Business A2

• Organizational structure


  The internal, formal framework of a business that shows who has responsibility of decision making, formal relationship between people and departments, number of subordinates under each manager, and formal channels of communication
• Elasticity


  Measures the effect of a change in a variable on demand
• Elasticity


  • The sign shows the direction of movement
  • The size of the number (ignoring the sign) shows the percentage change in demand compared to the percentage change in the variable
• If the answer is bigger than 1, demand changes more than the variable (in percentages). This is called elastic.
• If the answer is less than 1, demand changes less than the variable (in percentages). This is called inelastic.
• Income elasticity of demand (YED)


  Measures the degree of responsiveness of demand for a good to a change in consumers' income, with all other factors unchanged
• Positive YED


  Demand and income are moving in the same direction (normal product)
• Negative YED


  Demand and income are moving in different directions (inferior product)
• Income elastic


  Percentage change in quantity demanded is more than percentage change in income
• Income inelastic


  Percentage change in quantity demanded is less than percentage change in income
• Promotional elasticity of demand (PrED)


  Measures the degree of responsiveness of demand for a good to a change in promotional spending, with all other factors unchanged
• Promotion-elastic goods


  Sensitive to changes in promotional spending, value of PrED (ignoring sign) is greater than 1
• Promotion-inelastic goods


  Not sensitive to changes in promotional spending, value of PrED is less than 1
• Cross-price elasticity of demand (XED)


  Measures the degree of responsiveness of demand for a product to a change in the price of another product, with all other factors unchanged
• Positive XED


  The products are substitutes
• Negative XED


  The products are complements
• Elastic XED


  The percentage change in quantity demanded of product A is greater than the percentage change in the price of product B
• Inelastic XED


  The percentage change in quantity demanded of product A is less than the percentage change in the price of product B
• The different elasticities are calculated assuming that one variable changes but everything else stays the same
• The elasticities will usually be calculated based on what has happened, conditions may have changed and the value may now be different
• Product development


  Creating products that are new or different and that provide customers with new benefits and added value
• Product development process


  1. Consider existing products and market threats and opportunities with objectives

  2. Create new ideas for products - from suggestions, market research or R&D

  3. Develop the idea - having considered the market, design, production possibility and current products, the business must be sure that all costs can be covered before prototype and initial testing

  4. Final testing by test selling in the market and market research

  5. Post launch-monitoring the stages in the life cycle
• Product development occurs before a new product is launched and enters the introduction stage of the product life cycle
• Product development is one of the strategies in the Ansoff Matrix when new products are aimed at existing customers
• Product development leads to what are likely, at first, to be 'question marks' in the Boston Matrix
• Sources of ideas for new products

  • Customer complaints
  • Market research
  • Research and development
  • Existing patents
  • Employees
  • Universities
• Few initial ideas become selling products
• Research and development (R&D)


  The generation and application of scientific knowledge to create a new product or develop a new production process
• R&D can improve existing products to make them more competitive and lead to new products to generate more sales
• R&D can also develop new processes to improve the efficiency of a firm's operations
• Ways to protect new product ideas

  • Copyright
  • Patent
  • Trademarks
• Patents provide legal protection for an innovative product idea for 20 years after registration
• Copyrights automatically protect the work of artists, writers and musicians
• Trademarks protect designs and logos
• Copyright


  Automatically protects the work of artists, writers and musicians; copyrights do not have to be registered
• Patent


  Provides legal protection for an innovative product idea; in the UK, the holder of a patent has the right to be the sole user of a process or the sole manufacturer of a product for 20 years after it is registered
• Trademark


  Designs and logos can be protected by registering a trademark
• Laws vary in different countries to protect new product ideas
• The owner of a patent may sell the right to produce the product or to use the process to others
• Benefits of having a patent for a new product


  • Provides legal protection for the innovative product idea