Developing new business ideas

1 | A c o m p l e t e T e x t f o r A L e v e l B u s i n e s s S t u d i e s / U n i t 1 a / B y
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A LEVEL BUSINESS STUDIES
TESMON MATHEW
Mount Assisi School
Bhagalpur,Bihar
DEVELOPING NEW BUSINESS IDEAS
A complete text book on Unit-1a
Edexcel A Level Business Studies.
To be successful, you have to have your heart in your business,
and your business in your heart.

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UNIT 1 – DEVELOPING NEW BUSINESS IDEAS
1. CHARACTERISTICS OF A SUCCESSFUL ENTREPRENEUR
What is a Business?
**The term business is derived from world busyness.
**Business represents The organized efforts of enterprises to supply consumers with goods and
services.
**Business activities are connected with production or purchase and sale of goods or services
with the object of earning profit.
**The persons who are engaged in business are called businessmen or entrepreneurs.
What is a management?
―Art of getting things done through other people
Management — making the mast efficient use of human, physical and financial resources to
achieve given objectives, involving planning, monitoring coordinating and reviewing activities,
Need to talk about functions of management.
What is an entrepreneurship?
Meaning of entrepreneur:
An entrepreneur is an individual who accepts financial risks and undertakes new financial
ventures. An entrepreneur is the person who bears risk, unites various factors of production to
exploit the perceived opportunities in order to evoke demand, create wealth and employment.
• An entrepreneur is someone who attempts to organize resources in new and more valuable
ways and accepts full responsibility for the outcome
• According to Miller, it is one who is able to begin, sustain, and when necessary, effectively and
efficiently dissolve a business entity.
Meaning of entrepreneurship:
Entrepreneurship can be described as a process of action an entrepreneur undertakes to
establish his/her enterprise.
Meaning of enterprise:
An enterprise is the business organization that is formed and which provides goods and services,
creates jobs, contributes to national income, exports and overall economic development.

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1.1 Characteristics of entrepreneurs
All successful entrepreneurs have certain qualities or characteristics which make them
outstanding in doing business.
 Initiative: Successful entrepreneurs are the ones who take up the opportunities in the
market and quickly exploit the profit. My Space and facebook found an opportunity in
social networking and quickly
took the opportunity to derive
economic benefit.
 Hardworking: Most of
the entrepreneurs start their
own business carrier when they
are quite young and work their
way up through hard work. One
of the most successful
entrepreneurs, Bill Gates was a
dropout. He maintained his
hard work and turned out to be
the richest person in the world.
Richard Branson started his
own business carrier when he
was very young.
 Resilient: Successful
entrepreneurs are able to withstand and recover quickly from difficulty. After September
11, airline industries, travel & tourism and other similar industries suffered a huge blow.
More recently, the credit crunch and subprime-mortgage crises in America resulted many
entrepreneurs to go out of business.
 Planner: Entrepreneur frames realistic business plans and follow them to achieve. He has
to foresee what will happen in the future.
 Self confident: Successful entrepreneurs have a great amount of self confidence. Most
of them base their decisions on gut feelings and are not swayed by comments. Richard
Branson is a perfect example. When he traded his returns from Virgin record company to
an airline, most of the analysts were sceptical. Only few projected a good return. However
Richard Branson was self confident and he stuck to his decision and turned around the
business to produce huge returns.
 Creative/innovative: Business activity usually begins with the entrepreneur having a
business idea. The entrepreneur could be said to be innovative. He or she is creating a
business where one did not exist before. When Anita Roddick opened the first Body Shop
in March 1976 in Brighton, she created a business idea of her own. This was to sell
toiletries and cosmetics with conservation, environment and animal rights in mind. Even
when ideas are copied or adapted, it could be argued that the entrepreneur is being

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innovative. The creation of a business producing vacuum cleaner which does not use
dust bag by James Dyson may be said to be innovative.
 Opportunity explorer: He has to identify opportunities and convert them into realistic
achievable goals.
 Risk averse/Take calculated risks: When an entrepreneur comes up with a new
business idea, there is no guarantee that the final product or service will be sold. If the
goods are unsold then the entrepreneur will have to suffer this loss. It is not possible to
ensure against unquantifiable risks such as these, so entrepreneurs bear all the costs of
failure. Successful entrepreneurs are entrepreneurs who weigh up all the relevant factors
before investing their money in a business idea. They only take calculated risks, i.e. they
assess the chance of success or failure before they proceed.
 Motivator : He must influence the people and make them think in his way and act
accordingly
1.2 Why do a person becomes entrepreneur?
Entrepreneurs start businesses for variety of reasons. Some relate to profit motives, others non-
profit motives or ethical stance. The following are some reasons why people start up their own
business:
 Independence: Some people prefer to make their own decisions and to take
responsibility rather than being told what to do.
 To increase rewards: People setting up their own businesses often believe that they will
earn more than if they were working for an employer. Usually working as an employee
does not entitle to a share of profit. Only a fixed salary is provided. However, in self
employment, the entrepreneur can keep his share of profit.
 As a result of redundancy: Some businesses start when an employee is made
redundant and decides to use her skills in her own venture. Redundancy payment can be
used to fund the business.
 Commitment to a product: A business may be set up to sell a new invention or because
of commitment to a product. For example, James Dyson took five years and 5127
prototypes before creating a working model of the best selling vacuum cleaner. 10 years
later, after rejecting by many companies, he produced the product under his own name.
 Sometimes people extend their hobbies into a business. A stamp collector may set up
a small stall at local markets, for example.
 To satisfy creative needs: A worker on a production line packing biscuits may be artistic.
Setting up a business to paint portraits may allow the individual to satisfy these needs.
 A person may want to work in a particular job, but can‘t find employment. Someone who
has trained as a hairdresser or joiner may find the setting up their own business in the
only alternative to being unemployed.
 An employee may be dissatisfied with their job. Setting up in business is one
alternative for looking for a hob with another firm.

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What motivates an entrepreneur?
1. Profit Motives
2. Non Profit Motives
3. Ethical Stances
1. Profit: The excess of revenue over expenses s known as profit.
Significance of profit:
Ways — better utilization of resources, better quality products, good marketing,
customer service etc.
Benefits:
-Profit provides a measure of the success of a business
-To satisfy its shareholders and attract the potential investors
-To ensure the survival of business
-To ensure growth and expansion by reinvesting a part of the profits, Profit is the
source of more than 60% of all the finance used to help companies grow; without
profit, firms would stand still.
-To meet other objectives of business such as social objectives, human objectives in
the long run. Problems — conflict with many of the other stakeholders.
2. Non profit motives:
This is similar to CSR. These motives are related to social obligations. Some of the
entrepreneurs motivate to serve the society without expecting much benefit, They are
not much concerned about profit but service oriented, for example an organic farms.
Significance of non profit motives:
Ways:
To supply desired quality of products/services at reasonable prices.
To avoid anti social and unfair trade practices to earn profits.
To generate employment
To control poverty and pollution
To contribute to the general welfare of the society
Social Enterprenuers.
Social entrepreneurship is the work of a social entrepreneur. A social entrepreneur is someone
who recognizes a social problem and uses entrepreneurial principles to organize, create, and
manage a venture to make social change. A social enterprise is a business that trades primarily
to achieve social aims, while making a profit. Social aims might include job creation, training and
provision of local services

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3. Ethical stance in starting up a new business.
Ethics are the values and beliefs which influence how individuals, groups and societies
behave, For example, an electricity
generating business may be operating
within legal emissions limits. However,
it may feel that it has to change its
production methods to reduce
emissions even further because it
believes business should work
towards a cleaner environment.
Many entrepreneurs start their
businesses for purely ethical reasons.
Anita Roddick had environmental
issues and animal rights in her mind
when she started the Body Shop.
Picture: Bhopal incident– costs of
being unethical
Ethical stance:
‘ Ethics are moral principles that should underpin decision making. A decision made on
ethical grounds might reject the most profitable solution in favour of one of greater benefit
to society as well as the firm.
It is about the principles of right and wrong accepted by individuals or social groups.
• Some entrepreneurs motivated by moral principles to start up a business
Significance of Ethical stance:
-To adopt honest ways to earn profit
-To sell genuine goods and services
- To pay taxes as an honest taxpayers
- Not to cause harm to others to earn profits
-To provide good working environment for employees
-To do fair trade practices
-To protect the consumer from false goods and services
-To help the nation to build up prosperity
-To meet the public expectations
Ethical issues at organization level:
• Child labour
• Wages and other benefits
• Friendly poilcies
• Protecting the environment
• To act within the law

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Benefits of having an ethical perspective in starting up a new
business.
 The reputation of the business will increase.
 More customers will be attracted to the company, including more environmentally
conscious consumers.
 It would be easier to get employees, especially highly reputed business
personalities.
 There would be more cooperation from pressure groups and trade unions.
Costs of adopting an ethical perspective.
 Increasing costs: Ethical behaviour can result in an increase in costs of a firm.
An ethical firm may, for example, be forced to turn down cheaper supplies from a
firm which tests its products on animals. Similarly, costs may be raised by
pollution reducing filters put on coal-fired power stations.
 Loss of profit: Firms may be forced to turn down profitable businesses due to
their ethical stance. A business, for example, may reject a profitable investment
opportunity in a company which produces animal fur, as this is against its ethical
policy.
 Conflict: When a firm‘s overall profitability comes into conflict with its ethical
policy, problems may result. In such cases the shareholders of a firm may object
to the ethical policy as the return on their investment is harmed.
 Relations with supplies: Some suppliers will only supply products to businesses
that meet ethical criteria. This might include agreeing not to trade with certain
countries or businesses that deal in arms, that exploit workers or that abuse
human rights.
Even though there are some disadvantages in adopting an ethical perspective, in longer
term, the benefits of adopting an ethical approach outweighs its costs. ―A non-profit
manager with a background in social work, community development, or business who pursues a
vision of economic empowerment through the creation of social purpose businesses intended to
provide expanded opportunity for those on the margins.‖
Examples of unethical approach:
• Building a superstore on an environmental sensitive ste
• Paying low wages to non unionized women workers
o Cuttings safety expenditure level
• Closing a factory in an area of high employment

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1.3 Leadership Styles
Various definitions of leadership
• Leadership is the process of influencing group activities towards the accomplishment of goals in
a given situation,
• Leadership is a quality to influence others in team or group situation in order to induce
subordinates or group to attain the desired goals.
Characteristics of leadership.
1. Personal quality of character - According to research studies leader is viewed as a
role, w[nch means attributes and characters of the person. So leadership is the
personal quality of character and behavior in man, which enables him to exert
personal influence on followers.
2. Helpful: - Helpful in choosing and training specified goals to the maximum
satisfaction of both the leader and the followers.
3. Authority and confidence: - Leads his group with authority & confidence,
4. Motivator: Motivates the group to work for the attainment of goals, Relationship: -
Leader establishes relationship between an individual and a group.
5. direction and guidance: - Leadership is the process of directing, guiding and
influencing people to do their best for the attainment of a specified goal.
What a leader does?
Leader develops teamwork
Leader represents his/her subordinators
Leader uses power properly
Leader manages the time well
Leader strives for effectiveness
Leader counsels appropriately
Leader sets realistic goals.
Styles of management.
1.Autocratic or authoritarian style:
It is a leadership style where the leader makes all
decisions independently. This places a lot of
emphasis on formal systems, which are backed-up
with a strict code of conduct or control. The reward
system is mostly financial and closely related to
performance and meeting targets. In reverse a poor
performance can result in penalties, as can poor
behaviour. Some are based on a strong personality
cult which is that of the leader, or in many cases the
founder of the business. This system is often referred
to as being close to McGregor's Theory X.

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The key features of each of this leadership styles can be summarised as
follows:
- Autocratic leaders hold onto as much power and decision-making as possible. Leader takes
decision without consulting anyone else.
- Focus of power is with the manager.
- Communication is top-down & one-way.
- Formal systems of command & control.
-High dependency on leaders.
- Minimal consultation
- Use of rewards & penalties
- Very little delegation
-No full employee participation
Autocratic leadership is not all bad. Sometimes it is the most effective style
to use. These situations can include:
--New, untrained employees who do not know which tasks to perform or which procedures to
follow
--Effective supervision can be provided only through detailed orders and instructions
--Employees do not respond to any other leadership style
--There are high-volume production needs on a daily basis
--There is limited time in which to make a decision
--A manager‘s power is challenged by an employee
--The area was poorly managed
--Work needs to be coordinated with another department or organization
The autocratic leadership style should not be used when:
--Employees become tense, fearful, or resentful
--Employees expect to have their opinions heard
--Employees begin depending on their manager to make all their decisions
--There is low employee morale, high turnover and absenteeism and work stoppage
Advantages
It permits quick decisions as a single person takes decisions
it provides strong motivation and satisfaction to the leader.
It can be successful where subordinates are reluctant to take initiative
Decisions and direction of business will be consistent.
Disadvantages
It leads to frustration, low morale and conflict which affect organisational efficiency
Subordinates are highly dependent upon leaders.
Supervision needed which increases supervision cost.
Insecure and afraid of leader‘s power.
There is resistance to change as workers feel harassed and disturbed.

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222... Democratic style: A leadership style where the leader encourages others to participate in
decision making. This is similar to McGregor's Theory Y (later). Employees are asked for their
opinions on issues before a final decision is made. Sometimes this results in their ideas being
adopted, or they are persuaded to accept what management wanted. They consult one another
and do what is thought best to achieve their objectives. The democratic manager keeps his
or her employees informed about everything that affects their work and shares
decision making and problem solving responsibilities. This style requires the leader
to be a coach who has the final say, but gathers information from staff members
before making a decision.
Democratic leadership can produce high quality and high quantity work for long
periods of time. Many employees like the trust they receive and respond with
cooperation, team spirit, and high morale. Typically the democratic leader:
--Develops plans to help employees evaluate their own performance
--Allows employees to establish goals
--Encourages employees to grow on the job and be promoted
--Recognizes and encourages achievement.
It is most successful when used with highly skilled or experienced employees or
when implementing operational changes or resolving individual or group problems.
The democratic leadership style is most effective when:
--The leader wants to keep employees informed about matters that affect them.
--The leader wants employees to share in decision-making and problem-solving
duties.
--The leader wants to provide opportunities for employees to develop a high sense of
personal growth and job satisfaction.
--There is a large or complex problem that requires lots of input to solve.
--Changes must be made or problems solved that affect employees or groups of
employees.
--You want to encourage team building and participation.
Democratic leadership should not be used when:
--There is not enough time to get everyone’s input.
--It’s easier and more cost-effective for the manager to make the decision.
--The business can’t afford mistakes.
--The manager feels threatened by this type of leadership.
--Employee safety is a critical concern.
The key features
- Focus of power is more with the group as a whole / Decentralised power and authority
- Leadership functions are shared within the group. Encourages decision making from different
perspectives

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- Employees have greater involvement in decision-making – but potentially this slows-down
decision-making . Workers feel ownership of the firm .
- Emphasis on delegation and consultation – but the leader still has the final say.
-: leader takes decision and seeks to persuade others that the decision is correct. Two way
communication (upward and downward full flow f communication)
- Perhaps the most popular leadership style because of the positive emotional connotations of
acting democratically
- A potential trade-off between speed of decision-making and better motivation and morale?
- Likely to be most effective when used with skilled, free-thinking and experienced subordinates
Advantages
It reduces resistance to change and increases acceptance of new ideas.
It improves the attitudes of employees towards their jobs and the organization
it increases cooperation between management and workers.
It improves employee morale and reduces complaints or grievances
Disadvantages
lt may delay in decisions
It may be used covertly to manipulate employees.
Participation will not be meaningful unless the subordinates understand thoroughly
the complex problems of the organization.
It may not be liked by people who want minimum interaction with superiors and
olleagues.
3. Paternalistic Leadership Style: A leadership style where the leader makes decisions, but
takes into account the welfare of the employees.
Another style within this school is paternalistic, which sees the workforce as an extension of the
family and close supervision forms much of the attempt to gain both respect and acceptance.
Those who accept the style are rewarded, whilst those who do not are at best tolerated.
In this type of leadership, managers give more attention to the social needs and views of their
workers. Managers are interested in how happy workers feel and in many ways they act as a
father figure (pater means father in Latin). They consult employees over issues and listen to their
feedback or opinions. The manager will however make the actual decisions (in the best interests
of the workers) as they believe the staffs still need direction and in this way it is still somewhat of
an autocratic approach. The style is closely linked with Mayo‘s Human Relation view of
motivation and also the social needs of Maslow.
Key features
- Akin to a parent/child relationship – where the leader is seen as a ―father-figure‖
- Still little delegation
- - Typical paternalistic leader explains the specific reason as to why he has taken certain
actions. Paternalistic leaders are autocratic in n nature, but have a friendly face:
-decisions may we be taken in the interest at the business, or even the workforce, but the head
of the family is still in charge.
- Employees can become very loyal hopefully resulting in low labour turnover.
-Paternalistic leader makes decision but may consult
-* Believes in the need to support staff.
Advantages
can get loyalty
low labor turnover
it emphasis on social needs
It guides, helps and protect the followers,

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Good working conditions
Fringe benefits
Welfare facilities and services.
Disadvantages.
Employees may resent the leader‘s gratitude in industrial organizations.
Little opportunity to exercise initiative to grow and realize their full potential.
Groups will become dependent.
They may become dissatisfied with leader.
it is similar to autocratic It will not allow subordinate to take decisions.
4. Laissez-Faire Leadership Style
The laissez-faire leadership style is also known as the “hands-off¨ style. It is one in
which the manager provides little or no direction and gives employees as much
freedom as possible. All authority or power is given to the employees and they must
determine goals, make decisions, and resolve problems on their own.
This is an effective style to use when:
--Employees are highly skilled, experienced, and educated.
--Employees have pride in their work and the drive to do it successfully on their own.
--Outside experts, such as staff specialists or consultants are being used
--Employees are trustworthy and experienced.
This style should not be used when:
--It makes employees feel insecure at the unavailability of a manager.
--The manager cannot provide regular feedback to let employees know how well
they are doing.
--Managers are unable to thank employees for their good work.
--The manager doesn’t understand his or her responsibilities and is hoping the
employees can cover for him or her.
Key features
- Laissez-faire means to “leave alone”
- Leader has little input into day-to-day decision-making
- Conscious decision to delegate power
- Managers / employees have freedom to do what they think is best
- Often criticised for resulting in poor role definition for managers
- Effective when staff are ready and willing to take on responsibility, they are
motivated, and can be trusted to do their jobs
- Importantly, laissez-faire is not the same as abdication

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.
Main features Disadvantages Possible applications
Autocratic
 Leader takes all
decisions
 Gives little
information to staff
 Supervises workers
closely
 Only one-way
communication
 Workers are only
given limited
information about
the business.
 Demotivates staff
who want to
contribute and
accept
responsibility.
 Decisions do not
benefit from staff
input.
 Defence forces and
police where quick
decisions are needed
and the scope for
discussion must be
limited.
 In times of crisis
when decisive action
might be needed to
limit damage to the
business or danger to
others.
Democratic
 Participation is
encouraged.
 Two-way
communication is
used which allows
feedback from staff.
 Workers are given
information about
the business to
allow full staff
involvement.
 Consultation with
staff can be time-
consuming.
 On occasions,
quick decision
making will be
required.
 Should staff be
involved in all
aspects of
business? Some
issues might be
too sensitive, e.g.
job losses; or too
secretive, e.g.
development of
new products.
 It is most likely to be
useful in businesses
that expect workers
to contribute fully to
the production and
decision-making
processes, thereby
satisfying their
higher-order needs.
 An experienced and
flexible workforce will
be likely to benefit
most from this style.
 In situations that
demand a new way of
thinking or a new
solution then staff
input can be very
valuable.
Paternalistic
 Managers do what
they think is best
for the workers.
 Some consultation
might take place
but the final
decisions are taken
by the managers –
there is no true
participation in
decision making.
 Managers want
workers to be
happy in their jobs.
 Some workers will
be dissatisfied
with the apparent
attempts to
consult, while not
having any real
power or
influence.
 Used by managers
who have a genuine
concern for workers‘
interests but feel that
managers know best
in the end. When
workers are young or
inexperienced this
might be an
appropriate style to
employ.

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McGregor Theory X and Theory Y
In 1960 Douglas McGregor published the 'Human side of enterprise'. In this work he attempted to
apply the implications of the work of Maslow, Taylor and Mayo to what businesses do. He
identified two theories to try to explain what motivates people to work. He argued that people are
either Theory X workers or Theory Y workers.
(i) Theory X
Theory X workers are essentially lazy and work just for money. If this is the case then they need
to be strictly controlled (using a more dictatorial or autocratic style of leadership). Theory X
workers are considered to be:
Workers are motivated by money
Workers are lazy, careless and dislike the work
Workers are selfish, ignore the needs of organizations, avoid responsibility and lack
ambition Workers need to be controlled and directed by management
(ii) Theory Y
Theory Y workers are a complete contrast to this. They are more motivated by the higher level
needs on Maslow's hierarchy. They essentially enjoy work and are committed and enjoy
responsibility. Theory Y workers are considered to be:
Workers can enjoy work and efforts at work are natural to them.
If motivated, workers can organize themselves and take responsibility.
Management should create a situation where workers can show creativity and apply their
job knowledge.
Workers have many different needs which motivate them.
Workers can enjoy work.
How to motivate Theory X employees
• Autocratic leadership is required because workers need more control
• Decision making can be centralized
• Apply scientific management (ie. money is motivating factor)
• Pay and punish (stick and carrot approach)
• Fair days pay for fair days work.
How to motivate theory Y employees
A democratic or even free rein style of leadership is required
• Decentralization of decision making
• Encouraging the employees to do more work
• Empowerment
Implications of the theory
Advantages
- Managers can take the decisions according to X and Y
- Competition between X and Y employees increases efficiency Management control can
be possible
Disadvantages
Employees dislike the discrimination
- Confhcts between Y and X employees Management biased to Y employees

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McGregor himse‘f saw Theory Y as the only way forward. Theory X was only set out to
be criticised. However, as with may aspects of HR management (Organisational
structure, motivation, leadership style), the context will determine the best approach but
the management of transition from X to Y will always create problems as trust is not a
commodity that can be forced into the workplace, or built overnight..
Factors that affect leadership styles
 The leader's personality - for many this is set and unlikely to radically alter. So, a
dominant individual will tend to be more autocratic than someone who listens carefully to
others. If the business wants to change direction, then it will probably have to look for a
new leader.
 The leader's skills and abilities - much of what a leader can achieve will rest on their
ability to illustrate sufficient skill and charisma. Respect and loyalty normally have to be
earned and as we have seen in the styles of leadership section different individuals go
about achieving these in different ways.
 Circumstances - some rise during a crisis, whilst others are better in less chaotic
circumstances.
 Culture - the ways in which a business is run can also affect what style of leader it works
best under. Some prefer a more open, consultative way of doings things, whilst other use
a more autocratic way of running affairs.
 Task - the nature of the task, such a highly technical one, might also determine who leads
and how.
 The workforce - if it is prone to laziness or poor standards then a more dictatorial style of
leadership will be needed.
What a leader does?
Leader develops teamwork
Leader represents his/her subordinates
Leader use power properly;‘
Leader manages the time well
Leader strives for effectiveness
Leader counsels appropriately
Leader sets realistic goals
Importance of Leadership
Aid to authority: there are serious limits to the use of formal authority in obtaining high
performance, Managers having leadership qualities can secure willing cooperation of
er‖ployees which leads to higher performance.
Motive power to Group Efforts: group efforts and teamwork are essential for achieving
organizational goals Leadership helps to create mutual cooperation and team spirit among
people. It pulls the group towards higher level of performance through human relations,
Basis for cooperation: leadership improves employer — employee relations through man to
man relationship and participation. Interactions and two way communication promote positive
attitudes and mutual understanding.
Integration of formal and informal organization: when management fails to provide
competent leadership, informal leadership will prevail over management in regulating the
behavior of employees. Competent leadership on the part of managers can utilize informal
organization constructively for achieving the company‘s objectives.

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2. IDENTIFYING A BUSINESS OPPORTUNITY
Identifying a business opportunity (getting a business idea)
Anyone setting up a business must first have a business idea before they can begin. It might be a
specialist shop selling items for a dolls house, a door to door hairdressing service or a company
producing computers. The ideas for a business can come from many places.
 It might be an idea based on existing skills the entrepreneur learnt when doing another
job.
 It might be an idea from a colleague at work or someone else in business.
 It might be an adaptation of an existing product where the entrepreneur thinks that they
can do better.
 It might be a gap in the market found by an entrepreneur that no other business is doing
at the moment. For example they might find that they need a product at home, but can‘t
buy exactly what they need.
 It might be based on market research. It is unlikely that a new entrepreneur will have the
finance to carryout detailed market research. However, simple research such as
observation of customers entering into a shop or a questionnaire given to sample of
potential buyers might be possible.
2.1 What makes a market / what should firms supply?
Market: Any arrangement by which the buyer and the seller can exchange goods and services.
Supply is the amount of a product which suppliers will offer to the market at a given price.
Law of supply: Other things being equal, more will be supplied at higher prices than at lower
prices.
Movement along the supply curve
A change in price will cause a movement either up or down the supply curve. The curve will not
change its position assuming that all other factors remaining the same.
Figure: Possible movements along a supply curve
Movement of the supply curve (a shift in the supply curve)
There are a number of other factors that may affect the supply other than the price. Changes in
these factors will cause the whole supply curve to shift.

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Figure: Possible shifts of a supply curve
Cost of production: A fall in the cost of production due, for example, to new technology, fall
immaterial costs or wages will result the supply curve to shift right. This is because now the
suppliers will be able to supply same quantity of goods at a lower price.
Changes in production: A good harvest or production will increase the supply and will shift the
supply curve to the left.
Legislation: A new anti-pollution law might increase production costs causing the supply curve
to shift to the left. Similarly, a tax on a product would shift the supply curve to the left.
Expectations: If businesses expect future prices to rise they may restrict the current supplies.
This would result a shift in the supply curve to the left.
Weather: The weather can influence the supply of agricultural products. For example, in the UK
late spring food can reduce the supply of strawberries. The supply curve will shift to the left.
The objectives of the firm: Firms might seek to increase their profit levels and the market share.
This might reduce the overall level of supply as other firms are forced out of business.
2.2 Identifying what consumers want or need
Demand: the amount of a product that consumers are willing and able to purchase at any given
price.
Law of demand: Other things being equal, more will be demanded at lower prices than at higher
prices.
Movement along the demand curve
A change in price will cause a movement either up or down the demand curve. The curve will not
change its position assuming that all other factors remaining the same.

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Figure: Possible movements along a demand curve
Movement of the demand curve (a shift in the demand curve)
There are a number of other factors that may affect the demand other than the price. Changes in
these factors will cause the whole demand curve to shift.
Figure: Possible shifts of demand curve
Income: It is reasonable to assume that the higher the incomes of consumers, the more they will
be able to buy. When incomes in the country as a whole increase the demand for products will
increase. However, this is true with superior/normal goods and is opposite with inferior goods.
The price of and demand for other goods: A rise in the price of one brand is likely to cause an
increase in demand for others. This is often true of products which have close substitutes such
as soft drinks. Complementary goods are those goods that are used together. Examples include
cars and petrol, and DVD players and DVDs.
A fall in the price of a complementary good will result an increase in the demand for the other
good.
Changes in taste and fashion: Some products are subject to changes in the taste and fashion.
The growth in CD sales over the last decade has shifted the demand curve to the right. Some
have suggested that the demand for compact disks may shift to the left in the future as internet
access to music becomes more popular.
Changes in population: Changes in population and changes in structure of the population will
affect demand. The increase in proportion of over 65s in the Western industrialized countries will
shift the demand associated with the old to the right.
Advertising: Successful advertising and promotion will shift the demand to the right, with more
being demanded at any given price.

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Legislation: Government legislation can affect the demand for a product. For example, a law
requiring all cyclists to wear helmets would lead to an increase in demand for cycling helmets at
any given price.
The market price (or equilibrium price) is determined by the levels of demand and supply in the
market. Figure 1 below shows a market in equilibrium with an equilibrium market price of P* and
an equilibrium quantity being bought and sold of Q*.
Figure: Market equilibrium
Though markets aim to reach equilibrium they can record excesses. This can happen both we
demand and supply. When this occurs it is called a disequilibrium and figure 2 below shows
possible excess supply and excess demand.
Figure: Excess demand and excess supply
Where there is excess demand in a market this will tend to drive the price upwards whereas
excess supply will tend to drive it downwards.
We also have to be aware that demand and supply alter because of changes in certain
conditions. If the price of the product alters we note that a MOVEMENT along a demand or
supply curve has arisen (see figure 3 for a move along a demand curve and figure 5 for
movements along a supply curve), whilst if any other condition affecting either demand or supply
changes then a SHIFT has arisen (see figure 4 for shifts in a demand curve and figure 6 for shifts
in a supply curve).

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Figure: interaction of demand and supply
Market Orientation
A market oriented business is one which continually identifies reviews and analyses
consumers‘ needs. It is led by the market. A market oriented business must:
 Consult consumer continuously (market research);
 Design the product according to the wishes of consumer;
 Produce the product in quantities that consumers want to buy;
 Distribute the product according to the buying habits and delivery requirements of the
consumer;
 Set the price of the product at a level that the consumer is prepared to pay.
Henry Ford was one of the first industrialists to adopt market orientated approach.
Product oriented businesses focuses on the production process and the product itself. They
place their emphasis on developing a technically sound product, producing that product and
selling it.
An example is Concorde.

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Benefits of market orientation as opposed to product orientation:
 It can respond more quickly to the changes in the market because of its use of market
information;
 It will be in a stronger position to meet the challenge of new competition entering into
market;
 It will be more able to anticipate market changes;
 It will be more confident that the launch of a new product will be a success.
Key Words
Market: Any arrangement by which the buyer and
the seller can exchange goods and services.
Demand: the amount of a product that consumers
are willing and able to purchase at any given price.
Supply: is the amount of a product which suppliers
will offer to the market at a given price.
Market oriented business: one which
continually identifies reviews and analyses consumers’
needs. It is led by the market.
Product oriented business: focuses on the
production process and the product itself.

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3. EVALUATING A BUSINESS OPPORTUNITY
3.1 Researching demand for the business idea
Market Research
We noted in the previous section that the market-orientated firm bases it business
operations on the need to monitor changes in customer demand and in modern fast
moving markets few firms can ignore marketing. We now need to ask ourselves how the
information needed for monitoring changes in patterns of behaviour is discovered.
Market research means collection, collation and analysis of data relating to the
marketing and consumption of goods and services.
For example, a business might gather information about the likely consumers of a new
product and use the data to help in its decision making process. The data gathered by
the research might include:
 Whether or not consumers would want such a product;
 What type of promotion will be effective;
 The functions or facilities it should have;
 What style, shape, colour or form it should take;
 The price people would be prepared to pay for it;
 Whether people would wish to purchase it;
 Information about consumers themselves – their age, their likes, attitudes,
interests and lifestyles;
 What consumers buy at present?
A high quality of market research will not guarantee corporate success but it will be an
important part of the information gathering process that assists those having to make
decisions.
Figure: Market research process
•Quantitative
•Qualitative
What type of
information is
required?
•Primary research
methods
•Secondary research
methods
Which technique to
use? •Develop marketing
strategy
•Modify marketing mix
(product, price,
promotion and place)
How can we act on
the findings?

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Selecting the correct data - Quantitative and qualitative analysis
Information is normally collected in TWO different types. These are qualitative and quantitative.
Quantitative research involves the collection of data that can be measured. In practice this
usually means the collection of statistical data such as sales figures and market share.
Qualitative research – involves the collection of data about attitudes, beliefs and intentions. An
example of a qualitative research could be face to face interviews with 100 purchasers of a new
Land Rover to find out why they prefer this product.
By splitting our research into these categories we are building a better sense of exactly who and
what it is that we are trying to appeal to.
Marketing research - uses of research
A wide variety of information used to support marketing decisions can be
obtained from market research. A selection of such uses are summarised
below:
1. Information about the market
• Analysis of the market potential for existing products (e.g. market size,
growth, changing sales trends)
• Forecasting future demand for existing products
• Assessing the potential for new products
• Study of market trends
• Analysis of competitor behaviour and performance
• Analysis of market shares
2. Information about Products
• Likely customer acceptance (or rejection) of new products
• Comparison of existing products in the market (e.g. price, features, costs,
distribution)
• Forecasting new uses for existing products
• Technologies that may threaten existing products
• New product development
3. Information about Pricing in the Market
• Estimates and testing of price elasticity
• Analysis of revenues, margins and profits
• Customer perceptions of ―just or fair‖ pricing
• Competitor pricing strategies

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4. Information about Promotion in the Market
• Effectiveness of advertising
• Effectiveness of sales force (personal selling)
• Extent and effectiveness of sales promotional activities
• Competitor promotional strategies
5. Information about Distribution in the Market
• Use and effectiveness of distribution channels
• Opportunities to sell direct
• Cost of transporting and warehousing products
• Level and quality of after-sales service
Information gathering techniques
When gathering field or primary research we normally use one of, or sometimes a
mixture of the following:
• Primary research
• Secondary research
As researchers we must decide which of these, or which combination of them, suits our
statement of objectives. Accuracy will probably play a large part in deciding which
method we use. We also need to be aware of time, costs, what is required and who will
gather the information. Primary research gathering tends to be time consuming and with
this comes an added cost component. Most researchers will tell you that you get what
you pay for. The more you spend the more likely your findings will be both accurate and
useful. We therefore face a conventional business decision, namely does the cost
outweigh the benefit or vice versa?
How can we act on the findings?
Based on the market research findings, a business should set a marketing strategy, i.e.
design a course of action, which will function as a strategy and be related to achieving
one or more of our marketing targets. Based on market research a business might come
up with its marketing mix or modify its existing marketing mix (product, price, promotion
and place).
Primary research / Field research
Primary research involves collecting primary data. This is information which does not
already exist.
1. Observations
Observations centre on watching how people behave in certain circumstances. How
people enter a shop is one of the most interesting. Most retailers feel that we take
approximately 10 minutes to feel inside the shop. Before that we are not really relating to
the environment. Which way do we turn and more importantly which way can we be

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persuaded to turn. What attracts our attention? At what height is it? etc. Researchers
help retailers in creating their shop design to closely monitor all these.
Observations of this kind are costly but retailers place considerable weight on their
findings. Results are in truth dated but if the observations show a very distinct trend then,
providing those being watched did not know they were being observed, the exercise
would be useful in part of our distribution and promotional activities.
2. Experiments
Experiments also are used to test reactions, normally of people. How have they reacted
to a change in packaging, or in supermarkets how have they reacted to a change in the
location of a certain product line? By altering store layout we are introduced to products
that might have been unknown to us. Product association can be extended and new
tastes established. You would be surprised how often we innocently take part in
experiments.
3. Surveys
Surveys come in various different types. The most common method is stopping members
of the public and asking them a series of special questions. One fact that has to be
remembered when using surveys is that those who conduct them are often very
experienced and can influence the reactions of those interviewed. Those doing the
interviewing might also interpret what has been said and therefore change the real
response given. The main forms used are:
• Postal
• Telephone
• Personal
4. Questionnaires
These are normally a central part of most pieces of market research. Various types exist
and the style of questions normally dictate the type of research that emerges.
Every questionnaire must have a balance between open and closed questions.
Open questions allow many responses.eg. ‗suggest how the product could be
improved‘.
Closed questions only allow the interviewee a limited range of responses, often yes or
no. eg. ‗how many products have you bought last month?‘.
The more open the questions the more difficult it becomes to classify responses. The
results will become more subjective and therefore less easy to actually put into
categories. Just imagine asking you colleagues what they wanted for school lunches.
The response could be so varied and contain so many personal likes that the canteen
could never produce such a range. Hence, in most school canteens the range is based
on certain well-tried favourites.
The design of a questionnaire is subject to considerable influence from the organization
requiring the outcome but some general principles do exist. These are normally as
follows:
 Know exactly what the survey of opinion is trying to discover.
 Make the questions easy to understand and unambiguous.
 Avoid questions that lead respondents into certain types of answer.
 Follow a logical sequence of questioning.
 Don't rely too much on respondents‘ memories.
 If offering a choice of responses don't make one of them the obvious answer.
 Take care not to ask questions that are thought to be offensive.

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 Keep to what the respondent knows.
 Put some control questions in the design. These check for bias in both the way
the researcher is asking the question and the answers they are receiving.
5. Consumer panels
Consumer panels involve a group of consumers being consulted on their reactions to a
product over a period of time. Their main advantage is that they can be used to consider
how consumer reaction changes over time. Their disadvantage is that it is both difficult
and expensive to choose and keep a panel available for research over a long period.
6. Test marketing
Test marketing involves selling a product in a restricted section of the market in order to
assess consumer reaction to it.
This is often carried out in a certain region e.g. South West or the Northeast. They are
relatively self-contained regions and they have certain characteristics e.g. more elderly in
the Southwest. The pre launch and post launch situations can be carefully monitored and
results analysed. Hence sometimes if you live in one of these areas you see products
advertised that the rest of us never get to look at. They may even be withdrawn after the
test launch. It saves money and allows a detailed analysis to be carried out.
Secondary research/Desk research
Secondary research involves the use of secondary data. This is information which
already exists in some form.
1. Sources inside the business
 Sales figures. For example sales figures broken down according to market
segments can be particularly useful.
 Reports from members of the sales force resulting from direct contact with
consumers.
 Annual reports and accounts published by the company.
2. Sources outside the business
 Information from competitors: This may be for example in the form of
promotional materials, product specifications or price lists.
 Government publications: There are many government publications that a
business can use. These range from general statistical publications such as
Social Trends, Census of Population through to specialist publications such as
Business Monitor.
 Commercial Publications: A number of organizations exist to gather data about
particular markets. The information is usually highly detailed and specialized.
Mintel, Dun and Bradstreet and Verdict are examples of such organizations.
 The European Union: The EU now provides a wide range of secondary data
which can be highly valuable to businesses operating within the EU region.
Such publications include European Economy and Panorama of EU Industry.
 Retail Audits: The wide spread use of EPOS (Electronic Point Of Sales) has
meant that it is now much easier to collect detailed and up to the minute data
on sales in retail outlets such as supermarkets and other retail chains. Retail
audits provide manageable data by monitoring and recording sales in a sample

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of retail outlets. Businesses find these audits especially very helpful because of
the way in which they provide a continuous monitoring of their performance in
the market.
The main advantage with secondary research is that it is less costly and less time
consuming. Therefore businesses can easily make decisions based on this information.
However, it is not tailored to the needs of the business and the reliability and the
accuracy is lower than that of primary research.

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Sampling
Sampling is the process of gathering information from a small sample rather than the whole
market or population, were the survey of the whole population is known as a census.
Need for and purpose of sampling
It is normally too costly and almost certainly impossible to ask everyone you would like to. So, we
have to sample a proportion of opinions. However, we need to make the results as close a
reflection of the whole population‘s opinions as possible
Advantages of sampling
 Reduces cost of survey
 Saves time of the surveyor
 Requires fewer resources
 Reliable as there is a concentration on selected units
Sampling techniques
When designing a sample we need to think carefully about:
• Its size
• How we select those who will be questioned?
It is normally accepted that the larger the sample as a proportion of the total number the more
likely it is to represent the characteristics of the total population. But larger the sample size more
expensive the survey is. Once we have decided what size of sample we shall use, we have to
choose the method for selecting the sample.
1. Probability sampling
Probability samples are constructed that every member of the population has a known probability
of selection. For this to be effective we must possess a full and accurate record of population
which is known as sampling frame. Main types of probability sampling are:
The simple random sample - where all participants have the same chance of being chosen.
The old 'draw them from a hat' is as good as any. Today the computer will generate a random
selection for you. e.g. The National Lottery is a random selection of six numbers This then gives
us what is known as the frame. The more comprehensive the frame, the better the sample will
be.
A systematic sample - here we begin from an agreed starting point in our frame and then select
every nth person or whatever the variable is. We have to be careful not to build in a bias, as there
might be a pattern in the population, which unwittingly we incorporate within our sample.
A stratified sample - we divide the population into sub-groups to produce this type of sample.
The sample then reflects the sub-groups in proportion to their representation within the
population as a whole. The selection of people within each sub-group is made on a random
basis. Hence the method should be seen as quasi random.
2. Non-probability sampling
In this method individuals are selected on the basis of one or more criteria determined by the
research. In other words, there is an element of human judgment involved in this sampling. Main
types of non-probability sampling are:

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Quota sampling - like the stratified sampling, this requires us to divide the population into sub-
groups or subsets with quotas attached that reflect what we call characteristics of the sample in a
variety of respects like age and sex distribution, income, occupation and so on. The following
shows more detailed breakdown of this technique.
Cluster Sampling – this involves making a random selection from a sample frame listing out a
group of individuals rather than single ones. Everyone in the selected group is then interviewd or
examined. This method is used when the population is widely dispersed and there is no chance
of getting a full sample frame.
Sampling Errors
To be of use to us we must aim to produce results that reflect the intentions of the total
population. This is quite an ambitious target. Errors will arise and we need to be aware of these.
Most researchers accept that two types of error occur most regularly. These are those directly
related to the sample and those which are not.
Errors directly related to the sample
As in other statistical areas of the course we are dealing with differences or variances that arise
from the fact the outcome of our sample does not accurately reflect the population from which it
was taken. The most common causes of this are:
• Using out of date or incomplete data
• A number of those chosen not replying
• The sample being based on incorrect ideas as to what actually represents part of
the total population.
All of these will cause what we call bias and will result in the sample producing an outcome that
is not truly representative of the population being tested.
Errors not directly related to the sample
These normally centre on the design of the survey that forms the nucleus of the sample. The
most common of these are:
• Incorrect or ambiguous wording
• Inadequate data collection
• Poor analysis of the findings
All of these will reduce the effectiveness of the sample. It is worth noting that the interview design
and the performance of the interviewer can also influence the outcome. We must be certain that
Chocolate Buyers Respondent Quota
Men 40% 80
Women 60% 120
16-24 38% 76
25-34 21% 42
35-44 16% 32
45+ 25% 50

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we know and can accurately inform others of what we want and that those delegated the role of
asking the questions do this correctly.
Confidence Limits on the findings are expressed statistically based on the properties of a
normal distribution in which
 68% of values lie within one standard deviation of the mean;
 95% of values lie within two standard deviations of the mean;
 99% of values lie within three standard deviations.
3.2 Is there a market for the business idea?
STP (Segmentation, Targeting & Positioning)
Market size
A market can range from street markets, to markets selling cars in many countries around the
world to goods and services bought over the internet.
The size of a market can be estimated in various ways. Total sales is one:
Total sales by value: This is the total amount spent by consumers buying products. For
example, it was estimated that fast food products in the UK accounted for sales worth £7.8 billion
in 2002.
Total sales by volume: This is the physical quantity of products which are produced and sold.
For example global crude steel production was nearly one billion tonnes in 2003.
Potential market growth
Market growth refers to the rate at which the market size increases.
Markets grow either rapidly or slowly, or they might contract and get smaller.
What factors are likely to influence whether a market gets bigger or gets smaller and the rate of
growth or decline?
1. Economic changes: An increase in income, for example, can affect different markets.
Rising incomes might help the growth of the luxury car market or the market for high class
restaurants.
2. Social changes: Changes in society can lead to a growth r decline in markets. The
decline in the number of marriages and the growth in number of lone families has perhaps
led to a growth in the market for child care and other child support services.
3. Technological changes: Changes in technology can cause a rapid growth in certain
markets and decline in others. The DVD market has expanded rapidly in recent years,
perhaps at the expense of video markets.

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1. Market segmentation analysis
1What is Segmentation ?
Segmentation refers to a process of bifurcating or dividing a large unit into various small
units which have more or less similar or related characteristics.
Market Segmentation
 Market segmentation is a marketing concept which divides the complete market set up
into smaller subsets comprising of consumers with a similar taste, demand and
preference.
 A market segment is a small unit within a large market comprising of like minded
individuals.
 One market segment is totally distinct from the other segment.
 A market segment comprises of individuals who think on the same lines and have similar
interests.
 The individuals from the same segment respond in a similar way to the fluctuations in the
market.
Why do we divide markets into segments?
Segments are usually measured in terms of sales value or volume. In the diagram below,
segment B is twice the size of segment C:
Why do businesses need to segment their markets? Because customers differ in the…
• Benefits they want
• Amount they are able to or willing to pay
• Media (e.g. television, newspapers, and magazines) they see
• Quantities they buy
• Time and place that they buy

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4. Demographic changes: Changes in the age structure of the population can affect
markets. The ageing of the UK population has led to a growth in products aimed at people
aged over 50, such as holidays and mobility aids.
5. Changes in legislation: The privatization of the telecommunications market, for example,
has led to a growth in a variety of communication markets, including mobile phones.
Basis of Market Segmentation
 Gender
The marketers divide the market into smaller segments based on gender. Both men and
women have different interests and preferences, and thus the need for segmentation.
Organizations need to have different marketing strategies for men which would obviously
not work in case of females.
A woman would not purchase a product meant for males and vice a versa.
The segmentation of the market as per the gender is important in many industries like
cosmetics, footwear, jewellery and apparel industries.
 Age Group
Division on the basis of age group of the target audience is also one of the ways of
market segmentation.
The products and marketing strategies for teenagers would obviously be different than
kids.
Age group (0- 10 years) – Toys, Nappies, Baby Food, Prams
Age Group (10-20 years) – Toys, Apparels, Books, School Bags
There are various methods (or “bases”) a business can use to segment a market. Some of the
most popular are summarised below:

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Age group (20 years and above) – Cosmetics, Anti-Ageing Products, Magazines,
apparels and so on
 Income
Marketers divide the consumers into small segments as per their income .Individuals are
classified into segments according to their monthly earnings.
The three categories are:
High income Group
Mid Income Group
Low Income Group
Stores catering to the higher income group would have different range of products and
strategies as compared to stores which target the lower income group.
Pantaloon, Carrefour, Shopper‘s stop target the high income group as compared to Vishal
Retail ,Reliance Retail or Big bazaar who cater to the individuals belonging to the lower
income segment.
 Marital Status
Market segmentation can also be as per the marital status of the individuals. Travel
agencies would not have similar holiday packages for bachelors and married couples.
 Segmentation by level of education or occupation: Sometimes a business can segment its
market based on how far the consumer has progressed through the education system.
FOE example might be a magazine aimed at those with certain qualifications. Office goers
would have different needs as compared to school / college students. A beach house shirt
or a funky T Shirt would have no takers in a Zodiac Store as it caters specifically to the
professionals.
 Segmentation by social class: Markets are often divided by social class. Classes are based on
employment status.
 Segmentation by religion: Business may divide market by religious group. Eg: Food producers,
specialize in producing Halal food for Arabic people.
 Segment by ethnic grouping: Markets can sometimes be segmented by country of origin or
ethnic grouping. Radio stations have been targeted towards African-Caribbean groups.
 Segmentation by family characteristics: The features of entire family may be used to segment the
market. Examples these segments include young singles’, married with no children.
 Segmentation by geographical region: This might include considering the region of a country that
consumers live in the nature of the region
Types of Market Segmentation
 Geographic Segmentation
Geographic segmentation refers to the classification of market into various geographical
areas. A marketer can‘t have similar strategies for individuals living at different places.

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Nestle promotes Nescafe all through the year in cold states of the country as compared to
places which have well defined summer and winter season.
McDonald‘s in India does not sell beef products as it is strictly against the religious beliefs
of the countrymen, whereas McDonald‘s in US freely sells and promotes beef products.
Breaking down a market into sub-groups with similar characteristics is knows as market
segmentation. These segments will behave in different ways depending upon the products
being sold and the marketing styles used.
Segmentation refers to the process of creating small segments within a broad market to
select the right target market for various brands. Market segmentation helps the marketers to
devise and implement relevant strategies to promote their products amongst the target market.
A market segment consists of individuals who have similar choices, interests and preferences.
They generally think on the same lines and are inclined towards similar products. Once the
organizations decide on their target market, they can easily formulate strategies and plans to
make their brands popular amongst the consumers.
Steps in Market Segmentation
1. Identify the target market
The first and foremost step is to identify the target market. The marketers must be very
clear about who all should be included in a common segment. Make sure the individuals
have something in common. A male and a female can‘t be included in one segment as
they have different needs and expectations.
Burberry stocks separate merchandise for both men and women. The management is
very clear on the target market and has separate strategies for product promotion
amongst both the segments.
A Garnier men‘s deodorant would obviously not sell if the company uses a female model
to create awareness.
Segmentation helps the organizations decide on the marketing strategies and promotional
schemes.
Maruti Suzuki has adopted a focused approach and wisely created segments within a
large market to promote their cars.
Lower Income Group – Maruti 800, Alto
Middle Income Group - Wagon R, Swift, Swift Dzire, Ritz
High Income Group - Maruti Suzuki Kizashi, Suzuki Grand Vitara
Suzuki Grand Vitara would obviously have no takers amongst the lower income group.
The target market for Rado, Omega or Tag Heuer is the premium segment as compared
to Maxima or a Sonata watch.
2. Identify expectations of Target Audience

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Once the target market is decided, it is essential to find out the needs of the target
audience. The product must meet the expectations of the individuals. The marketer must
interact with the target audience to know more about their interests and demands.
Kellogg‘s K special was launched specifically for the individuals who wanted to cut down
on their calorie intake.
Marketing professionals or individuals exposed to sun rays for a long duration need
something which would protect their skin from the harmful effects of sun rays. Keeping
this in mind, many organizations came with the concept of sunscreen lotions and creams
with a sun protection factor especially for men.
3. Create Subgroups
The organizations should ensure their target market is well defined. Create subgroups
within groups for effective results.
Cosmetics for females now come in various categories.
 Creams and Lotions for girls between 20-25 years would focus more on fairness.
 Creams and lotions for girls between 25 to 35 years promise to reduce the signs of
ageing.
4. Review the needs of the target audience
It is essential for the marketer to review the needs and preferences of individuals
belonging to each segment and sub-segment. The consumers of a particular segment
must respond to similar fluctuations in the market and similar marketing strategies.
5. Name your market Segment
Give an appropriate name to each segment. It makes implementation of strategies easier.
A kids section can have various segments namely new born, infants, toddlers and so on.
6. Marketing Strategies
Devise relevant strategies to promote brands amongst each segment. Remember you
can‘t afford to have same strategies for all the segments. Make sure there is a connect
between the product and the target audience. Advertisements promoting female toiletries
can‘t afford to have a male model, else the purpose gets nullified.
A model promoting a sunscreen lotion has to be shown roaming or working in sun for the
desired impact.
7. Review the behavior
Review the behavior of the target audience frequently. It is not necessary individuals
would have the same requirement (demand) all through the year. Demands vary,
perceptions change and interests differ. A detailed study of the target audience is
essential.
8. Size of the Target Market

T e s m o n
It is essential to know the target market size. Collect necessary data for the same. It helps
in sales planning and forecasting.
Uses of Market Segmentation.
A successful attempt at dividing a market into segments should allow you to focus more carefully
on the characteristics of the market. This will hopefully allow you to:
 Increase market share, as you can target specific groups
 Enter new markets as you know where you have been and can identify
characteristics of new target groups
 Launch new products at groups whose tastes are more in line with what the
product has on offer
 Diversify across markets, having tested the products strengths elsewhere.
 Use and target promotional expenditures more efficiently.
 Business would hope that the information would allow it to sell more products
overall and pe.mt profit.
 Business would hope to be able to gain greater knowledge about its customer so
that it could value their needs better.
 I might be able to target particular groups with particular products.
 It would d able to prevent product being promoted to the wrong people, which
would waste resources that leads to losses.
 It might hope to market a wide range of differentiated products.

The requirements of effective segmentation include
1. Measurability( Size and purchasing power)
2. Accessibility (market segment can be reached and sewed)
3. Substantiality (large or profitable enough to serve)
4. Attainability (affective marketing program can be designed for attracting and serving segments)
5. Stability (must demonstrate a history and future)
2. Targeting.
Targeting
Market targeting is the process of evaluating each market segment‘s attractiveness arid
selecting one or more segments to enter. it has two unique features.
* Evaluating market segments (segment size, growth, structural attractiveness, company
objectives and resources should he considered)
* Selecting market segments (There are three targeting strategies such as
undifferentiated, differentiated and concentrated marketing)
Targeting strategies
1. Undifferentiated Marketing: This is aimed at most sections of the market, or
possibly the whole market. ft is likely to be expensive because of needs to sell to
the whole market. A business will probably face competition from those firms
aiming at certain segments within the market. The strategy is likely to suite those
products, which cannot easily be differentiated to suit the needs of particular group
of people. Sonic businesses are moving away from undifferentiated marketing
strategies as they attempt to target customer needs. For example Milk.
FIRM
Total Population
with potential
customer
unrevealed

T e s m o n
It is known as short gun approach as most of the shots going wasted. It shows wastage
of recourses. In reality it ignores the existence of segments and offers a single mix to the
heterogeneous market. This failure to target a particular segment will result in the
disappointing level of sales.
2. Differentiated Marketing: This can involve marketing different products or
services to different group of people. For example banks have different types of
bank accounts. There are now bank accounts specifically designed for teenagers
and students.
A number of riffles with a different target. .A separate marketing mix is developed for
each segment of the market. This strategy is very costly and available only to large firms.
3. Concentrated marketing: This occurs when a tint concentrates its marketing
upon specific section of the market, For example, such as under-26s European
rail pass.
FIRM
Here a business only expects a certain market segment to buy the product. This
strategy often used by small firms as well as those in specialist markets, as it is not as
expensive as ether methods. Firm adopts a marketing mix that it considers most
effective and appropriate for that particular segment. It is high powered riffles.
Identification of market niches
Mass marketing can be defined as where a business sells into the largest part of the market,
where there are many similar products on offer.
Niche marketing involves a business tailoring a product to a particular, often tiny, segment of
the market. E.g. BMW, Tie Rack, Knickerbox and SockShop
Niche market a is a very small segment of a much larger market ie; a specialized sub-market.
Here the products tend to sell in relatively low volumes, because of which the price of product
may be higher when compared to the mass-marketed products.
Segment-A
Segment-B
Segment-C
Segment-D
Segment A
Target segment
Segment B
FIRM
Marketing Mix-1
Marketing Mix-2
Marketing Mix-3
Marketing Mix-4

T e s m o n
In a new firm‘s perspective, it makes sense to target a niche which is relatively neglected.
To identify and establish a product in a niche market the business needs to concentrate on:
 Discovering a market with sufficient demand to be profitable
 Finding markets with good growth potential
 Seeing markets that have been ignored by major players
 Acquiring the skills needed to operate in the market
 Building up customer goodwill and keeping it
The main disadvantages of marketing to a niche include:
• Lack of ―economies of scale‖ (these are lower unit costs that arise from operating at high
production volumes)
• Risk of over dependence on a single product or market
• Likely to attract competition if successful
• Vulnerable to market changes – all ―eggs in one basket
Mass Marketing
 A business will offer almost the same products to all consumers and promote them almost
the same way (similar to undifferentiated marketing). E.g. Coca-cola
 Exploits brand name.
 Less vulnerable to changes in demand by few consumers.
 Customers form the majority in the market
• Customer needs and wants are more ―general‖ & less ―specific‖
• Associated with higher production output and capacity (economies of scale)
• Success usually associated with low-cost operation, heavy promotion, widespread
distribution or market leading brands
Niche Marketing
 A business aiming a product at a particular, often tiny, segment of the market. E.g. BMW
cars
 May fit the limited resources e.g. production capability.
 Avoids head on clash with major firms.
 Returns may be relatively high.
 Can focus on the needs of consumers.
 Less competition – the firm is a ―big fish in a small pond‖
• Clear focus - target particular customers (often easier to find and reach too)
• Builds up specialist skill and knowledge = market expertise
• Can often charge a higher price – customers are prepared to pay for expertise
• Profit margins often higher
• Customers tend to be more loyal
Outline the main business benefits from market
segmentation
Market segmentation offers the following potential benefits to a business:

T e s m o n
Better matching of customer needs: Customer needs differ. Creating separate products for each
segment makes sense
Enhanced profits for business: Customers have different disposable incomes and vary in how
sensitive they are to price. By segmenting markets, businesses can raise average prices and
subsequently enhance profits
Better opportunities for growth: Market segmentation can build sales. For example, customers
can be encouraged to “trade-up” after being sold an introductory, lower-priced product
Retain more customers: By marketing products that appeal to customers at different stages of
their life ("life-cycle"), a business can retain customers who might otherwise switch to competing
products and brands.
Target marketing communications: Businesses need to deliver their marketing message to a
relevant customer audience. By segmenting markets, the target customer can be reached more
often and at lower cost
Gain share of the market segment: Through careful segmentation and targeting, businesses can
often achieve competitive production and marketing costs and become the preferred choice of
customers and distributors
3.3 Positioning the business idea
Strengths and weaknesses of existing suppliers
Before launching a product or positioning a product in a market segment, a business needs to
identify the existing suppliers in the market. Their strengths and weaknesses should be analysed
and compared with the any competitive advantage held by the product or service of the business.
Porter‘s five forces analysis can be used for this purpose.
Porter’s five force analysis

T e s m o n
Positioning of new idea
Market positioning is the way the product is defined by consumers on important attributes: t is the
place the product occupies in consumer’s minds relative to competing products. For example, the
market given below is segmented into 2, SI an S2. A player can have the options to take 3 distinct
positions A, B and C. A company targets segment -I at position- C
Positioning Strategies
Product attributes: this positions the product on unique or distinguishing features it
possesses such as a low price, unique technology, versatility or other features.
2. Benefits offered: positioning can he based upon the specific value provided. Eg,
Colgate reduces cavities; aim tastes good.

T e s m o n
3. Against a competitor: this strategy is appropriate fbr substitutes that cost less. Eg, in
advertisements for personal computer. Compaq have at times directly compared their
products with IBM personal computers.
4. Away from competitors: this positions the product as unique in some respect and/or
worth it. Eg, 7-Up became the number three soft drink when it was positioned as the
‗un.cola‘. the fresh and thirst-quenching alternative to Coke and Pepsi.
A company has to develop a product positioning strategy for each segment it chooses to
serve. This relates to the task of ensuring that a particular company‘s products occupy a
planned for place in chosen target markets, pertinent to opposing competition in the
marketplace. The notion of product/brand positioning is applicable to both industrial and
consumer markets, and the key aspects of this approach are based upon the following
suppositions.
All products and brands have both objective attributes (e.g. sweet/sour; dark/light;
fast/slow) and subjective attributes (e.g. modern/unfashionable; happy/sad;
youthful/elderly).
2. Potential purchasers might think about one or more of these attributes when
deliberating which product or brand to purchase.
3. That potential customers have their own thoughts about ho‘ the various competing
products or brands rate for each of these particular attributes. In other words, the position
of the brand along the parameters of these attributes takes place in the mind of the
customer.
Once this is done it is then possible to establish important attributes in choosing between
different brands or products, together with the customer‘s perception of the position of
competitors‘ products in relation to these characteristics, and then to establish the most
advantageous position for the company within this particular segment of the market.
Product positioning through market mapping
Here, we need to think about what is known as positioning. This mean that we need to
know just where our good/service will fit in the market into which it is to be launched. This
takes us back to customer perception and what they see in our product. In particular
where do customers see positive differences in our products and our rivals? These will
be the key differences on which we will trade as we develop the marketing mix that is

T e s m o n
needed for the product. We have to ask if we are dealing in a market where certain
expectations are common to most consumers
Illustration1: Imagine a company is proposing to enter the market for instant‘ break Cast
foods in which there are already five competitors. A, B, C I) The company should first
establish ‗what customers believe to be the salient attributes in choosing between brands
in this market. in addition, the perceived position of existing competitors with respect to
these attributes should also be investigated If the important attributes have been found to
be ―price‘ and‖ taste,‘ a possible positioning map might he drawn as shown in the figure
below.
.
Illustration2: Dyson and his vacuum cleaners have been so successful - they do what people
want, at a price they feel is acceptable and with reliability one of its strong points.
One of the ways in which a firm can 'test' the market is to construct a positioning map. These plot
just where you see your competitor's strengths coming from.
HIGHER
PRICE
YOUNGER
MARKET
OLDER
MARKET
HUGO BOSS
ARMANI
DKNY TED BAKER
REISS
OPEN
NEXT
PRINCIPLES
MARKS &
SPENCER
BURTON
RIVER ISLAND TOP SHOP
JJB SPORTS
GREENWOODS

T e s m o n
Figure: Product positioning map
If your map displays a cluster in one part of the market then you might wish to not invade that
area with your new entrant or re-position your existing product away from the region with a high
density of rivals in it.
Competitive advantage of product or service idea
Competitive advantage is an area of strength that matters to customers but cannot easily be
copied by competitors.
It is quite important for a new product or service to secure a competitive advantage after getting
successfully positioned in the market.
Product differentiation is one way of achieving competitive edge in a market of tight competition.
It can be a mix of overall quality in the production and distribution process, exceptional design
and package, distinctive brand image, brand loyalty. Now days, it is even seen in standardized
commodity products like milk, vegetables, water, petrol etc.
Building strong relationship with the stakeholders coupled with unique CSR policy and ethical
practices creates better corporate image. All these together add value to the products and/or
services.
Competitive advantage also refers to methods used by a business to improve the appeal and
demand for its product in a market over that of its rivals and how it emphasises the individuality,
identity and distinctiveness of the product or service. As a result, the firm achieves a profit level
that is above the industry average. Competitive advantage can be viewed from a cost
perspective where the firm provides the same benefits as its rivals but at a lower cost or from a
resource perspective where it provides benefits over and above those of its competitors.
There are a number of sources of competitive advantage which could include some or all of the
following:
 Use of price - this could be increasing it or reducing it in relation to its rivals
 Quality
 Technological aspects - for example Play Station 2 emphasised the opportunities to play
DVDs and CDs as well as being a games console - something that its rivals did not have
at that time
 Packaging - making it distinctive in some way
 Convenience of use - for example producing washing powder in tablet form
 Atmosphere, ambience, décor, etc. - especially in the provision of services or in retail
outlets
 Location - ensuring access to the product is made as easy as possible - this may involve
physical location - for example, in out of town shopping malls, through the Internet, mail
order, etc.
 Perceived skill, know how or reputation - often built up over many years
 Cost - finding ways of utilising its resources to increase productivity and efficiency to lower
average costs compared to its rivals
Value adding
Adding value sounds like a bit of business jargon – and it is! However, it also has quite a precise meaning
which is important. So it is worth learning this:

T e s m o n
Adding value = the difference between the price of the finished product/service and the cost of the
inputs involved in making it
Added value is equivalent to the increase in value that a business creates by undertaking the production
process.
It is quite easy to think of some examples of how a production process can add value.
Consider the examples of new cars rolling down the production line being assembled by robots. The final,
completed and shiny new car that comes off the production line has a value (price) that is more than the
cost of the sum of the parts. Value has been added. Exactly how much is determined by the price that a
customer pays.
Alternatively, imagine a celebrity chef preparing a meal at his luxury restaurant. Once the cooking is
complete, the meal is being served and sold for a high price, substantially more than the cost of buying the
ingredients. Value has been added.
You don‘t have to use robots or have the culinary skills of Gordon Ramsay to ―add value‖. For example,
businesses can add value by:
 Building a brand – a reputation for quality, value etc that customers are prepared to pay for. Nike
trainers sell for much more than Hi-tec, even though the production costs per pair are probably
pretty similar!
 Delivering excellent service – high quality, attentive personal service can make the difference
between achieving a high price or a medium one
 Product features and benefits – for example, additional functionality in different versions of
software can enable a software seller to charge higher prices; different models of motor vehicles
are designed to achieve the same effect.
 Offering convenience – customers will often pay a little more for a product that they can have
straightaway, or which saves them time.
A business that successfully adds value should find that it is able to operate profitably. Why? Remember
the definition of adding value: where the selling price is greater than the costs of making the product.
By definition, a business that is adding substantial value must also be operating profitably.
Finding ways to add value is a really important activity for a start-up or small business. Quite simply, it can
make the difference between survival and failure; between profit and loss.
The key benefits to a business of adding value include:
 Charging a higher price
 Creating a point of difference from the competition
 Protecting from competitors trying to steal customers by charging lower prices
 Focusing a business more closely on its target market segment
Value Added is defined as the difference between the value placed on a product by the
consumer and the cost of the resources used in producing it. Otherwise it is the difference
between the cost of raw materials and the selling price. For many businesses this factor is very
important in helping them to widen their profit margins.
A business adds value to raw materials which it uses in the production process. For example
Rishwa Restaurant might buy tuna and other inputs worth $ 15 and process it to produce grilled
tuna which it might sell to the customers for $ 25. So vale added here is equal to $ 10.

T e s m o n
Figure: The process of adding value
While positioning a product in the market businesses will have to find out ways of adding value to
the customers. Adding value requires finding out processes which customers are ready to pay.
Value chain analysis
Value Chain Analysis describes the activities that take place in a business and relates them to an
analysis of the competitive strength of the business. Influential work by Michael Porter suggested
that the activities of a business could be grouped under two headings:
(1) Primary Activities - those that are directly concerned with creating and delivering a product
(e.g. component assembly); and
(2) Support Activities, which whilst they are not directly involved in production, may increase
effectiveness or efficiency (e.g. human resource management). It is rare for a business to
undertake all primary and support activities.
Value Chain Analysis is one way of identifying which activities are best undertaken by a business
and which are best provided by others ("out sourced").
Linking Value Chain Analysis to Competitive Advantage
What activities a business undertakes is directly linked to achieving competitive advantage. For
example, a business which wishes to outperform its competitors through differentiating itself
through higher quality will have to perform its value chain activities better than the opposition. By
contrast, a strategy based on seeking cost leadership will require a reduction in the costs
associated with the value chain activities, or a reduction in the total amount of resources used.
Primary Activities
Primary value chain activities include:
Input
Rf 15
Output
Rf 25
Process
Value added
= Rf 10

T e s m o n
Primary
Activity
Description
Inbound
logistics
All those activities concerned with receiving and storing externally sourced
materials
Operations The manufacture of products and services - the way in which resource inputs
(e.g. materials) are converted to outputs (e.g. products)
Outbound
logistics
All those activities associated with getting finished goods and services to
buyers
Marketing and
sales
Essentially an information activity - informing buyers and consumers about
products and services (benefits, use, price etc.)
Service All those activities associated with maintaining product performance after the
product has been sold
Support Activities
Support activities include:
Secondary
Activity
Description
Procurement This concerns how resources are acquired for a business (e.g. sourcing and
negotiating with materials suppliers)
Human
Resource
Management
Those activities concerned with recruiting, developing, motivating and
rewarding the workforce of a business
Technology
Development
Activities concerned with managing information processing and the
development and protection of "knowledge" in a business
Infrastructure Concerned with a wide range of support systems and functions such as
finance, planning, quality control and general senior management
Steps in Value Chain Analysis
Value chain analysis can be broken down into a three sequential steps:
(1) Break down a market/organisation into its key activities under each of the major headings in
the model;

T e s m o n
(2) Assess the potential for adding value via cost advantage or differentiation, or identify current
activities where a business appears to be at a competitive disadvantage;
(3) Determine strategies built around focusing on activities where competitive advantage can be
sustained
3.4 Product trial
Product trial
This is where the product is introduced to a representative sample of the potential market
and aspects of the marketing effort are tested. This is an opportunity to adapt an of the
mix elements which prove to need adjustment. It is important that the test area chosen is
representative of the entire target audience. For industrial products, selected customers
can be approached to test‘ the product and they will be surveyed for their responses in
view of effectiveness of price and other attributes. For consumer products, testing
regions will be chosen. In the UK and indeed throughout the world, certain areas are
known to be good testing sites. Usually this is because the region has a representative
cross-section of the community, with good communications and distribution facilities are
available.
Although it increases costs, it is better to use more than one testing area so that
comparisons can he made. Different prices, advertisements, methods of distribution and
perhaps even packaging may he used in the different areas so that the company can see
which methods are most effective. The results of the test will then dictate whether or not
the product moves on to the final stage of the development process. However, before we
move on to the final stage, it is worth considering the possible problems in test
marketing.
The problems can come from:
(i) Buyers people will often buy a new product just to try it. They may like it and tell a
researcher so, but they will then revert back to their normal purchases because of brand
loyalty or for some other reason.
(ii) Distributors and suppliers —they may be willing to give a new product exposure
because of an introductory incentive, but once the incentive is withdrawn they may not he
so willing to cooperate or devote space to the product.
(iii) Competition — if they have relatively similar products, competitors may take
defensive action and introduce promotional activity that will undermine the testing. This
could be in the form of increased advertising, reduced prices or some other form of
incentive to keep the attention of the target audience away from the product being test-
marketed.
Competitors have even been known to buy up new products in large quantities which
results in distorted sales figures that can lead to over-optimistic forecasting of demand on
the part of the company introducing the new product. On the other hand, if you are
introducing a truly innovative product which has a competition, you are likely to become
subject to ‗following action‖, where competitors will investigate your product and your
marketing activities, find some way of improving on what you have done and then
capitalise on your weaknesses by launching an improved‖ version.
Test marketing involves selling a product in a restricted section of the market in order to assess
consumer reaction to it.This is often carried out in a certain region e.g. South West or the

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