get a hotel up there. We’ve done
quite a lot of research; we think there are about 3,000 people out there who
would want to do this’ said Sir Richard.
The spaceship’s technology has been licensed and will provide the world’s
first private spaceship to go into commercial operating service.
the spaceship will have room for 5 passengers
a week’s pre-flight training will be required
a 3 hour trip; 3 minutes of weightlessness
flights to leave from the Mojave desert initially
tickets to cost about £100,000 perhaps less
Every passenger will have a spectacular view; they will have considerable
windows and luxurious seats. Space tourism should have happened many
years ago.
The first flights should begin in 2009. Test flying of the spaceship will be
carried out in 2007/8. Its main base will be in New Me xico and they are
looking at three bases outside of there to be able to operate from.
Lossiemouth in the north of Scotland and Machrihanish in the west are being
considered as commercial sites.
Source: adapted from http://www.bbc.news.co.uk November 2006
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MARKETING
(a)
Why will passengers be prepared to pay such a high price for a ticket on
the spaceship?
(b)
What are the advantages to Virgin of using this market skimming
strategy?
(c)
Explain why the price will eventually come down .
(d)
Discuss the need for research and development.
(e)
What constraints are there on new product development?
(f)
Why does Virgin group have interests in a range of businesses?
(g)
What is the purpose of market research?
(h)
Explain the importance of sampling appropria tely when conducting
market research.
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MARKETING
Activity 25
Read the following article and then answer the questions below.
BOND FILM A ‘GIANT ADVERT’
Product placement, which is common in the US, is banned in British
television programmes, as the National Consumer Council (NCC) states that
it would undermine trust in the broadcasters.
In the US, American Idol judges drink from prominent glasses of Coca -Cola,
Desperate Housewives promoted Buick cars, characters in the 24 series
promoted Cisco computer security.
Product placement has been a feature of films such as James Bond for over 40
years. Many products are featured in the James Bond movies – from Omega
and Rolex watches, to BMW bikes and Aston Martin cars. Some 20
companies saw their products on the big screen paying £44m for the
privilege.
The London 2012 Olympics is big business with £790m of its marketing
revenue coming from corporate sponsorship. Companies such as Coca -Cola,
McDonald’s and Visa have exclusive worldwide marketing rights.
Brand consultants insist that the strategy makes a huge amount of sense.
Source: http://www.bbc.news.co.uk November 2006
(a)
Explain the advantages to an organisation of using product placement.
(b)
Explain what an organisation hopes to gain from sponsorship of an
event such as the Olympics.
(c)
Describe the advantages and disadvantages of branding.
(d)
Discuss factors that may affect the choice of advertising method used
by organisations.
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MARKETING
(e)
External factors must be considered when making any marketing
decisions. Describe examples of how the government could affect
marketing decisions.
Activity 26
Explain how a retailer of electrical goods could alter the four elements of the
marketing mix in order to increase sales.
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MARKETING
Solutions
Activity 1
The three main aims of a marketing department are:
(i)
(ii)
to identify consumers’
requirements
to anticipate consumers’
requirements
(iii) to satisfy consumers’
requirements
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Mobile phone
manufacturer
Banking service
What do customers
want when they buy
a mobile phone?
What do they need it
for? Consider the
different features
required, how much
they are prepared to
pay, the ease of use,
the size and weight
of the phone.
What do customers
expect from a
banking service?
What will consumers
want in the future?
Enhanced security,
ear pieces, cheaper
calls, music, games,
photos, videos.
What will users of a
bank service want in
the future? Increased
use of internet
banking, card,
increased security of
personal
information.
A good quality
phone offering
value for money; a
disposable phone;
phones for different
types of customer
depending on age,
use, income.
A quality service at
a low cost (or free).
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
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Consider the
different types of
service available e.g.
savings accounts,
loans, insurance etc.
Businesses may
have different
requirements from
individuals.
MARKETING
Activity 2
 Increase in disposable income – more to spend on goods other than
necessities, therefore, organisations need to attract attention, inform,
persuade customers
 Increasing mobility of consumers, can shop over a wider geographical area
 Expectations are increasing and more sophisticated
 Increase in global competition
 Increase in global buying and selling
Activity 3
(answers may vary – check student’s justification)
increase sales revenue and profits
Tesco
increase and/or maintain market share
Sainsbury’s
maintain or improve image of product
Coca Cola
target a new market or market segment
M&S
develop new and improved products
Cadbury’s
Activity 4
‘Product-led’ is where an organisation manufactures a product, usually a new
invention, and then tries to persuade customers to buy it.
Organisation concentrates on the production process and the product itself.
There will not have been any market research.
Product will become a market leader and sell itself.
Examples: Concorde, home computers, electronics, pharmaceuticals
‘Market-led’ is where an organisation has identified, reviewed and analysed
the needs of consumers – and will develop products in response to changing
consumer needs.
Examples: Sony Walkman, smaller, lighter mobile phones, smaller TVs,
laptop computers, blackberries
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MARKETING
Activity 5
Scale of operation
CONSUMER
INDUSTRIAL
Small-scale – made to
order as customers enter
shop
Fewer customers but largescale mechanised
production
Recipes must be consistent
Quality assurance
Customer will make
comment directly – easy
to see customer’s
reaction
Small-scale – easier to
control
Absolutely essential to
meet Health and Safety
regulations. The product
has to be the same every
time and standard weight
in packets, etc.
Probably production will
be inspected by
supermarket.
Quality of aftersales service
Realisation that it is
essential – ‘the customer
is always right’
If the supermarket is
unhappy, it will purchase
elsewhere
Reliability of
suppliers
Not a real problem –
flour, etc. probably
purchased in bulk.
Alternative suppliers
available
For a large-scale
production, a reliable
supplier is essential.
Production cannot be held
up. Quality must be
consistent as must price
Transportation of
product
None. Made on the
premises
Large-scale. Price, speed
and Health and Safety
issues
Type of customer
Local. Probably from
middle/upper socioeconomic group –
someone who is prepared
to visit a specialist shop
Supermarket is main
customer, which then has
many consumers visiting
its stores
Price he can charge
Type of consumer is
probably willing to pay a
premium price
Dictated by supermarket –
it can go elsewhere
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MARKETING
Packaging
Simple. Paper bag
possibly bearing name of
shop
Sealed packs which stack
well in a chilled cabinet.
Ingredients listed on
packaging, sell-by dates,
bar codes, name of
manufacturer, name of
supermarket, etc.
Promotion
Local advertising.
Opportunities for largerscale promotions – buy one
get sauce free, advertising
in store magazines,
posters, etc., price
promotions, money off
coupons, etc.
Tastings in shop.
Activity 6
Consumer trends and behaviour – consumers looking for deals for weekends,
or speciality breaks e.g. shopping, spa, theatre breaks, provide health and
beauty facilities
Government – goods or services advertised must do what the advertising
claims e.g. dinner included free on the first night, minimum fire safety
standards must be met, access for disabled
Technology – organisation will need to keep up-to-date to gain some
competitive advantage e.g. internet access, flat screen high-density TVs in
rooms
Economic forces – offer reduced prices when the hotel is quieter
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MARKETING
Activity 7
The choice of advertising and promotion reflects the socio-economic group of
the reader.
One would expect a Sun reader to be interested in:




a package holiday to Butlins;
personalised number plates;
free can of beer; and
free sunglasses.
One would expect the Times reader to be interested in




a walking tour in the Swiss Alps;
Jaguar cars;
Harrods’ Christmas hamper; and
classical CDs.
Note: some may appear in both and perhaps it would be expected that the
cheap coach travel promotion would appeal to the Sun reader – it did actually
appear in The Times.
Activity 8
Branding is a name, design or symbol given to a product to diffe rentiate it
from other products.
The brand will be registered by the organisation to stop the name being used
on other organisation’s products.
Branding is used to create a unique selling point.
Own brand refers to retailer’s own products , which are usually given the
retailer’s own name such as George at Asda.
The product may be made by another manufacturer .
They offer an additional choice to the consumer, usually at a lower price fro m
premium brands.
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MARKETING
Activity 9
Product life cycle
Introduction – sales are light/slow due to lack of awareness of product, profits
are unlikely at this stage as costs are very high due to massive advertising,
development and launch costs
Growth – sales are increasing rapidly due to advertising and the product starts
to become profitable
Maturity – sales are now at their highest, advertising is usually a imed at
reminding customers the product exists, profits are also at their highest and
will probably be used to finance the development of new products and also to
fund extension strategies
Decline – sales are falling as are profits, with hopefully new pro ducts
reaching their growth stage
Activity 10






To
To
To
To
To
To
ensure customers have the products they want
have a competitive edge
be known as an innovator
improve existing products
be able to sell a unique product
replace products at end of their life cycle
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MARKETING
Activity 11
High – enables firms to sell a high quality product onto a select market
segment; used when there are no competitors or unique product .
Market – this would be used when competitors’ products are similar; if priced
above market price customers will move; firms will follow each other i f one
organisation lowers price.
Low – used when firm wants to undercut the competitor and customers are
likely to be attracted away from usual product/firm; used where there is little
brand loyalty.
Activity 12
Reasons why an organisation alters its product design :







To
To
To
To
To
To
To
extend the life cycle
increase sales
improve the product
keep ahead of competitors
raise the profile of a product
maintain/renew interest in a product
target a new market
Activity 13
Skimming
 high price can be charged as there is little, if any, competition in the short
term
 the product is unique in the short term, customers are willing to pay for it
and cannot buy it elsewhere
 in the short term that demand is saturated, then the firm will have to lower
the price to be able to sell it to a lower market segment
 competitors will eventually be able to enter the market (in the medium
term) so the organisation will have to lower their price to gain new/retain
customers
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MARKETING
Destroyer
 price is set artificially low in the short term to destroy sales of a
competitor who has entered the market
 the competitor will not be able to survive in that market i.e. no sales
 the established organisation will probably be running at a loss and have to
rely on retained profits to survive – it cannot afford to sustain these losses
other than for the short term
 once the competition is eliminated the price will return to market price or
above
Penetration
 a low price is set to attract customers to the product and to penetrate an
existing market where there is strong competition
 a policy which combines a low price with low sales may initially result in
losses but may persuade customers to switch to the new product
 Firms using the tactic would be unable to maintain the low price and
survive in the long term
Activity 14
(a)
Discriminatory pricing
(b)
Cost plus pricing
(c)
Competitive pricing
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MARKETING
Activity 15
Retailers






Usually more accessible
Offer a variety of goods and services from a varie ty of producers
They are prepared and displayed
Provide information through trained staff, advertising, displays
Offer related services such as credit facilities, after sales service, delivery
Personal service
Wholesalers
 May be a lower selling price
 Can buy in bulk
 Ease of parking
Activity 16
MANUFACTURER WHOLESALER
RETAILER
CONSUMER
Renault Cars
Hartwell’s
Renault Garage
Kate buys a new
car
Apple farm
Fruit wholesaler
Asda’s fruit
department
Linda buys
apples
Chocolate factory
Booker
Wholesale Foods
School tuck
shop
David buys a bar
of chocolate
Woolly Socks Ltd
Sockit (socks
wholesaler)
The Sock Shop
Brian buys socks
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MARKETING
Activity 17
PRODUCT/SERVICE
CHANNEL
INFLUENCING
FACTORS
farmer selling fresh
strawberries
direct
handling time reduced
a network of computers
direct
technical advice needed
a suit for a 6 foot 5 inch
man
direct
narrow range of
consumers
bars of soap
retailers
need to be widely
available, heavy
competition
perfume
selective
exclusivity, image, high
profit margin
karate equipment
direct/specialist retailer
narrow range of
consumers
X-ray equipment
direct
technical advice, narrow
range of consumers
Activity 18
Promotional pricing – £1,000 off for limited period of time, reduced price
before new registration or new model launched
Free SATNAV – customers offered free satellite navigation when buying car
before end of the month
Advertising – pictures, information featured in newspapers or magazines,
adverts placed in breaks during appropriate TV programmes e.g. Top Gear,
during Grand Prix races
Direct mail – information sent out to customers who are likely to buy – send
brochure to house, someone who bought new car 2/3 years ago
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MARKETING
Activity 19
Just because a product has been around for a long time does not mean that it
has to enter the decline stage of its life cycle. Some become so familiar that
people cannot imagine life without them. Examples include Oxo, Kellogg’s
Cornflakes, Hovis bread and Mars Bars. They are liked and trusted by
consumers. Brand loyalty is very strong. People who are adults now
remember these products from when they were children.
However, it is very important that producers do not take their customers’
loyalty for granted. Even for these well known, established brands, millions
of pounds are spent on advertising and other promotional activities – often
more than is spent on promoting new products.
Activity 20
The life cycle of a product can be extended by:
 changing or modifying it (its shape, colour, flavour, etc);
 introducing new varieties (flavours, shapes, colours, etc);
 changing the packaging – it is the same product but in a different
‘wrapping’;
 changing the price (up or down);
 changing the channels of distribution (putting it on sale in different, non traditional outlets);
 trying new types of promotion.
Activity 21
(a)
Age, sex, socio-economic group, income, religion, hobbies, residential
area
(b)









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BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
to obtain information about customers
to create products to match needs of segment/customers
wider range of differentiated products can be of fered
allows appropriate prices to be set
prevents wasteful promotions targeted to wrong market segments
to allow products to be sold in appropriate places for target market
to identify a gap in the market
to target specific groups with products/promotions
to specialise in a specific market
© Learning and Teaching Scotland 2007
MARKETING
Activity 22
TECHNIQUE
ADVANTAGES
DISADVANTAGES
Personal interview
allows two-way
communication between
researcher and
respondent
time-consuming
interviewer can clear up
any misunderstandings
arising from the
questions
Expensive
detailed responses can
be given if required
takes time to find people
with the desired
characteristics for the
sample (age, sex,
occupation, etc)
cheap
people find it an
invasion of privacy
immediate response
received
only short questions can
be used
quick
people might not be at
home
no need for trained
interviewer
questionnaire cannot be
very detailed
cheap
low response rate
wide geographical area
covered
delay in receiving all
the replies
Telephone interview
Postal survey
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MARKETING
Activity 23
Range of products offered by an organisation
Products may be linked e.g. washing powder, household cleaning materials,
dishwasher granules or the products may be diverse e.g. drinks, foodstuffs,
holidays, financial products






Increased sales and profits
To raise the profile of the organisation
To target variety of market segments
To meet the needs of different markets
To replace products which have entered decline
To spread the risk of failure – if one product or line fails, the organisation
still has sales from the other products
 Similar products may use same supplier so organisation can benefit from
economies of scale
Activity 24
(a)




Product is unique (USP)
No competitors
Appeals to market segment with high disposable income
Customers want to be first to try it
(b)




Gain as much profit as they can for a limited period
Sell to most profitable market first of all
Gain greater revenue to recoup costs of research and development
Maximise revenue before competitors come into market
(c)
 Competitors will enter the market with a lower price
 Similar products/service will be offered
 Other market segments will want to buy the product at a lower price
(d)




(e)
 Availability of finance
 Limitations of staff and technology
 Market constraints e.g. customers not willing to pay the price which
will cover the costs involved
28
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
To
To
To
To
find new products to replace products at end of life cycle
keep up with changes in the market
reap high revenue from being a market leader
limit the competition
© Learning and Teaching Scotland 2007
MARKETING
(f)




To
To
To
To
spread the risk of failure over a larger number of products
maximise sales and profits
promote the brand name
gain market share
(g)





To
To
To
To
To
gather and analyse information
identify the market
identify consumer preferences
test the market
provide firms with data to help marketing decisions
(h)
 expensive and time consuming to interview every consumer
 a representative sample improves the accuracy of the research
Activity 25
(a)









(b)


 Seen by a worldwide audience
 Raises image/profile of organisation/products
 Seen as premium brand associated with the world’s best
(c)























Seen by a worldwide/large audience
Associated with the image – cool, trendy, music, gritty, etc
Raises the profile of organisation/product
Will increase sales and profits
Gives it a competitive edge/an advantage over the competition
Can charge higher prices
Customers become brand loyal
Easily recognised by customers
Associated with quality
Customers like the image/snob value
Can launch new products successfully due to reputation of others
Can charge higher prices
Can be used as a marketing tool
Adds value to the balance sheet
Requires high level of advertising to maintain profile
Susceptible to being copied
The failure of one product/brand may affect whole range of products
produced by organisation
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
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MARKETING
(d)
Depends on how it can best reach market segment e.g. if selling to
adults then advertise during TV programmes/times appropriate to that
age group,
May be determined by cost/budget allocation – cheaper methods e.g.
local newspapers, radio, whereas TV advertising would need a larger
budget but it will reach a larger audience
Target market – if this is large or small e.g. might use mass marketing
method such as product placement on TV or film for large target market
Might be appropriate to compete directly against your competition e.g.
if one travel agency is advertising in Sunday newspapers then the others
would probably follow
(e)
Legislation may restrict what you advertise e.g. banning adverts of
foods with high fat, sugar, salt contents during children’s programmes;
restrictions on tobacco and alcohol advertising
Legislation may also restrict manufacturers who encourage retailers not
to stock rival products e.g. ice cream market; may also restrict
competition e.g. Microsoft
Government may raise level of taxes therefore organisations may have
less revenue to spend
Activity 26
price – could be lowered to attract a greater number of consumers or to
encourage consumers to purchase more frequently
product – a greater range of products or different brands of the same product
could be stocked
promotion – additional promotional techniques could be introduced e.g. free
gift with purchase, interest free credit ter ms etc
place – the retailer could start selling online or by direct mail
30
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
OPERATIONS
Operations
Activities
Activity 1
Ideally production should be at a constant level for good planning. Outline
four factors that might result in variable production levels.
Activity 2
Discuss the advantages and disadvantages of supermarkets choosing to have a
policy of using local suppliers for some of the produce they sell.
Activity 3
Explain why purchasing procedures are important to a business.
Activity 4
Describe and justify the three main types of production, giving appropriate
examples for each.
Activity 5
Explain three factors that must be considered when organisations decide on
how to best produce goods and services.
Activity 6
Explain why flow production would not be appropriate to a business that has
just started up.
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
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OPERATIONS
Activity 7
An organisation has set an objective to improve the quality of its products.
Outline measures it could take to ensure products are of a high quality.
Activity 8
Explain why quality is important to:
 the customer
 the organisation.
Activity 9
Describe the advantages and disadvantages of centralised storage of stock .
Activity 10
Major supermarkets have a competitive advantage from having the right stock
on the shelves whenever customers want them. Identify factors that would
have a significant effect on the levels of stock demanded by customers.
Activity 11
Effective stock control is important to achieve efficient production. Describe
the Just In Time system and its advantages and disadvantages for a
manufacturing organisation.
Activity 12
What benefits, for the manufacturer, can be provided by a good quality
product/service?
Activity 13
What costs are involved with a poor quality product/service?
32
BUSINESS DECISION AREAS II (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
OPERATIONS
Activity 14
Explain the factors in the purchasing mix that would make an organisation
decide to change its supplier.
Activity 15
Employers search for various ways to motivate and reward their employees
such as time rate payment.
Describe three other methods of payment systems that would encourage
employees to work harder or better.
Activity 16
Discuss why an organisation would choose to have its own transport and use
the road network for transport and delivery of its goods to retailers.
Activity 17
Describe the factors that determine the quantity of raw materials ordered by
an organisation.
Activity 18
Quality symbols and standards are used by many organisations. These
include the Kitemark and the Pure Wool symbol. Discuss the benefits they
can bring to:
 the customer
 the organisation.
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
33
OPERATIONS
Activity 19
Read the following article and then answer the questions which follow.
COKE’S WATER BOMB
Coca Cola is not a company known for making too many mistakes. Its
marketing is slick and Coke is the best-selling soft drink in the world. Few
would have predicted that Coke’s attempt to launch its Dasani bottled water
brand in the UK would prove to be a disaster for such an experienced
company.
Yet, in March 2004, only five weeks after its Multi-million pound UK launch,
red-faced Coke executives were forced to take Dasani off the shelves in the
UK. What went wrong?
Dasani was launched in the USA in 1999 as a bottled, purified water, and had
become a huge success there. Taking that same formula and repeati ng it for
the UK market must have looked like a breeze, but that wasn ’t quite how it
turned out.
Unlike most of the bottled water sold in British petrol stations and
supermarkets Dasani hadn’t come from alpine glaciers or trickled out of a
precious natural spring – it had come out of the local tap. True, the company
put it through a purification process and added mineral salts, but the source
was still tap water.
At first, the launch seemed to go well, and Coke executives thought the
public would respond to their new product with its distinctive blue packaging.
Huge stocks were put in place. But everything changed when the Press
Association reporter Graham Hiscott saw the reference in the Grocer
magazine to the real source of Dasani.
The following day, the story was splashed across the daily papers. Headlines
like “The Real Sting” a play on Coke’s “The Real Thing” slogan and the more
obvious “Coke sells tap water for 95p” could hardly have been worse for
Coke and their new baby.
34
BUSINESS DECISION AREAS II (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
OPERATIONS
Contaminated
Despite the pages of negative press coverage, Coke persisted with Dasani.
Executives protested that they had been misunderstood and that the drink was
not just tap water but in fact the result of a highly sophisticated process to
create the purest drinking water you can get. As far as Coke were concerned,
Dasani was a lifestyle drink, a drink you would want to be seen with, t he
source was all but irrelevant.
Then later that month, there was even worse news. Something had gone
wrong at the Dasani factory and a bad batch of minerals had contaminated the
water production with a potentially carcinogenic bromate. Coke admitted
defeat. Immediately they withdrew all 500,000 bottles of D asani in
circulation. In just five weeks, Dasani had come and gone, arguably
providing more in terms of entertainment than refreshment.
Source: http://www.bbc.news.co.uk June 2004
1.
Outline the effect of the poor quality products for Coca -Cola.
2.
Discuss the advantages and disadvantages of organisations holding
large quantities of stock.
3.
The story of Dasani was highlighted in a daily newspaper. Discuss the
reliability and value of this source of information in informing the
public.
4.
Coca-Cola may attempt to relaunch the product at a la ter date. Discuss
promotional measures it could take to promote the product.
5.
The development of new products is essential to organisations.
Describe the stages which are involved in developing a new product.
6.
Explain how an organisation can use the marketing mix to promote a
product with a high price.
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
35
OPERATIONS
Solutions
Activity 1




Machines may break down
Staff – absences, shortages, ability
Raw materials not available, delivered late, spoiled
Consumer demand is variable too
Activity 2







Improve image/meet objective of corporate/social responsibility
Less delivery and insurance charges
Delivery could be arranged at short notice
May be better quality
Can build up relationship and trust with delivery times
May not have a wide range compared to national/othe r suppliers
May be more expensive
Activity 3
 Determines quality of raw materials bought, therefore the product quality
 Quality of product will determine price of product, sales and profits
 Must be right quality and quantity, at the right time to satisfy production
and customers
 Good purchasing will reduce waste in production and storage and
complaints from customers
 Good purchasing can reduce costs
36
BUSINESS DECISION AREAS II (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
OPERATIONS
Activity 4
Job production – speciality cakes, bridges:
 Each job, a single product, is completed before another one is begun
 Made to the customer’s specifications, unique
 Customer can change specifications
 Workers will be involved in the entire production process
 Workers highly motivated and skilled
 High prices can be charged
Batch production – bread, soups:
 Production of batches of similar products
 No item will go to the next stage until entire batch is completed
 Each batch can be made to suit a particular market segment/customer
 Batches of partly completed stock can be stored and finished off to
particular requirements at a later date
 Wages are lower as staff are less skilled than in job production
 Machinery less expensive as it can be standardised
Flow production – newspapers, cars:
 This process uses the production line and the product passes through
various stages along the line with component parts being added at each
stage
 Most suitable for mass production businesses where standardisation of
products is essential
 Costs are spread over a large number of goods, low unit costs
 Economies of scale are achieved
 Lower labour costs due to high level of automation
 Can gain bulk buying discounts due to large amount of raw materials used
Activity 5
Quantity – large numbers/mass production or small/one -off products would
require different systems
Labour – if the number of staff required with the correct level of skill were
available or not
Capital – some machinery could be very expensive relative to the cost of
labour or vice versa; the amount of finance available
Time – the amount of time needed to produce a product, to satisfy demand
would also determine the production method chosen
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
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OPERATIONS
Activity 6
Tend to produce small amounts initially, need to ‘test’ the market .
Limited amount of resources e.g. staff, customers, finance, equipment.
Activity 7








Recruit and train quality staff
Purchase appropriate and good quality equipment/machinery
Purchase good quality raw materials
Set quality standards, attain national quality standards e.g. BS Kitemark
Quality assurance
TQM
Benchmarking
Quality circles
Activity 8
To the customer:




They
They
They
They
want
want
want
want
good quality product for the price paid
satisfaction from the product
the product to be safe
the product to be fit for purpose .
To the organisation:





38
They
They
They
They
They
want the product made to conform to specifica tions
want it to be industry standard or better
want repeat sales
want a good reputation
do not want returns, complaints.
BUSINESS DECISION AREAS II (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
OPERATIONS
Activity 9
Advantages




improved security
established procedures for issue/receipt and ordering
bulk purchasing possible which may be cheaper
increased efficiency in distribution
Disadvantages





time wasted going to store
cost of specialist staff
cost of storage area
stock not always on hand when needed
large amounts of stock held – may become obsolete
Activity 10





Weather forecast
Public holidays
Concerts, major sporting events
Levels of employment
Recession
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
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OPERATIONS
Activity 11
Just In Time is a method of stock control where stock arrives just in time to
be used in production so the amount of stock held by the orga nisation is
extremely small.
Advantages






Less capital is tied up in stock – so money can be spent elsewhere
Less stock stored therefore less theft, waste, obsolescence, more space
Storage costs are reduced
Eliminates overproduction
Less vulnerable to changes in fashion
Closer relationship with suppliers may allow flexibility in orders
Disadvantages
 Late/non arrival of stock will result in disrupted production
 May lose sales and customers if production disrupted
 Increased ordering, delivery and admin cos ts due to frequent smaller
orders
 Less chance of quality checks when stocks arrive
 Highly dependent on supplier
Activity 12





Repeat sales, customers satisfied
Competitive edge over rivals
Longer life cycle of product
Premium price can be charged
Good reputation and image
Activity 13






40
Returned goods
Lower sales
Harmed reputation
Cost of reworking/making product
Wasted materials
Cost of employing more staff to find and sort quality problems
BUSINESS DECISION AREAS II (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
OPERATIONS
Activity 14
Supplier – perhaps a local or other national suppli er will have more
appropriate raw materials than the present one, better choice
Costs – some suppliers will charge more/less for insurance, delivery
Delivery – the present supplier may have delivered late or may have too long
a lead time
Price – the present supplier may have put up their prices or another supplier
might offer discounts for paying quickly or buying in bulk
Quality and quantity – the present supplier’s quality may not be consistent or
they are charging too much for it; quality may not be good enough for the
organisation
Quantity – present supplier may not be able to supply quantity required (large
or small)
Activity 15
Piece rate – where employees are paid for each good item produced, the more
they produce the more they are paid, waste costs may be a problem, may
result in too much stock and insufficient demand
Overtime – paid when an employee works longer than their contracted hours,
usually paid at a higher rate than the basic rate of pay
Bonuses – employees are paid a flat rate of pay plus a bonus for a certain
level of output or target achieved, may create rivalry
Activity 16





They will have complete control of e.g. dispatch and delivery times.
High purchase, maintenance, running and administration costs
Taxes are likely to increase, therefore higher costs
More extensive road network compared to rail/air
Can dispatch and deliver door to door, no other method needed
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
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OPERATIONS
Activity 17








Current stock levels
Storage capacity available
Costs of storage
Time between this order and any future orders – lead time
Any future orders/normal level of demand
Spoilage
Amount of finance available
Discounts for buying in bulk
Activity 18
The customer:
 Assured of a certain standard of quality
 Assured of a certain level of safety
 Image
The organisation:





Good reputation
Can advertise this in its literature
Will be able to win government contracts
Customers will be able to differentiate their product from others
Gives organisation a competitive edge
Activity 19
1.
Loss of 500,000 bottles, reduction of sales
Loss of raw materials, wages in production
Bad reputation/image
Customers may be put off buying other Coke products
Cost of refunding any money to customers
Waste of multi-million pound launch of Dasani
Some customers may not return
2.
Advantages



42
Able to cope with unexpected changes in demand
Less admin costs due to orders being made less frequently
More likely to secure bulk buying discounts
BUSINESS DECISION AREAS II (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
OPERATIONS
Disadvantages




High storage, maintenance, insurance, and security cost s
Takes up a lot of space
Stock may deteriorate, become obsolete
Capital tied up in stock could be spent better elsewhere
3.





4.
Reduce the price to regain market share
Advertise to stimulate interest– informative to let customers know
product has been improved
Into the Pipeline promotions e.g. sale or return arrangements to trade
outlets, point of sale posters or displays
Free trial packs, money off coupons
Public relations activities e.g. donations to charity, sponsor event, press
releases
5.






Idea is generated
Analyse idea
Produce a prototype
Test market
Modify, adapt product, solve any problems
Launch product
6.






Product must be made of high quality materials
Become a BSI certified company
Use a brand logo
Sell in exclusive retail outlets with specialised/informed staff
Packaging must reflect quality and price
Use persuasive advertising to the appropriate market segment
Newspapers may contain bias
The information may be incomplete
The information may be untrue
The headlines may have sensational for an impact/to sell papers
The source of the article was given but it was not from an original
source
 The newspaper was cheap and easy to obtain
 It was timely information
BUSINESS DECISION AREAS I (HIGHER, BUSINESS MANAGEMENT)
© Learning and Teaching Scotland 2007
43