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Edexcel Business Studies A level
Unit 2a Revision Pack, 2012
Unit 2a Managing the Business
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How to revise
Use your own notes as your basis for revision.
I have used a number of examples in this pack that you would not
be expected to know about. The syllabus does not require that you
learn any specific examples.
If you don’t understand any of the concepts, use your own notes,
or textbooks, or teachers, or friends to improve your
understanding.
Don’t forget that knowledge of the concepts is only part of what
you are tested on. Application, Analysis and Evaluation are all
equally important. The comments given in this pack provide some
examples of how the basic content might be extended to provide
application and analysis.
2.3.1a Marketing plan
This section of Unit 2a looks at how businesses go about
moving goods and services from the initial concept to the
final customer – in other words, the process of marketing.
Marketing involves everything you do to get your potential
customers and your goods or services together.
The specification covers the following sub-sections:
1. Marketing objectives and strategy
2. Identification of marketing mix (4 Ps – Product, Price,
Promotion, Place)
3. Price elasticity of demand
2.3.1a(1) Marketing objectives and strategy
Q1: What are the typical marketing objectives of a business?
A: A target level of sales, or profits.
Comment: As has been said, “funny how it always seems to
come down to sales”.
A business may have a range of targets, possibly an upper case,
mid-case and lower-case target. Then the overall target may
be split up into regional targets, and/or targets for each
product line.
2.3.1a(1) Marketing objectives and strategy
Q2: On what basis may marketing objectives be set for existing
businesses?
A: On the basis of market research, whether primary or secondary or
both.
Comment: For existing businesses, secondary research will be
based around existing sales levels, and primary research may well
focus on finding out what those existing customers think of new
product ideas.
2.3.1a(1) Marketing objectives and strategy
Q3: On what basis may marketing objectives be set for new
businesses?
A: Again, on the basis of market research, whether primary or
secondary or both.
Comment: For new businesses, secondary research will
use publicly available sources to estimate market potential.
However, the personal knowledge and contacts of the
entrepreneur (i.e. ‘qualitative research’) are likely to be just
as important.
2.3.1a(1) Marketing objectives and strategy
Q.4 What is the difference between niche marketing and mass
marketing?
A: Niche marketing refers to the targeting your goods or
services at one small segment of potential customers, while
mass marketing is aimed at a much larger population.
Comment: The two types of marketing overlap: there is no
single agreed size at which a niche market becomes a mass
market.
2.3.1a(1) Marketing objectives and strategy
Q5: What are the benefits of using a niche marketing strategy?
A: Marketing costs are low, and it is easy to establish a point of
difference with respect to competitors.
Comment: For these reasons, market entry using a niche strategy
is the only realistic way into a market for a new entrepreneur
with limited experience and capital, e.g. Face Book was at first
targeted only at Harvard University students.
2.3.1a(1) Marketing objectives and
strategy
Q6: What are the main limitations of using a niche marketing
strategy?
A: Unless the new business can grow rapidly before competitors
copy its good ideas, then sales and profits are limited by the small
size of the market.
Comment: Entering a market using a niche strategy gives rivals
time to respond to your presence before you become a major
threat.
2.3.1a(1) Marketing objectives and
strategy
Q7: What are the main benefits of using a mass marketing strategy?
A: Unit costs are low, enabling you to sell products cheaply.
Additionally, the high total costs of mass marketing act as an
entry barrier to potential competitors.
Comment: Companies which uses mass marketing techniques are
almost certain to be large.
2.3.1a(1) Marketing objectives and
strategy
Q8: What are the main limitations of using a mass marketing
strategy?
A: Mass marketing tends to be impersonal, and the degree of
consumer loyalty established may therefore be weak.
Comment: We have seen since the 2008-09 recession how a
number of famous High Street brands have folded, as
shoppers have switched to Internet brands for greater
convenience.
2.3.1a(1) Marketing objectives and
strategy
Q9: Under what circumstances might it make sense to grow a
business from serving a niche market to serving a mass
market?
A: When the business has already shown itself to be successful
on a small scale, and there is no reason why it could not be
scaled up.
Comment: In some circumstances it may be possible to grow
incrementally, one sale at a time. In other circumstances it
may be necessary to commit to growth by making a major
financial investment, such as building a new factory or buying
up another company.
2.3.1a(1) Marketing objectives and
strategy
Q 10: How, practically, could a business expand from supplying
a niche market to supplying a mass market?
A: If the niche market is already profitable (or shows signs that
it will be), then it should be relatively easy to raise the
finance for expansion.
Comment: Whether the entrepreneur wishes to expand in this
way is another matter. The expansion itself will carry risks,
and the lifestyle of the entrepreneur may change out of all
recognition.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q11. What is meant by ‘product’ in the marketing mix?
A: The characteristics of the product, i.e. its uses, technical
characteristics, and market positioning. Also important is the range
of products available, known as the product mix.
Comment: The brand image of a product becomes, for many, an
essential characteristic of that product. Brand image, therefore, is
both part of the ‘product’ and part of ‘promotion’ in the marketing
mix.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q12: What is meant by ‘price’ in the marketing mix?
A: The pricing strategy which is adopted, and particularly whether the
business model is low volume with a high price (and high gross
margin), or high volume with a low price (and low gross margin).
Comment: Typically, firms adopting niche marketing strategies will
have high prices and low volumes, while the mass market approach is
associated with low prices and high volumes.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q13: What is meant by ‘promotion’ in the marketing mix?
A: The advertising, packaging and sales promotion which are
used to build up a brand image.
Comment: Sales promotion includes money-off vouchers,
two-for-one offers, competitions and free samples.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q14: What is meant by ‘place’ in the marketing mix?
A: The channel of distribution which is used to put the good or
service in the hands of the final customer.
Comment: This is as important as the other elements of the
marketing mix. The current seismic shift from High Street
sales to on-line, internet sales represents a once-in-a-lifetime
change in the channels of distribution.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q15: If a company produces a high quality product, what
implications does this have for its pricing and promotion
strategies?
A: High quality products are normally more expensive to
produce, and therefore have to be priced highly. They
therefore require considerable promotional expenditure to
justify the high price, leading to an additional cost which also
has to be factored into the price.
Comment: Customers who buy luxury products pay twice
over. They pay for the luxury – and for being told about the
luxury.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q16: If a company wishes to compete on price, what implications
does this have for product quality, and promotional expenditure?
A: Product quality will probably not be of the highest – the emphasis
will be on ‘value’. And to make any profit, either promotional
expenditure will be close to zero, or sales volumes must be very
high to make up for the low profit margin.
Comment: For example, street traders normally spend nothing on
marketing, and product quality will be at the lower end.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q17: To what extent does the widespread adoption of the
internet alter the available channels of distribution?
A: For many companies, it has (or has the capacity to) alter
fundamentally their business model.
Comment: For example, the internet creates new niche
markets by bringing together geographically-dispersed
groups of customers with minority interests. And for most
companies, it reduces the costs of distribution.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q18: What does the product life cycle measure?
A: The way in which sales volumes of a product change over time.
Comment: The time period could be anything from a few months
for a fashion item, to a few centuries for something of enduring
value like a classical work of literature.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q19: What are the four stages in the product life cycle?
A: Birth (also known as Introduction or Launch), Growth, Maturity,
Decline.
Comment: This is best viewed as the life cycle of a successful
product. Many new product ideas never make it to their
introduction (i.e. their launch). And many of those that do fail to
experience sales growth, and are quickly discarded.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q20: Is the product life cycle a description of the sales pattern of a
generic product (e.g. laptops), or of a particular branded product
(e.g. the Dell Inspiron XPS 15)?
A: Both. Generic products will, of course, have longer life cycles
than specific branded products.
Comment: Companies need to reinvent their product portfolios
continually. Both the individual branded products, and the wider
product categories will decline eventually.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q21: What processes must take place before a new product in
launched?
A: The new product must be designed and tested, and market
research carried out to establish its commercial viability.
Comment: These processes are often carried out in secret, so that
competitors cannot respond, and so that the launch itself
generates additional interest among journalists and the general
public.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q22: Why do many new products experience a growth in sales
levels after their launch?
A: Those who like it the most will be the ‘first adopters’, and
as the product becomes more widely used so its increased
credibility and brand recognition encourages others to buy it
too.
Comment: For many products, the growth phase is relatively
short. A successful new song (or book) will see sales peak
within days or weeks, followed by a relatively long decline.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q23: What accounts for the ‘maturity’ phase of many products?
A: Fast-moving consumer goods (FMCG), such as a new brand of
toothpaste, will be repeatedly purchased by a core group of
customers. More expensive goods, like a new car model, will be
purchased by different people each year as their existing cars
need replacing in different years.
Comment: Schools fall into this last category, with many school
‘brands’ lasting centuries.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q24: What accounts for the ‘decline’ phase?
A: Often products succumb to competitors, who produce more
strongly branded (or more technologically advanced) substitutes.
Sometimes most of the potential customers have already bought it
and there is no reason for them to buy again – a situation known as
‘saturation’. The company may then deliberately phase the product
out to encourage existing customers to buy the new version, for
example, makers of golf clubs.
Comment: In the case of fashion goods, decline is built into the
whole concept of buying ‘the latest’.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q25: Is decline inevitable for all products?
A: No. Some generic products, like a loaf of bread, have endured for
thousands of years. Some famous consumer brands, like Marmite,
Ovaltine and Heinz ketchup are into their second century.
Comment: Such long-lasting brands have to be continually reinvented.
While the historic links are carefully guarded, details such as the
packaging and the precise formula of the products are changed
gradually at regular intervals.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q26: What are the financial implications of the product life
cycle?
A: The vast majority of products will decline and die sooner
rather than later. Profits from existing, successful products
must be reinvested in the development of their replacements.
Comment: Not every new product will succeed. So the
profits from one successful product may have to support the
development of several new ones.
2.3.1a(2) Identification of marketing mix
(4 Ps – Product, Price, Promotion, Place)
Q27: What are the cash flow implications of the product life cycle?
A: During the development phase and up to (and including) the
launch, cash flow will be negative. Only if sales hit break-even
will cash flow then turn positive. It should then remain positive
through all the further stages of growth, maturity and decline.
When cash flow turns negative, the product will be withdrawn,
unless there is a strategic reason for keeping it going.
Comment: A strategic reason might be to hinder a rival from
launching a similar product, and/or continue to offer a complete
product range until a substitute in the development pipeline is
ready for launch.