The UK economy is a mixed economy . This means that it has a public sector(organizations controlled by the government), and a private sector (owned by shareholders, sole traders or partnerships).

The activities of industry can be divided into stages - primary, secondary and tertiary production. These stages form the chain of production and provide consumers with the finished goods.

Business aim and activities

Primary Production - involves acquiring raw materials. For example, metals and coal have to be mined; oil drilled from the ground; rubber tapped from trees etc.

Secondary Production - manufacturing and assembly process. involves converting raw materials into components, e.g. making plastics from oil.

Territory production - supports the production and distribution process, e.g. insurance, transport, advertising, warehousing, retail etc.

Limited CompaniesThere are two types of limited companies private and public. A public limited company (PLC) can sell its shares on the Stock Market, while a private limited company (Ltd) cannot.

Advantage of PLC Disadvantage PLC

Raise large amount of capital (money) from share issue.

Become too large resulting in poor labour relations (relationship between workers and management).

Produce goods at lower unit cost. Risk of takeover by rival companies who have bought shares in the company .

Large plc's may find it easier to borrow from banks. Conflict of interest between shareholders and the Board of Directors.

Advantage of Ltd Disadvantage of Ltd

Easy and inexpensive to set up. Profits have to be shared

Share can be sold to family Accounts are not private

Share holders have limited liability (can only loose money they put in business, do not pay of debts using their own money).

Not all decisions are made by owners

Death and illness wont affect the running of the company.

Share cant be sold on the stock market.

Sole TradersA sole trader describes any business that is owned and controlled by one person, although they may employ workers, e.g. a newsagent's shop. The owners are personally liable for the firm's debts, and may have to pay them out of their own pocket. This is called unlimited liability (personally liable for or debts) .

Advantages•The firms are usually small, and easy to set up.•Generally, only a small amount of capital needs to be invested, which reduces the initial start-up cost.•The wage bill will usually be low, because there a few or no employees.•It is easier to keep overall control, because the owner has a hands-on approach to running the business and can make decisions without consulting anyone else.

Disadvantages•The sole trader has no one to share the responsibility of running the business with. A good hairdresser, for example, may not be very good at handling the accounts.•Sole traders often work long hours and find it difficult to take holidays, or time off if they are ill.•Developing the business is also limited by the amount of capital personally available.•There is also the risk of unlimited liability, where the sole trader can be forced to sell personal assets to cover any business debts.

PartnershipPartnerships are businesses owned by two or more people. A contract called a deed of partnership is normally drawn up. This states the type of partnership it is, how much capital each party has contributed, and how profits and losses will be shared.

Advantages•The main advantage of a partnership over a sole trader is shared responsibility. This allows for specialisation, where one partner's strengths can complement another's. For example, if a hairdresser were in partnership with someone with a business background, one could concentrate on providing the salon service, and the other on handling the finances.•More people are also contributing capital, which allows for more flexibility in running the business.•There is less time pressure on individual partners.•There is someone to consult over business decisions

Disadvantages•The main disadvantage of a partnership comes from shared responsibility.•Disputes can arise over decisions that have to be made, or about the effort one partner is putting into the firm compared with another.•The distribution of profits can cause problems. The deed of partnership sets out who should get what, but if one partner feels another is not doing enough, there can be dissatisfaction.•A partnership, like a sole trader, has unlimited liability.

Chain Of Command

The chain of command is the formal line of communication that starts with the Board of Directors and

the Managing Director, who make the firm's decisions. Below them are the department managers, then the

section heads and finally to the shop floor or office staff. This is a hierarchical structure.

Three main consumer protection laws

Trade Descriptions Acts of 1968 and 1972 False or misleading information must not be given about products - for example, information about who made the product. Fake designer goods that are marketed as the genuine product are a clear breach of the Trade Descriptions Act

Consumer Credit Act 1974This protects you when you borrow or buy on credit.•Businesses must have licences to give credit.•No one under 18 is to be invited to borrow or buy on credit.•Businesses have to state an Annual Percentage Rate (APR).•If you sign a credit agreement at home you have several days in which you can tear up the agreement. This is called a 'cooling off period'.

Sale and Supply of Goods Act 1994This Act says that all products have to be of a 'satisfactory quality'. This means that they have to:•be safe•last for a reasonable amount of time•be fit for their intended purpose•have nothing wrong with them (unless the defect was noted at the time of sale)

Sources Of Finance

Internal sources of finance• owners funds – savings of people setting up the business•Retained profits – when a business has money left over after all costs have been meant.•Selling assets – a business can sell something's that it currently owns.•Credit control– chasing customers that owe the business money•Reducing stock – where you try and manage with materials you already have.

External sources of finance•Leasing - renting a piece of equipment or machinery•Hire Purchase - Business hires the equipment for a period of time making fixed regular payments. Once payments have finished it then owns the piece of equipment.•Trade credit – buying goods now and paying later for them•Loans – a specific amount of money is borrowed from a bank with regular fixed repayments with interest.•Bank overdraft - a limit on borrowing on a bank current account.•Mortgage – a long type of loan•Issuing shares – PLCs or LTDs can sell these•Government grants - money given to a business in some areas of the country•Venture capital – financial institutions that provide money for growing businesses

Budgets & Cash FlowA budget is a forecast of income and expenditure over a

given period of time like a week or a year.

As it is only a forecast, many things could happen which could make the actual spend of allocated monies different

from what was budgeted.

Why do we need budgets?

• To help plan and allocate finances• Budgets are used to help control costs

MarketingWhat is marketing?

•Marketing is not just about selling!

•Marketing is the management process involved in

identifying, anticipating and satisfying consumer

requirements profitably.

The marketing mixThe combination of factors which help a business sell a product.Consists of the 4Ps •Product - A product can be either a good or a service

•Price - No matter how good the product is, it is unlikely to succeed unless the price is right.•Place - The main aims of promotion are to persuade, inform and make people more aware of a brand, as well as improving sales figures.

•Promotion - A firm has to find the most cost-effective way to get the product to the consumer

Market orientated business•A business that develops products which have been researched & designed to meet the needs of consumers.•E.g., Coke Zero

Product orientated business

• A business which develops products

with little or no market research and

which hopes it will be successful in

the market.

•E.g. iPod

Marketing...Market Segment•Age - Very young children, teenagers and OAP’s have different wants & needs. For instance, products to help mobility are sold mainly to older people.

•Gender - Men & woman may have different needs and tastes. Products are aimed at a specific gender group.

•Income - Low incomes have different spending patterns to those on high incomes. E.g. car manufactures produce a range of models, aimed at different income earners

•Area - This considers the religion of the country that consumers live in. Certain products are traditionally popular in particular areas. E.g.; Haggis in Scotland.

•Culture - Different ethnic, cultural & religious groups can have different buying patterns. For instance orthodox Jews will only eat “kosher” food, which does not certain pork products.

•Socio-Economic Groupings

Product LifecycleDevelopment•Product being designed investigated & tested.•Example – Hydrogen cars, Solar energy

Growth•Sales grow rapidly•Product becomes profitable•Example – iPhone, Nintendo Wii

Maturity •Sales start to level off•Product had become established and the market stable•Example – Mobile Phones

Saturation •Sales slow as the market becomes saturated (everybody has these products.•Still a profitable stage•Example – Toasters, DVD players

Decline •Sales decline•Is inevitable for almost every product•- They become obsolete (walkman)•- Tastes change (dripping)•- New products (Mobiles V Payphones)•- Some products never decline, often food items, Heinz Ketchup etc…

Extension strategies •New markets abroad•New uses for product•Broadening product range ( diet, lemon)•Packaging, image change •Frequency of use•Change ingredient of components•Advertising campaign

ProductProduct•The product in the marketing mix is essential.•It can be either a good or a service.•It includes all the feature of the product and what functions its carries out.

Product range•Businesses may supply the market with more than one product. This is called the range of products.•Nestle sell a wide range of products including confectionary, breakfast cereals dairy products and per food.

Product differentiation •Companies try to make their products stand out from the competition.•Any way in which a products is different to its rivals. E.g., coke and Pepsi.•Name•Logo•Design•Content•Packaging

Brand•A brand is a name which makes a product different or stand out compared to similar products.•The opposite of a branded product is a generic product, one where customers don’t see any difference, i.e., coal or potatoes.•What brands can you think of?•Hoover, sellotape, dairy milk, Heinz baked beans, PG tips, Mercedes, Sony

Product...Why do businesses want branded goods?•Creates customer loyalty.•Can charge a premium•It protects the manufacturer from imitations by competitors as it gives the product its own identity.•It assists advertising campaigns.

Own Brands •Any product which carries the brand of a retailer. E.g. Tesco, Woolworths, Asda, Boots. E.g. Food, drugs, drinks, cosmetics.•Poses a huge threat to manufactures traditional brands.

Packaging• Advertising/promotion i.e. deals•Protects the product•Keeps food hygienic•Provides customers with info.

PricingPrice •Most customers consider price when buying something•Only a few very rich people don’t look at price

Supply and Demand•When working out what price to charge for a product, businesses first have to look at supply and demand.

Supply•The quantity of a product producers are prepared to make for a sale.•The law of supply: As price increases so does supply. As price decreases, so does supply.•When price is low, producers loose money they reduce output.

Demand•What consumers are willing and able to pay•The law of demand: As price increases, quantity demanded falls. As prices decreases, quantity demanded rises.•2 reasons - At lower prices more can afford to buy•Product becomes cheaper than rivals so people buy it. This is why 2 for 1 are so effective.

PricingEquilibrium •Consumers like low prices & producers like high prices – conflict of interest.•The point where both are happy is called the equilibrium •How it works: if prices are too low, there’ll be a shortage, so consumers will pay more and prices raise encouraging producers to make more. If prices are too high, consumers won’t buy, creating a surplus. Producers have to lower prices to get people to buy their unsold goods.

•Pricing- is part of the marketing mix used to persuade customers to but products.•The price that is set must be consistent with everything else in the marketing mix.•A high priced product needs to have features/benefits that customers feel justified paying more for.•Directly influences profits by creating revenue rather than effecting costs.•Price helps a business “differentiate” its products.•To make a pricing decision you need to consider: - competitors and their prices, how a price can be used to increase sale and whether it will cover the businesses costs.

Pricing StrategiesCompetition Based Pricing• Setting a price close to that of a competitor.•Competition is then focused on aspects other than pricing such as advertising. Advantages•Product is accurately priced based on competitors – if it was more expensive it may lose sales, a lot cheaper and customers may think it has a lower quality.Disadvantages •Not suitable if there are no similar products in the market place.•What about smaller firms?

Penetration Pricing• Set an initial low price to attract customers.•New products, with expected long life cycles•Maximise on early sales•Once they have grown market share they can increase price.•Typical in mass market products.Advantages•Attract a lot of attention and can help achieve long term profit.Disadvantages •Customers may refuse to buy when the price is raised as they may not see an increase value•Low initial revenue.

Pricing Strategies...Creaming / Skimming•A High initial price is set when a new product is launched and it is lowered after a period of time.•Hi-tech market- where a product is seen as being unique•Many people buy as luxury•Price can be dropped later to attract a wider market•Short life cyclesAdvantages•High price = High quality•High initial profits.Disadvantages •Cuts off a lot of the market.•People may wait for the price to lower.

Price Discrimination•Selling a product at different prices to different segments of the market.•Most common in air and rail travel.•Tickets at premium during rush hour when trains are full, half price tickets during week day when not many people want to travel.•Student, Child or OAP passesAdvantages•Gives businesses an opportunity to earn more money.Disadvantages Is it fair?

Market Research•Market research is the collection of information or data to better understand what is happening in the market place.

•Market research tells us about economic trends as well as customers’ views.

•This ensures that the product/service developed by the business is more likely to be successful.

Primary or field research - Obtaining new data for a specific purpose.•Questionnaire•Telephone Surveys•Interviews•Postal Surveys

Secondary or desk research -Existing data that has already been collected.•Observations •Till Receipts•Newspapers•Government Statistics

Trade UnionsTrade unions exist to protect workers, by binding them together to create a

group which has the power to stand up to management.

Types of Industrial Action•Strike – Workers select a day(s) on which they will not come into work.

•Work to rule – Workers apply the firm’s rules and procedures to the ‘letter’ with the objective of slowing down production.

•Go slow – Employees work slowly

•Picketing – Workers may stand at the entrance to the employer’s factory or place of work demonstrate with banners or slogans.

•Overtime ban – Workers simply refuse to work overtime.

Payment SystemsTime Based•Wages are based on the amount of time worked•Often this is hourly e.g., £6.50 p/h

- This method is normally used to pay manual workers - People who do physical work - E.g., factory workers, fast food - People often work longer hours (overtime) to earn more £

Salaries•Wages are based on an argument amount per year for a particular job.•E.g., £20,000 a year

•This method is normally used to pay white collar workers (managers) – people who don’t perform physical work.•E.g., Teachers, many office jobs

•Overtime isn’t paid as workers are expected to work for as long as it takes to do the job.

Results based•Piece rates -People are paid for each item they produce, e.g., artists

•Commission - Staff are paid a certain amount of each sale they makeE.g., Salespeople

•Bonus - A reward for a good performance

Motivating workers•Businesses want their workers to work hard and produce goods and services of a high standard.

•Workers are more likely to do this if they are motivated.

•Motivated workers are more productive and higher productivity usually means higher profits.

•In a service industry, workers who are well motivated will provide a better level of customer service, keeping the customers happy.

•Staffs who are well motivated are more likely to stay with the company. They grow in experience and become even more valuable to their employer.

•If a business successfully keeps the staff it has, the cost of recruiting and training new staff is reduced.

Communication Internal communication – communication which takes place within the business. E.g. management must tell HR about plans to open new branch so HR can recruit staff.

Eternal communication – communication which takes place outside the business. E.g. Talking to suppliers and customers or borrowing money from banks.

Channels of communicationThe route along which a message travels is called the :“Communication channel”Formal & Informal Formal: Communication through the official channels of a business.Informal: Communication via the grapevine i.e. chats with a friend in sales.Horizontal & Vertical communicationHorizontal: is communication between people of the same level. Vertical: is communication is people of different levels.

Exchange ratesThe exchange rate is simply the value (or purchasing power) of a currency in terms of what it can buy of other currencies.The value of each currency is decided on the foreign exchange markets.

A rise is the pound means – Exports become more expensive and imports cheaper. This should result in a fall in exports and rise in imports.

A fall in the pound means – exports become cheaper and imports more expensive. This should result in a rise in exports and fall in imports.

FranchisingWhen a business is given the right by another business to sell its goods and services

under its name.

Franchisor – a person or business who sells the franchiseFranchisee – a person who buys a franchise

Government Regulations•The government has a tremendous influence on what individuals can and can’t do.•In the same way it lays out what businesses can and can’t do.•These are laid down as laws or “legislation”.

LawsDiscrimination Laws – Race, sexMinimum age – Alcohol, TobaccoHealth and safety laws – Insurance, clean working areasConsumer protection – Labelling

OwnershipSole Trader - Owned financed and controlled by one individual but can

employ other staff Advantages Easy to set up (Very few forms or procedures required East to run (Owner is the boss and doesn’t need to work with anyone else)Tax advantages Control Profits are kept by the owner Privacy (Only HM Revenue and customs (Tax man sees records) Flexibility

Disadvantages Unlimited liability (If something goes wrong then the owner is responsible in court. May lose house and any other assets) Limited access to capital(money) Potential for long hours Pressure of being solely responsible Lack of continuity- business ceases once owner dies- Too small to have and IT specialist, lawyer, accountant ECT…,

Ownership...Partnerships- Owners, financed and controlled by 2 or more partners

Advantages Like sole traders Easy to set upProfits are kept by owner Privacy AlsoGreater access to capital (money)Shared responsibility Greater opportunity for specialisation (i.e., one partner might know about IT)

Disadvantages Unlimited liability All partners are reliable for the debts of the others Partnership dissolved on death of one partner Potential for conflict (arguments between partners)Limited access to capital

TaxationIncome Tax •This is a tax on the income or earnings of individuals.•Income tax is a progressive tax. The more people earn the higher the rate they pay.Corporation Tax•This is a tax on the profits of companies.•National Insurance – Contribution made to pay for future state pension and right to unemployment benefit.Value Added Tax (VAT)•Charges on goods and services which are brought in the UK•This is made on almost everything we buy apart from, food, children’s clothes, books and newspapers.•The amount paid is usually 17.5% of the total value of goods and services. It’s currently 15%Effect of taxes on Consumers•Higher tax = + Public services should improve + More public sector jobs•Consumers have less money to spend on goods and services.•Lower tax = + Consumers have more money to spend. –Public services will probably decline.Effect of taxes on Businesses: •Higher tax = + Good if your business works for supplies the government, i.e., drug or defence companies •Less profit for investment etc and less money spent by consumers•Lower taxes = +More profit, more spent by consumers – Bad news if you work for the government.