Business Interactions with Market, Finances and Marketing

AC1.1: Explain the characteristics of different business markets
AC1.2: Explain the nature of interactions between businesses within a market
AC1.3: Explain how an organisation’s goals may be shaped by the market in which it operates
AC1.4: Describe the legal obligations of a business
AC2.1: Define business innovation
AC2.2: Explain the uses of models of business innovation
AC2.3: Identify sources of support and guidance for business innovation
AC2.4: Explain the process of product or service development
AC2.5: Explain the benefits, risks and implications associated with innovation
AC3.1: Explain the importance of financial viability for an organisation
AC3.2: Explain the consequences of poor financial management
AC3.3: Explain different financial terminology
AC4.1: Explain the uses of a budget
AC4.2: Explain how to manage a budget
AC5.1: Explain the principles of marketing
AC5.2: Explain a sales process
AC5.3: Explain the features and uses of market research
AC5.4: Explain the value of a brand to an organisation
AC5.5: Explain the relationship between sales and marketing

AC1.1: Explain the characteristics of different business markets

There are three basic types of market systems; these are; free market, command/planned market, and mixed market/dual economy.

In a free market system/economy, resources are solely owned by private individuals as the government imposes no or very few restrictions on buyers and sellers; this type of economy is idealized as it allows participants to transact freely. Countries like Hong Kong and Singapore have extremely low tax rates with private businesses thriving; their licensing laws and regulation are flexible, providing individuals with plenty of support with their business.

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A command market is the opposite of a free market as it is completely controlled by government planning; it is also known as the planned market. In this market, the government owns all resources and controls all aspects of the economy, this includes the type of products made, the prices, who the products are sold to and any financial compensation/rewards given to workers. This type of market usually operates in communist countries such as North Korea and China.

A mixed market is probably the most common system used currently. A mixed market is a combination of economic systems with ownership from both the private and public sector but is primarily a mixture between a free market and a commanding market. The US operates on a mixed market with more freedom for the individual and private businesses, however, there are government programs which cover areas such as education and transport; these restrictions are usually put in place for the greater good.

AC1.2: Explain the nature of interactions between businesses within a market

Businesses interact with each other as both customers and as competitors. There are many different types of interactions within business markets, these include; business-to-business, business-to-consumer and business-to-government. Depending on the buyer, the business or organization has to adjust their marketing techniques to suit the products they’re providing and who they are selling to.

Business-to-business marketing or industrial marketing is defined as “a marketing practice [that] allows businesses to sell products or services to other companies or organizations that resell them, [and] use them in their products.” Ultimately though, the demand for these products and services will come from the consumer.

Business-to-consumer marketing is different to Business-to-business as there is usually a single transaction (selling the final product). Selling consumer goods is called retailing; this is done through a number of different channels in order to make a profit.

Business-to-government marketing is a subsidiary of Business-to-business marketing and is sometimes known as public sector marketing. This type of interaction allows businesses to market their products and services to the government on various levels. A simple example of this would be if a government body employed an IT consultant company to keep their technology and systems up to date.

Despite the different interactions, all must address certain items when marketing; the product or service needs to be compatible with the target audience and meet their needs, the price needs to be fair and balanced, and the product needs to be presented in a way that effectively demonstrates its value.

AC1.3: Explain how an organization’s goals may be shaped by the market in which it operates

In any business, the end goal is to successfully deliver a quality product or service to the consumer. Organizations need to know to want their customers to want, how their customers behave (what products they buy etc.), the size of the market they are entering, and the demand for their product. However, in order to find out this information market research needs to be carried out to understand the needs of the target audience.

Market research is the process of gathering information from a targeted group of people about the product or service you want to deliver. This information is crucial as it helps develop the product and gives the business an insight into what their audience wants. Market research makes it easier to decide on the price of the product, helps reduce the number of resources used and prevents manufacturing/advertising risks down the line.

As well as the consumers, competitors can also affect an organization’s goals. All markets face competition, some are more competitive than others. In order to be successful, businesses must try to continually be innovative and develop their products based on their competition. As there are so many different businesses selling the same type of product, it is important to have a standout feature e.g. lower prices, which appeal to the customers. Healthy competition affects businesses as it indirectly controls the prices they set and the quality of products they sell.

There are also other factors that affect an organization’s goals; these include gathering resources, the population, and the economy. It is important organizations are as resourceful as possible as this is becoming a point of interest for many governing bodies. Countries where many resources are procured from, e.g. China, are now imposing barriers on their resources (raw materials, metals etc.) in order to protect their industry.

AC1.4: Describe the legal obligations of a business

All businesses and organizations have legal duties and obligations; however, these duties depend on the type of organization. The economy can be split into three sectors; private, public and voluntary. Businesses in the private sector are set up with the main aim of generating profit and can include sole traders, corporations, partnerships etc.

Sole traders are individuals who own their business and can keep all profits made, but are responsible for any losses the business makes or any debts that need to be repaid. To become a sole trader, you must register with HM Revenue and Customs (HMRC) and send a self-assessment tax return annually. Once the business has made a profit, sole traders must pay income tax and National Insurance contributions. A corporation is a group of individuals or companies that are authorized to act as a single entity and is recognized by law.

There is certain legislation that all businesses must adhere to, regardless of the sector it is in. The Sale of Goods Act 1979 states that any goods sold must be of “satisfactory quality” and fit for purpose; this applies to general retailers, charity shops etc. Under this act, goods sampled in-store or descriptions in a brochure must match the final product. If there is a fault with the product, the customer has a right to receive a refund. There is also legislation in place that outlines health and safety procedures for business owners.

Business owners have a duty of care to their employees and anyone else affected by the business; this could include members of the public and visitors. The main piece of legislation which covers this is the Health and Safety at Work Act 1974 which outlines duties for both the business owner/employer and employees.

Another legal obligation business owners have is to ensure all employees are treated equally and fairly, and this is covered by the Equality Act 2010. This act protects employees against all types of discrimination, including direct and indirect.

The Equality Act is made up of many acts covering the different areas of discrimination. The Equality Act states harassment is “behavior [that] is meant to or has the effect of either violating your dignity or creating an intimidating […] environment”. This means harassment is just as severe and should always be reported to the necessary authorities.

AC2.1: Define business innovation

In order for an organization to grow and improve its performance, it needs to be able to innovate. Innovation helps organizations find better, cheaper and more efficient ways of sourcing and manufacturing their products, and in turn creating more profit. Innovation means the product or service is perceived by customers as new and original, however, there are different levels of innovation within the business.

These improvements are described as continuous innovation as the changes to the products have a small impact on the market; also known as core innovation. These small changes help improve the life cycle of a product as well as its profitability. Radical innovation refers to a brand new product or piece of technology being introduced to the market causing a great social and financial impact, and often called revolutionary; examples include color television, touchscreen technology, and fingerprint unlocking systems.

AC2.2: Explain the uses of models of business innovation

AC2.4: Explain the process of product or service development

There are many different models of innovation, and it is important to choose one suitable for the product. An effective model will be simple and easy to use, provide a clear conceptual idea of each stage and enable long-term growth for the organization.

The basic linear model of innovation consists of the research of a product, development, production, and distribution. This model is widely used due to its simplicity. However, many newer models have been developed to address the stages missed out, for example, some models also include a “marketing and sales” stage after production.

The phase-gate model of innovation improves the linear model by establishing criteria that need to be fulfilled before moving onto the next phase. This model is a technique in which a project is divided into phases separated by “gates”, there are usually 5 phases and 5 gates, and these include: scoping, building the business case, development, testing, and launch. The aim of the first phase is to determine the market suitable for the product and recognize the product’s strengths and weaknesses. It is also important to assess the competition during this phase, as researchers need to understand which products are already available and what can be potentially be developed.

Once the product passes through the first gate, the researchers must then start to build a business case and a plan. This is where a full product and market analysis must be carried out to fully ensure a complete understanding of the two, as well as a feasibility review which takes into account the practicality of the product and its sustainability within the market.

The development phase involves putting the previously drawn up plans into practice. This is also where the design of the product is carried out, as well as possibly some early testing. Marketing and production plans are also developed in this phase as it is important the researchers have a clear idea as to who the product is aimed at as this will help market the product before launch. Preferably, the end result of the development phase is to create a working prototype to be tested in the next phase; when this has been achieved, the product can then move through the next gate.

The testing phase involves different types of testing; in testing refers to identifying any potential bugs and problems with the new product, and beta testing allows consumers to test the product and provide the researchers with feedback. During this phase, the project is also validated; this includes an evaluation of the product itself, the manufacturing process and customer satisfaction.

The final phase is the launch of the product. During this stage, a marketing strategy must be developed in order to generate public demand for the product; this includes pricing and distribution. It is also important to consider market size to determine how much of the product should be produced.

Without using the phase-gate model or any specific model of innovation, there are seven general steps in the process of developing an innovative product or service: idea generation, idea screening, concept testing, analysis, product development, market testing, and commercialization. These steps follow a similar pattern to the phase-gate model; however, include more details in certain areas.

The first step is generating ideas; this could be done by running a focus group, encouraging customer feedback with market research, and brainstorming. Another method is carrying out a SWOT analysis, this means identifying the strengths, weakness, threats, and opportunities of creating and designing a new product, as well as looking at the successes and failures of competitors.

The screening stage refers to making sure only the most viable ideas are seriously considered. To do this, specific criteria should be set, including the idea’s production cost, potential profit, and the response from customers and competitors. The next stage involves developing and testing the concept on customers.

This stage is useful as it allows the researchers to develop the product based on the feedback, and make early improvements, as well as start to consider what the overall marketing message will be.

The next stage is called business analysis. This refers to making sure a business case has been put together in order to assess profitability. This should include detailed information regarding market research, market size, production costs, and projections for profits. As well as whether there is a demand for the product, and it is competition.

AC2.3: Identify sources of support and guidance for business innovation

The UK government offers many different schemes and programmers to help small businesses with innovation. Billions of pounds are spent on these programmers to encourage organizations to develop their products and technology.

Innovate the UK is a public body that is not an integral part of the government but reports to the Department for Business, Innovation, and Skills. Innovate the UK is an agency that aims to provide support for businesses with innovative ideas in science and technology, which in turn will drive economic growth. It is their responsibility to meet with innovators and find them the suitable partners they need to be successful. They also provide technical support from specialist organizations, as well as knowledge from universities and research facilities.

It is also possible to develop and test new ideas and products at innovation and knowledge centers (IKC). IKC facilities allow innovators to work with other organizations to share knowledge and develop their products. Examples of these facilities can be found in universities such as the University of Cambridge and the University of Leeds. These universities offer support with development in medical technology, including regenerative therapies and stem cell research, as well as developments in engineering and electronics.

The Small Business Research Initiative (SBRI) allows organizations to enter competitions to find the most effective, innovative solutions to problems in the public sector. The aim of this programme is to provide small-to-medium organizations with new business opportunities and bridges the funding gap between the early stages of an idea and development.

AC2.5: Explain the benefits, risks, and implications associated with innovation

The benefits of innovation include increased productivity and reduced costs; these can be achieved by improving production capacity and reducing staff turnover. Innovation can also lead to better quality products being produced, as well as a bigger product range available. This can be achieved by looking for alternative suppliers and methods of production. In addition to this, introducing products with a USP can lead to an increase in profit and the number of consumers.

There are however risks to consider when introducing innovation. Examples include new ideas being “leaked” to competitors, ideas failing resulting in huge amounts of money wasted, overspent budgets and the over/underestimation of demand. Another big risk is increased competition as it is very difficult to protect new products and ideas. Innovation also has no financial guarantee as nearly all research is speculative.

Innovation, no matter how smooth, will always lead to implications within the organization. Some are easily resolved, e.g. training staff to use a new computer programme. However, some may generate resistance and confusion within the staff or the customers depending on their personalities and backgrounds. Innovation can be hard to integrate into a business, and some individuals may choose to reject it based on their immediate feelings; anger, resentment etc.

AC3.1: Explain the importance of financial viability for an organization

AC3.3: Explain different financial terminology

Financial viability is the ability to achieve operational goals and the sustainability of profits over a long period of time. It is important that organizations are financially viable as it demonstrates the ability to generate revenue. Revenue is the income an organization makes by selling goods or services before any deductions are made. Revenue is important as enables the organization to recompense expenditure; which is any money spent in an attempt to make sales or maintain assets (which also includes operating expenses; any money spent running the organization and administration fees), as well as providing a potential for growth for the organization in the future.

Financial viability can be determined by reviewing how the organization currently performs, and if it could perform better, as well as assessing and comparing against past performances.

Before going into business, individuals should acquire a certain level of a financial knowledge; however, it may be worth seeking advice from professional financial advisers. Advisers work with business owners to provide specialized knowledge on how to keep the organization financially viable and secure. Advisers can include; finance consultants, accountants, lawyers, bankers etc.

AC3.2: Explain the consequences of poor financial management

The aim of financial management is to ensure cash flow is controlled and that there is enough money to cover costs and investments. In most cases, poor financial management is the result of poor planning. Company growth is a key element that needs to be planned and is funded by either the company’s profits or borrowed money. Growth needs to be planned as any unexpected growth could lead to increased spending and the failure to repay debts

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Poor financial management could lead to a sudden loss of assets; which is anything owned by the organization of monetary value. In extreme cases, the organization may fall into insolvency; meaning they are unable to pay any outstanding debts and any remaining assets will be liquidated in order to meet the demands of the creditor. If this is a likely outcome for an organization, spending needs to be limited immediately in order to generate more capital.

As well as lack of planning, poor financial management can be the result of unnecessary spending or organization’s borrowing money it cannot afford to repay. There are different types of consequences this can lead to; creditors can repossess items bought on credit, as well as incur any additional charges to cover the costs of borrowing money.

If an individual/ organization finds itself in debt, the director should definitely consider obtaining legal advice from a financial counselor/consultant. If they fail to repay a debt in time or miss too many payments, they may be sent a default notice. This is an official letter stating the debtor failed to carry out the terms of the original agreement and will state any further requirements.

To avoid poor financial management, finances could be more easily managed by an independent auditor; they will carry out an audit which is an assessment of all financial movement within the organization.

AC4.1: Explain the uses of a budget

Organizations use budgets to plan, monitor and control their spending in order to manage financial resources effectively. Capital budgets are intended for investments in resources to last more than a year and are typically used to generate profit/income. Operational budgets cover everyday spending which includes wages, utilities, supplies etc. Money can be borrowed from the operational budget for capital expenditures.

AC4.2: Explain how to manage a budget

In terms of marketing, managing a budget is very important. The amount of money spent during marketing will affect the overall profit of the sale. Although spending money on marketing is sometimes necessary, it may be more effective to discuss ideas with other departments within an organization initially e.g. the sales team, as information about market segmentation etc. may already be readily available, meaning money doesn’t need to be spent.

During marketing, all activities need to be planned and assessed in line with organizational targets, for example how long is going to be spent in the field, and how long is going to be spent analyzing market research. The marketing team needs to consider whether spending money is appropriate or whether there are cheaper/free alternatives.

AC5.1: Explain the principles of marketing

Marketing is the process of promoting and selling products or services whilst taking into consideration market research, advertising, budgets and target audience. The key aim of marketing is to research and fulfill the needs of the target audience by channeling the gap between the people providing the product (manufacturer) and the people seeking the product (consumer).

Marketing strategies can have many different aims, these could include; to increase sales, to introduce a new product or to increase market share. All strategies should be easy to understand with their aim clearly defined. In terms of marketing, the target audience is called a “market segment”. A segment is an identifiable group of people who all share a certain characteristic,

The “marketing mix” refers to a set of actions an organization takes when considering the design and manufacture of a brand or product. This process has evolved to include 7 key terms: Product, Place, Promotion, Price, People, Process and Physical evidence; the 7 Ps. Each of these terms should link together to allow successful marketing.

Price is important as it determines an organization’s margins, profits and overall survival within their market. If a price is set too high, the demand will decline and consumers will go elsewhere, however, if the price is too low, the organization may suffer unnecessary losses in profit. It is also important to consider the customer’s “perceived price” of the product as this sets out pricing guidelines for retailers/marketers.

Pricing strategies include price skimming which is where the marketers set a high value for the product and slowly lower the price over time; this means fewer sales are needed to breakeven but the market is “skimmed” due to the initial high price point, and penetration pricing is where a product is intentionally set at a low price in order to attract large numbers of people and customers.

Physical evidence refers to how the organization presents and performs their products/services e.g. packaging. It is important evidence of a sale/product is of a high quality as it helps to maintain a strong brand image and a good repertoire with the customer.

As well as the marketing mix, it is important to consider a product’s lifecycle. All products have a life cycle which includes the start-up phase, growth phase, maturity phase and the decline phase. Marketing involves carrying out specific research on how long the life cycle of the product is likely to be, and how to resolve any arising problems that may affect the life cycle.

The growth phase is where there is a more of demand for the market and organizations compete for customers. During the first two stages, the aim is to establish a big portion of the market and complete as many sales as possible.

The maturity phase focuses on maintaining the market share whilst overcoming any problems faced. This is usually the most difficult stage for organizations due to more competitors entering the market and sales hitting their peak. During the maturity stage, organizations should think about reinventing their products by looking for ways in which they can make them more appealing to the market, and possibly new customers.

AC5.2: Explain a sales process

All sales will go through a similar process and use similar techniques in order to complete the deal. Most professionals usually implement a 7-step process to carry out sales. This includes: knowledge, prospecting, the approach, needs, the presentation, objections, the close, and optionally some salespeople carry out a follow-up.

Before attempting a sale, it is vital to research and be knowledgeable about the product and the market. It is important to allow for spontaneous questions during a pitch and being able to answer them confidently. Features of the product should be described in detail throughout and always linked to the benefits they offer; the customer may not link these straight away.

Prospecting is the process of finding a customer or “prospect” to pitch the product to and is the initial contact between the salesperson and potential leads. Prospecting is usually in the form of a telephone call or via email. The key to prospecting successfully is knowing where and what to look for.

The approach or the preparation is the first face-to-face interaction between the salesperson and the customer. For the approach, it is important to collect and study relevant information such as the descriptions of the product, prices, and competitor information.

Once an approach has been taken and the customer is interested in the product, the salesperson can then start to assess the needs of the customer and the customer themselves in more detail. This is arguably the most important part of the sales process as it pinpoints exactly how the seller can help the customer and how the product can be beneficial. When the needs have been established, the salesperson can present their product.

When presenting or pitching a product to a customer, it is important to be confident and enthusiastic about the product, and whilst reminding them of all the benefits it offers. The presentation also gives the chance to actively listen to the needs and wants of the customer, and demonstrate logically how the product meets their requirements.

Handling objections is an important part of selling a product. Objections can be useful as they tell the salesperson what to focus on when pitching in future. Experienced salespeople learn how to overcome objections with thorough preparation and having the right information to hand.

If all objections have been answered and the prospect is satisfied with the pitch, the close will occur naturally. The first stage of the close is to make sure the customer has no remaining questions or objections about the product, and then to decide on an approach to use to successfully close the sale.

After the close has been completed, many salespeople follow up in order to maximize sales numbers and to build a long-term relationship with the customer. Usually, the follow up includes contacting the customer after a trial period to make sure the product is to their standard, and whether they need any more help.

Following the 7-step process will improve the ability to sell more products, more efficiently. In addition to this process, it is important to implement certain techniques throughout. Customers are more likely to go through with a sale if they feel comfortable with the salesperson.

AC5.3: Explain the features and uses of market research

Market research is the process of collecting information from a specific group of people in order to make sure a product suits their needs. Information should be gathered from the specific segment who the product is being aimed at. This information is vital when designing and marketing a product as it provides guidelines on how to price the product, where to distribute it and what it should look like.

There are two types of data used in market research: primary and secondary data. Primary data is information directly received from the segmented population to the marketer. This can be done through questionnaires, interviews, allowing consumers to test a product etc. Secondary data is information already gathered by somebody else. This could be taken from reference websites or statistical reports open to the public.

Although as a whole market research is very useful, there are some disadvantages. It may be costly conducting primary research and analyzing the results, which is why it is usually more effective to look at secondary data initially. As well as this, information gathered may not be perfectly clear,

Once market research has been gathered, it is important for organizations to implement it into their products, Large organizations usually have continuous market research activities so they are always aware of gaps in the market and how they can improve their products.

AC5.4: Explain the value of a brand to an organization

A brand is any symbol, word or phrase used to identify an organization and to differentiate them from others. It could be argued that an organization’s brand is just as important as the products they produce, as a strong brand image gives customers the confidence to buy, as well as instilling trust that the products/services are of a high quality. Successful businesses put a lot of effort into refining their brand as customers are more likely to identify recognized organizations as the sole provider for their needs.

To achieve a strong brand, organizations should aim to deliver their message clearly and motivate customers to buy their products. This can be done by considering the organization’s purpose and thinking strategically in regards to what the organization aims to do for its customers. The brand should clearly convey the organization’s core values and traits, as this helps define overall identity with customers and the public.

Branding across an organization should be consistent and coherent, it should typically include: the name of the organization, the logo, the name of a particular product, a key message/slogan and a recognizable design. Branding is important as it has an effect on an organization’s overall reputation. A poor brand image will mean that customers are less likely to buy products, therefore, leading to low sales figures.

AC5.5: Explain the relationship between sales and marketing

Sales personnel and marketing personnel have different roles within an organization; however, they work very close together. Organizations who don’t put effort into their marketing strategies will struggle when it comes to making sales.

The sales team within an organization are responsible for all sales activities, this includes making sure the customer is satisfied with the product and the service they receive, generating profit in line with organizational targets, being able to maintain relationships with customers and demonstrate product knowledge and understanding.

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