Case Study

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Case Study

• GCSE Business Studies Revision

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Revision Area 1 Business Growth and Development
Sole Trader
Partnership
LTD
PLC (Multinational)
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(A) Business Types A
Sole Trader

• Why start out as a sole trader?
• Easy to set up
• Easy to run
• The owner has control
• The owner keeps the profits
• Flexibility - being your own boss

• But what problems can there be?
• Unlimited liability
• Long hours
• Limited capital
• Stress of making all the decisions
• Lack some skills
• Difficult to raise capital to expand

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Why become a partnership ?

• Advantages of an ordinary partnership
• Easy to set up run
• Can share the workload
• New skills
• More capital to help business grow
• Profits are shared

• Disadvantages of an Ordinary partnership
• Unlimited liability - You need to trust your
  partner!
• Long Hours
• Disagreements
• Lack of continuity - if one partner leaves or
  dies

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Why become a private limited company?

• To be able to sell shares to a limited group of
  people (friends, family, workers)
• To raise capital to expand
• To gain limited liability
• To gain the advantages of being a larger business
  - economies of scale such as bulk buying.

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Why become a PLC?

• PLCs also offer shareholders limited liability
• Shares can be sold to the general public
• More capital can be raised as more shares are
  likely to be sold
• Even greater economies of scale.

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What problems can a PLC face?

• Growing too large and/or too fast (Diseconomies
  of scale)
• Pressure from shareholders to make greater profit
• Discontented shareholders - possible take-over/
  loss of control.

Shareholders
Managing (executive) Director
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(B) What are the advantages of being a large
company?

• Internal Economies of Scale Falling average
  costs as output/sales increase. How might the
  following types of internal EOS affect M S?
• Purchasing (Bulk buying)
• Marketing
• Financial
• Technical
• Managerial

Revision Exercise Make a spidergram to show
these affects
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Problems a large business may face

• Communication - becomes harder as there are more
  staff
• Motivation - People may feel less individually
  valued
• Co-ordination and control - takes a longer time
  for decisions to be put into action
• Complacency (Laziness) - can get over confident
  and out of touch with its customers

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(C)M S Franchises

• What might the disadvantages be?
• May be less profitable then setting up their own
  operation in the long run
• Need to make sure the franchisee doesnt damage
  their image (check quality)

• Why do you think that M S operate as a
  franchise in other countries?
• Less risky
• Not as expensive as setting up from scratch
  themselves
• Needs less overseas knowledge

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Revision Exercises

• M S have recently franchised their Simply
  Food stores to sell quality fresh food and
  groceries at railway stations
• 1. Explain why a franchisee might want to run one
  of these stores.
• 2. What disadvantages might there be for the
  franchisee?

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(D) Diversification

• Diversification means moving into new products
  and/or new markets. How has M S diversified in
  recent years?
• We have already mentioned overseas and UK
  franchises
• M S diversified into the
  financial sector into the 1980s.

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Diversification continued

• The Advantages
• Risk Spreading - if one area has problems, the
  business has others to fall back on.
• Image - the business appears forward thinking and
  dynamic

• The Risks
• The company may lack expertise in the new market
• The market may already be very competitive like
  the finance sector
• Problems in the economy.

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Summary so Far

• Marks and Spencer is a very large and successful
  business. It is one of the largest companies in
  the country. It has been established for 111
  years
• It is a very well known brand
• BUT
• In the late 1990s it suffered a fall in demand
  for its clothing. Customers thought it was out of
  touch. Its finance business also suffered.
• M S has had to make changes to deal with these
  problems.

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Revision Area 2 Finance

• See separate handout

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Revision Area 3 Stakeholders

• Marks Spencer have some general principles that
  guide them in their dealings with stakeholders.
• Read these on page 7

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Who Are Marks Spencers stakeholder groups?

• Employees
• Customers
• Shareholders
• Suppliers
• Local Communities
• Pressure Groups
• Local and national government

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What each group will want

• Employees will want secure jobs, good pay, fair
  treatment
• Customers want high quality, good service, good
  choice of products
• Shareholders want profit and growth

• Suppliers want secure contracts and fair prices
• Local communities want jobs and good shopping
  choice
• pressure groups want M S to listen (and be
  ethical)
• Government wants jobs and taxes paid.

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Revision exercise

• Can you spot any potential sources of conflict
  between groups of stakeholders?
• Example
• Workers may want higher wages but shareholders
  may want higher profits.

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Revision Area 4 Marketing and the Marketing Mix

• Target Market
• Look at page 9 in the case study. From this
  information how would you characterise the
  typical M S shopper?
• How can M S check that this is true?
• Why is it important to do this?

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The Marketing Mix Product

• Look at the 2nd table on page 9 of the case
• study and the pictures below

M S now work with a range of famous designers
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Much of Marks and Spencers clothing is now
targeted at specific market segments.

• What are the advantages
• of this approach?
• Appeal to different groups of customers - and
  hopefully more customers.
• Customers looking for a specific style of product
  may be attracted to buy more from a range

• Helps them to stay modern and up-to-date
• What are the risks?
• Might upset their traditional customers
• It might confuse consumers about their brand image

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The Rest of the Marketing Mix!A Revision Exercise

• Promotion
• How do M S promote their products?
• Do you think that these methods are effective?
• Price
• M S sell clothing in a competitive market.
• Do you think that they are price competitive?
• Who are their main competitors/threats?
• How might this affect M S pricing strategy?

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Place

• One of the latest innovations in place for M
  S is their website. You can look at this. It has
  on-line selling as well as information about the
  company. Evaluate the on-line selling. Does it
  seem clear, easy to use, helpful?

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Using the Internet to Sell

• Advantages to M S
• Convenient for customers
• May attract a new type of customer
• May attract customers from areas with no M S
  store
• Low-cost (?)

• Potential problems for M S
• Security
• Less impulse buying
• Making sure distribution is efficient
• Cost of returns

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Revision Area 5 Future Challenges

• Suggestions for some exam Section B type
  questions to practice
• 1. Explain two ways that Marks and Spencers
  could attract more younger customers who
  currently prefer to shop at the multiple chains
  like Next. (6 marks)

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• 2. Discuss whether Marks and Spencer should
  continue to diversify into new markets or whether
  it should concentrate back on its core business
  activities - selling quality food and clothes. (8
  marks)
• 3. Discuss to what extent you think that
  decentralising its head office will help Marks
  and Spencers to be more efficient. (8 marks)

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Good Luck in Your Summer Exams!