building customer relationships

1 Understanding Business Activity

1.1 Purpose and Nature of Business

• Primary purpose: satisfy customer needs and wants profitably.
• Secondary purposes: provide employment, contribute to community, support economic growth.
• Economic role: allocates resources efficiently through the market (supply ↔ demand).

1.2 Classification of Business Organisations

Type	Ownership	Liability	Typical Size
Sole trader	One owner	Unlimited personal liability	Micro
Partnership	2‑10 owners	Unlimited (unless limited‑partner)	Small‑medium
Limited company (Ltd)	Shareholders	Limited to share capital	Medium‑large
Public limited company (PLC)	Shareholders (public)	Limited	Large/ multinational
Co‑operative	Members (users)	Limited	Varies

1.3 Entrepreneurship

• Identifies opportunities, takes risks, mobilises resources.
• Key traits: creativity, resilience, tolerance of uncertainty, willingness to learn.
• Entrepreneurial process – idea generation → feasibility study → planning → launch → growth.

1.4 Size of Business

• Measured by turnover, number of employees, market share, assets.
• Implications: economies of scale, access to finance, regulatory burden.

1.5 Business Objectives

• Profit‑maximising – maximise net profit (AO1).
• Growth – increase market share, sales, or geographic reach.
• Survival – cover costs in the short term.
• Social/ethical – corporate social responsibility, environmental stewardship.

1.6 Stakeholders

Stakeholder	Interest
Owners/Shareholders	Profit, return on investment
Employees	Job security, wages, working conditions
Customers	Quality, price, service
Suppliers	Steady orders, timely payment
Community	Employment, environmental impact
Government	Tax revenue, compliance with law

2 People in Business

2.1 Motivation

• Intrinsic – personal achievement, recognition.
• Extrinsic – salary, bonuses, benefits.
• Common theories (AO1): Maslow’s hierarchy of needs, Herzberg’s two‑factor theory, McGregor’s Theory X/Y.

2.2 Organisation Structure

Structure	Key Features	Advantages	Disadvantages
Functional	Departments by function (e.g., marketing, finance)	Specialisation, clear career paths	Silos, slow decision‑making
Divisional	Separate divisions for product/market/geography	Flexibility, focus on customer groups	Duplication of resources
Matrix	Dual reporting – functional & project	Efficient use of expertise	Potential conflict, complex management

2.3 Leadership & Management Styles

• Autocratic – decisions by manager alone (quick, but may demotivate).
• Democratic – staff consulted (higher morale, slower).
• Laissez‑faire – minimal direction (innovation, risk of lack of control).
• Modern approaches – transformational, transactional leadership.

2.4 Recruitment, Selection & Training

1. Recruitment – internal (promotions) vs. external (advertisements, agencies).
2. Selection methods – application forms, interviews, tests, assessment centres; aim for reliability and validity (AO2).
3. Training – induction, on‑the‑job, off‑the‑job, e‑learning; evaluate using the Kirkpatrick model (reaction, learning, behaviour, results).

2.5 Communication

• Formal (reports, memos) vs. informal (water‑cooler chat).
• Channels – written, oral, digital (intranet, video‑conferencing).
• Barriers – language, cultural differences, noise; overcome by feedback loops and clear messaging.

2.6 Legal Controls on People

• Employment law – contracts, minimum wage, working time regulations.
• Health & safety – risk assessments, training, PPE.
• Equality legislation – non‑discrimination, reasonable adjustments.

3 Marketing

3.1 The Role of Marketing

• Systematic needs‑analysis → design a product‑service solution → satisfy profitably.
• Focus shifts from one‑off sales to building long‑term customer relationships.

Why Build Customer Relationships?

• Customer retention – cheaper than acquisition (5‑25 % of acquisition cost).
• Customer lifetime value (CLV) – cumulative profit from a loyal customer.
• Word‑of‑mouth (WOM) – free, credible promotion.
• Competitive advantage – differentiation through trust and service.

Key Stages in Developing Relationships

1. Identify target customers – use market segmentation (see 3.4).
2. Understand needs – primary & secondary research (3.2).
3. Deliver value – align the 4 Ps with expectations.
4. Communicate continuously – personalised emails, social media, newsletters.
5. Provide after‑sales service – warranties, support hotlines, loyalty schemes.
6. Review & improve – monitor CSI, NPS, CLV; adapt offering.

Tools for Relationship Building

• Customer Relationship Management (CRM) software.
• Loyalty cards / points schemes.
• Personalised email & SMS marketing.
• Customer clubs, exclusive events, VIP programmes.
• Structured feedback & complaint handling procedures.

Measuring Relationship Success

• Customer Satisfaction Index (CSI).
• Net Promoter Score (NPS).
• Customer Lifetime Value (CLV).
• Retention rate (%).
• Repeat purchase frequency.

Potential Pitfalls

• Over‑promising & under‑delivering – erodes trust.
• Ignoring feedback – missed improvement opportunities.
• Relying solely on price discounts – reduces perceived value.

3.2 Market Changes – Why Spending Patterns Shift

Driver of Change	Effect on Consumer Spending	Typical Business Response
Technological advances (smartphones, AI)	New product categories; growth of online shopping	Launch e‑commerce sites; develop tech‑enabled products
Economic factors (recession, inflation)	Reduced discretionary spend; higher price sensitivity	Introduce value‑for‑money ranges; flexible payment plans
Social trends (health, sustainability)	Shift to healthier, eco‑friendly alternatives	Re‑brand with green credentials; add “healthy” lines
Legal & regulatory changes (safety, data protection)	Product redesign; higher compliance costs	Update labelling, improve data security, staff training

3.3 Niche vs. Mass Marketing

Aspect	Niche Marketing	Mass Marketing
Target market	Small, well‑defined segment (e.g., luxury watches for affluent professionals)	Broad, undifferentiated market (e.g., fast‑fashion retailer targeting all ages)
Product offering	Highly specialised, often premium‑priced	Standardised, cost‑focused
Promotion	Personalised, relationship‑driven communication	High‑reach media (TV, radio, billboards)
Advantages	Strong brand loyalty; higher margins	Economies of scale; large sales volume
Limitations	Limited market size; higher per‑unit cost	Intense competition; price wars

3.4 Market Segmentation

Divides a market into groups of consumers with similar needs or characteristics.

• Demographic – age, gender, income, education.
• Geographic – region, climate, urban/rural.
• Psychographic – lifestyle, values, personality.
• Behavioural – usage rate, loyalty, benefits sought.

Justifying a choice (AO2): select the segment offering greatest profit potential, reachable with resources, and matching core competencies.
Example: a premium sports‑car maker targets high‑income males (demographic) in affluent urban areas (geographic) who value status and performance (psychographic).

3.5 Market Research

Primary vs. Secondary Research

• Primary – surveys, interviews, focus groups, observations; up‑to‑date & specific but costly.
• Secondary – industry reports, government statistics, competitor literature; cheaper & quicker but may be outdated.

Sampling Basics

• Population – whole group of interest.
• Sample – representative subset.
• Random sampling reduces bias; stratified sampling ensures each segment is proportionally represented.

Interpreting Data (AO3)

When analysing charts, always note:

• Key figures (e.g., “45 % prefer online shopping”).
• Source, sample size, date.
• Trends, outliers, and possible reasons.

3.6 The Marketing Mix (4 Ps) – Core Content & Relationship Focus

4 Ps	Core Content (Cambridge)	Relationship‑Building Actions
Product	Product life‑cycle stages Branding, packaging, quality Technology & e‑commerce integration	Offer warranties, regular upgrades, after‑sales support and personalised customisation.
Price	Pricing objectives (profit, market‑share, status) Methods – cost‑plus, competition‑based, demand‑based Discounts, credit terms, price‑bundling	Loyalty discounts, flexible payment options, value‑for‑money bundles for repeat buyers.
Place	Distribution channels (direct, indirect, dual) Channel length, intensity, logistics Role of e‑commerce platforms & click‑and‑collect	Provide convenient access, reliable delivery, easy returns, and a seamless online/off‑line experience.
Promotion	Promotional mix – advertising, sales promotion, PR, personal selling, direct marketing Digital tools (social media, SEO, influencer) Legal & ethical constraints (misleading ads, data protection)	Use personalised communication, loyalty programmes, customer‑appreciation events and timely follow‑ups.

3.7 Marketing Strategy

• Justifying the mix – explain how each of the 4 Ps meets the identified needs of the chosen target segment and supports the overall business objective (e.g., market‑share growth, profit maximisation) (AO2).
• Legal & ethical controls – comply with consumer protection laws, advertising standards, product safety regulations and data‑privacy rules (GDPR, CCPA). Breaches can lead to fines, loss of reputation, and reduced trust (AO4).
• Entering foreign markets – options:
  • Exporting
  • Licensing
  • Franchising
  • Joint venture
  • Wholly‑owned subsidiary
  Consider cultural differences, currency risk, trade barriers, and local competition when selecting a mode.

4 Operations Management

4.1 Production Methods

Method	Characteristics	Typical Use
Job production	One‑off, customised, high skill	Bespoke furniture, aircraft
Batch production	Groups of identical items, set‑up changes	Baked goods, clothing collections
Flow (mass) production	Continuous, high volume, low unit cost	Automobiles, soft drinks
Lean production	Minimise waste, just‑in‑time inventory	Toyota Production System

4.2 Costs, Scale of Production & Break‑Even Analysis

• Fixed costs – do not vary with output (rent, salaries).
• Variable costs – change with output (materials, direct labour).
• Total cost (TC) = Fixed + Variable.
• Break‑even point (BEP) – where total revenue = total cost.
  • Formula: BEP (units) = Fixed Costs ÷ (Price – Variable Cost per unit).
  • Graphically, the point where the total‑revenue line crosses the total‑cost line.
• Economies of scale – lower average cost as output rises (spreading fixed costs, specialised labour, bulk buying).
• Diseconomies of scale – higher average cost when a firm becomes too large (coordination problems, bureaucracy).

4.3 Quality Management

• Definitions – “fitness for purpose” and “conformance to specification”.
• Techniques – Total Quality Management (TQM), Six Sigma, ISO 9001 certification.
• Quality costs – prevention, appraisal, internal failure, external failure.

4.4 Location Decisions

Factors influencing choice of production site (AO2):

• Proximity to market – reduces distribution cost, improves service.
• Proximity to raw materials – important for heavy or perishable inputs.
• Transport links – ports, highways, rail.
• Labour availability & cost.
• Government incentives – tax breaks, grants.
• Environmental regulations and community attitudes.

5 Financial Information and Decisions

5.1 Needs & Sources of Finance

Source	Typical Use	Advantages	Disadvantages
Owner’s capital	Start‑up, small expansion	No interest, control retained	Limited amount
Bank loan	Equipment, working capital	Fixed repayment schedule	Interest, security required
Hire‑purchase	Machinery, vehicles	Spreads cost, ownership at end	Higher overall cost
Shares (equity)	Large expansion, R&D	No repayment, spreads risk	Dilutes ownership, dividends payable
Debentures	Long‑term projects	Fixed interest, no ownership loss	Interest obligations, secured by assets
Venture capital	High‑growth start‑ups	Expert support, large funds	Loss of control, high return expectations

5.2 Cash Flow Statement (AO1)

• Cash inflows – sales receipts, loans, issue of shares.
• Cash outflows – purchases, wages, tax, loan repayments.
• Net cash flow = Inflows – Outflows; a positive figure indicates liquidity.

5.3 Income Statement (Profit & Loss Account)

Shows performance over a period.

Item	Explanation
Sales revenue	Total earned from customers.
Cost of sales (COGS)	Direct costs of producing goods sold.
Gross profit	Sales – COGS.
Operating expenses	Administration, marketing, depreciation.
Operating profit	Gross profit – operating expenses.
Interest & tax	Finance costs and statutory tax.
Net profit	Final profit after all deductions.

5.4 Balance Sheet (Statement of Financial Position)

Section	Items
Assets	Non‑current (plant, equipment, patents) & Current (stock, receivables, cash)
Liabilities	Non‑current (long‑term loans) & Current (payables, short‑term borrowing)
Equity	Owner’s capital, retained earnings, share capital.

5.5 Ratio Analysis (AO3)

• Profitability ratios – Gross profit margin = Gross profit ÷ Sales × 100%.
• Liquidity ratios – Current ratio = Current assets ÷ Current liabilities.
• Efficiency ratios – Stock turnover = Cost of sales ÷ Average stock.
• Leverage ratios – Debt‑to‑equity = Total debt ÷ Equity.
• Interpretation: compare with previous periods, industry averages, or targets to assess performance.

6 External Influences

6.1 Economic Cycle

• Growth – rising GDP, consumer confidence; businesses expand, invest.
• Peak – economy at maximum output; inflationary pressures.
• Recession – falling demand, higher unemployment; firms cut costs.
• Recovery – gradual increase in spending; opportunities for new products.

6.2 Government Policy

• Fiscal policy – taxation and public spending affect disposable income and business costs.
• Monetary policy – interest rates set by the central bank influence borrowing and investment.
• Regulation – health & safety, consumer protection, environmental standards.

6.3 Environmental & Ethical Issues

• Carbon footprint, waste management, sustainable sourcing.
• Ethical sourcing, fair trade, corporate social responsibility (CSR) programmes.
• Impact on brand image and consumer choice – “green” marketing.

6.4 Globalisation & Multinational Corporations (MNCs)

• Drivers – trade liberalisation, advances in transport & communication.
• Advantages for MNCs – access to new markets, economies of scale, diversified risk.
• Challenges – cultural differences, exchange‑rate fluctuations, political risk.

6.5 Exchange Rates

• Spot rate vs. forward rate – immediate vs. future transaction pricing.
• Impact on imports (costs rise when domestic currency falls) and exports (prices become more competitive).
• Hedging techniques – forward contracts, options, currency swaps to manage risk.

Summary Diagram Suggestions

• Customer Relationship Cycle – Acquisition → Satisfaction → Loyalty → Advocacy (WOM).
• Marketing Mix Flowchart – 4 Ps feeding into “Value Creation” → “Customer Retention”.
• Operations Decision Tree – Choose production method → Assess scale → Conduct break‑even analysis.
• Financial Statement Linkage – Income statement feeds into retained earnings on the balance sheet; cash flow statement reconciles profit with cash.