• Market research: process of collecting, recording and analysing data about customers,

competitors and the market

• Sample: the group of people taking part in a market research survet selected to be
representative of the overall target market

Secondary research: collection of data from second-hand sources

Advantage Disadvantage

often very cheap - apart from market intelligence may not be updated frequently → out of date
reports
identifies the nature of market and assists with originally collected for another purpose → may not
planning of primary research be suitable or presented in the most effective way

obtained quickly without the need to devise data collection methods and accuracy of these may
complicated data-gathering methods be unknown

allows comparison of data from different sources might not be available for completely new product
development

Primary research: collection of first-hand data that is directly related to a firm’s needs

Advantage Disadvantage

up to date → more useful than most secondary costly → market research agencies can charge
data thousands of dollars for reports

relevant → collected for a specific purpose → time-consuming → secondary data could be

directly address questions business wants answers obtained from the internet much more quickly
to

confidential → no other business has access to this doubts over accuracy and validity → risk of sample
data not being fully representative of population

Methods of primary research

• Qualitative research - research into the in-depth motivations behind consumer buying
behaviour or opinions
• Focus groups
• group of people are asked about their attitude towards a product, service, advertisement or
new style of packaging

• more accurate and realistic because it allows opportunity to discuss

• time-wasting, members may discuss issues not directly related to research

• qualitative data is difficult to analyse and present to senior managers

• risk of researchers leading or influencing discussion too much → biased conclusion

• Quantitative research: research that leads to numerical results that can be statistically
analysed
• Observation and recording
• results can be distorted if people are aware of being watched & behave differently

• no opportunity for researcher to ask for explanations of behaviour

• Test marketing
• business can produce a limited quantity of a new product before a full-scale national launch

 • involves promoting & selling product in a limited geographical area and recording consumer
reaction and sales figures

• reduce the risks of new product launch failing completely

• evidence is not always accurate if region is not representative of the rest of the country

• Consumer surveys
• directly asking consumers or potential consumers for their opinions and preferences

• quantitative and qualitative

• who to ask? researcher has to select a ‘sample’ that reflects the characteristics of the survey
population (potential members of a target market) to increase the accuracy of data

• what to ask? questions must be unbiased and unambiguous to obtain useful results

• how to ask? self completed and return by post/filled in by interviewer in face-to-face session

• how accurate is it? assesing the likely accuracy and validity of results

• Sources of secondary data

• Government publications

• Local libraries and local government offices

• Trade organisations

• Market intelligence reports

• Operations planning: preparing input resources to supply products to meet expected demand

• Characteristics of location decisions

• strategic in nature - as they are long-term and have an impact on the whole business

• difficult to reverse if an error of judgement is made - due to costs of relocation

• taken at highest management levels - not delegated to subordinates

• Quantitative factors influencing location decisions

1) Site and other capital costs

• varies from region to region

• the best office and retail sites may be too expensive

• cost of building on a ‘greenfield’ site (one that has not been developed) must be compared
with costs of adapting existing buildings on a developed site

2) Labour costs

• important for businesses that are labour intensive

• some countries offer much lower wage rates

3) Transport costs

• business that use heavy materials should consider locations that are close to supplier

• service industries needs to be conveniently located for customers

• secondary firms should choose locations that are close to the market

4) Sales revenue potential

• shops should be located in places that are convenient to potential customers

• certain locations can add status and image to a business → adds value to product in the eyes
of consumer

5) Government grants

• existing business can be provided with financial assistance to retain existing jobs or attract
new employment to deprived areas of high unemployment

• Techniques to assist in location decision

1) Profit estimates

• comparing estimated revenues and costs of each location

• (+) helps determine the site with the highest annual potential profit

• (–) annual profit forecasts are not enough - must be compared with the capital cost of buying
and developing the site

2) Investment appraisal

• to identify locations with the highest potential returns over a number of years

• (+) benefits businesses with a capital shortage or in times of economic uncertainty

• (–) require estimates of costs and revenues for several years for each potential location

3) Break-even analysis

• calculates level of production that must be sold from each site for revenue to just equal total
costs

• the lower the BE, the better that site is, other things being equal

• (+) important for businesses that face high levels of fixed costs and that may benefit from a
location with lower overheads

• (–) BE analysis should be used with caution as it has many limitations

• Qualitative factors influencing location decisions

1) Safety

• limiting the chances of an accident that risks public safety → avoids potential risk to the
public and damage to company’s reputation

2) Room for further expansion

• expensive to relocate if a site proves to be too small to accomodate an expanding business

3) Managers’ preferences

• in small businesses, managers’ personal preferences can influence location decision

4) Ethical considerations

• relocating will make workers redundant → bad publicity, violates ethical code of the business,
may be viewed by stakeholders as being immoral

• relocating to a country with weaker control over worker welfare and environment can lead to
further claims of business as unethical

5) Environmental concerns

• setting up in locations that are sensitive from an environmental viewpoint → poor public
relations and action from pressure groups

6) Infrastructure

• transport and communication links

• IT infrastructure is important for companies that need quick communication with their different
sites or customers

• growing popularity of online shopping may lead to retailers opening fewer stores and more
warehouse operations to supply consumers

• Locational issues
1) The pull of the market

• the market is still important for service industries and the power of the car has taken many of
these out of the convenient centres of towns and on to the ring roads

2) Planning restrictions

• depends on the local authorities plan for the area

3) External economies of scale

 • cost reductions that can benefit a business as the industry grows in one region

• firms that are clustered in the same region will benefit from attraction of a pool of qualified
labor to the area and network of suppliers whose own EOS should offer lower costs

• easier to arrange cooperation and joint ventures when businesses are located close to each
other

• Cash flow: the sum of cash payments to a business less the sum of cash payments

• Uses of cash flow

• plans to provide additional finance can be put in place during periods of negative CF

• plans can be made to reduce negative CF that appear to be too great

• business proposal will be rejected if investors and bankers don’t have access to CF forecast

• Limitations of cash flow

• lack of experience can lead to mistakes in preparing revenue and cost forecasts

• unexpected cost increases → forecast becomes inaccurate and misleading

• poor market research → wrong assumptions in estimating sales → inaccurate

• Overdraft
• bank agrees to a business borrowing up to an agreed limit and when required

• business can ‘overdraw’ on its account by writing cheques or making payments that are
greater than the balance in the account

• this overdrawn amount should always be agreed in advance and it has a limit

• high interest charges

• banks can ‘call in’ the overdraft and force the firm to pay it bank if they become concerned
about the stability of the firm → liquidation → business failure

• Cooperative
• producer or worker cooperative → making goods

• consumer or retail cooperative → sell goods and services

• cooperative often buys the produce of the members and then sells it collectively in order to
obtain a better price

• Features
• all members contribute to the running of the business → sharing workload, responsibilities
and decision-making

• all members have one vote at important meetings

• profits shared equally among members

• Advantage
• buying in bulk

• working together to solve problems and take decisions

• good motivation for members to work hard as they will benefit from shared profits

• Drawback

• poor management skills

• capital shortage bc they cannot sell shares

• slow decision-making if everyone has to be involved

• Ethical code of conduct: a document detailing a company’s rules and guidelines on staff
behaviour that must be followed by all employees

• Drawback
• using ethical and Fairtrade suppliers adds to costs

• not taking bribes to secure business contracts can mean failing to secure significant sales

• accepting that it is wrong to fix prices with competitors → lower prices and profits

• paying fair wages raises wage costs and reduce a firm’s competiveness against businesses
that exploit workers

• Benefit

• avoids potentially expensive court cases reduce costs of fines

• ethical policies → good publicity and increased sales

• ethical businesses attract ethical customers who are increasing in number as world pressure
grows for CSR

• ethical businesses more likely to be awarded government contracts