BUSS 2 Key Term Definitions ©T Ockenden Finance: Budget – A budget is regarded as a goal or a “yardstick”; it’s something a business uses in order to work to, for example: a firm may have budgeted fixed costs of ? 5000, they aim to either meet this budget or fall below it to operate to the desired level. Variance – Variance applies to budgets, and it is the difference between the forecasted or budgeted figure, and the actual figure that comes out at the end of a certain review period.
Cash flow forecast – A cash flow forecast is a document that records the expected inflows and outflows of a business. Overdraft – Short term borrowing from a bank, a business will only take out as much money as it needs in order to cover its daily cash shortfall, because overdrafts are high interest short term finance options and can be required to pay back within 24 hours. Factoring – Fully named debt factoring, is the process by which the debt factor company buys a percentage of the debt owed to one company by another company or customer (often around 80%).
This means although the company owed to will lose 20% of the money, it means that 80% can be with them immediately rather than having to chase for it. Sale and leaseback – This is where a company will sell an asset off in order to generate short term finance, but they will buy back the asset on a lease basis as in the will pay for it as and when they need it. Net profit margin – Simply a profit margin is the gap between the prices the unit is sold for and how much it costs to produce it. Net profit margin is worked out by doing net profit over sales turnover x100.
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Return on capital – Profit as a percentage of the capital invested in a project. Profitability – Profitability measures profit against another variable in the business, for example you’ve got net profit margin which is profit in relation to costs, or ROC, which is profit in relation to the capital invested. Marketing: Niche marketing – Niche marketing is where a business is tailoring a product or service to a very specific customer or market (think cooking dinner for the queen), requires much research in to their needs and wants and other factors in order to get it right.
Mass marketing – Mass marketing is almost completely the opposite, it involves creating a product or service with mass appeal and promoting it to all types of consumers (bread and other commodities). Business to business marketing – This is a term to describe the transactions that take place between one company and another, in this sense the customer is seen as another business. Consumer marketing - When a company sells its products and services to the individual consumer, it is referred to in marketing-speak as B2C, or business-to-consumer.
Marketing mix – This refers to the 4 main ingredients in the marketing cake, product, price, place and promotion. Although is BUSS 2 they ask you specific stuff on each section. USP – One feature that makes a product or service different from all its rivals, for example the apple operating system on iphone. Product differentiation – The extent to which your product or brand is differentiated is the amount to which customers feel your product or brand is different from others in the same market.
Product life cycle – This is sort of like the “this is your life” book for a product, it comprises of stages; Introduction, growth, maturity, saturation and decline. Represented as a graph in most cases. Product portfolio – Product portfolio analysis looks at the existing position of a company’s products. The best way is Boston matrix here; a firm can place their product in any of the four boxes and from there, decide if a new product needs to be launched or increased promotion is needed or even an introduction to a new market.
Boston matrix – The Boston matrix shows the market share of each of the firm’s products and the rate of growth of the markets each product is in; helps in the decision making process of new products or more promotion/new market e. t. c. Promotional mix – The combination of promotional methods used by a business when marketing its products. PR – This is an attempt to affect a consumer’s opinion of a product without actually spending on media advertising, it can involve getting journalists to mention the product in regular publications such as newspapers and T. V magazines.
Branding – Branding is the overall image that is tagged to everything a company does, it’s the thought consumers have when they see the company logo, for example, when people see the M&S sign, they automatically think high quality. Merchandising – This requires employees to visit shops where the company’s product is sold to ensure that the brand’s display looks eye-catching and tidy. An example is the dump bin displays you sometimes see at the end of shopping aisles when a new product is launched. Sales promotions – These range from little competitions you see on the actual product packaging to offers run by the shop itself such as BOGOF’s.
Direct selling – This is where potential customers are approached directly. This used to be door to door sales type people, but increasingly more know it involves the use of tele sales. Advertising – Advertising is a form of promotion; there are various methods firms use, such as: T. V adverts, radio ads, billboards around town, leaflets given out in the street e. t. c. It’s the way firms get the knowledge that their product is around out there. Pricing strategies – A pricing strategy is a company’s plan for setting its prices for products over the medium to long term. Short term offers are known as tactics.
Tactics can however make strategies or help them. Price skimming – Skimming involves pricing a new product quite highly, it is used when the product is innovative (Apple), as the product is new there is no competition. Price penetration – This involves pricing a new product at a fairly low price in order to achieve high sales volume. It’s used when launching a product into a market where there are similar products; the price is set lower to gain market share. Price leader – This is where the price is set above the market level. This is possible when the company has strong branding or there is little threat from competitors.
Price taker – This is when the price is set at the market level or at a discount to the market. This usually happens in highly saturated and competitive markets or in a market where one company dominates. Pricing tactics – Whichever strategy has been chosen, there are tactics that also need to be considered. They can be part of normal pricing or used as an element in the firm’s promotional tactics. Loss leaders – Prices are set purposefully low – so low that the firm may make a loss on the product; the idea is that purchasing these products will encourage the customer to buy complimentary products to generate profit.
Usually common in supermarket environments. Psychological pricing – Prices are set at a level that seems as if it I lower to the customer i. e. 9. 99 as opposed to 10. 50. Price elasticity – A measurement of the extent to which a product’s demand changes when its price is changed. Distribution channel – Distribution channels are the ways in which products get to consumers in the right place for them to purchase them. Oligopoly – A market in which a few large companies have dominant share, for example: the UK chocolate market a 70% share split between Cadbury, Nestle and Mars.
Competitive markets – Could be described as a market where there is intense rivalry between producers of a similar good or service. Competitiveness – Measures a firm’s ability to compete (compares its consumer offer to the offers made by rivals). People: Organisational structure – Organisational structure is the formal and ordered way the management of a business is organised. When displayed in the familiar diagram format, it shows the departments or functions within the business and who is answerable to whom.
Levels of hierarchy – These show the number of different supervisory and management levels between the bottom of the diagram and the top of the hierarchy. Span of control – This term describes the number of people directly under the supervision of a manager. Chain of command – This is to do with communication, and shows the reporting system from the top of the hierarchy to the bottom (the route info takes through the business). Delegation – Handing power down the hierarchy to junior managers or workers. Labour productivity – Purely and simply, the output per person (Output over no. Of staff).
One of the ways to measure workforce effectiveness. Labour turnover – The rate at which people leave their jobs and need to be replaced. The other way to measure workforce effectiveness. Recruitment – Recruitment is the process of filling job vacancies when they arise within a firm. Selection – the process of choosing from a field of applicants from a job Selection techniques – The processes used by a company to choose the most appropriate person for a job, examples are interviews and trial runs. Internal recruitment – Where a job vacancy is filled by using someone who already works within the company.
Sometimes seen as promotion. External recruitment – Where a job vacancy is filled by using someone who comes from outside the company. Assessment centre – These allow for more detailed analysis of person’s suitability for a role by subjecting them to realistic simulations, often over a number of days. Types of selection test – A number of selection techniques exist, including: Interviews, testing and profiling (aptitude tests) and assessment centres. Person specification – A document that details the qualifications, skills and other personal qualities required in order to carry out the advertised job.
It describes the ideal person Job description – Not the same as a person spec, a document that outlines the duties and responsibilities associated with an advertised vacancy. It describes the job On the job training – Where employees acquire or develop the skills they need without leaving their usual work place (shadowing of higher level employees). Off the job training – Where employees leave their usual workplace in order to receive instruction on how to perform their job role well (College or university) Job enrichment – Herzberg: “giving people the opportunity to use their ability”.
Job enlargement – General term for anything that increases the scope of a job. (Job rotation, job loading and job enrichment). Empowerment - A management practice of sharing information, rewards, and power with employees so that they can take initiative and make decisions to solve problems and improve service and performance. Team-working – Individuals work in groups rather than being given highly specialised, individual jobs. Operations Management: Operational targets – Operational targets or objectives are the specific, detailed production targets set by a company to ensure that its overall company goals are achieved.
Unit costs – The cost of one unit of output is a raw measure of the efficiency of a firm’s operations (total cost over total output = unit cost). Quality – Quality or specifically quality management, means providing what the customer wants at the right time, with the right level of quality and consistency and therefore yielding high customer satisfaction. Capacity utilisation – Actual output as a proportion of maximum capacity (out of 100%). Non-standard orders – Sometimes a company will be approached by customers with special orders at a different price to their regular selling price.
A customer with special requirements may require changes to the product or a modified design, but they may be willing to pay a much higher price. Overtime – Paying staff extra to work longer hours than their contracts state. Temporary staff – Employees on fixed-term contacts of employment, either for a determined amount of time or until a specific task has been completed. Part-time staff – Staff who are contacted to work for anything less than what is considered the basic full-time hours of the business.
Rationalisation – Reorganising in order to increase efficiency. This often implies cutting capacity to increase the percentage utilisation. Sub-contracting – Where another business is used to perform or supply certain aspects of a firm’s operations (outsourcing). Quality control – Quality control is the traditional way to manage quality, and is based on inspection after a certain batch number of units. Quality assurance – Quality is a system that assures customers that detailed systems are in place to govern quality at every stage of production.
TQM (total quality management) – This was introduced by an American business man W. Edwards Deming in early 1980s. TQM is not a management tool, it is a philosophy. It is a way of looking at quality issues at every aspect of the business (think kaizen stuff). Quality standards – Companies can apply for quality standards certification to show the rest of their market and others that they are serious about the quality of what they do. ISO 9000 certification covers customer service in firms where the skill is relevant.
Customer service – Describes the range of actions taken by a business when interacting with customers. Effective CS will meet or exceed the expectation that customers have of the business. Suppliers - A person or business that serves as a source for goods and services. For example, Sysco Corporation is a major supplier to the food service industry. Robotics – Robotics are the automated systems used on many of today’s modern mass production lines (car manufacturers). They are programmed to do the same thing over and over, so repetitive tasks can be completed with 100% efficiency.
Automation – Typically refers to automated stock control systems, they are based on laser scanning or bar-coded info. This ensures the computer knows the exact quantity of each product that has come into the stockroom. Equally when something is sold the number is subtracted from the original stock room total. Communication technology – This covers aspects all over the business, we’ve got communication with customers; two main ways companies can electronically communicate with customers: 1 is a website and 2 is a database management system that holds information on all of a firm’s customers.
Also you’ve got communication with suppliers, with things such as electronic data interchange, this links up data sources between branches of a business this can be useful to find out instantly how much stock is in a store on the other side of the country. Design technology – Computer Aided Design (CAD) has been around for over 20 years but is now much more affordable and very useful. CAD can show 3D versions of a drawing to see what it would look like if it was a 3D model. Productivity – Output per person (a measure of efficiency).
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