Hello all..

Since the May/June examinations are nearing in, Ive decided to

upload some of the quick revision notes necessary for the unit 4
EDEXCEL Business Studies Examination. Please note that this
material should be used in conjunction with a comprehensive
business tool kit and cannot be relied upon entirely for exam
preparation.

Good Luck..
Mr Sayeedh Ghouse
Lecturer
Inception Academy

Ansoff Matrix
What is it?
It is a marketing planning tool that helps a business determine its
product and market growth strategy

Market Penetration
Market Penetration - a growth strategy where the business focuses
on selling existing products into existing markets

-Focuses on markets and products it knows well

-Likely to have good information on competitors and on customers
needs
-Doesnt require much investment in new market research

Market penetration seeks to achieve these main objectives:

Maintain/Increase the market share of current products
Competitive pricing strategies, advertising, sales promotion
Secure dominance of growth markets
Restructure a mature market by driving out competitors
Aggressive promotional campaign
Pricing strategy designed to make the market unattractive for
competitors
Increase usage by existing customers
Introducing loyalty schemes

Market Development
Market Development - a growth strategy where the business seeks
to sell its existing products into new markets
-It is a more risky strategy than market penetration because of the
targeting of new markets

Ways to approach market development:

New geographical markets
Exporting the product to a new country
New product dimensions/packaging
New distribution channels
Moving from selling via retail to selling using e-commerce

 Different pricing policies

To attract different customers
Create new market segments

Product Development
Product Development - a growth strategy where a business aims to
introduce new products into existing markets
-Requires the business to develop modified products which can appeal
to existing markets
-It is suitable for a business where the product needs to be
differentiated in order to remain competitive

Product development places the marketing emphasis on:

Research and development and innovation
Detailed insights into customers needs
Being first to market

Diversification
Diversification a growth strategy where a business markets new
products in new markets
-More risky strategy because the business is moving into markets in
which it has little/no experience

-Must have a clear idea about what it expects to gain from the strategy
and the risks it involves

Balance Sheet
What is the Balance Sheet?
Balance Sheet a summary at point in time of business assets,
liabilities and capital

What is included in the Balance Sheet?

Fixed Assets
Assets with a lifespan of more than one year (eg. investments)
Current Assets
Assets likely to be changed into cash within a year (eg. stock,
debtors)
Current Liabilities
Debts that have to be repaid within a year
Net Current Assets (Working Capital)
Current Assets Current Liabilities
Long Term Liabilities
Debts that are payable after a year
Net Assets
Total Assets Current Liabilities Long Term Liabilities
Current Ratio
Assesses the firms liquidity

 Acid Test Ratio

Assesses the firms liquidity but excludes stocks from current
assets
Gearing Ratio
Explores the capital structure of a business
Liquidity Ratios
Liquidity Ratio illustrates the solvency of a business (the ability to
pay back short term debts)
There are 2 types of liquidity ratios:
1) The Current Ratio
Current Assets : Current Liabilities
IDEAL: 1.5 2 : 1 (sufficient resources)

If it LESS THAN 1.5 : 1

Low liquidity
Not enough working capital
Overborrowing
Overtrading

If it is ABOVE 2 : 1
High liquidity
Too much money is tied unproductively
Can easily pay off short term debts
Superdry 2010: 2.79 : 1
Superdry 2011: 2.81 : 1
Interpretation:
Ratio increased

 Unproductivity levels increased

Insignificant change of 0.02
Response:
Increase liabilities
Increasing long term creditors
Invest more / borrow more
Decrease assets
Allow longer credit periods
Buy with cash

2) The Acid Test Ratio

Current Assets Stocks : Current Liabilities
IDEAL: 1 : 1

If it LESS THAN 1 : 1

Low liquidity
Not enough working capital
Overborrowing
Overtrading

If it is ABOVE 1 : 1
High liquidity
Too much money is tied unproductively
Can easily pay off short term debts

Superdry 2010: 1.91 : 1

Superdry 2011: 1.59 : 1
Interpretation:
Ratio falls by 0.32

 Liquidity falls
More productive
Less capital tied up as stock
Response:
Increase stocks
Increase liabilities
Increase long term creditors
Invest more / borrow more
Decrease assets
Allow longer credit periods
May lead to higher stocks as customers are attracted to longer
credit periods
Buy with cash

Gearing Ratios
Gearing=

Long Term Liabilities+ Preference Shares

x 100
Total Capital Employed

Total Capital=Ordinary ShareCapital+ Preference ShareCapital + Reserves+ Debentures+ Long Term Loans

LongTerm Liabilities=Long Term Loans + Debentures

Limitations of Ratio Analysis

Needs to be compared with other data:
Results for the same business over previous years
Analyse the trend of data
Results from firms in other industries
Allow comparisons between 2 firms experiencing similar
growth rates
It only considers the financial aspects of a business performance,
although other elements of a business should be taken into
consideration:
The market in which the business is trading
A firm operating in a highly competitive market is likely to
experience low profits and depressing ratios
The position of the firm within the market
A market leader is likely to provide better returns than a small
firm struggling to establish itself
The small struggling firm may be investing heavily in
developing new products and establishing a brand identity
which could lead to large profits in the future
The quality of the workforce and management team
But the quality of the workforce would be high due to heavy
investment
Resulting in good performances

Boston Matrix
What is the Boston Matrix?
Boston Matrix a means of analysing the product portfolio and
informing decision making about possible marketing strategies
Market Growth Rate shows how fast the market for the product is
growing
Relative Market Share shows how strong the product is within the

market
Rising Star a product that has a high share of a fast-growing market
HOLDING: Marketing spending to maintain sales

Cash Cow a product that has a high share of a low-growth market

MILKING: Taking whatever profits the firm can without much
more new investment
Problem Child/Question Mark a product that has a small share of
a fast-growing market
BUILDING: Investment in promotion and distribution to boost
sales
DIVESTING: Selling off the product
Dog a product that has a low share of a low-growth market
DIVESTING: Selling off the product

Purpose of Boston Matrix

To identify what needs to be done with the marketing mix to fulfil their
objectives, by analysing their existing situation:

Rising Star (HIGH MS, HIGH GR)

Likely to be profitable (cash in)
Invest in promotion to maintain sales (cash out)
Cash Cow (HIGH MS, LOW GR)
Likely to be profitable (cash in)
Little chance of increasing sales and profits in the future (weak
growth)
Problem Child/Question Mark (LOW MS, HIGH GR)
Unlikely to be profitable (weak relative market share)

 Try ensure that some products do become rising stars (has

potential)

Dog (LOW MS, LOW GR)

Poor prospects for future sales and profits
Must invest in product development or acquire new brands

Limitations of Boston Matrix

Models do not tell the firm what to do
- Managers must interpret their findings and decide on the most
effective course of action
Relies on data that could be inaccurate
Firms market is not clearly defined in the model
High market share does not always lead to high profits
- High costs involved (eg. investment in advertising)

Business Ethics
What are Ethics?
Ethics moral guidelines which govern good behaviour

Ethical Behaviour doing what is morally right

Ethical Decision- a decision that is both legal and meets the shared
ethical standards of the community

Advantages and Disadvantages to Ethical

Behaviour
ADVANTAGES
Higher revenues
Demand from positive
consumer support

Improved brand awareness

and recognition
Better employee motivation
and recruitment
New sources of finance
Eg. ethical investors

DISADVANTAGES
Higher costs
Sourcing from Fairtrade
suppliers rather than lowest
price
Higher overheads
Eg. training and
communication of ethical
policy
Danger of building up false
expectations

Business Growth
Motives for the Growth of Firms
To exploit economies of scale more fully
To reduce competition in the market place in order to be better
able to exploit the market
To reduce risk through diversification
Internal/Organic Growth
Refers to firms increasing their output
Increased investment
Increased labour force
External Growth
Refers to firms growing through merger, amalgamation or takeover
The joining together of two or more firms under common
ownership
Merger
-

the joining together of 2 firms

Takeover
-

the purchase of one firm by another

Types of Merger

Horizontal Merger / Horizontal Integration

A merger between two firms in the same industry at the same

stage of production

Vertical Merger / Vertical Integration

-

A merger between two firms at different production stages in the

same industry

Conglomerate Merger
-

A merger between two firms producing unrelated products

THE COSTS OF PRODUCTION FOR A LARGE SCALE PRODUCER

MAY BE HIGHER THAN FOR A SMALL COMPANY
-

May be due to productive inefficiency

X-inefficiency may be present
AC may be higher for a large scale producer than a small scale
producer
Large firms may be forced to pay its workers higher wages
because it operates in formal labour markets
Small firms may be able to pay relatively low wages in informal
labour markets

BARRIERS TO ENTRY MAY BE LOW

-

Cost of setting up in an industry may be small (eg. grocery shop)

Products may be simple to produce or sell
Finance to set up in the industry may be readily available
The product sold may be relatively homogenous
May be easy for a small firm to produce a new product and
establish itself in the market

SMALL FIRMS CAN BE MONOPOLISTS

-

A monopolist offers a product for sale which is available from no

other company
Many small firms survive because they offer a local, flexible and
personal service
The size of the market is so small that one very small firm can
satisfy total demand

Economies of Scale
Technical (PRODUCTION)
- Production methods for larger volumes are often more efficient
- Large businesses can afford to buy better machinery leading to
fewer staff and lower wage
Specialisation (EMPLOYEES)
- Large businesses can employ managers with specialist skills
and separate them into specialised departments
- Cheaper than paying external firms to do the work
Trading (DISCOUNTS)
- Large businesses can negotiate bulk discounts when buying
supplies
- They can get bigger discounts and longer credit periods than
smaller companies
Financial (BORRWING MONEY)
- Large firms can borrow at lower rates of interest than smaller
firms
- Lenders feel more comfortable lending money to a big firm
(more reliable)
Marketing (PROMOTION COSTS)
- Cost of an ad campaign is a fixed cost
- A business with a large output can share out the cost over
more products than a business with a low output
Risk-bearing (DIVERSIFICATION)
- Caters to several different market segments
- Large firms have a greater ability to bear risk than small
companies

Diseconomies of Scale
Poor coordination
- Hard for departments to work towards the same objective

Business drifts off course

Poor communication
- Long chain of command
- Slow and difficult to pass messages
Demotivate workers
- Employees feel uninvolved and do not feel belonged due to
poor contact between manages and staff

Sayeedh Ghouse
Lecturer
Inception Academy