identifying customer needs

1 Understanding Business Activity (Syllabus 1)

1.1 Purpose of Business

• Needs vs. wants – needs are essential for survival (food, shelter); wants are desires beyond the basics.
• Scarcity & opportunity cost – limited resources mean choosing one option incurs the cost of the next best alternative.
• Why businesses exist – to satisfy needs/wants, create employment, generate profit and contribute to the economy.

1.2 Classification of Business

Sector	Primary activities	Examples
Primary	Agriculture, mining, fishing, forestry	Fruit farm, coal mine
Secondary	Manufacturing, construction, utilities	Car factory, house building
Tertiary	Services – retail, finance, education, health	Supermarket, bank, university

1.3 Types of Organisations

• Sole trader – owned by one person, unlimited liability.
• Partnership – two or more owners, shared liability.
• Private limited company (Ltd) – separate legal entity, shareholders’ liability limited to share capital.
• Public limited company (PLC) – can sell shares to the public.
• Franchise – licence to use a brand and business model.
• Joint venture – two or more firms share resources for a specific project.
• Social enterprise – primary aim is social or environmental benefit, profit is secondary.
• Multinational corporation (MNC) – operates in several countries.

1.4 Size of Business

Measured by turnover, number of employees or assets.

Size	Typical turnover (UK)	Employees
Micro	< £2 m	< 10
Small	£2 m‑£10 m	10‑49
Medium	£10 m‑£50 m	50‑249
Large	> £50 m	250 +

1.5 Business Objectives

• Profit maximisation / target profit
• Growth (market share, sales, new markets)
• Survival (especially for start‑ups)
• Quality and innovation
• Social & environmental responsibility

1.6 Stakeholders

Stakeholder	Interest
Owners / shareholders	Profit, return on investment
Managers	Performance targets, career progression
Employees	Job security, wages, working conditions
Customers	Value for money, quality, service
Suppliers	Timely payment, long‑term contracts
Community	Employment, environmental impact
Government	Tax revenue, compliance with law
Creditors	Repayment of loans, interest

---

2 People in Business (Syllabus 2)

2.1 Motivation Theories

Theory	Key ideas	Relevance to managers
Maslow’s hierarchy of needs	Physiological → Safety → Social → Esteem → Self‑actualisation	Design reward packages that address different levels.
Herzberg’s two‑factor theory	Hygiene factors (salary, conditions) prevent dissatisfaction; motivators (recognition, achievement) create satisfaction.	Ensure basic conditions are met before using motivators.
Taylor’s scientific management	Standardise tasks, select the “right” people, use incentives.	Useful in repetitive production environments.
McGregor’s Theory X & Y	X – people dislike work; Y – people are self‑motivated.	Shape leadership style and delegation.

2.2 Organisational Structure

• Organisational chart – visual representation of hierarchy.
• Types:
  • Functional – grouped by specialist functions (marketing, finance).
  • Divisional – based on product line, geography or market.
  • Matrix – combines functional and divisional, dual reporting.

2.3 Management Functions (POLC)

1. Planning – set objectives, decide actions.
2. Organising – allocate resources, assign tasks.
3. Leading – motivate, communicate, guide staff.
4. Controlling – monitor performance, take corrective action.

2.4 Leadership Styles

Style	Characteristics	When most effective
Autocratic	Decisions made by leader, little employee input.	Crisis, routine tasks.
Democratic	Consultation, shared decision‑making.	Creative work, skilled teams.
Laissez‑faire	Minimal direction, high autonomy.	Highly experienced professionals.
Transformational	Inspires change, focuses on vision.	Organisational change, innovation.

2.5 Trade Unions & Employee Rights

• Collective bargaining, industrial action, legal protections (Health & Safety at Work Act, Equality Act).

2.6 Recruitment & Selection

1. Identify vacancy and job specification.
2. Choose recruitment method (advert, internal posting, agency, online portal).
3. Short‑list candidates.
4. Selection tools – interview, assessment centre, psychometric test, work sample.
5. Offer of employment and induction.

2.7 Training & Development

• On‑the‑job – coaching, mentoring, job rotation.
• Off‑the‑job – classroom courses, e‑learning, seminars.
• Induction – introduction to policies, culture.
• Continuing Professional Development (CPD) – keeping skills up‑to‑date.

2.8 Communication

• Internal – meetings, memos, intranet, newsletters.
• External – advertising, PR, social media, website.
• Barriers – language, noise, cultural differences, information overload.
• ICT tools – video‑conferencing, collaborative platforms (e.g., Teams, Slack).

---

3 Marketing (Syllabus 3)

3.1 The Role of Marketing

Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives.

Why Marketing Matters

• Identifies what customers want and need.
• Guides product development, pricing and promotion.
• Creates awareness and stimulates demand.
• Ensures products reach the right places at the right time.
• Builds long‑term relationships and loyalty.

Key Functions (3.1)

• Identify customer needs
• Satisfy those needs
• Maintain customer loyalty
• Build strong relationships

3.2 Market Research

Primary vs. Secondary Research

Method	Primary / Secondary	Advantages	Disadvantages
Surveys / Questionnaires	Primary	Targeted, quantitative, easy to analyse	Low response rates, cost, wording bias
Interviews (face‑to‑face or telephone)	Primary	In‑depth, flexible follow‑up	Time‑consuming, limited sample, interviewer bias
Focus groups	Primary	Rich qualitative data, group dynamics	Not always representative, moderator influence
Observation (in‑store, online tracking)	Primary	Shows actual behaviour	Interpretation subjectivity, privacy concerns
Published statistics (govt reports, trade journals)	Secondary	Readily available, inexpensive	May be outdated or not specific
Competitor analysis	Secondary	Reveals market gaps, benchmarks	Limited, biased, sometimes costly

3.3 Identifying Customer Needs – Step‑by‑Step (3.1.1)

1. Collect information (primary & secondary research).
2. Analyse data to spot patterns, trends and unmet needs.
3. Segment the market using appropriate variables.
4. Prioritise the most important needs for each segment.
5. Develop products/services that meet those needs.
6. Launch, then monitor loyalty and gather post‑sale feedback.

3.4 Market Segmentation (3.1.4)

Divides a heterogeneous market into homogeneous groups.

Variable	What it measures	Typical examples
Demographic	Age, gender, income, occupation, education, family size	Teenagers, high‑income professionals
Geographic	Region, climate, urban/rural, country	Urban millennials, coastal residents
Psychographic	Lifestyle, personality, values, attitudes	Eco‑conscious consumers, status‑seekers
Behavioural	Purchase occasion, usage rate, loyalty, benefits sought	Frequent travellers, price‑sensitive shoppers

Students must justify the choice of segmentation basis by linking it to the business’s objectives.

3.5 Targeting & Positioning

• Targeting – decide which segment(s) to serve (single‑segment, differentiated, concentrated, micromarketing).
• Positioning – create a clear, distinctive image in the mind of the target consumer (e.g., “most reliable” vs. “cheapest”).

3.6 Niche vs. Mass Marketing (3.1.3)

Aspect	Niche Marketing	Mass Marketing
Target market	Small, well‑defined segment	Large, undifferentiated market
Product strategy	Highly specialised, often premium	Standardised, cost‑efficient
Pricing	Higher prices possible	Lower prices to achieve volume
Promotion	Specialised media (trade journals, niche blogs)	Mass media (TV, national newspapers, broad‑reach digital ads)
Examples	Luxury watches, specialist bike components	Budget smartphones, mainstream soft drinks

3.7 The Marketing Mix – The 4 Ps (4)

• Product – features, quality, branding, after‑sales service that meet identified needs.
• Price – pricing strategy (cost‑plus, value‑based, penetration, skimming) reflects perceived value for each segment.
• Place – distribution channels (direct, retail, online, third‑party) chosen where the target shops.
• Promotion – advertising, sales‑promotion, public relations, personal selling, digital marketing tailored to segment preferences.

3.8 Customer Loyalty & Relationship Management

• Use CRM systems to record purchase history and preferences.
• Offer loyalty programmes (points, exclusive offers, early access).
• Provide robust after‑sales support – warranties, help‑desks, software updates.
• Encourage customer feedback and involve users in product improvement (beta testing, user forums).

3.9 Example: New Smartphone Development

1. Research – online survey on desired features (camera, battery, price, security).
2. Data analysis – sales data show battery life drives repeat purchases.
3. Observation – social‑media monitoring reveals dissatisfaction with current camera quality.
4. Segmentation –
   • Tech‑enthusiasts (young, urban, high income)
   • Budget‑conscious students (teenagers, low‑medium income)
   • Business users (30‑55, professionals)
5. Prioritisation – match features to segments (premium camera for enthusiasts, long battery for students, security for business).
6. Product development – create three variants (premium, mid‑range, business).
7. Promotion – tech blogs for enthusiasts, student influencers for budget line, business magazines for corporate users.
8. Place – online store & specialist retailers for premium, high‑street chains for budget, B2B procurement portals for business.
9. Loyalty – launch a loyalty app offering software updates, exclusive accessories, points‑for‑purchases.

---

4 Operations Management (Syllabus 4)

4.1 Production & Productivity

• Production – creation of goods or services.
• Productivity – output per unit of input (e.g., units per labour hour).

4.2 Types of Production Processes

Process	Characteristics	Typical products
Job production	One‑off, highly customised	Bespoke furniture
Batch production	Limited run, set‑up between batches	Seasonal clothing lines
Flow (mass) production	Continuous, high volume, low variety	Cars, soft drinks
Lean / JIT	Minimise waste, produce only when needed	Electronics assembly

4.3 Costs in Operations

Cost type	Definition	Examples
Fixed costs	Do not vary with output	Rent, salaries of managers
Variable costs	Change directly with output	Raw materials, piece‑rate wages
Total cost	Fixed + Variable	—
Average cost	Total cost ÷ Output	—
Marginal cost	Cost of producing one additional unit	—

Economies of scale – lower average cost as output rises (spreading fixed costs, bulk buying).
Diseconomies of scale – higher average cost when a firm becomes too large (coordination problems, bureaucracy).

4.4 Break‑Even Analysis (4.4)

• Break‑even point (BEP) – where total revenue = total costs (no profit, no loss).
• Formula: Fixed Costs ÷ (Selling price per unit – Variable cost per unit)
• Key concepts:
  • Contribution margin = price – variable cost.
  • Margin of safety = (Actual or projected sales – BEP) ÷ Actual sales × 100 %.

Students should be able to construct a break‑even chart showing total cost, total revenue and profit area.

4.5 Quality Management

• Quality control (QC) – checking output against standards (inspection, statistical process control).
• Quality assurance (QA) – systematic activities to ensure quality (process documentation, training).
• Total Quality Management (TQM) – organisation‑wide commitment to continuous improvement.
• Common standards: ISO 9001, Six Sigma.

4.6 Location Decisions

• Factors: cost of land/rent, proximity to markets, transport links, labour availability, government incentives, environmental impact.
• Methods: cost‑benefit analysis, break‑even analysis for different sites, GIS mapping.

4.7 Innovation & Technology

• Automation, robotics, 3‑D printing – can reduce variable costs and increase productivity.
• Research & Development (R&D) – creates new products/processes, often financed through internal funds or government grants.

---

5 Financial Information and Decisions (Syllabus 5)

5.1 Finance Needs

• Working‑capital finance – cash needed for day‑to‑day operations (stock, receivables).
• Capital‑investment finance – funds for plant, equipment, expansion.
• Long‑term finance – for large, lasting projects.

5.2 Sources of Finance

Source	Type	Advantages	Disadvantages
Retained earnings	Internal	No interest, retains control	Limits growth if profits are low
Sale of assets	Internal	Quick cash, no debt	Reduces productive capacity
Bank loan / overdraft	External – debt	Fixed repayment schedule	Interest cost, collateral required
Hire purchase / leasing	External – debt‑like	Spreads cost, retains ownership (lease)	Higher total cost, ownership at end (HP)
Share issue (private or public)	External – equity	No interest, spreads risk	Dilutes ownership, dividend expectations
Venture capital / angel investors	External – equity	Large sums, expertise	Loss of control, high return expectations

5.3 Cash‑Flow Forecast

• Lists expected cash inflows (sales receipts, loans, asset sales) and outflows (payments to suppliers, wages, tax, interest).
• Net cash flow = Inflows – Outflows; cumulative balance shows whether the business will have a cash surplus or shortage.
• Useful for short‑term planning and avoiding overdraft fees.

5.4 Income Statement (Profit & Loss Account)

Item	Explanation
Revenue (sales)	Total income from goods/services sold.
Cost of Goods Sold (COGS)	Direct costs of producing the goods sold.
Gross profit	Revenue – COGS.
Operating expenses	Rent, salaries, marketing, depreciation.
Operating profit	Gross profit – Operating expenses.
Interest & tax	Finance costs and statutory tax.
Net profit	Final profit after all deductions.

5.5 Balance Sheet (Statement of Financial Position)

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

5.6 Key Ratios (Interpretation)

Ratio	Formula	What it shows
Gross profit margin	(Gross profit ÷ Revenue) × 100 %	Efficiency of production.
Net profit margin	(Net profit ÷ Revenue) × 100 %	Overall profitability.
Current ratio	Current assets ÷ Current liabilities	Short‑term liquidity.
Quick ratio	(Current assets – Stock) ÷ Current liabilities	Liquidity excluding inventory.
Return on capital employed (ROCE)	Operating profit ÷ (Capital + Reserves)	Efficiency of capital use.
Stock turnover	Cost of goods sold ÷ Average stock	How quickly inventory is sold.
Debt‑to‑equity ratio	Total liabilities ÷ Equity	Financial risk level.

5.7 Financial Decision‑Making

• Use profit and break‑even analysis to assess viability of new products.
• Apply ratio analysis to evaluate performance over time or against competitors.
• Consider cash‑flow forecasts before committing to large capital purchases.

---

6 External Influences (Syllabus 6)

6.1 Economic Environment

• Business cycle – periods of expansion, peak, contraction, trough.
• Inflation – rise in general price level; affects costs and consumer purchasing power.
• Deflation – falling prices; can lead to reduced profits.
• Unemployment – influences labour costs and consumer demand.
• Interest rates – set by the central bank; affect borrowing costs.
• Exchange rates – affect import/export prices and overseas earnings.
• Government fiscal policy – taxation and public spending.
• Monetary policy – control of money supply, interest rates.

6.2 Environmental & Ethical Influences

• Growing consumer concern for sustainability (e.g., carbon footprints, plastic waste).
• Legal controls – Environmental Protection Act, waste‑disposal regulations.
• Corporate Social Responsibility (CSR) – ethical sourcing, community projects.
• Ethical dilemmas – fair trade, child labour, animal testing.

6.3 International Environment

• Globalisation – integration of markets, increased competition.
• Trade barriers – tariffs, quotas, embargoes, import licences.
• Exchange‑rate fluctuations – affect profitability of export‑oriented firms.
• Import/export procedures – customs documentation, Incoterms.
• Cultural differences – influence product adaptation and promotional messages.
• Multinational corporations (MNCs) – can bring investment, technology, but also competition.

6.4 Impact on Business Decisions

• Economic downturn → price reductions, cost‑cutting, focus on core products.
• Environmental legislation → investment in cleaner technology, product redesign.
• Exchange‑rate rise (home currency strong) → export becomes less competitive; may shift focus to domestic market.
• Trade barrier introduction → consider local sourcing or alternative markets.

---

Key Takeaways (All Sections)

• Business studies combines understanding of **people, processes, finance and the wider environment**.
• Identifying **customer needs** underpins marketing; use research, segmentation, and the 4 Ps to satisfy them.
• Effective **people management** motivates staff, structures work and ensures clear communication.
• **Operations** focus on efficient production, cost control, quality and location decisions.
• Robust **financial information** (cash‑flow