Saturday, 17 December y

Business final first-semester revision

Chapter 6: motivating employees.
Motivation, benefits of a well-motivated workforce, Maslow’s theory, F.W Taylor and Herzberg,
methods of motivation, financial and non-financial rewards.

Motivation: The factors that affect an employee’s behavior and performance towards achieving
business set goals.

— Benefits of a well-motivated workforce:

• Labour productivity is increased which reduces average costs and increases competitiveness.
• Absenteeism is reduced.
• Lower labor turnover reduces recruitment and training costs.
• Productivity is improved, more competition, better quality goods, and services.

THEORIES

—Maslow’s theory of human needs.

• Physical needs: food, shelter, clothing, rest which is fulfilled by receiving wages.
• Safety needs: protection against danger, fulfilled by job security.
• Social needs: friendships/belonging in a group, fulfilled by having colleagues at work.
• Esteem needs: good status and recognition, fulfilled by being recognized for good work.
• Self-actualization: achieving one’s full potential, fulfilled by being promoted and being given more
responsibility.
Limitations of Maslow’s theory:
• Difficult to identify how much of a need has been met and the level of each employee.
• Money might satisfy esteem needs as well.
• Maslow’s needs may not satisfy everyone.

—F.W.Taylor’s theory of economic man.

• Believed that money is the only motivational factor.
• The Piece-rate method developed from this theory, stating that if employees are paid according to
the number of units produced, they will be motivated to work more to gain more profit.
Limitations: money is not the only factor of motivation.

—Herzberg’ s two-factor theory.

• Consists of a series of factors divided into two concepts: Hygiene factors and motivators.
Hygiene factors:
Working conditions: how clean the environment is.
Relationship with boss and colleagues: being treated fairly with respect, belonging in a group.
Salary: Employees should be paid enough to be encouraged to perform their job.
Security: How safe the job is.

Motivators:
Achievement: employees should feel like they are achieving their goals.
Recognition: Employees should be recognized for their hard work.
Work itself: The job needs to be interesting and to have a variety of different tasks, this could be
fulfilled by introducing job enrichment.
Advancement/promotion: employees should have the chance of being promoted.

1
Responsibilities: By giving the employees more responsibilities they will feel like they are gaining the
trust of the managers, feel more included in decision making.

Therefore, the presence of hygiene factors isn’t enough to motivate employees but their absence
demotivates them.

Methods of motivation: financial and non-financial rewards.

Financial rewards: cash and non-cash rewards paid to employees are often used to motivate
employees to increase their efforts.
Non-financial rewards: methods used to motivate employees that do not involve financial rewards.

Financial rewards:
— hourly wage rate: fixed amount per hour worked. The advantage is that the business pays the
employee only based on the number of hours worked, the disadvantage is that the pay is not linked to
how much they produce which may be unfair in some cases.
— salary: fixed amount not linked to production. Adv is that an employee will not receive higher pay
if they work for more hours, a disadvantage is that salary is not linked to performance or efforts.
— piece-rate: payment based on the number of units an employee produces. The advantage is that
employees are paid only on the number of items produced, the disadvantage is that the quality may be
poor as they’ll try to work too quickly to increase their output and pay.
— commission: payment of sales staff based on how many units they sell. The main advantage is that
since it is linked to the number of items sold, sale members will want to sell as many units as possible.
On the other hand, the payment is not fixed because it varies on how many items they sell.
— bonus schemes: additional rewards given to employees who achieve specific targets set by
managers. The advantage is that since it is linked to performance, productivity will be increased
which reduces average costs. The disadvantage is that employees could get demotivated if the targets
are too unrealistic and if the target is group-based, some employees who have worked less than others
will get the same bonuses.
— fringe benefits: non-cash financial rewards to recruit or retain employees and to recognize the
status of employees. Adv: helps in retaining and recruitment of employees. The main disadvantage is
that they are not linked to the performance of the employee but only to their status.
— profit-sharing: additional payment to employees linked to the profits of the business. As it’s linked
to the performance of the business, the better performance, the higher the profit and the greater profit
shared. The disadvantage is that it could decrease the dividends to shareholders or reduce the amount
invested in the business.

Non-financial rewards:
— job rotation: increasing variety in the workplace by allowing employees to switch from one task to
another. Employees become multi-skilled, more flexible workplaces.
— job enlargement: increasing tasks to increase variety for employees, reduces boredom.
— job enrichment: organizing tasks so that employees can use their full abilities and skills.
— quality circles: groups of employees who meet regularly to discuss work-related issues.
— delegation: passing down authority and responsibilities to employees down the organization.

Chapter 7: organisation and management.

Hierarchy, chain of command, subordinate and span of control, Tall of flat, delayering, centralised or
decentralised, directors, managers and supervisors, role of management, delegation, leadership styles,
trade unions.

2
Hierarchy: the Number of levels in an organisational structure. Production workers are at the lowest
level of hierarchy, whereas the chief executive officers are on top.

Chain of command: the route through which authority is passed down through an organisation.

Subordinate: an employee who is below another employee in the organisation’s herarchy.

Span of control: the Number of subordinates reporting to each supervisor/manager.

Wide span of control:

ADV:
— less expensive as fewer supervisors and managers are needed.
— less supervision improves employee motivation.
— faster communication and decision making.
DIS:
— fewer managers reduces promotion opportunities.
— less control over subordinate’s work.
— effective communication can be difficult.

Narrow span of control:

ADV:
— effective communication is easier.
— better control over subordinates’ work.
— more managers and supervisors increases promotion opportunities.
DIS:
— communication and decision making is slow.
— more managers needed -> more expensive.
— more supervision -> reduces employee motivation.

Simple and repetitive -> Wide span of control.

More complex and unique tasks -> Narrow span.
Highly skilled and experienced employees require less control -> wide span of control.

Tall organisations:
— many levels of hierarchy
— more managers since the structure has several layers of management, the more managers -> the
narrower the span of control of each manager.
— long chain of command.
— communication and decision making is slow as it passes through several layers.
Flat organisations:
— few levels of hierarchy
— chain of command is short
— communication and decision making are easier because less layers to pass through.

Delayering: reducing the size of the hierarchy by removing one or more levels (often the middle
management)
ADV:
— reduces costs
—chain of command is reduced -> communication and decision making is easier and more effective.
— wider span of control increased delegation -> develops employees’ skills and motivate them as
they are given more trust by the managers.
— senior managers are in closer touch with what is happening in the business.

3
DIS:
— employees that remain might fear redundancy which reduces job security.
— wider span of control might reduce the effective management of subordinates.
— increased workload for managers could mean that the tasks won’t be completed on time or that the
quality of decision making isn’t as good.
— businesses May have to make redundancy payments to managers that lose their jobs, this is a one
off increase in costs.

Centralised organisation: one where all the important decision-making power is Held at head office of
centre.
Decentralised organisation: one where the decision-making powers are passed down the organisation
to lower levels.

Centralised organisation pro’s:

— decision making is quicker
— decisions are taken for the benefit of the whole business.
— greater use of specialist staff improves decision making.
Centralised organisation con’s:
— slow communication
— May reduce employee motivation.
— can’t respond fast to changes in local markets.

Decentralised organisation pro’s:

— decisions made based on local needs.
— can be used to traim junior managers
— delegation helps improve employee motivation
Decentralised organisation con’s:
— Decisions taken May not be in the interest of the whole business.
— Poor decisions can be made because managers lack experience and skills.

Roles, responsabilities and inter-relationships:

Directors: most senior level of management in any Limited company. Their responsabilities include:
setting strategy, protecting the interests of shareholders and other stockholders, providing leadership
to ensure the success of business.

Chief executive officer: the most senior manaher responsible for the overall perfomance and success
of a company.
Manager: individual who is in charge of a certain Group of asks or a certain area or Department of a
business.
Supervisors: individual who checks and controls the work of subordinates.

Role of management:
— planning, organising, commanding, coordinating, controlling.
Delegation: passing Authority down through the organisational hierarchy to a subordinate.
Pro’s:
— managers have time to focus on more complex tasks.
— motivates employees.
— develops skills.
— quality of work is often improved.
Con’s:
Some managers may feel like they will lose control of decision making.
Not all managers trust subordinates.

Styles of leadership:

4
Autocratic:
— leadership style where the leader makes all decisions.
— objectives and decision making is up to the leader.
— fast communication, no feedback.
— employees are closely supervised by the leader.
— employees are given Little information about the business.
— low motivation.
Democratic:
— leadership style where employees take part in decision making.
— two way communication, feedback.
— no close supervision needed.
— employees will feel more trusted as they are involved in decision making.
— high motivation.
Laissez-faire:
— leadership style where most decisions are made by the employees.
— no supervision
— employees are provided with all information needed about the business.
— motivation is most likely to be either high or low depending on the task and skills of employees.

Trade union: organisation of employees aimed at providing pay and working coniditons and providing
other services such as legal advice for members.
Members of trade unions carry out the following roles:
— negotiate with employees to improve Pay and working conditions.
— resolve conflict.
— provide legal support and advice.

Benefits of being trade union members:

— collective bargain; employees that join together have more power
— legal support and advice; too expensive for employees on their own
— improves job security; redundancy and job losses
— employees must Pay a membership
— during strike action employees lose wages which cannot be recovered.

Chapter 8: recruitment, selection and training of employees.

Internak and external recruitment, main stages in recruitment and selection of

employees, advertising, benefits and limitations of part time and full time employees,
importance of training methods, methods of training, reasons for reducing the size of
the workforce, legal controls over employement issues.

Internal recruitment:
— filling a vacant post with someone already employed in the business.
Pro’s:
— place can be filled quickly and cheaply.
— employee is already familiar with business.
— business already know skills/strenghts of applicants.
— employee gets more motivation.
Con’s:
— better candidate might be out there.
— could cause conflict between candidates.
— no new ideas.
— there will still be a vacancy to fill.

5
External recruitment:
— filling a vacant post with someone not already employed in the business.
Pro’s:
— external applicants might bring new ideas to the business -> effectiveness and efficiency is
improved.
— wider Choice of applicants with skills and experience
— less chance of conflict.
Con’s:
— takes longer to feel vacancy.
— more expensive because advertising and training costs.

Job description: a list of the key points about a job, job title, key duties, responsabilities and
accountability.
Job personification: a list of the qualifications, skills, experience and personal qualities looked for in
a successful applicant.

Benefits of part time employement:

— businessses can attract well qualified employees who want a more flexible schedule.
— to keep experienced staff by giving full time employees a part time job.
— greater flexibility
— part time employees are more productive and have more motivation than full time employees.
— employing two part time employees instead of one full time empoyee increases skills and
epxriences of workforce.
— part time employees do not need to take time off for emdical reasons. Output Does not fall unlike
full time employees.
Limitations:
— increase in induction and training costs.
— communication issues.
— Quality of service offered to costumers may not be as good with part time staff as it is with full
time staff.

Importance of training:
— more efficient workforce, increase in productigvity and improves quality.
— quality of business decisions is improved
— risk of costly mistakes is reduced
— abilities of employees are improve and their potential is reached.
— more motivation
— customer service is improved
— well trained worforce improves a business’ competitiveness.

Methods of training:
— induction training: training program made to help new recruits become familiar with their work
place and the people they work with among the procedures they have to follow. Organisational
structures, role, responsabilities within the structure, Health and safety procedures.
Quickly feel part of the business -> employee performs better.
Increases business cost -> employees are not adding to output but are receiving their wage or salary.

— On the job training: training at the place of work; watching or follwing an experienced employee.
— cheap, employees learn how to get tasks done the way the business wishes, employees are
producing output while being trained.
— employees may pick up another employee’s bad habits.
— employees tend to make more mistakes when Learning which increases waste
— may not learn the most up to date methods
— slows down production of experienced employee.

6
— Off the job training: training that takes place away from the workforce Example at the
Company’s training facility or specific courses offered by specialist training companies.
— employees learn the latest methods and techniques.
— doesn’t disrupt the production of other employees.
— can be expensive especially when given by a private training provider.
— employee Does not produce any output during training.

Reasons to reduce size of the workforce:

— resignation: termination of employement by the employee voluntarily, perhaps bc better job
offer/promotion/pay/shorter working
— retirement: termination of employement due to the employee reaching an age below which they
do not need to work.
— redudancy: termination of employement by the employer bc job is no longer needed. -> 3 months
notice.
— dismissal: termination of employement by the empoyer because broekn rules or is not performing
work to the required standard.

Reasons to downsize the workforce:

— fall in demand; it is costly to employ employees when the demand is low
— new technology
— recolate some distance from its current site.

Chapter 9: effective communication, how its achieved, types of communication,

communication media, communication barriers, problems of ineffective
communication, how communication barriers can be reduced.

— internal communication: employees communicating with each other/colleagues/subordinates.

— external communication: communicating with people and organisations outside business;
business stakeholders.

Effective comunication: information passed between two or more people or groups with feedback to
confirm that the message has been received and understood.
— reduces risk of mistakes;
— enables faster decision making;
— enables quicker responses to market changes; the longer it takes to communicate changes in
markets the slower the business Will be able to respond and May miss marketing opportunities as a
result.
— improving coordination between departments
— improving the morale and motivation of the workforce
— improves customer relationships.

Oral communication:
— personal between sender and receiver
— immediate feedback
— Language can be altered to the needs of receiver

— no permanent record
— receiver might not listen
— misheard message.

Written:

7
— permanent record
— message cannot be changed
— can be forwarded
— can be used by the receiver more than once for understanding better

— no personal contact
— slower feedback
— time consuming
— May not be understood if Language is complex

Electronic:
— quick, some methods provide permanent record, can be forwarded, used to create more interesting
messages
— equipment and software are expensive
— not everyone has Access to equipment needed
— no personal contact unless video calls
— risks of sending message to wrong receiver.

Visual:
— simplify data, creates interest, easier to remember.
— some detail May be Lost, message May be interpreted differently.

Communication barriers:
— problems with the communication Channel: Channel of communication is too long, too much info
is being communicated in one message, Language is too complex or technical, wrong medium (using
telephone to communicate complex technical info)
— problems between senders and receivers: lack of trust and respect between sender and receiver,
demotivated employees will not listen properly, poorly disciplined employees won’t pass message
properly.
— problems with the physical environment: noise, too much distance can be solved with video
conferencing methods.

-> Tasks not completed or done incorrectly; reduces productivity; increases waste; increases average
costs and reduces profitability.
-> Reputation is damaged; customer loss
-> motivation and morale of employees decreases; Poor quality; labour turn over and absenteeism
increase; profitability is reduced.
-> higher risk of accidents in the workforce; output is reduced; business might be fined and has to pay
recompensation to the employe.
-> Poor sales
-> recruitment and selection problems; Will not attract best candidates.

How communicatin barriers are prevented:

— appropriate Language
— keep channel of communication short
— insist on feedback
— appropriate medium of communication
— physical barriers such as noise should be removed
— managers must Build a culture of trust between all employees.

Chapter 10: role of marketing, market changes, niche and mass marketing, market
segmentation.

8
Customer base; the Group of customers a business sells its products to. Businesses must then build
customer relationships to maintin the loyalty of its custumers to the business and products. Business
sells -> revenue and profits rise.

Market: all custumers who are interested in buying a product and have the resources to do so.
Target market: individuals identified by a business as the customers or consumers of its products.

Customer: individial or business that Buys goods and services from a business.

Consumer; the final user of a product.

Consumer markets: markets for goods and services bought by final consumer. Ex food, televisions,
cars.

Industrial markets: markets for goods and services bought by other businesses to use in their
production process.

Business environment: combination of internal and external factors that influence the operation of a
business.

Reasons why consumer spending pattern changes:

— Price of product: higher the Price, lower the quantity sold and lower the Price.
— Price of competitors’ products: consumers are most likely to Buy the product with a lower Price if
similarities.
— changes in consumer income: consumers Buy what they can based on their Financial resources. If
a consumer’s income is low, they Will only Buy necessities/needs.
— changes in population and structure: growth in country -> growth in market, this could increase
business sales.
— changes in fashion/taste: taste and fashion are always changing.
— spending money on advertising and other promotional activities: businesses spend money to
advertise their products so that the consumers are aimed to be persuaded and Buy their products rather
than their competitors. Businesses invest in promotional activities to create a brand image.

Governement intervention in markets:

— legal control that prevents individual firms from dominating the market.
— selling off public sector organisations to private sector.
— deregulation: removal of government controls from an Industry.
— providing Financial and other assistance to new and small to medium sized businesses.

Free trade: no barriers exist that might prevent trade between different countries.

Businesses that do not respond to changing consumer spending patters and more competitive markets
are unlikely to survive. They can do this by:
— product development: market research has to be done to know how the needs and wants of
consumers are changing. -> new products are developed -> satisfied customer base -> less
competition.
— efficiency is improved: efficient use of resources Will help a business to reduce average costs.
Reduced average costs -> prices of products are reduced too -> increase in sales.
— increase in promotion: adding promotional techniques such as Buy one get one free are used to
temp the customer in buying a business’ products rathen than another competitive one.
— look for new markets: if spending patterns change too often and/or competition is high, the
business should look for another market with less competition and where consumers are more likely
to Buy their products.

9
Niche marketing: advertising products for a smaller segment of market.
Mass marketing: selling the same products to the whole market.

Niche marketing:
— smaller firms are able to survive and Earn profit even in markets dominated by larger businesses.
— less competiton
— consumers Pay for the high status product. By charging high prices, the business earns high profit
margins.

— small changes in consumer spending patterns might affect the corporations that operate in niche
markets.
— small size of markets=economies of Scale are unlikely to be achieved, unit costs are higher than
they would be if the product was sold to a mass market.
— competitors are attracted by the opportunity to earn high profits, which reduces prices and future
profits.

Mass marketing:
— requires large Scale production. Larger firms benefit from economies of scale which reduces unit
costs.
— much larger market -> potential for high sales and profit.
— changes in consumer spending patters don’t have a high impact on businesses that Target mass
markets, risk is reduced.

— much more competition -> lowers price and profit margins

— not all markets are large enough to support a mass marketing approach.
— consumers look for something different from what is offered by the same product mass
marketings.

Market segmentation: dividing the whole market into segments by consumer characteristics then
targeting different products for each segment.
Market segment: part of the whole market in which consumers have specific characteristics.

Geographic segmentation: dividing consumers in the market by geographical Area; cultural reasons;
religious beliefs; different environments.
Demographical segmentation: diving consumers in the market by factors such as age, gender,
income, ethnic background, social class.
Psychographical segmentation: dividing consumers in the market by lifestyles, personalities and
attitudes.

Benefits of segmentation to businesses:

— goods and services can be designed to specifically meet the needs of consumers in each segment;
sales increase.
— small firms that cannot operate in the whole market can operate in one or two segments—
marketing strategies are better targeted at each segment which reduces the waste of scarce resources
— it is possible to charge higher prices for similar products in one segment than in another.

Chapter 11: role of market reseach and methods used, uses of market research
information, primary and secondary research, methods of primary research (focus
groups, observation, test market, consumer surveys), need of sampling, accuracy of
market research data, presentation and use of market research results, analysing
market research.

10
— Market research: process of collecting, Recording and analysing data about the customers,
competitors and market for a product.
— Unique selling point: the special feature of a product that sets it apart from competitors’ products.
— Product orientated: the firm decides what to produce and then tries to find buyers for the product;
risk of new products failing is reduced since they have been produced according to the Marker
research done which identifies the needs of consumers.
Market research info is useful for the following reasons.
— consumer needs are indentified; reducing risk of product failure.
— discover current and future market size for product.
— provide info about the business’ existing products and markets
— indentifies strenghts and weaknesses of competitor products; any new product development builds
on the strenghts of competitors while improving the weaknesses.
— decide how to Price and promote and how to distribute the product to consumers.
— predict the changes and trengs in consumer taste and fashion which affects the future demand for
products.

— primary research: the collection of first hand data for the specific needs of the firm.
— secondary research: the collection of data from second hand sources.
; sources of secondary market research data:
- internet, government publications, newspapers and magazines, libraries, market research
companies, business records.

Primary research benefits:

— up to date
— data is collected for a specific purpose which is direclty relevant to the business.
— not available to other business which provides a competitive advantage.
Limitations:
— costly to collect
— time consuming
— risk of data being inaccurate; if sample chosen to be surveyed Does not represent the whole
population then the results Will not reflect everyone’s opinon.

Secondary research benefits:

— fairly cheap to obtain
— quicker to obtain than primary research data.

Limitations:
— not up to date
— May not be as reliable/useful as primary data if it hasn’t been collected for the specific purpose
required by the business.

Methods of primary research;

— quantitative research: collection of numerical data that can be analysed using statistical techniques.
— qualitative research: collection of information about consumer buying behaviour and their opinions
about products.

Focus groups: discussions are often recorded, Group of consumers is invited to discuss topics such as
new products, good way to find out from typical consumers what they think about the products and its
marketing. Time consuming to arrange, no numerical data collected.

Observation: often used by large supermarkets, main benefit is that what consumers actually do is
more accurate than what they say they do in surveys, more expensive since they bring trained
observers and cannot ask the opinion of consumers.

11
Test market: Limited quantity of the product is produced and sold in a carefully selected Area of the
market. Test market is chosen to represent the total market. Main advantage is that the cost of any
Problem is Limited to a smaller output, by indentifying and solving problems in the test market the
chance of a more successful introduction of the product into the main market is increased. Main
limitation is that it takes longer to get the product to its main market, cost of producing products for
the test market is expensive.

Consumer surveys:
Interviews: main adv is that any Doubts can be cleared and the interviewer can tell if the interviewee
is not answering honestly which reduces the chance of collecting innacurate data. Main dis is that as a
primary method of research it is more expensive as trained interviewers are used.

Postal surveys:
— questionnaires are good to get the views of the population spread over a Wide geographical Area
and are cheap. However seen as junk email they are most likely thrown away.

Online surveys:
— cover a Wide geographical Area, similar to postal surveys.

Sample: a representative sample of the target market selected to take part in market research.

Accuracy of market research data:

— sample chosen ma be too small or not representative of the population; business May have chosen
the wrong method to collect data; people interviewed May not answer truthfully; Language used by
the interviewer May be too complex; data May be collected incorrectly, secondary data May be out of
date.

presentation and use of market research results:

Tables:
— large amount of data can be grouped and presented.
— easy to extract numerical data.
— lack Visual impact; too much data is difficult to be understood.

Bar Charts:
— importance of each piece of data; can read numerical data from axis
— difficult to compare different parts; Visual impact is lost.

Pie charts:
— easier to understand; show the importance of each part.
— too many slices make it difficult to understand.

Pictograms:
— data is represented by pictures; difficult to show exact quantities with pictures.

Line graphs:
— clearly show trends; values are read off both axes; data can be added for future time periods.
— difficult to draw and accuracy depends on choosing appropriate scales for both axes.

Chapter 12: marketing mix: Product and Price.

Product, costs and benefits of developing new products, Brand image, role of packaging,
product Life cycle, extension strategies, Price, pricing methods, market skimming,

12
penetration pricing, competitive pricing, promotioal pricing, cost plus pricing, choosing
a pricing method, price elasticity of demand, price elasticity of demand and pricing
decisions.

Marketing mix: four marketing decisions needed for the effective marketing of a product.
Four P’s: the right product, at the right Price, at the right place, at the right promotion.
Product: goods and services produced to satisfy a customer need or want.
Brand: a image, symbol or name that distinguishes a product from competitors’ products.
Brand image: general impression of a product helo by consumers.
Extension strategies: marketing activities to extend the maturity stage of a product.

Costs and benefits of developing new products:

— costs:
• Expensive market research.
• Development of new product requires large capital equipment.
• No guarantee that the product Will be a success.
• Survival of business is threatened if investment is financed by borrowing.

— benefits:
• Business in fast changing markets Will not survive unless it meets the changing needs and wants of
customers.
• Developing a product before competitors Brings advantages such as being able to charge a high
Price -> achieve big sales -> achieve big profits.
• Development of new product might help achieve growth and Bring benefits to economies of scale.

Role of packaging:
• Protect product
• Give information about product
• To help consumers recognize the product

Product Life cycle:

— introduction stage: sales low, cost of heavy advertising to gain product recognition.
— growth stage: sales increase, recognition, profit
— maturity stage: sales are not increasing nor falling, most profitable stage
— decline stage: sales are falling, unprofitable, product is withdrawn from market.
Extension strategies:
— finding new markets for the product
— finding new uses for the product
— adapting the product/packaging to improve its appeal to consumers
— increase adv and promotional activities

— price: amount paid by the customer to the supplier when buying a good or service.
— product quality: the product meets the needs and expectations of customers.

Pricing methods:
— market skimming: Setting a high price for a new product that is unique or very different from any
other product on the market.
• Price Falls as competitors enter market with similar product.
• High price helps firm recover from research and development cost.
• High price creares a quality image for products.
• High profits Will attract cheap competitors products.

13
• Loss of sales bc not everyone Will be able to afford the product.
•
— penetration pricing: Setting a low price to attract customers to Buy a new product.
• Encourage volume of sales and build customers loyalty.
• Price Will be increased after customer loyalty gained.
• Used for new products that are already competing with other products existing in market.
• Increases market share, attracts customers quickly.
• Possible loss of revenue due to lower prices, cannot recover any equipment costs quickly.

— competitive pricing: Setting price similar to that of competitors products which are already
established in the market.
• Used when business already has good Brand image and loyal customers.
• Prices are similar of competitors so business can be different in terms of quality or customer
service.
• Still needs to find ways of competing in order to attract sales.
• If the market has a price leader then price would be followed.

Promotional pricing:
— loss/leader pricing: Setting the price of a small Number of products at below cost to attract
customers into the outlet in the hope that they Will Buy other products priced to Earn point.
• Used by retailers to attract customers, promotional pricing is used to create Brand awareness and
customer loyalty.
• Good way of increasing short term sales and market share.
• Good way of selling unwanted inventory.

— cost plus pricing: Setting price by adding a fixed amount to the cost of making or buying the
product.
• Retailers use this method when deciding on the final price of the product to the consumer.
• Quick, easy, makes sure that all costs are covered.
• Sales and profit may be reduced if price might be set higher than competitors.

— price elasticity of demand: measures by how much demand for a product changes when there is a
change in price.
— price inelastic demand: the percentage change in demand is less than the percentage change in
price
— price elastic demand: the percentage change in demand is more than the percentage change in
price
— revenue: amount earned by a business from the sale of its products

Revenue is increased if:

— increase price, price inelastic demand
— decrease price, price elastic demand

Revenue is decreased if:

— decrease price, price inelastic demand
— increase price, price elastic demand.

14