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Business Studies Revision 2015 Half Yearly Exam Multiple Choice Marketing approach, sales approach, production approach The Marketing approach stage one was from 1960’s – 1980’s. The marketing approach focuses on finding out what customers want via market research and then satisfying that need. For the first time, most Australian families had discretionary income, more income than was needed to obtain the necessities of life. There was a shift in emphasis to the development of a marketing concept. Sales approach was from 1920’s – 1960’s. After world war 1 technology allowed production to become more efficient and productive. High quality massproduced goods came to the market. An increase in the number of businesses increased over all competition and businesses could no longer rely on selling everything it produced. Production approach was from 1820’s – 1920’s. The production approach focused on the production of goods & services. The production approach focused on producing goods and services the mentally at the time was "we make it they will buy it". Until world war 1 business’ put their efforts into making the goods and services. Factors enhancing productivity in the workplace Business will want to build up their employees with increased training to keep them up to date with the latest rules and regulation. This will enhance the productivity in the workplace to make sure that production is quicker to keep the consumers and suppliers happy. Revision of SWOT Analysis SWOT stands for Strengths, Weaknesses, Opportunities and Threats. A SWOT analysis involves the identification and analysis of the internal strengths and weaknesses of the business, and the opportunities in, and threats from, the external environment. It provides the information needed to complete the situational analysis and gives a clear indication of the business’s position compared with its competitors. The marketing plan should be modified to reflect this information. Advantages/disadvantages of Outsourcing Outsourcing involves the use of external providers to perform business activities. The theory behind outsourcing is that when a service is performed by an external provider that specialises in a particular business function, it will do so at a lower cost and with a greater effectiveness than the same task done within the business hierarchy. Business process outsourcing is a term that captures a range of outsourced business processes including: - Operations such as manufacturing, value-adding manufactures, design, merchandising, sourcing, distribution and logistics - Human resources including employee remuneration, employee counselling, pensions, data management, training and development, and travel and expenses management Critical Path Analysis A critical path analysis (CPA) is an appropriate scheduling tool for use in an operation that involves a series of repeated tasks. It is a flow diagram that shows the interrelationship of tasks. The critical path time period is the shortest path taken to complete the whole project. Market segmentation (Geographic, Psychographic etc) Market segmentation involves dividing the total market into segments. Once the market has been segmented, the marketing manager selects one of these segments to become the target market. Demographic segmentation is the process of dividing the total market according to particular features of a population, including the size, age, sex, income, cultural background and family size. Due to the ease with which these demographic variables can be measured, their use is widespread amongst marketers. Geographic segmentation is the process of dividing the total market according to geographic locations. Businesses may divide the consumer market into regions because consumers in different geographical locations have different needs, tastes and preferences. Consequently, the marketing mix may differ from one geographic region to another. Psychographic segmentation is the process of dividing the total market according to personality characteristics, motives, opinions, socioeconomic group and lifestyles. When segmenting a market according to psychographic variables, a business would research a consumer’s brand preferences, favourite music, radio and television programs, reading habits, personal interests and hobbies, and values. Behavioural segmentation is the process of dividing the total market according to the customers’ relationship to the product. This includes customers’ knowledge of, attitude towards, use of, or benefits sought from the product. A total market, for example, may be divided into users and nonusers. Quality control, quality assurance Quality control is all about inspection, measurement and intervention. Quality assurance is all about application of international quality standards. JIT, LIFO,FIFO Last in first out (LIFO) - In businesses applying a LIFO approach, the business would apply cost on a last-in-first-out basis, meaning the stock bought last would assume to have been sold first. This would give the following cost: The last group of 500 phones would be assumed to have sold first. Therefore, 500 of the phones would attract a cost of $120 each for a total cost of $60 000. First in first out (FIFO) - In businesses that apply a FIFO approach, the business would apply cost on a first-in-first-out basis, meaning the stock bought first would assume to have been sold first. This would give the following cost: The first group of 1000 phones would be assumed to have sold first. Therefore, 1000 of the phones would attract a cost of $100 each for a total cost of $100 000. Just in time (JIT) - One means of managing stock is to apply a just-in-time (JIT) approach, which aims to overcome the problem of end-of-period stock valuation: a lean production method. This is because a JIT approach aims to have the business make only enough products to meet demand. A JIT approach also allows retailers to display a wider range of products, as they need to store less and can order in response to consumer demand. Factors influencing Customer Choice Marketers closely examine the behavior of customers (consumers) to understand what motivates an individual to purchase a particular product — customer choice (buying behavior). They want to know why the customer selects one product and rejects another. As well, businesses try to influence customer choice by modifying their marketing strategies to appeal to the customer’s motives. Marketing Strategy (4 P’s – price, product, etc) Price - Selecting the ‘correct’ price — the amount of money a customer is prepared to offer in exchange for a product — can sometimes be difficult. The major pricing decision is whether to set a price above, below or about even with the competitors’ price. Product - A promotion strategy details the methods to be used by a business to inform, persuade and remind customers about its products. The main forms of promotion include advertising, personal selling and relationship marketing, sales promotion, publicity and public relations. Price/distribution - This element of the marketing mix deals with the channels of distribution: the ways of getting the product to the customer. This process usually involves a number of intermediaries or ‘go betweens’, such as the wholesaler or retailer. Apart from the retailer, the other intermediaries are often invisible; that is, the customer knows little about their role and operation. Product - This element of the marketing mix involves much more than just deciding which product to make. The business also needs to determine such features as the product’s quality, packaging/labeling, design, brand name and guarantee. The product is a combination of all these variables. Example of quality control in Operations Quality control (QC) reduces problems and defects in the product by using inspections at various points in the production process. In the first instance, a business needs to have defined quality standards and parameters. These standards need to be broadly applied across the range of products and processes. Once the standards have been set, a range of tests needs to be designed to assess the quality of products and processes against the standards. Pricing strategies Price skimming - occurs when a business charges the highest possible price for the product during the introduction stage of its life cycle. Some consumers are willing to pay a high price for a product’s novelty features because of the prestige or status that ownership gives. Early purchasers (adopters) of innovative electronic equipment fall into this category. Price penetration - occurs when a business charges the lowest price possible for a product. The strategy aims to quickly achieve a large market share for a product — sometimes called ‘mass-market pricing’. The objective is to sell a large number of products during the early stages of the life cycle and thus discourage competitors from entering the market or from taking market share from existing businesses. Loss leader - is a product sold at or below cost price. For a special promotion, many businesses, especially retail stores, deliberately sell a product at a loss to attract customers to the shop. Although the business makes a loss on this product, it hopes that the extra customers will buy other products as well. Price points - (or price lining) is selling products only at certain predetermined prices. This pricing strategy is used mainly by retailers, especially clothing stores and boutiques. The business chooses a limited number of key prices or price points for selected product lines. For example, a jeweler may offer a line of watches priced at $55, $75 and $95 regardless of how much they cost at wholesale. Transformed Resources Transformed resources are those inputs that are changed or converted in the operations process; they are transformed by the operations processes. Transformed resources are also considered the resources that give the operations process its purpose or goal. The transformed resources are: Materials Information Customers Cost Leadership Cost leadership involves aiming to have the lowest costs or to be the most pricecompetitive in the market. There are input costs, processing or transformation costs and the costs of getting products to markets. There are also costs associated with inventory management and quality management. It should be clear from the table that there are numerous sources of cost that are incurred when undertaking operations processes. Therefore, an intrinsic aspect of strategic operations management involves cost leadership. Short Answer Advantages /Disadvantages of Inventory (Know 2 of each) Advantages Consumer demand can be met when stock is available. This may prevent the consumer from seeking to buy from an alternative business. This is a risk reduction strategy. If a particular product line runs out, an alternative can be offered, thereby generating income for the business instead of a lost sale. It reduces lead times between order and delivery. Stocks give the opportunity for a business to generate immediate revenue. It is very hard to generate revenue from partially transformed inputs. Stocks can be distributed to distribution centres, which then rapidly transport the products to places as indicated by demand. A store of stock allows the business to promote use of products in nontraditional or even new markets Older stock can be sold at reduced prices and thereby encourage cash flow and also attract sales of other products. Stocks are an asset and are of value to the business, reflecting well on the balance sheet. Making products in bulk may reduce costs as there are economies of scale in purchasing inputs. This could be cheaper than the cost of holding the stock once it is made. Disadvantages Despite there being many advantages of holding stock, the trend is to hold as little stock as possible and to adopt a ‘make-to-order’ approach. That is, there are many perceived disadvantages of holding stock. These include: The costs associated with holding stock , including storage charges, spoilage, insurance, theft and handling expenses. The invested capital, labour and energy cannot be used elsewhere as it has been used to create the stock The cost of obsolescence, which can occur if stock remains unsold. Corporate Social Responsibility – include examples Refers to open & accountable business actions based on respect for people, society & the broader environment. It involves doing more than just complying with laws & regulations. CSR places value not only on profitability but rather meeting community concerns & social expectations. McDonalds sponsoring grass roots programs and giving back to the community They want to deliver valuable benefits to the wider community. We want to help children live a more balanced, active and enriched lifestyle. Their sponsorships must reflect a grassroots and community focus. Toms Shoes- One for One, supplies a new pair of shoes for a child in need for every shoe purchase, given over 35 million pairs in over 70 countries since 2006 Examples of illegal marketing practices The following are illegal under the Competition & Consumer Act (CCA enforced by the Australian Competition and Consumer Commission (ACCC) - Deceptive & Misleading advertising Fine print: Important conditions are written in small print which is hard to read Before & after advertisements: When ‘before’ images are worsened & ‘after’ images enhanced Tests & Surveys: Making unsubstantiated (not backed up) claims e.g claiming 9/10 doctors recommended a product, when a survey was never conducted Country of Origin: “made in Australia” & “product of Australia” have two distinct meanings Packaging: the size & shape of the package giving a misleading impression of the contents Special offer: when a product is advertised as a special offer for a limited period, when in fact the offer is continuously available. Bait & Switch advertising: advertising a few products at reduced prices to attract customers. When the advertised products quickly run out, customers are directed to higher priced items Dishonest advertising: ads should not use words that are deceptive or claim a product has some unique quality when it does not. Also price reductions, specials or free-gift offers must all be genuine - Price discrimination Setting different prices for a product in different markets. The difference in price is possible because of either markets that are geographically separated or product differentiation within the one market The CCA prohibits price discrimination if the discrimination reduces competition. This means that a business cannot give favoured treatment to some customers while denying it to others. - Implied conditions Are the unwritten terms of a contract. These conditions are assumed to exist regardless of whether they are mentioned or written into a contract. It is a breach of the law to suggest a product has a particular characteristic that it does not have. E.g new car has a certain fuel consumption when it does not - Refunds & Exchanges There is no obligation to offer a refund if the customer simply changed their mind, found a cheaper price or damaged the good after it was bought. It is also important to display accurate sign regarding “refunds” & “exchanges”. Signs such as “no refunds given” or “no refunds on sale items” are meaningless. A more accurate sign would read “no refunds given if you change your mind” or “no refunds or exchanges unless your purchase is defective”. Factors influencing consumer choice Psychological influences - Perception What a person perceives which may differ from reality Customers will not normally purchase a product that they perceive as inferior. The perception customers have of products is often the result of advertising that has tried to create a certain “image” - Motives A reason that makes an individual do something. Main motives include comfort, health, safety, pleasure, and cleanliness. - Attitudes A persons overall feeling about an object - Personality & Self-image Personality is the collection of all the behaviours and character tics that make up that person It influences the types of brands a person buys Self-image refers to how people view themselves. We reinforce tis image through our purchases (You are what you buy) - Learning Customers have direct experiences of many new products. Learning refers to changes in a persons behaviour caused by information or experiences E.g. learning occurred the first time a customer tried Coca-Cola. Successful marketing strategies can help assist customer learning which encourages brand loyalty Sociocultural influences - Social Class Often referred to as socioeconomic status (Education, occupation, income) High socioeconomic status usually reflects willingness to buy products that are perceived as prestigious or that convey status. - Culture and Subculture Culture is all the learned values, beliefs & behaviours shared by a society. Culture influences buying behaviours as it determines what people wear, what they eat & where they live - Family & Roles Roles within a family and wider community influence buying behaviour. Children are influencing many household decisions (approx. 70% of all household spending is influenced by 8-12 year olds) - References (peer) groups A group of people with whom a person closely identifies, similar values and beliefs A customers buying behaviour may change to match the rest of the groups beliefs and attitudes E.g friend tells you of a bad experience at a store and it changes your buying behaviour there. Economic influence Economic forces have a major impact on both businesses & customers. Economies do not always experience growth. Rather, economic activity fluctuates from boom to recession. - Boom A boom is a period of low unemployment & rising incomes. Businesses & customers are optimistic about the future. Businesses increase their production & try to increase their market share via their promotional efforts. The marketing campaign during such a phase is usually large. - Recession A recession sees unemployment reach high levels & incomes fall substantially. Customers & businesses lack confidence in the economy. Customers & businesses usually decrease their spending levels. There is much more caution & pessimism amongst customers & they are usually more price-conscious. Customers look for value & products that are long-lasting. Marketing plans should stress the value & usefulness of a product. Government influences The government will utilise policies that expand or contract the level of economic activity. These policies influence business activity & customers’ spending habits. The influence of government regulations has a direct impact on the marketing plans of a business. Regulatory forces consist of laws that can influence business behaviour. Ethical Criticisms of marketing Critics of marketing argue that industry does not always adopt ethical practices. They believe it lacks a strong code of professional conduct. The main criticisms of marketing include: Creation of needs – materialism Materialism refers to a persons desire to constantly acquire possessions. Critics feel that most businesses use powerful promotional strategies to convince customers to buy what the firm wants to sell. Stereotypical images of males/females In most ads it ends up being the male who uses the power tools & the female preparing the meals. Use of sex to sell products Advertisers use sex appeal to suggest that buying a particular product will increase the attractiveness or charm of the user. Product Placement The use of advertising in entertainment is a promotional strategy known as product placement. It is usually done in a subtle manner. Eg: an Omega watch on a celebrities arm. Marketing managers should remember that businesses exist because of their customers. Dishonest or unethical marketing will eventually drive customers away. Truth & accuracy in advertising False or misleading advertising is unethical and illegal. Terms such as “great value” or “low fat” can be interpreted in different ways. The term “special” can mean that a product is being sold at a cheaper price than normal. However, a marketer may interpret the word special to mean a product has some unique characteristics. If the marketer uses this word to purposely mislead the customers, than it would be classified as unethical behaviour. The four main unethical marketing practices include: (1) Untruths due to concealed facts (2) Exaggerated claims (3) Vague statements (4) Invasion of privacy Untruths due to concealed facts An advertised product may not make a consumer more successful or wealthy. However, the unethical practice of concealed facts – some information which is purposefully omitted – can harm the trust customers have in regards to a product. Exaggerated claims Exaggerated claims (puffery) cannot be proved. A claim that a certain shampoo or toilet paper is superior to any other on the market cannot be confirmed. Vague statements Another type of unethical advertising practice is the use of vague statements – using words so ambiguous that the consumer will assume the advertiser’s intended message. For example, “helps” is a common weasel word. As in “helps fight against”. Although some marketers regard such statements as acceptable, others do not. Invasion of privacy The recent growth in online advertising is raising a number of ethical issues with the most serious being the tracking of web users & using this information to target them with adverts. Marketing Strategies Marketing strategies are the actions undertaken to achieve the business’s marketing objectives via the marketing mix; The marketing mix refers to the combination of the four P’s Product (Quality of the product, packaging, brand name & guarantee) Price (choosing the “correct” price. Deciding whether to set a price above, below or even with competitors price) Promotion (Strategies that deal with methods used by a business to inform & remind customers about its product) Place (getting products to the customer) Extended Marketing Mix People (Using appropriately qualified and trained employees, also refers to the quality of interaction between the customer and those within the business who will deliver the service.) Processes (Refers to the flow of activities that a business will follow in its delivery of a service. Businesses need to ensure that their processes and procedures are customer friendly and that they satisfy their customers needs) Physical Evidence (Refers to the environment in which the service will be delivered. It includes the location of where the service is being provided and materials need to carry out the service.) Operations- Performance Objectives Performance objectives are goals that relate to the transformation process. These objectives are set to ensure that the business becomes more efficient, Productive & profitable. The six main performance objectives include: Quality Flexibility Speed Customisation Dependability Cost Business Report Operation/Global Marketing Strategies Essay Global Factors In Operations Management OR Balance between Companies being Profit Driven Vs. CSR