Business studies IGCSE textbook exam-

style questions answers

CH-1-

CHAPTER-1 Business Activity

Q2.)

a.) Added value is the profit that stays in the company as a difference
between the total amount earned from sales and the total amount spent
for production. If the expenses for each product or service are higher
then its price, then the company is not going to have any added value.
For example, a company sells postcards for 5 dollars. In the same time,
costs for making one postcard are 3 dollars.

Added value = (selling price) - (material and bought-in costs) Added

value = 5 dollar - 3 dollar Added value = 2 dollar

b.) The opportunity cost for Mohammed when buying a new oven:

1. Redecorating a bakery into a small coffee shop where he can sell sodas
and other nonalcoholic drinks beside bagels;
2. Buying new mixers to automatize making bread and bagels;
3. Buying equipment for cake decorations. Then, the bakery is equipped
for making unique cakes;
4. Paying for educations for his employees so they can perfect their skills
in making cakes and bagels.

c.) Benefits that Mohammed's company would have if all employees knew to
do all jobs:

1. There would be no idling in the company. Production process would go

on continuously because if an employee is free, they would be able to
handle any segment of the production. If one employee were on
vacation or sick leave, these negative consequences would be avoided:
 production stoppage, because no-one else in the company is qualified to
do that person's job;
  additional expenses for the company to find and hire a new employee
and to invest a lot of time to bring them into the business.
2. It would be much easier to identify the problem and to find a specific
segment of business where it arose. Each employee would have the
opportunity to suggest ideas for the production and efficiency of
business process improvements based on their experience.

d.) Two ways where Mohammed could increase the added value of his
company:

1. He could introduce new products and could modernize appearance and

equipment in his coffee shop. For example, with warm bagels he could
also offer coffee or tea as an ideal breakfast to start a day;
2. He could start making cakes and pastries for special occasions like
birthdays and weddings. These would be made on order. Customers
would choose ingredients for cakes according to their preferences. They
would also select decorations for their cakes. This way of production
would especially benefit customers with dietary restrictions or allergies.

e.) In this example, I think that the suggested approach would not contribute
to increasing the added value of Mohammed's bakery.

Namely, customers did not have any complaints about the services offered
during the purchase. On the contrary, customers said that the products of
Mohammed's bakery are equally good as his competition. So, customers
would be willing to pay more money for Mohammed's products only if he
offered something different and better. Maybe, in this case, Mohammed
should research his competition and create new products that would be more
appealing to customers.

Some suggestions on how to be different than the competition:

 Personalized production of cakes and pastries;

 Making pastries and bread adjusted to customers with specific dietary
restrictions;
 Making regular products with higher quality ingredients
Chapter-2 Classification of Buissiness
Q1.)

a.)Expression "primary sector" represents activities like: agriculture, livestock

breeding, fishing, forestry and extraction of natural resources like metals,
diamonds or coal.

These activities extract and roughly process natural resources into raw
materials. Then, these materials represent basic inputs necessary for activities
of the secondary sector.

For example, wheat production is a primary activity. After sowing and

harvesting mature wheat, agriculturist can place on the market the raw
material necessary for flour production, which falls under secondary activity.

b.) Business such as AEC requires services like:

 Transport that will be needed in the first and last stage of business. The
first phase includes the purchase of material necessary to start the
production of metal brake components and rubber seals. The last phase
includes the shipment of finished products to end customers;
 Accounting that will be needed all the time so the company can pay
salaries, issue an invoice, make financial reports and control the success
of its business.

c.) Two reasons why a business AEC could not be successful without other
firms providing natural resources:

1. Natural resources are basic inputs which AEC uses in production.

Country X, in which AEC conducts its business, does not have natural
resources that are needed for production, and they can't make materials
on their own. Therefore, the purchase of raw material from other
producers is an ideal solution for AEC;
2. Company AEC is specialized for production of metal brake components
and rubber seals. Therefore, it would not be possible for AEC to produce
raw material necessary for further production like metal or rubber on
their own. It would imply significant financial expenses: - Education of
 employees to specialize in the processing of each raw material; -
Purchasing additional equipment and machinery; - Import of raw
materials.

d.) Reasons, why the importance of the primary sector of Country X's
economy has declined, are:

1. Usage of coal has dropped on the market because the industry does not
use it anymore. Because of that, demand for coal mining has dropped,
resulting in fewer people employed in that sector and drop of coal sales
on the domestic and foreign market. It's a contribution to the economy
has dropped;
2. The agriculture business is not profitable if the small scales. A couple of
reasons for that are:
 It is necessary to constantly invest in the modernization of production
(new machinery, crops, fertilizers, education of employees);
 Competition is strong due to globalization and singular global market;
 Imported products are commonly cheaper than domestic ones, and
because of low life standard, people are buying cheaper products.

e.) I disagree with the statement from the minister of a government that the
secondary sector is always going to be more important than the tertiary
sector. Considering the movement of economic trends and needs of
consumers, the importance of activities in the tertiary sector is growing
bigger.

As an example, we can mention the increasing trend of automatization in

production. To achieve that, we need the intervention of the IT industry and
experts in all activities of the secondary sector. They are going to design
machines and programs for each segment of the production process. In that
case, human labor will be necessary only as production supervision and
possible malfunctions. It means that the demand for employees in the IT
sector is going to increase while the number of workers in production is going
to decrease because of automatization.

Q2.)
a.) By "Public sector" we mean activities and organizations that are owned
and completely controlled by the government. The government makes all
important decisions like the way of operation, product and service
assortment that company is going to offer on the market, prices of those
products and services, employment procedures and rights of employees.
Products and services that come from the public sector are usually free for
citizens of some country, and their real price is compensated through
taxes.

b.) Two industries in the secondary sector are:

1. The construction which includes the construction of a building, office

spaces, etc.;
2. Energetics which includes energy production from various sources
like gas, oil, water, wood, etc.

c.) Two reasons why the tertiary sector of the industry is becoming more
important in most world economies are:

1. Market demand for services of the tertiary sector is growing. The

modern way of life has changed. People expect simplification of
everyday activities and technical support in conducting their business
obligations. Therefore, services of IT industry, tourism, banking and
traffic are in high demand;
2. Prices of services and products of the tertiary sector are constantly
going up, which is logical considering higher demand for them.
Because of need that comes from the modern way of life, people are
prepared to pay higher prices for those services. That way, the
percentage of the tertiary sector in the whole economy of a country is
increasing.

d.) Reasons, why the ministry would want to privatize certain business, are:
 1. Privatization of the company makes the success of that company on
the market depend solely on the quality of product or service and
satisfaction of customers. If customers are satisfied, they will buy
those products. That is going to bring profit to the company and
ensure capital for further development. However, if the company
makes some bad decisions, it is responsible for the consequences
and the state does not guarantee any financial aid.
2. Citizens are going to show more appreciation for products and
services for which they have to pay from their own income. For
example, the school system is mostly state property. Since education
is free for all students, most of them do not take school for serious,
`````they do not study enough, get bad grades, etc. If parents had to
pay some amount of their income for education of their kids, they
would take more care about the success that their kids make in
school.

e.) I disagree with the statement from the government minister that the
public sector produces goods and services more efficiently than the private
sector because of two reasons:

 The private sector can not count on financial aid from the state
budget when facing some problems. Therefore, before making any
big business decisions private company is going to make a detailed
analysis of the market to ensure that it is heading in the right
direction;
 Independently makes decisions and is responsible for any
consequences of those decisions. If a private company wants to
survive on the market or improve its position, it has to get the
attention of customers and find out what their desires are. If
something is free, customers are rarely going to complain or criticize
the product or service. However, when customers have to pay for
something, they are going to think twice about the purchase and
analyze products or services that competition makes.

Ch-3 Enterprise, Business Growth and Size

Q1.)
a.) A term "entrepreneur" includes a person with the following
characteristics:

 Know very well a specific work area in which they're good at it, and find
it as an opportunity to generate revenue;
 Ready to risk their spare time, money, knowledge and effort to do
something in which they enjoy;
 Persist in finding ways how to realize their ideas. That includes finding a
source of capital, ideal work-space, investigating a market and adjusting
products/services to the financially profitable production;
 A versatile person and ready to learn the basics of running a business,
because they know that a passion for work is not enough to sell the
product/service on the market;
 Ready for lifelong learning in purpose to adjust themselves and their
products/service to the market needs and to remain a competitive
company. Besides, the entrepreneurs always search for a change and
want to upgrade themself and their knowledge;
 Ready to track trends and needs of their customers.

b.) Two benefits to Sabrina of starting her own business:

1. Sabrina will do her job with much more enthusiasm if she'll work in
her own fashion shop which interest her. Constantly learning and
upgrading the business will be a challenge for her, but it will do good
for her business, in general. Products that Sabrina will put on the
market are going to be quality and follow trends in fashion;
2. She will: bring decisions independently, have a detailed insight into all
segments of business and estimate much easier, how to adapt the
business to the market. Although, that will be very risky business
move (which could jeopardize her business and cause her a vast
financial loses) nobody will stop her from trying to realize them.
However, she must be aware of bearing the consequences of her
decisions, entirely by herself.

c.) Two characteristics which Sabrina has and which could contribute to
her business success:
 1. Her wide knowledge about fashion and fashion industry, and also her
interest in this subject. Her future customers will certainly notice that,
and she will always have the right approach for each customer and
recommend the products they really need. Besides, she has an
interest in this kind of job, and there won't be a problem for her to
acquire the new knowledge, always try to be one step ahead of other
competitors, and try to find the motivation to continue with work in a
crisis situation;
2. Ready to risk her own money for starting a business means that she
believes in the success of her idea. Often happens that the
entrepreneur has the enthusiasm for starting a business but
eventually give up, because of results of market research or because
of too much competition or customers who are not yet interested for
this product or service. However, if the entrepreneurs are convinced
in the quality of the product that they offer, they will easily persuade
their customers to buy that product.

d.) Two benefits to Sabrina of keeping her business a small:

1. Constant insight and control over all segments of the business – a

logical direction of the business decision is to employ extra workers in
areas where Sabrina isn't expert. E.g., the marketer will identify a
target market rightly to her and interestingly present the products. A
financial expert will help her to decide correctly how to dispose of
revenue generated and how to invest in future. She will work and
communicate with them all the time, and also be informed in the
progress of each business activity. If the company becomes large
and expand to several stores in different countries, it'll be hard for
Sabrina to stay in touch with all business movements;
2. Creating a club of loyal customers – if her job remains small, Sabrina
will be able to dedicate to her customers completely. Her everyday
communication with them will create a friendly relationship and she
will be informed in detail about the style of every customer. That will
help her to personalize ways and to approach them individually.
Customers appreciate this enormously, and because of that, they will
gladly return to her store and recommend her products to friends.
e.) I consider Sabrina's approach as the right one, and she should write a
"business plan" before starting her business.

That document will capture a large number of valuable information for the
successful starting of a business, in one place. Some of this information
are: target market or customers, all steps of marketing strategy, real
financial forecasting, results of market research and similar.

This information could be guidances to her future decisions and help her in
finding solutions for future problems. Constantly upgrading a basic
business plan is the main task for every entrepreneur, because, that activity
will help them build a quality foundation. good foundation are needed for
the business growth, and for successful and a long time survival of
company.

For an entrepreneur, there is another advantage of making a business

plan. If a business plan is made with a lot of effort and based on real facts
and predictions, there is a strong possibility that a bank or private investor
will invest capital in that business. This kind of business plan shows the
severity and commitment of the entrepreneur in building a successful
company.

Q2

a.) A term „takeover“ applies on a situation where one company

buys another, i.e. acquires ownership of it. This way of
expanding is less risky for both companies. Positive sides of
„takeover“ for a new owner are: the inheritance of business that
has a defined market, extensive manufacturing experience,
good rating, etc. Positive effects for the company that has been
taken over are: continued business within the same sector and
retaining existing workers.

b.) Two ways a business might grow:

1. A merger – as a different option inside external growth. That's the

situation in which two companies agree on how to unite their
business so they can run one business. Here we can recognize three
basic kinds: horizontal, vertical and conglomerate integration. By
 horizontal integration, there's a merge of two companies that work
inside of the same area and are on the same level of development.
Vertical integration refers to merging two companies inside of the
same working areas, in which one is more developed than the other.
While on the other side, by conglomerate integration we have a
situation of merging two companies that act inside different working
areas, but which are related by some segment ;
2. Internal growth – is a situation by which the company is expanding by
opening a company branch in another city. The best option for
expansion is opening store in the neighbouring city. Reasons for that
are: proximity to owners, branch control capabilities, rapid
interventions in the case of emergency, knowledge of customer
needs and wishes.

c.) Two reasons why external groups would be interested in measuring the
size of TelCom:

1. Large companies usually have a high status in the business world.

Their name is guarantee for security and quality of products/services
which they offer, good rating among business partners and suppliers,
etc. Merging with large companies can bring the following benefits:
more profitable business results, more favourable contract terms with
business partners, safer sales and customer satisfaction;
2. The large company often operates on a global market. So, the
company that merges with large companies will automatically expand
to these new working areas. With this principle, a small companies
will save a lot of their own financial resources and time required for
designing promotional campaigns and sales strategies for new
market.

d.) Two reasons why a senior manager would be interested in expanding

of TelCom:

1. A better work position – company expansion usually cause an

increased need for new workers in all departments. In this kind of
situation, the senior manager represents a worker that is well
acquainted with all the most important segments of company
functioning. So, during opening a new business complex this worker
 will be among first candidates who could manage and supervise new
business. Through years of working in that company, the senior
manager was gained the owner's trust or maybe has great
recommendations from past employers;
2. Earning a bouns - the company expands because the business is
going very well and the current market is too small for that amount of
production. Higher sales bring higher profits to the company. The first
part of the profits goes to the business investments, the second part
stays to the owner and the third part is divided in the form of a bonus
among the key employees of this process. That stimulates them to
put in an extra effort and come up with ideas on how the business
could grow.

e.) In my opinion for the TelCom is more profitable to expand the business
by taking over a chain of shops selling mobile phone. Some of the reasons
for making such decisions are:

 Takeover a chain of shops would be financially cheaper for the

TelCom. The big mobile factory owns some valuable infrastructures,
buildings, machines, computers, programs and similar stuff, so its
market value is much higher than the value of shop;
 TelCom can easy takeover chain of shops since they run a similar
business and TelCom is familiar with the most important business
segments and practice;
 Investment in a chain of shops improvement is much cheaper than
investing in maintenance or modernization of business production.
E.g., implementing a webshop as a new service for customers will
help the shop to growth its sale results and it's financially cheaper
than buying new modern machines for mobile phone production. That
also raises the quality of a sales experience;
 A chain of shops can be quickly expanded by taking ownership of
stores in other countries/continents. Expansion by purchasing new
factories would be much more expensive, slower and heavier. The
purchasing of a new factory requires knowledge of numerous
regulations that the factory should have to satisfy in the new market,
as well as working conditions, worker's right and similar.
CH-4 Types of Business Organizations
Q1.)
a.) By "sole trader " we think of a person who starts own
business. That person is the only owner of the company
and makes all decisions independently. The sole trader
use own saved capital for establishing a company. If they
don't have their own money, they borrow it from family and
friends or take a bank loan.
In the beginning, the owners do all the work alone, but
with the business expanding, they decide to employ new
workers to help them in solving everyday activities.
The owners gladly receive employees ideas about
improving business processes. However, employees
haven't got a significant part in making crucial business
decisions, as investments, choosing business partners
and similar.
The important characteristic of a sole trader is that they
take all the risks and responsibility for decisions alone.

b.) Two other types of business organisation are:

1. Partnership – includes co-ownership at least two or more people over
the company. That company place on the major positions the owners
which are specialized for different kind of areas. All rights and
obligations are equally divided between all partners:
 Right to suggest the changes;
  Right to make decisions – all co-owners must approve the realization
of some decision;
 Right to get a share in profits – each owner gets the same
percentage of a profit;
 The obligation of sharing risks and responsibility for accomplished
results;
 The obligation to invest their capital in establishing a business and in
the improvement of business processes;
2. Limited company – refers to a company that's legally separated from
its owners. Characteristics of that kind of company are:
 If one owner dies, a company will generally continue with business;
 The company, as a legal person can have a part in making contracts;
 The company's account is separate from the owner's private
accounts. The owners won't have to respond with their private
property in case of debts, problems and misunderstandings
connected to the company;
 The smaller shares in the company can be sold on a market so that
the company can ensure some extra capital.

c.) Two benefits to Jameel of operating his business as a sole trader are:

1. Independently making business decisions. For example, Jameel

wants to offer some exotic fruit. By exploring customer needs, he
discovers that buying exotic fruits is increasingly popular in the
country. Throughout talking with his local customers, he finds out that
they would love to buy exotic fruits. As the only owner, Jameel will
easily and quickly realize his idea. He won't have to explain the
reasons for his business moves to nobody;
2. He decides, on his own, on what to spend all the profit he made.
Some of the options can be:
 business expand by introducing additional services and products,
 hiring new workers or investing in their knowledge,
 presentation of the company on fairs,
 investment in a webshop to start an alternative way of selling, etc.

d.) Two drawbacks to Jameel of operating his business as a sole trader:

 1. As the only owner, Jameel must find solutions for problems on his
own and carry the responsibility for the negative outcome of his
decisions. In case of financial losses and incurred debts in the
company, Jameel will need to cover that with her own money.
2. As the only owner, Jameel must have a wide knowledge to manage
the entire company correctly. The areas of his basic knowledge
should include: purchase, sale, accounting and law, HRM and
marketing. Although all mentioned areas are different by their nature,
each one is an indispensable part of the company. Without them, the
company could get into many problems, such as:
 choosing the wrong target market,
 penalty because of non-payment of taxes,
 employee dissatisfaction because of lousy work conditions,
 wrong management of the human capacity of the company properly.

e.) In my opinion, the opening of a franchise wouldn't be good for Jameel.

The franchise is a form of a business in which foreign companies use the

franchisor "know-how " business principle, for example: name,
product/service, promotional activities, logo and similar. To get a license,
they need to pay the monthly agreed fee. Benefits to the franchisee are:

 a successful business plan,

 developed product and service,
 promotional support,
 proper target market.

The franchisee has to manage business according to strict rules and

conditions of the franchise owner, the franchisor. Jameel has pointed
earlier that as a worker, he didn't like to take orders from supervisors. This
way of running a business would entirely limit him, and he should adjust to
the business model, which he might not approve.

That's the reason why I consider that Jameel should work as a sole trader.
That'll be an excellent choice for him because it'll give him complete
freedom of running a business.
 Q2.)

a) By "partnership" we think of a business form with two or more co-owners

over one company. All rights over the company are equally divided
between all owners:

 Each owner must give their approval for all business decision;
 The profit must be divided in equal proportion against each owner;
 Each owner must invest the same amount of their capital in the
development of the company;
 All owners are equally responsible for company problems and must
solve them togetherly.

b) Two benefits to Aurelie and Nadine of the partnership legal structure are:

1. The risk connected with the made decisions or the invested capital
will always be divided to Aurelie and Nadine. Partnership rule said
that each partner must equally invest in the company, whether it'll be
money or knowledge. Because of that, the burden of business failure
won't be entirely on one partner, but on all partners who'll easier
overcome this burden;
2. Solving a problem is much easier when more people are included in
the process. Aurelie and Nadine will probably look at the same
problem from different perspectives, and each one will suggest
several different solutions. When we gather all the ideas in one place
and objectively thought about each, it's easier to choose the best
option. Besides, it is much easier to overcome the problem if people
know that they can lean on someone. As owners, Aurelie and Nadine
will always have strong motives to come up with the best solutions,
because it refers to the business they established with hard work and
that provide their incomes

c) Two benefits to ShoeWorks plc of being a public limited company are:

1. The owners don't respond with their private asset for the company's
debts. The company's and owner's asset are entirely separated. If the
company collapse because of bad business decisions, that won't
have any influence on owners financial positions. On the other side,
 the company's profit will always be paid to all owners, proportionally
with the size of their ownership of the company.;
2. The inflow of new capital can be secured by selling a company's
shares in the capital market. A stock sale is an easy process if we
talk about the public limited company, and there are often no
restrictions on the number of shares. It means that the company's
ownership is mostly divided between a large number of shareholders.
However, each new owner provides a continuous inflow of money in
the company.

d) Two drawbacks of the partnership to Aurelie and Nadine are:

1. If the company collapse, that could threaten the existences of their

families. When we talk about partnership form of legal structure, the
basic rule is that the business asset isn't separated from the owner's
asset. Running a successful company provides the owner with a
better private life standard. However, if owners make wrong
business decisions that cause the business losses, they have to
cover losses with their private assets.
2. Unequal contribution to a successful business. Often happens that
one of the owners take their position more seriously and puts more
effort into the business, unlike the other owners. If the profit were
shared according to merit, that wouldn't cause any trouble. However,
all owners will always demand an equal part of the profit, no matter if
they deserve it or not.

e) In my opinion, a private limited company is a suitable form of legal

structure for A and N business.

That way, Aurelie and Nadaline will have the possibility to protect their
private asset and account in case of the company's collapse. By selling a
company shares, the girls will provide new capital for their company. They
can invest that capital in new equipment, courses, more quality materials
and similar.

It's important to mention that stakeholders won't have a considerable

influence in making business decisions. A private limited company has
restriction by the number of shares that can be sold. Each owner has to
give its approval for the stock sale. Because of that, the company is always
familiar with each stakeholder and has stocks under control.

CH-5 Business Objectives and Stakeholder Objectives

Q1.)
a) By the term "business objectives" we mean accomplishments which the
company wants to achieve as a part of their future business. During the creation of
such plans, the company must always try to be realistic and look at the situation
objectively. For goals to be appropriately set, we have to know all important data
like: target market, direct and indirect competition, the real position of the
company on the market, capacity of employees company disposes of with, etc.

To correctly set up goals that are possible to achieve, the company should guide
itself with the principle of setting SMART goals. SMART goal is a goal that is:
Specific, Measurable, Achievable, Relevant and Time-bound. Some examples of
business objectives can be: survival of company's business, business growth,
expanding market share, making a higher profit, ensuring that invested capital is
returned to shareholders and ensuring that the company represents socially
responsible management.

b) Two of S and S Bloom's stakeholder groups are:

1. Customers, which is a very important stakeholders group for every company

and so for S and S Blooms as well. They are the ones ensuring the survival
of the company in the beginning, then further growth and establishing the
position on the market. If a company makes the wrong estimation about their
target market, they won't be able to sell their products which is going to lead
to the downfall. Also, it is very important to communicate with your
customers to identify their needs and desires accurately. That is the main
prerequisite to use appropriate channels and the correct way to introduce
products and services.
2. The whole community (External) is an important group after customers, and
the company has to adjust to it. Each community is unique concerning
cultural characteristics, values, habits and geographical conditions.
According to that, S and S Blooms will know how to adjust their office in a
way that it is easily accessible and lovable to customers which will make
them happy to enter and buy products. Working together with local
 suppliers, they will create positive effects on the whole local community.
That cooperation is going to ensure the survival of domestic enterprises,
inspire their growth and increase the number of their employees. Customers
at S and S Blooms will be sure that they are going to buy a flower bouquet
that has grown in their neighbourhood. All of it together is going to
contribute to a higher living standard of a whole community.

c) Two likely business objectives for S and S Blooms at the initial stage of the
business were:

1. Survival is the first goal that every company sets for itself after they appear
on the market. For the company to be able to sell their product on the
market, they have to invest capital into making the product and presenting it
on the market. Successful selling depends on the quality of the target market
research that the company conducted, where exactly is the target market
placed, and what are its needs and desires. Because of all potential risks, we
can see how important it is to survive on the market. It shows us whether the
product or service is demanded on the market or not. By opening new stores,
S and S Blooms proves that it is capable of satisfying needs and desires of
the customers and it offers higher quality products customers know how to
appreciate;
2. Profit is the next goal each company should strive for in the beginning.
Profit means that the revenue was big enough to cover all the expenses that
the company had, and some part of it was left to the owner's disposal. Only
when S and S Blooms starts making a profit, they can think about expansion
and development. Owners will independently decide what to invest in:
further growth, modernization of the company, awarding the employees or
investing in employees education.

d) Two likely reasons why Sunita and Sunil have changed the business objectives
for S and S Blooms are:

1. The fact that the company survived on the market means that it was accepted
on the market. Potential of the company was recognized, and customers saw
the quality and uniqueness of the product that S and S Blooms is offering. It
 is a solid foundation on which S and S Blooms can set a new and more
ambitious goal of making more profit in the future;
2. Increasing the market share for company S and S Blooms means that the
business has grown by expending the stores to new locations, the wider
target market has been taken, and that company does very good business.
Considering the size, the company has the opportunity to improve the
quality of life standard of communities in their area of business by operating
in socially responsible ways. To repay to the community, the company can
use the part of its profit to build a playground, to stipend successful students,
use products that are acceptable for the environment, etc.

e) Well established goals can help ensure the success of the company. If they are
created according to the SMART principles, they can be true guidelines for the
company on how to behave, which actions to take and in which direction to move.

Next, we will list some reasons why even the highest quality goals do not
guarantee a company's success:

 The company must have employees with enough competence and

knowledge who can realize these goals;
 Sometimes goals that are directed towards the growth of the company can be
in contradiction with the needs and desires of customers. Therefore, there
has to be a good balance between realizing the main interests of the
company and satisfying the needs of customers on the market;
 Product or service by itself is simply not innovative enough, or there is not
enough demand for it on the market which means that even the best set of
goals won't be accomplished.

Q2.)

a) The term "stakeholders" represents all interest groups or individuals who are
somehow connected to the company.

For each company, we can identify at least 5 basic groups of stakeholders,

depending on a way we can connect someone to the company. Some of these
groups are:

 Workers who ensure that all required business processes in the company are
realized in quality and efficient way and are yielding best results;
 Customers that buy and use final outputs of the company - products and
services;
  The community in which the company operates and whose way of operation
or provision of services has a significant impact;
 Owners who are making key decisions for the improvement of business
processes and ensuring the growth and progress of the whole company;
 Government. It is important to them that the company contributes to the
state budget through taxes, ensures working positions and better living
standards for the inhabitants.
With these, other interest groups can also be identified depending on the area of
operation of some company. Some of these are: shareholders, investors (banks,
business angels, venture capital funds, etc.), suppliers, mediators and others.

b) Two objectives that the manager might set for the BPM are:

1. Providing services to society - it is evident that the production process

makes a lot of by-products that are dangerous to the environment. Instead of
properly taking care of it, the company has chosen a quicker and cheaper
way of disposing the waste into the river. Consequences won't be seen at
first, but in the long term such damage will be done that it won't be possible
to fix it anymore and will have negative impacts on the health of people in
the local area;
2. Increasing the market share - for the company, the goal should not be to
make large quantities of the products but to find the market big enough to
sell everything that was produced. If the market is saturated with supply, and
there is no interest from customers to make a purchase, the company has to
find ways to store the products. That implies significant expenses and losses
for the company.

c) Two possible reasons why BPM has profit as an objective are:

1. They want to expand their business and to achieve that, it is necessary that
BPM increases the volume of workload and ensures larger quantities of ore.
Existing mines have only limited supply of ore which is why it is important
to find new sources. Extensive research, a lot of money, time and modern
technology is required to identify places rich in ore. Therefore, the increase
in profit is needed;
2. To realize the main goal of the company (increasing return for shareholders)
it is necessary to have a higher profit. Definition of profit is a part that
remains after we subtract expensed from complete income. If the profit is
small, the company has to estimate whether it is going to invest in the
 further development of the business or to pay out some return for
shareholders. In that case, there is always an option of investing in the
business to improve it so it can make a higher return for shareholders at
some point in the future.

d) Opening a new mine might affect two stakeholder groups:

1. It is going to bring an increased workload to managers. Perhaps there will be

opportunities for new positions for some of them. New positions mean some
of them might have a better salary, and they can ask for better working
conditions. However, higher positions in the company come with higher
risks such as responsibilities for achieved results. With all that in mind, new
mines are surely going to increase the width of sales and the level of profit.
For managers it will ensure payments of extra bonuses at the end of the
business year or after a finished project;
2. The whole company will be additionally burdened with extra pollution. It is
evident that the company is not socially responsible and looks exclusively to
its own benefit. New mines are going to double the quantity of waste that
will be dumped into the same river, or some new river is going to be put in
danger. Only the government can handle this sort of problem by taking
control of such issues. It has to use the force of law to make the company
appropriately dispose of waste. Then, if BPM does not handle the waste
according to the law, they have to be punished with significant money fine
or with mine closures.

e) I disagree with the Managing Director's statement that shareholders are the most
important stakeholder group.

It is true that shareholders have secured an additional source of capital so that the
company can invest in improving its business. Because of that, there is an
obligation for the company to return the investment.

However, for this scenario to be possible, the company has to realize a high level
of income first to cover the basic business expenses and then use a part of the
income to return the money to shareholders. The company needs to have a well-
worked out sales strategy and good approach towards its customers to ensure the
profit. Therefore, we can conclude that the customers are one of the most important
stakeholders group that gives the company its meaning. Next important group that
must not be ignored are workers themselves. They are the ones who are realizing
the production of products or giving services. Without them, all plans that the
owners or managers make would be very hard to realize.

There are many more stakeholders groups that the company should value and
should adjust its business to them.

CH-6 Motivating Workers

Q1.)
a) Piece rate represents one of the ways in which employers can
pay out the salary to their employees. By this principle, the
employer defines upfront the amount that is going to be paid to
an employee for each produced product. Because of that, the
employee is always going to try to make as many products as
possible to receive a higher salary. The problem that arises with
this principle is the situation in production where quantity and not
quality comes first. That can lead to the potential danger of bad
reviews from customers due to low-quality products. Customers
would return such products to producers and expect money
return or new ones as a replacement. With time that would have
a huge impact on the reputation of the company. In the
beginning, it would cause the effect of large quantities of returned
products in which the company would have to invest a lot of extra
money to fix or to dispose of as waste. In the end, sales would
probably drop.

b) Two examples of fringe benefits Joe could give to his employees are:

1. Generous expense account for food and clothing. Workers in the

wood industry are exposed daily to situations in which they can
damage their clothes due to the nature of the wood production
process. With that, their work clothes must include special protection
equipment like: iron plated shoes, eye protection masks, etc. In this
 case, it would be of great help if Joe is the one who would secure all
the necessary clothes and equipment. Paying for a hot meal during
lunchtime, Joe would accomplish a series of positive effects with his
workers:
 they would have more strength for the job,
 level of motivation to do better quality work would be significantly
higher,
 they would feel that someone is taking care of their health and quality
of life.
2. Paying for health care. Considering the speciality of work they do, I
think Joe would show significant concern for his workers by making
this decision. During their daily chores, workers are exposed to many
dangers:
 tree or a piece of furniture could fall on them and can lead to physical
damage,
 possible injuries that can happen when using a chain saw to cut trees
into smaller pieces that are then used for furniture,
 possible injuries during the transport of furniture,
 possible injuries during the assembly of furniture in the store or at the
customer's place.

c) Two reasons why employees might leave their job at the furniture
company are:

1. Financial reasons. Currently, their salary depends on the number of

furniture products they make. It is known that there is a certain
maximum of products one worker can make during their work time.
Depending on the condition and mood of the worker, that number can
be higher and lower. This way of valuing their work is bad and flawed
because it does not give workers the opportunity to advance and get
a higher salary. Maybe workers who are producing fewer products on
daily bases are the ones who are making products of very high
quality or products that are very challenging to make. Because of the
bad compensation way, they are paid less than other workers.
2. Nonfinancial reasons are also a very important part that can affect the
satisfaction of workers and their motivation to stay in the company.
For example, if Joe is not able to increase their salary, he can reward
them in the following ways:
  He can pay the college scholarship for their children. Workers that
are parents are not able to afford appropriate education for their
children because of their salary levels. Joe thinks that his current
business results are not giving him the option to increase the salaries
to all employees, so he does not want to be unfair and raise the
salary to a certain group. On the other hand, this gesture would
represent a one time help and could be used by all employees whose
children are going to college or will go in the future,
 He can ensure the employee discount for buying furniture in his
company. Furniture is a very expensive part of furnishing the home,
so workers would really benefit from this option.

d) Two ways Joe can improve the job satisfaction of his employees are:

1. Promotion opportunities - if workers are coming to their workplace

each day knowing that they will do the same thing and will be paid the
same amount of money for it, they will create a negative attitude
towards their job. The job won't satisfy them, so they won't see any
motivation to invest more effort and each day is going to be tedious.
To avoid this, the employer can introduce multiple levels of
responsibility in the company. Advancing to the next level could be
achieved with outstanding results compared to other workers at the
same level. In that case, workers will have the motivation to do a
better job each day so their work can be recognized and their status
in the company upgraded.
2. Autonomous work groups or teamworking - this working principle
would mean splitting workers into smaller groups. Each group would
be in charge of making certain types of furniture. Each team would
have several workers, and each worker would be in charge of one
phase of furniture production. This way, workers would be able to
mutually share, combine and merge knowledge they have and
together they could find solutions to problems that arise. Then, results
would be better and quicker, and workers would know that there is
always someone they can ask for help or advice
e) I think that piece paid is not the right way of evaluating salaries for Joe's
workers. If the production was reflected solely by the quantity of produced
furniture, then significant mistakes could happen when evaluating each
individual worker. Namely, there are situations where a company receives
a large order or furniture made up of some special sort of wood that
requires quality handwork. This type of production does not require speed
but high quality and commitment. Workers that come to consideration for
this type of work are ones with specific skills:

 High level of patience,

 Precision,
 Creativity and resourcefulness.
Hand made furniture takes a lot more time than ordinary furniture because
each piece must be sewn, carved and painted by hand. Because this work
is very demanding and requires a lot of concentration, workers are probably
going to need more frequent breaks. All that leads to the conclusion that it
would be very unfair to pay this worker by the number of furniture units they
made. Because they might have invested days into making a single unique
piece of furniture that is usually sold at a very high price. Therefore, I think
that workers with these types of qualification should be highly valued and
appreciated.

Q2.)

a) Bonus is one possible form of financial rewards that directors use to

motivate their employees for better efficiency at work. We could define it as
an extra amount worker can get besides their salary. The usual situation
where employers decide to pay out bonuses is when the company is
seeing good business results. With that, giving this kind of financial reward
can be done at the end of the business year or after completing a
significant business project.

Bonus for some workers should be based on their real contributions to the
company and having above-average business results. Nowadays it is very
common that a bonus is given to managers and employees in higher
positions. However, if a bonus is given to the wrong people, it can lead to
big problems in the company and dissatisfaction between employees. In
that case, workers that have contributed in improving business results won't
have the motivation to do that again because they will see that their hard
work has not paid off and that other people, usually their superiors, are
taking credit for it.

b) Two reasons why people work are:

1. Making money and securing safety for themselves and their family.
Those two goals that motivate people to work are linked together.
Money is a generally accepted way of compensation for goods and
services in the present day. Therefore, earned money will be used for
grocery shopping, clothing, hygiene products, cars, rent, vacations,
school trip for kids, paying rent, paying the loan for the house, etc.
These are all basic needs for a human being to have a normal life.
Also, all these things will create a safe living environment for people.
They will have a home, eat healthy food, have transportation to go to
private trips and to work and back, which will all raise the quality of
life.
2. Achieving self-importance at the workplace is going to have a positive
effect on business and private life of a person. Namely, each worker
spends eight hours of their life each day at the workplace. Therefore,
it is very important that they find it pleasant and interesting. When an
ambitious worker is given a challenging task, they are going to
approach it with dedication and enthusiasm. They will go to the
workplace each day with enthusiasm and will come back to feeling
satisfied. When a person is doing a job that is below their
qualifications, they will feel useless, bored, unmotivated and
dissatisfied. Each day when they go to work, they will think of it as a
waste of time, and it will all be reflected negatively on their family and
friends.

c) Two levels in Maslow's hierarchy of needs experienced by the hotel

workers are:

1. Physiological needs include the need for basic products/services

required for survival. Some of these are: food, water, home, clothing,
recreation, education, healthcare, etc. Each worker is aiming towards
 satisfaction of these basic needs. Only when their work position
secures weekly salary large enough to cover these expenses, then
new needs are going to arise. In this situation, if the worker was given
a choice between a job with a better salary or a job with better
working conditions and environment, they will always choose the first
option. No matter the conditions at work, if the salary is not good
enough to cover basic needs, they won't restrain themselves from
changing the job.
2. Social needs appear because people are social beings. However, the
worker is going to look to satisfy social needs only after they have
satisfied their physiological needs and security needs. Here we have
needs like: friendship, collegiality, belonging to a team, helping each
other, socializing, sharing experiences, etc. Except for money,
relationships with colleagues are a very important component of the
workplace which workers always appreciate. Colleagues are people
each worker spends eight hours a day with. That is very important in
jobs which are focused on teamwork and cooperation. If people in the
same team do not get along, it will be tough to find an appropriate
way of communication between them. Without communication, there
won't be a way to find a final solution for the task that was handed to
the team. Workers who mutually respect, listen and help each other
always end up with better business results.

d) Two benefits to Sasha of having well-motivated employees are:

1. Satisfied workers are going to offer much better service to the hotel
guests, which is ultimately going to secure better satisfaction of
guests. In the service-providing sector, it is very important that
workers are in a good mood. Working with guests requires a higher
level of understanding, adapting to changes in some basic business
processes and continuous adjustment to needs and desires of
customers. Satisfied chefs are going to make new and tastier meals,
kind receptionists will be able to sell more additional services that
hotel offers besides renting a room, the resourceful waiter will always
going to offer to the customer a type of food that will best fit their
individual needs. All of that is actually carried out for one simple
reason, and that is to make customers come back to the hotel and
give good recommendations to their acquaintances. Creating a good
 reputation amongst customers can make it easier for future
customers to choose this hotel.
2. Easier overcoming of stress that workers have to deal with on a daily
basis. People are different. That is what makes service providing
sector very dynamic and unpredictable. Therefore, it is very important
to find a way to motivate workers to carry out each workday with the
same level of enthusiasm. For example, workers can be given a
promotion or raise opportunity if they can achieve better business
results. Also, the employer can reward workers in non-financial ways
like: better working conditions, securing free trips for workers as a
form of relaxation, paying for health care or pension.

e) I think that increasing the salary is not the best way to raise the
motivation of employee for further work. Each increase in salary is going to
satisfy employees for a short period because with time they are going to
aim for a higher salary. The hotel has restricted capacity of rooms they can
offer to guests, so they are going to reach the maximum level of possible
salaries at some point. If salary is the only thing that keeps the employees,
they won't think for a second of changing the job if a better opportunity
presents. For the hotel, it can mean a loss of very important employee with
extensive experience in which years of training and effort was invested.
Therefore, it is important to build a good relationship between a company
and employee from the very beginning, not just by financial but non-
financial methods as well. For example, the employee has a salary that is
good enough to cover basic human needs, and some are left for savings.
Also, they have a very good relationship with colleagues from the kitchen
and can always depend on them in the case of need. However, they
receive an offer for the position of kitchen chef in another competitor hotel.
After asking around, they found out that relationships amongst cooks in that
hotel are not very good and that hotel is changing the kitchen staff very
often because of that. Most likely, this employee is not going to accept a
new job regardless of a better position and higher salary that was offered to
them.

CH-7 Organisation and Management

Q1.)

a. Democratic style leadership involves the idea that employees have a hand in
decision making for the company. Employees have the most influence with this
type of leadership style for a business

b. Autocratic and Laissez-faire are the other two types of leadership styles Sasha
could use

c. One main role Sasha has as the owner is reviewing the company budgets and
determining if they are making enough money to be a profitable business. Another
role for Sasha is overseeing the promotion and hiring of new managers for the
company, Sasha has to know that people directly below her are capable of doing
their jobs properly

d. Having good managers is important for a business because (1) they are in charge
of ensuring everything in the company runs smoothly and (2) because they are
often times working with important customers who's money the business will
certainly want

e. In this scenario I would say Sasha is right in saying her workers don't need to
join a trade union. Sasha's business is run through a democratic style which means
her workers have a ton of influence on company decisions. Joining a union isn't
necessary when workers have that much power already in the company.

Q2.)

a. Hierarchical structure of a business means that there are different levels

of management for the company. We can see here that there is a
managing director at the highest level, then department directors below
that, then department managers below them and finally assistants at the
lowest level in the company.

b. There are 10 people in the span of control for the operations director and
3 people in the span of control for the finance director.
 c. The human resources department is going to deal with any work-place
related disputes or issues that may arise on the job. This department is
also going to handle hiring and firing of employees at the company. The
marketing department is going to handle advertising for the company and
try to drive new business to the supermarket chain. They will do this by
placing targeted advertisements in newspapers, television and possibly
online.

d. One big disadvantage of having a tall organizational structure is that

communication can be slow and messages can get lost when being passed
up the chain of command. Another disadvantage would be people in the
various divisions of the company become loyal only to their division and not
the company as a whole.

e. No more delegation would not be a good idea for this business. The
directors do not have many people to manage and for the most part each of
the managers don't have too many people under them. Delegation isn't
necessary in this case because each person doesn't have to manage too
many people.

CH-8 Recruitment, Selection and Training of Workers

Q1.)
a. Job analysis is the process of reviewing the production level of your employees
to ensure that they are doing the job correctly and in a timely manner. In this case,
Sarah would be doing job-analysis to see if any of her employees would be able to
switch over to manufacturing pianos instead of violins.

b. One suitable place for Sarah to advertise would be in a specialized magazines

and journals because she is looking for skilled production workers. Sarah could
also advertise in national newspapers as this would reach a much larger pool of
people.

c. One good question for Sarah to ask is "why do you think you are a good fit for
this job"? Another important question to ask would be "How familiar are you with
this company and what we do"?
 d. One huge advantage of on-the-job training is that it typically costs less than
other types of training because the business is still getting some level of output
from the training. Another advantage of this training is that the employee doesn't
need to be sent away to some classroom in order to be trained, they can be trained
on the job site.

e. Since Sarah needs fewer workers for violins, she is going to have to let some
people go unfortunately. The only other option would be to switch over some of
her employees from making violins to making pianos

Q2.)

a. Job description is the detailed specifics of a job that a company is currently

hiring for.

b. One requirement Mr. Patel might put in the specification is prior experience in
the insurance industry is required. Another important requirement would be several
years of schooling at the higher level for this job.

c. Mr. Patel wants to recruit well-qualified people because he knows their level of
production will be higher and it will benefit the company more. He also knows that
well-qualified people will also treat customers better in most cases since they have
prior experience in the industry.

d. One item Mr. Patel could put in an induction program would be a tour of the
facility/building that the company operates in. Another item would be a walk-
through of the computer software that is used on a daily basis by the employees.

e. Yes external recruitment is the best bet for Mr. Patel in this scenario. He is
hiring more workers that would basically be at the same level as the current
employees under Mr. Patel. Internal recruitment wouldn't make sense as it is
usually used to hire people for roles like managers or executives(promotions)

CH-9 Internal and External Communication

Q1.)

a. Internal communication is discussion between people within a

company. This can be a one-on-one conversation or it can be
a company wide message
 b. One benefit of using a notice is that everyone can see it if it is
placed in a proper spot. Another benefit of a notice is that it
can concisely get an important message to employees like "no
smoking" or "use other door".

c. One possible communication barrier would be the fact that

there are 15,000 workers and no way to effectively
communicate with all of them at once. Another barrier would
be the fact that the workers have no way to give meaningful
feedback to Manuel.

d. Manuel could communicate individually with workers through

in-person interviews or through email.

e. Yes, most of the time electronic forms of communication are

the best option when you are trying to communicate with a
large group of people. It is the quickest way to get a message
out to thousands of workers, which would help Manuel out
tremendously

Q2.)

a. Communication barriers are certain breakdowns or failures of

communication. This can be especially dangerous for a business that relies
on active communication.

b. SEP might need to communicate with large customers in whatever

country they might be from. SEP also might have to communicate with
foreign governments regarding exports to certain nations

c. Phil could use email to effectively communicate with customers. Phil

could also use traditional mail if the customer doesn't have an active email
account. Both of these methods will work in communicating with customers

d. One big cause of communication barriers is the language barrier

between the various nations, as SEP has customers all over the world.
 Another cause of these barriers could be the use of different types of
communication technology. Some country's may be more adaptive to email
and texting while other countries stick to tradition mail.

e. The advantage of using a telephone to communicate with all customers

is that it is quicker to convey a message and it is likely more people will
receive the message immediately. One big disadvantage is that it is
somewhat rude to call all these people abruptly as a company and it may
reflect poorly on the business. -Sending an email has the advantage of
being easy, quick and more respectful for customers. One disadvantage of
a mass email however is that the business will have some outdated
incorrect emails for customers which can lead to confusion. -The best
method of communication in this case would be the phone call because this
is an urgent issue have to do with a product defect. As a business you have
an ethical responsibility to notify customers of the faulty product before
people get hurt. Therefore the call would be the best option

CH-10 Marketing, Competition and the Customer

Q1.)
a.D & F are satisfying the customer need for coffee. The company is also
satisfying the need for fruit which many consumers have every day.

b. The price of coffee might be falling because more companies are entering the
market and driving the price down or because the process of harvesting and
packaging coffee has become cheaper over time.

c. Supermarkets are demanding more fruit recently because fruit has become more
popular with the trends of eating healthy. Fruit is also in higher demand because it
is become cheaper to buy

d. The directors could respond to this new competition by lowering prices or

introducing new products that they haven't released before. The directors could
also respond to the competition by offering to buy out the competition in order to
maintain their market share.

e. Yes D & F should transition towards producing more fruit and less coffee. The
price of coffee has recently dropped 20% and people are more encouraged than
 ever before to purchase fruit and eat healthy. So producing more fruit and less
coffee makes sense.

Q2.)

a. "niche market" means small and concentrated market that has a particular
interest that sets them apart from the broader market. In this case the niche market
is for this medical problem with people's feet and it is within the broader shoe
market.

b. One big market for TGH products is athletes who need comfortable shoes for
running. Another important market for them is high school and college kids who
want a fashionable shoe and are willing to pay extra for it.

c. TGH sells to a niche market because they are typically willing to pay extra in
order for the niche interest to be satisfied. TGH also sells to this niche market
because the company knows that they provide a good that no-one else in the
industry provides, which means that the customer's business is basically guaranteed
especially if it is a medical issue niche market.

d. One advantage of segmenting the market for TGH is that with the market being
broken down, TGH can easily identify their target consumer based on shared
characteristics. Another advantage of market segmentation is that advertising
becomes easier and can be more effectively targeted at the necessary consumer
base for TGH.

e. The directors were right in their decision to target the niche market. This is
because they have a guaranteed return with this market since they can dominate the
entire space. If the directors chose to go with the broader market they would be
competing on an equal playing field with every other shoe company which
wouldn't be nearly as easy.

CH-11 Market Research

Q1.)
a. Primary research is considered to be the collection and collation of
original data, typically working directly with existing customers.

b. One method of primary research is focus groups which involves a group

of people being asked specific targeted questions about their spending
habits. Another method of primary research is observation which involves
watching over customers as the go about their normal shopping routines

c. One way of presenting market research is by completing a table or tall

chart based on your findings. Another method of presenting market
research is by using a graph or chart to display the data in a more
understandable way.

d. One factor that should be taken into account when trying to ensure the
info is accurate is what is the source? Who was the person or group of
people within the company that collected this data. Another factor to
consider is how reliable the people are who supplied the answers, did the
people who took the questionnaire supply meaningful and reliable answers
to analyze.

e. Yes market research is certainly necessary before T & T develop a new

product. It is important for the company to understand if the product they
are creating will actually sell in the market they are targeting.
Q2.)

a. Secondary market research is the review of information and data that

has already been collected by another party.

b One type of secondary market research that might work would be

government studies. Another good type of secondary market research for H
& H to use would be market research agencies.

c. One big advantage of using secondary marker research is that it is

typically cheaper and less time consuming to let someone else conduct the
market research for you. Another advantage of secondary market research
is it will typically involve a larger sample size which can give a company a
better understanding of a broader market.
 d. One reason accurate market research is important to H & H is because
the company can use this information to determine target demographics in
particular areas. Another reason for using market research is because it is
typically cheaper than conducting primary research.

e. MD is wrong, the business shouldn't only use secondary research for its
market analysis. There needs to be a healthy combination of primary and
secondary research for decision making. If they include both they can make
the most well informed decision.

CH-12 Marketing Mix

Q1.)
a) "Producer product" represents a product whose buyer is some other producer. In
this case, the product represents raw material to the buyer because they are going
to use it in further production. "Producer product" usually represents one
component in manufacturing other, bigger and more complex product.

For example, the designer considers fabric as basic, but not the only one, "producer
product". When taylor buys a roll of fabric, it does not have any purpose or
meaning on its own. Only when taylor reshapes it into a beautiful dress or a suit, it
becomes a useful and understandable product to the final customer. However, to
reshape the fabric into a piece of clothing taylor requires other accessories like:
scissors, needles, threads, buttons, elastic bands, fabric colors and many more.
They also represent "producer product" because with the union of all these
accessories we get the final product, in this case, a piece of clothing.

b) Two examples of producer goods for ABC are:

1. Iron which represents basic input from which producer can make their final
product. Iron is purchased as a raw material in a single piece shaped as a
cube or long circular or square pipe. In this form, iron is further processed
and reshaped into a final product with well-specified shape and size that will
be used in future car manufacturing. Iron is the most common material used
to make screws, bolts and nuts. These can also be made from stainless steel,
aluminum, copper, etc.
 2. Machinery and tools required for metal processing. As we previously
mentioned, a big piece of iron does not have a purpose on its own. Only with
further processing, it gets some usable value in the form of screws and bolts.
Special equipment is needed to process this type of material. For example,
computers and programs that will be used to make detailed sketches of
screws and bolts that will serve as guidelines to workers in production. A
tool to cut big pieces of iron into smaller ones is also required. The customer
expects all screws and bolts to be the same size which can be only achieved
with machine production. These specialized machines that will reshape
small pieces of iron into screws and bolts are also required.

c) Two characteristics of the packaging of ABC's products are:

1. Protection of product. The product needs to be transported to the final

customer. Process of transport can be direct (producer -> customer), or it can
go through a mediator. In the latter case, the producer delivers the product to
delivery service, which is going to take the product to their warehouse, store
it there for some time and deliver to the final customer. A higher number of
mediators means that the product is exposed to more situations in which it
can potentially be damaged or made useless: -If package falls, it can cause
scratches or dents and product might lose its original shape,
 During transport, a part of a product like a screw can be misplaced, and
delivery will be incomplete. Without the screw, the product can't be
appropriately assembled.
2. Easier transport. Screws and bolts come in various sizes, but it is usually
about small products. There are rare occasions when someone orders only
few pieces of screws. Therefore, packing screws and bolts together is
practical way to avoid individual losses during transport. Size of one
package corresponds with the order size. It can be of great help to delivery
people in the transport process. They have to deliver lots of packages in one
day, so if they know the size of the order for each individual customer, they
won't lose time checking each package for the declaration to find the right
one. If they know it's about a small order they will check only smaller
packages.

d) Two benefits to ABC of selling only to large car companies are:

1. All produced products are always sold because production is made on-
demand. Only when the producer gets detailed information about the type of
 screws and bolts, material that should be used and the exact quantity, they
go into the process of production. Product is adjusted to the wishes of the
customer in all characteristics. When working with only one customer, the
producer can entirely adjust the delivery date to that customer. In this case,
the producer has no extra expenses when it comes to storing the products
that were made in advance.
2. Avoiding big unnecessary expenses for the company. Working with only
one customer, a producer knows precisely the type of product their customer
is going to demand. This way, the producer can avoid expenses for storing
unused material or buying various specialized equipment that will rarely be
used. For the producer, many different customers mean many different
products. Maybe customers would demand screws and bolts made with
different material or shaped differently. In that case, the producer would
have to purchase specialized machinery and tools and implement new
production techniques.

e) I think that it would be good for ABC to introduce a new product to their
assortment. In these days, market situations are very dynamic, and participants are
required to adjust to changes. In the situation with a big number of competitors, it
is difficult for one company to survive solely because of the quality of their
product and well-established brand. Sometimes a new way of production or usage
of new materials by a competitor is going to attract more attention to customers.

That is why the producer should always consider offering new products to keep
existing customers. To know what to offer, the producer should do detailed
research on their target market. That way, they would invest exclusively in
products that would later be interesting to customers. Market research would help
them with:

 avoiding unnecessary expenses of investing in the production of products

that are not interesting to customers,
 making estimations on which investment would require the least additional
expenses. Except for offering new products, the producer should also keep
track of new trends. Each new technology requires additional expenses but
greatly accelerates the production and helps in expanding the product
assortment.
Q2.)

a) "Brand" represents merchandise that is unique in its specifics and stands out
from other similar products. A brand can be a name, design, concept, jingle or
something else that immediately make customers associate it to a specific product
or service. It takes a lot of time, work and effort for a company to create a brand.
Company has to be in constant communication with their customers, build up a
good relationship with them and always try to deliver products of the same or even
better quality. Based on their own experience or experiences and recommendations
from other customers, for each brand customers will know in advance what they
can expect for their money. For example: -The specific level of product/service
quality,

 Production or service providing style,

 Frequency and specific location of availability of product/service on the
market,
 Benefits they get with purchasing the product/service.
To the customers, the brand is the assurance that no matter if they buy directly
from the producer or through a mediator, they can always count that the
product/service will be of the same quality and desired characteristics.

b) Two ways the business could react to falling of sales of chocolate bars are:

1. Change of packaging represents a very simple way producer can try to re-
engage their customers into buying their products. This change is not going
to create huge financial expenses and investments to the producer. A
producer has to make research on their customers to find out the following:
 quantity and purpose of chocolate that is bought,
 their suggestions on improving the packaging and what bothered them so
far. For example, customers might be buying chocolate as a birthday present,
so packaging should look nicer and more elegant to serve this purpose.
Maybe it would be more convenient to customers if one packaging of
chocolate would contain smaller pieces packed separately. That way, it is
more convenient to offer a piece of chocolate to a friend and leave the rest
for later without exposing it and keeping it fresh.
2. Extending the product life is a more challenging form of increasing the
interest of customers to make a repeat purchase. This sort of activity requires
higher financial investments, but it can also bring higher profit if the target
market is expanded to a new segment of customers. The producer can
increase product life in the following ways:
 Coming up with chocolate for kids. This type of chocolate would contain
other flavors like strawberry, and it would be shaped like a fruit itself;
 Making a type of chocolate that would be suitable for people who have
diabetes.
c) Two characteristics of the packaging of chocolate bars are:

1. Protection of quality and stability of the product. Quality and appropriate

packaging will protect the chocolate from breaking and losing its original
form it should have. For example, it is not uncommon for the chocolate to
melt if left in a car in warmer months. However, if it is packaged correctly,
customer can put it in the fridge after melting and once hardened, it will
retake its original form. The protective foil that chocolate is wrapped with
will help chocolate from spoiling and losing flavor. A very important feature
of packaging is ensuring that handling during transport is safe and secure. By
its consistency, chocolate can quickly be melted, and packaging ensures that
the customer does not have direct contact when shopping so the chocolate
will stay solid.
2. Attracting the attention of customers. Interesting or unusual packaging will
always encourage customers to buy that product even if they did not intend
to. For example, we are looking for a present for a friend's birthday. This
chocolate made its reputation on the market as prestigious and expensive.
Therefore, a present in the form of this chocolate is going to show our friend
that we care about them and are willing to spend more money on a high-
quality gift.

d) Two possible reasons why XYZ's chocolate bars are successful:

1. The excellent taste which separates their chocolates from the competition.
Chocolates must always be of the same quality, no matter where the
customer bought them. That way, we can keep our customers satisfied. A
satisfied customer is going to share their experience with the chocolate with
others which is going to help the producer to expand their market. Some
producers are ignoring this fact and are selling lower quality products in
areas that are not very interesting to them while keeping higher quality
products to areas they prefer. When operating this way, the reputation of the
brand will fall, and there is a great danger of a decrease in sales.
2. Built-up brand of luxurious chocolate which is always going to play a role to
a customer when choosing between different chocolates to purchase. Some
reasons customer might choose this chocolate are:
 They want to show to somebody that they care about them,
 They are buying a product for some special occasion, and this chocolate is a
good choice,
 They want to point out that they are always choosing the highest quality
products,
  They want to let others know that they are ready to spend a higher amount of
money, even though it is only about chocolate.

e) I think that putting the brand name on the product itself can definitely help in
creating a successful product on the market. I don't think it is the only important
segment when launching a product on the market, but it is a very important one.
When the producer is trying to launch a new product on the market, it is very
difficult to get the attention of customers because of the vast competition that is
already available on the market. Even though the producer is using only the best
ingredients and designed very good looking packaging, it is unlikely that most
customers will choose this product amongst others. To create a safe market
position for this type of chocolate, a lot of time has to pass, and many customers
have to spread a good word about chocolate. In this case, putting the brand name
on the chocolate itself is going to shorten the time required for the chocolate to be
recognized by customers as a good product. It has been proven in practice that
customers react to the brand name and will create expectations about the new
product, even though they have not tested it yet. If this were about a popular brand
that makes very good snacks, the same would be expected for chocolates by the
same producer.

CH-13 Marketing Strategy

Q1.)
a) With a product and a price, part of the marketing mix are also promotion
and place. When we say promotion, we think about the whole set of
activities that the company performs to sell their products or services to
target groups. The entire process starts even before the production of a
product or providing service. It continues with putting the product or service
on the market to attract the attention of customers and lasts even after the
purchase of product or service has been completed.

Place refers to the actual spot where our product or service is offered to
customers for purchase. It is very important to choose a suitable place to
sell products or offer services, that is, a place that is filled with potential
customers. For example, if a company makes healthy snacks and
beverages, it would be incorrect to try and sell these products in a small
shop in some local place. Potential places for these products are: health
stores, gyms, fitness centres, etc.

b) "Price-elastic demand" means that the demand for the product is

going to change depending on the product price. If the price goes
up, demand is going to drop. On the other hand, if the price goes
down, there is a possibility that the demand is going to go up.
This phenomenon occurs only in the situation when there are a
lot of substitute products with similar characteristics available on
the market. For example, let's consider bread producers. Bakery
A and bakery B are both making bread. If bakery A raises the
price of their bread, most customers are going to decide to
purchase bread in bakery B. Maybe bakery B makes their bread
in a different size or shape, but the end product is not much
different from bakery A. Because of these small differences,
customers are likely to decide for a change.

c) Two reasons why the demand for cereals might be price elastic are:

1. There is a lot of substitutes for cereals on the market. It means that in

a case of higher prices by one producer, customers are going to buy
similar cereal from another producer. Maybe these other cereals are
going to have different shape or flavor, but it will come down to a very
similar product with a lower price that is available in various stores,
and it is easily available. Also, in the situation where all cereals on the
market are getting more expensive, people are going to switch to
other forms of foodstuff that have the same energy value to ensure
healthy breakfast.
2. Cereals are not necessary for normal daily functioning of a human
being. They fit into the category of healthy food and are beneficial to
the human organism. However, there are many alternative items that
people can consume for breakfast that are equally healthy, cheaper
then cereals and very common on the market. Breakfast is a
necessary part of a healthy start of the day and ensures strength for
normal functioning of people for the rest of the day. To ensure quality
meals, it is recommended to combine different foods.
d) Two factors A & B should take into account when deciding which pricing
strategies to use are:

1. Product quality that the company chose as a priority. If company A &

B decided to make products of higher quality then competition, then,
for example, they can use locally grown cereals that are not treated
with harmful chemicals or use a combination of different types of
cereals that enrich the flavor of breakfast cereals. That is very
important if they want to choose the psychological strategy of price
determination. That way, they can justify the higher price of their
product. Also, the healthier product is going to attract a higher
number of customers. Customer who buys cereals has a profile of
someone who prefers eating healthy foods. These customers won't
mind spending more money if the cereals they want are of higher
quality.
2. Take into account the brand that the company built up and desired
goals. If the goal of the company is to produce healthy food products,
then all inputs should be adjusted to that. Purchase price of
organically grown cereals is higher because of higher expenses of
production. In the end, all of that has an impact on the price of the
product if the company wants to secure its position and ensure the
profit. If the company created a brand of a producer of healthy foods,
then it must persist in keeping the same quality level of products or
improving it. Otherwise, there is a danger of losing customers who
are going to cause a downfall of sales and income.

e) I think that choosing a psychological pricing strategy to raise the level of

sales is a good idea.

Company A & B produces breakfast cereals which have "price-elastic

demand". It means that this is about products that are not necessary for
one to function normally. These products have a large number of
substitutes on the market, so if there is a rise in the price of one product,
customers can easily switch to another cheaper similar product.

Psychological pricing strategy works in the following way: the company

creates a positive image amongst customers about itself and its products.
For example, company A & B can communicate with customers about their
price is higher than the competition because they are using higher quality
inputs to make breakfast cereals. Therefore, higher price guarantees better
product quality. Each increase in price that comes later will be better
accepted amongst customers. The first thought that customers are going to
have in the future rise in price is that it must be because cereals have even
higher quality now.

Q2.)

a) Term "price skimming" stands for setting up higher prices for products
that represent something new or are upgraded versions of older products.
The higher price is justified with a significant amount of human, financial
and other resources invested in research and development of the product.
Besides, this new product is better in its characteristics than the older
version of the product, or it solves some problems that customers did not
have any answers for so far.

As an example, we can consider the production of new cell phones. In the

beginning, prices of cell phones were couple hundred dollars, while today,
prices are above a thousand dollars. Each new cell phone model is more
expensive, but the demand for it does not fall, it rises. Some reasons that
inspire customers to buy new cell phones are: longer-lasting batteries,
better resolution of the camera, more memory, better design, etc.

b) Two factors that affect the price of the new game for Xbox are:

1. Higher expenses for the development of the game. To develop new

products, the company usually has to invest its savings or has to find
alternative sources of funding. All invested human and financial
resources are covered later when the product is launched and is sold
on the market. For that reason, the price can seem too high and
unrealistic to customers at first. However, if that new game has
different characteristics then other games launched so far, is made
using modern technologies and offers new and unique experiences to
users, each customer is going to find the price to be justified.
2. The interest of customers for the new game. It is obvious that for this
type of products, there is already a defined target market that waits
for the moment when a new product is going to be launched so they
 can purchase it. Since this is about the exclusive line of products,
there may be a limit of how many products are made. In this case, the
producer can allow themselves to set up a higher price of the product.
Since the demand is greater than supply, surely producer can find
customers that are going to pay the demanded price. Also, the higher
price is going to send the message to customers that this product is
unique and is of high quality. The lower price could arouse suspicion
amongst customers about the real value of the product.

c) Two reasons why X & Z might use price skimming for their new game
are:

1. This is about a complete novelty on the market. Sometimes not even

producer is not aware of how much technology is required to develop
a new product, in this case, a video game. It requires a lot of money
and time, which means that the innovator cannot be sure whether the
final product is even going to function or not. It rarely happens that
the first version of the product works without any issues. Commonly,
the producer has to fix the issues with the product several times
during the development, and in each new version, they find
something that could additionally improve the product. Only after
several versions of fixing, testing and fine-tuning, we get the desired
product.
2. Higher product price is going to send the message to customers that
this is about a high-quality product. Customers are aware of the
expenses of the production process of technological products.
Reason for that is that customers are always looking for modern and
more advanced products then what is currently available on the
market so they can stand out from their company. This means that
producers constantly have to look for new technologies, methods and
tools to make new products. In the end, it makes the price of the
product higher then what it was until now so the producer can cover
their expenses and have some profit. Therefore, if the customer sees
a new video game on the market that is represented as the latest,
most modern version, but the price is the same as the previous
version, they can get suspicious about the credibility of the producer
and the video game itself.
d) Two pricing strategies X & Z could use are:

1. Cost-plus pricing strategy which functions by following principle:

producer determines the exact amount of products that will be
produced, then they evaluate required expenses for the production
and determine the profit they want to make by selling the products. In
the case of company X & Z, the producer is familiar with an estimated
number of potential customers so they can adjust the production
quantity to amounts they can sell. With that, they have to be careful
when determining the final price per product and make sure that at
least all expenses will be covered and the company is in positive
zero. Maximum price level depends on the profit company wants to
achieve, and it can be adjusted. If the producer sets the profit goal
too high, the price will automatically be higher. The producer should
always make sure that the price is not too high when compared to the
competition, so they don't lose customers.
2. Psychological pricing strategy. This strategy is based upon various
activities that the producer is using to impact their customers and
convince them to buy their products. Company X & Z can try to have
a psychological impact on their customers because they have already
identified them and know their characteristics, needs and desires.
Therefore, one approach can be to introduce a new video game as a
product which offers customers a different and new way of
enjoyment. The second approach can be to represent the game as
an exclusive product that is available only to a limited number of
customers. Then, customers that were able to get access to purchase
the game will feel special compared to others that were equally
interested in buying but were not given the opportunity. In that case,
most customers won't pay attention to whether the price of the
product is realistic or not.

e) I think that "price skimming strategy" is not the best option to determine
prices of all games that X & Z makes.

This strategy should be used to determine the prices of products that

represent innovation in the market. Company X & Z cannot claim that every
single game they make is unique and innovative on the market. The fact is
that there could be a similar game available on the market that is cheaper
or it turns out that X & Z copied a game designed by another company.
This could deeply disappoint customers of X & Z. It could also cause the
downfall of the reputation of the brand that X & Z created, which would lead
to losing loyal customers and a significant drop in profit. I think that the
company should determine prices that correspond to actual investments
and devotion that the company had in the development. If the product is not
innovative, and its production considers lesser investments, then the
company should consider promotional pricing or dynamic pricing strategy. If
it is about a product that is very common in the market and has huge
competition, the company should consider a competitive pricing strategy.

Chapter 14

The Marketing Mix: Promotion and Technology in Marketing

Q1.)

a) With the phrase "target market", the company thinks about a group of
people who represent potential customers for their products or services.
Each company can do further research about their target market and
identify additional characteristics of each group of customers for each of
the different lines of products that they offer. For example, company TP
identified women with higher purchasing power as their general target
market. We should keep in mind that this is a very broad category which
could be further divided into smaller groups according to their style, like:

 Sport style,
 Casual style,
 Business style,
 Elegant style,
 Festive style.
Then, further detailed research is required to identify characteristics,
desires and needs of each group. According to the obtained information,
the company can approach each group in a personalized way, that is more
acceptable to each group. Such an approach is desirable from the very
beginning so the company can do a research on the market and define
what product is expected by the customers. That is going to ease further
promotion of the product during the sale, but also all further communication
between the company and the customer after the sale.

b) Two types of advertising TP could use are:

1. Advertising through specialized magazines. TP could consider

magazines that are writing about fashion and fashion designers are
written for women of higher purchasing power and whose target
groups are business women. Advertising in magazines can be done
in different forms:
 Typical company ad that can be placed in one of the pages of the
magazine, but making sure that the ad is not directly linked to the
content of that page;
 Mentioning certain company products as an example of good practice
and fashion as a part of some column in the magazine;
 Carried out and published an interview with the owner or employees
of TP about the new product that was launched to the market,
successful business results or prizes;
2. Advertising on the internet which represents the most common tool
customers use to do the research of the market, compare competitive
products and lately do the shopping itself and communicate with the
manufacturer. The company needs to have its own web page so it
can present the history, news about the company and all products it
offers. Besides, web page enables the establishment of the webshop
that opens up the possibility of selling products to customers all
around the world. The company can advertise itself through paid ads
and columns on internet portals specialized for fashion. Using
modern advertisement tools company can ensure that their ads are
explicitly shown to their target group at any point of their web search.

c) Two reasons why it is important for TP to know the target market are:

1. They will know how to recognize appropriate channels for

advertisement. By doing research and identifying the correct target
market, the company might come to know that customers with higher
purchasing power are rarely watching television and are using
prepaid TV platforms to watch special programs. Also, the company
might find out that such customers are rarely listening to the radio
and are more used to using other channels like the internet to listen
to music and hear the news. Therefore, advertising through these
 channels would be a complete failure for TP. Such advertisement
would cause the stagnation or a drop in sales and would bring huge
unnecessary expenses because the prices of an advertisement on
such channels are expensive. On the other hand, advertising through
internet and mobile applications or social media where recognized
target market spends most of their time could lead to an increase in
sales, expansion to new markets, increase in profits and growth of
the whole company.
2. They will be able to completely adjust the way of communication with
their customers, point out specifics of products that customers are
interested in and use attractive ways to present the product to
customers. If a manufacturer wants to find out which customers
represent their target market, first they have to do detailed research.
This process assumes gathering and analyzing the big amount of
data such as: desires, needs, experiences, status and geographical
characteristics. Once the data is analyzed, customers are separated
into specific groups, and further research is needed to identify which
group would be most interested in certain products. In that case,
research helps not only to communicate with our customers that are
probably going to end up buying products that are advertised but also
to make sure that the whole advertisement is adjusted to them,
starting with the form in which the advertisement is going to be made,
it's content all the way to timing and the way of presenting the
advertisement to the customer.

d) Two aims of using promotion for TP are:

1. Increase in sales. Promotion can aid the company in the presentation

of the improvement of existing production to their target market or
interest them into buying a completely new line of products.
Promotion of products on a completely new market can also lead to
an increased volume of sales. Here, the company needs to recognize
which markets would be interested in the products that they offer.
Each set of promotional activities assumes some financial
investments, investments of human resources, time, etc. Therefore,
promotion on the wrong market can cause unnecessary expenses for
the company and can leave a negative impact on the workflow of the
whole company.
 2. Development of the brand on the market and standing out among the
competition. Modern markets are saturated with similar products and
services, so the company has to be creative when they introduce
themselves on the market and in later communication with the target
market. The company needs to strive towards achieving everything it
advertises in the promotion. That is the only way to turn customers
into loyal clients that will always be satisfied and will continue to buy
TP's products. Besides, satisfied customers will share their positive
experiences with their friends and colleagues, which is going to help
in building a good company image.

e) I think that advertisement is necessary for all sorts of products and

services, which includes shoes of this level.

Purpose of an advertisement is to introduce the market with new products

most simply and efficiently. Thanks to the advertisement, the company has
the opportunity to reach a wider market and to simplify selling products
outside the boundaries of a city, or even a country. For an advertisement to
serve its purpose, it has to be directed towards the correct target market,
and the whole process of promotion must be adjusted to the interests and
needs of potential customers. It is not enough for the company to survive
on the market by selling their products in one store and advertising by
displaying them in the shop window. First of all, it takes a lot of time for
passers to notice new products and decide to buy them. Also, it is hard to
expect that company is going to find enough customers in one city that are
able to buy expensive shoes. That could lead to low sales volume and not
enough income that would cover financial expenses and ensure desired
levels of profit.

Q2.)

a) "Advertising budget" refers to financial resources dedicated to

the promotion of products on the market. Level of the
advertising budget is determined by objectively predicting the
level of profit from future sales. From earned resources, first,
we must ensure to cover the expenses of production, and then
we can direct what remains into promotional activities. By
 promotion, we don't mean just advertising the ad that would
introduce a new product to potential customers. Advertising
budget also includes financing all activities that include
researching the market to ensure the best promotional strategy
(that is, choosing the best channels, ways and frequency of
promotion). Also, part of the budget needs to be allocated for
later phases of communication with customers. Namely,
promotion is not used only to attract new customers, but to
ensure that existing customers are kept for as long as possible
through a loyal relationship.

b) Two places where FK could advertise its glasses are:

1. Specialized magazines or portals in an offline or online form which

are used to promote the product directly towards the targeted group
of potential customers:
 Advertising glasses specifically intended for festivities like marriages
in a specialized magazine that regularly keeps track of new trends in
the wedding industry,
 Advertising personalized glasses or glasses of special shapes and
forms as an ideal gift for occasions such as birthdays and
anniversaries in magazines or portals like Pinterest which is used as
a source of new and creative ideas for presents, parties and such.
2. Direct emails in the form of newsletters. The idea of newsletters is to
send promotional news directly to customers which gave their email
address and permission to receive them. This is not the case of
reckless mass sending of emails to all addresses that the
manufacturer has found. The newsletter is an email with personalized
content that is adjusted to the interests of the receiver. Also,
manufacturer of specially-designed glasses is going to create several
different newsletters with respect to the group they are messaging, it
might be wedding themed or focused more on birthday parties. That
way, the manufacturer can be sure that the customer is going to read
their newsletter and will recognize it as a useful source of information.
For example, a personalized email is going to ensure that potential
customer is not bothered with unnecessary information. If they are in
birthday planning business, we don't want to send them emails about
the current fashion in the wedding industry.

c) Two reasons for promoting the glasses are:

 1. Building desired "company image" on the market. As mentioned
earlier, the idea of promotion is not just representing a new product
on the market. These days, companies are paying a lot of attention to
the way advertising video is created and ensuring it will be interesting
to the public. Companies also want their product to stand out from the
competition but also to represent themselves as socially responsible.
Socially responsible management can refer to the employer taking
care of the environment and needs of their employees or is a
common beneficiary in charity events. That way, customers are going
to look at the company in a very positive light because they will think
if they buy these products they are going to help in building a better
society.
2. The increased volume of sales is achieved by presenting the product
to widest possible market (global market), but only to a targeted
group of customers. High-quality production and innovative idea of
personalized glasses are not enough to increase the sales in the
desired time frame. Partially, with high-quality production, the
company can achieve the "word of mouth" form of promotion
(satisfied customer is going to recommend the same products to their
friends and family). However, this form of promotion is very slow, and
it is impossible to expect the promotion on a global scale in a
reasonable time frame. The product must be presented to the widest
possible audience in the shortest possible time frame. That is the way
to stop the competition from copying the product and taking all the
credits.

d) Two methods of sales promotion FK could use to promote the plain

glasses sold in supermarkets are:

1. GIFTS - With the purchase of 6 ordinary glasses, FK can give

customer one free personalized glass. With this method, FK is going
to stand out from the competition in the situation of the oversaturated
market. Besides, even if the customer did not plan to buy 6 ordinary
glasses, maybe this offering is going to inspire them to purchase it.
The additional advantage is that this is a free way of promotion of
more expensive personalized glasses. Maybe this glass that came as
a gift is going to inspire that same customer to buy more personalized
glasses in the future as a present for their acquaintances.
2. POINT-OF-SALE DISPLAYS - FK can ensure that their glasses are
displayed on the separate personalized counter in the supermarket
 shopwindow. FK should design and make the display counter on their
own in accordance with supermarket rules. Thereby, when something
is special and different, then the surrounding it draws the attention of
the customers and arouses their curiosity to see what this is all about.
Maybe the fact that the customer saw these glasses first because
they are separated from others is going to make them think these are
better, different and of higher quality.

e) I think that the promotion of ordinary glasses should be separated

from the promotion of specially-designed glasses. The basic rule of
promotion says: For promotion to be successful and efficient, it is
required to know how we are addressing to, to identify their needs
and desires and to adjust the promotion to make it more appealing.

According to that, buyers of ordinary glasses are very much different

than buyers of specially-designed glasses. Each member of these
two groups has their own reasons for purchasing glasses. Buyers of
ordinary glasses usually buy them for everyday use. In order to get
higher quality glasses and use them for a longer period of time, some
of them will be willing to pay a higher price than what competition has
to offer. This type of glasses are a part of daily necessities, so
customers are going to look for them in the nearby supermarket. In
that case, sales promotion is the most important one. Buyers of
specially-designed glasses are going to buy them for special
occasions like weddings, birthdays and such, as presents to their
friends and family. They are prepared to pay a higher price just
because they want something that looks different and more beautiful.
They are not going to look for this type of product in supermarkets but
in specialized stores or using the internet. Therefore, promotion is
going to be handled through internet or specialized magazines and
portals exclusively towards targeted groups of customers.

CH-15 The Marketing Mix: Place

Q1.)

a. Distribution channel is a method of getting a product from a manufacturer

to a consumer. There are different distribution channels for different products
and manufacturers.
 b. One example of a product that might be sold directly to retailers would be
shoes, as these are typically sold in retail stores because people like to try
them on and don't buy them in bulk. Another good example would be
televisions as people are not typically buying T.V.s in bulk.

c. Place is important for D & D because the company needs to decide on how
they are going to get the product to the consumer based on what makes the
most sense for them. Another reason place is important is because if the
business gets the place wrong, it will reflect poorly on the brand and push
customers away.

d. If D & D uses an agent to distribute its product, it will be much simpler and
save a massive amount of time in terms of logistics. Another benefit of using
an agent is that D & D won't have to worry about language barriers because
the agent will be able to translate and ensure business runs smoothly.

e. It would be wise for D & D to not work with a wholesaler in this situation.
The company makes one product and seems to be handling distribution quite
well so far. It would be smarter to work with retailers as people typically do
not buy footballs in bulk so you will be maximizing profits if you sell to
retailers.
Q2.)

a. Wholesaler is a party in the distribution chain that purchases bulk orders

from manufacturers and then sells smaller quantities of the product to small
retailers.

b. One disadvantage of Pinkor using a wholesaler is that this wholesaler will

be taking some of the profit away that could be Pinkor's. Another
disadvantage is the wholesaler is interacting with smaller retailers and
handles your product. The wholesaler could break the product during
transportation which would upset the retailers and they might blame you
(less control of supply chain).

c. One benefit of Rakesh selling through smaller retailer shops is that the
business can charge more for the smaller retailers since it will cost more for
distribution. Another benefit of working with smaller retailers is that they will
be more willing to negotiate since they have less power than a large retailer
would.
d. One factor that impacts Rakesh's choice of distribution channel is the cost of
distribution. Cost is a critically important factor for any business that is
deciding on a method of distribution. Another factor that will influence the
decision is customer relations. The business will want to choose the best
distribution method for customer relations so they can maintain their brand
image.

e. Yes Rakesh is right for wanting to sell their goods on the internet. E-
commerce is one of the main revenue streams for most clothing brand
businesses and it makes sense for Rakesh's business since they want to
expand

Chapter 16 Marketing Strategy

Q1.)
a. Marketing strategy is a plan that a business makes to promote a product or
service in an effort to increase sales or improve brand image.

b. One question the marketing director will ask is who the target market or target
consumer is for this coffee. This will help the marketing director know what price
range is best. The director will also ask what the cost of making the coffee is. Once
the director knows this, they can determine a healthy profit margin

c. YeyYo might need a new marketing strategy because they have to start
appealing to the higher income people that are in these city centers. The shop also
will want a new marketing strategy because it will increase their revenue which in
turn will allow them to further expand their operations.

d. One reason it's important to have an effective marketing strategy is that the
company needs a strong brand image, which can be assisted with a good marketing
strategy. Another reason to have an appropriate marketing strategy is that it can
drive up sales and interest for a product or service which will hopefully increase
profits.
 e. Yes the marketing director is right in this instance with the decision to change
the decoration and furniture should change. If the company truly wants to expand,
this is the correct decision to make based on the given information.

Q2.)

a. Reaching saturation means that the market is full of competitors and it is quite
difficult to get an edge with all of these businesses operating in the same market.

b. One way a new market abroad would be different is that it would introduce a
new wide range of customers to KKosmetics' products. Another way this new
market would be different is that it could open the door up to new opportunities in
terms of partnerships with other companies, as the company will be working in a
new market with new competitors.

c. KKosmetics might want to enter the markets abroad because it will potentially
increase sales. The company might also want to enter markets abroad because they
will be reaching more customers and increasing their brand recognition.

d. One problem with the company entering markets abroad is there might be a
language barrier that can lead to some difficulties. Another big problem is that the
company will have to comply with the new local laws which might be different
compared to what they are used to.

e. Yes these problems can certainly be overcome if the business is willing to spend
a little bit extra. They can get a translator and then communicate with the local
governments to figure out what kind of rules they need to follow. If they do this
then they will have fewer issues when trying to expand abroad.

Chapter 17 Production of Goods and Services

Q1.)
a. Lean production is considered to be a collection of techniques that a business uses to
cut back on inefficiencies and waste. This collection or techniques is used during the
production process for a business but it can apply to service companies as well.
b. Lean production might be achieved through reducing CO2 emissions for a business.
A business might also achieved lean production by increasing the amount of recycled
materials they use in their production process.

c. Other than lean production, Carlos could increase productivity by hiring more workers
and training them well. Another way to increase productivity would be to invest in
upgraded tech (better ovens or baking equipment)

d. One advantage of using batch production is that it still gives some variety to workers
who don't want a boring job. Another advantage is that if one machine breaks down, the
entire production process isn't stopped because the machine can be replaced or fixed

e. No, Carlos should continue utilizing batch production for his Bakery. This makes the
most sense because the bakery has to make a new batch of goods each morning
because they need to be fresh. Flow production wouldn't make sense because they
would end up with too many baked goods to sell, they would become stale and no one
would buy them.

Q2.)
a. Productivity is the measure of output and efficiency for a business.

b. One benefit of increasing productivity is Mr. Patel will have more product to sell to
customers. Another benefit of increasing productivity is that the company can product
their goods for cheaper than before.

c. One way tech could help Mr. Patel here is he could purchase a machine that reduces
the amount of hand labor that is necessary. Another way tech could help his production
needs is if Mr. Patel purchases robots to transport the wooden furniture throughout the
factory and automate the process.

d. One disadvantage of using job production is the labor demand is still high so costs
associated with labor are going to be high. Another disadvantage is that materials
typically have to be specially purchased which can mean even higher costs.

e. Yes, it would be wise for Mr. Patel to use new technology in his factory. He needs to
increase productivity which he can certainly do with new tech so it would make sense
for him to invest in some new manufacturing tech.

CH-18 Costs, Scale of Production Break Even Analysis(IN

TEXT CH-19)
Q1.)
a. Variable costs are considered to be costs businesses have to pay that depend on the
level of output. If a business has a higher level of output, they will have higher variable
costs.

b. One fixed cost that Sasha has would be the rent she pays for her market stall.
Another fixed cost for Sasha would be payments that she makes to the utility companies
(power/water bills).

c. One way Sasha could reduce the break even level would be to reduce the amount of
inventory she purchases because this will reduce her fixed costs. Another way to
reduce the breakeven level would be to decrease the pay of her workers. This would
decrease the variable costs which would bring down the break-even level.

d. Large manufacturers can produce jewelry at a lower cost because they might have
access to more suppliers and can order raw materials in much larger amounts which
typically means the cost will be lower. Another reason large manufacturers produce the
jewelry at a lower cost is because their manufacturing process is often much more
efficient and streamlined thanks to their ability to access more investment capital.

e. Yes, it would be wise for Sasha to open up a shop instead of the stall she has now.
Sasha could reach a much larger customer base and actually compete with the larger
manufacturers that have been taking her business for so long.

Q2.)

B The break-even point is at 2.66 million units of production.

Sales revenue at 4m drinks is $6,000,000

Result
 a. Fixed costs are considered to be costs that a business will have to pay
even if they have no sales or revenue. This could be considered rent,
material costs and taxes

b. One variable cost that Popsquash has would be hourly rate that the
factory workers are paid. Another variable cost for this company would be
cost of raw materials that are using in production.

c. Being "too big" means that a business could become impossible to

properly manage. Mass confusion can be created if a business becomes
too big and it won't be possible to run the business efficiently meaning that
the owners of the business will be losing money.

d. The break-even chart with all the necessary labels posted within this
solution

e. Popsquash could reduce the break-even level by lowering their pay rate
for workers as this would decrease the variable costs. The company could
also conduct more marketing to try and drive up sales which will increase
the revenue.

Chapter 19 Achieving Quality Production

Q1.)

a. Quality control is considered to be the process of checking products to ensure

that they are up to certain standards.

b. Other than quality control, quality assurance and total quality management are
two other methods of ensuring quality for the flip-flops

c. One benefit of using quality control is that you as a business owner will know if
the products or services you are selling have any defects. This will save a business
time and money because they will know if their products are working properly
before leaving the factory. Another benefit of using quality control is that less
training will be necessary for workers since there is a final check for defects done
within the quality control department.

d. One disadvantage of using quality control is that it can be expensive and time
consuming for a business to have to go through the quality management process.
Another disadvantage of quality control is that it might identify a problem but not
why the problem occurred or how exactly to fix the issue, there is still more work
to be done.

e. The owners should try to get a quality mark such as the ISO mark for their
product. It would be wise for them to have some sort of certification because
customers will see this as a positive when they are deciding which shoe to
purchase. It would be in the best interest of the company for DR to try and acquire
a quality mark.

Q2,)

a. Quality assurance is meant to be the process of checking for potential issues or

problems throughout the entire production process regardless of whether its is a
product or a service.

b. One possible reason for the increasing number of complaints is that the coffee is
being brewed incorrectly which is leading to a poor tasting coffee. Another
possibility could be that the customer service is poor in the Coffee shop which will
have to be addressed by the managers.

c. One difficulty in introducing quality assurance is that it can be quite expensive

for a business to train employees on how to conduct the proper review process.
Another difficulty for a business could be that employees might not entirely follow
the rules when reviewing the product or service on their own which will lead to
more difficulties.

d. One reason the owner wants to use quality assurance is because an increasing
number of customers have been submitting complaints. The owner hopes that the
process of quality assurance will start to reduce the amount of complaints that
come in. Another reason it is being considered is because the owner is concerned
about the brand image of the shop compared to other Cafes. If the business adopts
more quality assurance practices then maybe their brand image will start to
improve.

e. Yes the owner of LK should charge higher prices if it is decided that they will
adopt quality assurance. It would make the most sense for this business to adopt
quality assurance practices because they need to start improving their customer
relations. Once they have a more reliable product (coffee) then they can increase
the price of their product to reflect the improvement
Chapter 20 Location Decisions

Q1

a) By the term "relocate the factory" we consider moving the entire industrial
operation to another location or country and closing current operation. Relocation
concerns complete operation facility, warehouses, infrastructure, machinery and
equipment and complete or a part of the workforce. Reasons for relocation that can
be positive for the company:

 The cheaper workforce in another country,

 The better economic climate in another city or country,
 Lower tax rates,
 Better infrastructure.

Before the actual decision of relocating, the company should make a thorough and
detailed research on how much it would pay off. Namely, construction expenses of
new operation facility can be very expensive. Suppose the ambience to which the
company wants to relocate offers all or some of the mentioned advantages. In that
case, it will pay off to go into such investments because the return would be
significant throughout the years.

If after thorough calculation company sees that it won't save a significant amount
of money after relocating, there should be a lot of thought about the relocation.
Company leaders should always keep in their minds that there is a real danger of
going into huge debt which won't be covered after the relocation.

b) Two reasons why ABC Limited buys its fruit from nearby farms are:

1. Fruit quality is higher compared to imported fruit. The first reason for that is
because ABC can buy fruit from the farmer right after it was ripe, which
represents an ideal input for juice production. In the case of importing fruit,
it should be picked early, when it is not fully ripe. Depending on the
importing country, transport might take a long time. Different weather
conditions during the transport and changing the transport means could
damage the fruit, and it would start to rot. Besides, nearby fruit farm gives
ABC the opportunity to come to the farm itself and sees the conditions in
which fruits are grown. Therefore, fruit quality could be checked before the
actual purchase.
 2. Buying fruit from nearby farms certainly comes with lower transport prices.
Transport can be done with just trucks since the routes are short and not too
challenging. Also, in this case, the company can arrange smaller and more
frequent shipments. That way, the company would always have fresh and
high-quality fruit. In the case of import, the company would have to ensure
cold storage rooms to keep the fruit on low temperatures during the
transport. Bigger distance would mean higher transport expenses so the
company would want to deliver the maximum possible quantity of fruit with
each transport.

c) Two factors which influenced the location decision are:

1. New market overseas can be a consequence of many different situations:

 If a company increased its production to such a level that the current market
is too small to sell everything. As an example we can take a fast-food chain,
McDonalds, which currently operates on a global scale,
 The current market is saturated with many competing products which leads
to sales drop, so the manufacturer has to expand to new continents and look
for new customers for their products,
 Transport expenses from the production line to stores can be too high, so
sometimes it is easier to relocate complete production closer to the customer.
2. Difficulties with the labour force and wage cost. These days when we talk
about problems with the labour force, we usually refer to the lack of quality
and competent workers. In the age where country borders do not represent
an obstacle for migrations, people often decide to move from country to
country in search of better jobs or better working conditions. Countries with
lower life standard are having a hard time competing with more developed
countries, and it is more difficult to find the necessary workforce. That leads
to the question of salary expenses. Less developed countries cannot offer the
same salaries as more developed countries. Here, the country government
has a big impact because it can decrease taxes on salaries and give
companies opportunities to raise salaries for their workers.

d) Two reasons why ABC might want to buy land nearby to its existing factory are:

1. Fewer operation costs on current location. Maybe the state where ABC is
located tends to straighten the entrepreneurial environment required for the
development of existing companies and creating new ones. In that case, the
 company does not have to struggle with high tax rates, high fixed expenses
of production and similar. That might be the very reason why the land near
the current factory is cheap.
2. The closeness of fruit farms can certainly be a reason why a company would
decide to expand the existing facility on the current location. That way, the
company can have continuous supervision of the ways that fruit is grown
and secure the constant high quality of its products. For ABC, that will mean
the same transport expenses as before and a higher quantity of fruit.

e) Before making such decisions, the company should see if it would have high
benefits from government grant on a new location, then it has on current location.

For example, a government grant which would reduce the level of taxes company
currently pays might seem attractive. However, the company needs to calculate
expenses that would come with this change very carefully. For example, if
expenses of transportation of fruit are too high, there is a risk that with time it
would have too much impact on cumulative expenses which ABC would not be
able to cover. In that case, ABC should think about whether it would be better to
look for new fruit suppliers and potentially risk the quality of their juices or stay at
the current location.

Q2

a) Term "competitors" refers to all other clothing manufacturers and clothing

stores. It is about both direct and indirect competition. Direct competition is:

 The retail chain which sells general clothing,

 Stores specialized for one sort of clothing (formal, sports, hiking, etc.),
 Stores specialized for clothing repairs and tailor-made clothing. Indirect
competition is:
 Second-hand shops;
 Retail chains like Walmart, in which people can buy cheap non-designer
clothing.
Smaller competition means that the company has a bigger market share for itself.
However, such a market is limited, and if a company wants to expand, the market
will be too small to keep the operations running. Competition can sometimes have
positive effects on business. Companies that have competition are constantly trying
to improve their business to get better and stay in front of the competition. That
means they are constantly investing, learning and improving. That is the reason
why it is easier for such companies to bring novelties into their production. They
are always in trend and have loyal customers. Besides, a company that is
constantly in trend has no problem with entering new markets.

b) Two advantages of a shop being located in a small town rather than in the city
center are:

1. Future sales can be easily predicted. When the store is placed in a small
town, it is easy to gather information about the characteristics of the town
population (age, gender, purchasing power, life standard). By tracking sales
through several months, the company can identify products that are mostly
sold and products that are almost never sold in this town. For example,
selling winter type tires in a small city on the coast is a total failure because
practically there is no show in winter. Since in small towns customers are
usually the same people, it is not hard to develop good relationships with
them. That way, the company can get information about the satisfaction of
customers and suggestions for improvement directly from customers.
2. It is not necessary to invest a lot of money into promotional activities. The
small town has a limited number of stores. Usually, the first store that opens
gets most of the customers. With time, customers get used to that store, and
if competition comes, they will stay loyal to their first supplier. Only if the
competition offers much better products at lower prices, customers will
decide to try the new store. Marketing in small communities usually comes
down to "word of mouth", where people who know each other share their
positive or negative experience about the store, assortment, quality of
products and personnel.

c) Two ways of government that might influence the decision of where to locate
the new shop are:

1. Rent cost and land taxes that the company has to pay mostly depends on the
popularity of store location and life standard of its people. For example,
 renting an office space in the center of the capital city of some state is much
more expensive than the same size of office space in a nearby small town.
Most governments today tend to level out the economic development of all
regions in a country. Therefore, in less developed regions, entrepreneurs are
offered incentives in the form of lower taxes, lower business space rents or
lower land prices.
2. Implementing various trade barriers. The government cannot affect some of
them, like natural barriers. Some of the natural barriers are:
 Not knowing the language of another market,
 Distance between the supplier and customer,
 Characteristics of some territories.

Barriers like tariff barriers can be created exclusively by the government through
the implementation of certain laws. Tariff barriers are:

 Taxes that company has to pay to export the goods to the foreign market,
 Quotas which sets the limit on quantities of goods that can be exported,
 Embargoes which are used to stop any trading with certain countries,
 Exchange control which government can use to limit buying/selling of
foreign currency in their own country

d) Two ways of location for the new shop might have an effect on its profitability
are:

1. Lower income from sales. Location for opening new shop should be the one
without too much competition nearby. Usually, such locations are near large
cities or in smaller cities. Such locations have less concentration of people,
so a smaller number of stores is enough to satisfy the demand. Opening the
store in such a location can potentially lead to a situation with too few
customers who are going to decide to switch to a new store. That will lead to
a drop in sales which is going to have a negative impact on the profitability
of the company.
2. Growth and expansion of the company are going to be significant if it turns
out that new location does not come with a lot of competition, but the
demand for products is high. In that case, the company is going to offer a
new product or improved old product to the customers. It won't be hard to
achieve desired profit, maybe even above it, and reinvest earned money into
improvement of production, expansion, better quality materials and similar.
 Since customers are not going to have a lot of choices, they are not going to
be too demanding for novelties. That way, the producer can define the
production quantities very precisely and be sure that all products will be
sold.

e) I think that the store with this type of merchandise is not suitable for locations
without too much competition because there won't be enough customers interested
in this type of product.

Before the company decides to move to a new location without any competition, it
should do thorough research on why is there no competition in the first place.
Maybe it is about a town with a small population which is generally not interested
in this type of product. Perhaps there is a similar store in this town which already
satisfies the demand. In that case, the company is not going to realise the intended
volume of sales which would cover the expenses and ensure the existence.
However, if the reason why there is no competition is that the company is the first
one that launched an idea on the market, it should secure high demand. That will
increase the volume of sales, which will secure enough income and have a positive
impact on business.