Cambridge IGCSE® Business Studies Student’s Book Preview

Cambridge IGCSE ®

Business Studies STUDENT’S BOOK Also for Cambridge O Level and Cambridge IGCSE® (9-1)

Andrew Dean, Denry Machin, Mark Gardiner

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Contents Introduction..............................................................4

Section 1 Understanding business activity .......... 6 1.1 Business activity ..................................................8 1.2 Classification of businesses ..............................17 1.3 Enterprise, business growth and size ..............24 1.4 Types of business organisation ........................41 1.5 Business objectives and stakeholder objectives ..........................................................55 Exam-style questions ..............................................67

Section 2 People in business ................................ 76 2.1 Motivating employees .....................................78 2.2 Organisation and management ......................95 2.3 Recruitment, selection and training of employees .......................................................110 2.4 Internal and external communication ..........132 Exam-style questions ............................................149

Section 3 Marketing ...........................................158

Section 5 Financial information and decisions .............................................. 290 5.1 Business finance: needs and sources .............292 5.2 Cash flow forecasting and working capital .............................................................308 5.3 Income statements .........................................317 5.4 Statement of financial position.....................325 5.5 Analysis of accounts .......................................331 Exam-style questions ............................................341

Section 6 External influences on business activity.................................................. 352 6.1 Economic issues ..............................................354 6.2 Environmental and ethical issues ..................367 6.3 Business and the international economy .........................................................378 Exam-style questions ............................................393

Glossary .................................................................402 Index .....................................................................409

3.1 Marketing, competition and the customer...................................................160 3.2 Market research .............................................174 3.3 Marketing mix ................................................184 3.4 Marketing strategy ........................................221 Exam-style questions ............................................233

Section 4 Operations management .............. 242 4.1 Production of goods and services .................244 4.2 Costs, scale of production and break-even analysis ........................................256 4.3 Achieving quality production ........................271 4.4 Location decisions ..........................................274 Exam-style questions ............................................279

Contents

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Chapter 3 . Topic 1

Marketing, competition and the customer The role of marketing

Learning objectives By the end of this section, you should: • Understand the role of marketing in identifying customer needs • Understand the role of marketing in satisfying customer needs • Understand the role of marketing in maintaining customer loyalty and building customer relationships.

Identifying and satisfying customer needs There are many different ways of defining marketing. For example: Marketing is…

❛❛

…the management process responsible for identifying, anticipating and satisfying customer requirements profitably.

❛❛

…the right product, in the right place, at the right time, at the right price.

Adcock et al. (1995)

The Chartered Institute of Marketing (1976)

❛❛

❜❜

❜❜

… about marshalling [organising] the resources of an organisation so that they meet the changing needs of the customer on whom the organisation depends.

From Palmer, A. (2000) Principles of Marketing © By permission of Oxford University Press

❜❜ As these definitions show, marketing is about identifying and satisfying customer needs. The role of marketing is to ensure that a business’s products or services meet the needs of customers better than those of the competition – if they don’t, the business will struggle.

Focusing on the needs of customers is known as market orientation. A market-orientated business starts by asking what consumers need from a product (usually through market research). They then try to develop products that meet and satisfy those needs. For example, McDonald’s responded to changing customer needs by introducing salads, healthier meal options and, to compete with the likes of Starbucks, better quality coffee.

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3.1 The opposite of market orientation is known as product orientation. This is where a firm designs a product independently of known customer needs, and then uses marketing to convince customers to buy the product. We don’t, for example, need (and probably rarely use) all of the features of our smart phones, but companies develop these features and then convince us that upgrading is essential.

Building customer loyalty and relationships Modern marketing is not just about getting new customers; it is also about building relationships with those customers.

Relationship marketing involves communicating with customers regularly and encouraging repeat purchase (brand loyalty). Building relationships means not just selling a product to customers and then forgetting about them. Firms need to engage their customers with (remind them of) the brand regularly.

For example, many firms use Facebook, Snapchat and Twitter to communicate with customers in an attempt to develop trust and loyalty. This kind of two-way marketing allows firms to listen to customers and respond to their needs quickly. By engaging with customers through websites, live TV text-ins, retail/store loyalty cards and through apps such as Line, WhatsApp and Weibo, firms can build brand image, strengthen relationships with customers and improve brand loyalty.

CASE STUDY

Snapchat

Building on its early success with tech-savvy teenagers, Snapchat gives brands a cool way to engage with customers (and potential customers), developing brand loyalty. Short videos and links to online articles create a ‘buzz’ about a product, service or event, encouraging users to share with their friends (promoting brand awareness). Fresh daily content and promotions if users ‘snap’ themselves using the firm’s products help establish a relationship between the business and its customers beyond the point of sale.

This ongoing relationship keeps the business and its products ‘front of mind’.

From a simple photo-sharing app Snapchat has turned itself into a creative way to reach a youthful demographic.

Chapter 3: Marketing, competition and the customer

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Successfully satisfying customer needs also involves: adding value

Adding value To ‘add value’ is to be able to sell a product for more than it cost to make (see 1.1 Business activity). The business can then sell the product for profit. Marketing is crucial for achieving added value because it creates willingness to pay for a product. In the case of Nike, for example, customers are willing to pay high prices (much higher than the cost of production) because of the brand image created by Nike’s marketing – the added value is the ‘cool factor’ from wearing Nike.

creating ‘unique selling points’ (USPs)

Creating unique selling points (USPs) It is not enough for a business just to meet customer needs. It must meet those needs better than the competition.

Successful marketing involves…

seeking first-mover advantage

In order to achieve competitive advantage, a business should identify its unique selling point (USP) – a feature of either the product, its image, price, promotion or distribution (place) that is superior to the competition.

A successful USP will enable consumers to identify the main reason why they should purchase a specific brand and will encourage them to do so. A USP can therefore help a business add value and achieve profit.

CASE STUDY

Pringles

A good example of a USP is the packaging (and shape) of Pringles potato chips (crisps). In essence, Pringles are just the same as any other potato chip. The USP is that they are packaged differently (in a tube) and therefore the shape of each potato chip is unique to Pringles.

Pringles have consistently used the USP as the basis for their marketing (promoting, for example, the opening of the Pringles tube as part of the overall eating experience).

Even if a product is not unique, it is the job of marketing to ensure that it is differentiated from competitors’ products.

Facebook is not the only social networking site. It was also not the first. In the case of Facebook, differentiation is achieved through its simple design (the product) and its features (such as the Timeline and Facebook games). Facebook is also differentiated by its nearly two billion user base; to compete, other social networks need to offer a similar reach – an almost impossible task!

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3.1 Seeking first mover advantage Successful marketing must also identify and satisfy future market trends. It must also enable a business to be the first to meet a new or previously unrealised (not yet met) consumer need. By being first with a new product, a business can achieve much greater success – it is estimated that being the first to enter a new market can double a product’s profitability and is known as first mover advantage.

For example, Apple dominates the tablet computer market because it was, arguably, the first to market. The iPad was not only a great product technically, it also anticipated a trend for tablet-style computers. When the iPad was launched, people didn’t quite know what it was for; but Apple has since sold over 300 million of them.

Analysis

Investigate one of the companies listed below.

Using the information in this section, analyse why you think their marketing is successful.

• Adidas (sports clothing) • Uber (taxi service) • MAC Cosmetics • Ducati (motorbikes) • H&M (clothing) • Apple (computers) Present your findings as a poster, using both visual images and words to outline the marketing activities and why you think they are successful.

Top Tip Marketing is about much more than just advertising and sales. When answering questions make sure you analyse and evaluate how a business does (or might) identify and satisfy customer needs, maintain customer loyalty and build customer relationships.

Knowledge check 1

Define marketing and explain how it is used to develop/maintain customer loyalty.

(6)

2

Define, using a suitable example, market orientation.

(4)

3

State one example of how marketing adds value.

(2)

4

Define the term unique selling point.

(2)

5

Explain the term first mover advantage. Why is being ‘first mover’ considered an advantage?

(3)

Explain how marketing helps a firm to identify customer needs.

(3)

6

Total 20 marks

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