2.1.1a Internal (organic) growth

Internal growth: getting bigger out of the operations you already own

1. Every extra pound of revenue under internal growth comes from capacity the business has built and paid for itself, so nothing is bought in ready-made from another company.
2. Growth is measured by revenue, output, number of outlets, employees or share of the market, and internal growth lifts those figures one step at a time rather than in a single jump.

The two routes: new products and new markets

1. A firm growing internally has two routes open to it, and each one raises revenue by a different mechanism.
2. New products: adding a line the firm can sell through the shops, staff and customers it already has, so the same rent and wages are spread over more sales.
   1. Innovation turns an idea into something a customer will pay for, and research and development is the designing, prototyping and testing that gets it there, which is why Dyson worked through over 5,000 prototypes before the bagless vacuum cleaner reached a shop.
   2. Research and development is paid for long before the first sale, so a line that flops takes the money with it, which is why a firm often trials a new product in a handful of branches before a national launch.
3. New markets: selling the range the firm already makes to a different group of buyers, reached by changing the marketing mix, by taking advantage of technology, or by expanding overseas.
   1. Changing the marketing mix: a smaller pack at a lower price, or promotion aimed at a different age group, puts the same product in front of buyers who would not have bought the original version.
   2. Taking advantage of technology: selling through a website or an app makes the market the whole country instead of the streets around the shop, at a fraction of the rent of another unit, and social media reaches those buyers without a national advert.
   3. Expanding overseas: selling in another country spreads risk, because a fall in UK spending no longer hits every sale, though the firm pays for transport, translation and any tariffs and may find local tastes differ.
   4. Opening a shop, branch or warehouse in another town is the same route in physical form, reaching customers who live too far from the existing site to use it.
4. New markets are usually the cheaper route, because the product already exists and the spending goes on promotion and delivery rather than on years of development.

Advantages: control kept, cost low, and a pace the business can absorb

1. Control stays with the existing owners: no shares go to another firm's shareholders and no outside board arrives with different plans, so the way the founder runs the business survives the expansion.
2. It costs less: the firm pays for one shop fit-out or one product launch at a time, perhaps £80,000 for a small unit, where buying a rival means paying for its entire premises, stock, staff and brand in one deal.
   1. Much of that bill can be met from retained profit, so there is no interest to pay and no new investor asking for a say in decisions.
3. The pace is gradual: managers can train staff, settle supply problems and learn from a poor site before the next one opens, which means an early mistake stays small and can be corrected.
4. There is no culture clash: new branches are staffed and run the firm's own way from the first day, rather than merging a workforce used to different pay, rules and habits.

Disadvantages: slow, capped by your own money, and still a strain

1. It is slow: a new unit takes months to find, fit out and staff and a new product can take years to reach the shelf, while a takeover adds a whole trading chain on the day the deal completes.
2. A rival can take the opportunity first: if a competitor opens in that town or launches the same idea while your version is still being built, the customers there are already loyal to them when you arrive.
3. The pace is capped by what the firm can fund itself: retained profit only builds up as fast as the business earns it, so a firm making little profit grows slowly however good its plan is.
4. Growth still stretches cash and management: an outlet is paid for months before it takes any money, and the owner who once watched a single site now supervises staff in several towns, so standards can slip.

2.1.1b External (inorganic) growth

External growth: buying a business instead of building one

1. Edexcel names two forms of external growth, and the sharp difference between them is consent.
   1. Merger: both sets of owners agree to combine, so the two firms become one new business, usually with a new name, a single board and one set of shareholders.
   2. Takeover, also called an acquisition: the buyer purchases enough shares to control the target, and because the target's directors do not have to agree, a takeover can be resisted.

Advantages: what the buyer gets on the day the deal completes

1. Growth is immediate, because the premises, equipment, customers and staff already exist and simply trade under new ownership from completion day, and speed is the real attraction of a takeover.
   1. Customers and market share: the target's buyers become your buyers at once, so revenue rises without waiting for a marketing campaign to take effect.
   2. Brand and reputation: a name shoppers already trust takes years of consistent trading to earn, so buying one is often quicker and cheaper than building one.
   3. Staff and expertise: trained people transfer with the business and bring knowledge the buyer lacks, such as how to run a warehouse network or a delivery app.
2. Buying a rival also removes a competitor from the market, so the combined firm is under less pressure to undercut on price and keeps more of the customers it has just paid for.
3. The larger firm orders stock in greater bulk, so suppliers charge it less per unit and its cost per item falls, which means it can either cut its prices or widen the gap between price and cost.

Disadvantages: the price of the deal and the trouble afterwards

1. Buying a business is expensive, so the money usually comes from heavy borrowing, and the interest has to be paid every month whether the deal works or not.
2. The problems that follow completion are as serious as the problem of paying for it.
   1. Culture clash: the two workforces arrive with different pay rates, shift patterns, software and habits, and staff who resent the new way of working leave or stop trying.
   2. Job cuts: two head offices and two accounts departments do the same work, so redundancies follow, and morale falls among the very employees the buyer wanted.
   3. Overpaying: the buyer judges the target from the outside, so worn-out equipment, lost contracts and unhappy customers only come to light once the money has gone.
3. A combined business can also become too big to manage well, because decisions pass through more layers of managers, so a problem in one shop takes far longer to reach anyone able to fix it.

Judging organic against external growth: what it depends on

1. External growth suits a business that needs speed and has the finance and management capacity to absorb another firm; organic growth suits one that values lower risk, control and a manageable pace.
2. The key question is whether the target genuinely fits, because poor systems, culture or customers can turn the expected benefits into integration costs.
3. Overall, external growth is strongest when speed matters enough to justify the higher financial and integration risk.

2.1.1c Ownership for growing businesses

Why ownership changes as a business grows: finance and standing

1. A sole trader or a partnership suits a business at start-up, but growth exposes two limits that a change of ownership fixes.
   1. Finance: the owners' savings, the profit the firm keeps back and what a bank will lend against those run out once growth means new premises, machinery or a national advertising push.
   2. Standing: suppliers and lenders treat a registered company that files accounts at Companies House as more permanent than one person trading alone, so they offer larger trade credit limits and better loan terms.
2. Most growing firms become a private limited company first, and the small number that need capital on a national scale then take one further step.

Becoming a plc: shares anyone can buy

1. The legal difference from an Ltd is who may buy the shares, because an Ltd sells them privately to people the existing owners approve while a plc sells them to anyone with the money to pay.
2. That one change is what raises far larger sums, and it brings three gains.
   1. Large amounts of capital: thousands of investors each buying a small stake add up to sums no handful of private shareholders could put in, enough to fund a nationwide roll-out or a new factory.
   2. Profile and credibility: a listed company's results are reported in the press, which makes suppliers readier to deliver on 60 days' credit and banks readier to lend at a lower rate of interest.
   3. Shares that are easy to sell: a holding can be sold on any day the stock exchange is open, so investors risk their money more willingly and the next share issue is easier to sell.
3. Money raised by selling shares is not a loan, so there is no interest and no repayment date, which means a bakery chain like Greggs could fit out and stock a run of new high-street shops without adding a monthly repayment to its costs before those shops earn anything.

The price of floating: cost, scrutiny and takeover

1. Floating costs the business in five ways, and each one is a reason many profitable firms never do it.
   1. Cost and complexity: the company must pay lawyers, accountants and a bank to handle the sale and to produce a legal document setting out its finances, and those fees run into hundreds of thousands of pounds before one share is sold.
   2. Public and press scrutiny: a plc publishes detailed accounts, so competitors can read its sales and costs and reporters cover every fall in profit, which can knock customer and supplier confidence.
   3. Loss of control: founders who sell part of the company keep a smaller share of the votes, so a decision they oppose can be carried against them at the annual meeting of shareholders.
   4. Open to takeover: nobody chooses the buyers, so a rival that quietly builds a holding of more than half the shares takes control of the company and can replace its managers.
   5. Pressure for short-term profit: shareholders want a dividend now and a rising share price, which pushes managers to cut spending on staff training and new products that would only pay off in five years.

Judging whether a growing business should become a plc

The owners of a successful Ltd have three routes, and the table sets out what each does to their finance, their control and their exposure.

1. Floating is most attractive when the business needs very large sums and the owners are willing to trade some control for faster expansion.
2. It is less suitable when the funding need is modest or the founders strongly value privacy, family control or protection from takeover.
3. Overall, a business should float only when the scale of its growth plan justifies the cost and loss of independence.

2.1.1d Finance for growing and established businesses

Growth finance: what changes once a business is already trading

1. A start-up is funded on the strength of a plan, while a business already trading is funded on the strength of its record, which is why growth finance is usually cheaper and easier to get.
   1. A trading record: accounts and bank statements let a lender check that the business really makes money, so the loan is less of a gamble and the interest rate is lower.
   2. Assets: premises, machinery and vehicles can be offered as security, so the bank can recover its money if repayments stop and will lend a larger sum.
   3. Past profits: years of profitable trading build a fund inside the business that the owners can spend without asking a bank or an investor at all.

Internal sources: money the business has already made or already owns

1. Retained profit is the first place a profitable firm looks, because the money is already sitting in the business and needs nobody's permission to spend.
   1. Advantage: there is no interest to pay and no ownership given away, so the whole return on the new oven, van or shop stays with the existing owners.
   2. Drawback: the amount is capped by how profitable the business has been, and a pound put back into growth is a pound the owners cannot take out this year.
2. Selling assets turns equipment, vehicles or property the business no longer needs into cash, with no interest charged and no repayments to follow.
   1. Drawback: the asset has gone for good, so the business must buy or hire again if it needs that machine back, and a sale raises money once rather than every year.

External sources: loan capital and share capital

1. Loan capital for growth is usually secured on premises or machinery, which is exactly what a trading business has and a start-up does not.
   1. Advantage: control is kept, because the bank votes on nothing and takes no share of the profit once the loan is repaid.
   2. Drawback: repayments fall due whatever the trading, so a quiet quarter costs the same as a busy one, and missed payments can cost the business the secured asset.
2. Share capital never has to be repaid and carries no interest, so instalments do not drain the cash while the expansion is still costing more than it earns.
   1. A private limited company sells shares privately to invited investors, and only a public limited company can go further and float on the stock market, selling shares to the public and raising far larger sums.
   2. Drawback: ownership, profit and control are all shared, because every new shareholder takes a slice of future dividends and a vote on how the company is run.

Judging which source suits a growing business

Set the four sources side by side and the trade-off is size against cost and control.

1. The internal two cost nothing and give nothing away, but neither stretches: retained profit only exists if trading has been profitable, and an asset can only be sold once.
2. How much is needed therefore decides first, because an £8,000 delivery van can come out of retained profit while a £2 million second factory cannot.
3. After that it depends on whether the owners will give up control, and on whether the business can carry fixed repayments in the months when the new site is still costing more than it brings in.
4. Overall, an established firm expanding steadily should fund growth from retained profit first and top it up with a secured loan, because that is the cheapest money and leaves ownership whole; a firm whose growth plan is far bigger than its past profits has to sell shares and accept sharing the profit that growth creates.

2.1.2a Why aims and objectives change

Aims are not fixed: they shift as the business develops

1. The aims written down at start-up describe what mattered to the owner in that first month, so they are reviewed as the business, its market and its owner all move on.
2. One pattern repeats across most firms, with a different aim dominating at each stage.

Referring to the above table:

1. Survival dominates early because cash is thin and one quiet month can leave the owner unable to pay rent, so a low profit is accepted in exchange for staying open.
2. Once regular custom is established the survival aim is met, so the owner reinvests profit in a second van, a second unit or an online shop, which is a growth aim.
3. Later, with the customer base largely won, the aim turns to profit for the owner or to market share taken from rivals, because there is less new ground left to take.
4. The sequence runs backwards as easily as forwards, and Wilko had traded since 1930 with around 400 shops before it entered administration in August 2023, which shows that age and size do not protect an aim.

Outside the business: market conditions, technology and the law

1. Market conditions change when new rivals arrive, when demand shifts to something else, or when a product the firm relied on stops selling.
   1. Aldi and Lidl compete on price with a narrower range, so a nearby grocer loses its price-sensitive shoppers, revenue falls, and an aim of opening a second branch is replaced by an aim of holding on to the customers it still has.
   2. A firm that takes most of its income from one product is hit hardest, because when that product stops selling the growth aim becomes a survival aim within a single trading year.
2. Technology changes aims by making an old objective pointless and putting a new one in its place, most often a new way of selling or a cheaper way of producing.
   1. An objective of opening three more shops becomes an objective of taking a third of sales online, because a website reaches the whole country for a monthly fee while a high-street unit costs several thousand pounds a year in rent.
   2. Blockbuster rented DVDs from shops and did not move its aims fast enough once streaming arrived, and its UK business entered administration in 2013 while Netflix took the customers.
3. Legislation changes aims by forcing spending and management time onto compliance, which pushes the objectives the owner would rather pursue further back.
   1. A rise in the National Living Wage lifts the wage bill of a café with eight staff, so the £12,000 saved towards a second site pays wages instead and the expansion objective slips by a year.
   2. Tighter environmental or consumer law works the same way, since new packaging or new record-keeping has to be paid for before any growth target is funded.

Inside the business: performance and internal reasons

1. Performance against an objective sets the next one, because a target hit early and a target missed badly point the aim in opposite directions.
   1. Hitting an objective early shows there is more demand than expected, so the business raises its sights and sets a more ambitious target.
   2. Missing one badly forces the opposite, and a growth objective drops back to survival until trading steadies.
2. Internal reasons start with the owner, whose own priorities change when they want more time away from the business or decide to sell up.
   1. Taking on investors brings in people who expect a return and push for profit or growth, and new managers arrive with plans of their own.

2.1.2b How aims and objectives change

From survival to growth: the first switch a business makes

1. A new business starts with survival as its objective, which means covering its costs, keeping enough cash in the bank to pay suppliers and holding on until custom becomes regular.
2. Once the business is established and sales are steady, that objective becomes growth, so profit that was being held as a cash cushion is reinvested instead.
   1. Spending changes direction, because money that sat in the account now buys a second van, more stock and an extra member of staff.
   2. The measure of success changes with it, since the owner stops watching the closing bank balance each week and starts watching sales, orders and the number of outlets.

From growth to profit or market share: two different directions

1. Once a business is large, growing for its own sake stops being a useful target, so the objective narrows to either profit or market share.
   1. A profit objective points the business inwards at its margins, so it cuts costs, drops lines that sell steadily but earn little and raises prices where the brand allows it.
   2. A market share objective points it outwards at rivals, so it holds prices down and spends on promotion to take customers from them.
2. The two pull against each other, because winning share by undercutting rivals lowers the profit earned on every sale, which means a business cannot chase both hard at the same time.

Entering new markets and changing the product range

1. Entering a new market: once the home market is saturated and almost everyone who wants the product already buys it, further growth has to come from somewhere else, including overseas.
   1. The business then judges itself on sales made outside its original market, and money moves into distribution, translated packaging and adapting the product to local tastes.
2. Increasing the product range: when an existing product reaches the end of its life and its sales fall away, adding new lines beside it becomes an objective in its own right.
   1. Spending shifts towards design and development, and progress is measured by how much revenue comes from products launched in the last year or two.
3. Decreasing the product range: dropping the slow sellers frees shelf space, releases the cash tied up in stock nobody is buying and simplifies deliveries, which is how Aldi and Lidl hold costs down with a narrower range than Tesco or Sainsbury's.

Exiting a market: why a business pulls out and what leaving costs

1. Exiting a market means pulling out of it altogether: the shops or the website serving it close, the product is withdrawn and the customers there are let go.
2. It never became profitable: sales never rose far enough above the cost of serving that market, so the firm has been covering the losses out of what it earns elsewhere.
3. A rival took it: a competitor with lower costs or a better product won the customers, and matching its price would mean selling at a loss, so staying costs more than going.
4. The cost of serving it rose: higher rent, a tariff added to exports or a supplier putting prices up can turn a market that just about paid into one that does not.
5. The firm wants to concentrate where it is strong: money and managers are limited, so a market that earns an average return is dropped to put both behind the one that earns most.
6. Leaving is expensive at the moment it happens, because stock that nobody will now buy and equipment fitted for that market alone are written off.
   1. The customers built up there are lost, and a firm that returns later has to win them back from whoever served them in the meantime.
   2. What the business gains is the cash and the management time released, which it can put behind a market where the same effort earns more, so exiting can be part of a growth objective rather than a retreat.

A change of objective changes what the business measures

Every objective brings its own measure of success, and the table sets out what a business watches and where its money goes under each one.

1. The workforce moves with the objective, since growth means recruiting salespeople and adding a layer of managers, while a profit objective reduces the workforce by merging roles and leaving vacancies unfilled.
2. In a downturn the direction reverses, so a business that was chasing growth goes back to survival, exiting its weakest markets, cutting the product range to the profitable core and reducing its workforce.

2.1.3a The impact of globalisation on businesses

Globalisation: national economies growing into one connected market

1. Globalisation matters to a UK business because it changes who its suppliers are, who its customers are and who its rivals are, often all at once.
2. Three developments drove it: container shipping cut the cost of moving goods, the internet let a firm sell and manage abroad without an office there, and many governments agreed to trade more freely with each other.
3. The result is that a bakery in Leeds can buy Italian flour, a Birmingham clothing brand can take an order from Australia overnight, and both can be undercut by a producer they have never heard of.

Imports and exports: cheaper supplies for one firm, tougher rivals for another

1. Imports are goods and services bought from abroad, and they reach a UK business down two very different routes.
   1. Buying from overseas: a UK firm can source materials more cheaply, so a metal bracket bought abroad at £4 instead of £7 from a UK supplier cuts the cost of every unit it makes and leaves room to cut its own price.
   2. Competition from overseas: the same open border brings finished foreign goods onto UK shelves, so a UK manufacturer paying UK wages is undercut on price inside its own home market.
2. Exports are sales to customers in other countries, which turns a market of one country into a market of many and lifts potential sales without the firm changing its product.
3. Exporting also spreads risk, because a firm selling into several countries is less exposed if UK consumer spending falls, although shipping, paperwork and a moving exchange rate all eat into the extra revenue first.

Changing location and multinationals: production moves to where it pays

1. Globalisation lets a business put each stage of production wherever it pays best, and UK firms move abroad for two main reasons.
   1. Lower costs: wages, land and energy are cheaper in some countries, so moving assembly there cuts the cost of making each unit and protects profit when rivals cut prices.
   2. Closer to the market: producing inside a large overseas market shortens delivery times and cuts the cost of shipping finished goods to the customers who actually buy them.
2. Neither move is free, because a factory thousands of miles away adds weeks of transport time, makes faults harder to spot early, and can damage the firm's reputation at home when UK jobs go with it.
3. Multinationals coming the other way bring investment and jobs to the UK and widen the choice shoppers have, since Netflix reached UK households with a streaming service no rental chain could match.
4. They also take sales from local rivals and send profits back to a parent company abroad, and streaming is part of why the UK Blockbuster business entered administration in 2013.

Judging globalisation: whether it is good depends on which UK business you mean

Globalisation does not push all UK businesses the same way, and the table sets each change against the firm it helps and the firm it harms.

1. The balance depends on whether the business imports, exports or produces abroad, and whether it can differentiate itself from overseas rivals.
2. Overall, globalisation offers larger markets and lower-cost sourcing, but those gains matter only if the business can manage the extra competition and complexity.

2.1.3b Barriers to international trade

Tariffs: a tax on imports that ends up in the price

1. A tariff is usually charged as a percentage of the value of the goods, and a government uses it to make imports dearer than home-made rivals while raising money for itself.
2. The tariff is paid by the importing business when the goods cross the border, so a firm bringing stock into the country carries the cost before a single item is sold.
3. The chain from that first payment runs all the way to the shelf.
   1. The importer's cost per unit rises, since the tax is added to what the supplier already charged.
   2. The importer then chooses: put the shelf price up and recover the tax from customers, or hold the price and accept a smaller margin on every sale.
   3. Either way the imported good is less competitive, because it now costs more than it did against a home-made rival whose costs have not moved.
   4. Domestic producers are protected and customers pay more, so the same tax that wins a UK factory orders leaves shoppers with a dearer product and less choice.
4. How much damage the tariff does depends on how easily buyers can switch, so a tariff on a product with a close local substitute costs the exporter far more sales than a tariff on something only that firm makes.
5. An exporter that absorbs the tariff rather than passing it on keeps its sales volume but earns less on every unit, which a firm working on a thin margin cannot do for long.

Trade blocs: inside the group you trade freely, outside it you do not

1. A business based inside a bloc sends goods to other members without paying a tariff, so its price on a member's shelf is the price it set at home.
2. A business outside the bloc meets the tariff the bloc charges non-members, so its goods arrive dearer than an insider's identical product.
3. A bloc therefore helps members and disadvantages non-members, which is why membership matters so much to firms that sell across borders.
4. Members usually agree the same tariff on outsiders and common rules on standards and labelling, so one version of a product can be sold across the whole bloc without a redesign for each country.
5. Membership cuts both ways for a member firm, because the open border that lets it sell into the other members also lets their producers undercut it at home.
6. One response is to produce inside the bloc rather than export into it, since goods made in a member country move as an insider's goods.
7. That decision is expensive, because the firm must fund a factory or a partner abroad before it saves anything on tariffs.

Who the barriers hit, and the practical obstacles alongside them

1. A tariff protects domestic producers by making the foreign version dearer, so a UK manufacturer keeps orders it would have lost on price.
2. The same tariff raises costs for domestic firms that import their materials, because a bakery in Leeds buying imported flour pays the tax, so its costs rise, its margin falls and it must either charge more or earn less on every loaf.
3. Barriers also invite retaliation, since other governments answer with barriers of their own and UK exporters then lose sales abroad.
4. Alongside the two barriers named above sit practical obstacles: different legal and safety standards, another language and culture, longer transport and delivery times, and customs paperwork at the border.
   1. None of those is a tax, but each adds cost or delay, and most of the cost is fixed, so a redesign or a translated advert weighs far more heavily on a firm selling 500 units abroad than on one selling 50,000.

2.1.3c How businesses compete internationally

The internet and e-commerce: your own site and an overseas marketplace

1. Why a business sells abroad is covered in 2.1.3a and the tariffs and trade blocs it meets are covered in 2.1.3b, so this guide takes both as read and deals only with how the business wins customers in that country.
2. A website is visible in every country from the day it goes live, so the business can take orders from abroad without renting a unit, hiring staff or holding stock in that country.
3. Selling through its own site, the business keeps the whole selling price, controls how the brand looks and holds the customer's email address for future offers.
   1. It has to earn the visitors itself, paying for search advertising or influencers, because nobody types in the address of a shop they have never heard of.
4. Selling through an overseas marketplace such as Amazon, eBay or Etsy puts the product in front of buyers who are already searching there, and the site handles payment in their currency.
   1. The marketplace takes a commission on every sale and shows rival products on the same page, so the firm trades margin and control for ready-made traffic.
5. Either route sells more once the pages are translated and prices are shown in the local currency with a payment method people there already use, since a shopper asked to pay in pounds through an unfamiliar system usually abandons the order.
6. The difficulty moves to what happens after the order, since posting a parcel to another country costs more than a UK delivery and takes longer, so either the price rises or the profit on each sale is squeezed.
   1. Returns and customer service cost more too, because return postage from abroad is dear and somebody has to answer emails in another language and another time zone.

Changing the marketing mix: the product and the price

1. Each of the four elements, taught in full in 2.2, is checked against the overseas market before the business starts trading there.
   1. Product: recipes, sizes and styles are changed to suit local tastes, while packaging has to carry the local language and meet local safety and labelling rules, and an electrical product needs the right plug.
   2. Changing the product itself is the dearest option, because a new recipe or a different plug means a separate production run, so a smaller firm often ships the UK version and changes only the label.
   3. Price: the price has to sit against local incomes and what local rivals already charge, so a figure that looks ordinary in the UK can be out of reach elsewhere.
   4. The same price also has to cover the delivery, translation and adaptation the overseas sale needs, so the firm is squeezed between higher costs and a market that will pay less.

Changing the marketing mix: promotion and place

1. Promotion: adverts have to work in the local language and culture, because a slogan that is funny in English can mean nothing, or something rude, once it is translated.
   1. The platforms differ as well, so the campaign runs on whichever apps and search engines people in that country actually use, and a local influencer who speaks the language does what a translated advert cannot.
2. Place: the goods still have to reach the buyer, which usually means signing a local distributor, getting shelf space in a local retailer or paying a delivery network in that country.
   1. Place also covers what happens when an order goes wrong, so a local returns address and delivery in days rather than weeks is often what persuades a first-time buyer abroad to risk the order at all.
3. Every change costs money, because a separate recipe, label and advertising campaign has to be paid for in each country, so a smaller firm often adapts the packaging and the promotion and leaves the product itself alone.

2.1.4a Ethical and environmental considerations

Ethical considerations: the fair choice when the cheap one is legal

1. Acting ethically means choosing the fair and honest option even when a cheaper one is perfectly legal and would make more profit, and it shows up in four decisions.
   1. A fair price to suppliers: paying a farmer or a small maker enough to cover their costs and earn a living, instead of squeezing the price down because you are the bigger buyer.
   2. Pay and treatment of staff: wages above the legal minimum, proper breaks and settled hours rather than shifts cancelled the night before.
   3. Safe conditions all the way down the supply chain: checking that the factories making your goods abroad are safe and that no child labour is used at any stage, even though those workers are not on your payroll.
   4. Honest marketing: describing the product truthfully, so a word like handmade or recycled means what the shopper takes it to mean.

Environmental considerations: waste, emissions, sourcing and disposal

1. A business harms the environment when it makes, packs, moves and finally disposes of its product, so there are three places it can act.
   1. Waste and packaging: fewer layers, thinner materials and recyclable cartons rather than landfill, plus a plan for the product itself once the customer has finished with it.
   2. Emissions and energy: LED lighting, efficient ovens and fuller delivery vans on shorter routes cut carbon and the energy bill at the same time.
   3. Sustainable sourcing: buying materials that can be replaced, such as timber from managed forests or recycled plastic, instead of ones that run out.

The trade-off: what it costs and what it gives back

Every one of those choices has a price attached, and the table sets four common ones against what the business gets in return.

1. The first three rows all raise costs before they return anything, so the business either accepts a smaller profit on each sale or puts its prices up and risks losing the customer who was buying on price alone.
2. The bottom row is where a business short of money starts, because using less energy and less material genuinely cuts costs from the first month rather than paying back years later in goodwill.
3. More customers now choose businesses they trust, which holds sales up and can carry a higher price, which is how Innocent sells smoothies above the supermarket own-brand sitting beside it on the shelf.
4. Staff also stay longer at a business they are proud of, so it spends less on recruiting and training replacements and keeps the experience it has already paid for.

Judging it: should a business put ethics and the environment before profit?

1. Ethical or environmental changes are more likely to raise profit when customers value them enough to stay loyal or pay more, or when the change also reduces waste, energy use or staff turnover.
2. The trade-off is harder for a cash-limited or price-led business because the extra cost arrives immediately while reputation and customer loyalty may take much longer to repay it.
3. Overall, visible brands selling on trust have more reason to invest early, while a smaller price-led firm should prioritise ethical and environmental changes that also cut costs and add the more expensive measures as finances allow.

2.1.4b Pressure group activity and the marketing mix

Pressure groups: no legal power, so they work through your customers

1. A pressure group is not a regulator and owns no part of the business, so it cannot fine a firm, cancel its contracts or order it to stop.
2. Its power is borrowed from other people, because every method it uses is aimed at the customers who decide whether to keep buying, the journalists who repeat the story and the MPs who write the law.
   1. Publicity and social media: one video or hashtag reaches millions of shoppers in days and costs the group almost nothing to send.
   2. Petitions and protests: a signature count gives journalists a number and a demonstration outside a shop or head office gives them a picture, which is what keeps a story running.
   3. Boycotts: this is the only method that shows up in the accounts straight away, because refusing to buy cuts revenue in the week it happens.
   4. Lobbying: pressing the government for tougher rules changes the whole industry at once, so no rival gains an advantage by refusing to follow.

Why a business responds when nothing forces it to

1. Criticism now reaches customers directly rather than through a newspaper that might not print it, so a firm can lose control of what its brand means in a single weekend.
2. Follow the chain: shoppers see the campaign, some switch to a rival, revenue falls, and the advertising needed to win those customers back costs more than reformulating the product would have cost in the first place.
3. The firms with most to lose are those charging a premium on brand image, because a customer paying more for Nike or Innocent is paying for how the brand makes them feel, so an attack on the image is an attack on the price.

The effect on each element of the marketing mix

1. A campaign usually names one element, but a response that holds up moves all four, and each move carries its own cost.
2. Product: the firm reformulates or redesigns, removing the material or ingredient the campaign named, switching packaging to recyclable card, or adding a plant-based or cruelty-free range alongside the original.
   1. Adding a range rather than replacing the old product answers the criticism without losing the customers who still buy the original.
3. Price: sustainable materials and fairly paid suppliers raise the cost of every unit, so the business has to decide whether to pass that cost on or absorb it.
   1. Passing it on protects profit per unit but sends price-sensitive shoppers to a cheaper rival, while absorbing it holds the price and the sales volume but leaves less profit on each item sold.
4. Promotion: the business advertises its ethical credentials to answer the criticism, putting the recycled packaging or the new sourcing rule at the centre of the message.
   1. Every claim has to be accurate and provable, because a group that finds an exaggeration will publicise it and the advert itself becomes the next story.
5. Place: the firm changes where it buys and how goods travel, dropping a supplier accused of poor conditions, shortening delivery routes to cut emissions, or pulling out of a country entirely.
   1. Finding and approving a new supplier takes months and often costs more per unit, so place is the slowest element to move and the one customers notice last.

Responding badly costs more than not responding

1. A change to the advertising that is not matched by a change in the factory is found quickly, because campaigners check the supply chain rather than the slogan.
2. The business then faces two stories instead of one, the original issue and the accusation that it tried to cover the issue up, and the second is harder to answer because it is about honesty.
3. A change that is real but small is still worth making, provided the promotion describes it exactly, since a firm claiming one recyclable box is safer than a firm claiming to be green.