importance of the different elements in the marketing mix

IGCSE Business Studies (0450) – Concise Revision Notes

How to Use These Notes

• Read each unit’s key points, then test yourself with the “Check‑Your‑Understanding” questions at the end of the section.
• Use the tables and diagrams for quick recall during exam revision.
• Colour‑code the 4 Ps (Product – blue, Price – green, Place – orange, Promotion – red) to visualise their inter‑relationships.

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Unit 1 – Understanding Business Activity

1.1 What Business Does

• Needs vs. Wants: Needs are essential for survival; wants are the ways we satisfy those needs.
• Scarcity & Opportunity Cost: Limited resources mean choosing one option foregoes another.
• Sectors of the Economy: Primary (extraction), Secondary (manufacturing), Tertiary (services).

1.2 Forms of Organisation

Form	Key Features	Typical Stakeholder Objectives
Sole trader	Owner‑managed, unlimited liability	Profit, independence
Partnership	Two or more owners, shared liability	Profit, shared decision‑making
Private limited company (Ltd)	Separate legal entity, limited liability	Profit, growth, limited risk
Public limited company (PLC)	Shares traded on a stock exchange	Profit, shareholder returns, reputation
Co‑operative	Member‑owned, democratic control	Member benefits, community focus
Public sector / Social enterprise	Owned by government or community, non‑profit motive	Service provision, social impact, sustainability

1.3 Measuring Business Size & Growth

Measure	How It Is Measured	Limitations
Number of employees	Head‑count (full‑time equivalents)	Ignores productivity differences
Turnover (sales revenue)	£ per year	Doesn’t show profit margin
Capital employed	Value of plant, equipment, inventory	Hard to compare across industries

• Internal growth: reinvested profits, new product development, increased marketing.
• External growth: mergers, acquisitions, franchising, joint ventures.
• Problems of growth: loss of control, cash‑flow pressure, coordination difficulties.

1.4 Causes of Business Failure

• Insufficient cash flow / liquidity problems.
• Poor management decisions (e.g., over‑expansion, weak pricing).
• Inadequate market research – product does not meet customer needs.
• External shocks – economic recession, legal changes, new competition.
• Operational inefficiencies – high waste, low productivity.

1.5 Business Objectives & Stakeholders

• Profit‑oriented: maximise profit, increase market share.
• Growth‑oriented: expand output, enter new markets.
• Survival‑oriented: stay in business during recession.
• Other objectives: improve quality, enhance reputation, fulfil social mission.

Stakeholder	Key Objective(s)
Owners / shareholders	Profit, return on investment
Employees	Job security, wages, career development
Customers	Value for money, quality, service
Suppliers	Steady orders, timely payment
Community	Employment, environmental care, charitable support
Government	Tax revenue, compliance with regulations
Non‑profit / social enterprises	Social impact, community benefit

Check‑Your‑Understanding

1. Explain why a business might choose “survival” as its primary objective during an economic downturn.
2. Match each stakeholder with the objective most important to them.
3. Identify two common reasons why a small retailer could fail within its first three years.

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Unit 2 – People in Business

2.1 Motivation Theories (Exam‑friendly)

Theory	Core Idea	Exam Example
Maslow’s Hierarchy	Needs satisfied in five‑stage order	Pay rise → safe conditions → team‑building → recognition → career development
Taylor’s Scientific Management	Break jobs into simple tasks; pay per output	Piece‑rate wages on an assembly line
Herzberg’s Two‑Factor	Hygiene factors prevent dissatisfaction; motivators create satisfaction	Good lighting (hygiene) + challenging work (motivator)

2.2 Organisational Structure & Leadership

• Simple structure: owner‑manager, few employees – fast decision‑making.
• Functional structure: departments (marketing, finance, production) – specialist expertise.
• Divisional structure: separate profit centres (by product line or geography) – clear accountability.
• Matrix structure: dual reporting – functional & product lines; good for complex projects but can cause conflict.

Leadership styles (quick exam recall): Autocratic, Democratic, Laissez‑faire – each influences staff motivation and decision‑making speed.

2.3 Legal & Industrial‑Relations Controls

• Key statutes (UK examples): Equality Act 2010, Health & Safety at Work Act, Working Time Regulations, Minimum Wage Act.
• Employment contracts: written terms, notice periods, disciplinary & grievance procedures.
• Unfair dismissal & redundancy: legal grounds, compensation calculations.
• Trade unions: represent employee interests, negotiate collective agreements, can organise strikes.

2.4 Recruitment, Selection & Training

• Recruitment methods: internal (promotion, transfer) vs. external (advertisements, agencies, online portals).
• Selection tools: application forms, CVs, structured interviews, psychometric tests, assessment centres.
• Training types: on‑the‑job, off‑the‑job, apprenticeship, e‑learning, induction programmes.

2.5 Communication in Business

• Formal channels (reports, memos) vs. informal channels (water‑cooler chat).
• Barriers: language, cultural, physical, psychological.
• Effective communication steps – sender, message, medium, receiver, feedback.

Check‑Your‑Understanding

1. Identify two motivational techniques a retailer could use to improve staff morale.
2. Explain one advantage and one disadvantage of a matrix structure.
3. List three legal controls that protect a young employee in the UK.

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Unit 3 – Marketing (The Marketing Mix)

3.1 What Is a Marketing Strategy?

A long‑term plan that defines how a business will reach its target market, satisfy customer needs and achieve its marketing objectives. It integrates decisions about the 4 Ps to create a coherent, competitive approach.

3.2 The 4 Ps – Elements, Key Considerations & Why They Matter

Element	Key Considerations (exam‑friendly)	Why It Is Important
Product	Features, quality, design, brand, packaging Core, actual & augmented product Product life‑cycle (PLC) – introduction, growth, maturity, decline Extension strategies – new features, market‑segment targeting, re‑branding	Creates value and meets customer needs Differentiates the business from competitors Influences perceived price and the type of promotion required
Price	Pricing objectives – profit, market share, survival, status Methods – cost‑plus, competition‑based, penetration, skimming, value‑based Discounts, credit terms, psychological pricing (e.g., £9.99) Price elasticity of demand – % change in quantity / % change in price	Direct impact on revenue and profitability Signals quality and market positioning Can be used as a competitive weapon (e.g., penetration pricing)
Place (Distribution)	Channels – direct, retail, wholesale, online, franchising Coverage – intensive, selective, exclusive Logistics – inventory, warehousing, transport costs Location factors – proximity to market, accessibility, image	Ensures product availability where and when customers want it Reduces costs and improves service levels Supports brand image through choice of outlets
Promotion	Advertising, sales promotion, public relations, personal selling, direct marketing Message, media selection, timing, budget Integrated Marketing Communications (IMC) – consistent brand voice Digital marketing – website, social media, SEO, influencer partnerships, data‑privacy (GDPR)	Creates awareness and stimulates demand Builds brand equity and customer loyalty Communicates the value proposition of the product

3.3 Interaction of the 4 Ps

1. Product ↔ Price: Premium features justify a higher price; low‑cost production is needed for budget products.
2. Price ↔ Promotion: High‑price items often use prestige advertising; low‑price items rely on price‑focused promotions.
3. Place ↔ Promotion: Online sales require digital advertising; exclusive boutiques need high‑end print media.
4. Promotion ↔ Product: Advertising can change perceived quality, allowing a basic product to be repositioned as premium.

3.4 Product Life‑Cycle (PLC)

• Introduction: Low sales, high costs – use penetration pricing or heavy promotion.
• Growth: Rapid sales increase – focus on distribution expansion and product improvements.
• Maturity: Sales peak, competition intense – use product differentiation, price adjustments, promotional offers.
• Decline: Falling sales – consider product deletion, harvesting (reduce costs), or finding new uses.

3.5 Market Research & Segmentation

• Primary research: surveys, interviews, observations, experiments – fresh data, higher cost.
• Secondary research: published reports, statistics, internet – cheaper, may be outdated.
• Sampling methods: random, stratified, convenience – affect reliability and validity.
• Segmentation criteria:
  • Demographic – age, gender, income
  • Geographic – region, climate, urban/rural
  • Psychographic – lifestyle, values, personality
  • Behavioural – benefits sought, usage rate, loyalty

3.6 Legal & Ethical Controls on Marketing

Control	Key Requirement	Typical Exam Example
Consumer Protection Act	Products must be safe and meet advertised standards	Recall of a faulty toy
Advertising Standards Authority (ASA)	No misleading, harmful or offensive ads	“100 % natural” claim when synthetic ingredients are used
Data Protection (GDPR)	Personal data must be obtained lawfully and stored securely	Opt‑in requirement for email marketing
Fair Trading Act (UK)	Prohibits unfair commercial practices	Misleading price comparison

3.7 Marketing in Foreign Markets

• Entry‑mode decision tree: Export → licensing → franchising → joint venture → wholly‑owned subsidiary.
• Key factors before entry: cultural differences, legal environment, economic stability, political risk, market size.
• Adaptation vs. standardisation – decide how much of the 4 Ps need to be altered for the target country.

Check‑Your‑Understanding

1. Explain how a change in a product’s packaging could affect the other three Ps.
2. Using a real‑world example, illustrate the difference between intensive and selective distribution.
3. Identify two legal controls that could restrict a promotional campaign for a new energy drink.
4. Describe one extension strategy that could be used when a product reaches the decline stage of its PLC.

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Unit 4 – Operations Management

4.1 Production Methods

Method	Characteristics	Typical Example
Job production	One‑off, high flexibility, high cost per unit	Custom wedding dress
Batch production	Limited runs, set‑up time between batches	Bakery producing different loaf types each morning
Flow (mass) production	High volume, low cost per unit, specialised equipment	Car manufacturing line

4.2 Productivity & Costs

• Productivity formula: Productivity = Output ÷ Input (e.g., units per labour hour).
• Ways to improve productivity: training, better equipment, process redesign, lean techniques.
• Costs: Fixed (rent, salaries) vs. Variable (raw materials, hourly wages).
• Economies of scale: Average cost falls as output rises; diseconomies of scale: Cost rises after a certain size due to management complexity.

4.3 Break‑Even Analysis

Break‑Even Point (BEP) formula:
BEP (units) = Fixed Costs ÷ (Price per unit – Variable Cost per unit)

Key terms:

• Contribution margin: Price – variable cost.
• Margin of safety: (Actual or projected sales – BEP) ÷ actual sales × 100 %.
• Profit target: Add desired profit to fixed costs before dividing by contribution margin.

When drawing a BEP chart, plot total revenue and total cost lines; the intersection is the break‑even point.

4.4 Quality Management

• Quality Assurance (QA): Processes to prevent defects (e.g., ISO 9001 certification).
• Quality Control (QC): Inspection and testing of output; sampling methods.
• Lean production: Eliminate waste (over‑production, waiting, transport, excess inventory, motion, defects, over‑processing, unused talent).
• Just‑In‑Time (JIT): Inventory arrives only when needed – reduces holding costs but requires reliable suppliers.

4.5 Location Decisions

Factor	Why It Matters
Proximity to market	Reduces transport costs, improves service speed
Proximity to raw materials	Lowers input costs for manufacturers
Labour availability & cost	Impacts wage bills and skill levels
Infrastructure	Roads, ports, IT connectivity affect efficiency
Government incentives	Tax breaks, grants can tip the balance
Environmental & community impact	Reputation, compliance with planning regulations

Check‑Your‑Understanding

1. Calculate the break‑even point for a product that sells for £25, has a variable cost of £15 and fixed costs of £40 000.
2. Discuss two advantages of flow production for a smartphone manufacturer.
3. Explain how a “lean” approach can improve both quality and cost‑effectiveness.
4. Identify one potential disadvantage of a Just‑In‑Time system.

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Unit 5 – Financial Information and Decisions

5.1 Sources of Finance

Source	Type	Key Features
Bank overdraft	Short‑term	Flexible, interest on amount used, usually secured against assets.
Trade credit	Short‑term	Suppliers allow delayed payment (e.g., 30 days), no interest if paid on time.
Bank loan	Medium‑term	Fixed interest, regular repayments, may require collateral.
Hire purchase (HP) / Leasing	Medium‑term	Asset paid for in instalments; ownership at end of HP.
Equity finance – share issue	Long‑term	Shares sold to investors, no repayment obligation, dividends optional.
Venture capital / Angel investors	Long‑term	High‑risk funding for fast‑growing businesses, often with expertise input.
Government grants & subsidies	Non‑repayable	Targeted at specific projects (R&D, green technology).

5.2 Financial Statements – What They Show

• Income Statement (Profit & Loss Account): Summarises revenue, cost of sales, gross profit, operating expenses, and net profit for a period.
• Balance Sheet: Snapshot of assets, liabilities and owners’ equity at a point in time. Assets = Liabilities + Equity.
• Cash Flow Statement: Shows cash inflows and outflows from operating, investing and financing activities.

5.3 Ratio Analysis (AO2 – Interpretation)

Ratio	Formula	What It Indicates
Gross Profit Margin	Gross Profit ÷ Sales × 100 %	Efficiency of production & pricing.
Net Profit Margin	Net Profit ÷ Sales × 100 %	Overall profitability after all costs.
Current Ratio	Current Assets ÷ Current Liabilities	Short‑term liquidity.
Quick (Acid‑Test) Ratio	(Current Assets – Stock) ÷ Current Liabilities	Liquidity without relying on inventory.
Return on Capital Employed (ROCE)	Profit before interest & tax ÷ Capital Employed × 100 %	How efficiently capital is used.
Debt‑to‑Equity Ratio	Total Liabilities ÷ Equity	Financial risk – proportion of borrowing.

5.4 Budgeting & Forecasting

• Master (overall) budget: Combines sales, production, cash, and profit budgets.
• Flexible budgeting: Adjusts for actual sales volume, useful for variance analysis.
• Variance analysis: Variance = Actual – Budgeted; favourable (F) if profit higher, unfavourable (U) if lower.

5.5 Investment Appraisal (AO3 – Evaluation)

• Payback period: Time taken to recover the initial outlay. Simple, ignores time value of money.
• Net Present Value (NPV): Σ (Cash inflow ÷ (1 + r)^n) – Initial outlay; r = discount rate. Positive NPV = viable.
• Internal Rate of Return (IRR): Discount rate that makes NPV = 0; compare with required rate of return.
• Accounting Rate of Return (ARR): Average annual profit ÷ initial investment × 100 %.

5.6 Sources of Financial Information for Decision‑Making

• Annual reports, company accounts, industry statistics, market forecasts, internal management accounts.
• Use of financial ratios, trend analysis, and break‑even analysis to inform pricing, product range, and expansion decisions.

Check‑Your‑Understanding

1. Using the ratio table, calculate the current ratio for a company with current assets £120 000 and current liabilities £80 000.
2. Explain why a business might prefer a leasing arrangement to a bank loan when acquiring new machinery.
3. Outline the steps involved in calculating the NPV of a three‑year project with a discount rate of 8 %.
4. Identify two limitations of ratio analysis when assessing a company’s performance.