BUS101 Study Guide

Site: Saylor Academy
Course: BUS101: Introduction to Business
Book: BUS101 Study Guide
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Date: Sunday, February 28, 2021, 11:44 PM

Unit 1: The Context of Business

1a. Identify foundational business practices

A. Milton Friedman, the author of "Capitalism and Freedom", famously said that businesses are only obliged to focus on their profit margin. He believed businesses contribute to society when they increase profits, provide goods and services, and employ people in the local community.

  • Define business.
  • Define profit margin.
  • Define stakeholdercorporationcorporate social responsibility (CSR).
  • Define profit maximizationsocial benefitinnovation as a goal.
  • Define contract theorystakeholder theorybusiness as property.
  • Name three elements included in a general description of business.
  • Name some different business goals and thoughts on profit maximization.

Review this material in section 1 of What is a Business?

B. While profit maximization is a fundamental goal for most businesses, other foundational business practices influence how to organize a business to make it more efficient.

  • Define efficiency, delegation, and departmentalization.
  • Define specialization and division of work.
  • List some common organizational structures that reduce the daily burden of running a business.
  • List five common approaches for departmentalization.
  • Which approach would work best in a company where employees perform repetitive duties?

Review this material in Section 2 of What is a Business?

C. In addition to profit maximization and having a sound organizational structure, businesses are also defined by the product they offer (a service or good).

  • Define market and market needs.
  • List seven methods businesses use to identify market needs.
  • Name some business goals and theories regarding addressing market needs.
  • How does a business choose what product to offer its consumers?

Review this material in Section 3 of What is a Business?

 

1b. Describe economic indicators

A. We can use a number of economic indicators to explain the condition of the economy at any given moment, such as gross domestic product (GDP), the consumer price index (CPI), and interest rates.

These indicators are either leading (predicting the direction the economy is going), coincident (looking at the current state of the economy), or lagging (fluctuating for months after a change in the economy has taken place). Some indicators provide more relevant information about the economy than others.

  • Define economic indicator.
  • Define gross domestic product (GDP), the consumer price index (CPI), and interest rates.
  • Define and explain the difference among leadingcoincident and lagging economic indicators.
  • Identify the economic indicators (leading, coincident, or lagging) that are most relevant to businesses in different industries, such as the auto industry or real estate.
  • The Consumer Confidence Index is an example of a leading indicator. The Consumer Product Index is a lagging indicator. Which of these indicators provides a better tool for predicting future inflation?

Review this material in "Economic Indicators" on page 81 of Introduction to Business.

B. Try inserting some numbers in the U.S. Bureau of Labor Statistics CPI calculator to compare the buying power of today's dollar with the buying power of the dollar in past years.

C. Let's review some indicators that can help predict future economic activity.

  • List ten examples of leading economic indicators.
  • List four examples of coincident economic indicators.
  • List seven examples of lagging economic indicators.
  • Which leading economic indicator includes the confidence of investment and the movement of interest rates?

Review this material in "Economic Indicators" on page 81 of Introduction to Business.

D. The construction industry provides a common indicator of economic activity since so many businesses are intertwined with construction. For example, an increase or decrease in the number of new houses or businesses being built can tell investors and consumers about the general level of confidence in the economy.

  • List some economic indicators the construction industry uses.
  • What does an increase in construction activity tell us about the economy?
  • Explain how to calculate gross domestic product (GDP).

Review this material in "The Economy" on page 52 of Introduction to Business.

 

1c. Identify positive and negative impacts of business on society

A. While most businesses benefit the societies in which they operate, some can negatively impact their local community. Some companies commit to a triple bottom line approach agree to strive toward three goals: economic profits, social and moral responsibility, and environmental sustainability.

  • Identify three benefits a local business provides its community.
  • How does corporate social responsibility positively impact business stakeholders?
  • Define triple-bottom-line approach.
  • Why do companies agree to promote a triple bottom line approach?

Review the positive impact businesses have on society in Corporate Social ResponsibilityReview the triple bottom line approach in "Corporate Social Responsibility" on page 252 of Introduction to Business .

B. Companies should identify any potential negative impacts they may have on their local community and put processes in place to mitigate these negative effects. Consider two areas where businesses could negatively impact their local communities: social disruption and environmental damage.

  • Name three examples of how companies can negatively impact their local community.
  • How can businesses limit social disruption to communities, such as when they decide to close a facility?
  • How can businesses limit environmental damage, such as when they decide to open a facility?

Review some negative impacts business can have on society in Environmentalism.

 

1d. Use economic indicators to describe the state and health of an economy

A. While news reports usually give inflation a negative connotation, inflation is necessary to a growing economy. In addition to periods of inflation, politicians also use the terms depression and recession to describe the state of the economy. Business owners know these descriptors of the economy can play a large role in their decision making.

  • Define inflation.
  • Describe the circumstances in which inflation is positive.
  • Define and describe the differences between a depression and a recession.
  • Is depression or recession more likely to impact a business's decision to downsize its workforce?

Review "Inflation" on page 69 of Introduction to Business.

Review Measuring the Health of the Economy.

B. Economic indicators provide more than simple data points politicians incorporate into their political speeches: business managers and consumers use this data to determine whether they should hire additional employees, open up a new store, build a new production plant, or wait until a more favorable time when their customers can afford to buy more of their products or services. Companies use the statistics they obtain from the U.S. Census Bureau to help them make these decisions.

  • List some economic indicators relevant to making business decisions.
  • Which indicator tells businesses consumers are overextended and cannot afford to make new purchases?

Review an explanation of economic indicators and the inflation rate beginning with "Inflation Rate" on page 70 of Introduction to BusinessReview how managers track and use economic indicators in Measuring the Health of the Economy Review a list of the economic indicators the U.S. Census Bureau collects (everything from construction spending, to rental vacancy rates, to monthly retail inventories) in U.S. Census Bureau: Economic Indicators.

 

1e. Identify and explain current economic trends

A. Business managers use economic indicators to predict economic trends so they can make decisions, such as calculating how their company will fare during a particular phase of the business cycle. These different phases represent the economic climate, which is the trends that are taking place in the country or within a certain industry. Each phase of the business cycle presents an economic trend during a given time period.

  • Define business cycle.
  • Define the four phases of the business cycle: expansionpeakcontraction, and trough.
  • Which two of the four phases of the business cycle represent a turn in the cycle?
  • Define the gross domestic product (GDP).
  • What business cycle corresponds to a period of inflation?

Review the business cycle in terms of the economic indicator gross domestic product (GDP) on page 75 of Introduction to BusinessReview the business cycle in The Business Cycle and  The Business Cycle: Definitions and Phrases.

 

1f. Identify the four phases of the business cycle in real-life situations

A. The four phases of the business cycle are extremely important in real-life situations: they help business managers make decisions for their companies. For example, knowing what phase the economy is in can help managers predict whether it is a good time to spend their savings to make needed investments in their company. Making investments during an inopportune time could put their organization at risk.

Today's companies are more interconnected than ever, on a national and global scale. For example, when a company or industry sees fewer sales due to a contraction in the economy, they may need to lay off workers, buy fewer raw materials, or postpone buying a warehouse to house a new production facility. Fewer workers means that real estate sales plummet, and local small businesses suffer when no one comes into their stores to make purchases.

However, the global economy can protect companies from these economic trends. For example, while the U.S. economy is experiencing a recession, companies may find new buyers of their products in foreign countries that are experiencing expansion.

  • During an expanding economy, businesses tend to need to produce more products. How will this affect employment and other economic indicators?
  • When the economy is in a trough and customers are not buying products, what are business owners likely to do? How will this affect employment and other economic indicators?

Review how to evaluate the implications and attributes of the different phases of the business cycle in the infographic on page 74 of Introduction to Business.

 

1g. Use economic indicators to predict where a business is heading in the business cycle

A. Business managers use economic indicators to predict where their company may be heading in the business cycle. In other words, economic indicators help managers predict the future. Consider the following scenario: a real estate company hires additional salespeople to respond to an increase in the volume of new houses it has listed during the past three months.

  • For this scenario, what phase of the business cycle is the real estate business in? List the factors that led you to this conclusion.
  • What phase would the company be in if it were reducing its salesforce?

B. The U.S. Federal Reserve plays a large role in making changes to the business cycle. Typically, the Federal Reserve creates policies to control the money supply and inflation, which can influence employment levels in the United States.

  • Define the money supply.
  • Describe the functions of the U.S. Federal Reserve?
  • Define and describe the difference between fiscal and monetary policy.
  • Can the actions of the U.S. Federal Reserve cause changes in the business cycle?
  • How does an increase in money supply and inflation affect the business cycle?

Review this material in "Fiscal policy" on page 77 and "Monetary Policy" on page 79 of Introduction to Business. Be sure to study the infographic on monetary policy on page 79.

C. We have reviewed how business cycles correlate with gross domestic product (GDP). Other economic indicators can also predict where the economy is heading in terms of the business cycle.

  • How do economists use employment levels to predict the direction of the economy and the business cycle?
  • How do economists use the consumer price index (CPI) to measure inflation?

Review this material in "The Consumer Price Index" in Measuring the Health of the Economy.

 

1h. Describe global trade restrictions

A. Many companies like to do business globally because it expands their pool of potential customers, which can lead to increased profits. However, business managers have to consider and overcome many barriers to global trade, such as trade restrictions foreign governments impose on outside businesses. Luckily, pathways exist to help alleviate the burden of these government-imposed restrictions.

  • List the trade restrictions governments can impose on foreign businesses.
  • Define and describe the difference between a trade embargo and quotas?
  • Define and describe the difference between tariffs and quotas?
  • How do tariffs, quotas, and embargoes affect the economy of the country that imposes the restrictions? How about the individual industry involved?
  • How do tariffs, quotas, and embargoes affect the economy of the country that wants to sell goods to a country that has imposed these restrictions? How about the individual industry involved?

Review this material in International Trade Barriers.

B. Differences in currencies present another barrier to global trade. Since most countries use different currencies, how can businesses and consumers know whether they are making an equitable deal? They need to be able to compare and determine the value of each currency in terms of the other. These calculations involve using a currency exchange rate, that can change rapidly.

  • Define the currency exchange rate.
  • What does it mean if the exchange rate in the United States decreases relative to a foreign currency?
  • What does it mean if the exchange rate in the United States increases relative to a foreign currency?
  • Is it more or less beneficial for U.S. businesses to trade with a country that has a currency whose value is stronger or weaker than the U.S. dollar?

Review this material in General Agreements on Tariffs and Trade (GATT) and International Trade Barriers.

 

1i. Identify factors affecting the success of businesses

A. Entrepreneurs need to be aware of many factors that can influence their business success.

  • List some factors that can affect the success of a business.
  • Define infrastructure.
  • How important is infrastructure, such as the availability of roads or railways, to the success of a business?

B. One key factor affecting the success of a business is understanding the customer. Who are they? What do they need? How can my product help consumers?

  • Define demographics.
  • How important is it for businesses to understand the demographics of its customers?
  • How would changing demographics have an adverse effect on the profit margins for a business?

Review how to identify consumer trends on page 99 of Introduction to Business.

 

1j. Evaluate the feasibility of doing business in a specific country

A. We have examined barriers for conducting global business in terms of the restrictions governments place on foreign businesses. Corporations need to consider other factors as they look to expand globally.

  • List some barriers to international business.
  • What is an example of a national rivalry that could prevent a company from operating successfully in a foreign country?

B. Companies conduct business differently in "industrialized" and "non-industrialized" nations.

  • Define industrialized and non-industrialized countries.
  • Which of the factors you listed in the previous section are most important to doing business in a non-industrialized country?
  • How does available technology affect the distribution of goods?

Review the explanation of external factors that influence business activities in Getting Down to Business.

C. In the previous section we looked at factors that can contribute to, or hinder, business success.These factors are also important to global competition.

  • Which of the barriers to business you listed above are relevant to doing business globally?
  • How does the availability of natural resources influence small countries, such as Japan, in the global marketplace?

D. Processes that have made it easier for companies to conduct business on a global scale include the formation of economic communities.

  • Define economic community.
  • List some prominent economic communities and the countries that participate in them.
  • How do these economic communities ease global market access?

Review methods for conducting business in foreign countries in The Drive for International Trade and on pages 56–69 of Introduction to Business.

 

1k. Describe methods for business entry into the global marketplace

A. Once a company has decided to explore avenues of international trade, it needs to consider the best method for launching their business abroad. For example, the originating business could choose to maintain or relinquish control over its operations.

  • List the methods businesses use to enter the global marketplace. Indicate the advantages and disadvantages of these methods, in terms of risk, cost, and control.
  • Which methods allow foreign business managers to maintain the most control over their products and operations?
  • How does subcontracting differ from licensing?

B. Since the primary goal of most companies is to make a profit, cost is an important consideration when choosing the best method for entering a foreign marketplace.

  • How does importing differ from franchising?
  • Which method businesses use to enter the global marketplace is the least expensive option?

Review this material in Types of International Business.

 

1l. Identify trade facilitators

A. Barriers to entering a global marketplace include overcoming government-imposed restrictions and other obstructions that can make international ventures risky. Organizations exist whose sole purpose is to help businesses navigate these potential barriers to facilitate international trade.

  • List the major international trade facilitators and their major responsibilities.
  • Which trade facilitator is most likely to resolve trade disputes?

B. Some trade facilitators help businesses understand legal differences while some help them manage the monetary aspects of doing business globally.

  • How does the mission of the World Bank differ from that of the International Monetary Fund?
  • Where should a company go if it wants to conduct business with a foreign company, but needs a third party to "hold" its money until they can take possession of the product?

Review a variety of trade facilitators in International Trade Agreements and Organizations.

 

Unit 1 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

  • Business
  • Coincident economic indicator
  • Competition
  • Consumer Confidence Index
  • Consumer Price Index (CPI)
  • Consumer Product Index
  • Contraction
  • Contract Theory
  • Corporation
  • Corporate social responsibility (CSR)
  • Currency exchange rate
  • Delegation
  • Demographics
  • Departmentalization
  • Depression
  • Direct Investment
  • Division of work
  • Economic indicator
  • Economic union
  • Efficiency
  • Expansion
  • Export
  • Fiscal policy
  • Franchising
  • Gross domestic product (GDP)
  • Globalization
  • Import
  • Industrialized and non-industrialized
  • Inflation
  • Infrastructure
  • Innovation
  • Instability
  • Interest rate
  • International Monetary Fund (IMF)
  • Lagging economic indicator
  • Leading economic indicator
  • Licensing
  • Market
  • Market needs
  • Money supply
  • Monetary policy
  • Organization
  • Overextended
  • Peak
  • Prime rate
  • Product
  • Profit margin
  • Profit maximization
  • Quota
  • Recession
  • Service
  • Social benefit
  • Social disruption
  • Specialization
  • Stakeholder
  • Stock
  • Subcontracting
  • Tariff
  • Trade agreements
  • Trade embargo
  • Triple bottom line approach
  • Trough
  • Unemployment
  • U.S. Federal Reserve
  • World Bank
  • World Trade Organization

Unit 2: Entrepreneurship and Legal Forms of Business

2a. Describe the following legal forms of businesses: sole proprietorships, partnerships, corporations, and limited-liability corporations

A. When an entrepreneur decides to create a business, they must decide on the appropriate legal form. Many options are available and each legal form its own advantages and disadvantages.

  • Define sole proprietorshippartnershipcorporation, and limited liability corporation (LLC).
  • List the advantages and disadvantages of each type of business.

Review the advantages and disadvantages of these four legal forms of business in "Forms of Ownership" on page 155 of Introduction to Business.

B. While most businesses maintain the same form and organization throughout their existence, some businesses change their legal form of ownership (such as, from sole proprietor to corporation) or merge with, or acquire, other businesses.

  • What is the difference between merging with and acquiring another business (i.e., a merger vs. an acquisition)?

Review Mergers and Acquisitions.

 

2b. Evaluate the appropriateness of the different legal forms of business for various business contexts

A. In addition to the four major forms of business ownership, the U.S. Internal Revenue Service has designated some additional types of businesses, such as limited liability companies (LLC), S-corporations, and nonprofit organizations.

  • Define and explain the differences among a limited liability company (LLC), S-corporation, and nonprofit organization.
  • What is the advantage of owning a limited liability company LLC versus a sole proprietorship?

Review limited liability company (LLC) in Other Types of Business Ownership.

B. Let's explore some different scenarios that apply to the four different forms of business ownership. Two differences pertain to the amount of control the owner has over the business and their amount of personal liability.

  • Which form of business ownership gives owners the most protection for their personal property?
  • Which form of business ownership gives owners complete control over all operations?

Review "Forms of Ownership" on page 155 of Introduction to Business and  Selecting a Form of Business Ownership.

 

2c. Identify and describe the function of the major components of a business plan

A. Once an entrepreneur has chosen an appropriate legal form for their new business, they typically create a business plan to help them choose the best structure and organization.

  • Identify the purpose and function of each section of a typical business plan:
    • executive summary;
    • description of the proposed business;
    • industry analysis;
    • mission statement and core values;
    • management plan;
    • goods, services, and the production process;
    • marketing;
    • global issues;
    • financial plan; and
    • possible appendices.

B. While the business plan is an excellent tool for internal planning, business owners can also use it to communicate with external stakeholders, such as a potential investor who may review the plan to see if the owner has put enough thought into all aspects of the business.

  • What section of the business plan is most important to a loan officer for a bank?
  • What section of the business plan is most important to a potential investor?

Review the purpose of the different components of a business plan components in The Business Plan.

 

2d. Analyze the potential of a business to be profitable, when considering: legal form of business, tax rates, and break-even analysis

A. Unless it has an outside funding agency, most businesses must make a profit to survive. They need to generate enough revenue to cover their expenses. A business manager needs to calculate how much product they need to sell to cover their expenses or conduct a break-even analysis.

  • Define net profit.
  • Define fixed and variable costs.
  • Define break-even point.
  • What is the formula business managers use to conduct a break-even analysis?
  • How does a break-even analysis account for fixed and variable costs?

Review break-even points for investments on page 167 of Introduction to Business. Review the break-even point for profits and losses in Breakeven Analysis.

B. Taxes, collected by local, state, and federal government entities, benefit society in ways we often fail to recognize and frequently take for granted. For example, businesses benefit from government spending when the highways, rail systems, and seaports they build allow companies to get the goods they manufacture to their customers. Local governments are responsible for creating an education system that will educate their future employees. Customers are more likely to buy products they know have been inspected for quality.

For many companies, taxes are simply a cost for doing business. However, taxes can be expensive and controversial when business owners feel their tax dollars are not being spent efficiently.

  • How does the tax rate affect business operations?
  • How does the tax rate affect business profitability?
  • How does the tax rate impact the cost of products?

Review the role of taxes and business profitability in The Economics of Tax Reform: Lessons from the Donut Shop.

 

2e. Analyze the impact of small business on the economy

A. As we learned in Unit 1, business managers use various economic indicators to predict future economic growth. For example, small businesses play a vital role in the unemployment rate since they employ so many workers.

  • How do small businesses impact the economy?
  • How do small businesses impact consumers?
  • How do small businesses affect business and product innovation?
  • How do small businesses provide opportunities for women and minorities?

Review this material in The Importance of Small Business to the U.S. Economy.

B. Franchises offer business managers the opportunity to create a small business without having to incur as much risk as they might have to do when creating a business that is unsupported by an outside corporate entity.

  • Name some advantages and disadvantages of owning and operating a franchise business?

Review franchising in "Getting a Franchise" in Starting a Business.

 

Unit 2 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

  • Acquisition
  • Break-even analysis
  • Break-even point
  • Business plan
  • Corporation
  • Cost of products
  • Executive summary
  • Financial plan
  • Financial projections
  • Fixed costs
  • Franchising
  • Industry analysis
  • Innovation
  • Investor
  • Liabilities
  • Limited Liability Company (LLC)
  • Limited Partnership
  • Loan officer
  • Management plan
  • Market analysis
  • Marketing
  • Merger
  • Mission statement
  • Net profit
  • Non-profit organization
  • Partnership
  • Pass-through taxation
  • Profitability
  • S-Corporation
  • Small business
  • Sole proprietorship
  • Tax rates
  • Variable costs

Unit 3: Marketing

3a. Identify the major components of the marketing mix

A. Businesses need to market their product or service to generate revenue. Marketing your product or service to a potential customer involves many more steps and is much more complicated than simple advertising.

  • Name the four Ps of marketing.
  • List the main components of each of these four marketing strategies, and what makes each one different from the other.
  • Name some examples of different marketing strategies.
  • Match the marketing strategies that correspond with each of the four Ps of marketing.

Review the 4 Ps of marketing in The Marketing MixPricing a ProductPlacing a Product, and Promoting a Product.

 

3b. Describe how segmentation and research foster an understanding of consumer behavior

A. Businesses often conduct research to understand their customers: so they are sure to design products that will meet the needs of their customers, and they know how to reach their customers to market their products or services.

  • Define primary and secondary research.
  • Define demographic and psychographic data .
  • List the ways a business might use geographic data to market its product or service.

Review market research in The Marketing MixReview different types of market research data in "Identifying Your Target Market" on page 161 of  Introduction to Business.

 

3c. Describe the marketing concept

A. Marketing involves more than reaching as many people as possible through advertising. It is a process that begins with finding market opportunities.

  • Name the five steps of the marketing process.
  • In what step does a business conduct market research?
  • Does a business have an obligation to protect its customers?
  • What step of the marketing process refers to a responsibility to customer safety?

Review the marketing process on page 177 of Introduction to Business and in What Is Marketing?.

 

3d. Describe the evolution of marketing

A. Marketing practices have changed since the days of bartering when the person who created something met and sold it to their customers in the town square. Often a skilled craftsman was the only supplier of the product to a large region. Demand was high, but supply was low. During the industrial revolution, manufacturers began incorporating mass production techniques. While societal demand had increased, consumers could buy what they needed from a much larger pool of manufacturers. Demand was still high, but supply was much higher.

Since customers had more items to choose from, manufacturers had to think of ways to increase demand for their products. For example, they could build better-quality products, lower their prices, make their products look better (even if they weren't!), and convince customers they had to have that particular gadget or product. Manufacturers also had to find ways to let their customers know about the wonderful products they had available and where they could buy them.

  • Define and describe four approaches to marketing: productionproductselling, and marketing.
  • Why do customers buy products that are of lesser quality?
  • Define a selling approach and customer-oriented approach to marketing.

Review this material in The History of the Marketing Concept.

 

3e. Differentiate among the components of a marketing strategy

A. Businesses often focus their marketing efforts on customers who are most likely to buy their product, to save resources, such as time, personnel, and money. Note that a significant part of creating a marketing strategy for a business involves conducting market research which we review in learning outcome 3g below.

  • Define and explain the difference between segmentationtargeting, and positioning.
  • Name some strategies a marketer can use to identify their target market.
  • Define the dimensions of segmentation: demographicsgeographicbehavioral, and psychographics.

Review "Target Market" on page 183 of Introduction to Business and in The Marketing Concept.

B. Business owners conduct a SWOT analysis to identify and gain an understanding of the strengths, weaknesses, opportunities, and threats for their business. This examination helps them: minimize and find solutions to their internal weaknesses or limitations, identify ways to respond appropriately to external threats or competitors, build on their internal strengths, and take advantage of any outside opportunities that come their way.

  • Define the four elements of a SWOT analysis.
  • What is the best way for a business manager to perform a SWOT analysis?
  • Describe what each element would look like for different types of businesses.

Review this material in "SWOT Analysis" on pages 184-185 of Introduction to Business.

 

3f. Analyze consumer decision-making processes to predict buying behavior

A. In addition to knowing who their target market is, business owners also need to identify the factors that influence whether their customers will buy their product. They need to understand their customer's decision-making process. Businesses use this information to convince consumers to buy their products. Knowing why consumers dislike their product provides an opportunity to make improvements.

  • Define the five stages of the consumer decision-making process.
  • Is the consumer decision-making process different for buying an expensive luxury item vs. a candy bar?
  • Does the purchase represent a social functionroutine responselimited decision making, or extensive decision making purchasing behavior?

Review this material in Consumer Purchasing Behavior.

 

3g. Identify the implications of marketing research on marketing strategy

A. We have looked at how to determine market segmentation based on demographics (age, gender, education level, and so on) but marketing strategies can also be based on other research results.

  • Define and explain the difference between market size and market share.
  • How does a marketer cater to their target market's culture or behavior?
  • How does geography influence marketing strategies?

Review "Target Market" on page 183 of Introduction to Business and The Marketing Research Process.

 

3h. Describe elements of customer relationship management, including customer life cycle and customer value proposition

A. Customer relationship management is an integral part of any successful business. Many business managers use computer software (called a CRM) to keep track of each of their customers, such as to document when someone shows interest in their product, makes a purchase, has not made a purchase in a while, and when they are a repeat customer. Online shopping can make it easier for companies to keep track of this information since customers provide their contact information when they visit their website. These contact points describe the customer life cycle.

  • Name the four concepts related to customer relationship management (CRM).
  • Define customer value proposition.
  • Identify and explain three customer benefits and four customer costs in the customer value proposition.
  • Define customer life cycle.
  • Explain how businesses can use this tool to maintain a productive relationship with their customers.

Review "Customer Value Proposition" and "Customer Life Cycle" on page 191 of Introduction to Business.

 

3i. Identify the marketing implications of customer relationship management

A. Marketing involves building relationships with your customers. Since most people like to feel special, customers who feel valued as individuals are more likely to feel a sense of loyalty to a company they like and make additional purchases. Most companies rely on this repeat business to succeed. For example, if a sales department knows a customer buys a car every three years, it could use customer-relationship management software to be sure its staff contacts them every three years to remind them to stop by their dealership.

  • List some goals of customer relationship management (CRM).
  • In what other departments Is customer relationship management important to a company?

Review "Customers" on page 191 of Introduction to Business and Customer Relationship Management.

 

3j. Describe brand, product development, technology adoption cycle, and product life cycle

A. Are you more likely to buy something that has a familiar name brand or do you prefer to buy a generic brand, such as the brand of the pharmacy or grocery store you visit? What does the term "brand" really mean and how is the concept important to marketers and customers?

  • Define brand and the concept of branding.
  • Why is purchasing something that has a familiar brand important to some consumers?
  • How does branding help or hinder marketing?

Review "Brand" on page 190 of Introduction to Business.

B. It is great for a business to have a brand everyone recognizes, but to create that brand, they need to have a product. Remember that a product is a good or service a business offers to meet the needs of society.

There are four major categories of product development:

  1. New to the market: a business creates a new product never seen in the market before;
  2. New to the company: a business decides to produce and sell a product similar to something another business is marketing;
  3. Improvement of existing products: a business makes an improvement to a product they already sell, perhaps due to market research or customer input; and,
  4. Extension of product line: a business creates a variation of products they already sell.
  • How is a product that is new for a company different from a product that is new to the market?
  • If a business sells refrigerators and they want to start selling freezers which category of product development would that fall under?

Review What Is a Product? and Where Do Product Ideas Come From?.

C. Manufacturers of computer-based technologies (including phones and the latest audio equipment) should be familiar with their consumers' technology adoption cycle. This theory calls consumers who buy the latest technology, as soon as it becomes available "innovators" and those who like to wait "laggards". The "early majority" and "late majority" are in between those two extremes.

A technology business wants to target the innovators in the introduction phase of its product life cycle because they can influence both majorities, who will influence the laggards. Marketing influences the product development process, as businesses determine what their customers will be willing to buy. Stages of product development include screening ideas, feasibility and analysis, creating a prototype, product testing, and commercial application.

  • Define the four stages of the product life cycleinnovatorsearly majority adopterslate majority adopters, and laggards.
  • Define the technology adoption cycle.
  • What effect does marketing have on consumers who purchase technology equipment?
  • How do the early and late majority adopters influence the laggards?
  • Define prototype.
  • How does a business' effort to meet consumer needs influence how it tests and develops future products, or product development?

Review "Product" on page 187 of Introduction to Business.

 

3k. Use product life cycles to determine marketing strategy

A. The product life cycle is an important concept for businesses and marketers. Businesses may not need to implement extensive marketing campaigns for products that have been around for a while, since customers know they exist and will seek them out. However, businesses usually need to create marketing campaigns to introduce new products to generate interest and let customers know where to buy them.

Businesses should know where their product falls within its life cycle. This position within the product life cycle and technology adoption cycle will help its marketing department determine the best marketing strategy to use.

  • During what stage of the product life cycle should businesses focus their marketing efforts?
  • During what stage of the product life cycle should businesses focus on branding?

Review "Product" on page 187 of Introduction to Business.

B. Businesses use the position its product has in the product life cycle and technology adoption cycle to inform its pricing strategy. For example, a gaming system manufacturer that plans to introduce a new gaming system, typically lowers the sales price of the older models to reduce its inventory. A business that begins selling its product to innovators may be able to offer a high price, because these individuals may be willing to pay more to be the first ones in their community to have the latest gadget.

  • Define skimming pricingpenetration pricingcost-based pricingdemand-based pricingtarget costingprestige pricing, and odd-even pricing.
  • Identify other pricing strategies marketers use during different phases of the product's life cycle.

Review Pricing a Product.

 

3l. Identify the marketing implications of e-business

A. Consumers expect to find the information about a business and the products it offers, whether a business is completely online or only has an electronic presence. Businesses should understand their e-business and e-commerce goals, so can control how their customers perceive their online presence.

  • Define and describe the difference between e-commerce and e-business.
  • List seven categories of e-business.
  • List seven reasons businesses decide to offer their services online.

Review Introduction to Electronic Commerce and E-Business, and these definitions of e-commerce and e-business. Then, review Categories of Electronic Commerce and Key Motivators behind Taking a Business Online.

B. Today, most businesses also use social media to market their product or services.

  • Name seven reasons businesses use social media to market their goods or services.
  • Do the goals for social media marketing differ from other types of business marketing?

Review "Social Media Marketing" in Interacting with Your Customers.

 

Unit 3 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

  • Advertising
  • Brand
  • Branding
  • Content marketing
  • Customer relationship management (CRM)
  • Customer life cycle
  • Customer orientation
  • Customer value proposition
  • Demographics
  • e-business
  • e-commerce
  • e-mail marketing
  • Early majority adopter
  • Four P's of marketing
  • Geographic data
  • Innovator
  • Laggard
  • Late majority adopter
  • Lead generation
  • Market culture
  • Market share
  • Market size
  • Marketing orientation
  • Personal selling
  • Place
  • Positioning
  • Price
  • Primary data and research
  • Product
  • Product life cycle
  • Product orientation
  • Production orientation
  • Promotion
  • Psychographics
  • Public relations
  • Sales promotion
  • Search engine optimization
  • Secondary data and research
  • Segmentation
  • Selling orientation
  • Social media
  • SWOT analysis
  • Targeting
  • Target market
  • Technology adoption cycle

Unit 4: Accounting, Finance, and Banking

4a. Describe the role of accounting and finance in the business process

A. While businesses focus on more than their profit margin and bottom line, financial management and the financial well-being of a business are important to many stakeholders. Different stakeholders are interested in managerial or financial accounting.

  • List the stakeholders interested in the financial well-being of a business.
  • Define and explain the difference between managerial accounting or financial accounting.
  • Explain why the different stakeholders in your list are interested in managerial or financial accounting.
  • Define generally accepted accounting principles (GAAP).

Review The Role of Accounting.

 

4b. Describe and analyze components of the income statement and balance sheet

A. Business managers prepare two financial statements to present information to their stakeholders: the income statement and balance sheet.

  • Define assetcashaccounts receivableinventoryfixed asset.
  • Define liabilityaccounts payabledebtequity.
  • Define fiscal year and calendar year.
  • Define and describe the difference between an income statement and a balance sheet.

Review Understanding Financial Statements.

B. Business managers also need to generate a statement of cash flows and statement of owner's equity.

  • Define cash flow and liquidity.
  • Define statement of cash flows and statement of owner's equity.

Review "Accounting" on pages 207–214 of Introduction to Business and Understanding Financial Statements.

 

4c. Differentiate among key financial ratios for making business decisions, including profit margin, return on equity, and debt to equity ratio

A. Financial analysts use ratios to understand how well a business is doing financially. For example, the profit margin tells an analyst how much profit a business makes for every dollar it receives in sales or revenue. This ratio takes into account the percentage of sales revenue the business receives, as compared to the amount of money it spends on materials and for operating the business. Analysts want to know how much money is left over to invest in the future of the business and to pay dividends to shareholders after expenses are paid.

  • Define profit margin (for example, what does it mean if the profit margin is 0.4?).
  • Define operating margin.
  • Describe the formula analysts use to calculate the profit margin.
  • Which financial statement should an analyst review to collect this information?

B. The return on equity tells an analyst whether management is choosing its assets wisely.

  • Define and describe the difference between equity and assets.
  • Define return on equity (for example, what does it mean if the return on equity is 0.4?).
  • Describe the formula analysts use to calculate the return on equity.
  • Which financial statement should an analyst review to collect this information?

C. The debt-to-equity ratio indicates the relationship between the amount a company owes, as compared to what it owns. This ratio helps potential lenders and investors decide whether a business can afford to borrow any more money.

  • Define debt-to-equity ratio (for example, what does it mean if the debt-to-equity ratio is .49?).
  • Describe the formula analysts use to calculate the debt-to-equity ratio?
  • Which financial statement should an analyst review to collect this information?

Review Financial Statement Analysis and "Accounting" on pages 214–220 of Introduction to Business.

 

4d. Assess the implications of financial ratios for the future performance of a company

A. Stakeholders often use financial ratios to predict how a company will do in the future, based on their past performance. Analysts put these ratios into specific categories based on the information they provide. These categories include profit margin ratios, management efficiency ratios, management effectiveness ratios, and financial condition ratios.

  • Define profit margin ratiosmanagement efficiency ratiosmanagement effectiveness ratios, and financial condition ratios.
  • Which category do the three ratios (profit margin, return on equity, and debt-to-equity ratio) we discussed above belong to?

Review Financial Statement Analysis.

A. In the television show Shark Tank, entrepreneurs try to convince a panel of industry veterans (sharks) to invest in their idea. They talk a lot about valuation, which are estimates about what a company is worth financially. These potential investors determine the financial value of the potential company when they decide whether they would obtain a good return on their investment.

Sharks often think entrepreneurs put too much value on their business. This makes sense because the entrepreneurs often have a close emotional attachment to the product or service they want to sell and feel consumers would pay a lot of money for it. In terms of the numbers, an entrepreneur who asks an investor to pay $500,000 for a 10 percent share of the company, believes their product, company, or idea is worth $5 million (100 percent of the shares). However, the entrepreneur needs to convince the sharks (and other potential investors) that they can really generate sufficient revenues: they need to prove the company is really worth that much.

  • Calculate the valuation of a company if an entrepreneur asks investors to pay $35,000 for a 20 percent share.
  • What is the most common valuation ratio financial analysts use?

Review valuation ratios in "Accounting" on pages 214–220 of Introduction to Business.

 

4e. Describe the roles of the Federal Reserve, banks, interest rates, and credit analysis in respect to decisions of financial lending

A. We have a variety of options for investing our money, whether in a savings account, a checking account, a money market account, or under our mattress. Businesses have the same options.

  • Define six types of financial institutions: commercial banksavings bank, credit unionfinance companyinsurance company, and brokerage firm.
  • Define interest rate and mortgage.
  • How do banks expand the money supply?
  • Define a credit analysis.
  • Explain the five C's of credit analysis: capacitycapitalcollateralconditions, and character.

Review financial institutions and their impact on the money supply in Financial Institutions. Review credit analysis in "Credit Analysis and Lending" on pages 224–227 of Introduction to Business.

B. American financial institutions turn to the U.S. Federal Reserve (the Fed) for guidance on making their own financial investments.

  • What is the U.S. Federal Reserve? Name its primary three goals.
  • Define Federal Reserve discount rate and prime rate.
  • Define and explain the difference between monetary policy and fiscal policy.

Review The Federal Reserve System.

 

4f. Describe different options for financing

A. Businesses often need an influx of capital (money) to help expand their business or cover a temporary deficit in their cash flow. They have two options for getting some extra money into their coffers: equity financing and debt financing.

Businesses do not need to repay the money they obtain through equity financing. The business owner may provide the money themselves (from their savings account), or the business could sell shares of ownership in the business to an investor.

  • Define equity financing.
  • Define a stock and the U.S. Stock Market.
  • Define an angel investorventure capitalistpublicly-traded companyinitial public offering (IPO).
  • Name the two most common market indexes investors use to buy and sell stocks.
  • Define a primary and secondary market when buying or selling stock.

B. Businesses must repay the money they borrow through debt financing. The repayment usually involves a fee (usually in the form of interest).

  • Define debt financing.
  • Define a bond and the U.S. Bond Market.
  • Explain the difference between collateralized or secured loans, and non-collateralized or unsecured loans?
  • What types of assets can a business use for collateral for a loan?
  • Can you think of the types of businesses that would require a seasonal loan?

Review Understanding Securities Markets and equity financing options in Financing the Going Concern. Review debt financing in "Credit Analysis and Lending" on pages 224–225 of Introduction to Business.

 

4g. List and explain the tools available to the Federal Reserve during financial crises

A. Review outcome 4e, above, which explored the U.S. Federal Reserve system.

  • Define open market operations.
  • How does the U.S. Federal Reserve use open market operations to control the money supply in the United States, via monetary policy?

Review The Federal Reserve System and "Monetary Policy" on page 79 of Introduction to Business.

 

4h. Analyze the causes and implications of the 2008 financial meltdown

A. Remember the old adage "those who don't understand history are doomed to repeat it"?

  • Define a subprime loan and foreclosure.
  • Explain the role banks had in the 2008 financial crisis.
  • Explain the role the housing industry had in the 2008 financial crisis.
  • Explain the role the U.S. Federal Reserve had in the 2008 financial crisis, especially with respect to the low-interest rates it offered Americans before and after the financial fallout occurred.

See this explanation in Financial Crisis of 2007–2008.

 

4i. Calculate the time value of money

A. Business owners must determine the opportunity cost for investing the profits they make. In other words, they need to calculate what they will earn from an investment and whether it would be more profitable to invest in something else. The time value of money says the dollar you receive today is worth more than a dollar you could receive in the future.

  • Define compound interest.
  • Describe the formula used to calculate the future value of money.
  • Calculate the money you would earn if you invest $1,000 in an account that earns five percent for 10 years? How will this number compare if you withdraw the amount of interest earned every year?

Review Time Is Money and "The Time Value of Money" on pages 228–230 of Introduction to Business.

 

Unit 4 Vocabulary List

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

  • Accounts payable
  • Accounts receivable
  • Angel investor
  • Asset
  • Balance sheet
  • Bond
  • Brokerage firm
  • Capital
  • Cash
  • Cash flow
  • Collateral
  • Commercial bank
  • Compound interest
  • Credit analysis
  • Credit union
  • Debt financing
  • Debt to equity ratio
  • Emergency Economic Stabilization Act
  • Equity
  • Federal funds rate
  • Federal Reserve Discount Rate
  • Finance company
  • Financial accounting
  • Financial condition ratio
  • Fiscal policy
  • Fiscal year (vs. calendar year)
  • Fixed asset
  • Foreclosure
  • Future value
  • Generally accepted accounting principles (GAAP)
  • Income statement
  • Insurance company
  • Initial public offering (IPO)
  • Interest rate
  • Inventory
  • Liability
  • Liquidity
  • Management efficiency ratio
  • Management effectiveness ratios
  • Managerial accounting
  • Monetary policy
  • Money supply
  • Mortgage
  • Open market operations
  • Owner's equity
  • Present value
  • Prime rate
  • Profit margin ratio
  • Publicly-traded company
  • Return on equity
  • Savings bank
  • Savings and loan
  • Secured loan
  • Securities
  • Stakeholder
  • Statement of cash flows
  • Statement of owner's equity
  • Stocks
  • Subprime loan
  • Time value of money
  • U.S. Bond Market
  • U.S. Federal Reserve
  • U.S. Stock Market
  • Valuation ratios
  • Venture capitalist

Unit 5: Management

5a. Define the management process

A. Most businesses require leaders who can help provide vision and guide the different elements of the business process, such as idea generation, production, accounting, marketing, and customer service, so they fit together to create an efficient system, someone who can see the "big picture".

  • Define the four functions of managementplanningorganizingdirecting (or leading), and controlling.
  • Name an example of actions a manager performs for each of these four functions.
  • What is the difference between efficiency and effectiveness?
  • How do managers combine efficiency and effectiveness for managerial success?

Review Managing for Business Success and "Management" on page 249 of Introduction to Business.

 

5b. Describe how management contributes to the success or failure of a business

The leadership who is responsible for running a business can greatly impact whether it fails or succeeds. These managers are not only responsible for making sure the organization runs smoothly, but they often play a direct role in determining the focus the business takes and help determine its priorities. Leaders can play a large role in helping their employees perform their jobs well to succeed. They can also create additional unnecessary and frustrating roadblocks employees need to circumnavigate.

  • Define a strategic plan.
  • Describe how managers craft a company or organizational mission statement.
  • How do managers establish a positive corporate or organizational culture in their business?
  • Name some tactical and operational plans that managers use to help their businesses succeed, such as during times of hardship.

Review Managing for Business Success and "Management", "Mission Statement", and "Corporate Culture" on pages 249-250 of Introduction to Business.

 

5c. Differentiate among various management styles

A. We can describe leadership styles from controlling to hands-off.

  • Define three different leadership styles: autocraticdemocratic, and laissez-faire.
  • Name some benefits and disadvantages to businesses that exhibit each of these three types of leadership styles.
  • Are some industries more suited to these different leadership styles?

Review Directing.

 

5d. Identify the business implications of corporate mission, corporate culture, corporate social responsibility, human resource management, and labor unions

A. During the interview process, you should try to determine the corporate mission, corporate culture, and commitment toward corporate social responsibility, to determine whether you would like to work for a company that promotes these types of activities and workplace values.

The type of culture the leadership conveys to its employees and to its customers will often influence how well the leaders and employees work together, how the company is organized, and whether the employees feel they are responsible for promoting certain activities within their social community. Note that we also discussed corporate social responsibility in Unit 1 of this study guide.

  • Define corporate missioncorporate culturecorporate social responsibility
  • Define human resource management and labor unions.
  • Why should potential employees understand the corporate mission and culture before accepting a position in a company?

Review Planning and "Mission Statement" and "Corporate Culture" on pages 249–250 of Introduction to Business.

B. While most businesses focus on their primary mission to meet the needs of their communities by providing products and services their consumers want and need, many customers expect businesses to make a positive contribution to their community. At the very least, they should not cause any harm.

  • Why do businesses try to limit the negative effects of their business operations to their community?
  • Name five examples of how companies promote corporate social responsibility.

Review Corporate Social Responsibility and "Corporate Responsibilities" on page 252 of Introduction to Business. Pay attention to the infographic that summarizes a company's economic, legal, ethical, and proactive responsibilities.

C. When applying for a position, you should review the company's human resource management policies to gauge the financial and social benefits of working for the company and see how the employees resolve any disputes that may arise. You should also see whether a labor union will be available to represent you on these issues.

Human resource managers determine the human resource needs for different parts of the company, recruiting and hiring people to fill job openings, training employees so they can perform their jobs successfully, compensating employees fairly, performing evaluations, helping resolve conflict, and, at times, letting employees go if they are not performing effectively.

  • What does a job analysis entail?
  • Name five common employee benefits.
  • Name five less common employee benefits.
  • Define a flexible workplace.
  • Why is it in the best interest of the employer to offer these benefits?

Review Human Resource Management and "Employee Benefits Overview" on pages 256–258 of Introduction to Business.

D. Labor unions can benefit employees and employers. For the most part, the role of labor unions has changed as collective bargaining has become more of a collaborative effort between the bargaining unit and management.

  • Define a labor union.
  • Define collective bargaining.
  • How do employees benefit from the labor unions that operate at the companies where they work?
  • Why do some companies discourage labor unions from operating within their businesses?

Review Labor Unions and "Unions" on pages 263–264 of Introduction to Business.

 

5e. Describe the steps in conducting labor negotiations

A. Let's look at what a labor negotiation involves.

  • Define and describe the differences between negotiationmediation, and arbitration.
  • Define a boycottstrike, lockout, and strikebreaker.
  • Describe how the negotiation process between labor and management works.

Review Labor Unions and "Unions" on pages 263–264 of Introduction to Business.

 

5f. Describe business law concepts that apply to business

A. In our introductory course to business, let's review three business law concepts: business contracts, risk management, and bankruptcy.

Businesses create and enter into contracts with other businesses and with individuals to delineate the terms of any financial agreements they have with one another.

  • Define a contract.
  • Define three sources of contract law: case lawstatutory law, and International Sales Law.
  • Define four elements of contracts:
    1. explicitness – express, implied, and quasi;
    2. mutuality – bilateral and unilateral;
    3. enforceability – void, voidable and unenforceable; and
    4. degree of completion – execution.

Review General Perspectives on ContractsSources of Contract Law, and Basic Taxonomy of Contracts.

B. Businesses manage the risks they encounter in four general ways: avoidance, reduction, sharing or transference, and assuming.

  • Define risk management.
  • Define four strategies businesses use to manage risk: risk avoidance (eliminate), risk reduction (mitigate), risk sharing (transfer), risk retention (accept and budget for).
  • Name some sources of risk businesses experience.
  • Which of the four strategies for managing risk explains why businesses purchase insurance?

Review Risk Management.

C. Businesses can fail for a variety of reasons that are within and outside their control. When this happens, business managers need to choose the best form of bankruptcy to legally disband or restructure their business.

  • Define three forms of bankruptcybusiness bankruptcy – Chapter 7business reorganization – Chapter 11, and personal bankruptcy – Chapter 13.
  • Which form of bankruptcy disbands the business?
  • Which form of bankruptcy allows the business to restructure just one debt?

Review What is Business Bankruptcy?.

 

Unit 5 Vocabulary

Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.

  • Arbitration
  • Autocratic leadership
  • Bankruptcy
  • Breach
  • Budget
  • Boycott
  • Capital
  • Case law
  • Chapter 7 business bankruptcy
  • Chapter 11 business reorganization
  • Chapter 13 personal bankruptcy
  • Collective bargaining
  • Contract
  • Controlling
  • Corporate culture
  • Corporate mission
  • Corporate social responsibility
  • Damages
  • Democratic leadership
  • Economic model
  • Effectiveness
  • Efficiency
  • Employee benefit
  • Flexible workplace
  • Human resource
  • International sales law
  • Insurance
  • Job analysis
  • Job description
  • Job evaluation
  • Job specification
  • Labor union
  • Laissez-faire leadership
  • Leading
  • Lockout
  • Mediation
  • Mission statement
  • Negotiation
  • Operating
  • Operational plan
  • Organizing
  • Planning
  • Ratify
  • Revenue
  • Risk
  • Risk assumption
  • Risk avoidance
  • Risk reduction
  • Risk transfer
  • Situational leadership
  • Social responsibility
  • Socio-economic model
  • Statutory law
  • Strategic plan
  • Strike
  • Strikebreaker
  • Tactical plan