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OCR Cambridge NationalEnterprise and Marketing –Revision GuideYear 11
OCR Cambridge National Enterprise and MarketingMarket SegmentationPage 3Market researchPage 4Costs of ProductionPage 5Product lifecyclePage 6Extension StrategiesPage 6Product DifferentiationPage7Impact of External FactorsPage 8Attract and retain customersPage 9Pricing strategiesPage 9Advertising methodsPage 10Sales promotion techniquesPage 11Ownership TypesPage 12Sources of FinancePage 15Business PlanPage 16Functional areasPage 17Methods of ProductionPage 19Page 2
OCR Cambridge National Enterprise and MarketingLO1 - Market SegmentationDefinition: The process of dividing up potential customers into groups depending on differentcharacteristics.Why do businesses segment the market? Because customers are different in The Benefits they want The Amount they are able to or willing to pay Media (e.g. television, newspapers, and magazines) they see Time and place that they buy Quantities and Qualities they buyMethods of market segmentation: AgeGenderIncomeOccupationLifestyleGeographicWhat are the benefits of market segmentation?1. Potential for increased profits/profitability2.Increased customer retention3. Allows for targeted marketing4.Potential for an increase in market shareExam style question: Explain one benefit for a business of segmenting the market (3)Example answer: One benefit of segmenting the market is that it allows business to gain customerviews and understand their needs. This allows managers to make informed decisions about productswhich will be popular which will then enable them to achieve higher sales.KeywordsCustomer retention: The ability of a business to keep customers and ensure they carry on returningto the business.Market share: the section of a market controlled by a particular businessPage 3
OCR Cambridge National Enterprise and MarketingLO1 - Market researchDefinition: The process of collecting information about customers’ needs and wants.Importance of market research: To understand the market and reduce risksTo aid decision makingTo gain customers’ views and understand their needsTo promote the organisationPrimary Research – collection of new data that doesn’t exist - Also called field researchCan be gathered in 4 ways: Questionnaires/surveys, Observations, Focus groups Consumer trialsAdvantagesDisadvantages Directly relevant to the business Time consuming Up-to-date data obtained Often expensive Competitors do not have access to thefindings Results may be misleading if the sample sizeis too small, questions are unclear or there isinterviewer biasSecondary research - data that already exists - Also called desk researchInternal sources all INSIDE the business: financial statements, company reports, letters.External sources all OUTSIDE the business: Internet reports, government publications, newspapersAdvantagesDisadvantages Often quick and easy to collect Data may not be reliable or up-to-date A wide range of secondary data isavailable, especially on the internet May not be totally relevant May not be in a form that is easily interpreted andanalysedFactual information usually in number form is called Quantitative data.Information about people’s opinions and views is known as Qualitative dataExam style question: Analyse the benefits of using questionnaires over focus groups to gatherinformation on a new productExample answer: A benefit of using a questionnaire is that the results will be quick to gather andanalyse, whereas a focus group would need to be chaired and minutes will be wrote which will thenbe analysed. Another benefit is customers will be more willing to fill out a simple questionnaireinstead of having to commit to attending a focus group. A final benefit would be that a focus groupwould have to be arranged to meet the needs of all the customers, this will be difficult as all thecustomers will have different availability.Page 4
OCR Cambridge National Enterprise and MarketingL02 – Costs of ProductionFixed costs - Costs that do not vary with outputExamples: Rent, insurance, advertising, salaryVariable cost - Costs that varies with outputExamples - Raw materials, wages, packagingTotal costs: Total fixed costs Total Variable costsRevenue: the amount of money that a business earns from selling products or servicesFormula to calculate Revenue: Quantity x Selling priceExample: Company X sold 5000 toy cars.Each car costs 2 each.5000 cars (Q) x 2 each (SP)Therefore its revenue would be 10,000.Formula to calculate profit or loss REVENUE – TOTAL COSTS PROFIT/LOSSCompany makes a Profit when revenue is BIGGER total costsCompany makes a Loss when revenue is SMALLER than total costsExample: If Asda’s Revenue was 50,000 and its Total Costs were 35,000, what would its Profit/Loss be?Revenue – Total Costs Profit 50,000(R) - 35,000(TC) 15,000 ProfitExample: If Asda’s Revenue was 40,000 and its Total Costs were 55,000, what would its Profit/Loss be?Revenue – Total Costs Profit 40,000(R) - 55,000(TC) -15,000 LossBreak-evenDefinition: Breakeven occurs when total costs equal total revenue. At this point the business is notmaking a profit or a loss.Formula:SRBreak-even pointTCVCFCPage 5Break-even unitsBreakeven point – where the SalesRevenue line crosses the Total Costs Line
OCR Cambridge National Enterprise and MarketingLO3 – Understand Product Development1. Research & development - researching and developing a product before it is made availablefor sale in the market2. Introduction – launching the product into the market3. Growth – when sales are increasing at their fastest rate4. Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. newcompetitors in market or saturation5. Decline – final stage of the cycle, when sales begin to fallExtension StrategiesAs a product reaches the end of the maturity stage of the product lifecycle, a business may try toextend its life by incorporating new extension strategies. There are 5 different strategies we will lookat for the exam:1.Price changes – increasing or decreasing the price2.Adding value - Adding new features to an existing product3.Exploration of new markets – selling in a new market4.New packaging – changing the packaging5.Advertise moreExam style question: State and explain two decisions which the product life cycle may help you tomake (4)To launch a promotional/advertising campaign for a productTo start to develop a new productTo withdraw a product from the marketTo change the place that a product is availableTo add new features to the productTo know when to introduce extension strategiesExample answer: Looking at the product life cycle positioning of a product can help you decide if theprice needs to change (1), such as to reduce the price to stimulate more demand for a product indecline (1)Page 6
OCR Cambridge National Enterprise and MarketingLO3 – Product DifferentiationAn important part of development is product differentiation. This means making the productdifferent from its competitors.Products can be differentiated in 3 ways which you need to know for your exam.1) Brand image2) Unique selling point3) The product design mix – design mix model1. Brand ImageHow to create a strong brand image: Sustained and powerful advertising campaigns – John Lewis yearly Christmas advertsSponsorship of sports/music events – Fly Emirates on football shirtsHaving your product available in many markets – Apple IPhoneBenefits of a strong brand image Customer recognitionEasy introduction of new productsCustomer loyalty and shared values2. USP - A USP is a feature or benefit that separates a product from its competitors3. The product design mix – design mix modelFunction – a product or service must do the job it was designedto do.Aesthetics – how the product looks, this could include size,appearance, shape, smell, taste, presentation.Cost – a product or service must be economically viable (profitgenerating). This might mean looking at the materials andprocesses that minimise costs. (Economic manufacture).Exam style question: State and explain two methods which you could use to differentiate yourmobile phone cases from others available in the market.Example answer: The phone cases could have clear branding (1) which would be different to othercases on the market (1).Another way would be to develop a clear USP (1) such as a specific function that no other case on themarket has (1).Page 7
OCR Cambridge National Enterprise and MarketingLO3 – Impact of External FactorsWhen developing any product, a business must consider those issues that will be outside its control.These fall into three main categories: TechnologicalEconomicLegalTechnological - anything to do with new machines or technologyTechnological developments occur all the time, many businesses need to keep up withdevelopments or risk failure and losing out to a competitor.Businesses need to ensure that their products incorporate the latest features. They can do this by: Investing in new machineryTraining staffsell off old stock at a cheaper price as it’s out of date and less appealing for customersEconomic - anything to do with the economy/money/spendingBoom: Customer spending is at its highest. Businesses are likely tointroduce and sell a wide range of products.Downturn: Businesses suffer from a decrease in sales. Little or nodemand for products and no new products are developed.Recession or depression: Customers have little money to spend.Cheaper goods are more popular so businesses focus on this.Growth or upswing: Customers have more money to spend.Businesses start to develop new products again.Legal Factors – anything to do with laws/legislationWhen developing any product, a business must follow the law and ensure products are safe andmeet the safety standards. This includes packaging, design and insurance of the products. Forexample there are strict guidelines on the safe production and selling of fireworks.Copyright and patentsThis protects the ownership of original pieces of work, logos, theme songs, and inventions. Whendeveloping a new product, a business could apply for a patent to ensure their idea isn’t copied.Exam style question: Explain two impacts improved technology may have on a business (4)Example answer: Improved technology will mean machines will become more productive (1).Therefore, the unit cost of production will fall which will allow the business to charge morecompetitive prices (1). Technology allows businesses to connect with their customers more easily (1).Therefore, the business can receive instant feedback from them through social media (1).Page 8
OCR Cambridge National Enterprise and MarketingL04 - Understand how to attract and retain customersFactors to consider when pricing a product to attract and retain customersWhen pricing a product, a business will make an informed decision based on its market research andthe factors explained below:1. Cost of productionA business will price its product by working out what it costs to make or buy the product and thenadd the amount of profit it would like to make.2. Income levels of the target customersWhen deciding on price, businesses need to consider the income level of its target customers. Forexample luxury car makers will charge high prices as their potential customers earn a high salary.3. Price of competitor productsWhat happens if a similar business selling a similar product lowers their price?Larger businesses have more bargaining power and can reduce the price for a longer period thansmaller businesses. They can achieve lower production costs due to economies of scale andtherefore can lower their prices.L04 - Pricing StrategiesPricing strategyCompetitivepricingTarget marketNew and existingcustomersPrice skimmingNew customersPricing tacticSetting a price that is similar to that of a competitor – e.g.supermarkets price matching goods sold by competitorsIntroduce the product at a high price then gradually lower itover time – e.g. when Dyson introduced a bag-less cleaner,there was no similar products so they could charge higherpricesPsychologicalpricingNew and existingcustomersPrice penetrationNew customersSetting a price that appears to be attractive to customers –e.g, selling a holiday for 999 instead of a 1000Introducing the product at a lower price to attract customersthan increasing it gradually over timePage 9
OCR Cambridge National Enterprise and MarketingL04 – Advertising methods used to attract and retain customersTypes of advertising methods used to attract and retain customers and their appropriatenessMethodLeaflets – for examplefor a fast-food ortakeaway business Social media – such asFacebook or Twitter BenefitsLow costTargets specificdemographicsFlexible design DrawbacksEasily dismissibleDiscarded if poorly designedLow costLinked to target marketCan be changed andupdated easilyCan use visuals, link towebsites/apps Not everyone might have accessto social mediaNot guaranteed to reach targetmarketWebsites - eithertheir own or otherwebsites can be usedto advertise theirbusiness Reach a wide audienceEasy to keep up to date Can crash at any timeCan lead to bad publicityEasy to leave bad feedbackNewspapers – it isestimated that aboutone quarter of allexpenditure onadvertising in the UK ison newspaper adverts Better targetingFast responsesFlexible Lots of CompetitionLow readership of adsMagazines – issued ona weekly or monthlybasis, magazines areusually kept longerthan newspapers Long lifeStatus symbolFlexible design Cost of testingDeadlines months in advanceRadio - oncommercial radiostations such asCapital or Radio Aire Targeted to local areaCan only use sound togenerate attention/impactShort and instantaneous Higher cost than Social mediaCan only use sound to generateattention/impactNeeds to be run consistently tohave an effectPage 10
OCR Cambridge National Enterprise and MarketingL04 Understand how to attract and retain customersSales promotion techniques to attract and retain customersDiscounts andBOGOF offersFree giftsProduct trialsPage 11CompetitionsPoint of sale advertising
OCR Cambridge National Enterprise and MarketingL05 Understand factors for consideration when starting up a businessAppropriate forms of ownership for business start-upsThere are several different types of business ownership. In this section, we will learn about whatthese are, the main features, the responsibilities of the owners and how the type of ownershipusually relates to the size and scale of the business.1. Sole traderDefinition: a sole trader is one person who owns and controls their own business but they canemploy other people. Some examples include – hairdressers, plumbers or electricians.Advantages of sole trader Easy to set up – get your idea andyou are in businessYou are your own bossYou decide what happens to theprofitYou make all the decisionsDisadvantages of a sole trader You have to work long hoursYou have to make all the decisionsYou have unlimited liability (you mustpay for all the debts2. PartnershipDefinition: A Partnership is owned by two or more people who are jointly responsible for thebusiness. Some examples are solicitors, small restaurants, dentists, vetsAdvantages of partnership Shared responsibilityShared workloadMore capitalIncrease of skillsDisadvantages of a partnership Share profitsProblems agreeing on work loadTheir reputation affects your businessCannot make a decision without allpartners agreeingExam style question: Analyse two benefits of setting up your business as a partnership instead of asole trader (6)Example answer: Responsibilities in the business can be shared amongst the partners (1). Forexample, I may be responsible for marketing and the other for finance (1). This is likely to reduce mystress levels (1). Capital can be contributed from each partner (1) which means that there ispotentially more capital (1) which may allow the business to grow more quickly (1).Page 12
OCR Cambridge National Enterprise and Marketing3. FranchiseDefinition: A franchise is when one business, the franchisor, gives permission to an entrepreneur,the franchisee, to set up a business using its brand name and its products. Starting up a franchise isseen as a less risky option as the franchisor’s business is already established and successful.The franchisee: Pays a start-up cost – this covers equipment and sometimes a premises.Pays a royalty each year – this is a percentage of the revenue earned.Must follow the rules laid down by the franchisor.The franchisor: Provides equipment and resourcesProvides trainingAdvantages of franchising (for the franchisee) Easier to raise finance as thebrand is well knownSupport and training is offeredEasier to gain customers as brandis already establishedDisadvantages of a franchise (for the franchisee) A royalty must be paid every yearStart-up costs and fees are highRigid rules to be followedExam style question: Analyse one benefit of setting up your business as a franchise (3)Example answer: This business is already a tried and tested successful franchise (1) which meansthat it should be easier to obtain finance from a bank or other lender (1). Therefore it would be easierto borrow more money than if I were to set up an independent business from scratch (1).Page 13
OCR Cambridge National Enterprise and Marketing4. Private Limited Company – LTDDefinition: A limited company is a business that is owned by its shareholders who have boughtshares from the company, run by directors and has a separate legal identity from its owner.Advantages of a limited company Each shareholder has limited liability.Easier to raise finance.It is easier for the business to borrow money.Disadvantages of a limited company Expensive to set upLess control over the companyThe company must pay an annual fee and produce yearly documents.5. Public Limited Company – PLCDefinition: A limited company is a business that is owned by its shareholders who have boughtshares from the company, run by directors and has a separate legal identity from its ownerAdvantages of a public limited company Each shareholder has limited liability.Easier to raise finance.It is easier for the business to borrow money.Disadvantages of a public limited company Expensive to set upLess control over the companyThe company must pay an annual fee and produce yearly documents.The main difference between a LTD and a PLC is that in a privatelimited company the shares are not offered for sale to the generalpublic where as in a public limited company they are!Unlimited LiabilityThe owners of the business are personally responsible for the debts of that business. Thisapplies to sole traders and partnerships.Limited LiabilityThe owners of the business are NOT personally responsible for the debts of that business.If the business goes bankrupt the owners are not personally liable.Page 14
OCR Cambridge National Enterprise and MarketingL05 Understand factors for consideration when starting up a businessSource of FinanceDescriptionBank LoanAn amount of money is borrowed from the bank, then repaid (with interest) over a setperiod of timeCrowdfundingGroups of investors that join together to offer funding to a businessSmall Business GrantMoney given to the business by the government or charity Used to help finance newprojects – especially those that create new jobsBusiness AngelFinance invested in small, risky business e.g. new business start-ups by experienced andwealthy entrepreneursOwners SavingsMoney put into the business by the ownerSOURCE OF FINANCEBorrow money fromfriends / familyADVANTAGESDISADVANTAGES May charge little or no interestDo not have to provide security Does not have to be paid back There may be a limit to the amount of moneywhich can be invested it can be a fast way to raisefinance with no upfront feescan be a valuable form ofmarketing and result in mediaattentionDoes not have to be paid backDo not need to lose control of yourbusiness If the target is not reached, all the money willhave to be paid backSomeone can steal your idea if it is notprotected there may be strict rules and not everybusiness is eligiblethe repayments can be spread outover a long period of timeAccess to larger amounts offinance Must be paid back with interestLender may require security for the loanBA have lots of experience whichhelps with decision makingCan bring in large amounts offinanceNo repayments or interest the owners lose a certain percentage of thebusiness Own savingsCrowdfunding Small business grants Bank Loans Business angels Page 15 Could lead to disputes between familymembers and friendsMay not be able to lend large amounts
OCR Cambridge National Enterprise and MarketingL05 Understand factors for consideration when starting up a businessImportance of a business planWhat should a business plan include? A simple description of the business or idea Business aims and objectives – the goals the business would like to achieve Key business targets – goals that need to be met Business strategies – long term plan of action Plans and forecasts – demonstrates how the business will operate e.g.Why is managing cash flow important?sales plan - how much the business will sell over a period of time WhatMarketingplan –ofhowthe businessis a purposea businessplan?will market and advertise its productsIt helps thebusinessto manageanalysis,its cash profitflow –forecastshow much to spend on, where to spend money 1. Financialforecast– breakevenon, when to spend money2. It explains a business idea to others – you can show a business plan to a bank to help get abank loan3. It measures progress towards goals – e.g. time scales, sales forecasts, when will we thebusiness get money back4. It helps to identify potential problems – e.g. any financial shortagesImportance of cash flowIf a business runs out of cash, it will not be able to pay for its workers or stock. If thishappens, the business is then classed as insolvent. The owners will either have to raiseadditional money or close down the business.To prevent this from happening, a business will carefully monitor its cash flow to ensure ithas sufficient money to pay its liabilities. The business will often plan ahead by preparing acash flow forecast.Page 16
OCR Cambridge National Enterprise and MarketingL06 Understand different functional activities needed to support a businessAll business, whether big or small will have a number of functions they need to carry out toensure the business runs smoothly. These also link to the aims and objectives of thebusiness and what it wants to achieve.A functional area is a department that carries out a certain role in a business.Human ResourcesThe term “Human Resources” (HR) refers to all the people who work for the business. TheHuman Resources department is responsible for everything to do with the staff who workthere. Main tasks include: Recruiting and selecting employees – advertising and interviewing the correct candidate for the job Training and developing employees – making sure that all the employees have the skills required to completethe job e.g. induction training Health and safety – making sure employees are safe at work. For example – making sure everyone knowshow to operate machinery safely or what to do in case there is a fire Performance management of employees – review the performance of the employee, whether they areperforming to the standards expectedFinance departmentThis is the functional area that looks after all the money! The main tasks people in thefinance department would do include: Organising and allocating money – ensures that money is given to other departments so they cancarry out their role Reports on financial performance - prepares detailed reports assessing how well the business isdoing, e.g. breakeven, profit or loss? Monitors cash flow – prepares budgets or cash flow forecasts to see how much money is availableto the businessPage 17
OCR Cambridge National Enterprise and MarketingMarketing DepartmentMarketing is involved in getting the product or service noticed by the public. Their aim is tomake sure that the customers are aware of their product and what they are trying toachieve. They are responsible for developing the marketing mix. The marketing mix refers tothe 4 P’s of marketing: Price Product Place PromotionOperations DepartmentThe operations department is responsible for managing production processes. Their maintasks include: How to produce products – the steps needed to produce products Workout how many products to be produced and when – check sales and stock to see what ispopular and what is, for example, Christmas and holidays Making sure products are delivered on time – using the right delivery company, sending packagesout promptlyPage 18
OCR Cambridge National Enterprise and MarketingL06 Understand different functional activities needed to support a businessProduction methodsProduction TypeDefinitionExamplesProduction of special "one-off"products made to a specific order.Job ProductionHandmade jumperBespoke JewelleryGroups of a particular product made toorder, with production of each grouppassing through each stage ofproduction togetherBatch productionStandardised products made in largequantities, usually by an assembly lineMass/flow productionCarsLoaves of breadTshirtsProductionTypeJob ProductionAdvantagesDisadvantagesProducer meets individual needsRequires investment in skills andtrainingProduct usually high qualityCost of producing one unit or job ishigherWorker satisfaction is highBatch productionProduction levels of different productscan be altered to meet demandWorkers can be put where they have thebest skillsHigh number of products can roll offassembly lines at very low costMass/flowproductionPage 19Productivity is high and therefore, unitcosts are lowHigh cost of machinery in the shortterm.Lots of storage space needed forvarious parts.Very difficult to alter the productionprocessBoredom for workers can lead tomistakes
Each car costs 2 each. 5000 cars (Q) x 2 each (SP) . Example: If Asda’s Revenue was 50,000 and its Total osts were 35,000, what would its Profit/Loss be? –Total Costs Profit 50,000(R) - 35,000(TC) 15,000 Profit Example: If Asda’s Revenue was 40,000 and it
