Slide 1

Unit 1 exam revisionAQA AS Level Business Studies 5131

Hot TopicsEnterprise and EntrepreneursBusiness PlansFranchisesSources of Business IdeasAdding ValueMarket ResearchFactors Affecting DemandMarket Segmentation (Geographic; Demographic and Limitations)Social Enterprises (not for profit businesses)Sources of Finance (especially internal sources e.g. Sale of assets etc)Technology and Business Start-Ups (e.g. Tele-working)Flexible WorkingCash Flow ForecastsSetting Budgets

Examiners Report 2011Candidates analytical skills continued to be relatively superficial in the longer questions.

In some questions candidates would have benefited from using evidence from the case study to support the development of their arguments, rather than adopting rather generic responses.

Many candidates need to extend the depth of their evaluation.

Unit 1 Mark Allocations2-3 marksKnowledge 4-7 marksKnowledge and Application8-12 marksKnowledge, Application and Analysis12-18 marksKnowledge, Application, Analysis and Evaluation

Exam Skills - ApplicationKey trigger words to look for:ExplainOutlineCalculate

ALWAYS try to relate your answer to the business in the case material.Just mentioning the business name is NOT application!

Application - ExampleDarren had the idea of setting up Dazzas Motor Repairs Ltd after he was made redundant as a chef last year. Darren was fed up of having to travel miles out of town to get his car serviced and felt that there was a gap in the market.

Darren carried out some research by asking local residents if they would support his idea and he also worked with an accountant friend to create a detailed business plan. Darren knew that he would need a loan of 20,000 to set up the business and had the option of either approaching the local bank or raising funds from his personal savings.

Darren was interested to learn that he could also buy a franchise option for 15,000. The franchise was Marks Motors Ltd and they had been very successful in recent years in Scotland and were now wanting to expand into England.

Application Practice QuestionExplain two factors that Darren might have to consider in his choice of finance for the business.[6 Marks]

Application Model AnswerFinance is the capital available to a business and can be obtained from external and internal sources. The local bank would probably offer Darren a bank loan and this would mean that Darren would have to pay this back with interest. Darren would have to ensure that he could afford the repayments because the bank could repossess the business if he defaulted on the loan. If Darren was to use his own savings then he would not have to repay this amount of money but there is a large opportunity cost to consider. Given his lack of relevant business experience in the motor industry could he afford to ignore the financial help and support provided by the bank?

Application Practice QuestionOutline two issues for Darren if he decided to buy into the Marks Motors Ltd franchise.[6 Marks]

Application Model AnswerA franchise is where a business (franchisor) sells the rights to trade under their name to another individual or business (franchisee). Darren needs to be aware that Marks Motors Ltd hold no experience of the English market. Given Darrens current lack of knowledge in this industry (he was a chef), can he afford to take such a large risk? However, the franchise is very successful and they would provide Darren with the training, advice and support that he needed to be successful. The cost of the franchise agreement would also be 5000 lower than setting up on his own meaning that Darrens level of financial risk is lowered.

EXAM TIPLook for the paragraph in the case study that talks about the topic in the question.

Look for any additional tables or diagrams that might contain additional information you could use to support an answer.

If a table has been included in the case the examiners will be expecting it to be used!

Exam Skills - AnalysisKey trigger words to look for:Analyse...Examine...Explain why...

Use relevant business theory in any answer.This is where you LINK points together.The more you develop your point and link it to the case material the higher your mark!

Analysis - ExampleDarren is told by the bank that his market research is too limited and that more is required before a loan could be considered. Darren conducts a more detailed survey and receives over 70 replies from local residents near where he intends to start the business. He discovers that over 60% of his potential customers belong to social groups A and B and that 72% of replies were from people aged 40-65.

Convinced by the findings of his new research, Darren decides to focus his business upon this segment of the market. He now intends to charge higher prices than he originally proposed in his business plan to take advantage of the higher PDI of residents and to exploit the lack of competition in the local area.

Analysis Practice QuestionExamine whether Darrens decision to segment his target market was the correct one.

[10 Marks]

Analysis Model AnswerMarket segmentation is the breaking down of larger market into smaller groups that share common characteristics e.g. age. The problem with using demographic segmentation to decide the target customer base for his business, is that he risks alienating potential customers who are not in social class A or B, and who are not aged between 40-65. As a new business, he cannot afford to lose potential customers which would harm his cash flow and maybe leave him needing an additional loan or bank overdraft. His sample size of 75 is also too small to base such an important decision upon and this is very important as customer tastes and fashions are constantly changing.

Analysis Model AnswerHowever, the use of segmentation analysis has allowed Darren to identify the most profitable market segment. Knowing that people in social class A and B are likely to use his business, means that his decision to charge a higher price than he originally intended should prove to be the correct one. This means that he can increase his levels of sales revenue and avoid cash flow problems. It has also allowed Darren to better understand his customer and he can therefore offer services more likely to be of interest to people aged between 40-65 years old which should again mean more sales and an increase in profits.

EXAM TIPLess is more in terms of analysis. The examiner is looking for quality not quantity!

Plan out your answer to all analysis questions.

Develop TWO points in favour, ONE against (or vice versa) and then consider wider issues and make a final recommendation. Use relevant business theory and link points together.

Exam Skills - EvaluationKey trigger words to look for:Evaluate...Discuss...To what extent.......justify your view.

Which argument is the strongest and why?Is there anything else the business should consider? Why?How reliable was the evidence? Why do you question its reliability? Give strong reasons.

Evaluation - Example Darren plans to develop the business by offering a personalised at-home repair service. Through investment in new technology, he hopes to be able to respond to break-downs and car service requests faster than any competitor. Through using telecommunications he is also saving money by not needing to operate from a central business location, allowing him to run the business from his own home.

Despite all of his planning and additional research, the Bank Manager remains unconvinced and believes that the business might fail. He says that 3 garage repair firms have failed in the area in recent years and this is why there is so little competition. The Bank Manager also reveals the news that one of the major high-street repair chains have spotted this gap and have submitted plans of their own to start in business within the next 3 months.

Evaluation Practice QuestionWas the Bank Manager correct in his view that Darrens business was likely to fail? Justify your view.[15 Marks]

USE ALL OF THE INFORMATION TO HELP YOU.

Evaluation Model AnswerThe Bank Manager is justified in believing Darrens small business idea to be a high risk venture. With Darrens lack of experience in the repair market, his initial estimate for customers are likely to be optimistic and therefore there is a strong chance that his cash inflow will be much lower than he thought. Indeed, Darren even had to be asked to carry out more research into his market and then only an extra 75 people replied! His lack of experience might also mean that the quality of service provided is not as good and cause negative word of mouth from his customers which will also harm sales.

This risk is made worse by the news of the larger more established competitor planning to open a branch within the next 3 months. Customers are more likely to shop with them instead of him as they know them better, all of which will lower Darrens cash inflow and make his business more likely to fail.

Evaluation Model AnswerHowever, the main reason for small business failure is financial. Given that Darren is able to finance the business through personal savings, then this suggests that he should not be in immediate danger and he could always seek to take out a short-term bank loan or a bank overdraft. His business plan was also detailed which meant that he had carefully considered each aspect of the business and this would reduce levels of risk.

Overall, the Bank Manager is right but only in the short-term. If Darren is able to establish good customer relations and therefore loyalty, he should be able to provide a more personalised service than his more established competitor. With no other rivals, there is probably room in the market for both businesses. A lot though depends upon Darren gaining the relevant experience and expertise required to be competitive. Just because 3 other businesses have failed does not mean that Darrens business will also be a failure.

Evaluation Practice QuestionTo what extent will Darrens decision to invest in new technology help to guarantee the success of his business?[15 Marks]

Try and answer this question on your own.