BePro Workbook
Unit 5
Principles of business
LO 1 Understand Business Markets
Complete the activities under the Assessment Criteria Headings to demonstrate your
knowledge of Principles of Business. Don’t forget to give this workbook an evidence number
and any supporting documents you produce need to be given a number too. Complete your
assessment matrix with the relevant evidence.
Unit 5 1.1,
1.2, 1.3 ,
1.4
It is important to understand the ways in which business markets operate and
how they influence the businesses in those markets. Innovation in a business
is important to ensure success. This section explores some of the different
models of business innovation and how these help develop new products and
services. The principles of marketing and the main types of market research
used to make marketing decisions will also be explored.
Financial terminology and financial management are key aspects in everyday
business operations, and will help to improve your business skills.
Business markets
Some markets are typically characterised by oligopolies, which means that there
are a small number of powerful sellers. Other markets are characterised by a
large number of sellers in a highly competitive and fast-moving environment. The
level of competition in a particular market determines how much businesses are
prepared to invest in innovation. Where there is a market monopoly, there is very
little incentive for a firm to innovate, as they already have a huge amount of
power. In highly competitive markets, on the other hand, innovation is a key
strategic priority and it is a primary way to gain competitive advantage.
Definition of Perfect Competition
Perfect Competition is an economic structure where the degree of competition between the
firm is at its peak. Given are the salient features of the perfect competition:








Many buyers and sellers.
Product offered is identical in all respects.
Any firm can come and go, as per its own discretion.
Both the parties to transaction are having complete knowledge about the product,
quantity, price, market and market conditions as well.
Transportation and Advertising cost is nil.
Free from government interference.
The price for a product is uniform across the market. It decided by the demand and
supply forces, no firm can affect the prices, that’s why the firms are price takers.
Each firm earns a normal profit.
Suppose you go to a vegetable market to buy tomatoes. There are many tomato vendors
and buyers. You go to a vendor and inquire about the cost of 1 kg tomatoes, the vendor
replies, it will cost £10. Then you go ahead and inquire with some more vendors. The prices
of all the vendors are same for the demanded quantity. This is an example of a perfect
competition.
Definition of Imperfect Competition
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The competition, which does not satisfy one or the other condition, attached to the perfect
competition is imperfect competition. Under this type of competition the firms can easily
influence the price of a product in the market and reap surplus profits.
In the real world, it is hard to find perfect competition in any industry, but there are so many
industries like telecommunications, automobiles, soaps, cosmetics, detergents, cold drinks
and technology, where you can find imperfect competition. By the virtue of this, imperfect
competition is also considered as real world competition. There are various forms of
imperfect competition, which are:

Monopoly: Single seller dominates the entire market.

Oligopoly: Few sellers are there who either act in collusion or competition.

Monopolistic Competition: Numerous sellers offering unique products.
http://www.investopedia.com/ask/answers/032515/what-difference-betweenperfect-and-imperfect-competition.asp Some more examples of perfect and
imperfect competition
Market structures
Unit 5.pptx
AC 1.1 Consider the differences between the two business markets detailed in
the table below i.e. Perfect and imperfect competition. For each market, describe
its characteristics in terms of the key factors listed in the left-hand column.
Characteristics of business markets
Characteristics
Market 1. Perfect
Competition
Market 2. Imperfect
competition
Level of market
competition
High/low number
of sellers
Power of sellers
High/low number
of buyers
Power of buyers
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High/low level of
product
differentiation
Different business markets:
Perfect competition (no participants are large enough to have the market power to set the
price of an identical product): large number of buyers and sellers, no barriers to entry or exit,
perfect information, zero transaction costs, rational buyers, no externalities
Imperfect competition (a market structure showing some but not all features of competitive
markets): incorporates monopolies (when a specific organisation is the only supplier of a
particular commodity); monopolistic competition (many businesses sell products that are
differentiated from one another, product differentiation); oligopoly (a market that is dominated
by a small number of sellers); monopsony (a market in which only one buyer interfaces with
many sellers, the buyer dictates terms to its suppliers)
AC1.2 Activity Complete the table below to explain the nature of interactions
between businesses within a market using examples from your own experience
to illustrate your answers. The first one has been completed for you.
Type of market
Nature of interactions
Perfect competition
Many consumers buy a standardised product
from many sellers and they are all so well
informed that all elements of a monopoly are
absent. . No one seller sets the price. Sellers
and consumers accept the going price.
Agricultural markets are an example of near
perfect competition where there are several
farmers selling identical products to the
market, and many buyers. At the market, it is
easy to compare prices.
Monopoly
Monopolistic competition
Oligopoly
Monopsony
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Evidence gathering
In order to complete AC 1.3 for Unit 5 you need to gather examples of relevant
work-related documents and templates that demonstrate your knowledge and
competence of the business environment Useful evidence could include:
●
your organisation’s mission statement and objectives
●
research of any marketing principles and processes
AC 1.3 Activity
Produce a structured written narrative to explain how an organisation’s goals may be
shaped by the market in which it operates. You may wish to complete the table below
to help write your answer.
Here are some more examples for you:
Organisations operating under a market of perfect competition •
Primary organisational goals: profit maximisation, profitability, sales (value, volume), service
level, customer satisfaction
Additional organisational goals: growth, achieving a state of imperfect competition
(increasing market share, influencing consumer choice, influencing product price, expanding
product range) – this doesn’t really relate to your organisation because you don’t have an
option about market share or product price.
Organisations operating under a market of imperfect competition – does this relate to your
organisation?
Primary organisational goals: profit maximisation, profitability, sales (value, volume), growth,
internationalisation, market share, market power, satisfying stakeholders, return on capital
employed service level, customer satisfaction, corporate responsibility; ethical issues,
welfare •
Your organisation is unique really, because it operates outside of any competition – there are
no other organisations who do what your organisation does. Follow the link below to find out
more information about a Monopoly.
https://books.google.co.uk/books?id=gY0nphIDDugC&pg=PA148&lpg=PA148&dq=which+m
arket+structure+does+local+government+operate+in&source=bl&ots=15G6LEf0ic&sig=N6tT
Kr3f6R3TiJgTeQ8jgr89Dm4&hl=en&sa=X&ved=0ahUKEwiTiKvygObLAhXFVhQKHWDmDsI
Q6AEINTAF#v=onepage&q=which%20market%20structure%20does%20local%20governme
nt%20operate%20in&f=false
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To complete the activity below you might want to choose an organisation that you are familiar
with other than your own
How organisational goals are shaped by the market
Example of organisation:
Features of the market in
which it operates:
How these features of the
market affect the goals of the
organisation:
Legal obligations of an organisation
1.4 Activity: Complete the spider diagram to describe some of the key legal
obligations of a business. Some suggestions are listed underneath the spider
diagram to help you. Also put the evidence number you gave the Unit 4 work
book and LO1 AC 1., LO2 2.1, 2.2, 2.3 next to it as additional evidence in
your Assessment Grid for this AC. (Cross referencing the units)
Legal
obligations of
a business
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Some of the legal obligations of a business include:
insurance, national insurance, intellectual property, employment law (covering
pay, tax, national minimum wage, holidays, time off, sickness,
maternity/paternity leave, pensions, rights at work, redundancies, dismissals,
disciplinary process, contracts, working hours), consumer protection (covering
credit and store cards, faulty goods, counterfeit goods, poor service, problems
with contracts, rogue traders)
In addition to understanding the legal obligations of an organisation, it is
important to consider the legal structure of an organisation. You already looked at
this in the Market Structures presentation at the start of the Unit. Complete the
grid below.
Different Legal structures of an organisation
Sole Trader:
Advantages:
Give an overview of the key aspects
of a sole trader legal structure:
Disadvantages:
Partnership:
Advantages:
Give an overview of the key aspects
of a partnership legal structure:
Disadvantages:
Limited Company:
Advantages:
Give an overview of the key aspects
of a limited company legal structure:
Disadvantages:
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Learning Outcome 2
Understand business innovation and growth
Unit 5 2.1,
2.2, 2.3, 2.4,
2.5
Business innovation involves finding new ways of doing things or finding new products and services to
better satisfy consumer demand. The difference between invention and innovation lies in the
commercial nature of innovation. In other words, innovation is not just a new invention, but is also
successfully bringing to market a new product or service.
Innovation is a key driver of growth, and is responsible for the creation of whole new industries. There
are risks associated with innovation, however, and these include potentially large financial costs to
businesses.
Managed efficiently as part of a strategic plan, innovation can provide many benefits including growth
in market share, entry into new markets and market leadership. The activities in the following tasks
give you the opportunity to demonstrate your understanding of business innovation.
Prepare a PowerPoint® presentation entitled ‘Business Innovation’, which you are going
to send to your assessor. Your presentation must cover the following key points:
●
2.1 Define business innovation.
●
2.2 Explain the uses of models of business innovation.
(You could think about uses of models of business innovations • Industry model innovation: moving into new
industries or creating new industries • Revenue model innovation: generating revenue through offering
reconfiguration (product/service/value mix) and pricing models • Enterprise model innovation: changing extended
enterprise and networks with employees, suppliers, customers and others, including capability/asset
configuration)
●
2.3 Identify sources of support and guidance for business innovation.
(these could be internal sources: market research (primary, secondary), customer focus groups, workshops,
senior management teams, boards of directors, internal stakeholders • External sources: local enterprise
partnerships, Business Networking groups (BNI, Chambers of Commerce), websites, industry, government
(policy, guidance, funding), trade bodies, Intellectual Property Office, trade events, external stakeholders)
●
2.4 Explain the process of product or service development.
(You could think about the Eight stage process for new product development
• Idea generation: SWOT analysis, market research, customer feedback, analysis of competitor offer,
brainstorming new product ideas
• Idea screening: eliminating unsound concepts, target market (size, growth), competitive pressures, market
trends, product/service profitability
• Concept development and testing: intellectual property issues, product/service features, product/service
benefits, consumer reaction to product/service concept, production cost-effectiveness, production costs,
product/service feasibility, prospective customer liaison
• Business analysis: estimating likely selling price, estimating sales volume, estimating profitability and breakeven point, potential return on investment
• Beta testing and market testing: production of physical prototype or mock-up, testing the product, testing the
packaging design, conduct customer focus groups, introduce product/service at trade shows, pilot study,
distribution channels
• Technical implementation: estimation of resources required, finalise quality management system, resource
estimation, operational management plan, publish technical communications (data sheets, specifications), finalise
supplier agreements, finalise logistics plan, resource plan publication, contingency planning
• Commercialisation: product/service launch activities, promotional material creation and publication, advertising
activities, distribution pipeline, critical path analysis
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Review of market performance and product pricing: customer reaction, impact of the product on existing portfolio,
value analysis (internal, external) competition response analysis, analysis of value segments (price, value,
demand), review of production costs, forecast of unit volumes, revenue and profit, review of after-sales service)

2.5 Explain the benefits, risks and implications associated with innovation.
(Benefits associated with innovation: improvements to products, improvements to processes, improvements to
services, organisational growth, development of new markets, offering unique selling points, opening niche
markets, improved reputation, improved brand recognition, smarter working practices, improve customer
experience
Risks associated with innovation: failing to meet operational requirements (quality, cost, scheduling, service,
resource), failing to meet commercial requirements (insufficient sales, decline in customer base), failing to
achieve a return on investment, organisational culture (resistance to change, unsupportive systems and
processes, insufficient support from leadership and management)
Implications associated with innovation: corporate strategy, stakeholder collaboration (internal/external),
corporate social responsibility, attitude to change, employee skills and training, customer perception)
You can use the table below to help you put together all of the points needed in your
presentation. Don’t forget this can also link to Unit 8 if you want to do that unit and cross
reference your evidence.
Key points to include in
presentation
Your answers
Carry out some Internet research to
find a definition of business innovation.
Write your definition in the space on the
right. Remember to quote the source of
your definition.
Business innovation can be defined as......................
....................................................................................
....................................................................................
Source: .......................................................................
.....................................................................................
Explain the uses of two models of
business innovation.
1.
Identify three sources of support and
guidance for business innovation.
1.
Write brief notes to explain each stage
of the eight-step process of product or
service development. The first step has
been completed for you.
Stage of process
Explanation
1. Idea generation
SWOT analysis, market
research, customer feedback,
analysis
of competitor offer, generating
new
product ideas
2.
2.
3.
2. Idea screening
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3. Concept
development and
testing
4. Business analysis
5. Beta testing and
market testing
6. Technical
implementation
7. Commercialisation
8. Review of market
performance and
product pricing
Explain in detail two benefits and two
risks associated with innovation.
Benefits
Risks
1.
1.
2.
2.
Key points to include in
presentation
Your answers
Carry out some Internet research to
find a definition of business innovation.
Write your definition in the space on the
right. Remember to quote the source of
your definition.
Business innovation can be defined as......................
....................................................................................
....................................................................................
Source: .......................................................................
.....................................................................................
Explain the uses of two models of
business innovation.
1.
Identify three sources of support and
guidance for business innovation.
1.
Write brief notes to explain each stage
of the eight-step process of product or
service development. The first step has
been completed for you.
Stage of process
Explanation
1. Idea generation
SWOT analysis, market
research, customer feedback,
analysis
of competitor offer, generating
new
product ideas
2.
2.
3.
2. Idea screening
3. Concept
development and
testing
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4. Business analysis
5. Beta testing and
market testing
6. Technical
implementation
7. Commercialisation
8. Review of market
performance and
product pricing
Explain in detail two benefits and two
risks associated with innovation.
Benefits
Risks
1.
1.
2.
2.
You will need to include all of your slides and notes as evidence for your portfolio and
make sure you give this work book and your presentation an evidence number so the
assessor can cross reference and sign off the unit.
Stretch
Books:
Evans, V. (2013) Key Strategy Tools: The 80+ Tools for Every Manager to Build a
Winning Strategy (1st edition), Harlow: FT Publishing International (ISBN 978-0273778-86-8).
Weiss, A.E. (2011) Key Business Solutions (1st edition), Harlow: FT Prentice Hall
(ISBN 978-0-273750-29-1).
Useful
Websites:
BBC business
news section
www.bbc.co.u
k/news/busin
ess
Business
Case Studies
www.busines
scasestudies.
co.uk
Business
education
www.bized.co
.uk
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