3 risk or certainty? - collinsresources.collins.co.uk/free/unit3nuffield.pdf · 2013. 11. 29. ·...

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The focus in this unit is on the planning and organization of business and the ways in whichfirms cope with events. It includes planning, finance, accounts and marketing. It concludeswith an exploration of the impact of the business cycle and a first look at government policy.

PORTFOLIO PROGRAMMEI want to make and sell something – what should I do to get thebusiness started?

Each student could produce a slim business plan. Alternatively, the plan maybe the product of group work, with individual contributions clearly identified.

Students’ book, page 80: Sandwich Express. What does it take to get a businessgoing?

Activity 34 ‘The business plan’: what will the product be?Students’ book, page 92: Hair connections. Who might help with finance?Students’ book, page 102: the Co-operative Bank. The importance of market

research. Who might buy my product? What are customers looking for?Students’ book, page 83: Sandwich Express. Costs, revenue and profit.Activity 35 ‘Revco 3’ and Activity 36 ‘How can Memory Mugs break even?’ –

IT work. Breaking even: what if things change? How will the figures for myproduct look?

Students’ book, page 106: Evidence on W.H. Bence, the need for care inmaintaining cash flow.

Activity 39 ‘Can you account for it?’ What accounts should be kept? Whatfuture can be predicted for my product?

ENQUIRY 1 CAN PROFIT BE PLANNED?

This Enquiry is concerned with the general principle and simple technique of businessplanning. For the sake of clarity, the examples are all from small business, but studentsshould understand the importance of planning for all sizes and types of businessorganization.

The translation of a business idea into a systematic business plan is the openingtheme, and this can be an excellent focus for portfolio work. There is no definitively‘correct’ format for a business plan, but students should know the basic content andbe able to produce and analyse the key financial data. Mastery of an elementarybudget is essential to the subsequent work on pricing and breakeven.

The material on price and value builds on ‘Compete on price or quality?’, pages22–3 in the students’ book. This launches a comparison between cost-based andcompetition-based pricing approaches. Finally, the students should explore simplebreakeven charts, recognizing how they assist planning for profitability. They shouldalso be able to manipulate the chart in response to changes in the variables.

ENQUIRY 1: CAN PROFIT BE PLANNED?At the end of this Enquiry students should be able to:● Understand the importance of the component parts of a business plan.● Identify different strategies for setting price.● Understand the relationship between costs and revenues shown on a breakeven chart.

This builds on: This leads to:• Enterprise in Unit 1. • Further development of elements of the • Competitiveness in Unit 1. business plan in this unit.

Risk or certainty?Unit

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Unit 3 Risk or certainty?

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ACTIVITY 34 THE BUSINESS PLAN

This activity provides three approaches. Students may develop a fully fledged planover the course of the unit, or they may carry out shorter investigations.

Spec. coverage: Business plan; entrepreneurship; market segmentation; marketing mix; competitiveness.

Skills: Financial planning; decision making; communication skills; teamwork.

Time: EITHER two hours of class time plus homeworks OR four hours of class time plus somehomework over the entire unit.

Organization: Work in groups of three or four.

ACTIVITY 35 REVCO 3

REVCO 3 follows on from the REVCO 1 and REVCO 2 activities inUnit 1. REVCO 3 deals with more complex ideas. It examines costs, revenue andprofit, working towards breakeven analysis. There are opportunities to develop ITskills: less guidance is given. Do not attempt this activity unless REVCO 1 and 2have been completed.

IN THE CLASSROOM: Version 1A full business plan that forms an extended piece of portfolio work runningover the ten-week period of the unit.

The plan can be set up so that students have £1,000 of their own capital andare looking for a £1,000 loan from the bank.

If students have difficulty coming up with an idea, quiz them about theirinterests or look through the local papers for adverts for small enterprises thatare not too complex.

The presentation may be given to a real bank manager if one can bepersuaded to participate, or the teacher can take the role if necessary. If you aredoing it yourself, set the stage to create the right atmosphere – a large chair,desk, a label saying ‘Manager’, etc. Quiz each team thoroughly about theviability of the project – costing, revenue, competition and so on. If a manageris unavailable, banks may give you advice on the phone about their approach.

Decisions may be given in the form of public announcement, by letter orduring the course of negotiation.

Version 2A shorter piece of work that involves planning a school trip. This can thereforebe carried out within the two-week period of the Enquiry.

This can be real or imaginary, a day trip or residential. Any trip will requiresubstantial planning and careful financial calculations before it is viable.

Students may investigate where to go, which tour operator to use, relativecosts, the demand among students, marketing strategies and costs etc. If it is aday trip, they might be concerned with the cost of coaches, activities at thedestination and so on.

Presentations will provide opportunities for students to develop appropriateskills. It is a good idea to encourage all team members to participate in thepresentation so that it becomes standard practice.

Version 3Students who are unable to cope with a full plan might devise a marketingplan for a product. The student material has been written to support the firsttwo strategies. It can be adapted for the third.

Whichever strategy is selected, the debriefing process is important.Identifying the factors which led to success or failure will help to build apicture of an effective plan and a profitable business.

Risk or certainty? Unit 3

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Spec. coverage: Costs, revenue, profit and breakeven.

Skills: Analysis, use of models.

Time: 45 minutes to two hours, depending on ability and experience.

Organization: In pairs.

ACTIVITY 36 HOW CAN MEMORY MUGS BREAK EVEN?

This is a breakeven spreadsheet which comes in two versions: one forstudents who are ready to start using spreadsheet formulae, and one for studentswho will use a completed spreadsheet to explore some ‘What if…?’ questions.

Spec. coverage: Costs, revenue, breakeven output, pricing.

Skills: Analysis, spreadsheet skills in Version 1.

Time: 40 minutes for Version 2; 60–90 minutes for Version 1.

Organization: Individuals or pairs.

IN THE CLASSROOM:Students should explore breakeven analysis as a tool for assessing alternativeactions firms can take to ensure that they cover their costs. In essence, a firmcan plan its destiny by manipulating its prices and controlling its costs.However, the outcome depends on the competitive environment.

Version 1Students use Sheet 1 and the spreadsheet Even1. They enter all formulae andcreate the chart from scratch. It can be used to teach students to compose andcopy formulae with relative and absolute cell references. When the spreadsheetis complete, students may be given the ‘What if…?’ questions included inVersion 2. Able students should be encouraged to devise their own ‘What ifs…’.

Even3 is a password-protected completed worksheet which can be used as amodel answer. To access it, click on the padlock button on the main menu. Thepassword is ‘Answers’. Then click on the tick beside the Memory Mugs button.

If it seems likely that students will take their formulae from the completesheet, Even2, thus defeating the object of the exercise, they can be told to use astandard Excel spreadsheet for this task. They will then need to create theirown column headings and so on. It may be prudent to cut off the top ofpage 99 for students doing version 1.

IN THE CLASSROOM: REVCO 3 is an Excel workbook that is provided on disk. To access it from themain menu of the Nuffield – BP programme, click on ‘Unit Spreadsheets’ and‘Unit 3’.

The first task requires students to complete a table to try to work out profit.Students should keep a constant level of fixed cost and change just onevariable at a time. (The ‘Help’ button gives full instructions.) Students are thenasked to write a rule for working out profit. A true/false exercise on the nextsheet provides help with this. The next sheet asks students to produce theirown spreadsheet. This is followed by a task in which some data on costs andrevenue is provided (click on the ‘Data’ button), and students are asked toexplain the pattern. The ‘Data record’ sheet (sheet 6) records key entriesstudents make in the workbook, and can be printed out. A ‘Key words’ sheet isprovided for reference. This goes well beyond the requirements of the course.


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ENQUIRY 2 WHERE’S THE MONEY COMING FROM?

This Enquiry introduces students to sources of finance for business start-up andexpansion. It distinguishes internal and external sources of finance. Along the way itdefines a number of terms that will be important for the work on business accounts inthe next Enquiry. It thus contributes to general understanding of businessorganization.

While there is only one activity attached to this Enquiry, there are extensivequestions and tasks available for use in this section of the students’ book (pages88–93). Furthermore, information packs from banks can provide useful teachingresources.

ACTIVITY 37 MUSEUM FINANCES

This activity aims to introduce sources of finance in a simple way withoutinvolving students in writing lists of internal and external sources of finance. Itcan be altered to suit different ability ranges.

Spec. coverage: Internal and external sources of finance.

Skills: Discussion and group work.

Time: Anything from 20–30 minutes to one hour, depending on how many suggestions you wantthe pupils to respond to.

Organization: Group work, pairs or individual tasks.

ENQUIRY 2: WHERE’S THE MONEY COMING FROM?At the end of this Enquiry students should be able to:● Know that finance is available from a variety of sources.● Understand that interest is payable on borrowed money.● Recognize that different sources of finance are appropriate in different circumstances.● Recognize that lenders will provide finance only when they are satisfied that the risk is not too

high.

This builds on: This leads to:• The business plan in ‘Can profit be planned?’ • Company growth in Unit 4, ‘What makes a

firm grow?’

Version 2Students who are not going to develop the skills involved in creatingspreadsheet formulae at this point should use Sheet 2 and the spreadsheetEven2. They will enter the figures for price, variable cost, overheads andmaximum production. The results will appear on the spreadsheet and can beinterpreted. They can then proceed to the ‘What if…?’ questions.

Although Memory Mugs is a real business, these figures are made up and do notnecessarily have any connection with the actual business.

Follow-upIt is worthwhile discussing the limitations of breakeven. Leading questionsmight include: • Do you think firms really aim to break even? Why, therefore, do they bother with

breakeven analysis?• Can firms increase their prices to make sure they break even? Do you think this

would be a good way forward? What will happen to sales?


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ENQUIRY 3 WHAT IS THE BOTTOM LINE?

It is not easy to make accounting conventions simple enough for most students tounderstand. The emphasis here, however, should be on ensuring that they developsome capacity to interpret accounts.

One possible way to do this would be to put the Northern Foods profit and lossaccounts into a spreadsheet format, then devise a series of ‘what if…?’ questions sothat students can see how the component parts of profit and loss accounts arerelated.

It is not expected that students will be able to create profit and loss accounts or abalance sheet for themselves. They should be able to understand the basicterminology and make sense of simple accounts. The types of questions asked in theactivities show what students can be expected to do.

ACTIVITY 38 VACANCIES

This activity is a competitive team-based game which builds on work done onpricing in Enquiry 1. It requires some knowledge of profit and loss accounts.

Spec. coverage: Pricing; elementary profit and loss accounts.

Skills: Financial calculations; risk-taking; teamwork.

Time: About one hour (with short debrief only).

Organization: Work in groups of three to five students.

ENQUIRY 3: WHAT IS THE BOTTOM LINE?At the end of this Enquiry students should be able to:● Know that a profit and loss account shows all of a firm’s revenues and costs for a year.● Know that a balance sheet shows a firm’s assets, liabilities and shareholders’ funds.● Realize that the information provided by companies must be interpreted in the light of wider

information.

This builds on: This leads to:• Sources of finance in the previous Enquiry. • Ethical responsibility in Unit 5, ‘How should

firms behave?’

IN THE CLASSROOM:This could be used as an opening activity to introduce different financingstrategies. Or it could be used as a follow-up, making use of what students havelearned in this Enquiry.

The suggestions should be photocopied and cut up and given at random tostudents, who should answer the three questions for the suggestion(s) theyreceive. Depending on time allowed, pupils can receive one or moresuggestions to work on.

It may be possible to find a local organization that will provide a contrastingexample to review.


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IN THE CLASSROOM:This is a pricing simulation/game that allows students to test the effects ofdifferent pricing strategies on demand and profit. Students divide into teams tomanage a small seaside hotel in a highly competitive market. Price is isolated asthe only marketing variable and all hotel rooms are identical. The teacher actsas organizer of practicalities and auditor of accounts, and calculates andallocates the room bookings for each hotel.

The game runs for six rounds, each based on one night only in each month,April to September.

The game may start with a general discussion of holiday accommodationusing local examples if relevant. Students should have already read page 85 ofthe students’ book, with its Evidence relating to Cliff End B&B. In this activitythe focus is on the traditional smaller hotels. (If any students have seen an oldFawlty Towers video, so much the better!)

A short briefing on the objectives and rules of the game is important. Therecould be discussion of the following points:• the significance of seasonal variation in demand for hotel rooms;• the sensitivity of demand to changes in price (no need for any formal

understanding of price elasticity, but a commonsense approach is fine);• awareness of the bookings’ breakeven point at different prices;• the drain on gross profit from low occupancy rates arising from fixed costs;• the dangerous effect of price wars on operating profit.

Practical examples will help to illustrate such ideas as seasonal pricing; studentsmay be able to think of other examples such as cheap day return fares.

The atmosphere for the game should be competitive and nominallyauthentic. The ideal group size is probably four, and there can be any numberof hotels from four to eight. Each hotel should occupy some separate space –this need only be a few desks in an L- or U-shape. The students should chooseone of the suggested names (or invent their own) and use it throughout. Morerealism is provided if students use a wordprocessor or fibretip pens to producea sign for their hotel. Similarly, signs could be made for ‘Reception’ and theroles of ‘Manager’ and ‘Accountant’. An added touch of authenticity is to havea reversible VACANCIES and NO VACANCIES sign that can be used to indicatewhen a team has booked all its rooms.

Running the game1 Check that all hotels have:

– a copy of the student information sheet and profit and loss account sheet– a proper name– six room booking forms (with their name entered)

2 Start the game with the April round, reminding students to enter their priceon the room booking form. They can be reassured that the first round doesrequire some inspired guesswork.

3 When all the hotels have decided on their room price for the comingmonth, visit each ‘Reception’ and collect their room booking forms. Arrangethe forms in ascending order of price. Then allocate room bookingsaccording to the grids on page 102. Use the column corresponding to thenumber of teams in the classroom.

Bookings can be made simply by ticking the appropriate number of roomboxes on the hotel’s room booking form. The forms are then returned to thereceptionists for processing by the accountant. In practice, the whole teamshould help with completing the profit and loss account.

4 At this stage it will be advisable to make some checks on the logic andarithmetic of the accounts – errors can be highlighted as ‘fraud’!


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Note that where two or more hotels are charging the same price, the appropriate roomallocations should be added together and divided equally between the hotels. (Any‘odd’ room arising from division should not be allocated.)

ROOM ALLOCATION GRIDAPRIL Total bookings @ 30%

Price Order Number of hotels

4 5 6 7 8

1 6 7 7 8 8

2 4 4 5 5 6

3 2 2 3 3 4

4 0 1 2 2 3

5 – 0 1 2 3

6 – – 0 1 2

7 – – – 0 1

8 – – – – 0

ROOM ALLOCATION GRIDMAY Total bookings @ 50%


4 5 6 7 8

1 8 8 8 9 9

2 6 7 7 7 8

3 4 5 6 6 6

4 2 3 4 5 5

5 – 2 3 3 4

6 – – 2 3 3

7 – – – 2 3

8 – – – – 2

ROOM ALLOCATION GRIDJUNE Total bookings @ 60%


4 5 6 7 8

1 10 10 10 10 10

2 8 8 8 8 8

3 4 6 7 7 7

4 2 4 5 6 6

5 – 2 4 5 6

6 – – 2 4 5

7 – – – 2 4

8 – – – – 2

ROOM ALLOCATION GRIDJULY Total bookings @ 70%


4 5 6 7 8

1 10 10 10 10 10

2 8 8 9 9 9

3 6 7 7 8 8

4 4 6 7 7 8

5 – 4 5 6 7

6 – – 4 5 5

7 – – – 4 5

8 – – – – 4

ROOM ALLOCATION GRIDAUGUST Total bookings @ 80%


4 5 6 7 8

1 10 10 10 10 10

2 9 9 10 10 10

3 8 8 9 9 9

4 5 8 8 8 8

5 – 5 6 8 8

6 – – 5 6 7

7 – – – 5 7

8 – – – – 5

ROOM ALLOCATION GRIDSEPTEMBER Total bookings @ 60%


4 5 6 7 8

1 10 10 10 10 10

2 8 8 8 8 8

3 4 6 7 7 7

4 2 4 5 6 6

5 – 2 4 5 6

6 – – 2 4 5

7 – – – 2 4

8 – – – – 2


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ACTIVITY 39 CAN YOU ACCOUNT FOR IT?

The activity consists of stimulus material drawn from published companyaccounts with questions to follow.

Spec. coverage: Profit and loss accounts; balance sheets.

Skills: Application of accounting knowledge; investigative skills.

Time: About 15 minutes for each company.


IN THE CLASSROOM:This is a spec. area that students traditionally find difficult. However, with anunderstanding of the logical steps and structure in each document, togetherwith basic arithmetic skills, students should be able to see the reality behindthe numbers. These examples try to keep that reality in focus so that themanipulation of accounting data feels connected with the human drama thatis business.

Practice is very important and you may wish to run through some verysimple examples with the whole class first. Abler students could examine somereal company reports. Students are not expected to be able to interpret theseformal documents. However, you might obtain an employees’ version of anannual report. These are much simpler and offer useful graphic presentationsof key data.

5 Once the accounts are complete, the management teams can begin workingon their next pricing decision and the process moves forward anotherround.

N.B. You may decide to make the changing pattern of demand more explicitand advise the hotel teams on the likely room occupancy rate for thecoming month or all the months. Equally, there are advantages in keepingthe element of uncertainty and surprise.

It can be effective to have a grid on the board/OHP to show the cumulativeprofit of the competing hotels. This will increase the competitive pressure andyou may even want to offer a small prize to the winning team.

The debriefingDebriefing is important if students are to draw lessons from the experience. Itshould cover:• Analysis of the teams’ strategies and performance. • Short team presentations to the class explaining how their strategy developed and

the likely causes of their overall performance. They should include some commenton key problems and mistakes.

• An evaluation of the extent to which each team’s pricing was influenced by costsand the extent of the pressure of competition.

• Calculation of room occupancy rates and average room prices. These can becompared with other hotels and related to final profit levels.

• Calculation of gross and operating profit margins for each month and for the whole‘season’.

• An attempt to explain performance in each team’s weakest and strongest months.


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ENQUIRY 4 HOW CAN THE ODDS BE SHORTENED?

This Enquiry has the theme of reducing risk. All enterprises face uncertainty and risk inevery dimension of their operations. However, students should recognize that aninformal trade-off exists between risk and profitability. This means that goodmanagement involves ‘shortening the odds’ on success through efforts to reduceuncertainty and cut out unnecessary risk.

Market research, flexibility in the product range and effective promotion are allkey tools in ensuring profitable sales. Constant awareness of change in themarketplace enables an enterprise both to build and to guard its competitiveadvantage.

Prudent financial management means effective cash-flow forecasting. This shouldensure that the firm has sufficient day-to-day funding to meet the full range of itsexpenses. Finally, adequate insurance cover helps cope with unpredictable hazardssuch as accident, fire and theft.

It will not be possible to use all the activities provided for this Enquiry and aselection should be made to suit the circumstances.

ACTIVITY 40 PROMOTING THE SCHOOL

Spec. coverage: Marketing strategies.

Skills: Identifying, collecting, analysing data; interviewing; developing promotional materials inwritten and visual form.

Time: Three one-hour lessons + out-of-lesson research time.

Organization: Students work in groups of four; debriefing is in groups or as whole class.

IN THE CLASSROOM: This activity provides an opportunity for students to:• use brochures from a range of local schools to analyse how schools might be

promoted: identify likely audiences; • use existing materials from school as a basis for developing new ideas for

promotion;• use data from research questionnaires to identify client needs;• work as a group to produce promotional materials (using wordprocessors or DTP);• review new materials: identify criteria used to judge a successful school promotion.

Out of the classroom this activity provides an opportunity for students to:• interview pupils and parents from local feeder schools; • identify promotional images for their own school (photos etc.).

ENQUIRY 4: HOW CAN THE ODDS BE SHORTENED?At the end of this Enquiry students should be able to:● Know how market research is used to identify consumer wants.● Recognize that marketing strategies will vary according to circumstances and costs.● Understand that effective cash-flow forecasting will reduce risk.● Identify the costs and benefits of insurance.

This builds on: This leads to:• Niches and segments in Unit 1, ‘Is there a • Marketing in Unit 4, ‘What makes a firm

market?’ grow?’• Cash flow in Unit 1, ‘Why do firms go

under?’• Business plans in ‘Can profit be planned?’

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ACTIVITY 41 BRAND NAMES

A brief activity which helps students to understand the significance ofbrand names.

Spec. coverage: Promotion.

Skills: Listening.

Time: 10 minutes (20 minutes if extended to slogans).

Organization: Individual quiz with brief discussion after answers given.

IN THE CLASSROOM: This is a simple teacher-led activity. Students are told nothing more than thatthey are to answer the questions read out by the teacher. The purpose of thisfun activity is to make students aware of the power of brand names. Award onemark for the correct brand name answer and two marks for the correct Englishmeaning.

Some sample questionsWrite down the names of the following:1 Clear tape used to stick down presents or repair ripped paper.2 A vessel that is used to keep drinks hot when on a picnic.3 This is used to clean up dust from carpets.4 It is mostly used outside the home, has headphones and allows you to play

cassettes.5 Announcements are made through this at sports events.6 Used to correct mistakes in books and on letters.

Lesson 1• Look at adverts to identify ways in which products are promoted.• Look at other school brochures to see how or whether schools are promoted.• Consider strengths and weaknesses of own school versus local schools.• Identify information needed from local pupils/parents/others.• Prepare questionnaires.

Research• Visit local feeder schools to carry out questionnaires.• Interview parents at parents’ evening.• Interview members and friends of family.• Collect examples of schools’ promotional materials.• Take photos of school.

Lesson 2Review information collected. Identify key issues for promoting school: targetaudience? Key ‘selling point’, etc. Share out key activities to produce newpromotional material.

Homework: complete reports/contributions to new brochures.

Lesson 3• Display new promotional materials.• Brief presentations/questions.• Review of the ‘best’ promotional materials: identify criteria for ‘best’.

A useful guide is: ‘Marketing the school’ by P. Clarke and J. Hickman, pages16–46, in A Guide to Economic Awareness, published by Longman/EBEA, 1993.


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ACTIVITY 42 HOW CAN MEMORY MUGS KEEP THE CASH FLOWING?

This now familiar case study is used to create a spreadsheet activity whichcan be used for analysis of cash flow. Students get more practice in usingspreadsheet formulae, or they may use the ready-made version.

Spec. coverage: Cash-flow forecasts.

Skills: Spreadsheet formulae and calculations; interpretation of cash-flow data.

Time: 30–60 minutes, depending on the version used.


ACTIVITY 43 ARCHIBALD’S FISH AND CHIPS

Students consider the data and come up with a solution that will help promotethe growth of the business.

Spec. coverage: Product innovation, development and advertising.

Skills: Interpreting data and applying this to the task set in the memo.

Time: Up to one hour (Stage 2 can be done for homework).

Organization: Initial work as pairs, then work as individuals.

IN THE CLASSROOM:The same single-page activity is used for both versions. In Version 1 studentscreate their own spreadsheet, using Cash1 in the Nuffield–BP program. Thisprovides a template; students key in the formulae to construct the model.Alternatively, you can instruct students to use an ordinary Excel spreadsheet.Once the spreadsheet is complete it can be checked against Cash3, whichprovides a model answer. This can be reached via the padlock on the mainmenu. (Instructions in the breakeven activity, p. 83.) Students can thenproceed to the ‘What if…?’ questions.

The investigation gives students an opportunity to use formulae withrelative and absolute cell references and to practise copying formulae acrosscell ranges. They use the sum function to calculate line totals and create a netcash-flow chart.

Version 2 uses Cash2. This provides a ready-made cash-flow forecast modeland enables students to key in the basic information before going straight tothe ‘What if…?’ questions.

Follow-upIt is worth discussing how bank loans, other external finance and cash reservescan be used to smooth out variations in cash flow, as well as the way in whichfundamentally profitable firms can be forced into liquidation if their cash flowis insufficient (even for a short time) to meet their commitments.

Although Memory Mugs is a real business, these figures are made up and do notnecessarily have any connection with the actual business.

7 Used to stick up notices or posters on walls without leaving marks whentaken down.

8 Material that makes up a road surface.9 A long cotton garment worn to keep you dry.

This activity can be extended by getting students to complete slogans such as‘Beans meanz …’


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ACTIVITY 44 MARKETING FIZZY DRINKS (1)

Students are encouraged to investigate aspects of the marketing mix and todevelop their database skills. Some prior knowledge of Excel databases is required.This could have been covered in Unit 2 with Activity 20 ‘The jobs database’. Helpis provided in the ‘How to …’ sheets on Excel databases on the website.

Spec. coverage: The marketing mix.

Skills: Handling an Excel database.

Time: Two to three hours.

Organization: In pairs.

ACTIVITY 45 UP IN FLAMES

A story about a recent fire provides the context for thinking about different kindsof insurance. The activity should be done after students have acquired someknowledge of insurance.

Spec. coverage: Insurance.

Skills: Matching, application, problem solving.

Time: Either one-hour class time or half an hour plus homework.

Organization: In pairs or individually.

IN THE CLASSROOM:This workbook is a database of prices charged by retailers for different brandsof fizzy drink. There are two activities. Stage 1 asks students to explain why theprices of fizzy drinks vary. Students who are able to organize their owninvestigations and have more IT capability could be given the questionswithout the ‘Getting started’ box. If more help is needed, use ‘How to … useExcel databases’ from the Nuffield website.

Stage 2 focuses on quotes from five retailers about how they set prices. Theseare in the ‘Background information’ sheet of the workbook. The activitiesculminate in a request for advice to be given to one of the quoted retailers whois setting a low price. If this retailer were to set a price according to ‘what themarket will bear’, the price should increase. This would be in line with thecomment made by one of the other retailers about the margins that should besought. The reference to margins provides an opportunity to remind studentsabout the relationship between variable costs, revenue and profit. However, theretailer suggests that the customers who come to the shop would complain. Isthis because the shop attracts a particular niche of customers and it is best toencourage good will through low prices?

This activity is more open, and abler students may recognize the tensions(between competition and margins) facing retailers and the differences inretailers’ responses to a similar problem. They may also be able (via the otherbackground information provided in the workbook) to set the behaviour of thesmall retailers in the context of larger retailers and producers.

IN THE CLASSROOM: In Stage 1, students work in pairs to write a short report based on the data. Asksome of the pairs to give their solutions. Allow the class to decide on the bestpolicy adapted from the pairs.

In Stages 2 and 3 students answer questions as individuals.


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ENQUIRY 5 CAN WE RIDE THE ROLLER COASTER?

Riding the ‘roller coaster’ is a difficult business for firms. The business cycle createsuncertainty, which is hard to cope with as some companies need to expand andcontract to meet the changes in demand. The strategies that companies use varyaccording to the nature of the business. A flexible approach is generally needed.Flexibility may be achieved through having an adaptable workforce or through theability of businesses to change their products to appeal to more customers.

Inflation is one of the problems that accompanies the business cycle. Its impact isconsidered in terms of both individuals and businesses. In a competitive world, itcreates difficult market conditions. Companies are both consumers and producers, sothey have to bear the brunt of rising costs as well as rising product prices. The retailprice index shows how inflation is measured.

The government tries to ameliorate the situation by using a variety of policies,including the adjustment of taxation, government spending and interest rates.

IN THE CLASSROOM:

Stage 1: What are the problems?Using the source material, students identify the possible insurance claims thatmight be made. As they identify each one, they will ask for cue cards toconfirm their ideas. The cue cards appear below and can be photocopiedseparately. Instruct the students to calculate the loss in each category.

✁

✁

Stage 2: Who’s responsible?Having calculated the damage, the students should now consider who isresponsible. The answer to this is not certain, as the passage suggests. There areclues about forensic scientists to help give them a picture of the issues at stake.From this, students should realize that deciding who is liable is a key issue ininsurance.

Stage 3: What about the future?When the policy is renewed, how will the insurance company react? Pages108–9 of the students’ book explain how insurance companies imposeconditions as well as charging for their services. Students should use this as abasis for deciding what might be done in the future.

Public liability

Public liability insurancecovers a company’s legal

responsibility to paydamages to members of thepublic for death, injury ordamage to their propertywhich happens as a result

of careless business activity.

Business interruption

Business interruptioncovers loss of income and

extra expenses which resultfrom damage to a

company’s property.

Property

Buildings and contents canbe insured against fire,

lightning, explosion of gasand boilers. ‘Special perils’

such as explosions, riot,malicious damage, storm,

flood and impact byaircraft, vehicles or trains

may also be covered.


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ACTIVITY 46 GLOOM TOWN, BOOM TOWN

This activity helps students to identify symptoms of growth and recession.

Spec. coverage: The business cycle and its effect on firms and individuals; introducing government policiespromoting growth.

Skills: Identifying growth and decline, and understanding the relationships between somebusiness activities; use of topic webs or mind maps.

Time: 40 minutes, including a feedback. Stage 1 can be done as homework.

Organization: Work as individuals or pairs for Stages 1 and 2, and as a class group for Stage 3.

ACTIVITY 47 IS THE ECONOMY REALLY LIKE A ROLLER COASTER?

This is a relatively straightforward data-interpretation activity, with allinstructions spelt out in full.

Spec. coverage: The business cycle.

Skills: Data investigation, calculation, graphing.

Time: 45 minutes, depending on how much time is spent printing graphs.


IN THE CLASSROOM:

Stage 1Students should identify examples of growth and decline in each of thesketches of the towns.

Stage 2Students construct topic webs or mind maps to show the relationship betweenthe examples identified from the sketches. They may include their own ideas.The teacher should provide one example where there are strong links and onewhere the links are weak, e.g. schools are needed whether we are in boom orgloom.

Stage 3The following questions can be answered as a class activity.1 Is the roller coaster experience the same for all business activities? What

evidence is there in the sketches or from your own knowledge to supportyour view?

2 What relationships have you identified?3 How may the government attempt to promote growth?

ENQUIRY 5: CAN WE RIDE THE ROLLER COASTER?At the end of this Enquiry students should be able to:● Know how firms and people are affected by the business cycle.● Understand how firms try to reduce the effects of the business cycle.● Know how firms and people are affected by inflation.● Identify ways in which governments attempt to reduce the effects of the business cycle.

This builds on: This leads to:• Demand and supply in Unit 1, ‘Is there a • Government intervention in Unit 6, ‘Is

market?’ there help at hand?’• Unemployment in Unit 2, ‘What does

joblessness cost?’


95

ACTIVITY 48 BIRTH AND DEATH OF BUSINESSES

Spec. coverage: Business registrations and deregistrations.

Skills: Data investigation, calculation, graphing, data interpretation.

Time: One hour, depending on how much time is spent graphing.


IN THE CLASSROOM:Students will get an idea of the relatively high rate of business failures andstart-ups. They will learn to use the computer to calculate percentages from atable of data.

It would be possible to link this investigation to the previous one on thebusiness cycle, encouraging students to consider the effect of the cycle onbusiness start-ups and failures.

IN THE CLASSROOM:Students investigate fluctuations in two key aspects of economic activity:manufacturing output and consumer spending. They measure the gap in yearsbetween peaks and troughs, discovering the cyclical nature of economicactivity.

Extension workThe table ‘UK economic climate’ could be used to examine whether there isany sign of cycles in economic growth, inflation and unemployment. The table‘Inflation rates – international’ can be used in the same way. The striking thingabout this table, however, is the similarity between inflation rates in differentcountries.

96

The business plan Sheet 1ACTIVITY 34

General manager

Your job is to think throughthe whole picture and to co-ordinate thetotal plan. You will work with the rest ofthe team to create the plan, relying ontheir research to build the whole picture.If there is any uncertainty or dispute,you will have to be prepared to take thefinal decision.

1 Marketing manager

Any business starts with thecustomers, so you must find out whothey are and what they want. Youtherefore need to decide what sort ofmarket research is to be carried out,and explain what you think it shows.

As a result of the market research, you,with the help of the team, will decide onthe marketing mix. What are thedecisions on product, promotion, placeand price? Any financial informationshould be passed to the financemanager.

2

Production manager

Having decided on the product– which might range from an outdoorpursuits holiday for your school to atake-away pizza shop – it is your job toensure that all the resources needed areassembled. Who will do what? Where?When? What will they need? You shoulddiscuss quality with the MarketingManager and costs with the FinanceManager.

3 Finance manager

If a plan is going to succeed,all the financial details must be workedout carefully. A school trip might wantto break even, but most businesses aimto make a profit. A charity will want itsventures to be successful so that it canuse any surplus to continue its work.

Start by working out your planned salesand price so that you can calculate yourplanned revenue over the next month,year or however long the project isexpected to run.

Are there any capital costs? These areany items which will stay in the businessfrom one period to another, e.g.equipment, furniture. These costs shouldnot be subtracted from your revenue oryour profits because they are assets toyour business.

4

97

The business plan Sheet 2ACTIVITY 34

BUSINESS PLAN: STRATEGY

TaskDate Tick

box

Read pages 80–3 of the students’

book and pick up a booklet about

starting up in business from your local

bank. There are no strict rules about

the format of the plan, but looking at

these resources will help you to

decide which important information

must be included. Decide which role

each group member will take.

Brainstorm ideas for a product.

Research the feasibility of suggestions

using both primary and secondary

evidence.

Make a decision. The group must

decide on which product or service to

choose by looking at the advantages

and drawbacks. Remember to think

carefully about your market and

possible resources: be practical.

Decide what tasks must be carried out

to develop the plan. Who will do

what? Set deadlines. Decide on how

you will communicate.

Make sure that your plan is well

presented. Is it wordprocessed? Have

you got a logo for the activity?

The main objective of developing a

business plan is to borrow money

from a bank or other organization.

You may want to persuade your

headteacher that the trip or charitable

activity that you are planning is a

good idea. To do this you will need to

make a convincing presentation.

Think carefully about the best way to

go about this. It is important to look

and sound professional.

Development stage

1 The business plan.

2 Research the

product.

3 Select the product.

4 What must be

done?

5 Putting it all

together.

6 The presentation.

98

This activity is designed to improve your skills with spreadsheets. Firstread about breakeven analysis on page 86 of the students’ book.

How can Memory Mugs break even? Sheet 1ACTIVITY 36

VERSION 1Getting started: Building a spreadsheet

1 Load the Nuffield–BP program. Click on ‘Unitspreadsheets’ and then on’ Unit 3’.

2 Click on ‘How can Memory Mugs break even?’and Even1.

3 The following information is important so enterit into the spreadsheet:

Price of the mugs is £7.50

Variable cost per mug is £4.50

Overheads or fixed costs are £300

Maximum production of mugs per month is 200 mugs

4 In order to work out all the other costs andrevenue figures you need to make a breakevenchart, enter formulae into the spreadsheet at theplaces shown.

Try your best to complete the spreadsheet, usingthe clues you get from reading the students’book. Try to create breakeven charts like theones in the textbook, using the chart wizard.

If you have trouble ask your teacher for help,but have a good try first! Good spreadsheet skillsare very attractive to a future employer, as wellas being very useful as you carry on with youreducation.

HINTSWhen you put formulae into a spreadsheet

remember the following points:

● Formulae begin with an equals sign =

● To use a particular number (e.g. Fixed costs of£300 in cell E5) which is on the spreadsheet in anumber of different places, you have to lock ontothe cell by putting dollar signs ($) before the letterand the number of the cell reference, e.g. $E$5.This is called making an absolute reference.

● Formulae which involve adding two numberstogether, such as when you insert in cell D14 theformula =B14+C14, are known as relative. Thecomputer reads it from cell D14 as ‘take thenumber two to the left of me, and add it to thenumber one to the left of me’. The advantage ofrelative formulae is that you can copy them to thecells below D14, e.g. D15 to D26, and Excel willinterpret the formula relatively. This means thatwhen you have copied the formula into cell D15,Excel will interpret the formula ‘take the numbertwo to the left of me, and add it to the number oneto the left of me’ not as B14+C14, but asB15+C15.

● To copy formulae, use any method you know orhighlight the cell to be copied and click the copybutton. Then highlight the cells into which you wantto copy and click the paste button.

99

How can Memory Mugs break even? Sheet 2

First read about breakeven analysis on page 86 of the students’ book.

ACTIVITY 36

VERSION 2Getting started: Using a spreadsheet

You are going to use a spreadsheet to find the breakeven level ofoutput.

Load the Nuffield–BP program. Click on ‘Unit spreadsheets’ and then on ‘Unit 3’. Select ‘How can Memory Mugs break even?’ and Even2.

The following information is important so enter it into the spreadsheet:

Price of the mugs is £7.50

Variable cost per mug is £4.50

Overheads or fixed costs are £300

Maximum production of mugs per month is 200 mugs

You will find that the figures for costs, revenue and profit are all calculated foryou. The chart will appear below.

Now try the following ‘What if…?’ exercise (for versions 1 and2):

1 What is the breakeven output?

2 The rent of the factory has risen by £60, from £300 to £360 a month. Whateffect has this on your breakeven chart? Find out by changing the number inthe fixed cost cell E5 on the spreadsheet. All the cost and profit and loss figureschange automatically, as should the chart.

3 Memory Mugs just cannot produce enough to meet the demand. The ownerconsiders raising prices to £8.50. Show the effect of this on your breakevenchart. Again, check it out on the spreadsheet. How does the breakeven chartchange?

4 Memory Mugs finds a cheaper supplier of clay. This reduces the variable cost ofmugs to £4.25. Change cell E6 and note the effect that this has on yourbreakeven chart.

5 List all the things that might affect the breakeven level of output for MemoryMugs. Explain the effects of each of them. Draw a quick sketch to illustrate theeffects.

100

The Dylan Thomas museum in the Swansea Marina needs more finance so that itcan continue to display the works of the Welsh author and poet. The trustees ofthe museum have found it very difficult to raise additional funds on top of theirgrant from local government. To help them plan their future finances they haveintroduced a suggestion box in the main foyer of the museum, asking people forideas as to how to increase the museum’s income. At the end of the month thesuggestion box is emptied and the following ideas are considered.

Museum financesACTIVITY 37

1

Museum finances

Increase the entrance

price for the museum.

2Museum finances

Persuade a local

business to sponsor

one of the exhibitions.

3Museum financesSell the museum andrent it back eachmonth. This will give alarge lump sum toinvest.

4Museum financesAsk the nationalgovernment for a

grant.

5Museum financesOrganize a raffle orintroduce scratchcards.

6Museum financesSet up a Friends ofthe Museum societywho could organizefund-raising

activities.

7Museum finances

Reduce the number of

staff employed at the

museum.

8Museum financesArrange a loan from abank or otherorganization, usingthe museum buildingas security.

9Museum finances

Sell off some of the

more valuable thingsowned by the

museum.

10

Museum finances

Convert the museum

into a company and

sell shares in the

business.

11Museum financesJoin up with another

local museum and tryto reduce the costsof the operation.

12Museum financesOpen a shop within

the museum that cansell souvenirs.

13Museum financesClose down the

museum.

14Museum finances

Introduce computersas a means of

reducing the costs.

15

Museum finances

Increase the

museum’s advertising

to attract more

customers.

Your task 1 For each suggestion,identify:(a) the advantages ofthe suggestion;(b) the problems withthe suggestion;

(c) a better way ofsecuring the financesof the museum. (Ifthere is one).

2 Compare yourcomments with thoseof others in yourgroup. How are theydifferent, and forwhat reasons?

You are part of a smallmanagement team running aseaside hotel over the summerseason. The goal of the hotel is tomake the maximum possibleprofit in competition with otherhotels.

In real business life, the marketingmix of hotels would stress qualityas well as price. But to keepthings simple and to find outmore about price, all these hotelsare of equal quality and bookingsare made according to price only.

The setting for the game is apopular seaside town with longsandy beaches. The game will runover six rounds, each coveringone typical night only in each ofthe season’s main months – Aprilto September.

Running the game

1 Hold a management teammeeting to decide on yourprice for the coming month.

2 Enter the price on the hotel’sbooking form and have it readyto show the agent (yourteacher).

3 The agent will return and makebookings.

4 Complete the profit and lossaccount for a sample day foreach month. Remember tocomplete the cumulative profit(running total) line.

5 Discuss the price to be chargedfor the next month.

Do not let other teams knowyour price or your roombookings. This is strictlyconfidential (but valuable toother teams...)!

Information for hotelmanagement teams

• Demand for hotelaccommodation in the town isweakest in April and builds to apeak in August, falling awayagain in September.

• Your hotel has ten rooms,which are all identical andmust be made available foreach round at the same price.Bookings are for the room andnot for individual people. Allrooms are the same, with nodistinction for ‘doubles’ or‘singles’.

• The fixed cost for each room is£10 per night. This is paidregardless of whether roomsare occupied or not.

• The variable cost for a roombeing occupied is £5 per night.

• You can charge any price youwish up to a maximum of £50in ‘round pounds’, e.g. £29 butnot £29.50.

• You should give your hotel aname, for example Sea View orGolden Sands. Make sure yourname is different from thosechosen by other teams!

HOTELPROFIT AND LOSS ACCOUNT

for period ending _______________________________________

APR MAY JUN JUL AUG SEP

Number of bookings

Room price £ £ £ £ £ £

Total revenue

Variable costs

Gross profit

Fixed costs

Operating profit

Cumulative profit

101

Vacancies Sheet 1ACTIVITY 38

102

Vacancies Sheet 2ACTIVITY 38

ROOM BOOKINGSMONTH:

Room price for the month = £ ________________

Room number

Occupied?1

2

3

4

5

6

7

8

9

10

103

Can you account for it? Sheet 1

Company accounts tell a story, but in numbers rather than words. The numberscan seem like a secret code, but with a little understanding of how accounts workyou can decode the message. Like any good story, there is always some dramaaffecting people’s lives. It may be a story about powerful or even famous people,but often it is about ordinary people such as workers, customers or members ofthe local community.

Sometimes the message given by a company’s accounts is much brighter than thefacts. Bad news is kept away from the public gaze, while good news is given lotsof space. This is often called ‘window-dressing’ because the company’s accountsare like a ‘window display’ for the world to see.

So you may have to ‘read between the lines’. If the chairman says that the financedirector ‘has made the decision to leave the company’, then the truth may bethat after a flaming row, the finance director was given the sack!

Here are four examples of data from company accounts.

ACTIVITY 39

UNIGATEUnigate is a large food and distribution (roadhaulage) company with operations in Britain,France and the USA. Its biggest area of businessused to be in British milk deliveries and dairyproducts. Milk deliveries were a particularproblem as families switched from doorstepdeliveries to buying their milk direct from thesupermarket.

The company expanded into convenience foods,transport and distribution.

£ million1 The restructuring of the company was painful but necessary.’ Sir Ross Buckland,

Chief Executive

The term ‘restructuring’ often really means closures and cutbacks. Why wouldthis have been painful for Unigate?

2 If you were a shareholder in Unigate, what questions might you want to ask SirRoss?

3 ‘It was a difficult year for Unigate’s food businesses although the take-over ofTerranova and Marie businesses helped because they performed well. Foodprices have tended to fall.’ Newspaper commentary.

How could Unigate increase turnover while dealing with difficult problems?

Turnover 2,309 2,977

Costs 2,176 2,834________ ________

Operating profit 133 143

Capital employed 842 1,042

1999£ million

2000£ million

104

1 Why did Marks and Spencer feel the need to get ‘back on track’?

2 Calculate the profit margin for the three years.

3 ‘We are uniquely placed to meet customers’ lifestyle needs with a variety ofproducts and services’ – the Chairman, Luc Vandevelde.

Does this statement match the rest of the evidence?

4 What other data would you want if asked to judge the company’s recentperformance?

MARKS & SPENCER‘We’re getting closer to our customers – listening to what theywant and changing the way we work. We now have a cleardirection – a path that sets us apart, draws on our strengths andfits the future. It’s based on our belief, our passionate belief, thatpeople deserve the highest standards in life. So we arededicating ourselves to being the most trusted retailer whereverwe trade…

This is our vision. It’s driven by our customers, it guides all wedo – and it’s getting us back on track.’

Annual Review, 2000.

Can you account for it? Sheet 2ACTIVITY 39

TESCO

‘This year we experienced tough tradingconditions. In this environment Tesco continuesto perform well above the market.’ Annual Report and Accounts.

Sales 8,243 8,224 8,196

Costs (all) 7,139 7,712 7,725

1998£ million

1999£ million

2000£ million

1 How has Tesco’s profit margin changed?

2 Is the tax payable for 2000 higher or lower than in 1999, as a percentage ofprofit before tax?

3 What percentage of profit after tax was used to pay dividends in each year?Can you think of any reason why this value might change?

Turnover 17,158 18,796Expenses 16,224 17,766________ ________Operating profit 934 1,030Interest and other

adjustments* 92 97________ ________Profit before tax 842 933Tax payable 236 259________ ________Profit after tax 606 674Dividends payable 277 302________ ________Retained profit 329 372

* Includes interest paid and received

Profit and loss account for the financial years to

1999£ million

2000£ million

DiageoDiageo is a very large producer of food and beverage products selling all over the world. Their brandsinclude Burger King, Green Giant, Old El Paso, Guinness, Smirnoff, Johnny Walker and Gordon’s,among many others. Increasingly it is specializing in the beverage side of the business, selling off itsfood interests.

‘The development in our thinking follows an extensive review of strategy and a close examination ofthe business sectors in which we have been operating. We will set and meet long term goals,constantly providing clear evidence of our successful value creation for shareholders.’

Lord Blyth, Chairman

105

Can you account for it? Sheet 3ACTIVITY 39

Fixed assets 9,720 9,863Current assets

Stock 2,202 2,139Debtors 3,221 3,032Other –38 39Cash 1,097 1,063________ ________

6,558 6,273

Loans due within 12 months –7,437 –6,341________ ________Net current assets –879 –68

Total assets less current liabilities 8,841 9,795________ ________

Loans due after12 months 4,248 4,510

Shareholders’ funds 4,593 5,285________ ________8,841 9,795________ ________

Balance sheet as at 30 September 2000

1999£ million

2000£ million

1 Give some examples of fixed assets that might be owned by the company.

2 Why might the value of current assets have fallen?

3 What’s the point in holding over a billion pounds in cash?

4 What has been the percentage rise in long-term loans from 1999 to 2000? Whymight the firm need more loans? What are the possible drawbacks of increasedloans?

106

This activity will give you more practice with spreadsheets, but firstread about cash-flow forecasting on page 106 of the students’ book.

How can Memory Mugs keep the cash flowing? Sheet 1

ACTIVITY 42

Getting started

Open the Nuffield–BP program and click on ‘Unit spreadsheets’. Select‘Keep the cash flowing?’ and check with your teacher whether youneed Cash1 or Cash2.

Remember Mo and his company, Memory Mugs?(See page 87 in the students’ book.) He has apottery where he makes mugs to order for hiscustomers. At Memory Mugs, business is seasonal.Mo gets more orders in the summer becausepassing tourists come to the pottery. His sales figureslook like this:

Mo takes orders from the customers as to how theywould like the mug to be designed. He can make upto a maximum of 200 mugs per month. Hisoverheads are £300 per month (the fixed costs),mainly rent. Each mug costs him a further £4.50 tomake (the variable costs).

Use this information to complete the cash-flowspreadsheet. Fill in the rows for overheads and othercosts, and set price at £7.50. Fill in the monthly salesfigures. Then try the following ‘What if…?’ questions.

WHAT IF…?

1 The difference between salesrevenue and total costs each

month is the net cash flow.What does the cash-flowbarchart tell you?

2 Looking at cash-flow forecast figures over aperiod of a year helps Mo to plan ahead. How willhe cope with the high level of orders in July? Howdo you think he will cope with the negative cash-flow in the first part of the year?

3 Looking at these figures, Mo considers raising hisprice to £8.50. Put the new price into thespreadsheet and show how this will affect Mo’scash-flow each month, assuming sales stay thesame. What other information might he like tohave before making a decision about the price?

4 What happens to net cash-flow if the fixed costs(e.g. the rent on his building) rise by £60 amonth, assuming the price remains at £7.50?How might Mo react?

5 What sort of pattern would you expect to see inthe figures for the rest of the year? Whatproblems do you think Mo might have?

May 70

June 90

July 160

August 150

September 120

October 110

Month Sales

Do you want a reminder about spreadsheetformulae?

• Formulae begin with an equals sign =

• To use a particular number (e.g. Fixed costs of£300 in cell E5) which is on the spreadsheetin a number of different places, you have tolock onto the cell by putting dollar signs ($)before the letter and the number of the cellreference, e.g. $E$5. This is called making anabsolute reference.

• Formulae which involve adding two numberstogether, such as when you insert in cell B19

the formula =B17+B18, are known as relative.The computer reads it from cell B19 as ‘takethe number two above me, and add it to thenumber one above me’. The advantage ofrelative formulae is that you can copy them tothe cells to the right of B19, e.g. C19 to H19,and Excel will interpret the formula relatively.This means that when you have copied theformula into cell C19, Excel will interpret theformula ‘take the number two above me, andadd it to the number one above me’ not asB17+B18, but as C17+C18.

107

Archibald’s fish and chips Sheet 1ACTIVITY 43

Your brief

You have recently joined Larry Archibald’s business. Larry

runs a chain of 20 traditional fish and chip take-away

shops called Archibald’s. The business is well known in the

north of England. The managing director has asked you

to join a small team to improve the sales.

Stage 1: What’s the competition?

Stage 2: Back on track

Stage 3: What about the future?

Reply to this memo from Larry bylooking at the ‘Marketinformation’ on Sheet 2.

Larry changes the product mix

1 Identify which part of theproduct life cycle you thinkLarry Archibald’s business is on.

2 How might Larry wish to cashin on brand loyalty?

3 Larry could convert half hisshops to become joint take-aways and restaurants. Createa logo and slogan for the new-style shops.

4 How might Larry justify thecosts of this investment toincrease sales?

5 How might Larry fund thisinvestment, given that salesand profits have fallen?

1 If Larry’s marketing policy weresuccessful and he decided toexpand, what would be theadvantages and disadvantagesof opening up on the followingsites?

(a) Seaside resort by the seafront.

(b) Motorway service station.(c) Housing estate in a large

town.(d) City centre.

2 Why does Larry want todevelop his business?

3 What problems might occur ifLarry’s business grew?

MemoFrom: Larry Archibald

To: Marketing Manager

Subject: Decline in sales of fish and

chips

I am concerned by the decline in

sales of our fish and chips. The

finance department informs me that

sales have gone down by 10% this

year. I suggest we need to review

our sales policy urgently. I want you

to write a short report explaining:

(a) why sales are falling

(b) ways of increasing the sales.

Please look at:(1) the possibility of a better

range of products

(2) adding more value to the

current products

108

MARKET INFORMATION

EVIDENCE BNational newspapers:

Archibald’s fish and chips Sheet 2ACTIVITY 43

EVIDENCE A Marketing Monthly:

EVIDENCE CInternal market research:

EVIDENCE DArchibald’s wins national award for

quality fish and chips.

Traditional fish and chip take-away

sales have been hit by the growth of

hamburger stores like McDonald’s and

Burger King. In addition, the growth of

restaurants attached to supermarkets

has also had a negative influence.

People have more money to spend and

want to eat out more. The traditional

take-away is no longer a fashionable

item. Sales have dropped by 15 per

cent over the past two years.

MAD COW DISEASE HAS BEEN LINKED

TO THE HUMAN FORM CALLED CJD

EU countries banUK beef

SALES OF BEEF IN

EUROPE FALL

DRAMATICALLY

McDonald’s uses alternative, non-British sources of beef

ALTERNATIVES TO

BEEF ARE IN DEMAND

250 people were surveyed.Their

responses have been summarized below.

Adapt take-away shops, where possible,

to include a small restaurant for sit-down

meals.

45 per cent would be interested in a

greater range of products, such as

traditional pork sausages and

Lancashire hotpot.

19 per cent answered yes to a home

delivery service.

23 per cent thought telephone advance

orders were a good idea, especially at

peak times.✔

✔

✔

✔AAWWAARRDD

ffoorrBBEESSTTFFIISSHH

&&CCHHIIPPSSHHOOPP

This is to certify thatArchibald’s Fish and Chips

has been awardedthis certificate ofexcellence

109

Marketing fizzy drinks (1) Sheet 1

Stage 1: Why are prices of fizzy drinks different?

The prices of fizzy drinks in a survey of retailers in 1995 varied from 33p to 55p.Are these differences in price due to:• the product – the ingredients and cost of production?• the place – where the drink is sold?• the promotion – the brand image and advertising?

Open the ‘Nuffield–BP program’ and click on ‘Unit spreadsheets’, then ‘Unit 3’and ‘Marketing Fizzy Drinks’. Look at the first few rows of the Fizzy Drinksdatabase. Decide on a list of questions that will help you to organize yourinvestigation. Some questions have been suggested for you: 1 Does the location of the retailer make any difference to the fizzy drink’s price?2 Do retailers who sell many brands tend to charge a different price from retailers

who sell few brands?3 Are some brands more expensive wherever they are sold?4 Do some types of retailer tend to sell at higher prices than other types of

retailer?

Think of some more questions for yourself, then use the database to find theanswers.

ACTIVITY 44

Getting started

1 Open the ‘Fizzy drinks database’ sheet of theFizz workbook.

2 Choose a group of records that will help youto answer your question. For example, youcould choose all the town centre records tosee if these retailers tend to charge higherprices.

3 Select the ‘Click to continue’ button whichsets up the database (although it will look asif nothing has happened). Select ‘filter’ fromthe Data menu and click on the ‘autofilter’option.

4 Click on the arrow which appears at the topof the column for the ‘Location’ field. Select‘TC’. Your selection now appears in the top-left corner of the database.

5 You can analyse your selection by using aformula. For example, you can find theaverage price of fizzy drinks in the TownCentre by putting a formula in cell G49. To do this, select cell G49 and write‘=AVERAGE(‘ and then click on each of thecells in your selection in the price column.(You must hold down <ctrl> while you clickon these cells). Close the bracket and pressreturn.

6 To return to the original data, click on‘autofilter’ again.

Keeping a record

You should keep a record of your databaseinvestigations. Decide whether the question is aboutplace, product or promotion. Decide which field orfields are most relevant to the question. Choose onetype of record in this field and make a note of the

information you find out. You may find it helpful towork out the average price for your chosen set ofrecords. Use the formula ‘=AVERAGE(A5:A16)’ towork out the average of cells A5 to A16.

The table at the top of page 110 shows what yourrecord sheet might look like.

110

Stage 2: How important are prices in themarketing of fizzy drinks?

Look at the information ‘How small shops decide tocharge for fizzy drinks’ on the ‘Backgroundinformation’ sheet.

1 What similarities can you find in the way thesesmall shops decide on their prices for fizzy drinks?

2 What differences can you find in the way thesesmall shops set their prices for fizzy drinks?

3 Do the small shops quoted on this sheet rely ontheir price to attract customers for fizzy drinks?

4 Look at the information on the database for theseshops (use their record number). Do the shopsthat refer to keeping in line with their competitorstend to charge lower prices?

5 Is the variation in the price of fizzy drinks mainly due to the decisions of retailers? Use theinformation in the database and the evidencefrom the quotes from retailers to answer thisquestion.

6 The location of the retailer quoted in Record 16 isshown in the map below. Look at what they haveto say in the background information, thencompare their prices and range of brands withother retailers. Prepare some marketing advice forthis retailer by: • making a recommendation about their prices;• making a recommendation about the brands

they stock;• making a recommendation on whether they

should promote their fizzy drinks sales, and, ifso, how they should do it.

Marketing fizzy drinks (1) Sheet 2ACTIVITY 44

14Location of

retailer in Record indatabase

Question 1 Does the location of the retailer make any difference tothe fizzy drink’s price?

Place, Product or Promotion? Place

Which field? Location

Type of records in this field Town centre retailers (TC)

Information about this group Most of the retailers in this group charge between 40 and 42pence, but one charges a lot less (33p) and one charges a lot more(50p). The average price for this group is 42p.

Is this group similar to the The average price for all the records is also 42p, so the fact that the average? retailer is in the town centre doesn’t seem to make any difference.

University Buildings

University Buildings

2516

14

13

15

9

Houses

Houses

Houses

RailwayStation

12

111

Up in flames

THE fire-blackened crane stood dramatically against the skyline.It had been the centre of activity

for the deep-water dock. Without it,work stopped. Ships were waiting tounload, but nothing could move.

At the time of the fire, the crane wasbeing adapted to deal with new cargoes.A firm of contractors had been emp-loyed to carry out the work. So who wasresponsible for the damage? Was it thedock company which owned the crane,or the contractors who were working onit? This was a job for the forensic scien-tists employed by their two insurancecompanies.

The longer the problem went on, themore ships had to be turned away.Some ships could find alternativedocks, but others needed the deep waterand had no alternative. If a ship wentelsewhere, the dock company lost theunloading fee – about £200,000 worthof income. If a ship had to wait, thedock company had to pay the shipowners £10,000 a day – so the costsstarted to build up.

In the first two weeks after the fire,

about £750,000 of work was likely to belost. In an average month, the companywould expect a turnover of around £1million.

The crane itself was certainly notaverage. It was one of a pair. Each onehad cost £6 million and had beendesigned and built in Sweden to meetthe needs of this particular dock. Itwould take at least a year to build areplacement.

To make matters worse, fifty cars hadbeen parked downwind of the fire in thestaff car park of the company next door.At first it looked as if they might justneed a good clean, but after a closeinspection the paintwork was found tobe blistered and all of the cars had to beresprayed. This added £1,700 for eachcar, on average, to the total bill.

It took two weeks for the initialshock to pass and the burnt-out remainsof the crane to be removed. Businessthen continued with its identical twinfurther along the quay. Even thenunloading could only happen at three-quarters of the speed, so the effects ofthe drama were to be long-lasting.

ACTIVITY 45

What insurance claims are likely to follow the fire? When you have worked thisout, ask your teacher for cue cards.

112

Gloom town, Boom town Sheet 1ACTIVITY 46

GLOOMTOWN

BOOMTOWN

113

Is the economy really like a rollercoaster? Sheet 1

The students’ book tells you that ‘The business cycle is a normal feature of anyeconomy.’

It gets its name from the regular ups and downs of the economy. During a boom,output and consumer spending in the economy increase. When there is arecession, output and spending fall.

But, how often do we get booms and recessions?

And, is there any evidence that they occur in regular cycles?

Studying some data will help you answer these questions.

Are there any patterns?

The table shows the growth rate, from year to year, of the output ofmanufacturing industry and of spending by consumers in the UK. Looking at thefigures, you can see that the growth rates vary quite a lot from year to year. Canyou see any pattern in the figures? Are the ups and downs completely random, ordo they appear to form regular cycles?

ACTIVITY 47

Getting started

1 On your computer, openthe Nuffield–BP program andclick on ‘Secos for Excel’.

2 Click once on the ‘Open data file’box and ‘Nuffield–BP Business andEconomics’.

3 From the database contents list clickon ‘UNIT 3: Risk or certainty?’

4 Choose the table ‘UK manufacturingoutput and consumer spending’.

TURNING IT INTO GRAPHS

Fluctuations in manufacturing output

1 Click the Graph button on the upper left ofthe screen and then the line graph button.

2 Click to graph data from ‘Columns’.

3 Click ‘Manufacturing output’.

4 Click on the ‘Graph’ button.

Study the graph carefully.

Count the years between the peaks (i.e. the topsof the booms) and the troughs (i.e. the bottomsof the recessions). Where there is a double peak(i.e. two very close together), assume that thepeak is between them.

Enter the results in table 1. Click File and Close at the top of the screen toclose the graph. Don’t save the changes.

Number of years Number of years

1st to 2nd

2nd to 3rd

3rd to 4th

4th to 5th

5th to 6th

Table 1: Manufacturing output

Trough totrough

Peak topeak

114

Is the economy really like a rollercoaster? Sheet 2

ACTIVITY 47

TURNING IT INTO GRAPHS

Fluctuations in consumer spending

Use the same method to produce a graph of thefluctuations in consumer spending, and put yourresults in table 2. This time the graph looks a bitmore complicated.

As you did before, click File and Close at the topof the screen to close the graph. Don’t save thechanges.

Finish off by graphing both lines on the samegraph.

1 To choose both ‘Manufacturing output’ and‘Consumer spending’ from the graph datafrom Columns list, press either <Ctrl> or the<Shift> key when you click the two names.

2 You can print this graph to go with your notes.

Number of years Number of years

1st to 2nd

2nd to 3rd

3rd to 4th

4th to 5th

5th to 6th

Table 2: Consumer spending

Trough totrough

Peak topeak

TO SUM UP

1 Did you find evidence of a regular business cycle?

2 Are the cycles for manufacturing output and consumer spending similar? Whymight you expect the two to move together?

3 What can firms do to guard against the business cycle?

115

Birth and death of businesses Sheet 1

At any one time new businesses are being registered (opened), while other firmsare deregistering (closing down). Firms close as a result of both bad luck and badmanagement, although economic conditions play an important part in theirsuccess. Boom conditions encourage people to start new businesses, and existingbusinesses do well when consumer spending is growing. On the other hand,recessions cut the market for goods and services, and more firms fail.

If the economy moves in cycles, does this affect the opening and closing down ofbusinesses?

Government figures measure business registrations and deregistrations. If thedifference between them is positive then the number of businesses is growing. Butif there are fewer registrations than deregistrations then the difference (i.e. the netfigure) will be negative.

Look at the figures carefully

In each year, what is the combined effect of business registrations andderegistrations?

What reasons can you think of for the changes?

In which three regions did business deregistrations most exceed the registrationsof new firms in 1995?

Try graphing the figures

1 Click the Graph button and choose ‘Bar chart’.

2 Click to graph data from ‘Columns’.

3 Now try graphing different regions. Select ‘Rows’. You can have several regions on one graph: remember to holddown <ctrl> when selecting them.

4 Click the ‘Graph’ button.

5 You might want to print one of the graphs you draw.

Describe the pattern

Is there a definite pattern in the figures for the regions? When you have finished, click File and Close at the top of the screen to close thegraph.

TO SUM UP

1 Is the pattern of business registrations similar for all regions of the UK?

2 Compare the bar chart with the changes in manufacturing output andconsumer spending over the same time period. Do they seem related?

ACTIVITY 48

Getting started

1 On your computer load theNuffield–BP programme and clickon ‘Secos for Excel’.

2 Click once on the ‘Open data file’box and ‘Nuffield–BP Business andEconomics’.

3 From the database contents list click‘UNIT 3: Risk or certainty?’ and

choose the table ‘Businessregistrations’.

The table includes figures forall regions of the UnitedKingdom.

116

In what way?

Birth and death of businesses Sheet 2ACTIVITY 48

Getting started

1 On your computer load the Nuffield–BPprogramme and click on ‘Secos for Excel’.

If you are already in the database, select Windowand click on Nuffield–BP data menu to returnstraight to the contents list. Skip the nextinstruction.

2 Click once on the ‘Open data file’ box and‘Nuffield–BP Business and Economics’.

3 From the database contents list click on ‘UNIT 3:Risk or certainty?’ and choose the table‘Businesses opening and closing’.

The table includes figures for the total numberof businesses in each region of the UnitedKingdom, the number of new ones that openedand the number that closed down.

The figures are difficult to compare because thenumber of people and businesses is verydifferent from region to region. To makecomparisons, we need to work out thepercentage of firms opening and closing in eachregion.

To work out the percentage of firms opening weneed to do the following calculation:

Number of new businesses opening –––––––––––––––––––––––––––––––––––––––––––––––– × 100Number of businesses in the region

We can use the programme to do thiscalculation for both businesses opening andclosing.

3 risk or certainty? - collinsresources.collins.co.uk/free/unit3nuffield.pdf · 2013. 11. 29. ·...

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