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SCHOLAR Study Guide

SQA CfE Hihger BusinessManagementUnit 2: Management of Marketingand Operations

Authored by:Julie Sanderson (West Calder High School)

Alan Hamilton (Stirling High School)

Reviewed by:Frances McCrudden (The Mary Erskine School)

Previously authored by:Alistair Wylie

Rhona Sivewright

John Murray

Peter Hagan

Heriot-Watt University

Edinburgh EH14 4AS, United Kingdom.

First published 2014 by Heriot-Watt University.

This edition published in 2014 by Heriot-Watt University SCHOLAR.

Copyright © 2014 Heriot-Watt University.

Members of the SCHOLAR Forum may reproduce this publication in whole or in part foreducational purposes within their establishment providing that no profit accrues at any stage,Any other use of the materials is governed by the general copyright statement that follows.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval systemor transmitted in any form or by any means, without written permission from the publisher.

Heriot-Watt University accepts no responsibility or liability whatsoever with regard to theinformation contained in this study guide.

Distributed by Heriot-Watt University.

SCHOLAR Study Guide Unit 2: SQA CfE Hihger Business Management

1. SQA CfE Hihger Business Management

ISBN 978-1-909633-35-3

Printed and bound in Great Britain by Graphic and Printing Services, Heriot-Watt University,Edinburgh.

AcknowledgementsThanks are due to the members of Heriot-Watt University's SCHOLAR team who planned andcreated these materials, and to the many colleagues who reviewed the content.

We would like to acknowledge the assistance of the education authorities, colleges, teachersand students who contributed to the SCHOLAR programme and who evaluated these materials.

Grateful acknowledgement is made for permission to use the following material in theSCHOLAR programme:

The Scottish Qualifications Authority for permission to use Past Papers assessments.

The Scottish Government for financial support.

All brand names, product names, logos and related devices are used for identification purposesonly and are trademarks, registered trademarks or service marks of their respective holders.

i

Contents

1 Customers 11.1 Marketing as a strategic activity . . . . . . . . . . . . . . . . . . . . . . 21.2 Product v customer led organisations . . . . . . . . . . . . . . . . . . . 21.3 Consumer behaviour . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.4 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.5 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2 Market research 92.1 Types of market research . . . . . . . . . . . . . . . . . . . . . . . . . . 102.2 Methods of field research . . . . . . . . . . . . . . . . . . . . . . . . . . 122.3 Methods of desk research . . . . . . . . . . . . . . . . . . . . . . . . . 182.4 Sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212.5 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222.6 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3 Marketing mix - product 253.1 Products and augmented products . . . . . . . . . . . . . . . . . . . . 263.2 Product life cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273.3 Extending the product life cycle . . . . . . . . . . . . . . . . . . . . . . 303.4 Product line portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323.5 Product portfolios and the Boston Matrix . . . . . . . . . . . . . . . . . 333.6 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363.7 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

4 Marketing mix - pricing 414.1 Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424.2 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444.3 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

5 Marketing mix - place 475.1 Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485.2 Choosing a channel of distribution . . . . . . . . . . . . . . . . . . . . . 485.3 The role of the wholesaler . . . . . . . . . . . . . . . . . . . . . . . . . 495.4 The role of the retailer . . . . . . . . . . . . . . . . . . . . . . . . . . . 515.5 Direct selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535.6 E-commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545.7 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555.8 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

6 Marketing mix - promotion 57

ii CONTENTS

6.1 Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586.2 Into and out of the pipeline promotion . . . . . . . . . . . . . . . . . . . 606.3 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626.4 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

7 Extended marketing mix - people, process & physical evidence 657.1 People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 667.2 Process & physical evidence . . . . . . . . . . . . . . . . . . . . . . . . 667.3 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677.4 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

8 Stock management 698.1 Setting appropriate stock levels . . . . . . . . . . . . . . . . . . . . . . 708.2 Just In Time stock control . . . . . . . . . . . . . . . . . . . . . . . . . 728.3 Storage and warehousing . . . . . . . . . . . . . . . . . . . . . . . . . 728.4 Physical distribution of goods . . . . . . . . . . . . . . . . . . . . . . . 748.5 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768.6 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

9 Methods of production 799.1 Methods of production . . . . . . . . . . . . . . . . . . . . . . . . . . . 809.2 Methods of production: Exercises . . . . . . . . . . . . . . . . . . . . . 849.3 Labour and capital intensive production . . . . . . . . . . . . . . . . . . 859.4 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869.5 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

10 Quality 8910.1 Why is quality important? . . . . . . . . . . . . . . . . . . . . . . . . . . 9010.2 Types of quality standard . . . . . . . . . . . . . . . . . . . . . . . . . . 9110.3 Impact of training and motivation on quality . . . . . . . . . . . . . . . . 9210.4 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9210.5 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

11 Ethical and environmental 9511.1 What are "ethical" and "environmental" concerns for business . . . . . 9611.2 Ways to become environmentally friendly . . . . . . . . . . . . . . . . . 9611.3 Ethical trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9911.4 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10011.5 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

12 Technology in marketing and operations 10312.1 Technology in the marketing department . . . . . . . . . . . . . . . . . 10412.2 Technology in the operations department . . . . . . . . . . . . . . . . . 10612.3 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10712.4 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

13 End of unit tests 111

Glossary 117

Answers to questions and activities 121

© HERIOT-WATT UNIVERSITY

CONTENTS iii

1 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1212 Market research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1243 Marketing mix - product . . . . . . . . . . . . . . . . . . . . . . . . . . 1274 Marketing mix - pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . 1305 Marketing mix - place . . . . . . . . . . . . . . . . . . . . . . . . . . . 1326 Marketing mix - promotion . . . . . . . . . . . . . . . . . . . . . . . . . 1347 Extended marketing mix - people, process & physical evidence . . . . 1368 Stock management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1379 Methods of production . . . . . . . . . . . . . . . . . . . . . . . . . . . 14010 Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14311 Ethical and environmental . . . . . . . . . . . . . . . . . . . . . . . . . 14512 Technology in marketing and operations . . . . . . . . . . . . . . . . . 14713 End of unit tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149


1

Topic 1

Customers

Contents

1.1 Marketing as a strategic activity . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.2 Product v customer led organisations . . . . . . . . . . . . . . . . . . . . . . . 2

1.3 Consumer behaviour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1.4 Summary questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.5 End of topic tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Learning objectives

After studying this topic, you should be able to:

• compare a product-led organisation with a customer-led organisation;

• define the term "consumer behaviour";

• describe why it is important for a business to understand and consider consumerbehaviour;

• discuss the role of marketing in a business and its role in the achievement ofbusiness objectives.

2 TOPIC 1. CUSTOMERS

1.1 Marketing as a strategic activity

Marketing is one of the main functional areas of an organisation, and is important in allsectors of industry. Although the level of marketing activity depends on the size of theorganisation, it is one of the main strategic areas and can directly influence the successof the business.

Marketing is the way in which an organisation communicates with the consumer- communication between the producers and the consumers who under normalcircumstances would not meet face-to-face. It can be defined as "the process involvedin identifying, anticipating and satisfying consumer requirements profitably."

Marketing decisions are often strategic as they can determine the overall direction of theorganisation. Using marketing, organisations hope to achieve a number of objectives:

• To increase sales revenue and profitability.

• To increase or maintain market share.

• To maintain or improve the image of the business, its brand or its product.

• To target a new market or a new segment of the market.

• To develop new and improved products.

1.2 Product v customer led organisations

Businesses can be product or customer orientated (led). There are also a number oforganisations which operate somewhere in the middle of this spectrum!

A product-orientated organisation is one that concentrates solely on the productionprocess and the product rather than what the customer wants. In other words, it designsa product and then tries to sell it to the customer. High quality research and developmentare vital to the success of these organisations. Often, research is conducted with noactual specific end product in mind. Organisations which operate in this way are oftenpharmaceutical or technology based.

A customer-orientated organisation is one which identifies what the consumer wants(through carrying out extensive market research) and tries to provide it. Theseorganisations have to be very responsive to changes in the market. The products madeare usually low-cost and high volume. Organisations producing clothes, make-up andother low cost "consumer goods" are most likely to operate in this way.

Q1: Which phrase describes a business which chooses to concentrate on the productitself rather than trying to establish what the consumer wants?

a) Product-orientatedb) Customer-oriented

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TOPIC 1. CUSTOMERS 3

Q2: Which phrase describes a business which identifies what the consumer wants andseeks to provide it?


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Product v customer led organisations

For each question identify the organisation as either product or customer-oriented.

Q3: GlaxoSmithKline (Pharmaceutical company)


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Q4: Maybelline (Make-up manufacturer)


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Q5: Primark (Clothing manufacturer)


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Q6: Apple (Technology company)


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Q7: McDonalds (Fast food)


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Q8: Ferrari (Prestige cars)


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Nabaztag marketing

A product called a Nabaztag has been invented. The inventor was unsure as towhether it was too much of a gadget for toy companies and too much like a toy forcomputer manufacturers. It is a wifi plastic rabbit which connects to your broadbandto read your messages to you and tell you the latest news and weather. It moves itsears and its tummy lights up in different colours when you receive different emails.It can also play MP3s.

www.bbc.co.uk

The key questions are:

1. Where should the product be sold?

2. What is the price?

3. Who is the customer?

For each question decide on the question that relates best to the comment made.

Q9: A decision has to be made as to whether this is a toy or a gadget.

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Q10: Novel computer gadgets are likely to command a relatively high price. There is asyet no market competition so high prices can be charged.

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Q11: If consumers use all the functions then it is likely to appeal to computer users.

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Q12: Retailers such as PC World and John Lewis.

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Q13: Online selling would be appropriate (perhaps direct from manufacturer toconsumer).

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1.3 Consumer behaviour

Key point

Consumer behaviour can be defined as "the study of individuals, groups, ororganizations and the processes they use to select, secure and dispose ofproducts, services, experiences, or ideas to satisfy needs and the impacts thatthese processes have on the consumer and society". So put simply, consumerbehaviour is about studying how individuals behave when making purchases andhow this behaviour can impact on other individuals and wider society.

These studies are used to explain why customers buy one product and not another.It tries to understand the decision-making processes of buyers and what influencespurchasing decisions - for example, demographics, family pressures and emotions. Thisis linked to the satisfaction of needs and wants as consumers look for products that canprovide them personally with maximum satisfaction - different products will achieve thisfor different customers.

Consumer behaviour is used by the marketing department to create an appropriatemarketing strategy; targeting each consumer effectively once they understand theirneeds and wants through the research of consumer behaviour.

There are different types of buying behaviour. All consumers will make these types ofpurchases at different moments in time.

• Habitual (routine) purchases - these require little involvement by the buyer, arebought frequently and generally fulfil a basic want eg. milk or bread.

• Limited decision making purchases - these will require some considerationby the buyer. They are still relatively regular purchases, but require greaterparticipation in the buying process eg. clothes.

• Extensive decision making purchases - usually expensive, one-off long termpurchases, which will involve detailed consideration by the buyer eg. a car, houseor holiday.

• Impulse purchases - items bought without prior thought eg. magazines,chocolate or crisps. It should be noted that items bought on impulse may includemore expensive items - the disposable income of the consumer will have an impacton the type of item likely to be bought on a whim.

Research has shown that consumer behaviour is difficult to predict but it is agreed thatmarketing activities, individual character and external influences can all influence thepurchasing process and eventual buying decisions. So for example, increased publicityabout an organisation (either positive or negative) will impact on sales for that companyaccordingly. As fashions change, tastes and demand for a product will increase ordecrease. An individual operating on a very tight budget may be more likely to purchaseaccording to whichever brand is offering the best sales promotion, whereas an individualwho is very image conscious may be more likely to buy products which offer an exclusiveimage.



1.4 Summary questions

Summary questions

Q14: Which of the following is not part of the marketing process?

a) Identifyingb) Anticipatingc) Satisfyingd) None of the above

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Q15: Product led organisations are most likely to be involved in which industry?

a) Cosmeticsb) Technologyc) Publishing

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Q16: The difference between product and customer led organisations can be bestsummed up as follows.

a) Customer led allows customers to design products whereas product led relies ondesigners.

b) Customer led changes product frequently whereas product led doesn’t.c) Customer led carries out extensive market research whereas product led relies on

sophisticated product development.

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Q17: Consumer behaviour:

a) Tries to explain why customers buy one product instead of another.b) Is about observing customers in supermarkets.c) Identifies the market segments of consumers.

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Q18: What are impulse buys?

a) Major purchases requiring a lot of thought.b) Purchases which are made on a very regular basis.c) Items bought without any prior thought.

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1.5 End of topic tests

Revise this topic before trying the end of topic tests.

End of topic 1 test

Q19: Product led organisations make a heavy investment in research and development.

a) Trueb) False

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Q20: Product led organisations may develop a product that was not the original purposeof the research being carried out.

a) Trueb) False

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Q21: Product led organisations carry out extensive market research.

a) Trueb) False

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Q22: Customer led organisations seek to fulfil consumer wants.

a) Trueb) False

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Q23: Customer led organisations look to sell small quantities of an expensive product.

a) Trueb) False

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Q24: Customer led organisations often produce highly fashionable products.

a) Trueb) False

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Q25: Match the definition (a-d) to the title (1-4).

1. Habitual (routine) purchases

2. Limited decision making purchases

3. Extensive decision making purchases

4. Impulse purchases

a) are expensive, one-off long term purchases.

b) require little involvement by the buyer and are bought frequently.

c) are relatively regular purchases, but require greater participation in the buyingprocess.

d) are bought without prior thought.

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SQA style questions

Q26: Describe why marketing can be seen as a strategic activity. (3 Marks)

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Q27: Define the term "product orientation". (1 Mark)

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Q28: Define the term "market orientation". (1 Mark)

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Q29: Describe what is meant by the term "consumer behaviour". (2 Marks)

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Q30: Explain 2 factors that can influence consumer behaviour. (2 Marks)

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9

Topic 2

Market research

Contents

2.1 Types of market research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2.2 Methods of field research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.3 Methods of desk research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.4 Sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21



Learning objectives


• explain the uses and importance of market research to organisations;

• compare the types of market research;

• describe the different methods of field research and explain the costs and benefitsof each;

• describe the different methods of desk research and explain the costs and benefitsof each;

• discuss the use of sampling in market research.

10 TOPIC 2. MARKET RESEARCH

2.1 Types of market research

Market research is the means by which an organisation finds out if their products willsell or not.

Market research techniques allow firms to find out:

• Who buys the product

• What the consumer thinks of the product

• How much consumers are willing to pay

• What competition exists in the market

• What type of packaging and promotion are appropriate

• Where the product would sell best

• Which channel of distribution would work best

• Whether any legislation applies to the product

• The effectiveness of advertising and promotions

Market research can be split into two types:

1. Field: where a researcher obtains information first-hand e.g. by interviewingpeople or issuing questionnaires. This provides primary information which is up-to-date, collected for the specific purpose required and is not available to competitors.

2. Desk: where a researcher uses secondary information which can be gatheredfrom a wide range of sources - for example, from the internet, published researchor the media. Secondary information is much cheaper to collect as it alreadyexists, but because it has been collected for another purpose it may not be relevantto your needs. It may also contain bias, which could invalidate any conclusionsdrawn from the data.

Within the two types of research (field and desk) there are a number of methods ofresearch which can be carried out. It is important to be clear about the distinctionbetween the types of market research and the methods which we will look at in moredetail.

Primary or secondary research

You decide to set up in business as a mobile hairdresser. You realise that you will needto carry out some market research before you start.Here are statements listing all the information you think you need to know beforeentering this market.


TOPIC 2. MARKET RESEARCH 11

Decide whether you consider each item would be best found by using primary researchor secondary research.

Q1: The age of the consumer.

a) Primaryb) Secondary

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Q2: How much the consumer is willing to pay.


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Q3: Typical income of people in the area.


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Q4: Typical age of people in the area.


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Q5: The number of competitors in the area.


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Q6: If consumers would be willing to use a new business, giving up their existinghairdresser.


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Q7: How often people visit the hairdresser.


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Q8: Gender of potential customers.




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Q9: Race of potential customers.


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Q10: How businesses perceive the business which is about to open.


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Q11: Is the promotion used effective.


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2.2 Methods of field research

There are a number of different ways of carrying out field research. Each company willselect a method (or combination of methods) best suited to their particular product orservice and the customers they hope to sell to.

Personal interviewThis involves stopping people in the street or visiting them at home and asking themquestions.

Advantages

• This allows two-way communication where the researcher can encourage theperson to answer or clear up any mistakes or misunderstandings.

• Complex questions can be asked as the interviewer can explain exactly what thequestion means.

Disadvantages

• Care must be taken by the interviewer not to influence the respondent especiallywhen the interviewer may be biased.

• This is an expensive method of research as it takes a long time to interview anappropriate sample and interviewers must be highly trained.

• Many people are reluctant to answer questions in the street or to allow strangersinto their homes.



Postal surveyThis is where questionnaires are sent out to people to complete and return. There isoften an incentive like a prize draw to encourage return of the survey.

Advantages

• Relatively cheap way of surveying a large volume of potential respondents.

• People in a large geographical area can be questioned or alternativelyrespondents can be targeted by postcode.

Disadvantages

• Response rate for this method of research is very low, even with incentives offered.

• This is a relatively slow way of conducting research as it takes time to post out andreceive back the questionnaires, which then have to be analysed.

Telephone surveyPeople receive telephone calls asking their opinion.

Advantages

• This is a relatively cheap form of survey and a wide geographical area can bequestioned easily.

• A large number of respondents can be questioned in a relatively short period oftime and the information is obtained straight away.

Disadvantages

• Many people dislike being disturbed at home and will therefore refuse to answerquestions or will give inaccurate answers in order to end the call.

Online surveysIncreasingly used by a wide range of organisations, online surveys are sent out by emailor via a link or pop-up on a company website. They can be used to ask a wide varietyof questions.

Advantages

• They are relatively cheap to set up and results are usually analysed by the surveytool (eg. Survey Monkey).

• They are user friendly and can be completed very quickly.

Disadvantages

• Questions need to be relatively straightforward to ensure that the recipients clearlyunderstand the question they are being asked.



• Requires internet connection and not all methods of online survey tool arecompatible with smart phones or tablets.

EPoS (Electronic Point of Sale)This is the system used by the vast majority of retailers to keep track of their salesinformation. Every time an item is scanned at a till, the information is recorded. Detailedreports about consumer buying habits can be produced - for example, information aboutthe impact of sales promotions can be analysed. Many retailers link loyalty cards to theirEPoS systems to gather even more specific information about their customers.

Advantages

• This method of research can be completed without any requirement for theconsumer to respond or interact with the data collection.

• Extremely detailed and accurate information can be collected on an ongoing basis.

• Allows the retailer to offer promotions tailored to the customer.

Disadvantages

• The cost of installing the hardware and software needed for EpoS is extremelyhigh.

• It is very time consuming to analyse the data being gathered.

Hall testsThis involves inviting consumers to look at and possibly try different products and thengive their reactions to them. This technique is often used in supermarkets where newfood products are being trialled.

Advantages

• This can gather immediate qualitative information regarding a new product whichcan be used to make any changes needed.

Disadvantages

• Comments gathered may not be accurate as customers may feel obliged to bepolite and say they like a product that they actually dislike.

ObservationA person watches the activities of the consumer and records their actions. Examplesinclude counting how many people stop and look at a specific promotional display, orhow many red cars pass through a set of traffic lights.

Advantages

• Up to date quantitative information can be gathered.



Disadvantages

• It is not possible to question the people being observed - so for example if countingthe number of people who stop to look at a promotional display, you can’t ask themwhy they did/didn’t purchase the promotion in question.

Focus groupsA group of potential consumers are gathered together to answer questions about aproduct or service. The group is led by an experienced chairperson who will askquestions to prompt debate and ensure that discussion remains relevant.

Advantages

• A wide range of opinions can be gathered in a short space of time.

• It may help to identify previously unforeseen problems or opportunities.

• It may help the organisation identify instances where peer pressure or socialexpectations influence consumers.

Disadvantages

• Information gathered may be difficult to analyse due to the nature of the commentsand opinions being offered.

• It may be difficult to get an appropriate group of available consumers to participate.

Methods of field research

Q12: All field research involves questioning consumers.

a) Trueb) False

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Q13: As a personal interview allows two way communication, mistakes andmisunderstandings can be cleared up.

a) Trueb) False

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Q14: Interviewing people requires training which is an additional cost for a business.

a) Trueb) False

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Q15: A mixture of qualitative and quantitative information can be gathered by using avariety of market research techniques.

a) Trueb) False

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Q16: Qualitative information is difficult to use as it is not easy to analyse people'sfeelings and opinions.

a) Trueb) False

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Q17: Telephone surveys allows a wide geographical range of people to be questionedcheaply.

a) Trueb) False

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Q18: Postal surveys have a poor rate of response.

a) Trueb) False

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Q19: EPoS provides a lot of information about the buying habits of customers.

a) Trueb) False

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Q20: Customers taking part in hall tests will always be honest about the product theyhave tried.

a) Trueb) False

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Q21: Some methods of field research are more expensive than others.

a) Trueb) False

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Methods of field research - advantages

Q22: Match the methods of field research (1-6) with their advantages (a-f).

1. Postal survey

2. Hall test

3. Personal interview

4. EPoS

5. Observation

6. Telephone survey

a) Allows for two-way communication meaning that more complex questions can beasked.

b) Allows extensive information to be gathered without bothering the customer.

c) Can cover a large geographical area relatively cheaply.

d) Allows quantitative information to be gathered.

e) A relatively quick method of gathering a large number of responses.

f) Can gather qualitative information about a new product.

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Methods of field research - disadvantages

Q23: Match the methods of field research (1-6) with their disadvantages (a-f).

1. Postal survey

2. Hall test


4. EPoS

5. Observation

6. Telephone survey

a) Staff need to be trained to successfully analyse the large volume of data collected.

b) Customers may feel obliged to be polite about the product sampled.

c) No customer interaction takes place, meaning it is not possible to understand whycustomers make purchasing decisions.

d) People can find this a nuisance and intrusive.

e) Response rates tend to be very low.

f) This is an expensive form of research.

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2.3 Methods of desk research

Desk research is available from a wide range of sources. The method of desk researchused will depend on the purpose of the research.

InternetThe internet can be used to find a huge amount of information - from newspapers, blogs,competitor websites and comparison websites, to name just a few possible sources.

Advantages

• Very easy to access and the use of a search engine can help identify possiblesources quickly.

• Vast amount of information available at little or no cost beyond the cost of the ISP.

• It may help the organisation identify instances where peer pressure or socialexpectations influence consumers.

Disadvantages

• Websites can become out of date very quickly so it is important to check for thedate of last update/edit.

• Some websites are more reliable than others - a company’s own website is likelyto be more reliable and accurate than Wikipedia, for example.

• Any information gathered on the internet is also freely available to yourcompetitors.

Trade associationsA trade association is a body which acts in the interests of member companies who areall from the same industry. Examples include the British Dental Trade Association, theAutomatic Vending Association, the Chartered Institute of Building and the Local Collegeof Nursing. These organisations gather information from and about their members andalso the business conducted by their members.

Advantages

• Information is usually collated annually, meaning it is likely to be relatively up-to-date.

• The information gathered is likely to be in great depth and very accurate.

Disadvantages

• Information is very industry specific so only of real use to organisations operatingwithin that industry.

• Information may be freely available to members but is likely to be expensive toaccess for non-members.



Market research companiesThese companies (for example, AC Nielsen or Mintel) exist to collect and publishstatistics and data for a wide range of topics. This information will either becommissioned by a specific company (and then made available at a later date tocompetitors), or will be general research which is then sold to any interested party.

Advantages

• Information is likely to be highly detailed and informative.

• Information is likely to be available on a wide range of topics.

Disadvantages

• It can be extremely expensive to purchase this information from the researchcompanies.

• Information will be either quite general and broad based, or focussed on theresearch requirements of another company - none of which may be totally relevant.

Government reports/statisticsThese are compiled by the government for a wide rage of purposes and contain a hugeamount of general information about the population.

Advantages

• Government publications can generally be regarded as reliable and completesources of information.

• These reports will be free to access, minimising costs for the company.

Disadvantages

• Information contained within government reports tends to be more general - forexample, statistics recording the number of people in full time employment in anarea.

• Government reports are only updated at certain points - for example, some may beupdated annually, others only every 5 years - so information may not be up-to-date.

Books/periodicals

Published texts and reference books can be used by an organisation to research someinformation. The use of books and periodicals are becoming less popular however dueto the increasing use of the internet, which provides much more up-to-date informationquickly and easily. In addition, many periodicals can be obtained online.

Advantages

• Can be used without the risk of technology issues (for example lost internetconnection).



• Can be seen as more reliable than some internet sources.

Disadvantages

• Not as up-to-date as the internet.

• Less convenient to use than the internet, as books/periodicals are likely to bestored in a central location rather than at the employee's desk.

Methods of desk research

Q24: Which of the following is not a disadvantage of using information from a tradeassociation?

a) Information is very industry specific so only of real use to organisations operatingwithin that industry.

b) Some websites are more reliable than others - a company’s own website is likely tobe more reliable and accurate than Wikipedia, for example.

c) Information may be freely available to members but is likely to be expensive toaccess for non-members.

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Q25: Which of the following is most likely to be an expensive form of desk research?

a) The internetb) Trade associationsc) Market research organisationsd) Government reports/statistics

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Q26: Which of the following relates most closely to information gathered from theinternet?

a) There is a huge amount of information freely available.b) You need to pay a membership fee to access the information.c) The information gained is extremely reliable.

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Q27: Which of the following would be true of desk research?

a) Because information has been gathered for another purpose it may not be relevant.b) Information gathered can be seen as reliable.c) Desk research will always be free to access.

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2.4 Sampling

When carrying out market research, it is impossible to question every single person inthe country. Therefore a sample of people is chosen. Different methods of sampling willbe used depending on the preference and requirements of the company involved.

Random: people are preselected at random from a list. The people selected must beinterviewed and if they are not in when the researcher calls, further attempts must bemade. Using this method of sampling reduces the risk of bias as people are chosentotally at random and are not selected from one particular market segment.

Quota: a number of people who meet specific characteristics are chosen, for example,according to age, gender, income group. The researcher must find people to interviewwho fit these categories.

Stratified Random Sampling: The sample is divided up into segments based onhow the population as a whole is divided up. This makes a random sample morerepresentative of the population as a whole. For example, income groupings will bedivided up closely to match the national percentages of each income group. In otherwords, if 30% of the population earn over £50,000 per year, the population will be dividedinto income groups then 30% of the random sample will be drawn from this segment.

Sampling

Explain and justify which method of sampling would best suit an organisationresearching:

• Opinions on a new magazine

• Opinions on a new chocolate bar

Compare your answer with that given.

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Summary questions

Q28: Which of the following is a type of market research?

a) Deskb) Hall testc) Using government statistics

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Q29: Which of the following best describes the reason for using a sample in marketresearch?

a) It would cost the company too much money to interview more than 100 people.b) An organisation isn’t allowed to ask too many people questions.c) It’s physically impossible to interview every single potential customer for an

organisation.

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Q30: Desk research uses secondary information.

a) Trueb) False

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Q31: Which of the following statements about field research is not accurate?

a) It’s more expensive than most desk research.b) It will generate primary information.c) Customers will always provide truthful responses making the research accurate.

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Q32: Which of the following descriptions applies to stratified random sampling?

a) Choosing a certain number of people who meet a specific criteria.b) A random sample of a number of market segments.c) People are randomly chosen from a list (for example, the electoral roll).

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End of topic 2 test

Q33: Match the market research methods (1-10) with the descriptions (a-j).

1. Focus group

2. Field research

3. Online survey

4. Quota sampling

5. Desk research

6. Internet research

7. Trade association


9. Postal survey

10. Observation

a) Where a researcher must interview people who fit into specific categories e.g. age,gender, occupation.

b) A group of consumers brought together to discuss a product.

c) Where a person is asked a number of questions by a trained interviewer.

d) Secondary information which has been gathered by another company or foranother purpose.

e) Market research carried out by an organisation which may include personalinterviews or online surveys.

f) Where the buying habits of consumers are watched but not questioned.

g) Created by an organisation using a tool such as Survey Monkey to gather primaryinformation.

h) An organisation which exists to represent the interests of the organisations withina particular industry.

i) A questionnaire is sent out to respondents, possibly over a large geographical area.

j) Provides vast amounts of information relatively quickly and cheaply.

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SQA style questions

Q34: Describe and justify three methods of market research which could be used by anorganisation. (3 Marks)

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Q35: Distinguish between quota sampling and random sampling. (2 Marks)

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Q36: Compare the use of desk research with field research. (3 Marks)

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25

Topic 3

Marketing mix - product

Contents

3.1 Products and augmented products . . . . . . . . . . . . . . . . . . . . . . . . 26

3.2 Product life cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3.3 Extending the product life cycle . . . . . . . . . . . . . . . . . . . . . . . . . . 30

3.4 Product line portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

3.5 Product portfolios and the Boston Matrix . . . . . . . . . . . . . . . . . . . . . 33



Learning objectives


• describe the role that "product" plays in the marketing mix;

• outline the level of sales and profitability that can be expected at each stage of theproduct life cycle;

• describe how the product life cycle can be extended to prolong the life of a product;

• explain the importance of creating a product portfolio.

26 TOPIC 3. MARKETING MIX - PRODUCT

3.1 Products and augmented products

At National 5, the role of product within the marketing mix is discussed. Product isimportant because it is:

• The goods or services the business is trying to sell.

• The goods or services demanded by the customer.

• The goods or services the customer is willing and able to buy.

However, at Higher level it is important to understand the difference between a coreproduct and an augmented product .

A core product will satisfy the basic needs of the consumer, but to make the productmore competitive and attractive, additional features are often added. This is known asan augmented product. Today's customer looks for more in a product than the basicfunction it fulfils. For example, shampoo comes in a wide range of variants. All shampoocleans hair (Tesco Everyday Value shampoo will do this for a low cost). However, thereare many designer brands available which have been developed by well known stylistsand these shampoos offer additional benefits - for coloured hair, for greasy hair, fordry hair and so on. These augmented products allow the customer greater choice andcommand a higher price.

Car features and different customers

At this stage there is an online activity. If however you do not have access to the internetyou may try the question which follows.

Q1: There are three customers.

1. An 18-year old student

2. A couple with two children

3. A 35-year old successful business person

For each customer decide, from the list of factors given, which two are likely to be mostinfluential.

a) Design features

b) Safety

c) Status

d) Value for money

e) Good quality

f) Reliability

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TOPIC 3. MARKETING MIX - PRODUCT 27

3.2 Product life cycle

At National 5 the product life cycle looks at the stages of development, introduction,growth, maturity and decline. The length of the product life cycle depends on the productitself: in some cases it will last only weeks, in other cases a product can survive for manyyears. At Higher level, it is necessary to be aware of additional stages in the life of aproduct. In addition, it is necessary to understand how the life of a product can beextended, sometimes indefinitely.

Stage Description Sales Profit

Development

This is where aproduct is researched,designed and aprototype will bemade. A largepercentage ofproducts will neverprogress beyond thisstage.

Zero.Remember:consumers don’t knowabout products thatare at this stage - it’simpossible to buysomething you don’tknow exists!

Zero.There are very highcosts associated withthe development ofany new product -some of which maynever be recouped.

IntroductionThis is the launchstage of a newproduct.

Initially low, as fewconsumers knowabout the product atthis stage.However, someproducts will havelittle or no competitionat this stage so highprices can becharged.

Zero.There will be highadvertising costsassociated with thisstage, as well as thedevelopment costswhich need to berecouped.

Growth

Where consumers arebecoming more awareof the product andcompetitors may startto enter the market.

Sales begin toincrease due toincreased consumerawareness.

Low.The outstandingdevelopment costswill be reducing,however there will stillbe high advertisingcosts against stillmodest sales levels.

Maturity

The product hasbecomecommonplace on themarket andcompetition will beincreasing andestablished.

Sales of the productwill be high.

Good levels of profitcan be made at thispoint in the life cycle,as there will be littleadvertising required.



Stage Description Sales Profit

Saturation

There will be a largenumber of competitorsand not all productswill survive.Consumer tastes maychange and demandfalls.

Sales will level out.Prices may need to berevised and loweredto ensure survival in ahighly competitivemarket place.

Profits will remainhigh, however thecompany will need toinvest in additionaladvertising to remindconsumers that theproduct exists.

Decline

The product is nolonger desirable andis likely to have beenreplaced by a newerversion or technology.

Sales will fall until theproduct is withdrawn.

Profits will decreaserapidly until theproduct is withdrawn.

Stages of the life cycle

Q2: Match the numbers on the image (1-6) with the stages of a product life cycle (a-f).

a) Decline

b) Saturation

c) Development

d) Maturity

e) Growth

f) Introduction

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Q3: At the development stage of the product life cycle:

a) costs are high and sales non existent.b) costs are low and sales low.c) costs are high and sales are high.

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Q4: At the introduction stage:

a) sales are low and advertising costs are high.b) sales are high and costs are low.c) sales start to take off but costs are still quite high.

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Q5: At the growth stage:

a) sales and costs level off.b) costs increase and sales level off.c) sales grow rapidly and the product is profitable.

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Q6: At the maturity stage:

a) costs continue to rise but profits are made.b) sales peak and advertising costs fall.c) customers become bored with the product and sales fall.

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Q7: At the decline stage:

a) sales continue to rise but costs are less.b) costs continue to increase.c) sales and profits fall.

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Q8: An example of an extension strategy is:

a) launching a new product.b) a manufacturer of a chocolate bar launching a new flavour.c) decreasing the amount of promotional tactics.

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3.3 Extending the product life cycle

Some products may never enter the decline stage of the cycle. By use of effectiveextension strategies it is possible to create a very prolonged period of maturity/saturationdespite strong competition in the market place.

Some products have a very strong brand loyalty which prevents close competition -these products have achieved high status in the market and have become unique inthe minds of consumers eg. Coca-Cola, Mars Bars, Smarties, Heinz Baked Beans andTomato Ketchup.

There are a variety of ways of extending the life of a product and a business may chooseto use different methods at different times, or a combination of methods for increasedimpact.

Examples of Extension Methods:

• Changing the product to keep ahead of competitors - developing/introducing aslightly different product (football strip for the new season)

• Promote frequent use - often achieved by lowering the price of a product (lowcost airlines)

• Changing promotional methods - to maintain consumer awareness (free gifts,advertising campaigns)

• Developing new markets for existing products - or creating new uses fortechnologies originally developed for other uses (microwave ovens are the resultof research by NASA)

• Finding new uses for the product - which in turn leads to new markets (Lucozadewas originally marketed as a health drink, but is now sold as an energy/sportsdrink)

• Develop a wider range of products - new versions or varieties of the sameproduct (Coke in bottles and cans, Cherry Coke and Vanilla Coke)

• Altering the packaging - to appeal to different market segments (the introductionof sports caps on soft drinks and water bottles)

• Changing the channels of distribution - make the product available in differentways (launch of online sales of a product)



• Change of name - often to bring a product in line with versions of the productsold abroad. Examples include Starburst (previously called Opal Fruits), Snickers(originally called Marathon in the UK) or Cif (formerly known as Jif)

Extending product life cycle

Q9: Match each strategy from the first list with the most appropriate description fromthe second list.

a) Promoting more frequent use of the product

b) Developing a new market

c) Finding new uses for existing products

d) Developing a wider range of products

e) Modifying the product

f) Changing the packaging

g) Changing the price

h) Changing the promotion

i) Altering the channel of distribution

j) Changing the name of the product

k) Bringing in product line extensions

1. Where similar products are launched to increase sales.

2. Where a product is developed with a particular use in mind and then furtherdeveloped for another.

3. Advertising and promotion may encourage customers to use the product moreoften.

4. The recipe is changed or the shape.

5. Where organisations attempt to enter a new market, or target a new marketsegment.

6. The colour or writing may be changed. The type of the packaging may be altered,i.e. bottles to tins.

7. Price may be lowered to attract more customers.

8. The product line is extended.

9. Further advertising takes place or special offers such as BOGOF are introduced.

10. The name by which the product is known to customers is altered.

11. Product may be sold in a different type of shop or internet selling may be introduced.

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3.4 Product line portfolios

A product line is a range of products which are similar e.g. shampoo, conditioner andhair gel, or a range of confectionary products. A product mix is a range of different typesof products. Many large companies will have a combination of product lines and mixes,which are collectively known as a product line portfolio.

Unilever

Most of us have heard of products like Domestos, Pot Noodle and Cornetto, but it mightbe a surprise to know that these brands are all produced by Unilever. Unilever have avery wide range of brands which fall into a number of different categories.

Visit http://www.unilever.co.uk/brands-in-action/ and use the information there to answerthe following questions.


http://www.unilever.co.uk/brands-in-action/


1. How many brand names does Unilever sell worldwide?

2. Read the information available to you about personal care products available fromUnilever. Look at the pictures reflecting the packaging used for Brut. Who (agegroup/gender) do you think would be most likely to buy this product?

3. Can you find a product which would appeal to a different age group of the samegender?

4. Still looking at personal care products, Unilever sells both Timotei and TRESemméshampoos. What are the key selling points of each of these products?

5. Choose any three products from the food and drink category. Read the availableinformation and look at images for the brand. Create a rich poster for displayin your classroom, highlighting the similarities and differences between theseproducts and explaining why you think Unilever may have chosen to sell themall.

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3.5 Product portfolios and the Boston Matrix

The product portfolio means that an organisation can benefit in several ways:

• Having a range of products in different stages of their life cycles means that therewill always be profitable products to help support the other products which aredeveloping and growing.

• A range of products can help overcome seasonal fluctuations in demand for certainproducts.

• Launching a new product is less of a risk because established products within theorganisation can be used to help support the unprofitable launch period.

• A wider range of potential customers will exist as the portfolio should have productsto appeal to a broad range of tastes.

However, there are also disadvantages to consider:

• Staff may need to develop knowledge of a very wide range of products, meaningthat specialist knowledge is difficult to acquire.

• The manufacturing for such a wide range of products is likely to require investmentin a variety of machinery which could prove very expensive.

• There will be a requirement for completely unrelated areas of research anddevelopment, which will also be expensive.



The Boston Matrix is a method of categorising products within the organisation’s productportfolio.

Products are categorised according to two criteria:

1. Market growth

How fast is the market for the product growing? The market may be declining orit may be expanding. Sales of a product in a fast expanding market have a betterchance of growing than a product in a stagnant or declining market.

2. Relative market share

How strong is the product within the market? Is it a market leader that otherproducts follow or is it a product that is 12th in terms of sales?

It is usually illustrated like this:

££

A star is a product with a high market growth and a relatively high market share. Abusiness wants to have stars in a product portfolio as it is likely to be profitable due tothe high market share. However, a business will need to invest in the product to copewith a growing market and growing sales. This could mean investing in new productionfacilities or promotion to fend off competition. Organisations hope to have as many starproducts as possible and it is hoped that a star will mature into a cash cow.

A Cash Cow is a product with a relatively high market share, although it has stoppedgrowing. It is therefore well positioned in the market and likely to be profitable, but therewill be little chance of increasing sales and profits in the future. There will be little needfor investment - with slow growth in sales there should be little need for new premisesfor example. Money coming into the business from profits will not need to be used for



investment, but can be used to support the growth of other products if needed. Theseproducts are important for the long term prospects of an organisation.

Problem Children - also known as question marks - are products with relatively lowmarket share in a fast growing market. This can be a problem for a business as it isunclear what should be done with these products. It isn’t likely that there will be anyprofit from this product and in fact it will need investment to help increase sales of theproduct. Eventually, these products can develop into stars or even cash cows. However,if sales do not improve, they will eventually turn into dogs.

Dogs are products with a relatively low market share in a market with low growth. Dogshave poor prospects for future sales and profits. They may generate some cash flowbecause they will need little investment but may earn some profit. It is likely that theseproducts will be withdrawn from the market place before they start creating a loss for thebusiness.

A business must ensure that their product portfolios do not contain too many items withineach category.

Naturally they do not want lots of "dogs" but they should also avoid having too many"stars" and "problem children".

Products on the top of the Boston Matrix are in the early stages of the product life cycleand are in growing markets., but the cost of developing and promoting them will not yetbe recovered. This will drain resources.

Balancing these with "cash cows" will mean that the revenue from the "cash cows" canbe used to support products in a growing market. The development costs for "cashcows" are likely to have already been recovered and promotional costs should be lowrelative to sales.

This does not mean though that a business would want lots of "cash cows" and few"problem children" and "stars". This is because many of the "stars" and perhaps some"problem children" might become the "cash cows" of the future.



Boston matrix

For each of the elements of the Boston matrix, select the appropriate stage of theproduct life cycle.

Multiple answers available.

a) Development

b) Introduction

c) Growth

d) Maturity

e) Saturation

f) Decline

Q10: Problem Child

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Q11: Star

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Q12: Dog

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Q13: Cash cow

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Summary questions

Q14: Every product will enjoy a sustained period of maturity.

a) Trueb) False

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Q15: A product will begin selling in the development stage.

a) Trueb) False

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Q16: An organisation will wish to have a number of "star" products.

a) Trueb) False

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Q17: Organisations will use a product portfolio to increase the chances of overallsuccess for an organisation.

a) Trueb) False

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Q18: All products within a product portfolio will be at the same stage of the product lifecycle.

a) Trueb) False

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Q19: Profits are likely to be highest during the maturity and saturation phases of theproduct life cycle.

a) Trueb) False

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Q20: An augmented product is one which has been enhanced in some way from thebasic core product.

a) Trueb) False

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Q21: All products in the market place are augmented.

a) Trueb) False

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End of topic 3 test

Q22: Match the numbers on the image (1-6) with the stages of a product life cycle (a-f).

a) Decline

b) Saturation

c) Development

d) Maturity

e) Growth

f) Introduction

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Q23:

Match the stages (1-6) with their descriptions (a-f).

1. Decline

2. Saturation

3. Development

4. Maturity

5. Growth

6. Introduction

a) This is where a product is researched, designed and a prototype will be made. Alarge percentage of products will never progress beyond this stage.

b) The product has become commonplace on the market and competition will beincreasing and established.

c) There will be a large number of competitors and not all products will survive.Consumer tastes may change and demand falls.

d) This is the launch stage of a new product.



e) The product is no longer desirable and is likely to have been replaced by a newerversion or technology.

f) This is where consumers are becoming more aware of the product and competitorsmay start to enter the market.

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Q24: Which of the Boston Matrix groups is a product in decline likely to fall into?

a) Starb) Problem childc) Cash cowd) Dog

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Q25: Which of the following is not an advantage of holding a product portfolio?

a) A range of products can help overcome seasonal fluctuations in demand for certainproducts.

b) Launching a new product is less of a risk because established products within theorganisation can be used to help support the unprofitable launch period.

c) An extension strategy allows an organisation to continue to sell a product which mayhave otherwise entered decline.

d) A wider range of potential customers will exist as the portfolio should have productsto appeal to a broad range of tastes.

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Q26: Which of the following pairs of products both enjoy a large market share?

a) Cash cow and starb) Problem child and starc) Problem child and dogd) Dog and stare) Cash cow and problem child

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Q27: Which extension strategy describes "developing/introducing a slightly differentproduct"?

a) Promoting frequent useb) Changing the productc) Changing the packagingd) Changing promotional strategies

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Q28: Which of the following best meets the description of a "core product"?

a) A product which satisfies the basic needs of the consumerb) A cheap productc) A product which has a variety of options

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SQA style questions

Q29: Explain how various methods of extending a product's life cycle can increasesales. (6 Marks)

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41

Topic 4

Marketing mix - pricing

Contents

4.1 Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42



Learning objectives


• describe the role that "price" plays in the marketing mix;

• describe different pricing strategies available to an organisation and suggest whenthey may be used.

42 TOPIC 4. MARKETING MIX - PRICING

4.1 Price

At National 5, the role of price within the marketing mix is discussed. Price is definedas the amount a customer is prepared to pay (and actually pays) for a product. AtHigher level a deeper understanding of the methods used to set prices by organisationsis required.

When setting a price, a producer has to take the following into account.

• The cost of production

• How much profit the producer wishes to make

• The quality of the product

• The amount the consumer is willing to pay

• The amount being charged by competitors

• The target market for the product

The organisation will need to take into account the cost of making a product beforesetting any pricing strategy in place.The organisation can work this out in the following ways:

1. Cost plus pricingThis involves setting a price by calculating the average cost of producing goodsand adding a mark-up for profit. Eg If a business produces 10,000 goods, costing£50,000, the average cost would be £5.00 (50,000/10,000). A mark-up of 20%would mean goods would cost an extra £1.00 and the price would be £6.00 perproduct.This method of pricing is a quick and simple way of setting a selling price. It makessure that the money generated from a sale will cover all costs and generate a profit;however it does not take market needs into account.

2. Contribution pricingThis method takes into account that different products within a company mightneed to be priced using different criteria. For each product, a price is set in relationto the direct costs of producing that product and any contribution that the businesswants to make towards covering its indirect cost and towards profit. Successfulproducts can be priced to make a larger contribution than less successful or newproducts.For example, the direct costs of producing a small TV are £150. Contribution toindirect costs and profit is £50. Therefore the selling price is £200.

There are various pricing strategies which can be used.

Low price

A price which is lower than that of similar products on the market. This is often seen inshops like Aldi, who claim a "no-frills" approach.


TOPIC 4. MARKETING MIX - PRICING 43

Skimming

Where a high price is set initially probably for a unique, technologically advancedproduct. This strategy is likely to be used only in the introductory or growth stages of theproduct life cycle. The high price allows the company to recoup the initial investment inthe product and become profitable relatively quickly. As competitors enter the market,the price will gradually fall.

Promotional

Prices are lowered for a short period of time - this can be either on specific productssold within a store for a limited period of time, or a general "sale" where the majority (orall) the products within a store are reduced - as seen in the Next sale for example.

High price/premium pricing

A price which is higher than that of similar products on the market. Used to project animage of quality or exclusivity by premium and designer brands.

Penetration

Where a low price is initially set to enter a market where there are a lot of competitors.Once the product is established, prices can be raised to match those of the competitors.This is another strategy seen only in the early stages of the product life cycle.

Demand-orientated

The higher the demand for the product, the higher the price. Limited supply andhigh demand enable the price to be increased. This is to an extent how low costairlines/hotels like EasyJet and Travelodge operate - the first tickets/rooms are sold at avery low price but as availability decreases and demand increases, the price will rise.

Market price/competitive pricing

Where prices are broadly in line with those of your competitors. This is usually seen withvery price sensitive products/services such as fuel. Organisations use other methods ofcompetition - for example, offering loyalty points for purchase.

Destroyer

An artificially low price is set to force competitors out of the market. Once they havestopped trading, prices can be raised to a normal level. This is only viable for largercompanies who have reserves of capital to support the loss-making activity.

Loss leaders

This is where an organisation chooses a product to sell at a loss to encourage customersto use their shop/service. The idea is that once the customer has entered the premisesthey will spend money on other things, allowing the organisation to make an overallprofit. This is a tactic used by companies who offer Groupon deals - for example,a restaurant offering a deal on 2 main courses hopes that the customers will orderadditional courses and drinks.

Discriminatory pricing

This is where an organisation charges different prices for the same product, using thetime of day or year to set their price. This is seen extensively in the travel industry,where the same holiday will cost substantially more during school holidays than during



May or September. Telephone calls are also priced using this strategy, with eveningcalls costing less than calls placed during the business day.

Examples of pricing tactics

Write down an example of an organisation or product where the following pricing tacticsare used, then compare your answer with some suggestions.

• Low price

• High price

• Competitive price

• Skimming

• Promotional pricing

• Penetration pricing

• Destroyer

• Loss leader

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Summary questions

Q1: Which of the following would not be taken into account when setting the price of aproduct?

a) The cost of a productb) The quality of a productc) The appearance of a product

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Q2: Which of the following would be an appropriate pricing strategy for a new premiumproduct being launched?

a) Loss leaderb) Skimmingc) Low price

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Q3: Setting an inappropriate pricing strategy can lead to the failure of a new product.

a) Trueb) False

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TOPIC 4. MARKETING MIX - PRICING 45



End of topic 4 test

Categorise each question as:

• Demand orientated

• Destroyer pricing

• High price

• Low price

• Market price

• Loss leader

• Penetration pricing

• Promotional pricing

• Skimming

Q4: When an initial high price is set for a new product. Consumers are willing to pay ahigh price for the novelty factor. Price lowered once competition enters the market.

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Q5: When a high price established when demand for the product is high.

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Q6: Where a price is set below that of the competitors. Customers will buy from thesupplier who charges the least.

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Q7: Where a premium price is set. Often used with high quality products.

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Q8: A low price is used to introduce a product to an established market. Once theproduct is established in the market, the price can be raised.

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Q9: Where the price is set in line with that of other suppliers.

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Q10: Lowering prices in the short term in order to boost sales.

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Q11: A price is set artificially low and below that of competitors in order to force themout of the market. Once the competitors leave the market, the price is increased.

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Q12: When a very low price is set for a specific item to attract sales of other items.

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SQA style questions

Q13: Describe what is meant by the following pricing tactics below: (2 Marks)

1. Penetration

2. Skimming

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Q14: Define what is meant by the term “price”. (1 Mark)

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Q15: Describe the advantages of using loss leaders as a pricing tactic. (4 Marks)

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47

Topic 5

Marketing mix - place

Contents

5.1 Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

5.2 Choosing a channel of distribution . . . . . . . . . . . . . . . . . . . . . . . . . 48

5.3 The role of the wholesaler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

5.4 The role of the retailer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

5.5 Direct selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

5.6 E-commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54



Learning objectives


• describe the role that "place" plays in the marketing mix;

• describe the different channels of distribution available to a manufacturer;

• discuss the role of the retailer;

• discuss the role of the wholesaler;

• discuss the advantages and disadvantages of direct selling;

• the role of e-commerce in the market place.

48 TOPIC 5. MARKETING MIX - PLACE

5.1 Place

An organisation must consider how a product reaches the intended consumer. Theword "place" within the marketing mix is used to describe this process of getting aproduct from the manufacturer to the customer. At National 5, the physical methodsof distributing a product (e.g. rail, air, road and sea) were considered. At Higher levelthe focus is on the different routes that a product may take. This can be visualised asfollows:

5.2 Choosing a channel of distribution

There are many factors that can influence a business’ decision regarding the channelof distribution used. In particular, the product itself and legal restrictions can have animpact on this decision.

In the current marketplace, where technology is becoming increasingly important andcustomers expect increased ease of access to products, most organisations are usinga mixture of channels of distribution.

The product

The nature of the product itself will influence the type of distribution channel chosen.The following factors must be considered:

• Perishable or fragile goods, such as fresh fruit, must be distributed as quickly aspossible to minimise transit time.

• Technically complex goods may have problems which arise from installation which


TOPIC 5. MARKETING MIX - PLACE 49

need to be quickly dealt with.

• Goods or services which are made to specific customer requirements (i.e. jobproduction) need direct contact with the customer.

• For goods which are heavy and expensive a producer will want to minimise thecharges for handling such products.

• Industrial products - business to business goods are more likely to be sold directlyor via a wholesaler and are unlikely to use a retailer.

• Convenience goods such as canned drinks and food need to be widely availablethrough retailers.

• Producers wishing to sell large quantities of low value goods are likely to usewholesalers so they can sell in bulk.

Legal restrictions

Some products are governed by legislation limiting the outlets in which they can be sold.Examples include:

• Certain types of drugs which can only be sold by pharmacists through aprescription.

• Alcohol cannot be sold without a license and can only be sold at certain times ofday (after 10am).

• Fireworks are also licensed and can only be sold at certain times and to certaincustomers (those over the age of 18).

5.3 The role of the wholesaler

A wholesaler can be described as a middle man, capable of dealing with goods in muchlarger quantities than either a retailer or consumer can handle. Some wholesalers arehappy to allow members of the public to buy directly from their warehouses - for example,Costco allows members of the public to obtain membership and take advantage of theirbulk buying deals. Other wholesalers require proof that the customer is operating as abusiness - for example, Booker Cash & Carry require this.

Manufacturers sell to wholesalers for a number of reasons:

• Good distribution links and relationships with retailers.

• By breaking up bulk and taking care of distribution problems they free themanufacturer to concentrate on production.

• The wholesaler can bear the cost of storage - which in part is passed on to theretailer.



Wholesalers also help retailers:

• Wholesalers offer choice of products from a variety of manufacturers.

• Wholesalers offer credit facilities and other services for the retailer.

• The wholesaler is likely to be in a convenient location to be visited by or to deliverto smaller retailers.

Problems with wholesalers:

• The wholesaler needs to make profit, so the retailer will pay more for the goodsthan they would by buying directly from the manufacturer.

• The wholesaler is often described as the "middle man" and many retailers wouldprefer to buy directly from the manufacturer if possible - however they cannot buyin large enough quantities to make this possible, hence the added cost of using awholesaler.

The role of the wholesaler

Q1: A wholesaler is often described as a "middle man".

a) Trueb) False

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Q2: Some wholesalers are only open to other businesses.

a) Trueb) False

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Q3: A manufacturer pays a wholesaler to store their products.

a) Trueb) False

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Q4: Having a wholesaler within a distribution chain means that the end consumer islikely to end up paying more for their product.

a) Trueb) False

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Q5: All manufacturers use wholesalers to distribute their products.

a) Trueb) False

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Q6: A wholesaler buys in huge quantities from a range of manufacturers.

a) Trueb) False

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5.4 The role of the retailer

A retailer is the term used to describe an outlet where customers visit to purchasegoods. There are a number of functions performed by the retailer which can proveadvantageous to the manufacturer:

• Offering a range of complementary products to the public. For example, aconvenience store will sell tea, coffee, milk and sugar - everything the customer islikely to need for their making a hot drink.

• Providing information to consumers about products via displays, signs and trainedstaff.

• Storage and display of goods.

• Physically selling the goods to the public.

Types of retailers

Supermarkets

Modern supermarkets sell not only food and drink but also a wide range of non foodand household products - everything from kettles and toasters to clothes and otherhousehold necessities. In the UK, supermarkets now are massive organisations anduse their size to achieve cheap prices from suppliers and other economies of scale.This allows low prices to be charged. Supermarket brands are also now expanding intoa rage of format - for example, Tesco has Tesco Extra (massive superstores), TescoExpress (small convenience stores) and Tesco Metro - found in city centres offering afood range tailored to local customers.

The benefits of shopping in a supermarket are the wide range of food and non-foodproducts available, all under the one roof, combined with convenient locations and lowprices. However, although there is a wide range of goods available, more specialistfood and drink products are less likely to be available. In addition, the quality of somesupermarket products (especially clothing and home goods) can be seen to be of inferiorquality to those offered by specialist retailers.



Discount Stores

Discount retailers such as Poundland or B & M are growing in popularity in the UKand are attracting consumers due to their no-frills and low pricing approach. Selling amixture of branded and unbranded goods, these stores are often cheaper than leadingsupermarkets for similar products. This has led to the major supermarkets having tofurther cut their prices.

The main benefits of shopping in this type of store are the very low prices and widerange of goods available. However, they often work on the basis of "when it's gone it'sgone" meaning that you cannot rely on a particular product being in stock.

Department Stores

These high street shops offer consumers a variety of (mainly) non-food products(although a few, such as Harrods, also have a food hall selling gourmet products). Thesestores offer a wide range of clothing, personal care and household goods. Often, thestore will feature branded goods bearing the store name, in addition to a mixture ofother designers and concessions of high street stores. For example, Debenhams sellsDebenhams branded clothes, as well as exclusive ranges by designers such as MatthewWilliamson and John Rocha. In addition, Wallis and Miss Selfridge concessions canoften be found. This allows the concession access to a particular area without theoverhead of a store.

Convenience Store

Often referred to as "the corner shop" or similar. These stores are normally found withinlocal shopping precincts or within housing estates. They provide for very local customersand sell a basic range of newspapers, alcohol, groceries and household cleaningproducts. Prices are usually more expensive than those charged by supermarkets, ascustomers are literally paying for the convenience of having a store on the doorstep,instead of having to travel to a larger outlet.

Retailing

Retailing has changed significantly over the last 10 years, with a particular increase indiscount stores. Use the internet to form a deeper understanding of these changes. Thewebsites below may give you a start, but try and find some other sources of informationas well.

http://www.bbc.co.uk/news/business-14540624

http://www.economicshelp.org/blog/10091/business/economics-pound-shop/

Present your findings to your teacher as a presentation of no longer than 5 minutes.

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http://www.bbc.co.uk/news/business-14540624

http://www.economicshelp.org/blog/10091/business/economics-pound-shop/


5.5 Direct selling

Direct selling happens where a product is sold directly by the manufacturer to the endconsumer. For some manufacturers, direct contact with the final consumer is veryimportant, either due to the nature of the product, or the nature of the target market.There are a number of ways for direct selling to occur:

Mail order

Goods are sold via catalogues. Customers who are unable to visit retail outlets, or whowould prefer to select items in the privacy of their own home often find this method ofpurchasing convenient. Mail order companies often offer credit facilities. In some cases,mail order can be exclusive and only way to purchase certain products. The companywill save on expensive High Street locations. However, although this method of sellingattracts some customers, others may not like the lack of personal service and manygoods require to be returned. It involves high advertising costs. In addition, high levelsof bad debts occur.

Direct mail

Companies send letters/leaflets advertising their products for sale directly to homes ofpossible consumers. This means that consumers within specific market segments canthen be targeted directly and the company can reach wide geographical areas. However,generally consumers do not respond well to vast amounts of junk mail.

Personal selling

Products are sold door-to-door or by telesales. This allows for detailed descriptionsor demonstrations of products to be given by trained employees. Double glazing is acommon example of a product sold in this way. Some organisations which sell extremelytechnical products will also choose to operate this way to allow the detailed explanationsrequired - this includes many business-to-business products. The downside of thismethod is that it can be seen as intrusive by customers who often dislike calls at home.

TV shopping

This can take the form of detailed commercials known as "infomercials" or throughspecialist channels such as QVC. Again this allows consumers the opportunity to shopat their own convenience within the privacy of their own home and the medium of TVallows for movement and sound to portray the product.

Farmers Markets and Craft Fayres

These are increasingly popular and allow small scale "cottage industry" businessesto sell their goods directly to the public. Farmers from smaller farms can sell theireggs, meat and vegetable produce whilst craft fayres allow the producers of a widerange of jewellery, paper products, knitted and hand sewn items to sell to customerswithout having to try and persuade a retail outlet to stock their products. For these smallproducers, a market is the ideal place to sell their goods as often they produce very smallquantities which are not enough to sell via a retailer, and because these types of eventsattract customers who are looking for quality products. It also allows for personal contactwith customers. However, these events are often held at long or irregular intervals,meaning that the producer needs to find another outlet for their products at other times.



5.6 E-commerce

E-commerce is buying and selling over the internet, or using mobile technology such asapps. Internet selling falls into two categories: E-tailing and direct selling. Companiescan use either or both of these methods to make their products available to consumers.

E-tailing is the term used to refer to online retailers such as Amazon, who sell goodsfrom a wide range of suppliers. Direct selling via the internet is where organisations selldirectly from their own website, using no third party.

Advantages of using e-commerce

• 24/7 availability which fits the needs of modern society.

• World wide audience reached, meaning greater number of potential customers.

• Information can be unobtrusively gathered about potential and actual customerswho leave their details having entered website.

• A website is relatively cheap and easy to set up and is significantly cheaper thanretail space.

• A wider range of products can be offered as there are no space constraints onstoring stock - products will usually be despatched from a warehouse.

• It is possible to allow customers to compare products and read customer reviewsto encourage purchase.

• Special online only offers can be created.

Disadvantages of e-commerce

• Products cannot be touched or actually seen prior to purchase, which can putcustomers off buying certain types of item where colour and texture are important.

• Many customers dislike sharing personal information like credit/debit card detailsonline.

• It is vital to have strong security procedures in place to allow customers to buy inconfidence, which can be expensive.

• Customers have to wait for delivery of their item and this means that theorganisation often has to rely on the quality of delivery service provided by a thirdparty, for example Royal Mail.

• Relies on technology, so should the website have problems (or the customer haveproblems with their PC/tablet etc) the sale may not be completed.

E-commerce - research

Use the internet to find 10 different websites.5 should be examples of e-tailing and 5 should be direct selling.Do any sites do both?Compare your lists with your partner.Did you pick any of the same sites?

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Summary questions

Q7: Which of the following is not a recognised channel of distribution?

a) Manufacturer - Retailer - Consumerb) Manufacturer - Wholesaler - Retailer - Consumerc) Manufacturer - Retailer - Wholesaler - Consumerd) Manufacturer - Wholesaler - Consumer

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Q8: Which category of retailer would a store like Poundstretcher fit into?

a) Supermarketb) Department storec) Discount retailerd) Convenience store

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Q9: A wholesaler can be described as the "middle man".

a) Trueb) False

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Q10: A wholesaler can provide help and support to a retailer.

a) Trueb) False

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Q11: Amazon.com is an e-tailer.

a) Trueb) False

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End of topic 5 test

Q12: Match the type of store (1-4) with the definitions (a-d).

1. Supermarket

2. Convenience store

3. Discount store

4. Departmental store

a) Sells limited range of goods to local area.

b) Sells clothing and household goods from a variety of brands.

c) Sells huge range of food, non-food and household goods.

d) Sells a variety of goods at very low prices.

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Q13: Complete the paragraph using following words.

customers protection market security worldwide

E-commerce is of growing importance to all businesses. The use of e-commercemeans that products are available to a much wider �� , allowing even smallerorganisations to sell �� . Cookies can be used to collect information about�� without causing any inconvenience. Some customers may be concernedabout the �� of their personal information and for this reason it is important toensure �� of these details.

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SQA style questions

Q14: Discuss different forms of direct selling available to organisations. (6 Marks)

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Q15: Describe the factors an organisation would take into account before choosing achannel of distribution. (5 Marks)

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57

Topic 6

Marketing mix - promotion

Contents

6.1 Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

6.1.1 Above and below the line promotional techniques . . . . . . . . . . . . . 58

6.2 Into and out of the pipeline promotion . . . . . . . . . . . . . . . . . . . . . . . 60



Learning objectives


• describe the role that "promotion" plays in the marketing mix;

• describe the role of "into" and "out of" the pipeline promotional activity;

• discuss the role of "above the line" and "below the line" promotional activity;

• describe the role of ethics in marketing.

58 TOPIC 6. MARKETING MIX - PROMOTION

6.1 Promotion

Key point

There’s no point in having a product that no-one knows about. Promotion is theway in which the consumer is made aware of the product and is persuaded to buyit. Promotion is a huge part of the marketing of a business and is the element thatconsumers are most aware of.

Above the line and below the line promotion

Above the line promotion refers to mass media marketing. This is marketing which isdesigned to appeal to a very wide range of people and to be seen by a large numberof people. This type of marketing includes TV advertising, cinema advertising andbillboards, as well as techniques like celebrity endorsement.

Below the line promotion is far more targeted and takes place through public relations,sales promotions and direct selling. This includes a wide variety of promotions throughsocial media.

6.1.1 Above and below the line promotional techniques

At National 5, a number of promotional techniques were looked at in detail, includingsponsorship, social media offers and special offers. These are summarised here, but itwould be useful to ensure you have thoroughly revised the previous content.

Above the line

Advertising

Organisations can choose to advertise in a number of ways. Traditionally TV andnewspaper marketing, as well as the use of billboards, have been the main methodsof mass media marketing. TV advertising was seen as especially important due tothe use of moving images and sound, despite the high costs associated with this formof advertising. More recently, online advertising has proven increasingly important.Adverts are placed as banners on websites, or as sponsored pages/advertisements


TOPIC 6. MARKETING MIX - PROMOTION 59

on social media. In addition, some organisations have made use of videos on You Tube.

Celebrity/product endorsement

Where a celebrity agrees to promote an organisation or product. This is usually seenthrough the appearance of the celebrity in television adverts, promoting the product(think Cheryl Cole and L'Oreal) or in magazine and internet advertising, where thecelebrity is pictured using or modelling the product - for example, Andy Murray appearsin print media advertising Adidas. This can have great benefits where a currently popularcelebrity is used, however should any scandal or negative publicity occur then there canbe a negative impact on the product.

Product placement

This is where an organisation pays to have a product featured within a film or TVprogramme. Examples include BMW and Sony being featured heavily in James Bondmovies, or Fiji water appearing in The Big Bang Theory. This is a very expensive methodof promotion (and can contribute up to 75% towards the cost of making a movie) but itis a highly effective method of subliminal advertising.

Below the line

Consumer offers

Many organisations now use companies such as Groupon, Voucher Codes, Itison andmany others to make special offers available to their customers. These offers are usuallytime limited but offer great savings on the product or service offered. Companies usethese offers as loss leaders to entice customers into their store/restaurant with the basicoffer in the hope that they will spend more money - for example, a restaurant mayoffer a "2 main courses for the price of 1" deal, in the hope that the customer will thenorder additional courses and drinks at full price (and full profit). Another form of salespromotion occurs in-store, where offers such as "buy one get one free" or on pack labelssuch as "50% extra free" are designed to encourage shoppers at the point of sale.

Offers to consumers are extremely varied and often have conditions attached - forexample, introductory offers for new customers only, or for customers who are upgradinga package (think Sky or BT). They can also take the form of a reward for purchase - forexample, the Meerkat available from Comparethemarket.com is only available to thosewho purchase insurance.

Public relations

Public relations is a wide ranging set of activities with the aim of ensuring thatrelationships between a company and customers/the public remain positive and strong.

Social media

Although some social media promotion is mass market, the majority is extremelyfocussed and targeted based on the user profiles which are generated by Facebook,Twitter etc. Based on the activity and comments made by the individual, companies canthen ensure that appropriate individuals see adverts which might appeal to them. Forexample, if a user makes lots of comments or posts statuses/photos relating to runningor going to the gym, they are likely to see adverts about sports equipment and drinks.



Sponsorship

Used in connection with a certain event or sports team. A company will pay a substantialsum to "brand" an event or club - for example, the Bank of Scotland sponsors theEdinburgh Festival Fireworks each year.

Direct selling

This is where an organisation targets specific individuals with leaflets/flyers/phonecalls/emails to promote a specific product or service. Although this has the advantage ofbeing relatively cheap and very targeted, many customers see this as "nuisance" callsor junk mail, and ignore.

Above and below the line promotional techniques - research

Visit the Groupon website - www.groupon.co.uk and select offers for your local area.Select an offer relating to a restaurant meal and make sure you read the small printcarefully. Then investigate the website for the restaurant and calculate how much moreyou would be likely to spend whilst in the restaurant - for example, by ordering a starteror dessert.Do you think the offer is good value for money?Share your findings with a partner.

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6.2 Into and out of the pipeline promotion

Manufacturers will use into the pipeline promotion in order to persuade wholesalersand retailers to stock their products. These promotions are tailored to the needs of theretailer/wholesaler and the end customer will not be aware that they exist.

Out of the pipeline promotion refers to the types of promotion you see every day, toentice you to buy products in a shop/online. These are the sales promotions/specialoffers/vouchers described above as "below the line".

Into the pipeline promotions

There are a wide variety of promotions available to a manufacturer to encourage awholesaler/retailer to stock their products.

Dealer loaders

These are the wholesaler version of "buy one get one free" or "3 for the price of 2". Theyare often to encourage bulk buying - for example, 6 cases for 5.

Point-of-sale displays

These are to help the retailer draw attention to the product within their store. Examplesof this are the posters displaying offers and shelf-talkers (standout labels on shelves)that can be seen throughout most retail outlets.


www.groupon.co.uk


Dealer competitions

These are to encourage retailers to make a feature of a product and will often feature aprize - perhaps for the best display in store, or biggest increase in sales.

Staff training

Often offered for specialist products to allow retailers to deal more effectively withcustomers. Camelot are a well-known example of this - they offer extensive trainingfor retailers who sell lottery tickets.

Sale or return

Used for items which may have unpredictable sales levels. The items (for example,newspapers or sandwiches) are supplied to the retailer, unsold items are returned at theend of the sales period and the retailer pays only for those items they have actually sold.This allows a retailer to stock the item with minimal risk of wastage, although they willmake less profit on these items.

Ethics in marketing

Advertising is tightly controlled in the UK. Companies must adhere to a strict setof guidelines which are in place to ensure that adverts do not mislead consumers,potentially harm consumers or offend consumers.

In today's marketplace, consumers are increasingly likely to express their opinion ifthey are unhappy about any advertising that they see. If a company is seen to usepromotions which are unethical or offensive, they are likely to attract negative publicityfor themselves. This can mean losing sales instead of gaining them!

The Advertising Standards Authority is a body set up to monitor all forms of advertisingwithin the UK and will take action where it is felt that an advertisement breaches thestrict code of ethics.

Only one complaint needs to be received for an advertisement to be investigated. Theinvestigation can lead to the advertisement being changed or removed totally.

Rulings - research

Visit the ASA website - www.asa.org.uk

The ASA website allows consumers to investigate adverts to see if there have beencomplaints made about them, and if so, to see whether these complaints have beenupheld - in other words, to see if the ASA has said that an advert needs to be changedor withdrawn. They will explain in the Rulings section of their website what decisionshave been made and why. The ASA website also contains detailed information aboutHOW to make a complaint.

Select the "Rulings" tab and have a read through some of the recent rulings. Discusswith a partner - have you seen any of these advertisements? Do you agree with therulings?

Complete a short report (200 words) on one of the rulings that you are familiar with andsubmit to your teacher. Make sure you outline whether you agree or disagree with theruling.

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www.asa.org.uk



Summary questions

Q1: Which of the following can be described as "mass media marketing"?

a) Above the line promotionb) Below the line promotionc) Into the pipeline promotiond) Out of the pipeline promotion

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Q2: Which of the following types of promotion will the end customer be unaware of?

a) Above the line promotionb) Below the line promotionc) Into the pipeline promotiond) Out of the pipeline promotion

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Q3: Why does the Advertising Standards Agency exist?

a) To monitor all forms of advertising within the UKb) To prevent adverts with bad jokes appearingc) To encourage organisations to spend a lot of money on advertising

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Q4: Below the line and out of the pipeline promotions can be the same thing.

a) Trueb) False

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End of topic 6 test

Q5: How would an in-store “buy one get one free" offer be categorised? Choose allthat apply.

a) Above the line

b) Below the line

c) Into the pipeline

d) Out of the pipeline

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Q6: Select those offers which would be identified as “out of the pipeline”. Choose allthat apply.

a) Dealer loader

b) 50% extra free

c) Sale on return

d) Staff training

e) Money off voucher

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Q7: Advertising is a form of "above the line" promotion. Which of the following is NOTa form of advertising?

a) Public relations

b) TV

c) Internet

d) Newspapers

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Q8: Which of the following could be described as both “below the line” and “out of thepipeline?

a) Dealer loader

b) Buy one get one free

c) Celebrity endorsement

d) Money off voucher

e) Social media offers

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SQA style questions

Q9: Compare above the line with below the line promotion. (2 Marks)

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Q10: Describe the purpose of the Advertising Standards Authority. (2 Marks)

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Q11: Manufacturers use short term promotional measures to boost sales of productsor services to retailers (into the pipeline promotions). Describe 4 of these measures. (4Marks)

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65

Topic 7

Extended marketing mix - people,process & physical evidence

Contents

7.1 People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

7.2 Process & physical evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66



Learning objectives


• describe each element of the extended marketing mix (people, process andphysical evidence);

• describe examples of how these can be used by an organisation to enhance themarketing strategy.

66 TOPIC 7. EXTENDED MARKETING MIX - PEOPLE, PROCESS & PHYSICALEVIDENCE

7.1 People

"People" within the extended marketing mix refers to those employees of an organisationwho are actually in contact with the customer. Obviously, a business operating in theservice industry is more likely to have a focus on this element of their organisation,however all organisations will have some contact with their customers, so it is importantthat ensuring that the people who are the "face" of the organisation create a goodimpression!

The role of people covers both customer service and also personal/direct selling.Employees should be highly trained in the customer service policies of the organisationif their role will involve any contact with customers and any employees involved in theactual selling of products should also receive extensive training on building positivecustomer relations.

Customer service

Customer service within an organisation can take many different forms. Eachorganisation will develop a customer service policy which suits the needs of theorganisation and the organisations customers. The exact contents of the customerservice policy will differ according to the needs of the individual organisation but caninclude:

• Pre sales service

• After sales service

• Customer service level agreement

• Customer complaints policy

7.2 Process & physical evidence

Process

Process refers to the processes involved in implementing marketing strategy - forexample, the processes related to customer care as discussed above. Processes mustbe planned to ensure that customer needs are met - for example, a customer wants toreceive efficient and friendly service - all processes must be designed with this in mind.Process can also apply to HOW a service is delivered - the helpfulness of the staff, orthe quality of information provided, for example.

Physical evidence

Physical evidence relates to the actual store or service experience provided forcustomers - the facilities and infrastructure of a business . This includes store layoutand atmosphere - taking into account lighting, music and even smell! Customers expectthe experience inside a store to reflect their expectation of a brand. This also applies tovirtual/on-line stores - the layout of a website is crucial to encourage customers to buy.


TOPIC 7. EXTENDED MARKETING MIX - PEOPLE, PROCESS & PHYSICAL EVIDENCE 67

Physical evidence can also relate to the evidence produced through the customerservice strategy - for example, feedback obtained through focus groups, completedcustomer comment cards or emails regarding customer queries. For example, somecompanies publish customer reviews on their website, demonstrating this evidence tofuture customers.


Summary questions

Q1: Which of the following should be taken into account when planning a customerservice policy?

a) Needs of the organisationb) Needs of the customerc) Both

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Q2: Physical evidence can be related to feedback gathered as part of the customerservice strategy.

a) Trueb) False

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Q3: Process refers to the method of producing a product or service.

a) Trueb) False

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End of topic 7 test

For each example select the correct element of marketing mix.

Q4: Highly trained sales staff.

a) Peopleb) Processc) Physical evidence

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68 TOPIC 7. EXTENDED MARKETING MIX - PEOPLE, PROCESS & PHYSICALEVIDENCE

Q5: Published customer reviews.


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Q6: Completed customer comment cards.


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Q7: Newspapers and magazines in reception area of hairdressers.


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Q8: High quality sales information.


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Q9: Effectively designed customer complaints policy.


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Q10: Enthusiastic customer advisers.


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SQA style questions

Q11: Describe the role of people, process and physical evidence within the extendedmarketing mix. (3 Marks)

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69

Topic 8

Stock management

Contents

8.1 Setting appropriate stock levels . . . . . . . . . . . . . . . . . . . . . . . . . . 70

8.2 Just In Time stock control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

8.3 Storage and warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

8.4 Physical distribution of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . 74



Learning objectives


• discuss methods used to set an appropriate stock level for an organisation;

• describe the Just-in-Time stock control method and state the advantages anddisadvantages of using this method;

• discuss appropriate methods of storing and warehousing stock;

• describe the logistics of moving stock around.

70 TOPIC 8. STOCK MANAGEMENT

8.1 Setting appropriate stock levels

An organisation will hold stocks of raw materials, work in progress and the finishedproduct.. It is important that there are correct levels of stocks for the process to takeplace and to meet the needs of customers. Factors impacting the level of stock held willinclude:

• The storage facilities available. There must be sufficient space to hold the stock.

• Stock has to be safe and secure to prevent theft.

• Some materials require refrigeration or heat; others have to be protected from theweather and cannot be stored outside.

• Some products will last longer than others - for example, fresh meat, fruit and dairyproducts have a very short shelf life and cannot be stored for long.

• Insurance and security costs may be incurred and these will vary depending onthe type of product being stored.

An appropriate stock level must be decided based on the factors above and consideringthe sales/level of use of each product by the company.

Economic (maximum) stock level

This is the highest quantity of stock that should be held at any time and should be thelowest possible level to allow activities to continue without interruption. This means thatthe organisation is not holding so much stock that unnecessary costs are incurred.

Minimum stock level

The minimum stock level is the stock level that ensures that there will always be stockavailable for production, allowing for ordering and delivery times (lead time).

The minimum stock level should be calculated to ensure that there is always a small"buffer" of stock which can be used should a delivery be delayed.

Re-order level

This is the level at which new stock should be ordered. This is calculated using the dailyusage plus the delivery time needed for new stock to arrive.

Re-order quantity

This is the amount of stock required to return stock levels to the economic stock level.

Lead time

This is the time between placing an order and the order being delivered - in other wordshow long it takes the supplier to fulfil the order.


TOPIC 8. STOCK MANAGEMENT 71

Stock control can be illustrated like this:

Stock control

Complete the following sentences by inserting the appropriate term from:

• Economic (Maximum) Stock Level

• Minimum Stock Level

• Re-order Level

• Re-order Quantity

Q1: The level of stock above which an organisation should not allows its stock to riseas too much cash and space is committed to holding the stock is known as . . .

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Q2: The amount of stock which an organisation orders at one time is known as . . .

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Q3: The point at which stock should be reordered is known as . . .

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Q4: The level of stock below which stock should not fall as the production line mayhave to stop is known as . . .

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8.2 Just In Time stock control

This is a method of stock control where stocks arrive just before they are needed in theproduction process. Production does not take place until a firm order is received for thegoods. Money is not tied up in stock and this improves cash flow. Warehousing costsare reduced. Stock does not deteriorate. The method depends on the reliability of thesuppliers. Late deliveries can hold up the production process. It is possible that theorganisation will find it hard to cope with unexpected increases in demand.

JIT - advantages and disadvantages

For each question decide whether it is an advantage or disadvantage of Just In Timestock control.

Q5: Cash can be used for other things in the business

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Q6: Less waste than traditional methods

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Q7: Reduces chance of accidental damage, deterioration and theft

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Q8: Less time available for checking raw materials

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Q9: Depends heavily on the suppliers

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Q10: Costs may increase if number of deliveries increase

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Q11: No stock holding costs

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8.3 Storage and warehousing

Once the goods are manufactured they must be delivered to wholesalers and retailers.However goods may have to be stored in warehouses as output and demand do notmatch exactly. Warehousing involves costs as the property may have been purchased,which involves maintenance costs or it may be rented. Some organisations havewarehouses which are located a distance away from the manufacturing process, whichmeans that transport will be required between the two buildings. Having stock in awarehouse enables an organisation to meet an unexpected change in demand.



Good warehousing

There are a number of measures that an organisation can put in place to ensure thattheir warehouse is providing the best possible atmosphere for storing goods:

• A warehouse must protect the goods from being stolen or damaged due to dampor high temperatures.

• A system of stock rotation should be in operation to avoid deterioration of stockquality.

• A storage area should be on the ground floor for easy access.

• Goods moved most frequently should be easily accessible.

• Use of specialist equipment (e.g. forklifts) can mean stock is moved efficiently.

Centralised storage

This is where all stock for an organisation is held in one (central) location anddepartments are issued with stock as required.

Advantages

• Security is improved, as stock is held and inventoried centrally.

• Space required for storing stock is reduced as there is no requirement for a spacein each area.

• Can reduce costs as bulk purchasing uses economies of scale.

• Fewer small purchases are necessary.

• Reduces duplication of stock held throughout the organisation.

• Specialist staff are used to control ordering, issuing and purchasing of stock,making the process more efficient.

• Agreed procedures can be set up for the whole organisation.

Disadvantages

• Can be time consuming to receive stock when needed in departments - the stock ishandled twice: once by the stock holding area and then again by the department.

• If large amounts are held there is an increased likelihood of wastage.

• Specialised requirements of departments are harder to maintain and provide for.

Decentralised storage

This is where each department is responsible for ordering and holding stock as required.The advantages of this method are the disadvantages of the centralised area!



8.4 Physical distribution of goods

Road

• Refrigerated vehicles can be used to transport perishable items.

• Is an easy way to get direct to a customer’s location.

• As road networks improve it is a quick method.

• Is relatively cheap although cost of fuel rising makes the overall cost moreexpensive.

• Can have problems with delays, road works and weather.

• Legislation restricts the number of hours that a driver can be on the road for.

Rail

• Ideal for very heavy products.

• Fewer restrictions on how long the goods can be on the move.

• Is more environmentally friendly than road.

• Requires specialised freight terminals to load products, so there will usually haveto be an alternative method of transport used to get the product to the customer.

• Not suitable in rural areas with no rail network.

Air

• Is perfect for long distances or more remote areas.

• Is a faster method for overseas distribution - ideal for urgent or perishable goods.

• Can be more expensive than road, sea or rail.

• Often still requires road transport to/from airport.

Sea

• Ideal when heavy or bulky goods are transported.

• More environmentally friendly than air transport.

• Is good for items that are not time bound.

• Is a slower method than the others.

• Is a relatively inexpensive method of transport.



Physical distribution of goods

In each question, look at the advantage and disadvantage described and decide on themethod of transportation as either:

• Sea

• Air

• Rail

• Road

Q12: Allows goods to be transported internationally quickly:Expensive

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Q13: Allows goods to be transported to most destinations relatively quickly and cheaply:Cost of tax and fuel. Traffic jams and poor quality routes.

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Q14: Makes transportation of bulky goods possible.Reliability. Costly.

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Q15: Bulky products can be shipped abroad.Lengthy delivery times.

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The distribution mix

The method of distribution selected by an organisation will be dependent on the followingfactors:

• Availability and quality of distribution firms available.

• Legal restrictions on the distribution of certain products - for example, hazardoussubstances can only be transported in approved containers which displayappropriate warning signs.

• The cost associated with the distribution method - for example, a company maywish to invest in its own fleet of vehicles, but cannot finance this so will have to usean outside contractor.

• The image of the product can have an impact on how it is distributed - for example,premium products will be expected to be delivered quickly.

• Use of just-in-time stock management means that distribution is a key part of theoperations of the organisation and must be considered as part of the productionprocess. Reliable distribution methods must be selected to ensure stock is notdelayed in transit.



• Some organisations will also take the ethical and environmental impact of adistribution method into account. For example, organisations like the Co-operativechoose suppliers and partners based on their ethical credentials, whilst Tescouse rail distribution as far as possible to reduce the environmental impact of theirbusiness.


Summary questions

Q16: Which of the following best matches the description of the economic stock level?

a) When the warehouse is full.b) The quantity of stock received in an order.c) The lowest level of stock which can be held whilst continuing to fulfil all orders.

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Q17: Minimum stock level should be zero.

a) Trueb) False

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Q18: Legal restrictions can impact on how certain goods are transported.

a) Trueb) False

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Q19: Which of the following has the biggest impact on the environment?

a) Roadb) Railc) Aird) Sea

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Q20: Just in time relies heavily on positive relationships with suppliers.

a) Trueb) False

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End of topic 8 test

Q21: Complete the chart by filling the empty boxes with following terms.

• Re-order level

• Maximum stock level

• Re-order quantity

• Minimum stock level

• Re-order point

• Stock level

• Time

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Decide if following statements are true or false.

Q22: Centralised stock control can help reduce theft.

a) Trueb) False

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Q23: Air transport is the most expensive method of distribution.

a) Trueb) False

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Q24: Just In Time stock control can help reduce waste.

a) Trueb) False

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Q25: Products cannot be transported in refrigerated conditions.

a) Trueb) False

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Q26: Minimum stock level is when there is no stock left in the warehouse.

a) Trueb) False

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Q27: Storing stock can lead to insurance costs.

a) Trueb) False

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Q28: A company must have strong relationships with suppliers to successfully manageJust In Time production.

a) Trueb) False

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Q29: Legal restrictions apply to the distribution of all products.

a) Trueb) False

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SQA style questions

Q30: Describe four different stages involved in setting an appropriate stock level. (4Marks)

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Q31: Discuss the use of Just In Time stock control. (5 Marks)

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Q32: Discuss the factors an organisation would take into account before choosing aphysical method of distribution. (5 Marks)

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79

Topic 9

Methods of production

Contents

9.1 Methods of production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

9.1.1 Job production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

9.1.2 Batch production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

9.1.3 Flow (line) production . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

9.2 Methods of production: Exercises . . . . . . . . . . . . . . . . . . . . . . . . . 84

9.3 Labour and capital intensive production . . . . . . . . . . . . . . . . . . . . . . 85



Learning objectives


• describe the methods of production available to an organisation (job, batch, flow)and the advantages/disadvantages of each;

• justify the choice of production method for an organisation;

• compare capital intensive production with labour intensive production.

80 TOPIC 9. METHODS OF PRODUCTION

9.1 Methods of production

A company manufacturing products needs to give careful consideration to the methodof production chosen. There are a number of factors to be considered:

• The actual product being made - does it have to be unique, is it of high value? Acustomer looking for a wedding dress is unlikely to want a dress which is producedin huge quantities and widely available on the high street.

• The size of the market - how many people will actually want to buy the product?An item which is likely to appeal to a massive range of people will need to beproduced in large volumes.

• The size of the business - a small business is more likely to create products tocustomer specification as they have more contact with their customers.

• The finance available - machinery costs a lot of money to buy and set up - abusiness must have finance available for this if they wish to use automation. Ifthere is not adequate finance available a less capital intensive production methodwill need to be used.

• The technology available - for some products, there may not be appropriatetechnology available to manufacture the product using machinery, meaning thatlabour intensive methods remain more appropriate.

• The workforce available - if there is a pool of highly skilled workers available thismay mean that using traditional labour intensive methods may be appropriate.

9.1.1 Job production

Job production is where a single product is made to customer's specification e.g. thenew Forth bridge (the Queensferry Crossing), a wedding cake or designer dress. Forthe customer this method has the advantage that specifications can be changed evenif production has started and the end product will meet their exact requirements. Themanufacturer has the advantage of being able to charge a high price for the productand using this method workers are likely to be more motivated as the work is varied.However, it can take a long time to create each product, some specialist tools may berequired which are expensive to buy and skilled workers command a much higher levelof wages.


TOPIC 9. METHODS OF PRODUCTION 81

9.1.2 Batch production

Another method is batch production. This involves the production of groups of similarproducts. No one item in the batch goes on to the next stage until all are ready. Smallbakery firms might use this method producing breakfast rolls, then bread and finallycakes. It also is used for producing goods like wallpaper. This method reduces the



need for highly skilled, costly staff. Standard machinery can also be used for muchof the production which again reduces costs - for example in the bakery, the samemixing equipment and ovens. Manufacturers may make batches of goods for differenceretailers and meet the different requirements of each retailer by tweaking the recipeand packaging, meaning that high levels of customer satisfaction are achieved. Thismethod allows for cheaper production than through job production as some bulk buyingcan occur and through the use of some standardised equipment. Although some skillis required from workers, this is less than in job production, therefore wage costs arereduced. However, time can be lost through the cleaning and resetting of machinerybetween batches and any mistake within a batch results in the entire batch beingwasted. Furthermore, employees and machinery may be idle between stages, whichlowers productivity. Also, as workers complete more repetitive tasks, motivation can belower than in job production.

9.1.3 Flow (line) production

The final method of production is known as flow (or line) production. This is where itemsmove continuously along a production line from one operation to the next. At each stageof the operation a new part is added to the product. Large, standard specification itemslike cars, televisions and washing machines are produced using this method. Costs arespread over a large number of goods and therefore the unit cost falls. As large quantitiesof goods are produced discounts are obtained for purchasing raw materials in bulk. Theprocess is heavily mechanised or automated and saves labour costs. This means thatthe quality of output is very consistent. However, the employees involved in this processcarry out monotonous, low or unskilled tasks meaning that their motivation is poor. Themachinery and robots required for this method of production is extremely expensive toinstall and if the machinery/robots break down, production will completely halt, meaningproductivity is lowered. Also, it is not possible to meet the exact requirements of aconsumer, meaning that customer satisfaction will not be as high as for job or batchproduced items.



Cars in production lines over the years

The earliest production line

A production line in the 1960s

A modern robot line



9.2 Methods of production: Exercises

Methods of production

For each question decide if it is an example of job, batch or flow production.

Q1: An oil painting

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Q2: A freezer

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Q3: A housing estate

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Q4: A fitted kitchen

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Q5: An iPhone

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Advantages and disadvantages of production methods

Discuss the advantages and disadvantages of the following production methods:

• Job

• Batch

• Flow

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Types of production

The following two websites contain examples of the 3 different types of production.

Read each article and identify each production type.

Prepare a short summary of each case justifying the type of production used in eachcase.

Submit your findings to your teacher.

Alternatively you may wish to discuss this as a class group.

http://news.bbc.co.uk/1/hi/programmes/working_lunch/2786921.stm - bed manufacturer

http://news.bbc.co.uk/1/hi/programmes/working_lunch/2996487.stm - suit manufacturer

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http://news.bbc.co.uk/1/hi/programmes/working_lunch/2786921.stm

http://news.bbc.co.uk/1/hi/programmes/working_lunch/2996487.stm


9.3 Labour and capital intensive production

Capital intensive production is where the majority of the work is carried out by machineryor robots. Flow production is capital intensive. This can be further categorised asautomation and mechanisation:

• Automation is where the production of products is carried out mainly by robotsand machinery and much of the control is by computer. Human input is limited inthis process.

• Mechanisation also relies on machinery to carry out much of the work, howeverthere is a greater level of human input to control the workflow.

Advantages of capital intensive production:

• Machinery can work 24/7 without breaks, holidays or illness.

• The standard of consistency and accuracy is much higher than can be producedby humans.

Disadvantages of capital intensive production:

• Restricted output from machinery - changes cannot be made to accommodateindividual customer demands.

• The installation and maintenance costs of the machinery are extremely high.

• Should the machinery break down, production is halted until repairs can be made.

• Any employees involved in the production process are likely to be low skilled andpoorly motivated.

Labour intensive production relies on humans rather than machines to create products.It applies most often to job production.

Advantages of labour intensive production:

• Highly skilled and motivated employees are likely to care about the products theyare making leading to high quality.

• Employees are more flexible than machines and can make last minute changes oradaptations to a product.

• Much smaller capital outlay on expensive machinery.

Disadvantages of labour intensive production:

• Skilled employees demand higher wages and it is expensive to recruit and trainthese employees.

• The quality of output is only as good as the quality of employees, so the workproduced may not be consistent.




Summary questions

Q6: Which of the following relies most heavily on the use of machinery and robotswithin the production process?

a) Mechanisationb) Automation

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Q7: Which of the methods of production is most likely to be labour intensive?

a) Job productionb) Batch productionc) Flow production

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Q8: Which method of production would be used to ensure a constant flow of identicalproducts?

a) Job productionb) Batch productionc) Flow production

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Q9: The availability of finance may restrict the choice of method of production for anorganisation.

a) Trueb) Fase

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Q10: Because a small company has closer contact with customers, it is more likely toemploy job production.

a) Trueb) False

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Q11: The use of batch production requires highly skilled employees.

a) Trueb) False

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End of topic 9 test

Q12:

Categorise each item into correct column.

Portrait Hair dryer BluRay player Packet of crisps

Jeans Hot cross buns False teeth Cruise ship

Tattoo Iron Computer Tin of paint

Job production Batch production Flow production

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SQA style questions

Q13: Describe each of the three production methods available to organisations. (3Marks)

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Q14: Describe the factors which affect an organisation's choice of method. (4 Marks)

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Q15: Compare capital intensive and labour intensive production. (3 Marks)

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89

Topic 10

Quality

Contents

10.1 Why is quality important? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

10.2 Types of quality standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

10.3 Impact of training and motivation on quality . . . . . . . . . . . . . . . . . . . . 92



Learning objectives


• explain the importance of quality to the organisation and the customer;

• describe the costs and benefits of a range of methods of ensuring quality;

• discuss the distinction between quality control methods (inspection) and qualityassurance methods (prevention);

• describe the inter-relationship between quality and motivation and training.

90 TOPIC 10. QUALITY

10.1 Why is quality important?

Key point

Quality is an important factor to the consumer and when buying a product theconsumer expects it to be of an appropriate standard - although different peopleview "quality" differently. The quality of the finish, reliability, appearance, safety,availability, value for money, consumer support and the overall reputation ofthe product and the company, features and appearance of a product may beconsidered as making a product or service a quality one. In a competitive market,producers want to have no customer complaints and focussing on their qualityprocedures is one way to minimise the chances of complaints being made.

Quality measures

Quality control

This is where the raw materials for the product are checked at the start of the processand then the end product is checked at the end of the process. Rejected products arereworked or discarded. Quality control is purely about inspecting the product - it doesnot help prevent problems. This can lead to high levels of wastage as mistakes madeat early stages of production are not identified until the end of the process, meaningthat materials used after the point of the fault developing have been wasted. However,by checking at the end of the process, the company is ensuring that no substandardproducts are reaching the end consumer.

Quality assurance

This is where products are checked at points throughout the production process and arediscarded/reworked as soon as a fault is identified , bringing in an element of preventionof faults occurring. This reduces levels of wastage due to the early identification of faultsbut takes longer to complete than quality control, as tests are carried out throughoutproduction.

Quality circles

An organisation can set up quality circles both as a quality technique and also toempower and motivate employees. A quality circle is made up of employees from allparts of the production process and at all levels - from shop floor to senior management.This group meets on a regular basis to discuss production and quality procedures andany issues which have occurred with a view to finding practical solutions.

Benchmarking

This is where a company compares their product or processes with those of anotherin the same industry - usually the market leader or a close competitor. They will thenmodel their own product/processes on these to ensure that they are matching up to orexceeding those of competitors.

Mystery shoppers

Used in the service industry to monitor the quality of service provided. Most commonlyfound in retail and hospitality, a mystery shopper will visit a shop/restaurant and thenmake a report to head office on their experience. They may also be asked to rate orscore their experience. The idea is that the staff serving the mystery customer have


TOPIC 10. QUALITY 91

no idea that they are doing so, to give as accurate a reflection as possible of normalstandards. This is a relatively cheap method to use for services to be measured.

Quality standards & symbols

There are a number of different standards that can be awarded to an organisation,depending on the product or service that they provide. Although for some products(eg a baby car seat) a quality standard is compulsory, for the majority of organisations,applying for the award of a quality standard is voluntary. Obtaining a quality standardcan be a very time consuming and expensive process, as it will require an extensivereview of the organisation’s policies and procedures and the gathering of evidence toensure that the quality standard has been met. However, there are a number of benefitsto be achieved. Due to the more stringent quality procedures in place, there shouldbe less wastage within the production process. Customers will buy the product withconfidence, as the company can prove that they have met specific standards. Thisimproves the image and reputation of the product and therefore can lead to higher pricesbeing charged. It also allows the company to use the quality standard as a marketingtool.

10.2 Types of quality standard

British Standards

A system for setting quality targets and monitor performance targets.There is no guarantee of quality and critics argue that it is a triumphof paper over performance. Indeed, a firm may hold a BS 5750certificate for setting and achieving a low quality target!

Investor in people (IIP)

A government standard for employee consultation and training thatestablishes a procedure for ‘relating training to your business plan’.In order to achieve the standard, assessors from IIP will ask:

• Have goals been set for the business?

• Have these been explained to the workers?

• Have workers the right skills to meet those targets?

ISO 9000

ISO is a network of the national standards institutes of 148countries, on the basis of one member per country, with a CentralSecretariat in Geneva, Switzerland, that coordinates the system.



10.3 Impact of training and motivation on quality

An organisation relies on employees to produce goods and services to the highestpossible standard. If the employees fail to do this, then quality can be compromised.

In Unit 3, there are topics on motivation and training of employees. You should be ableto use your knowledge of these topics to link to the topic of quality.Why will motivated employees help contribute to high quality production?Why will training employees improve the quality of output?

Impact of training and motivation on quality

Q1: Match the statements (1-5) with (a-e).

1. Training employees will mean theyare better at their job.

2. Training employees often means thatthey can carry out more than onetask.

3. Motivated employees will be keen totake pride in their work.

4. Training employees is a form ofmotivation.

5. Motivated employees may be lookingfor ways to help the business.

a) Having an understanding of theentire production process will helpensure that each stage of productionfeeds smoothly into the next.

b) This means that they may be lookingfor ways to improve the quality of theproducts.

c) This will help ensure they make fewermistakes, making quality consistent.

d) This means that they are more likelyto ensure that every product theyproduce is of the highest standard.

e) This means that training also leadsto the benefits of having motivatedemployees.

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Summary questions

Q2: Which of the following gives an accurate definition of the term "quality"?

a) A luxury product.b) A product which is of a standard appropriate for the purpose of the product and the

price paid.c) A product bearing the "kitemark".

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TOPIC 10. QUALITY 93

Q3: Which of the following best describes "Quality Control"?

a) Where raw materials and the final product are checked.b) Where the final product is checked.c) Where the product is checked throughout production.

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Q4: Quality assurance is designed to:

a) inspect products.b) prevent problems.

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Q5: Motivated and trained employees can help ensure quality products.

a) Trueb) False

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Q6: Which of the following is a recognised quality symbol?

a) The Kitemarkb) A smiley face.c) A sticky label with a number inside a garment.

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End of topic 10 test

Q7: Match the quality measures (1-4) with the descriptions (a-d).

1. Quality control

2. Quality assurance

3. Quality circles

4. Mystery shoppers

a) Where a retail outlet is visited by a customer who provides feedback on theirexperience.

b) Where a group of employees from every level of the organisation meet to discussquality.

c) Where raw materials and the final product are checked.

d) Where products are checked throughout the production process.

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Q8: Complete the paragraph using following words.

complaints an appropriate consumer appearance

a competitive procedures availability quality

Quality is an important factor to the �� and when buying a product theconsumer expects it to be of �� standard - although different people view"quality" differently. The �� of the finish, reliability, appearance, safety,�� , value for money, consumer support and the overall reputation of theproduct and the company, features and �� of a product may be consideredas making a product or service a quality one. In a �� market, producerswant to have no customer �� and focussing on their quality �� isone way to minimise the chances of complaints being made.

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SQA style questions

Q9: Explain what measures organisations can take to ensure they produce a qualityproduct or service. (5 Marks)

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Q10: Discuss the use of quality standards for an organisation. (6 Marks)

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95

Topic 11

Ethical and environmental

Contents

11.1 What are "ethical" and "environmental" concerns for business . . . . . . . . . 96

11.2 Ways to become environmentally friendly . . . . . . . . . . . . . . . . . . . . . 96

11.3 Ethical trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99



Learning objectives


• describe why it is important for an organisation to display concern forenvironmental and ethical issues;

• discuss ways in which an organisation can ensure that it is both ethical andenvironmentally aware.

96 TOPIC 11. ETHICAL AND ENVIRONMENTAL

11.1 What are "ethical" and "environmental" concerns forbusiness

Business awareness of ethical and environmental issues has increased considerably inrecent years. This is due to the increased pressure from consumers who value this typeof awareness in a company, along with the rise in national and European legislationwhich has to be complied with - for example, the new legislation in Scotland whichmeans that all organisations must charge 5p for carrier or paper bags.

We use the term "ethical" to describe practices which display thought for the treatmentof humans and animals in the production process. We use the term "environmental"to refer to issues relating to how an organisation helps to take care of the planet -these issues can range from using recycled materials and the recycling of materialsto monitoring emissions from factories and vehicles.

There are costs and benefits to an organisation of taking into consideration theenvironmental and ethical impact of their actions. Generally, it will cost more for anorganisation to implement environmentally friendly and ethical procedures - especiallyas there are usually initial start up costs involved. However, many of these measureswill have longer-term financial savings attached. There is also the intangible benefit ofthe good publicity and reputation which comes along with taking these steps.

11.2 Ways to become environmentally friendly

Minimising waste

Reducing the amount of waste produced by an organisation benefits the environment asit ultimately means less rubbish ends up in landfill. It can also be argued that contributingto food waste is socially irresponsible when there are so many food shortages elsewherein the world. There is also a positive benefit to the business in terms of costs saved- wastage means that the organisation is literally throwing money away! Minimisingwastage in the business can be achieved in a number of ways:

• Training employees - this means that employees will be better at their jobs.As a result, fewer mistakes should be made and therefore there should beless scrap/spoiled product to be thrown away. However, training employees isexpensive and time consuming for a business.

• Maintenance of machinery and equipment - this ensures that products areproduced to the highest level and are not damaged by faulty equipment.

• Setting appropriate stock levels - if a business holds too much stock it is possiblethat it will become obsolete (not needed or wanted any more eg video recorders ina TV/Electrical goods store) or in the case of a perishable good, it may spoil andbecome unusable (for example food or fresh flowers).

However, no matter how hard a business tries, there is still likely to be some wastegenerated. Some of this can be recycled (see below for further details) however abusiness will need to make decisions about how to deal with the rest of the waste.


TOPIC 11. ETHICAL AND ENVIRONMENTAL 97

Waste can be sent to landfill (where waste is buried in the ground) or a land-raising site(where the waste is built up in a massive pile). This incurs a cost for the business as theyare charged for the volume of waste dumped. There is also a negative environmentalimpact as landfill/raise sites emit noxious fumes and toxic liquid.

An alternative to landfill/raise is the use of incinerators (either at the site of the companyor elsewhere) which can be used to burn waste. This method is often used for hazardouswaste like medical waste. This is more expensive than landfill as the incinerator is costlyto build and maintain, and requires a constant flow of waste to run at an economicallyviable level. However, the energy produced can be converted into electricity.

Recycling

This is a relatively easy way for a business to improve environmental credentials. It isalso important because there are national targets for the levels of waste being recycled,which local councils are taking steps to meet. It is likely that companies who do notmake sufficient effort to recycle will ultimately be hit by fines. Encouraging recycling isstraightforward:

• Introduce appropriately coloured bins - this will make recycling easier foremployees and there are a variety of companies who will install these and offeruplift services. There will be a cost involved in setting up a recycling scheme,however businesses also have to pay for the uplift landfill waste. Therefore, oncerecycling has started, it is likely that the reduction in landfill waste uplift costs willoffset the cost of setting up a recycling programme.

• Reuse materials - in some cases, it may be possible to reuse materials withinthe production process. This has the benefit of reducing spoilt goods as well asrecycling goods.

Re-evaluating packaging

The packaging used for goods can be far more extensive than actually needed. Inaddition, the materials used to create the packaging can be difficult or impossible torecycle. By re-evaluating the packing used for their products, there is vast scope for acompany to be seen as environmentally friendly - and in some cases cut costs.

• Use environmentally friendly packaging - there are various alternative typesof packaging available which are more environmentally friendly than traditionalalternatives. For example, cardboard padding within a box (which can be recycled)can be used instead of foam chips (which can’t).

• Use recycled materials in packaging - for example bottles made of recycled glass.This is environmentally friendly as it reduces the consumption of natural resources(eg trees for paper, sand for glass).

• Minimise packaging - often packaging appears to be excessive for the productinside. It is usually possible to find a different way of packaging or to change thematerials used to allow more product to be enclosed. This can be a promotionalpoint for a company - for example, Kenco coffee have run a massive advertisingcampaign highlighting their eco-friendly refill packs of coffee, designed for toppingup glass jars or canisters in the home.



Preventing pollution

Pollution is a major issue for all developed countries. Certain cities (for example Londonand Beijing) have a very poor atmosphere due to "smog" - mainly caused by vehicleemissions, but also due to the smoke and steam emitted by factories. In addition,companies can cause pollution due to poor management of their production and wastedisposal systems. Steps organisations can take to reduce pollution include:

• Responsible waste disposal - by ensuring that dangerous or toxic waste isdisposed of carefully, a company can ensure that they are not causing damage- to local wildlife or water supplies for example. This may involve filtering wastewater before it is allowed to join a nearby river, or arranging special waste upliftsfor certain materials.

• Reduce road traffic - one of the major causes of pollution is exhaust fumes fromlorries. By investigating alternative methods of transport (eg rail or sea) or bysourcing products from near by, the amount of road traffic can be reduced, havinga positive impact on pollution levels.

Be sustainable

Many organisations now try to ensure that they use products from "sustainable" sources.This can be applied to a wide range of natural resources, where companies havecommitted to replacing whatever resource they have used. An example of this isKleenex, who ensure that all trees used to create their tissues and kitchen roll are fromforests where a new tree is planted to replace every tree that is cut down.

Energy policies

An organisation may have policies in place to prompt the use of renewable energysources. There are a number of forms of renewable energy available to an organisationto choose from, including water (hydro power), the wind and the sun (solar power).Many organisations have installed wind turbines or solar panels within their properties.Although these are expensive to purchase and maintain, they will save the organisationmoney in the long term due to their reduced fuel bills. They also help improve theenvironmental credentials of the organisation. In addition, the energy policy of anorganisation may cover everyday procedures like lighting - lights can be set to come onwhen movement is sensed, or there can be a policy stating that lights must be switchedoff when a room is empty. There may be maximum heat settings for central heating aswell to avoid wasting energy.

Marks and Spencer

Marks and Spencer have a well publicised environmental policy called "Plan A". Theirwebsite states that "Plan A is our way to help protect the planet - by sourcing responsibly,reducing waste and helping communities". Marks and Spencer have worked hard tobecome "carbon neutral" as part of this policy. They have also worked to ensure thattheir fish products are drawn from sustainable sources.

Visit http://corporate.marksandspencer.com/plan-a/about-plan-a and use theinformation there to answer the following questions.


http://corporate.marksandspencer.com/plan-a/about-plan-a


1. "Plan A" has been running for 5 years. What has happened to the carbon footprintof the company in that time?

2. By what percentage has Marks and Spencer increased the energy efficiency ofstores?

3. One element of the "cutting carbon" activities has been the "Wash at 3" campaign- where customers have been encouraged to wash clothes at 30◦. Clothes havebeen designed to wash well at this temperature. How will this impact on cuttingcarbon?

4. Identify 3 measures that Marks and Spencer have taken to help reduce theircarbon footprint.

5. Identify the three objectives of the "forever fish" programme.

6. Marks and Spencer charge 5p per plastic carrier bag. Where do the proceedsfrom this go?

7. How many varieties of fish are included in the programme?

8. Does Marks and Spencer’s "Plan A" make you more likely to buy from their stores?Justify your answer.

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11.3 Ethical trading

Like dealing with environmental issues, ethical trading has become a real focal pointfor many organisations in recent years. This can cover a wide range of issues andincreased consumer awareness has left no place to hide for firms who have previouslyignored their responsibilities.

Some ethical issues (such as animal welfare) have been important to consumers formany years, but a growing range of other causes have become more important. Eachindividual will make decisions about a company based on their own personal beliefsabout what is most important and areas that organisations have had to focus on includethe following:

Animal welfare

Historically, consumers have lobbied against and refused to buy cosmetic and otherproducts which had been tested on animals. This is now not allowed within the EU,however in recent years the focus has moved towards food products. Celebrity chefslike Jamie Oliver have carried out big campaigns to improve animal welfare and stronglyrecommend the use of free range and higher welfare eggs and meat. This has meantthat supermarkets have had to review their product offering and ensure that they havemet customer demand for these products.



Fairtrade

Fairtrade products are increasingly common and exist to ensure that a fair wage is paidto farmers in poor countries. Examples of Fairtrade products include bananas, coffee,chocolate and cotton. Some organisations (for example the Co-operative) have madethe decision to stock only Fairtrade products where possible.

Although Fairtrade is generally seen as a positive business practice (because of the wayit ensures that farmers are paid a fair wage, the prohibition of child labour and the linkto sustainable practices) there are also concerns that Fairtrade only works with farmersin relatively developed countries, not those working in the poorest. The increase ofFairtrade in certain products (for example coffee) has also had a negative impact on theprice of these goods, resulting in less being paid to the suppliers.

Employment policies

Some large manufacturing firms have come under scrutiny in recent times for payinglow wages to children and other workers abroad. This is in order to keep the cost oftheir products as low as possible. Although this is often legal, the negative publicitywhich this can generate has meant that most organisations are now ensuring that theypay workers what is known as a "living wage". This has already been discussed in theUnderstanding Business unit, when looking at multinational organisations.


Summary questions

Q1: Ethical treatment of workers is always set out in legislation.

a) Trueb) False

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Q2: Environmental issues apply to all types of organisation.

a) Trueb) False

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Q3: Animal welfare issues are confined to testing products on animals.

a) Trueb) False

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Q4: It is possible to buy coffee which is not fairtrade.

a) Trueb) False

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Q5: Investing in solar power can save an organisation money.

a) Trueb) False

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For each statement, decide if it's an ethical or environmental issue.

Q6: A fleet of old lorries which are failing to pass emissions tests.

a) Ethicalb) Environmental

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Q7: Receiving complaints from customers that there is excessive packaging on theirproducts.


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Q8: Workers being killed due to poor health and safety in a factory in China.


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Q9: Increasing waste sent to landfill.


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Q10: Customers demanding products which are made using free range and higherwelfare meat products.


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Q11: Being unable to answer questions on the source of coffee and chocolate sold instore.


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Q12: Using a type of fish which is reducing in population due to over fishing.


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Q13: Buying in cheap cosmetic products from outwith the EU which may have beentested on animals.


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SQA style questions

Q14: Describe three environmental issues that a company may need to address. (3Marks)

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Q15: Discuss advantages of focussing on the environmental and ethical policies of abusiness. (5 Marks)

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103

Topic 12

Technology in marketing andoperations

Contents

12.1 Technology in the marketing department . . . . . . . . . . . . . . . . . . . . . 104

12.2 Technology in the operations department . . . . . . . . . . . . . . . . . . . . . 106



Learning objectives


• describe technologies used by the marketing department;

• describe technologies used by the operations department.

104 TOPIC 12. TECHNOLOGY IN MARKETING AND OPERATIONS

12.1 Technology in the marketing department

Along with every department in a business, the introduction of new technology has hada massive impact on the marketing opportunities available to a business. Organisationscan use technology to interact with customers in a variety of ways and social mediaand apps in particular have become a vital part of the marketing strategy for manycompanies.

Social media

Social media has revolutionised the way that organisations communicate withcustomers. Relatively cheap and with a massive potential audience, a social mediapresence is now vital to remain competitive. It also has the unique feature of providingan easy method for customers to interact with the company - although this can allowcustomer complaints to be viewed by a wide audience. Social media can take a numberof forms:

Twitter

Companies set up their own twitter account and then tweet to their followers. Thisis a relatively cheap method of advertising as the only cost is that of the employeeresponsible for updating the twitter feed, however it relies on potential customersfollowing the feed and retweeting for maximum impact.

Facebook

Organisations pay Facebook to feature their advert to a specific audience. This can bean expensive form of advertising and users often ignore the adverts, however Facebookclaims that their market segmentation is excellent and is likely to reach the ideal groupof consumers. Also, it's impossible to delete the adverts from your news feed!

YouTube

Prior to merging with Orange to become EE, T-Mobile were a prolific user of YouTube,uploading videos of flash mobs which quickly went viral . Many organisations maintaina YouTube channel where adverts and celebrity interviews can been viewed.

Due to the fast changing nature of social media (who remembers MySpace and Bebo?),it is likely that within a few years of today (2014) there will be alternatives to these siteswhich are more popular and companies must ensure that they are monitoring trends totake advantage of the new opportunities which present themselves.

Internet

As well as social media, the internet offers a wide range of advertising and promotionalopportunities for most organisations. As well as allowing for e-commerce, manyorganisations offer "online only" promotions and incentives. There is also the opportunityto use "banner" ads (where the advert scrolls at the top of the browser window) and fullpage adverts - think of logging into email, for example.

Additionally, buying online allows the company to gain your personal details quicklyand easily, allowing for future targeted marketing emails and/or text messages. Theseemails can contain links to other website and provide detailed information about theorganisation, although customers tend to find them annoying.

Your buying and browsing history is also stored using cookies, which allows for tailored


TOPIC 12. TECHNOLOGY IN MARKETING AND OPERATIONS 105

suggestions of items you may be interested in - Amazon frequently do this.

Smart phones

The increasing number of smart phones available to consumers has meant a wide rangeof applications (apps) being made available for customers and potential customers.Organisations have made use of these apps (which are small pieces of software orlinks to internet pages) to communicate and engage with customers. They have been ofparticular interest to retailers, who have set up apps allowing customers to buy directlyfrom the app without having to browse a full internet site.

EPoS

Electronic Point of Sale is used by both the marketing and operations departments.An EPOS system is a huge database that can contain records about not only theproducts stocked by an organisation, but about their customers and suppliers, givingit a wide range of uses. Within the marketing department, the main function of EPoSis to provide highly detailed and quantitative market research and is designed to workalongside retailer loyalty cards like the Tesco Clubcard or Boots Advantage Card. Thetill records the details of every transaction, providing detailed information about exactlywhich product was bought in combination with others. Linked to a loyalty card, thisinformation can then be combined with the personal details of the shopper (age, gender,postcode, etc.) to develop a fuller picture of the buying habits of customers. Using EPoSprovides a retailer with accurate customer profiles, monitors brand loyalty and makes iteasy to offer promotions linked to customer needs. It is also unobtrusive - the customerdoesn’t have to actively answer questions and is not inconvenienced in any way by theprocess. However, the equipment is expensive to purchase and maintain and it is timeconsuming to analyse the data effectively.

Tesco clubcard

Visit http://www.tesco.com/clubcard/ and investigate the benefits to the customer ofusing a Tesco clubcard. Write a short report for your teacher outlining the following:

• What is the Tesco Clubcard? When do customers use the card?

• What benefits/perks are there for the consumer? Include at least 5 of thesebenefits in your report.

• Why do you think Tesco give rewards to customers for using the clubcard? Do youthink the benefits to the company are worth more than the cost of the rewards?

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http://www.tesco.com/clubcard/


12.2 Technology in the operations department

As with the Marketing Department, in recent years the Operations Department hasbenefited from new technologies which have helped improve the efficiency andconsistency of production.

Computer aided design

Computer aided design is used to help create or modify designs prior to production ofa prototype. It can be used to create 3D models (printed using a 3D printer) to allowdesigners to see how a product would look and make changes before making a full scalemodel. Using CAD is much more accurate than drawing by hand and allows for complexequations to be used to aid with problems like improving aerodynamics. The softwareused is very expensive and requires employees to have extensive training, however theactual designs produced are much more likely to lead to a successful product.

Computer aided manufacture

In production processes there has been a reduction or error and wastage of rawmaterials, thanks to the introduction of Computer Aided Manufacturing (CAM) systems.They are used to control machinery and robots as well as monitoring output of quality.For example, Coca-Cola use an "electronic eye" to ensure that each bottle is filled to thecorrect level.

CAM saves on labour costs, produces consistent quality and does not stop for breaksor holidays - but the equipment is expensive to install and if it breaks down, it can beexpensive to fix and production will halt in the meantime.

EPoS

As well as the market research provided by an EPoS system, EPoS can be used tomaintain a database of their stock records. Some are programmed to order more stockautomatically when the re-order level is reached and the software can allow detailedreports to be created, showing sales and purchase history for individual items. This canbe used to help decide which lines to stock and the quantities to be held in stock andalso in store layout design. As stated previously, EPoS is expensive to purchase andmaintain, but the advantages for the Operations Department include tighter control ofstock levels, which improves cash flow and efficiency, reduced labour costs for stockmanagement and a tighter control on shrinkage (employee theft of goods).

The following video clip online illustrates the advantages of using EPoS:

http://www.bbc.co.uk/education/clips/z3fsr82


http://www.bbc.co.uk/education/clips/z3fsr82



Summary questions

Q1: Which of the following technologies can be used by both the marketing andoperations departments?

a) EPoSb) Mobile appsc) Social media

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Q2: Which of the following is not an advantage of using social media?

a) Social media attracts large audiences.b) Social media allows the easy sharing of adverts/videos.c) Social media changes constantly, meaning that a site which is popular today may be

ignored next month.

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Q3: Why would an organisation use computer aided design?

a) To control the machines making the product.b) To allow for the inclusion of complicated equations within the design.c) To design a computer.

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Q4: Which form of technology would be associated with automation?

a) Computer aided designb) The internetc) Computer aided manufacture

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Q5: Some forms of technology allow for the unobtrusive collection of customer dataand market research. Which of the following does not offer this advantage?

a) EPoSb) Internetc) Texting customers

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Q6: Complete the paragraph about the use of social media using following words.

a massive revolutionised edit an easy customers

vital cheap complaints company interact

Social media has �� the way that organisations communicate with customers.Relatively �� and with �� potential audience, a social mediapresence is now �� to remain competitive. It also has the unique featureof providing �� method for customers to �� with the company -although this can allow customer �� to be viewed by a wide audience. It isalso possible for �� to �� the images and text shared by a company,which could have potentially negative consequences for the ��.

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For each question identify which technology would be used in which situation.

Q7: Design of a new car.

a) Computer aided manufacturingb) Computer aided designc) Social mediad) Internete) EPoS

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Q8: Creating a marketing campaign which is intended for sharing between customers.


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Q9: Capturing customer details through their buying a product.


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Q10: Making suggestions for future purchases by customers.


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Q11: Providing a report on how often a can of fizzy juice and packet of crisps are boughttogether.


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Q12: Requiring high precision robotic manufacture.


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Q13: Encouraging quick consumer response to an advertising campaign.


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Q14: Needing to ensure a specific stock level is maintained to avoid running out.


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SQA style questions

Q15: Discuss the introduction of modern technologies as part of a wider marketingstrategy. (6 Marks)

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Q16: Describe technologies which have improved efficiency in the operationsdepartment. (5 Marks)

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111

Topic 13

End of unit tests

112 TOPIC 13. END OF UNIT TESTS

End of unit 2 test

Identify whether promotions are into or out of the pipeline.

Q1: Sale or return

a) Into the pipelineb) Out of the pipeline

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Q2: Buy one get one free


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Q3: Dealer loader


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Q4: Free point of sale materials


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Q5: 50% extra free


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Q6: Training


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Q7: Online competition


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TOPIC 13. END OF UNIT TESTS 113

Complete the paragraph about Just In Time stock control using your own words.

Q8: This is a method of �� control where stocks arrive just �� theyare needed in the production process. Money is not tied up in stock and this ��

cash flow. Warehousing �� are reduced. �� does not deteriorate. Themethod depends on the reliability of the �� . Late deliveries can hold up the�� process. It is possible that the organisation will find it hard to cope withunexpected increases in �� .

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Decide true or false for each of the following statements.

Q9: Increasing recycling within an organisation is seen as good ethical practice.

a) Trueb) False

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Q10: Reducing waste will help improve the environmental impact of an organisation.One way of reducing waste is to train employees so that fewer mistakes are made.

a) Trueb) False

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Q11: Consumers may choose not to buy a product if they feel that the packaging is notenvironmentally friendly.

a) Trueb) False

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Q12: There are legal restrictions in place to ensure that all organisations operate in acompletely ethical manner.

a) Trueb) False

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Q13: Some consumers will value certain ethical policies (for example a using FairTradesupplier) more highly than others.

a) Trueb) False

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Q14: Having sustainability and energy policies are examples of ways in which anorganisation can prove environmental credentials.

a) Trueb) False

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For each advantage decide if it is a job, batch or flow method of production.

Q15: Each item is custom made and unique.

a) Jobb) Batchc) Flow

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Q16: Massive quantities of identical products can be made.


. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q17: Products are extremely consistent in quality.


. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q18: Each group of products can be altered slightly to meet customer requirements.


. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q19: The product is likely to generate high levels of customer satisfaction.


. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q20: The same machinery can be used for a small range of products.



TOPIC 13. END OF UNIT TESTS 115

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Q21: A high level of automation can be used, reducing labour costs.


. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q22: Workers are likely to be highly motivated and productive.


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SQA style questions

Q23: Compare product orientation and market orientation. (3 Marks)

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Q24: Organisations continually try to obtain primary information about the market inwhich they operate.Describe the advantages and disadvantages of three types of field research anorganisation could use to obtain primary information. (8 Marks)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q25: Describe the effect of each stage of the product life cycle on profits. (4 Marks)

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Q26: Describe the benefits of maintaining a product portfolio. (4 Marks)

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Q27: Discuss technology currently being used to benefit the marketing department. (6Marks)

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Q28: Describe six pricing tactics that could be used when an organisation attempts tobreak into a new market. (6 Marks)

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Q29: Explain the impact that recent trends in retailing have had on organisations. (4Marks)

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Q30: Describe the advantages and disadvantages of product endorsement. (6 Marks)

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Q31: Explain the advantages and disadvantages of using job production. (5 Marks)

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Q32: Discuss the importance of quality inputs in the operations process of anorganisation. (6 Marks)

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GLOSSARY 117

Glossary

Above the line promotion

refers to mass media marketing. This is marketing which is designed to appeal toa very wide range of people and to be seen by a large number of people.

A customer-orientated organisation

is one which identifies what the consumer wants (through carrying out extensivemarket research) and provides it.

The Advertising Standards Authority

is a body set up to monitor all forms of advertising within the UK.

A product-orientated organisation

is one that concentrates solely on the production process and the product ratherthan what the customer wants.

A quality standard or symbol

is awarded by an external body to an organisation who can prove that they havemet certain quality standards.

A retailer

is the term used to describe an outlet where customers visit to purchase goods.

Augmented product

enhanced product which has additional benefits and features.

Automation

is where the production of products is carried out mainly by robots and machineryand much of the control is by computer.

A wholesaler

can be described as a middle man, capable of dealing with goods in much largerquantities than either a retailer or consumer can handle.

Batch production

this involves the production of groups of similar products.

Below the line promotion

is far more targeted and takes place through public relations, sales promotionsand direct selling.

Benchmarking

this is where a company compares their product or processes with those of anotherin the same industry.

Capital intensive production

is where the majority of the work is carried out by machinery or robots.


118 GLOSSARY

Concessions

where one shop buys space within another store to sell products - almost a storewithin a store.

Consumer goods

goods, such as food and clothing, that satisfy human wants through their directconsumption or use. These goods are not used in the production of other items.

Core product

product which fulfils the basic needs of the consumer.

Customer behaviour

is about studying how individuals behave when making purchases and how thisbehaviour can impact on other individuals and wider society.

Direct selling

happens where a product is sold directly by the manufacturer to the end consumer.

Disposable income

the income available for an individual to spend on "wants" after all necessary itemslike rent and food have been paid.

E-commerce

is buying and selling over the internet, or using mobile technology such as apps.

Environmental

we use the term "environmental" to refer to issues relating to how an organisationhelps to take care of the planet.

EPoS (Electronic Point of Sale)

is a computer database which is used as a till in a supermarket. Barcodes arescanned when a product is purchased and the information gathered is used formarket research purposes and stock control.

Ethical

we use the term "ethical" to describe practices which display thought for thetreatment of humans and animals in the production process.

Flow production

this is where items move continuously along a production line from one operationto the next.

Into the pipeline promotion

is used by manufacturers to persuade wholesalers/retailers to stock their products.

Job production

is where a single unique product is made to meet customer specifications.

Labour intensive production

relies on humans rather than machines to create products. It applies most often tojob production.


GLOSSARY 119

Mechanisation

is where machinery is controlled by humans to produce goods.

Mystery shoppers

a mystery shopper will visit a shop/restaurant and then make a report to headoffice on their experience.

Out of the pipeline promotion

refers to the types of promotion used to entice the final customer to buy products ina shop/online. These are the sales promotions/special offers/vouchers describedas "below the line".

People

within the extended marketing mix refers to those employees of an organisationwho are actually in contact with the customer.

Physical evidence

relates to the actual store or service experience provided for customers - thefacilities and infrastructure of a business .

Process

refers to the processes involved in implementing marketing strategy.

Product

the actual product made/sold by the business.

Product line

a range of products which are similar.

Product mix

a range of different types of products.

Product portfolio

the product lines and mixes offered by a company.

Promotion

is the way in which the consumer is made aware of the product and is persuadedto buy it.

Quality assurance

this is where products are checked at points throughout the production processand are discarded/reworked as soon as a fault is identified.

Quality circles

a quality circle is made up of employees from all parts of the production processand at all levels - from shop floor to senior management. This group meets on aregular basis to discuss production and quality procedures.

Quality control

this is where the raw materials for the product are checked at the start of theprocess and then the end product is checked at the end of the process.


120 GLOSSARY

Smart phones

a phone which can be used for internet browsing, email and apps in addition tomaking/receiving calls and texts.

Viral marketing

information about a company's goods or services is passed electronically from oneInternet user to another, reaching large number of people in a very short space oftime.


ANSWERS: TOPIC 1 121

Answers to questions and activities

1 Customers

Answers from page 2.

Q1: a) Product-orientated

Answers from page 3.

Q2: b) Customer-oriented

Product v customer led organisations (page 3)







Nabaztag marketing (page 4)

Q9: Who is the customer?

Q10: What is the price?

Q11: Who is the customer?

Q12: Where should the product be sold?

Q13: Where should the product be sold?

Summary questions (page 6)

Q14: d) None of the above

Q15: b) Technology

Q16: c) Customer led carries out extensive market research whereas product led relieson sophisticated product development.

Q17: a) Tries to explain why customers buy one product instead of another.

Q18: c) Items bought without any prior thought.


122 ANSWERS: TOPIC 1

End of topic 1 test (page 7)

Q19: a) True

Q20: a) True

Q21: b) False

Q22: a) True

Q23: b) False

Q24: a) True

Q25: 1b; 2c; 3a; 4d

SQA style questions (page 8)

Q26:

• Marketing decisions are often strategic as they can determine the overall directionof the organisation.

• Although the level of marketing activity depends on the size of the organisation, itcan directly influence the success of the business.

• Using marketing, organisations hope to achieve a number of objectives:(any one of these acceptable)

− To increase sales revenue and profitability.− To increase or maintain market share.− To maintain or improve the image of the business, its brand or its product.− To target a new market or a new segment of the market.− To develop new and improved products.

Q27: Product orientation is where an organisation first manufactures a product and thentries to persuade consumers to buy it.

Q28: Market orientation is where an organisation identifies the consumers' needs firstbefore launching the product.

Q29: Any two from:

• Consumer behaviour is studying how individuals behave when making purchasesand how this behaviour can impact on other individuals and wider society.

• It tries to understand the decision-making processes of buyers and what influencespurchasing decisions - for example, demographics, family pressures and emotions.

• This is linked to the satisfaction of needs and wants as consumers look for productsthat can provide them personally with maximum satisfaction - different products willachieve this for different customers.

Q30: Any two from:



• The market segment of the buyer - for example, the household income. Thisinfluences behaviour because the income available to spend will make certainproducts too expensive for some buyers, forcing them to choose cheaperalternatives.

• The changing fashions surrounding a product. This will influence consumerbehaviour because if a specific product meets a current trend customers will bemore likely to make a purchase.

• Bad publicity received by a product. This will make consumers who have previouslybought a product reconsider their future purchasing decisions and potentiallychoose a different product.



2 Market research

Primary or secondary research (page 10)

Q1: a) Primary

Q2: a) Primary

Q3: b) Secondary

Q4: b) Secondary

Q5: b) Secondary

Q6: a) Primary

Q7: a) Primary

Q8: b) Secondary

Q9: b) Secondary

Q10: a) Primary

Q11: a) Primary

Methods of field research (page 15)

Q12: b) False

Q13: a) True

Q14: a) True

Q15: a) True

Q16: a) True

Q17: a) True

Q18: a) True

Q19: a) True

Q20: b) False

Q21: a) True

Methods of field research - advantages (page 17)

Q22: 1c; 2f; 3a; 4b; 5d; 6e



Methods of field research - disadvantages (page 17)

Q23: 1e; 2b; 3f; 4a; 5c; 6d

Methods of desk research (page 20)

Q24: b) Some websites are more reliable than others - a company’s own website islikely to be more reliable and accurate than Wikipedia, for example.

Q25: c) Market research organisations

Q26: a) There is a huge amount of information freely available.

Q27: a) Because information has been gathered for another purpose it may not berelevant.

Sampling (page 21)

Expected answer

A quota of people who are likely to read the magazine would be best e.g. gender andage. There is little point in asking young children about a teenage magazine as it is notthe type of thing they would read.The method of sampling used for a chocolate bar would depend on whether it is aimedat one particular market segment. If this is the case, then quota would be appropriate.However, if the product is not really differentiated then random sampling would besatisfactory.


Q28: a) Desk

Q29: c) It’s physically impossible to interview every single potential customer for anorganisation.

Q30: a) True

Q31: c) Customers will always provide truthful responses making the research accurate.

Q32: b) A random sample of a number of market segments.


Q33: 1b; 2e; 3g; 4a; 5d; 6j; 7h; 8c; 9i; 10f


Q34: Any three from:



• Telephone surveys are used by organisations to call customers and gain theirviews. Instant feedback can be given.

• Postal survey where questionnaires are posted out to customers who completethem and return them to the organisations. These could be sent out to allcustomers, or customers in selected areas, gaining their opinions.

• Personal interview where people are stopped in the street and askedquestions. Questions can be clarified to aid understanding and allows two-waycommunication.

• Secondary information such as statistics on the number of subscribers to satelliteTV. This information is easily accessible.

Q35: Any two from:

• Quota sampling is when an interviewer is left to find the people who fitcertain categories whereas random sampling uses pre-selected individuals, theseindividuals must be interviewed.

• Random sampling is an expensive technique to carry out whereas quota samplingis less expensive as the interviewer can use their judgement to find people tointerview.

• Random sampling limits the amount of bias that can occur whereas interviewerbias can occur in quota sampling due to being able to choose who to interview.


• Desk research is used to collect secondary information whereas field researchobtains primary information.

• Desk research is usually much cheaper than field research to complete.

• The reliability of information gathered through desk research is unlikely to be asstrong as that gathered through field research.

• There is no guarantee that information from desk research will be relevant to thepurpose required whereas field research asks specific questions.



3 Marketing mix - product

Car features and different customers (page 26)

Q1: 1: f and d, 2: e and b, 3: c and a

Stages of the life cycle (page 28)

Q2: 1c; 2f; 3e; 4d; 5b; 6a

Q3: a) costs are high and sales non existent.

Q4: a) sales are low and advertising costs are high.

Q5: c) sales grow rapidly and the product is profitable.

Q6: b) sales peak and advertising costs fall.

Q7: c) sales and profits fall.

Q8: b) a manufacturer of a chocolate bar launching a new flavour.

Extending product life cycle (page 31)

Q9: a3; b5; c2; d8; e4; f6; g7; h9; i11; j10; k1

Unilever (page 32)

Expected answer

1. Over 400

2. Older (50+) men

3. Lynx

4. Timotei is marketed as a “green” shampoo, using reduced packaging and naturalherbs and ingredients. TRESemmé is sold as a salon quality brand with a rangeof variants (for coloured/dry/damaged hair etc.).

5. Students can answer with appropriate justification.

Boston matrix (page 36)

Q10: b and c

Q11: c

Q12: f

Q13: d and e




Q14: b) False

Q15: b) False

Q16: a) True

Q17: a) True

Q18: b) False

Q19: a) True

Q20: a) True

Q21: b) False


Q22: 1c; 2f; 3e; 4d; 5b; 6a

Q23: 1e; 2c; 3a; 4b; 5f; 6d

Q24: d) Dog

Q25: c) An extension strategy allows an organisation to continue to sell a product whichmay have otherwise entered decline.

Q26: a) Cash cow and star

Q27: b) Changing the product

Q28: a) A product which satisfies the basic needs of the consumer


Q29: Any six from:

1. Improve the product - this will attract new consumers to purchase the product, orprevious consumers to retry the product to find out what has been improved or ifthe product is better.

2. Alter the packaging - this may appeal to a different market segment or may attractnew customers to the product as the packing is eye-catching, e.g. Pepsi alteredthe colour of their cans to attract a younger generation.

3. Increase/decrease the price - price changes can attract new consumers topurchase the product and existing consumers to purchase more of the product.A price increase may make the product seem more exclusive and attract newcustomers. A price decrease may mean existing customers purchase more of theproduct, e.g. lowering the price will mean families with lower income may purchasethe product.



4. Use a different or new advertising campaign/advertising media - this willhighlight the product in a different manner or could be eye-catching to a new groupof consumers, e.g. change advertising from newspapers/billboards to TV.

5. Change the use of the product - new use of the product will be popular withdifferent market segments than the original use and attract a wider consumer base,e.g. Lucozade became a fitness drink from a health drink.

6. Introduce line extensions to the product - various product line extensions willappeal to different segments and may increase overall sales.

7. Change the name of the product - by changing the name, the product may appeardifferent or better in the eyes of the consumer. Also allows for a whole new rangeof promotions/adverts to be launched which should attract attention.

8. Alter the place the product is sold - selling the product in a variety of ways willmean a larger number of consumers can purchase the product, e.g. selling onlinecan attract a worldwide audience.



4 Marketing mix - pricing

Examples of pricing tactics (page 44)

Expected answer

• Low price - Video recorders as demand is now low.

• High price - A house in an area where demand is high and supply low.

• Competitive price - Petrol and diesel to avoid a price war.

• Skimming - HD televisions as they are new on the market.

• Promotional pricing - Tesco selling strawberries at half price.

• Penetration pricing - Newly established café offering all day breakfasts for 99p.

• Destroyer - EasyJet offering free flight to Ireland.

• Loss leader - Morrisons offering washing up liquid at 10p per bottle.


Q1: c) The appearance of a product

Q2: b) Skimming

Q3: a) True


Q4: Skimming

Q5: Demand orientated

Q6: Low price

Q7: High price

Q8: Penetration pricing

Q9: Market price

Q10: Promotional pricing

Q11: Destroyer pricing

Q12: Loss leader


Q13:



1. Penetration is where a price is low when the product first enters the market. Oncecustom is established it is raised to a level which will make more profits.

2. Skimming is where a price is set at an artificially high level. A group of consumerswill be willing to purchase in order to be the first person to have the goods. Oncethis segment of the market is satisfied, the price is lowered to attract others.

Q14: Price is defined as the amount a customer is prepared to pay (and actually pays)for a product.

Q15:

• Brings customers into the shop because they are attracted by the low price.

• Customers usually then buy other products which are normally priced.

• Profits are made on the overall amount a customer purchases - the other productshelp offset the loss of the loss leader product.

• It can create customer loyalty, due to the perception of low prices/value for money.

• It can be used in a marketing campaign, often comparing prices with otherorganisations.



5 Marketing mix - place

The role of the wholesaler (page 50)

Q1: a) True

Q2: a) True

Q3: b) False

Q4: a) True

Q5: b) False

Q6: a) True


Q7: c) Manufacturer - Retailer - Wholesaler - Consumer

Q8: c) Discount retailer

Q9: a) True

Q10: a) True

Q11: a) True


Q12: 1c; 2a; 3d; 4b

Q13: E-commerce is of growing importance to all businesses. The use of e-commercemeans that products are available to a much wider market, allowing even smallerorganisations to sell worldwide. Cookies can be used to collect information aboutcustomers without causing any inconvenience. Some customers may be concernedabout the security of their personal information and for this reason it is important toensure protection of these details.


Q14:

• Direct selling via the internet - is where organisations sell directly from their ownwebsite, using no third party.

• Mail order - goods are sold via catalogues. Customers who are unable to visitretail outlets, or who would prefer to select items in the privacy of their own homeoften find this method of purchasing convenient. Mail order companies oftenoffer credit facilities. In some cases, mail order can be exclusive and only wayto purchase some products. The company will save on expensive High Street



locations. However, although this method of selling attracts some customers,others may not like the lack of personal service and many goods require to bereturned. It involves high advertising costs. In addition, high levels of bad debtsoccur.

• Direct mail - companies send letters/leaflets advertising their products for saledirectly to homes of possible consumers. This means that consumers withinspecific market segments can then be targeted directly and the company can reachwide geographical areas. However, generally consumers do not respond well tovast amounts of junk mail.

• Personal selling - products are sold door-to-door or by telesales. This allowsfor detailed descriptions or demonstrations of products to be given by trainedemployees. Double glazing is a common example of a product sold in this way.Some organisations which sell extremely technical products will also choose tooperate this way to allow the detailed explanations required - this includes manybusiness-to-business products. The downside of this method is that it can be seenas intrusive by customers who often dislike calls at home.

• TV shopping - this can take the form of detailed commercials known as"infomercials" or through specialist channels such as QVC. Again this allowsconsumers the opportunity to shop at their own convenience within the privacy oftheir own home and the medium of TV allows for movement and sound to portraythe product.

Q15:

• The product being sold - if the product is flowers it needs to be a fast method withappropriate facility to transport flowers.

• The finance available within the organisation - if there is limited finance availablethen this will affect the choice of channels.

• The image of the product - if the image is of a high quality product this will affectthe channel that the organisation chooses.

• The reliability of the other companies in the chain.

• Legal restrictions.

• Where the product is in the life cycle.

• The organisation's own distribution capabilities.

• Durability of the product.



6 Marketing mix - promotion


Q1: a) Above the line promotion

Q2: c) Into the pipeline promotion

Q3: a) To monitor all forms of advertising within the UK

Q4: a) True


Q5: b; d

Q6: b; e

Q7: a

Q8: b; d; e


Q9:

• Above the line promotion is mass marketing whereas below the line is targeted atspecific consumers.

• Above the line is created to generally attract and appeal to consumers whereasbelow the line is designed to attract attention at the point of sale.

Q10: Any two from:

• To monitor advertising in newspapers, magazines and billboards to ensure they areup to standard.

• To have adverts changed or withdrawn if found to be untruthful or offensive.

• To investigate complaints and take action should any issues be found.

Q11: Any four from:

• Dealer loaders - these are the wholesaler version of "buy one get one free" or "3for the price of 2". They are often to encourage bulk buying - for example, 6 casesfor 5.

• Point-of-sale displays - these are to help the retailer draw attention to the productwithin their store. Examples of this are the posters displaying offers and shelf-talkers (standout labels on shelves) that can be seen throughout most retail outlets.

• Dealer competitions - these are to encourage retailers to make a feature of aproduct and will often feature a prize - perhaps for the best display in store, orbiggest increase in sales.



• Staff training - often offered for specialist products to allow retailers to deal moreeffectively with customers. Camelot are a well-known example of this - they offerextensive training for retailers who sell lottery tickets.

• Sale or return - used for items which may have unpredictable sales levels. Theitems (for example, newspapers or sandwiches) are supplied to the retailer, unsolditems are returned at the end of the sales period and the retailer pays only for thoseitems they have actually sold. This allows a retailer to stock the item with minimalrisk of wastage, although they will make less profit on these items.



7 Extended marketing mix - people, process & physical evidence


Q1: c) Both

Q2: a) True

Q3: b) False


Q4: a) People

Q5: c) Physical evidence



Q8: b) Process

Q9: b) Process

Q10: a) People


Q11:

• People - anyone who comes into contact with your customers that will have aneffect on customer satisfaction.

• Process - the ways of delivering the service, i.e. helpfulness of staff, quality ofinformation given.

• Physical evidence - the tangible aspect of delivering the service, i.e. the building.



8 Stock management

Stock control (page 71)

Q1: The level of stock above which an organisation should not allows its stock to riseas too much cash and space is committed to holding the stock is known as maximumstock level

Q2: The amount of stock which an organisation orders at one time is known as re-order quantity.

Q3: The point at which stock should be reordered is known as re-order level.

Q4: The level of stock below which stock should not fall as the production line mayhave to stock is known as the minimum stock level.

JIT - advantages and disadvantages (page 72)

Q5: advantage

Q6: advantage

Q7: advantage

Q8: disadvantage

Q9: disadvantage

Q10: disadvantage

Q11: advantage

Physical distribution of goods (page 75)

Q12: Air

Q13: Road

Q14: Rail

Q15: Sea


Q16: c) The lowest level of stock which can be held whilst continuing to fulfil all orders.

Q17: b) False

Q18: a) True

Q19: c) Air

Q20: a) True




Q21:

Q22: a) True

Q23: a) True

Q24: a) True

Q25: b) False

Q26: b) False

Q27: a) True

Q28: a) True

Q29: b) False


Q30: Any four from:

• Maximum stock level - the level of stock that should be held to minimise costs andinvolves examining storage space available and finance required for this level.

• Minimum stock level - the level that stock should not fall below as shortages couldresult and production could be halted.

• Re-order level - the level that stock should be re-ordered at, takes into accountusage and lead times.

• Re-order quantity - the amount that is ordered to take the stock back up tomaximum level once it is delivered.

• Lead time - the time taken between ordering new stock and it arriving at theorganisation.



Q31: Any five from:Advantages:

• Capital is not tied up in stock and can be used elsewhere in the organisation.

• There is less warehouse space needed for stock.

• Less stock is stored which should result in less wastage.

• Theft will be reduced as stock is more tightly controlled.

• Changes in fashion or trends will have less of an impact.

Disadvantages:

• If stock does not arrive production can stop.

• May lose out on bulk buying discounts.

• There will be an increase in delivery costs as more frequent transportation exists.

• There is a high dependence on suppliers.

• May increase administration costs due to more ordering.

• Stock may have to go straight into production and there may not be time to checkit for quality.

• Production not started until order arrives - this can improve cash flow.

Q32: Any five from:

• The product being sold - if the product is flowers it needs to be a fast method withappropriate facility to transport flowers.

• The finance available within the organisation - if there is limited finance availablethen this will affect the choice of channels.

• The image of the product - if the image is of a high quality product this will affectthe channel that the organisation chooses.

• The reliability of the other companies in the chain.

• Legal restrictions.

• Where the product is in the life cycle.

• The organisation's own distribution capabilities.

• Durability of the product.



9 Methods of production

Methods of production (page 84)

Q1: Job: The customer for the painting will have specified exactly what they want.The product will meet these specific needs.

Q2: Flow: Items such as an iPhone or freezer, which are produced in huge quantitiesof identical items, are ideal for flow production. The nature of these products means thatmachinery and robots can be used to speed up the production process.

Q3: Batch: A housing estate means that a group of the same product are beingproduced. Each task in the process is repeated until they are all ready for moving ontothe next stage. This means specialised tradesmen e.g. plumbers can complete theirtask in a shorter period of time.

Q4: Job: The customer for the kitchen will have specified exactly what they want. Theproduct will meet these specific needs.

Q5: Flow: Items such as an iPhone or freezer, which are produced in huge quantitiesof identical items, are ideal for flow production. The nature of these products means thatmachinery and robots can be used to speed up the production process.

Advantages and disadvantages of production methods (page 84)

Expected answer

Job - Specifications can be changed even if production has started. A high price can becharged. Workers are likely to be more motivated as the work is varied. This method isquite expensive. The unit cost is also expensive as a result of research and developmentcosts not being spread over a large output. The method is also lengthy.

Batch - Reduces the need for highly skilled, costly staff. Machinery can also be usedwhich again reduces costs. Different requirements of each retailer can be met. Ifbatches are small, costs will be high due to the fact that costs cannot be spread over alarge output. Where machinery is needed it may well sit idle between stages. Staff maybe less motivated as they repeat the same tasks in batches.

Flow - Costs are spread over a large number of goods and therefore the unit cost falls.As large quantities of goods are produced discounts are obtained for purchasing rawmaterials in bulk. The process is heavily automated and saves labour costs. Jobs arerepetitive and therefore labour motivation is low. The set up costs are very high andmachine breakdowns costly. Individual customer requirements cannot be met.


Q6: b) Automation

Q7: a) Job production

Q8: c) Flow production



Q9: a) True

Q10: a) True

Q11: b) False


Q12:

Job production Batch production Flow production

False teeth Hot cross buns BluRay player

Tattoo Jeans IronCruise ship Tin of paint Hair dryer

Portrait Pocket of crisps Computer


Q13:

• Job production is where a single product is made to customer's specification e.g. awedding cake or designer dress.

• Batch production involves the production of groups of similar products. No one itemin the batch goes on to the next stage until all are ready.

• Flow production is where items move continuously from one operation to the next.Cars are produced using this method.

Q14: Any four from:

• The actual product being made - does it have to be unique, is it of high value? Acustomer looking for a wedding dress is unlikely to want a dress which is producedin huge quantities and widely available on the high street.

• The size of the market - how many people will actually want to buy the product?An item which is likely to appeal to a massive range of people will need to beproduced in large volumes.

• The size of the business - a small business is more likely to create products tocustomer specification as they have more contact with their customers.

• The finance available - machinery costs a lot of money to buy and set up, abusiness must have finance available for this if they wish to use automation. Ifthere is not adequate finance available a less capital intensive production methodwill need to be used.

• The technology available - for some products, there may not be appropriatetechnology available to manufacture the product using machinery, meaning thatlabour intensive methods remain more appropriate.




• Capital intensive production relies on machinery and robots whilst labour intensiveproduction makes use of human effort.

• Capital intensive production requires a large investment of finance whilst labourintensive production has ongoing labour costs.

• Capital intensive production uses low skilled workers whereas labour intensiveproduction requires highly skilled workers.

• Capital intensive production creates large quantities of identical items whereaslabour intensive production creates smaller numbers of unique items.



10 Quality

Impact of training and motivation on quality (page 92)

Q1: 1c; 2a; 3d; 4e; 5b


Q2: b) A product which is of a standard appropriate for the purpose of the product andthe price paid.

Q3: a) Where raw materials and the final product are checked.

Q4: b) prevent problems.

Q5: a) True

Q6: a) The Kitemark


Q7: 1c; 2d; 3b; 4a

Q8: Quality is an important factor to the consumer and when buying a product theconsumer expects it to be of an appropriate standard - although different people view"quality" differently. The quality of the finish, reliability, appearance, safety, availability,value for money, consumer support and the overall reputation of the product and thecompany, features and appearance of a product may be considered as making aproduct or service a quality one. In a competitive market, producers want to have nocustomer complaints and focussing on their quality procedures is one way to minimisethe chances of complaints being made.


Q9: Any five from:

• Benchmarking - using best methods identified through best practice in industry.This means that the business will ensure that it remains competitive.

• Quality assurance - products are checked at certain points in the productionprocess. This means that mistakes are quickly identified and helps reducetime/materials being wasted on products that would not pass a final quality check.

• Quality circles - groups of workers including managers and grass roots workers,meet to discuss the best methods and where improvements can be made. Thismotivates employees and also ensures that problems being experienced duringproduction are raised.

• Quality management - focuses on quality products every time. Zero defects areaimed for but this must have commitment of whole organisation and all workers.

• Quality standards/marks - BSI awards are used to show quality has been



approved. This allows consumers to buy with confidence and can give theorganisation a marketing tool.

• Quality control - products are checked at the end of the process. This means thatfaulty products do not reach the final consumer however it can lead to high levelsof wastage.

Q10: Any six from:

• Proves the product/service has met an agreed level of quality.

• Can be used as a marketing tool to gain a competitive advantage.

• Will give customers confidence when purchasing the product.

• May ensure repeat sales of the product.

• Involves a very lengthy and time consuming process.

• Agreed standards need to be maintained at all times.

• Will require thorough checks and audits by BSI staff to prove the standards havebeen met.

• Rigorous record keeping of purchases and production must be kept.

• Higher prices can then be charged.

• Less customer complaints/less returns.

• Limits waste.

• Increase sales/repeat sales/gain sales from competitors.



11 Ethical and environmental

Marks and Spencer (page 98)

Expected answer

1. It has been reduced.

2. 28%

3. By washing at 30◦ less fuel will be required to heat the water therefore reducingthe carbon.

4. Any three from:

• Monitoring energy use.

• Giving each of our stores individual targets to achieve.

• Pioneering new technologies like our groundbreaking fridges.

• Investing in new equipment in our stores and offices; from air conditioningunits to fuel efficient, aerodynamic teardrop-shaped truck trailers.

5.

• Help to protect and save our precious sea life, oceans and beaches for futuregenerations to enjoy.

• Encourage eating of lesser known and British fish species, withoutcompromising on quality.

• Involving volunteers in cleaning our beaches and teaching their children aboutfish.

6. WWF, MCS and an education programme to protect the marine environment.

7. 37

8. Students can answer either yes or no with appropriate justification.


Q1: b) False

Q2: a) True

Q3: b) False

Q4: a) True

Q5: a) True


Q6: b) Environmental




Q8: a) Ethical


Q10: a) Ethical

Q11: a) Ethical


Q13: a) Ethical



An organisation may need to:

• look at their packaging to reduce the amount of excess materials used in theprocess.

• look to use renewable energy sources in order to reduce their carbon footprint.

• increase the level of waste that is recycled by the organisation to ensure that theymeet government targets.

• review the source of raw materials used by the organisation in order to use moresustainable products.

• review the types of vehicles used and overall size of the fleet to reduce emissions.

Q15: Any five from:

• Customers may be more likely to buy from company if they believe that they areethically/environmentally sound.

• The organisation can avoid penalties from governments for failing to meet targetsset (for emissions, recycling, etc.).

• The organisation can save money on fuel bills by creating energy policies whichstate that lights/electrical equipment must be switched off when not in use.

• The organisation can save money through installing renewable energy equipmentlike a wind turbine as their overall fuel bill will reduce.

• Reduction of waste will also reduce costs as fewer raw materials will be neededand it will cost less for the uplift of waste from the business.

• Using less packaging will mean that money is saved on the materials needed forthe packaging.

• Using higher welfare food products can result in a higher quality end product.



12 Technology in marketing and operations


Q1: a) EPoS

Q2: c) Social media changes constantly, meaning that a site which is popular todaymay be ignored next month.

Q3: b) To allow for the inclusion of complicated equations within the design.

Q4: c) Computer aided manufacture

Q5: a) EPoS


Q6: Social media has revolutionised the way that organisations communicate withcustomers. Relatively cheap and with a massive potential audience, a social mediapresence is now vital to remain competitive. It also has the unique feature of providingan easy method for customers to interact with the company - although this can allowcustomer complaints to be viewed by a wide audience. It is also possible for customersto edit the images and text shared by a company, which could have potentially negativeconsequences for the company.

Q7: b) Computer aided design

Q8: c) Social media

Q9: d) Internet

Q10: d) Internet

Q11: e) EPoS

Q12: a) Computer aided manufacturing

Q13: c) Social media

Q14: e) EPoS


Q15: Any six from:

• The use of technology such as the internet and social media is a relatively cheapway to conduct advertising.

• Social media and apps allow customers to interact with the company by postingcomments and questions.

• Customers increasing expect organisations to have an online presence and to havethe opportunity to search and buy online.



− Failure to offer this may result in lost sales.

• The audience for social media is ever widening and an increasing number of olderconsumers are engaging with this format, meaning the potential audience reachedis massive.

• The company may find it very difficult to control images/text once it has been postedto the internet - this may mean that customers can edit and change the message.

• Customers can complain to a wide audience through the use of the internet/socialmedia, meaning potential bad publicity.

• The internet can be used to collect information about customers quickly and withoutannoying them - although emails which are sent to mass recipients are treated asspam by most customers.

• EPoS can be used to create detailed customer profiles based on their buying habits.

− This allows organisations to create tailored promotions.

Q16: Any five from:

Computer aided design:

• Computer aided design is used to help create or modify designs prior to productionof a prototype.

• It can be used to create 3D models (printed using a 3D printer) to allow designersto see how a product would look and make changes before making a full scalemodel.

• Using CAD is much more accurate than drawing by hand and allows for complexequations to be used to aid with problems like improving aerodynamics.

Computer aided manufacture:

• Computer Aided Manufacturing (CAM) systems are used to control machinery androbots as well as monitoring output of quality.

• This can improve efficiency and consistency - for example, Coca-Cola use an"electronic eye" to ensure that each bottle is filled to the correct level.

•

EPoS:

• EPoS can be used to maintain a database of inventory (stock records).

• Some are programmed to order more stock automatically when the re-order levelis reached.

• The software can allow detailed reports to be created, showing sales and purchasehistory for individual items.

− This can be used to help decide which lines to stock and the quantities to beheld in stock and also in store layout design.



13 End of unit tests

End of unit 2 test (page 112)

Q1: a) Into the pipeline

Q2: b) Out of the pipeline






Q8: This is a method of stock control where stocks arrive just when/before they areneeded in the production process. Money is not tied up in stock and this improves/helpscash flow. Warehousing costs are reduced. Stock does not deteriorate. Themethod depends on the reliability of the suppliers. Late deliveries can hold up theproduction/manufacturing process. It is possible that the organisation will find it hardto cope with unexpected increases in demand.

Q9: b) False

Q10: a) True

Q11: a) True

Q12: b) False

Q13: a) True

Q14: b) False

Q15: a) Job

Q16: c) Flow

Q17: c) Flow

Q18: b) Batch

Q19: a) Job

Q20: b) Batch

Q21: c) Flow

Q22: a) Job





• Product orientation produces a product and then attempts to sell it whereas marketorientation produces a product that consumers want/need.

• Product orientation does not conduct any market research whereas marketresearch is central to market orientation.

• Product orientation focuses on product research/testing whereas marketorientation focuses on customer needs.

• Market orientation is more able than product orientation to meet consumerschanges in fashion/tastes.

• Product oriented products have little competition in comparison to marketorientation.

Q24: Any eight from:Personal interview

• It allows two way communication and encourages answers.

• Misunderstandings can be ironed out.

• It can be an expensive method.

• Home interviews tend to be unpopular with consumers.

Telephone survey

• Is fairly cheap.

• Response is immediate allowing large numbers to be surveyed quickly.

• Hostility to the person making the call is common as people do not like beingdisturbed at home.

Postal survey

• It is a cheaper method than street survey as it does not require trained personnel.

• Questions need to be very simple and easily understood.

• Response rate is very low.

• Free gifts are used to increase the return rates.

• High design costs.

• Wide range of views and opinions.

Hall test

• It gives consumers the chance to see or try a product and to be questioned on theiropinions of the product.

• It is often used in supermarkets and wholesalers.

• Fairly cheap method.

• It can be difficult to analyse qualitative information.

• Consumers often give favourable replies simply to be polite.

Consumer audit



• It can be accurate information on consumer buying patterns which can be used topredict consumer trends.

• It is a very expensive method as many consumers receive payments to completediaries.

• Consumers get fed up quickly resulting in a high turnover of respondents andinaccurate data.

• Consumers may not complete the journals accurately or on time.

Test marketing

• Allows for the product to be amended or improved before national launch.

• It saves the cost of a national launch if the product does not receive good reviewsin the test market.

• Regional tastes may not represent the nation as a whole.

Q25: Any four from:

• Introduction - profits will still be low, if any at all.

• Growth - profits should start to rise at this stage.

• Maturity - profits should be steady at this stage although the industry profits as awhole will be shared between many competitors.

• Saturation - profits will remain high, however the company will need to invest inadditional advertising to remind consumers that the product exists.

• Decline - profits will start to fall unless efficiency is improved in distribution andproduction. May even be making a loss before the product is withdrawn altogether.

Q26: Any four from:

• It allows an organisation to spread risk. If one product's sales decline, anotherproduct's sales could be growing.

• The opportunity for increased sales/profits from selling different products due tocustomers having a number of products to buy from one brand.

• Seasonal fluctuations can be evened out. The company may not struggle as muchif they have products that are popular at certain times of year.

• Organisations can meet the needs of different market segments.

• Newer products at growth stage can replace those at the decline stage of theproduct life cycle.

• Reference to analysis of Boston Matrix. Resources can be allocated from poorerperforming products ("dogs") to income-generating products ("stars" or "cashcows").

Q27: Any six from:

• The use of technology such as the internet and social media is a relatively cheapway to conduct advertising.

• Social media and apps allow customers to interact with the company by postingcomments and questions.

• Customers increasing expect organisations to have an online presence and to havethe opportunity to search and buy online.



− Failure to offer this may result in lost sales.

• The audience for social media is ever widening and an increasing number of olderconsumers are engaging with this format, meaning the potential audience reachedis massive.

• The company may find it very difficult to control images/text once it has been postedto the internet. This may mean that customers can edit and change the message.

• Customers can complain to a wide audience through the use of the internet/socialmedia, meaning potential bad publicity.

• The internet can be used to collect information about customers quickly and withoutannoying them. Although emails which are sent to mass recipients are treated asspam by most customers.

• EPoS can be used to create detailed customer profiles based on their buying habits.

− This allows organisations to create tailored promotions.

Q28: Any six from:

• High price - a price is set higher than competitors to give the image of quality andexclusiveness.

• Low price - a price is set lower than competitors to attract customers to theirproduct/service.

• Skimming - a price is set high initially when no competition exists, whencompetitors enter the market price is lowered to market price.

• Market/competitive pricing - a price is set at the same level as competitors,normally used for products that are identical.

• Penetration pricing - a price is set slightly lower than competitors to attractcustomers, once a customer base has been created price is slowly increased tosame as competitors.

• Promotional pricing - a low price is set for a short period of time to boost sales inthe short term, possibly even making a loss on the product.

• Destroyer pricing - a price is set very low compared to competitors and once thereis no competition in the market the price is then put back up to the previous levelor higher, used mainly by larger organisations to destroy competition, must havelarge reserves to sustain this over any length of time.

Q29: Any four from:

• Increase in customers shopping at large retail parks have meant that organisationsare moving from high street stores to retail parks.

• Increase in large superstores have meant many small local shops going out tobusiness.

• Vast use of e-commerce has meant organisations now must have websites withaccess to online purchasing.

• Changes to opening hours means many organisations have to pay overtime to staffto work on Sundays and late evenings.

• Large supermarkets selling a wide range of products has meant customers needscan be catered for under the one roof.



• Increase in discount stores selling products at discounted prices has meantcompetitor organisations have had to reduce prices in order to keep customers.

Q30: Any six from:Advantages

• Consumers buy the product in an attempt to be the same as the celebrity.

• Photographs of the celebrities are used to create visual connections to the product.

• Higher prices can be charged due to the endorsement.

• Brand loyalty may be created due to the endorsement.

• Statements can be used in promotions to further enhance the product, e.g. theofficial hair product of David Beckham.

Disadvantages

• It can cost vast amounts of money to retain the celebrity.

• If the celebrity gains bad publicity the product is also tarnished.

• Product endorsement does not guarantee a quality product.

Q31: Any five from:

• Organisations can produce products to meet exact customer requirements: this willmean increased customer satisfaction.

• It will improve an organisation's competitiveness if they are only one that canprovide non-standard products, and a higher price can then be charged.

• It allows the customers to change the design during the process which allows foralterations to meet customers' needs.

• The work is not repetitive and as such the employees will be more motivated withincreased job satisfaction.

• The wages paid will need to be higher to reflect staff skills and this will increase theoverall final price of the product.

• There can be higher than average research costs which again will be reflected inthe price charged to the customer which may be off-putting.

• Costs are high as a variety of machinery/tools are required which may often belaying idle.

• Lead times can be lengthy and this means that customers cannot simply walk inand purchase the product, again this may be off-putting.

Q32:

• Using high quality raw materials will lead to a quality product or service.

• Highly skilled staff will result in good customer services.

• Using up-to-date machinery will help standardise product quality.

• It should result in:

− less products being faulty or not of a proper standard.− less customer complaints.− repeat sales.− the organisation having a good reputation.

• It may mean higher purchasing costs for raw materials.

• It can result in high staff training costs.


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