Topic 1

Introduction to financial capability, work

and enterprise

Learning outcomes
After studying this topic, you will be able to:
■ describe what makes a business successful;
■ explain what makes a business stand out from others.

Introduction
In the first two units of this course, we explored personal finance, the
individual and society, and the practice of managing money. In this unit we
will look at how businesses manage money, exploring the relationship
between how individuals manage their finances and how businesses
manage theirs.
We start by looking at what we mean by a ‘business’; how we can define
and measure business success; and what makes a business stand out from
the rest. In later topics we will look at:
■ the role of ‘entrepreneurs’;
■ the tools businesses use to manage their money;
■ how taxation and criminal activities (ie fraud and theft) affect businesses;
■ the effect individuals have on businesses, and vice versa;
■ the impact business has on society; and
■ how the behaviour of individuals, as both customers and employees,
affects society.

Discuss
This unit is about financial capability, work and enterprise.
The starting point is answering a simple question: what is a
business? How would you explain what a business is?

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Unit 3

1.1 What is a business?

A business or enterprise is an organisation that produces products (ie
‘goods’) or services, which are sold to individual customers (or ‘consumers’)
or sold to other businesses that need them. Every society depends on
successful businesses to provide the jobs, products and services that its
citizens need. Most businesses are privately owned, but they can also be
run by charities or voluntary groups, or be government agencies. They often
start with someone’s simple idea for a new product or service that they
think lots of people would buy if given the chance.
Businesses range from one-person operations (a self-employed driving
instructor, for example) to huge international corporations (like Microsoft
or Apple). There are many thousands of businesses in the UK, and they
come in a wide variety of types, shapes and sizes.

A sole-trader business A medium-sized business

Just as individuals have their own aims and goals that they want to achieve
in life, each business also sets out to achieve certain things. These are
business objectives; and the success of a business can be measured by
looking at how good it is at achieving its objectives. We will now explore
why people start businesses, and what objectives different businesses are
aiming to achieve.

Discuss
How many businesses can you think of that you would
consider successful?
Can you draw up a list and say why you consider them to be
successful businesses?

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 Topic 1

1.2 What do businesses set out to achieve?

Your list of successful businesses may have included well-known
companies, such as Virgin, Tesco, BP, Marks & Spencer, Facebook, Nike or
Next. You may consider them to be successful because they are well known,
or because they have all grown into national or international organisations.
But there are millions of businesses all over the world that would also claim
to be successful, despite not being ‘household names’. We therefore need
to ask: what are the different objectives that businesses try to achieve?
Managing and running a business, or starting a new business from scratch,
involves a lot of hard work and stress, and there is always the risk of failure
just around the corner if you don’t get it right. So why do people start their
own businesses, or pursue a career in business? Why do people want the
responsibility of running a company?

To make money To make a profit

Because they
enjoy it

Because they are To provide a

good at it service

Any of the above phrases may have popped into your head, and they are all
valid answers.

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Unit 3

Consider the following quotes from two successful entrepreneurs:

“
. . . making profits is important because it keeps all our people in
jobs and. . . it keeps what we’ve created going, but . . . what I’m
proud about doing is creating companies . . . which we can really be

”
proud of, and a by-product of that hopefully will be that they’ll be
profitable and be able to pay the bills.

– Sir Richard Branson, founder of Virgin Group

“
Do what you love, but be sure it’s profitable. If you do work
you love, but it doesn’t generate income, your business will fail. If
you do work you hate, but it generates income, your health will fail . . .
and your business along with it. If you can’t do what you love and
make it profitable, you’ve either got a hobby or a headache, not a

”
sustainable business. Don’t settle for anything less than passion and
profit.

– Steve Pavlina, founder of a software development company

These quotes show that, for some business leaders, success is about
making money (ie profit), but also about doing something you enjoy and
creating something you are proud of.
Let’s look at the range of business objectives that different businesses aim
to achieve.

Profit – if a business is producing and selling goods, or

selling services, it will have ‘sales revenues’, ie the money
consumers pay to buy those goods or services. Revenue from
sales is used to pay the costs incurred in producing the
goods or services (eg wages and salaries, rent, raw materials,
stock, energy costs). Any money left over (the surplus) is the
profit, so profit = revenue – costs. If a business’s aim is to
make as much profit as possible, its objectives will therefore
be to maximise revenue and minimise costs.

Quality (to ‘be the best’) – some businesses value the

quality of the products or services they provide as their most
important objective. It is important to them to have a good
reputation, to be proud of their products or services, and to
be highly regarded by their customers.

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Market share – at times, many businesses’ first priority is to

sell more and more of their products or services. They may
even cut prices (and thus profits) to increase their sales, with
the aim of winning customers away from rival businesses
selling similar goods or services. If they win customers away
from rivals, they increase their own ‘market share’ – the
percentage of customers who buy from them rather than
from their rivals. Their overall objective may be to become
the biggest provider of certain products or services in
particular markets.

Social or environmental service – some businesses are set

up by people who feel strongly that a particular service or
product should be provided, eg to protect or improve the
environment, or for the benefit of certain groups of people
or for society as a whole.

1.3 Business objectives and business types

There are a number of different types of business, and each type may have
different objectives from the others. The main types of business are as
follows.

1.3.1 Private companies

Private companies are businesses owned by individuals. There are different
types of ownership, however.

Many are sole traders, ie one self-employed

person. This can be anything from a plumber
or window cleaner to a computer
programmer or management consultant.

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Unit 3

There are also large numbers of small firms

owned by two or more people working in
partnership. Examples include doctors,
solicitors, accountants and independent
financial advisers. In each case, the partners
will own and run the business jointly. If each
partner has put the same amount of money
into the business, they will own an equal
share in the business, get an equal share of
the profits, and have an equal say in making
business decisions. However, a partner who
puts more money into the business than
other partners may have a bigger share of
the ownership, which means they will be entitled to a bigger share of the
profits and a greater say in making business decisions.

Some businesses are franchises – small businesses

that pay a ‘franchise fee’ to a much larger
organisation for the right to operate one of their
outlets. Well-known fast-food chains such as
McDonald’s, Subway, KFC and Pizza Hut are
franchise operations.

Medium-sized firms are often

private limited companies
(which have ‘Ltd’ at the end of
their names). They are usually
owned by a small group of
shareholders – sometimes
members of the same family.
The advantage of limited
company status is that, if the
business fails and owes people
money, the shareholders are not
responsible for paying those
outstanding bills or other
business debts. Shareholders in a private limited company can only lose
however much money they originally invested in the company.

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Bigger businesses may be public limited

companies (which have ‘plc’ after their
name). Shares in these businesses can be
bought and sold on the stock exchange,
which means they may be owned by
hundreds or thousands of individual
investors, as well as by financial
organisations such as pension funds,
insurance companies and investment
funds. The main advantage of a ‘plc’ is the
capital (ie money) it can attract by selling
more shares. This capital can help the
company to expand into new areas.
A disadvantage of being a ‘plc’ is that only the shareholders with the
largest number of shares have much say in what happens to the business.
Also, a rival company may be able to buy enough of the plc’s shares to
take over the company. As a plc often has a large number of shareholders,
it can also be difficult to make decisions that everyone will agree with.
Some shareholders are only interested in making as much profit as
possible, while others also expect the company to behave responsibly.

Until the 1950s, private companies, however they were owned, had only
one objective: to make maximum profits for their owners. Big, constantly
growing levels of profit mean that owners are paid ever higher ‘dividend’
payments. Dividends are the way that profits are distributed to the
shareholders, who also benefit from higher share prices.
However, newer laws and changing public attitudes have led many
businesses to declare that they have other objectives in addition to making
profits. It is now common for a business to publish a ‘corporate social
responsibility’ statement, setting out its commitment not only to making
profit, but also to pursuing social objectives. Such objectives can include
providing good jobs and decent working conditions for employees,
protecting the environment, or promoting a healthy lifestyle.

1.3.2 Not-for-profit companies

Not-for-profit companies are businesses set up for purposes other than
making profits. They are often service companies (for example a housing
association or hospice). Not-for-profit companies include charities, social
enterprises, mutually owned businesses and co-operatives.
■ Charities are businesses set up to achieve social objectives. They can be
small organisations that raise funds from donations and fundraising
activities, such as cake sales and coffee mornings; or national
organisations that raise money through high-street charity shops; or
international bodies, such as Cancer Research or the Red Cross.

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Unit 3

■ Social enterprises are businesses set up for social purposes: often to

provide training and employment for people who have difficulty getting
a ‘mainstream’ job, or to promote environmental development. The Eden
Project and Cafédirect are two of the many social enterprises operating
in the UK. Their revenue comes from trading – selling goods and services
– but maximising profit is not a priority, so any profit made is reinvested
in the business.
■ Mutually owned businesses and member co-operatives are businesses
owned by their members (ie their customers). Any profit, after deduction
of costs from revenues, is reinvested in the business or distributed to
members as an annual dividend. Examples include Nationwide Building
Society and the Co-operative Group. These businesses compete with
privately owned rivals, and their revenues must cover costs, as they
cannot afford to operate at a loss. Like social enterprises, however, they
do not need to maximise profit, which gives them more flexibility to set
their own priorities.
■ Worker co-operatives are businesses owned by the workers who work
for them. Surplus revenues are reinvested in the business, or distributed
to the workers as a bonus or ‘profit share’. Like member co-operatives,
they have to make a surplus or they will go bust, but, unlike private
companies, they can keep the profits themselves rather than giving them
to owners or shareholders. The biggest and best-known workers’ co-
operative in the UK is Suma Wholefoods – an online food provider of
vegetarian, organic and Fairtrade food (Fairtrade is discussed in Topic 6).

1.3.3 Public-sector businesses

Most government departments and organisations set up by the government
(such as NHS hospitals, the Money Advice Service or the Financial Conduct
Authority) are not, strictly speaking, businesses. This is because they are
not trading bodies – ie they do not sell goods or services to generate
revenues. There are, however, a number of commercial businesses either
fully or partly owned by the government. These include the Royal Bank of
Scotland Group and companies such as Eurostar, the Royal Mint and Direct
Rail Services.

1.4 Why do people start their own businesses?

Every country needs new business start-ups to create new jobs every year.
One measure of a successful economy is whether there is full employment;
in other words, is everyone who wants a job able to get one? A study by the
National Institute for Economic and Social Research (Niesr, 2013) reported
that around 4 million jobs are lost in the UK every year, as firms make
workers redundant or go out of business altogether. So, to maintain full
employment, the economy needs to generate enough new jobs to replace
those being lost. According to the Niesr study, around 4 million new jobs
are also created each year. About half of these new jobs are created by
existing companies, but the other half are generated by new business start-

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ups. So it is very important that people are inspired to become

entrepreneurs (a term discussed in more detail in the next topic) and to
start new business ventures every year.

Did you know?

In 2019–20, there were 358,000 business births in the UK –
the lowest rate in years, likely due to Covid-19. The failure
rate for new businesses is high and more than half of new
small businesses don’t survive more than five years (ONS,
2021).

But what drives someone to take the plunge and go out on their own, often
using their own money or borrowing substantial sums to get the business
started? There is no one simple answer to this question, as personal
motivations are complex, but let’s explore some possibilities.

Spotting a ‘gap in the market’

A few years ago, I spotted a need for a new

service. I also realised that more
consumers would buy a particular product
if it was cheaper and better designed.
These gaps in the market inspired me to
launch a new business. I found a way to
produce the improved product and provide
the new service.

Invention / innovation

I’m naturally creative and good at coming up

with new ideas, both for brand new products
(ie inventions) and for new ways to use
existing products and services (ie
innovations). I know some people with these
skills who work for businesses’ product-
development departments, but I am
developing my big idea in my own time. I will
soon set up my own business to market it.

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Unit 3

Redundancy

There are few ‘jobs for life’ these days – no

one is safe from being told that the company
they work for no longer needs them. For
people like me, though, redundancy can
provide an opportunity to ‘go it alone’ and
make a new start. This is because I worked for
the same company for a number of years, and
was eligible to receive a lump-sum
redundancy payment, which I used as start-up
finance for my own new business.

‘To be my own boss’

I don’t enjoy working for other people. I’ve

worked in a big business but didn’t like the
impersonal environment. Starting my own
business is my way to escape this and be
independent. My biggest hope is for my
business to take off and make me rich, but
I’d be happy to run a small business that
provides a reasonable income, as long as I
get to run the business how I want.

Charitable / welfare / environmental objectives

I want to help disadvantaged groups of

people, such as those with serious illnesses
or disabilities. I’m also keen on protecting and
improving the environment. This is my
motivation for starting a charity or social
enterprise to pursue these aims in the future.

Discuss
Can you think of any more reasons why someone would be
willing to take the risk of starting a new business?
What might make you want to start a business?

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Sue Baker opens her dream cafe – but it could turn into a
nightmare!
In Topic 6 of Unit 1, Sue Baker was thinking of opening her own cafe –
with an art gallery attached – in one of the vacant shops on her local high
street. She hoped to be able to sell pottery made by her brother Richard,
and to offer her daughter Sophie a job when she left school. Six months
ago, Sue was made redundant from her job as a medical secretary at the
local hospital.

Sue
I decided that the redundancy was a
good opportunity to follow my
ambition and open the cafe. Six weeks
later, I signed a lease agreement to
rent a shop for 12 months.
I used my redundancy payment and a
small business loan from my bank to
pay for the furniture, equipment, and
building and decorating work that was
needed to turn the shop into a cafe,
and to pay staff. Then I opened the doors and began trading.
I know there’s a big risk that the business will fail. Let’s face it –
I’ve got no experience or qualifications in catering, I’ve never run
my own business, and my confidence that the cafe will be
successful is based on a gut feeling. I didn’t have time to do any
market research to see how much demand there might be for a
cafe in the high street, though I did do a basic business plan to
support my application for a business bank loan.

Discuss
What do you think Sue’s business objectives will be over:
a) the short term (ie her first trading year); and
b) the medium term (ie the first five years)?
Sue originally thought about asking her brother to be a
partner in the business. What would be the advantages and
disadvantages of the business being a partnership rather
than a sole trader?
What other type of business could Sue set up instead? How
might this benefit her?

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Unit 3

1.5 What makes a business successful?

A business is successful if it achieves its objectives. Different types of
business may have very different objectives, so we need to measure the
success of different businesses in different ways.

1.5.1 Private companies

Private companies, whose prime objective is to make as much profit as
possible, will be seen as a failure if they trade at a loss (ie end up with lower
revenue than costs) or break even (where revenue is equal to costs, so
profits are zero). The most successful private companies are those that are
not content to make a profit each year, but are always striving to grow and
expand the business. They sell increasing amounts of products
or services each year, bringing in more and more revenue,
while keeping costs under control to ensure that
profits grow.
Long-term objectives may differ from short-
term objectives, and this must be taken into
account when assessing the success of a
business. Businesses may seek to make
as much profit as possible as a long-
term goal, but decide that the best
way to achieve that objective is to set
short-term targets that may reduce
profits in the short term.
For example, they may decide to
maximise sales, or to maximise
revenue in order to become the
main supplier in the market (ie
have the biggest market share). In
the short term, such strategies
may push up costs or require the
business to reduce prices. However,
these short-term profit reductions
are set against the bigger profits that
the business hopes to make over the
longer term.

1.5.2 Charities and social enterprises

The success of a charity or social enterprise, on
the other hand, will not usually be measured by the
amount of profit it makes (unless its purpose is simply
to raise funds for a charity). If its main objective is to provide
a social or welfare service for a certain group of people, or to protect or
improve the environment, it will be considered successful if it achieves
these objectives.

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 Topic 1

1.5.3 Sole traders

Similarly, the main objective of someone who sets up a self-employed, sole
trader business may be to make enough money to live on so that they can
continue to do a job they enjoy. This can be particularly true where the self-
employed person has turned their hobby into a full-time job (eg interior
design, carpentry, gardening, or teaching music).

1.5.4 Employment, environmental and ethical measures of success

A number of other common business objectives also provide measures of
success, particularly with regard to employment, environment and ethical
policies and practice.

1.5.4.1 Employment policy and practice

However successful a business is in terms of profits, it will not be
considered a success overall if it has a poor reputation for treatment of its
workers. The corporate social responsibility statements mentioned in
section 1.3.1, which are published by big companies each year, will include
a section on employees’ pay and conditions. Most companies commit
themselves to:
■ paying fair wages and salaries;
■ ensuring there are good working conditions, which comply with health
and safety regulations and create a good working environment (eg clean,
dry, adequately heated, not overcrowded);
■ providing training and staff development, to give employees the chance
of promotion to higher-paying jobs;
■ providing an employers’ pension scheme;
■ providing a company sick-pay scheme and paid maternity / paternity
leave for parents;
■ ensuring that all employees are treated equally and have equal
opportunities for promotion;
■ creating new job opportunities wherever possible, and offering
apprenticeships to help young people (ie school leavers and graduates)
get their first jobs.
Good employment practice is part of effective management and leadership,
and will also have a positive impact on the business itself. Employees are
likely to be efficient and productive where they feel that their contribution
to the business is valued, that they are paid decent wages and that they
enjoy good working conditions.

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Unit 3

If employees are treated well, they will be more willing to work hard and
will take less time off. Staff turnover – the number of employees who leave
the company – will likely be lower, because employees will not feel the need
to look for jobs with other companies. This is good for the company,
because every time an experienced, qualified member of staff leaves for a
better job, it takes time and money to recruit and train their replacement.

1.5.4.2 Environmental policy and practice

All business activities affect the environment. These effects can be positive
or negative, and can impact on both the local and global environments.
Successful, profitable businesses sometimes keep their costs low by ‘cutting
corners’ and ignoring the damaging effects their activities can have on the
environment. Factories, processing plants and even offices and shops
produce a lot of waste products, which can include toxic (ie poisonous)
waste that pollutes air and water sources in the local area if not disposed
of properly. Non-toxic waste also needs to be kept to a minimum (and
recycled where possible) to protect the environment. In addition, business
activities consume energy and can generate ‘greenhouse gas’ emissions.
Successful businesses are therefore expected to have effective strategies
for limiting and, where feasible, eliminating the damaging effects their
activities may have on the environment.

1.5.4.3 Ethical policy and practice

As well as helping to protect the environment, successful businesses are
expected to behave ‘ethically’. This means behaving properly, doing the
‘right thing’ and, above all, making sure that business activities do no harm
to anyone or anything. The positive employment and environmental
practices outlined above form part of an ethical business strategy. An
ethical strategy goes further, to include a commitment to honest, law-
abiding behaviour which:
■ protects customers from unfair trading practices;
■ protects workers from unfair employment policies;
■ ensures that employees do not get involved in offering bribes or in other
kinds of financial corruption;
■ commits the business to paying all legal tax liabilities; and
■ adopts a fair trading policy with suppliers.
Trading fairly means not buying supplies from companies that use low-paid
‘sweatshop’ workers or child labour, or that make people work in crowded,
unsafe conditions. It also means ensuring that farmers get paid a fair price for
their produce. These ethical issues are discussed in more detail in Topic 6.

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 Topic 1

Discuss
Think about what we
have learned so far in
this topic.
What are the most
important things Sue
Baker needs to do to
make sure her cafe is
still in business at the
end of the first year?

1.6 What makes a business stand out from others?

Private companies, co-operatives and social enterprises all have one thing
in common: they cannot afford to trade at a loss. Private companies aim to
make as much profit as they can, but co-operatives and social enterprises
also need to sell enough goods and services to produce a
revenue that covers their costs, so that they can at least
‘break even’.
For any business to survive and prosper, it must
offer goods or services that people will buy. If the
business competes with rival companies that
are selling similar goods or services, the
business must make its offering stand out
from the others, so that customers will buy
from it rather than from its rivals. One way
to do this is to offer your product or
service for a lower price than your rivals,
but there are other ways of making your
product stand out from the competition.
Competition for customers has become
increasingly intense in recent years, as
more consumers have turned to online
comparison websites to find the best or
cheapest supplier they can. Therefore, to
sell enough of their products or services to
meet their sales targets, businesses must
make their product or service different to the
others. This is called ‘differentiation’, which is
achieved by making sure your product or service
has a unique selling point (USP).

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Unit 3

So how can a business differentiate its products from the rest? How can a
business owner create a USP?

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Let’s consider each of these suggestions in turn.

1.6.1 Invention
Invention means coming up with an idea for a brand new product, or for
new equipment or technology that makes it easier and cheaper to
manufacture a product or provide a service. Engineers and scientists have
invented a steady stream of new products ever since the Industrial
Revolution (which began around 1760). In the field of transport, for
example, the invention of bicycles, steam trains, cars, vans and lorries,
electric and diesel trains, aeroplanes and so on has allowed the creation of
many successful businesses.
A newly invented product can be a great way of establishing a USP and
offering a product that is different from anything else on the market. If the
product is something that could easily be copied by other companies,
however, the inventor needs to use patenting laws (similar to copyright) to
stop this happening and thus keep their product unique.

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 Topic 1

1.6.2 Innovation
Invention is about creating brand new, unique products, while innovation
is about taking an existing product and changing the way it is used.

The internet was originally a

computer network used by
scientists and military
organisations to communicate
with each other. It was the
innovative ideas of British
computer scientist Sir Tim
Berners-Lee that allowed the
internet to become the
worldwide communication system we all use today.
Apple’s iPod, similarly, was an innovation that took a simple
existing product – a small data-storage device called a USB
flash drive – and redesigned it. This redesign created a user-
friendly MP3 music player that millions of people have used
to store and play back their music files.

Satellite and cable TV services (such as Sky and Virgin) are also examples
of innovation. These services used existing satellite and cable
communication technology to offer multi-channel subscription TV services,
which now have millions of subscribers.

1.6.3 Marketing
Marketing is an all-embracing term, which covers everything that a business
does to sell as many of its products or services as possible. Marketing
activities include the following.
■ Market research – before any new product or service can be designed,
companies need to know what their customers (existing and potential)
need and want, and how much they would be prepared to pay for new
products. Market research surveys, questionnaires and focus groups can
be used to find this out.
■ Design – all products and services have to be designed to meet the needs
of customers in the ‘target market’ (ie people identified as the type of
people who would be interested in buying the product). Design not only
covers the product itself, but the way the product is packaged and
presented, and any materials used to promote the product (eg leaflets,
brochures, displays).

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Unit 3

■ Advertising – however good a product or service may be, customers will

not buy it in large quantities if they are unaware how good it is – or if
they don’t even know that it exists. Advertising is therefore needed to
make customers aware of the offering, and to convince them that it is
something they want to buy. Advertising ranges from posting leaflets
through letterboxes and putting up posters, to mounting national
newspaper, radio and TV campaigns.
■ Promotion and public relations (PR) – like advertising, promotion and
PR aims to make consumers aware of a product / service and to encourage
them to buy it. A variety of techniques are used to make a business stand
out from others and thereby promote sales, as Figure 1.1 indicates.

Figure 1.1 Promotion techniques

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1.6.4 Pricing
Perhaps the simplest way to make a product stand out from similar
products is to ensure it is the cheapest product of its type on the market.
For some companies this will be a permanent strategy, because their target
market is the ‘value’ end of the sales spectrum (for example, companies

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 Topic 1

that create products for ‘pound shops’). Rather than producing goods of
the highest possible quality and charging the highest possible prices, these
businesses produce lower-quality products and sell them for lower prices.
Other companies may initially offer new products at a high price, before
dropping to a lower price once initial demand has been satisfied. These
businesses know they have customers – called ‘early adopters’ – who will
happily pay a high price to be among the first to buy a new product. This
practice is very common in the technology market, where new mobile
phones, flat-screen TVs, computers and game consoles all come to market
at high prices, before settling down to a lower long-term price after demand
from early adopters has been satisfied.

Discuss
What might be the best marketing
and pricing strategies for a small
business like Sue Baker’s cafe?

1.6.5 Customer service

Having good-quality, well-
designed, competitively-priced
products with a clear USP will
distinguish your company from
your rivals. However, it can still all
go wrong if you don’t achieve
good levels of customer service.
Poor customer service can ruin a
business’s reputation, leading to a
loss of customers. Conversely,
customers who experience out-
standing customer service will
often be willing to remain loyal to
a company, even if its rivals offer
the same product or service for a
lower price. Happy customers
often also recommend the product
or service to other people.

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So how can businesses use customer service to stand out? There are several
key aspects that all businesses need to get right, including the following:
■ Communication – whether you have bought a product or signed up for
a service, you will want to be able to contact the company quickly and
easily by phone or online. You will want any questions and concerns to
be dealt with effectively, and any problems put right straight away.
■ Transparency – a business should always provide clear and accurate
information, whether about the products it sells or the services it
provides. We are more likely to use a business that gives us accurate and
honest information.
■ Convenience – selling products or services in a way that is quick, easy
and convenient for customers has become more important in the internet
age. Many businesses now sell their products online and deliver
them to the customer’s home. As customers, we expect
delivery times to be clearly stated and as convenient as
possible; and if a business promises next-day
delivery, it must meet this commitment.

1.6.6 Staff development and motivation

Producing high-quality products and
delivering a high standard of customer
service requires a well-trained, well-
qualified workforce. The workforce must
also be motivated to contribute to the
company’s overall success as a business.
Businesses have to recognise this and put
in place an effective strategy for:
■ continuous staff training;
■ encouraging and supporting staff who
are studying for higher qualifications;
and
■ offering additional rewards, bonuses,
and ‘Employee of the Month’-style
awards to keep staff motivated.

1.6.7 Social and ethical values

Nowadays, as consumers we are aware of social, environmental and
wider ethical issues when choosing the products and services we buy and
the companies we buy them from.
Ethical and environmental policies and practice were outlined in section
1.5.4. Many businesses have realised that adopting such policies can help
them to stand out from their rivals.

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More and more consumers actively look for products:

■ that carry the Fairtrade logo;
■ that contribute to a healthy diet;
■ that are ‘environmentally friendly’, such as
locally produced or organic fresh food, or
cars with low carbon emissions and
smaller engines that use less fuel.
Most businesses try to reduce their
‘carbon footprint’ by using less energy
and producing less waste. Some
businesses now use renewable energy
sources, such as wind and solar
power. If businesses take these issues
seriously, there will be real benefits
for the environment and our quality of
life, and businesses themselves will
benefit by having a strong ethical
brand image.

1.6.8 Brand image

Each of the ways described above help
businesses to differentiate themselves from
others. All of these factors contribute to a
business’s ‘brand image’ – how the company
and its products / services are perceived by
consumers. A strong, positive brand image (such as
Virgin, Coca-Cola, Apple, Nike) can be achieved by:
■ building a reputation for invention or innovation;
■ having an effective marketing strategy;
■ achieving high standards of customer service; and
■ showing commitment to operating in ethically and environmentally
sound ways.

When consumers choose between competing businesses, the strength of

each company’s brand image can often be the deciding factor.

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Case study: Sue Baker seeks business advice

Sue Baker has reached the end of her first year in business. She has
contacted an online small-business advice service, to ask how she can
make the business more successful next year.

Sue
I called the cafe ‘Burgers à la Carte’, because
I wanted the menu to be built around a
central selection of handmade ‘gourmet’
burgers using only the finest quality, free-
range organic British beef. We offer a variety
of unusual flavourings and toppings –
including the top-of-the-range ‘Executive’
burger, which is topped with smoked salmon
and caviar.
I took on three experienced and highly skilled
staff, which means there is a high wage bill. I also gave my daughter
Sophie a job, but it has led to arguments because Sophie is often late
and is not really enjoying catering. The gallery selling my brother’s
pottery has not sold very much – revenue averages £50 per week.
There are branches of McDonald’s and Burger King in the same high
street, so I’ve been trying to keep my prices close to the prices they
charge. The cafe is always fully booked on Friday and Saturday
evenings, but it is not busy at lunchtimes or on weekday evenings.
I’ve had some customers come back two or three times, but most
seem to only come once. I have just received my first year’s annual
accounts from my accountant. While they show that I took more
money than I expected to (the total revenue was £250,000), there
were high running costs and overheads – things like wages, supplies,
electric and gas bills, and the high rent and council tax charged for a
high-street shop. As a result, the cafe made a £20,000 loss overall.
I really need to do something to make the cafe profitable or it will
have to close, but I’m not sure how to turn things around.

Discuss
How many things can you think of that Sue could do to try to
make the cafe profitable?
Pick the top two or three options that you think would be
most likely to make the cafe profitable. Explain why you think
they would work.

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Summary
Finally, we can recap what we have learned in this topic.
■ A business is an organisation that produces products or services which
are sold to customers or other businesses that need them. Every business
has objectives it sets out to achieve, which vary from making maximum
profit, to supplying a product or service that provides a social service.
■ There are many different types of business, which can be owned in
different ways. Business types include sole traders, partnerships, private
limited companies, public limited companies (plcs), not-for-profit social
enterprises, co-operatives, and charities.
■ The success of businesses can be defined and measured in different ways
depending on their business objectives.
■ Businesses can achieve success by using marketing techniques,
appropriate pricing, good customer service, a strong USP and a good
brand image to make their business stand out from their rivals.

Key terms
Business objective – the goal or target that a business sets out to
achieve.
Charity – a not-for-profit organisation set up to raise funds and provide
support for certain people or a good cause.
Competitive advantage – when an organisation develops something that
allows it to sell more products than its competitors.
Customer service – providing service to customers before, during and
after a purchase.
Dividend – where profits made by plcs are paid to shareholders.
Employees – the workers who are employed by a business, and who help
the business to achieve success.
Franchise – the right to sell another business’s products or to use their
trademark.
Growth – in business terms, this can be measured in many ways, such as
an increase in sales, in revenue, in number of employees or number of
customers.
Limited company – an ‘incorporated’ business, meaning that the
business has a separate legal identity from its owners. The owners are
shareholders in the business and have limited liability for the business’s
debts.

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Unit 3

Limited liability – where a shareholder is only responsible for the amount

of money they have invested in a business.
Marketing – an all-embracing term that covers designing a product which
people need or want; then using further design, advertising and
promotional activities to sell the product to the target market.
Market share – the sales of a particular business when measured against
the sales of all businesses in the market.
Partnership – a business owned by two or more people (usually up to a
maximum of 20), who share the decisions and the profits.
Profit – how much money a business makes after its costs are deducted
from its revenues. Profit is seen as the main goal of most businesses in
the long term.
Public limited company (plc) – a limited company whose shares can be
bought and sold on the stock exchange.
Revenue – the value of a business’s sales in a given time period.
Social enterprise – a not-for-profit business with social objectives, such
as helping a local community or creating jobs for people with disabilities.
Social values – the objectives of businesses in terms of behaving
ethically, helping local communities, reducing effects on the environment,
and considering impact on the wider economy.
Sole trader – a business owned and controlled by one person, who can
employ others.
Survival – the short-term objective of a new business, or a business that
does not have profit as its main objective.
Unique selling point (USP) – something that makes a product or service
stand out from competing products or services.
Unlimited liability – where the owner of a business is personally liable
for all of the business’s debts.

Bibliography and further reading

Niesr (2013) Job creation and destruction in the UK – available at:
https://www.niesr.ac.uk/media/job-creation-and-destruction-uk-11503
Office for National Statistics (2021) Business demography, UK: 2020 –
available at:
https://www.ons.gov.uk/businessindustryandtrade/business/activitysizea
ndlocation/bulletins/businessdemography/2020

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Pauley, J. (2005) Transcript of Jane Pauley’s interview with Sir Richard

Branson.
Pavlina, S. (no date) Quoted online at:
http://www.azquotes.com/quote/768161
Suma Wholefoods: www.suma.coop/about/our-co-op/
For more information on business ethics go to:
https://www.ethicalconsumer.org/
For more information on business start-ups go to:
https://www.gov.uk/set-up-business/start-with-an-idea
For more information on Fairtrade go to:
http://www.fairtrade.org.uk/
For more information on social enterprise go to:
https://www.socialenterprise.org.uk/who-we-are/
All images © iStock.com

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