GCSE Business and Economics

1.1Spotting a Business Opportunity

The key to success in identifying a new business opportunity is careful research and analysis of a local or national market. This enables a business to gain insight into its marketplace (both customers and competitors) and focus on identifying a competitive advantage or opportunity.

Learning outcomes for this unit:

1. Be able to list different customer needs

2. Know the different ways that a small business can collect primary data

3. Know the different ways that a small business can collect secondary data

4. Be able to explain the difference between quantitative and qualitative data

5. Be able to explain the importance for a small business of having good market knowledge

6. Be able to construct and interpret a market map for different markets

7. Understand the purpose of market mapping for small businesses

8. Be able to identify how and why businesses might segment a market

9. Be able to analyse competitor strengths and weaknesses for particular businesses

10. Understand the meaning of the term ‘added value’

11. Be able to explain the importance of adding value to business survival and success

12. Know the main sources of added value

13. Know the key features of and differences between sole traders, partnerships and franchises

14. Be able to identify factors which make a location more or less suitable for business start-ups

Name:

How businesses work

Draw a diagram below which summarises the basic processes in any business:

Write a brief explanation of what this diagram is showing:

Meeting customer needs

Any business which is going to be successful needs to sell their product or service to their customers. Most businesses have competitors in their market. A market exists in any situation where buyers and sellers exchange money for goods and services.

A business needs to have a good understanding of their market so that they can sell a product which is better at meeting customer needs than other competitor products. Customers will choose the product or service which suits their needs best.

Fill in the table below to show what needs each of the customers might have:

Situation Possible need (try to give a clear reason)

You are running late for school and need to get some breakfast. You stop at a cafe to order a sandwich

Sally would like a new top for a night out this weekend but it is the end of the month and she has spent nearly all of her earnings

Your friend is trying to buy a present for her aunt’s birthday, but she isn’t sure what to get for her

Fill in another situation here...

Customer needs are the wants and desires of buyers of a product of the customers of a business.

For example...

Market research

Business can carry out different types of research into the features of their chosen market. This can be primary research or secondary research.

Sort the following methods of market research into primary and secondary research methods. If you complete the exercise, check with a peer and then add two more methods to the table:

Primary Method Secondary

Interview

Questionnaire

Focus group

Government statistics

www.yell.com or a telephone directory

Observation

Market research report

Conducting experiments

A telephone directory

Reading newspaper articles

Primary research is new information which did not already exist. The researcher collects it for their specific purpose.

Secondary research is the process of gathering data (information) which already exists / has already been gathered.

It probably wasn’t collected for the specific purpose that the new researcher will use it.

Market research is the process of gaining information about customers, competitors and market trends through collecting primary and secondary data.

Stretch and challenge:

Write a question that would suit these multiple choice answers (circle the correct answer)

A Primary research C Quantitative research

B Qualitative research D Customer needs

Qualitative data is information about opinions, judgements and attitudes

Quantitative data can be expressed as numbers and can be statistically analysed

As a summary, remember that small business owners are often short of time, money and specific market research expertise, so the best forms of research are those which are:

Easy to carry out (so try to avoid very large scale questionnaires)

Relatively cheap (so they may not be able to afford to buy expensive market research reports or to do large scale research)

Fairly accessible (if you can find the information online or at the local library you are more likely to use it than if you have to travel a long way, wait a long time or interpret complicated figures)

Market mapping

Sellers need to have a good understanding of their customers in order to be successful. One way to improve this understanding is to analyse their market and identify specific market segments. They can then decide which segment (s) to target.

One strategy for analysing a market is called market mapping. This is a technique which involves creating a diagram which represents the market, based on two characteristics of the market, for example:

Competitor businesses are placed on this ‘map’, which allows the analyst to see where there may be gaps in the market. A market map can help in deciding which market segment to target with a particular product or service.

In this box, write or draw some additional key information about market mapping that you feel is important (key terms: segment, viable, gap in the market, distinct, targetable)

A market segment is a part of a market that contains a group of buyers with similar buying habits, such as age or income

A market map is a diagram showing how products are positioned in the market

according to two variables

Analysing competitor strengths and weaknesses

Most businesses will face competition in their market. As you have already learned, customers will choose the business which best suits their needs. In order to make sure that it has competitive advantage a business needs to differentiate itself from these competitors. Since every business will have strengths and weaknesses, a person running a business needs to understand their own strengths and weaknesses as well as those of their competitors.

Complete the following paragraph:

It is important for a person planning a business to analyse their competitors because...

Competition can vary according to

Adding value

Fill in the diagram below to show the different ways that a business can add value to its products or services. If you have time, add extra ‘branches’ to the diagram to include more information on each way.ways of adding valueAdded value is the increased worth that a

business creates for a product. It is the difference between what a business pays its

suppliers and the price that it is able to charge for the product / service.

Franchises

Complete the table below to summarise the benefits and drawbacks of franchising:

To the franchisee To the franchisor

Benefits

Drawbacks

A franchise is the right given by one business to another to sell goods or services using its name

A franchisor is the business that agrees to allow the franchisee to manufacture, distribute, or provide a

branded product in return for a fee and / or a royalty payment

A franchisee is the business that agrees to manufacture, distribute, or provide a branded product under licence by the franchisor. This is usually in return for a fee and / or a

royalty payment

RAW MATERIALS/SUPPLIERS

COST OF PREMISES

LOCAL LABOUR SUPPLY

NEAR TO COMPETITORS

NEAR TO CUSTOMERS

Identifying a suitable start-up location

TRANSPORTLINKS

Unit 1.1: Spotting a Business Opportunity

Revision checklist

Key terms Definition

Market

Customer needs

Market research

Primary research

Secondary research

Qualitative data

Quantitative data

Focus group

Market map

Market segment

Gap in the market

Market map

Competitor

Product range

Brand

Brand image

Added value

USP

Franchise

Franchisee

Franchisor

Infrastructure

footfall

Competitive advantage

Test your understanding:

Factor What? Why? How?

Primary research

Secondary research

Quantitative data

Factor What? Why? How?

Qualitative data

Market mapping

Added value

Franchise

Make sure you know:

Four ways of collecting primary

data

1.

2.

3.

4.

Four ways of collecting

secondary data

1.

2.

3.

4.

The difference between primary

and secondary data

Why businesses need to have a

solid understanding of

their market

Three different factors that could

go on the axes of a market map

1.

2.

3.

Six factors which could be used to

segment a market

1. 4.

2. 5.

3. 6.

4 ways that businesses can

differentiate themselves from

competitors in order to gain competitive advantage

1.

2.

3.

4.

Why it is vital to add value to the

product or service that you are

selling

4 ways to add value to a product

or service

1. 3.

2. 4.

The difference between a

franchisor and a franchisee

A franchisor is...

But a franchisee is...

2 advantages of using franchising

to start a new business

1.

2.

2 disadvantages of using franchising

to start a new business

1.

2.