OCR A LEVEL Andy Mottershead Alex Grant Judith Kelt BUSINESS FOR A LEVEL Includes AS Level Meet the demands of the new A Level specifications; popular and trusted textbooks and revision guides, innovative, flexible and interactive digital resources, topical student magazines and specialist-led CPD events will ensure you are supported in all your teaching and assessment needs. This sample chapter is taken from OCR Business for A Level Student Book To pre-order or request an Inspection Copy, please visit www.hoddereducation.co.uk/ALevelBusiness/OCR OCR Business for A Level We are working in partnership with OCR on print and digital resources that support the teaching and learning of Business A Level. For use with the 2015 OCR Business AS and A Level specifications, this completely revised textbook will develop knowledge and skills with its comprehensive coverage of all the business topics your students need to know. OCR Business for A Level Andy Mottershead, Alex Grant, Judith Kelt 9781471836152 May 2015 £34.99 ALSO AVAILABLE OCR Business for A Level Dynamic Learning Dynamic Learning is an online subscription solution that supports teachers and students with high quality content and unique tools. Dynamic Learning incorporates Teaching and Learning resources, Whiteboard and Student eTextbook elements that all work together to give you the ultimate classroom and homework resource. Pub date: Summer 2015 Sign up for a free 30 day trial – visit www.hoddereducation.co.uk/dynamiclearning Business Review magazine Philip Allan Magazines are the ideal resource to deepen subject knowledge and better prepare students for their exams. Visit www.hoddereducation.co.uk/businessreview to find out more and to trial the archive free for 30 days. Philip Allan Events Ensure that you are fully prepared for the upcoming changes to the A Level specs by attending one of our ‘Implementing the New Specification’ courses. For more information and to book your place visit www.philipallanupdates.co.uk Andy Mottershead, Alex Grant and Judith Kelt Business for A Level Includes AS Level Contents Introduction Introduction to business Chapter 1 Chapter 2 Chapter 3 Chapter 4 Enterprise and business functions Business sectors and types of business Franchises and co-operatives Business size, growth and external growth Business objectives and strategy Chapter 5Stakeholders Chapter 6 Different stakeholder objectives and mission statements Chapter 7 Corporate social responsibility (CSR) Chapter 8 Strategy and implementation Chapter 9 Business plans Chapter 10 Risk and uncertainty and opportunity cost Chapter 11 Contingency planning and crisis management Chapter 12 Models of strategic choice Chapter 13 Measures of performance – financial and non-financial Chapter 14Forecasting Chapter 15 Decision making and conflicts in decision making Chapter 16 Decision trees Chapter 17 Ansoff’s matrix External influences Chapter 18 Chapter 19 Chapter 20 Chapter 21 Chapter 22 Chapter 23 Chapter 24 Chapter 25 Chapter 26 Chapter 27 Chapter 28 Chapter 29 Chapter 30 The market including physical and non-physical markets Demand and supply and market forces Competition and market dominance The EU, emerging markets and the global context International trade and free trade Political factors Economic factors Social and technological factors and the digital revolution Ethical factors Legal factors Environmental factors and external factors and influences Causes and effects of change Managing change v Contents vi Accounting and finance within a business environment Chapter 31 Accounting and finance objectives and strategy Chapter 32 Sources of finance Chapter 33 Accounting concepts Management accounting Chapter 34 Chapter 35 Chapter 36 Chapter 37 Chapter 38 Financial accounting Chapter 39 Chapter 40 Chapter 41 Chapter 42 uman resource management within a business H environment Chapter 43 Human resource management objectives Chapter 44Organisation Chapter 45Communication The workforce Chapter 46 Workforce planning Chapter 47 Recruitment, selection and training Chapter 48Appraisal Chapter 49 Redundancy and dismissal Management Chapter 50 Functions of management and leadership Chapter 51Motivation Chapter 52 Employer/employee relations: trade unions and consultation Chapter 53 Employer/employee relations: employment law Marketing within a business environment Chapter 54 Marketing within a business environment Customer needs Chapter 55 Identifying customer needs Chapter 56 Customers and consumers, anticipating consumer needs and the product life cycle Costs, revenue and profit Break-even analysis and contribution Investment appraisal Budgets and variance Cash-flow and working capital Income statements Statement of financial position Ratio analysis External influences on accounting and finance The marketing strategy Chapter 57 Product and service marketing Chapter 58 The marketing mix Chapter 59Price Chapter 60Place Chapter 61Promotion Operations management within a business environment Chapter 62 Operations management objectives Chapter 63 Added value The production process Chapter 64 Innovation, research and development Chapter 65 Methods of production Chapter 66 Project management Productive efficiency Chapter 67Productivity Chapter 68 Economies and diseconomies of scale Chapter 69 Capacity utilisation and management Chapter 70 Stock control Chapter 71 Lean production Chapter 72Technology Productive quality (fit for purpose) Chapter 73 Internal and external quality standards Chapter 74 Location and logistics Contents Chapter 54 Marketing within a business environment Marketing objectives Chapter 54 Marketing within a business environment In any business it is important to take into account the situation in the market, the needs of the consumer and the action of competitors. Setting marketing objectives is vital to ensure that all of these factors are taken into account in the application of the marketing mix. For example, a business like Unilever might want to introduce a new range of skin products. Before doing this, it will need to identify its target market and undertaken some initial market research to investigate this market. The business will want to set out its objectives for any marketing activity at this point. These objectives might be: ● to achieve a certain level of sales ● to increase market share ● to reach a particular segment of the population. 2 This analysis of the market should help Unilever in the production of the product range and its subsequent marketing to consumers. Knowledge of the market, the consumer and the competition will help to show the best ways to price and promote the product when it is launched. Key term Marketing objectives: desired outcomes of a marketing plan or the marketing function. Setting objectives Setting objectives involves asking and answering a series of questions about the present and the future of the business. One of the main reasons for setting objectives is to help employees identify the marketing strategy for the business. The plan will help to explain necessary actions, set a budget and identify goals that are to be met. In small firms, the marketing plan may often be a series of discussions among the staff; in larger businesses the marketing plan will need to be a more formal document that can be viewed by all concerned. The marketing plan will need to answer these questions: ■ Where are we now? ■ Where do we want to be? ■ How will we get there? Where are we now? This is sometimes called a marketing audit. To answer this question the business will need to look at the internal and external factors that affect it. This will involve doing a SWOT (strengths, weaknesses, opportunities and threats) analysis. The strengths and weaknesses are internal factors that are within the business’s control; the opportunities and threats are external factors that are likely to be outside the business’s control. There are economic, social, political and technological factors, as well as the actions of competitors. This audit will analyse the product portfolio in the current business climate, ensuring that the business matches its product range to the needs of the consumer. Where do we want to be? The answer to this question will involve setting objectives for the future. This might be a strategic objective for the whole business, such as growth or diversification, or it could be a marketing objective, such as increasing market share or becoming market leader. How will we get there? To answer this question, a strategy for the future of the business needs to be developed. For example, the business could set itself an objective of becoming market leader. This will then require the use of the marketing mix to formulate a strategy by which this might be achieved within a particular timeframe. Advantages 1. The exercise of setting marketing objectives helps the business to identify what it hopes to achieve through any spending on marketing. Marketing planning and marketing are both costly exercises. Too often a business will spend money in these areas without having a clear idea of what it hopes to achieve. 2. Setting clear marketing objectives as a result of planning is a good way of motivating workers and setting targets for goals like market share, market growth or market leadership. 3. Marketing planning helps the business to rank projects so that money can be targeted and used where it will be most effective in improving performance from marketing spending. 4. A marketing plan should make it possible for the business to assess performance against expectations. Businesses can often undertake promotional campaigns with no clear idea of a result in terms of improved sales, for example. Marketing planning, if used correctly, should help to avoid this. Tips and techniques It is important to remember that the market and the economy change very rapidly. Businesses need to be prepared to adapt their policies to changes in the market. The most successful firms are those that identify and predict changes and are prepared to adapt their policies accordingly. Assessing success Once the objectives have been formulated into a marketing strategy that has been put into operation, the business needs to measure its success. Marketing work is completed in order to achieve a goal such as increasing sales; it is important for the business to evaluate its success in achieving the goal. For example, a business might undertake an advertising campaign in order to launch a new product with a view to taking 5 per cent of the market within six months of the launch. Throughout the six months the business should monitor the situation to see if the target is likely to be achieved. If sales are slower than expected, it may be possible to switch the advertising to a different media or time so that it is more effective in increasing demand. OCR Business for A Level Advantages and disadvantages of setting objectives Tips and techniques Disadvantages 1. It can be the case that marketing planning looks at every aspect of marketing, except the consumer. Businesses need to remember that the consumer is vital to success in any plan. 2. Marketing departments need to ensure that their plans include other departments in the firm. There is no point in having a promotional drive to increase sales if the production department has not been involved in the planning. Marketing departments cannot operate in isolation. 3. The marketing objectives need to be specific and focused rather than vague or wide-ranging. The objectives should involve a limited number of goals and concentrate on specific targets. 4. The objectives must also take the external situation into account. A business selling luxury holidays is unlikely to achieve a large growth in sales from a new promotion at a time of economic recession. A marketing strategy is the use of some or all of the 4 Ps (product, price, place and promotion) to achieve a final objective. It is a good idea to always start with the 4 Ps when suggesting a marketing strategy. The business can use any of the following measures to assess the success of putting a marketing plan into operation. Sales S A L E The business can look at the increase in sales generated by the implementation of the marketing plan. So, for example, a business might wish to achieve 3 a particular rate of return on the amount spent on an advertising campaign. This type of analysis is probably the most commonly used. However, it is important to look at sales in the context of the wider picture of the total market, and whether the total market is rising or falling. Viking River Cruises, for example, spend large amounts on sponsorship of television drama. They will want to be sure that this expense is justified by increased sales and recognition of the name. Satisfaction surveys Market share For some businesses, the market share they control is as important as the level of sales. These businesses will monitor the effect of the marketing campaign on their share of the market. This may be the case for supermarkets, who are interested in their share of the market compared with competitors. Aldi and Lidl have had to use different sorts of marketing to achieve brand recognition as they have expanded in the UK. These will involve sampling a selection of customers to see if they are happy with the good or service. Satisfaction surveys are frequently undertaken by banks, building societies and travel firms. They can be done by telephone or post, but, increasingly they are being done on the internet when the customer logs onto the site of the business. Chapter 54 Marketing within a business environment Marketing strategy 4 Number of enquiries/hits Internet and mail-order businesses will be particularly interested in the number of enquiries generated by a marketing campaign. For example, following a new advertising campaign, a car insurance company, like Direct Line, will be able to monitor success by looking at the number of requests for quotes that it receives. Strategic planning is a vital element of the marketing process. To be able to develop and use a marketing strategy effectively, the business must have an in-depth knowledge of its market, its competition and its consumers. The process of market planning is the first part in the process of formulating a marketing strategy. The business will need to prepare a review of its current internal and external performance using a SWOT analysis. Alongside this, the business will need to look at the budget that is available and its productive capacity. Marketing cannot be carried out in isolation from the production and financial departments of the business. Tip and techniques Always make sure that your suggested strategy is appropriate for the size and nature of the business that you are considering. Once all these things have been done, the business will then be ready to put a marketing strategy in place, taking account of the following factors: If the business wants to increase its market share, it will need to look closely at the needs of the consumer and the actions of competitors. Size of the business Small businesses may find it difficult to market aggressively, particularly if they face competition from large businesses with more money in their marketing budgets. Nature of the market Businesses in markets like mobile phones and games consoles, such as Apple and Samsung, need to change their strategy frequently to take account of new products and to respond to threats from competitors and rapid changes in the technology sector. Management changes New management in a business will often mean new ideas about marketing. New managers will usually be more willing to take risks in an effort to show that their appointment has been successful for the business. Competitive strategies The twenty-first century has seen a huge increase in the level of competition faced by businesses of all sizes. Much of this is as a result of the globalisation of world trade. Today, most businesses compete in markets with producers from all over the world, so it is vitally important for each business to develop a marketing strategy that takes account of these competitors. Key term Globalisation: the integration of the countries of the world through trade, ideas and culture. In these circumstances, the first thing that the business needs to do is to identify the competition and investigate all aspects of competing businesses. It will usually be easy to identify competitors in the same line of business, but many businesses face competition from outside their own segment. For example, a theme park like Alton Towers might be in competition for its visitors with a stately home like Chatsworth House or Warwick Castle, an attraction like Chester Zoo or even a visit to a shopping mall. All of these businesses are in the leisure market, trying to attract the same consumers to visit them. Once the competition is identified, it is then necessary to look at all aspects of the way such a business is operating. For example: ■ How does it market itself? ■ Who are its customers? ■ What are its strengths and weaknesses? ■ What are its objectives for the future? ■ How well is it placed to succeed compared with us? Having investigated the competition, a business can then start to develop strategies for competing within the market. This strategy may be confined to one product or range within the business; it may be a range of strategies for different parts of the business; it may also be directed to increasing profit or market share, or to allowing the business to grow. OCR Business for A Level Business objectives Types of strategy Market leader strategies The majority of markets have one dominant business that has control over the largest share of the market. Market leaders use a variety of strategies to retain that position and improve on it in the long term. They may try to improve their market share by the use of aggressive marketing, or they may try to achieve market growth and at the same time improve their market share. Tesco is an example of a business that has used all these tactics to achieve and maintain its market dominance. For example, Tesco has moved into many new areas of activity, like banking and insurance; at the same time it has tried to ensure that it has at least one retail outlet in every postcode area of the UK, to give it as wide a market coverage as possible. Market challenger strategies In this situation, a business with a smaller market share may try to attack the dominance of the market leader. In order to be able to do this, the business will need a substantial marketing budget at its disposal. The attack may be made directly by trying to take market share through the use of promotion. More commonly, however, the challenge will be made in an area where the dominant firm is relatively weak. Market follower strategies Market leaders will normally respond to market challenger strategies with some form of retaliatory action. For example, if one supermarket starts a cutprice campaign, others are likely to follow and the market leader will be well placed to cut prices most aggressively to win the price war. In many ways this is 5 a ‘no-win’ situation. All that happens is that profit for all competitors is reduced. As a consequence, many businesses are happy to follow the market leader in whatever actions it takes. For example, the market follower may introduce new products or services to match those of the market leader. Niche market strategies Niche markets are small corners of a bigger market where businesses may choose to specialise. The market segments are usually quite small and customers have very specific demands. The Morgan Motor Company operates in a niche market, selling handmade touring sports cars. penetration, product development, market development and diversification. The use of the marketing mix in these situations is explained by Ansoff’s Matrix. Once the business has decided on its marketing strategy, its performance needs to be monitored and reviewed at regular intervals. The market situation will be changing constantly. Businesses cannot afford to set policies in place and then leave them to run; nor should marketing strategies be left to operate without ongoing assessment of their effectiveness. Unfortunately, the market is subject to constant change, only some of which can be anticipated. Marketing strategies will always operate in a climate of uncertainty. Businesses must be prepared to change or adapt their objectives in the light of changes in the market. It might be that a new competitor enters the market or that the economy takes a downturn. Objectives must always be realistic and attainable if they are to be of any use to the business. Marketing resources The sports car market is a niche market Chapter 54 Marketing within a business environment Differentiation 6 Companies in many areas of the economy will try to differentiate their product from that of competitors, in order to try to attract business. For example, the NatWest Bank uses advertising to inform consumers that it operates a 24-hour call centre within the UK and that many of its branches are open on Saturday mornings. This sets it apart from its main competitors. Low cost strategies Some large firms may try to maintain their dominance in the market through their ability to buy in bulk from suppliers at low cost per unit. This reduces their production costs, making it possible for them to pass these savings on to the consumer in terms of lower prices. Smaller businesses will be unable to match these prices because they will not have the power to command such low prices from their suppliers. Market growth policies A business that wants to use its objectives and marketing strategy to achieve market growth has four options available to it. These are: market In order to market a product or service the business will need the following resources: ■ a marketing budget ■ a marketing department or, for a small firm, someone with responsibility for the marketing function ■ knowledge of the market in which the business operates, usually obtained through some form of market research ■ a set of objectives to be achieved through marketing set out in a marketing plan or strategy. In setting out a marketing strategy, one of the most important requirements is that the business should be realistic, particularly with regard to the amount of money it spends. Small firms will only usually be able to market through the use of local advertising; flyers, local media and publicity are the most likely methods of promotion. Only large businesses can afford to run large marketing departments and make use of national and international media for promotion. Small firms may be able to adjust their good or service to meet the demands of their market, but they are likely to have less pricing flexibility than larger businesses. Tips and techniques Make sure that any strategy you suggest is possible and feasible in relation to the size of the business. ge an ce en Lic iss nd Ro Car ad n Fu io pt Em e um ag ice ns io co ns el ch Fu Im ns io l tio n on em iss tro n pe tio of st mp gi co Co g sin Le as se s ie Threats er ov og ol hn ets rk tec ma el Ri fu ng ew wi N ro G The strengths and weaknesses of the business are internal factors, whereas the opportunities and threats will be part of the external market in which the business is trading. For example, for a large business like Unilever, one of its main strengths is likely to be the well-known brand names it produces such as Persil and Comfort. A possible weakness may be that the customer will begin to view these brands as old and out of date if Unilever does not keep re-launching the products in different packaging or with new properties. Opportunities for a global company like Unilever will lie in the newly developing areas of the world economy. The threat of competition in this oligopolistic market is very high, and is likely to influence much of the company’s strategic planning. Weaknesses s Strengths Pr Any business making a decision about its future strategy needs to consider the business situation, both internally and externally. A SWOT analysis can help the business to look objectively at its competitive situation and to decide on the best strategy for the future. SWOT stands for: ■ Strengths ■ Weaknesses ■ Opportunities ■ Threats. sla A SWOT analysis A SWOT analysis can be carried out by an individual department within a business or by a business as a whole. For example, a marketing department might assess the current market conditions and the quality of its current marketing strategies. These can then be considered in relation to the future. What might happen? How might the competition react? What is happening in the wider market? The whole analysis can be used as a forwardlooking tool. The managers can consider how effective the business is in respect of the environment in which it operates and adjust their strategies and tactics as appropriate. eti S W O T Uses of SWOT analysis OCR Business for A Level SWOT analysis Opportunities A SWOT analysis of a car Any business beginning a strategic planning process for the future will probably begin by completing a SWOT analysis. The analysis will be a useful beginning to discussion and planning and will help the business to identify the best way to proceed for future success. Further sources www.marketingsegmentation.co.uk www.marketingweek.co.uk www.marketingdonut.co.uk Your turn 1. A business allocates 2.5 per cent of its turnover of £3 million to the marketing budget. How much is the marketing budget? A £7,500 C £75,000 B £50,000 D £5,000 2. A business anticipates that it will increase its sales from 6,000 units a week to 6,500 units a week as a result of its new marketing strategy. What is the percentage increase in sales? A 8.3% C 0.8% B 12% D 1.2% 7 3. Which of these elements of a SWOT analysis are internal to the firm? A Strengths and threats B Weaknesses and opportunities C Strengths and weaknesses D Opportunities and threats 4. Which of these cannot be used to measure the size of a firm? A Market share B Number of outlets C Profits D Turnover Short questions 1. Explain the meaning of a niche market. (2) . Give two ways in which a business can measure 2 the success of a marketing initiative. (4) 3. What is the difference between market share and market growth? (4) 4. Give a definition of globalisation. (2) Case Study Chapter 54 Marketing within a business environment Karen and Paul Bowen opened their business, Bespoke Beauty Clinic, in the West Midlands in 2007. In 2010, with the UK in recession, they made the decision to expand the business and move to bigger premises. At that point, Karen was responsible for the beauty treatment side of the business and Paul was responsible for the day-to-day management. 8 From the outset, the decision had been made to operate at the top end of the market. Although Bespoke offers manicures and tanning, the bulk of its business comes from treatments like facials, peels, radio frequency treatments and electronic lifting treatments. Karen’s training and experience is in these areas of beauty therapy. The business has grown rapidly in the past four years and has taken on four therapists, allowing Karen to concentrate more on promoting the business in the local area. For the past three years the salon has won a national award as one of the ten ‘most inspirational salons in the country’. Karen and Paul had to think very carefully about how to market their business, especially as they were located in an area where they were unlikely to benefit from passing trade. Therefore, wordof-mouth recommendation was going to be important but they also had to think of other ways to make themselves known. The business’s marketing budget was not large and the local economy was suffering from high rates of unemployment. Karen has used her expertise to write articles for local magazines, like Staffordshire Life, whose target circulation includes people who are likely to spend money on beauty treatments. A decision was also made to spend a large proportion of the budget on advertising on local independent radio. As a result of advertising on Signal Radio, Karen was given a slot on the radio station’s breakfast show to talk about beauty treatments that are available on the market, enabling her to publicise her business too. She is often invited to contribute to the breakfast show at the radio station. The coverage achieved by Signal Radio in the local area is 304,000 listeners from a population of 794,000, which has helped considerably in the rapid expansion of the business. 1. Explain two factors that Karen and Paul had to take into account when setting the marketing budget. (4) 2. If the total population of Signal Radio’s coverage area is 794,000 and it is listened to by 304,000 people, what percentage of the population is Signal’s market share? (2) 3. Evaluate the benefits to Bespoke Beauty of the type of marketing strategy they use. (12) Total (18) The Publishers would like to thank the following for permission to reproduce copyright material: Photo credits p.4 tl © Martin Divisek/Bloomberg via Getty Images, bl © Direct Line Group, tr © Brian Jackson – Fotolia; p.6 © Roger Cope/Alamy. Every effort has been made to trace all copyright holders, but if any have been inadvertently overlooked the Publishers will be pleased to make the necessary arrangements at the first opportunity. Although every effort has been made to ensure that website addresses are correct at time of going to press, Hodder Education cannot be held responsible for the content of any website mentioned in this book. It is sometimes possible to find a relocated web page by typing in the address of the home page for a website in the URL window of your browser. Hachette UK’s policy is to use papers that are natural, renewable and recyclable products and made from wood grown in sustainable forests. 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Apart from any use permitted under UK copyright law, no part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or held within any information storage and retrieval system, without permission in writing from the publisher or under licence from the Copyright Licensing Agency Limited. Further details of such licences (for reprographic reproduction) may be obtained from the Copyright Licensing Agency Limited, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Cover photo © M. studio – Fotolia Illustrations by Aptara Inc. Typeset in India by Aptara Inc. Printed in Great Britain A catalogue record for this title is available from the British Library ISBN 978 1471836152 OCR A LEVEL BUSINESS FOR A LEVEL Includes AS Level Authors: Andy Mottershead, Alex Grant and Judith Kelt For first teaching in September 2015 This sample chapter is taken from the OCR Business for A Level Student Book. Develop your students’ understanding of key concepts and theories and put them in context with real-life case studies in this new textbook, written by our experienced authors for use with the new 2015 OCR Business AS and A Level specifications. ● Guides students through the new course and assessment structure with advice at the start of the book to help them understand the requirements of the specifications ● Enables students to put knowledge in context and helps them analyse business data with case studies of real businesses included throughout ● Prepares students for assessment with the ‘Your turn’ feature that contains practice questions including multiple choice, case study and data response, and questions that test quantitative skills ALSO AVAILABLE Dynamic Learning OCR A Level Business Dynamic Learning Dynamic Learning is an online subscription solution that supports teachers and students with high quality content and unique tools. Dynamic Learning incorporates Teaching and Learning resources, Whiteboard and Student eTextbook elements that all work together to give you the ultimate classroom and homework resource. To request Inspection Copies and trial the Student eTextbook or pre-order your class sets visit: www.hoddereducation.co.uk/ALevelBusiness/OCR Endorsed by OCR ✓OCR confirms that this title fully supports the new specifications ✓It has passed OCR’s quality assurance programme ✓Written by a leading Business educator