IB BUSINESS MANAGEMENT HL

Economies of scale:
The cost advantages that a business can - Specialization economies
exploit by expanding their scale of o Similar to managerial economies
production. The effect of economies of but results from division of labor of
scale is to reduce the average (unit) costs the workforce, rather than the
of production. management.
Economies of scale can help businesses
o Example: Toyota use mass
to gain a competitive cost advantage
production benefit from having
because lower average costs can mean a
specialist labor. (designers,
combination of lower prices being charged
production staff, engineers and
to customers and a higher profit margin
marketers) Each specialist is
earned on each unit sold.
responsible for a single part of
Type of internal economies of scale production process  greater
productivity.
- Technical economies
o Refer to gains in productivity/ - Marketing economies
efficiency from scaling up o Selling in bulk  reduce time and
production. transaction costs.
o Use the same marketing campaign
o Example: supermarket might invest across the world. (save marketing
in database technology that costs)
improves stock control and reduces
transportation and distribution - Purchasing economies
costs. o Buying resources in bulk  gain
discount for bulk purchase.
- Financial economies
o To be credit worthy  have access - Risk-bearing economies
to credit with favourable rates of o The ability of large firms to spread
borrowing. Large firms are usually risks over a large number of
rated by the financial markets. investors.
Smaller firms often pay higher
interest rates on overdrafts and o Example: diversification of location,
loan. production plant-specific risk 
reduce effective risk facing
- Managerial economies investors.
o A form of division of labor where
firms can employ specialists to
supervise production systems.

o Example: Better management and

increased investment in human
resources and the use of specialist
equipment (networked computers
can improve communication, raise
productivity and thereby reduce unit
costs)

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 IB BUSINESS MANAGEMENT HL

Calculating GPM and NPM based on a

profit and loss account.
Profit and Loss (P&L) account
Profit and loss account
- Profit statement
- Shows net profit (or loss) of a business
at the end of a trading period.
Net profit = Gross profit – Expenses
Net profit  surplus from sales revenues
after all expenses are accounted
for.(actual profit made from a firm’s normal
trading activities)
Gross profit  profit made after deducting
the costs associated with making and
selling the products or providing service.

Appropriation account
Dividends – the amount of net profit after
interest and tax that is distributed to
owners (shareholders) of the company
Retained profit – the net profit after
interest and tax is kept by the business for
its own use.

Gross profit margin (GPM)

 Shows the value of gross profit as a
percentage of sales revenue.
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Net profit margin (NPM)
 Shows the percentage of sales
turnover that is turned into net profit.

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 Better measure of a firm’s profitability
that GPM as it accounts for both cost
of sales (direct costs) and expenses
(indirect costs)

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 IB BUSINESS MANAGEMENT HL

Market segments
Main bases of segmentation: Example:
1. Demographic (considering the
characteristics of the human
population within a certain area,
country or region)
o Age
o Gender
o Race and ethnicity
o Marital status
o Religion
o Language
o Income and socio-economic
class
Ex. IB students and university students

2. Geographic (considering location

of customers)
o Location (different cultures and
social attitudes)
o Climate (can largely impact
business activity) Criteria for assessing successful
market segmentations – DAMAS
Ex. Customers within 20 km of
center of Bangkok Differential – segments must be unique
and respond to marketing mixes.
3. Psychographic
o Hobbies and interests Actionable – businesses must be able to
o Values (beliefs, morals) provide suitable products to cater for each
o Religion market segment.
o Status
Measureable – the size of or purchasing
o Culture
power of each market segment must be
Ex. Customers who prefer to buy quantifiable.
organic food.
Accessible – the business or its products
Consumer Profiles must be able to reach customers in a cost-
effective way.
- The demographic and psychographic
characteristics of consumers in Substantial – Each market segment must
different markets (their age, gender, be large enough to generate profits.
occupation, income level, religion,
marital status and purchasing habits.)

- Knowledge of consumer profiles helps

a business to identify the needs and
wants of its customers and to identify
any segments that might be
overlooked.

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 IB BUSINESS MANAGEMENT HL

Lewin’s Force Field Analysis (FFA) Decision Tree

Successful businesses tend to be A quantitative organizational planning tool
constantly adapting and changing, rather that calculates the probable values of
tan being fixed in outdated practices and different options, helping managers to
unable to look forward. minimize the risks in decision-making.
Driving force  push for change
Restraining forces  act against change
To draw FFA
1. List all driving forces for change
and restraining forces against
change.
2. Allocate weight to each of these
forces from 1 (weak) to 5 (strong)
3. Draw FFA
4. Total the scores for driving forces
and restraining forces.

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 IB BUSINESS MANAGEMENT HL

Ansoff Matrix Product Development

- Marketing planning tool that helps a New products x existing markets
business determine its product and
- Involves substantial modifications or
market growth strategy.
new additions to the product range.
- Suggests that a business’ attempts to
- The business targets the same target
grow depend on whether it markets
markets as its existing products
new or existing products in new or
- R&D will be needed.
existing markets.

Diversification
New products x new markets
- Move into a completely different
market or new but related markets by:
o Vertical backward integration
 When a company buys a
supplier
o Vertical forward integration
 Wholesaler decide to merge
with retailer
o Horizontal integration
 2 firms in the same industry.

Market penetration:
Existing products x Existing markets
- Promoting growth in existing markets
with existing products.
- Consolidation  concentrating
activities on those areas where the
firm has established a competitive
advantage or competence and
focusing its attention on maintaining its
market share.
Market Development:
Existing products x new markets
- Taking the companies’ existing
product and selling them to new
customers.
o New geographical areas
o New uses being promoted for
product
o Entering new market segments

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 IB BUSINESS MANAGEMENT HL

Boston Consulting Group (BCG) Matrix Steps to draw BCG Matrix:

- Growth-share matrix 1. Choose the unit
- Corporate planning tool used to 2. Define the market
portray firm’s brand portfolio 3. Calculate the relative market share

Relative market share =

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݈ܽ‫ ݎ݋ݐ݅ݐ݁݌݉݋ܿݐݏ݁݃ݎ‬ᇱ ‫݁ݎ݄ܽݏݐ݁݇ݎܽ݉ݏ‬

4. Find out market growth rate

(usually available online)

5. Draw the circles on a matrix

The size of the circle should
correspond to the proportion of a
business revenue generated by
that brand.

Example:

STARS Question mark

High Market Share Low market share,

High market growth high market growth

Doing well, great Don’t know what to do

opportunities with the opportunities;
decide whether to
increase investment
Cash cows Dogs

High market share, Low market share, low

low market growth market growth

Doing well in no Weak in market,

growth market with difficult to make profit
limited opportunites

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 IB BUSINESS MANAGEMENT HL

Cash flow forecasts

Cash flow forecast – a financial document
that shows the expected movement of
cash into and out of a business, per time
period.
Cash inflows  come from sales revenue
when customer pays for the products that
they have purchased, from debtors, loans
from bank, interest from savings deposits,
sale of fixed assets or rental income.
(receipts)
Cash outflows  cash that leaves a
business. (ex. When invoices or bills have
to be paid, payments)
Net cash flow
 the difference between cash inflows
and cash outflows, per time period.
 Should be positive

Opening balance  the amount of cash at

the beginning of a trading period.
Closing balance  the amount of cash at
the end of a trading period

Closing balance
= Opening balance + Net cash flow

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 IB BUSINESS MANAGEMENT HL

Promotional Strategies Push promotion – firm attempts to push

their products to be seen by consumers
Types of promotion
starting at the point of purchase.
1. Above-the-line (ATL) – use of
mass media resources
 Any form of paid-for promotional Promotional Mix
technique through independent media
o Tv
 Set of tools that a business can use
o Radio
to communicate effectively the
o Cinema
benefits of its products or services to
o Newspaper
its customers.
o Magazines
o Outdoor advertising
 The mix is a range of above and
below the line methods used to
2. Below-the-line (BTL)
market a product.
 All forms of non-media promotion
activities. Business has direct control
When deciding on a promotional
over the production of all its
mix, use AIDA.
advertisements. (free samples)
o Branding
o Attention
o Slogans
o Interest
o Logos
o Desire
o Packaging
o Action
o Word-of-mouth
o Direct marketing Or use FAB
o Direct mail
o Publicity o Features
o Sponsorship o Advantages
o Benefits
2 types of BTL 4 key elements of promotional mix
 Sales promotion: ways of boosting
sales and attracting new customers. 1. Advertising
o Money-off coupons o Develop awareness,
o Free samples perceptions, knowledge and
o Customer loyalty schemes attitudes.
o Win a prize schemes 2. Personal selling
 Point-of-sales promotions o Relies on sales representatives
o Putting the product at the place directly helping and persuading
where the customer buys. potential and existing
o Ex. Fisherman friend candy at customers to make a purchase.
the check-out line at the 3. Public relations
supermarket. o Help gain short term
competitive head start
4. Sales promotion
Pull promotion – aims to get the o Short-term incentives designed
customers to come to the product. to stimulate sales of a product.
Ex. Give 1 night stay at Sea &
Sand Hotel and Residence to
promote the condo for the
customer to buy.

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 IB BUSINESS MANAGEMENT HL

Market Research Secondary Research

- Systematic design and collection of Definition: Secondary research involves
data for analysis and findings that the collection of second-hand data and
relate to a specific marketing objective information that already exists.
of business.
- Public information
Advantages of market research - Usually too broad and
unrepresentative.
- Business can obtain up-to-date
information
- Improve marketing strategies (knowing
and understanding their consumers)
- Assess customer reactions Primary Research Secondary Research
- Helps predict the future High cost Lower cost
Time consuming Use less time
Market research could ask:
Very specific to Not always specific
- Are customers likely to buy the business needs
product? Information is Information might be
- Which market segments are interested Accurate outdated
in the product? Private info Public info
- How much are customers willing to Surveys, interviews, Internet, magazine data,
polls, focus groups government publications,
pay?
documentaries, news
- How often are they likely to purchase
articles
the product?
- Which brands do customers see as
rivals? Mission statement
- What is the preferred method of
- Simple declaration of the underlying
promotion?
- How/Where should we sell it? purpose of an organizations’ existence
and its core values.
Primary and secondary research - Purpose, reason for being
Primary research Role of mission statement
Definition: Market research that involves To define the function of a
gathering new data first-hand for a specific business and the measures of
purpose. It is often used to gather data company’s success
and information from customers to identify
their buying patterns and to anticipate
changes in market trends.
- Primary data: information that has just
been gathered (new info)
Forms of primary research:
- Surveys (should avoid bias)
- Interviews
- Focus group (6-10 people of selected
genders, ages, or interests)
- Observations

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 IB BUSINESS MANAGEMENT HL

Types of organization
Public Limited Company (PLC)
An incorporated business that allows the
general public to buy and sell shares in
the company via stock exchange. All
shareholders enjoy limited liability.
Limited liability: restriction on the amount
of money that owners can lose if their
business goes bankrupt (ex. Shareholders
cannot lose more than they invested in the
company. Shareholders do not stand to
lose personal belongings if they company
goes bankrupt or into debts)
Private Limited Company (LTD)
A business owned by shareholders with
limited liability but whose shares cannot
be bought or sold to the general public.

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