Transcript KEY DECISIONS THAT BUSINESSES MAKE Who will the business

KEY DECISIONS THAT
BUSINESSES MAKE
What will be the objectives of the business?
What will the business include in its business plan?
Which goods or services will the business produce?
How will the business organise production?
Where will be business produce its goods and services?
What price will be business charge for its goods or services?
Who will the business employ?
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KEY DECISIONS THAT BUSINESSES MAKE
How will the business motivate its workers?
What marketing decisions will be made?
What will determine if the business makes a profit or a loss?
How will the business retain market demand for its goods or
services?
How will profits be used
Will the business expand or stay the same size?
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KEY DECISIONS THAT
BUSINESSES MAKE - CREDIT
What decisions does a business have to make in order to get
the best marketing mix?
What decisions does a business have to make in order to get
the best combination of the factors of production?
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KEY DECISIONS THAT BUSINESSES MAKE
What will be the objectives of the business?
Survival ………. Growth ………. Increase market share …..
Increase sales ….. Reduce costs …..
In setting objectives, the influences of stakeholders are important:
Owners (shareholders, sole trader etc) want maximum profit
Employees want good pay and working conditions
Management want the business to survive.
Customers interested in value for money, high quality standard etc
Government want to ensure all legal requirements are applied.
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KEY DECISIONS THAT BUSINESSES MAKE
Which goods and services will
be produced;
and therefore What resources, like raw
materials and workers, are needed
to produce these goods and
A new business will normally decide
to offer a good or service for which
they believe there is a gap in the
market - eg a taxi service in a new
Suburb.
How will the business organise
production?
what inputs (resources) will be
required;
 where supplies of these resources
will be purchased;
how production will be organised - eg
machine/labour intensive;
what quality controls will be needed
what stocks will need to be kept;
how the finished product/service
will be delivered to its customers.
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KEY DECISIONS THAT BUSINESSES MAKE
How many goods and
services will be
produced?


Draw up a production
plan/budget.
People V Machines
Capital Intensive: large
amounts of capital used relative
to the amount produced.
Labour Intensive: relatively
Caluculate break-even point of
production – fixed and variable
costs of production as well as
price of product must be taken
into account.
large amounts of labour are
used.
NB See diagram in Textbook –
botttom of page 142
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KEY DECISIONS THAT BUSINESSES MAKE
capital intensive
labour intensive
 recruitment
 purchase costs
 training
 installation
 upgrading technology
 replacement
 financial payment
 installation
 training
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KEY DECISIONS THAT BUSINESSES MAKE
Who will the business
employ?
Where will the business
locate?
Skilled/unskilled workers?
Pay rates?
Depends on:
How are they selected?
Application form versus CV
 Interview?
 Test Centre?

Psychological testing

Type of product/service produced
Infrastructure
Labour force requirements
Customers
Government incentirves
Closeness to supplies
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 Knowing your
market?
 Reaching your
market?
Market Research
Marketing Mix
Market Research methods
Desk Research
Field Research
Advantages and disadvantages?
 Questionnaires
 Consumer panels
 Hall tests
 Product Tests
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Marketing Mix
The combination of the main elements of marketing- the 4
Ps
 Product
‘Fit for purpose’; quality; image; availability
 Price
“Worth” or “value”
 Promotion
Encourages the sale of goods and services.
 Place
How the product is made available for sale.
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Stages in Product Development
Stage 1 - develop ideas (brainstorming, scientific
research, identify a market)
Stage 2 – detailed analysis (extensive MR,
estimated costs, safety checks)
Stage 3 – prototype or development state
(experiments on a model)
Stage 4 – test marketing
Stage 5 – Lift-off! (product launched)
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Product Life Cycle
Product passes through stages between initial
development, to decline.
Different length – depending on whether product will
become obsolete quickly (eg
computer industry) and some will
go on for years (eg Heinz beans)
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The need for an extension strategy

When are extension strategies used?
When a product is in the decline stage of its product
life cycle

Why is the maturity stage a good time in terms of generating
profits?
No development costs - high costs for establishing in market paid
- high sales.

Why do some products have short life-cycles?
Anything to do with fashion

Why do some products have long life-cycles?
Think of any product that has stood the test of time - Mars bars,
Kit-kats, Coca-cola and the list goes on!!!!!!
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BRANDING
How can a ‘brand name’ help sell a product?
A brand is a product with a unique, consistent and easily
recognisable character.
What is often guaranteed by a brand name is consistency,
quality, performance, design, advertising and packaging.
Brands build customer loyalty. Prices often reflect this.
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Deciding on a price for your product
The relationship between price and demand for the product
increase price
demand falls
decrease price
demand increases
Price is determined by:
Costs of producing goods and services
Competitors’ prices
Consumer demand
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Pricing
Strategies

(methods of pricing products)
Cost plus

Price matching

High-price strategy

Low-price strategy

Destroyer pricing

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Skimming
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Cost plus
1
Calculate cost of production
2
Add on profit margin
Selling price = Cost + Profit
Price matching
1
2
Identify prices across market – competitors’ prices
Price accordingly
High-price strategy
Presenting a quality image? Want high profit levels?
Then, set price as high as market will take
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Low-price strategy
Want to increase market share?
Then, set your prices at a lower level than your competitors “appeal to customers’ pockets”
Destroyer pricing
•
Set prices very low, possibly even running losses
•
Allows you to become established, destroying ?????
Skimming
• Set a high price when product is launched
• Once product established, reduce price to increase
availability
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market
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Promotion
Advertising
informs and persuades consumers to buy goods and
services
- plays a major role in promoting a product
- advertising visible on all forms of media
Examples of promotional activity
special offers
linked offers
financial
packages
competitions
delayed payment
tokens
“bogof ”
limited time
sales
Promotion boosts sales by attracting (and
keeping) customers
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Place
options available
• Shops (and within shops?)
• Shopping centres
Benefits???
Which
is
best
and
why?
• Retail parks
Benefits???
• Direct Selling/Mail Order
Benefits???
• Internet shopping
Benefits???
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Place
‘Place’ involves making the product or service available to
consumers in the most appropriate way - most convenient or least
costly.
Traditional
Manufacturer
Modern
Manufacturer
Direct
Manufacturer
Wholsaler
Retailer
Customer
Large Retailer
Customer
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The need for an integrated mix:
The marketing mix 4 Ps cannot be studied separately,
and decisions about any one of them should not be
made without an overall strategic vision. This
strategic focus will lead to the 4 Ps being welded
together into an integrated and co-ordinated mix.
Eg There is no point in setting low prices for a
consumer product that is to be sold through exclusive
retailers supported by expensive advertising in highincome readership papers and magazines.
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FACTORS OF PRODUCTION
Decisions on how best to combine the various
resources needed to provide the product is
central to decision making.
LAND …..LABOUR …. CAPITAL ….. ENTERPRISE
See Textbook Page 146 Case Study.
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